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Business and Economics > Production and Operations Management

You are looking at 1 - 10 of 94 items for :

  • Type: Journal Issue x
  • Macroeconomics: Consumption; Saving; Wealth x
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Cover IMF Working Papers
China’s Path to Sustainable and Balanced Growth
Dirk V Muir
,
Natalija Novta
, and
Anne Oeking
After decades of high growth, the Chinese economy is facing headwinds from slowing productivity growth and a declining workforce that are projected to lower potential growth substantially in the longer term. We project China’s potential growth over the medium to long term, showing that potential growth could slow to around 3.8 percent on average between 2025-30 and to around 2.8 percent on average over 2031-40 in the absence of major reforms. We present a reform scenario with structural reforms to lift productivity growth and rebalancing China’s growth towards more consumption, that would help China transition to “high-quality”—balanced, inclusive, and green—growth. We use production function and general equilibrium modelling approaches to show that potential growth could remain at around 4.3 percent between 2025-40 under the reform scenario.
Keywords:
Potential growth; investment-led growth; rebalancing; demographic trends; structural reforms; reform scenario; General equilibrium modeling approach; reforming China's economy; tertiary sector; SOE productivity gap; Total factor productivity; Productivity; Consumption; Global value chains; Global; Southeast Asia
Cover IMF Staff Country Reports
Colombia: Selected Issues
International Monetary Fund. Western Hemisphere Dept.
This Selected Issue paper discusses unpacking low productivity in Colombia and presents evidence from firm-level data in Colombia. Colombia’s Total Factor Productivity (TFP) has fallen and stagnated over the past three decades, although the factors behind this broad-based decline have differed across sectors. Using firm-level data, we show that while the mining TFP declines were dominated by lower within-firm productivity, in the case of manufacturing and agriculture positive reallocation effects played a buffering role. Across the board, the lack of entry of new productive firms contributes to missing TFP growth. Decomposition results show that the dynamics of TFP and their compositions are heterogeneous across sectors. Misallocation of factors of production appears to pose a sizable growth cost for Colombia, though progress in reducing misallocation has been made in recent years. It should be emphasized that the paper does not identify the causes of misallocation, which could be industry- and firm-specific bottlenecks, such as taxes, adverse incentives, access to financing, labor market rigidities, red tape, or policy uncertainty. Policies to improve misallocation could be derived from studies that explore the causes of misallocation and industry-specific problems. In general, such policies should be based on the principles of leveling the playing field, encouraging investment, and removing distortions.
Keywords:
current account ratio; fiscal policy change; C. fiscal policy adjustment; quality upgrade; TFP firm; Total factor productivity; Fiscal consolidation; Current account; Exports; Current account balance; Caribbean; East Asia; Global
Cover IMF Working Papers
Geoeconomic Fragmentation and International Diversification Benefits
Tatsushi Okuda
and
Tomohiro Tsuruga
This paper applies the two-country open-economy model with trade in stocks and bonds of Coeurdacier et al. (2010) to quantify the loss of international diversification benefits for major advanced economies, which have a significant presence in international financial markets, under geoeconomic fragmentation. We perform counterfactual simulations under different hypothetical fragmentation scenarios in which these economies are unable to trade with geopolitically distant countries, as measured by voting disagreement on foreign policy issues at the United Nations General Assembly meetings during 2012-2021. The simulation results imply a potentially significant loss of international diversification benefits of financial openness for the considered advanced economies by limiting trading to partner countries that are geopolitical allies with highly synchronized business cycles.
Keywords:
Geopolitical risk; financial integration; international risk sharing; diversification benefit; output volatility; volatility of Macro-Financial Variables; simulation result; investment efficiency process; Total factor productivity; Business cycles; Consumption; International capital markets; Output gap; Global
Cover IMF Working Papers
The Fear Economy: A Theory of Output, Interest, and Safe Assets
Ruchir Agarwal
This paper presents a fear theory of the economy, based on the interplay between fear of rare disasters and the interest rate on safe assets. To do this, I study the macroeconomic consequences of government-administered interest rates in the neoclassical real business cycle model. When the government has the power to fix the safe real interest rate, the gap between the `sticky real safe rate' and the `neutral rate' can generate far-reaching aggregate distortions. When fear exogenously rises, the demand for safe assets rise and the neutral rate falls. If the central bank does not lower the safe rate by the same amount, savings rise leading to a decline in consumption and aggregate demand. The same mechanism works in reverse, when fear falls. Quantitatively, I show that a single fear factor can simultaneously (i) generate cross-correlations in output, labor, consumption, and investment consistent with the postwar US economy; and (ii) generates variation in equity prices, bond prices, and a large risk premium in line with the asset pricing data. Six novel insights emerge from the model: (1) actively regulating the safe interest rate (in both directions) can mitigate the fluctuations generated by fear cycles; (2) recessions will be deeper and longer when central banks accept the zero lower bound and are unwilling to use negative rates; (3) a commitment to use negative rates in recessions—even if never implemented—raises both the short- and long-run real neutral rates, and moderates the business cycle; (4) counter-cyclical fiscal policy can act as disaster insurance and be expansionary by reducing fear; (5) quantitative easing can be narrowly effective only when fear is high at the lower bound; and (6) when fear is high, especially at the lower bound, policies that boost productivity also help fight recessions.
Keywords:
fear; business cycles; interest; safe assets; fear economy; government-administered interest rates; fear theory; business cycle model; fear factor; Output gap; Consumption; Zero lower bound; Interest rate floor; Yield curve; Global
Cover IMF Working Papers
Economic Growth After Debt Surges
João Tovar Jalles
and
Mr. Paulo A Medas
Debt levels, both private and public, were already at record highs before the Covid-19 pandemic, and surged further in 2020. The high indebteness raises concerns whether it will undermine future growth prospects. This paper contributes to the ongoing debate by examining what happens to economic growth after debt surges. We apply a local projection method to a new dataset of debt surges in 190 countries between 1970 and 2020. Our results show that the relationship between debt surges and economic growth are complex. Debt surges tend to be followed by weaker economic growth and persistently lower output. However, this negative relationship does not always hold. Surges in public debt tend to have the most negative impact on future growth prospects. This is particularly the case if the economy is already operating with a large positive output gap. Debt surges also tend to be followed by weaker economic growth if the initial debt levels are high, especially for private debt surges. Our results also show how debt surges impact future growth. Public debt surges are associated with especially weaker private and public investment, although both private and public consumption are also negatively affected. Surges in corporate debt are followed by lower private and public investment.
Keywords:
Public debt; private debt; economic growth; potential GDP; investment; panel data; local projection; nonlinearities; debt surge; debt level; b Real GDP; changes in debt; robustness exercise; Output gap; Potential output; Public investment spending; Global; surge episode; a number of debt; debt surge episode; Private consumption
Cover IMF Working Papers
Assessing the Impact of Business Closures on COVID-19 Outcomes
Xuequan Elsie Peng
and
Chima Simpson-Bell
In this paper, we present a framework for assessing the effectiveness of different business closure policies, using New York City as a case study. Business closure policies have been widely implemented in an attempt to slow down the pandemic, but it is difficult to measure the contribution of closures of specific industries to virus transmission. Our framework allows us to estimate the impact of specific industry closures on the spread of COVID-19 via their effects on aggregate mobility. We find that early reopening led to a prolonged pandemic and a large case surge in the second wave during 2020, though the reopening allowed the city to regain its economic function as a consumption hub. An alternative policy that extends the lockdown is found to be more cost-effective as it makes future traveling safer and prevents the economy from relapsing into a more stringent policy regime.
Keywords:
business closure policy; industry contribution; Policy impact summary; industry closure; Policy timeline; IMF working papers; data construction; COVID-19; Consumption; Capacity utilization; North America; closure policy; destination industry; lockdown policy; cases data; Health care
Cover IMF Working Papers
Shipping Costs and Inflation
Mr. Yan Carriere-Swallow
,
Mr. Pragyan Deb
,
Davide Furceri
,
Daniel Jimenez
, and
Mr. Jonathan David Ostry
The Covid-19 pandemic has disrupted global supply chains, leading to shipment delays and soaring shipping costs. We study the impact of shocks to global shipping costs—measured by the Baltic Dry Index (BDI)—on domestic prices for a large panel of countries during the period 1992-2021. We find that spikes in the BDI are followed by sizable and statistically significant increases in import prices, PPI, headline, and core inflation, as well as inflation expectations. The impact is similar in magnitude but more persistent than for shocks to global oil and food prices. The effects are more muted in countries where imports make up a smaller share of domestic consumption, and those with inflation targeting regimes and better anchored inflation expectations. The results are robust to several checks, including an instrumental variables approach in which we instrument changes in shipping costs with an indicator of closures of the Suez Canal.
Keywords:
Price shocks; shipping cost; inflation pass-through; monetary policy.; inflation expectation; import intensity; import share; Inflation; Import prices; Oil prices; Output gap; Producer prices; Global; Baltics
Cover IMF Working Papers
Secular Drivers of the Natural Rate of Interest in the United States: A Quantitative Evaluation
Josef Platzer
and
Marcel Peruffo
We develop a heterogeneous agent, overlapping generations model with nonhomothetic preferences that nests several explanations for the decline in the natural rate of interest (r∗) suggested in the literature: demographic change, a slowdown in productivity growth, a rise in income inequality, and public policy. The model can account for a 2.2 percentage point (pp) decline in r∗ between 1975 and 2015, which is within the range of empirical estimates. Rising income inequality is an important driver (-0.70 pp), and together with demographic change (-0.71 pp) and the slowdown in productivity growth (-1.0 pp) explains most of the decline. Growing public debt is the major counteracting force (+0.31 pp). Permanent income inequality is of greater importance than inequality due to uninsurable income risk, and matching the degree of nonhomotheticity in consumption and savings behavior to empirical estimates is essential for this result. We predict that r∗ will reach a low of 0.38% by 2030, after which a slow reversal will begin. The natural rate will stabilize at 1% in the long run, a low level when compared with the postwar path of r∗ implied by the model. This remains true even if we take into account soaring public debt levels due to the COVID-19 pandemic. Policy can have considerable impact on the level of r∗ through the tax and transfer system.
Keywords:
Demographic Change; Inequality; Life-cycle; Natural Rate of Interest; Nonhomothetic Preferences; Secular Stagnation; transition path; baseline transition-path; labor income; uninsurable income risk; implied path; path of r; Nonhomothetic consumption preference; Income inequality; Income; Productivity; Consumption; Europe; Global
Cover IMF Working Papers
Distribution Costs
Alessandra Peter
We provide the first direct estimates of distribution expenses incurred by manufacturing plants and assess their importance for aggregate output. Using a novel measure from the Indian Annual Survey of Industries, we document three key facts: (1) distribution expenses are large – they amount to over half of labor costs; (2) plants in the largest decile – relative to the smallest – spend over three times as much on distribution as a share of sales; and (3) between 2000 and 2010, distribution costs as a share of sales declined by one third. We develop a model of heterogeneous manufacturing firms that rely on the distribution sector to sell their goods across space. We quantify the model using the facts on size and systematic heterogeneity in distribution shares as well as newly constructed estimates of intranational trade. Accounting for firm heterogeneity in distribution requirements is important: welfare losses from low TFP in the distribution sector are amplified 1.5-fold. From 2000 to 2010, India saw an increase in intranational trade hand in hand with a decrease in the distribution share. In combination with the model, these trends suggest largescale decreases in both variable and fixed costs of distribution, leading to welfare gains of 58% over this ten year period.
Keywords:
Distribution; transportation costs; aggregate productivity; welfare loss; distribution sector; distribution share; share of sales; distribution expense; Manufacturing; Productivity; Total factor productivity; Consumption; Labor costs
Cover IMF Staff Country Reports
Singapore: Selected Issues
International Monetary Fund. Asia and Pacific Dept
Selected Issues
Keywords:
consumption growth; issuance industry breakdown; cash use; E-payment infrastructure; employment loss; consumption expenditure distribution; short term labor market; Climate finance; Consumption; Climate change; Productivity; Global; Asia and Pacific; Europe