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Business and Economics > Production and Operations Management

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Cover IMF Working Papers
Government Debt and Growth: The Role of R&D
Can Sever
Economic growth in the advanced economies (AEs) has been slowing down since the early 2000s, while government debt ratios have been rising. The recent surge in debt at the onset of the Covid-19 pandemic has further intensified concerns about these phenomena. This paper aims to offer insight into the high-debt low-growth environment in AEs by exploring a causal link from government debt to future growth, specifically through the impact of debt on R&D activities. Using data from manufacturing industries since the 1980s, it shows that (i) government debt leads to a decline in growth, particularly in R&D-intensive industries; (ii) the differential effect of government debt on these industries is persistent; and (iii) more developed or open financial systems tend to mitigate this negative impact. These findings contribute to our understanding of the relationship between government debt and growth in AEs, given the role of technological progress and innovation in economic growth.
Keywords:
Government debt; fiscal policy; economic growth; R&D; innovation; financial development; economic growth in the advanced economies; R&D activity; impact of debt; debt level; affect tax dynamics; Financial sector development; Manufacturing; Productivity; Aging; Global
Cover IMF Staff Country Reports
New Zealand: 2024 Article IV Consultation-Press Release; and Staff Report
International Monetary Fund. Asia and Pacific Dept
The 2024 Article IV Consultation discusses that New Zealand’s economic activity has slowed following monetary policy tightening and a decline in investment. Growth is expected to remain slow at 1 percent y/y in 2024 before picking up in 2025, as the lagged impact of monetary policy tightening suppresses domestic demand. Improving external conditions should help narrow the trade deficit, especially through tourism. Budget 2024 should deliver a tight fiscal stance in the near term and provide a comprehensive consolidation strategy for the medium term. Monetary policy is appropriately tight and should remain restrictive to ensure a timely return of inflation to target. Structural reforms are needed to boost the housing supply, revive productivity growth, lower emissions, and address challenges from climate change. The ongoing housing affordability challenges cannot be solved without a significant increase in residential construction. Policy recommendations include reforming land use restrictions, addressing local infrastructure funding needs, and using land value and capital gains taxes to incentivize more efficient land use.
Keywords:
monetary and financial statistics; FSAP mission; consultation cycle; FSAP participation; inflation expectation; Inflation; Labor markets; Productivity; Housing; Global
Cover IMF Staff Country Reports
Germany: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper highlights impact of high-energy prices on Germany’s potential output. The surge in energy prices since Russia’s invasion of Ukraine has led to a contraction in the energy-intensive sector’s production, while the nonenergy intensive sector’s industrial production has remained resilient. Permanently higher energy prices could reduce Germany’s potential output, but some of the impact is expected to be offset by firms’ endogenous response to improving energy efficiency. Some decline in Germany’s potential output level because of higher energy prices is likely unavoidable. However, good policies can help mitigate this loss and avoid exacerbating it. Increased energy efficiency is key to mitigating the adverse effects of the energy price shock. Higher labor and capital productivity can help offset output losses from higher energy prices. Government policy can help boost productivity by fostering innovation and human capital development, as discussed in more detail in the 2023 and previous year’s Article IV reports. Government interventions can help direct the transition to cleaner energy. It is important that Germany respond to the energy shock in ways that also support the green transition, given Germany’s goals to significantly reduce its CO2 emissions.
Keywords:
baseline energy price path; housing market crash scenario; house prices in Germany; reference scenario; price effect; BORROWER-BASED MACROPRUDENTIAL instruments in Germany; Energy prices; Housing prices; Energy conservation; Mortgages; Loans; Global
Cover Departmental Papers
Accelerating Innovation and Digitalization in Asia to Boost Productivity
Ms. Era Dabla-Norris
,
Mr. Tidiane Kinda
,
Kaustubh Chahande
,
Hua Chai
,
Yadian Chen
,
Alessia De Stefani
,
Yosuke Kido
,
Fan Qi
, and
Alexandre Sollaci
COVID-19 hit on the back of weakening productivity growth in many advanced and emerging Asian countries, a trend that could be exacerbated by the pandemic. Interestingly, productivity growth in the region was slowing even amid increased innovation effort, as proxied by spending on research and development (R&D) and number of patents. A key element underpinning this disconnect is the growing dispersion in productivity growth, innovation effort, and digitalization across and within sectors. Asia has risen to become an innovation powerhouse, contributing to more than half of world patents. The rise of Asia as an innovation hub has been driven by a few frontier countries that have experienced a sharp increase in digital and computer-related patents, supported by solid R&D spending and a large share of researchers in the labor force. Within countries, R&D has become more concentrated in a smaller share of firms in frontier Asia. Empirical evidence using firm-level data highlight that the high concentration in R&D is associated with large dispersion in productivity. External exposure to competition and innovation, including through trade, supports innovation and help close productivity gaps for firms closer to the frontier. Non-frontier Asian developing countries have benefited from technology diffusion through a higher share of imported high-technology goods and by granting more patents to non-residents, supported by improvements in human capital and digital infrastructure. For these countries, further integration to the international economy, including global value chains, greater entrepreneurship, and expanding innovative labour supply could support productivity by encouraging innovation, including process innovation which is associated with larger productivity at the firm-level. Policies to foster innovation, reduce productivity gaps, and ultimately boost aggregate productivity can be grouped into two buckets. For countries close to the technological frontier, R&D tax credits and grants, business-university R&D collaboration, and lower trade barriers would support broader-based innovation and help close productivity gaps. For countries farther from the frontier, further improvements in digital infrastructure, skilled labor force, openness to trade and FDI, and patent protection, could promote resource reallocation to the most productive firms and enhance incentives for technological adoption, supporting diffusion and higher productivity.
Keywords:
Innovation digitalization technological diffusion productivity dispersion aggregate productivity growth; B. firm Heterogeneity; firm productivity distribution; productivity dispersion; capital-intensive firm; firm size; Productivity; Digitalization; Total factor productivity; Emerging technologies; Asia and Pacific; Global
Cover IMF Staff Country Reports
People’s Republic of China: Selected Issues
International Monetary Fund. Asia and Pacific Dept
Selected Issues
Keywords:
SOE intensity; MACRO-FINANCIAL implication; Investment agreement; reform priority; B. China's reform experience; Pensions; Pension spending; Income inequality; Social assistance spending; Productivity; Global; Asia and Pacific
Cover IMF Staff Country Reports
New Zealand: Selected Issues
International Monetary Fund. Asia and Pacific Dept
Selected Issues
Keywords:
E. policy option; B. labor market; labor market issue; scarring effect; Law equation; Active labor market policies; Labor markets; Unemployment rate; Potential output; COVID-19; Global; Housing prices
Cover IMF Working Papers
What Do We Talk About When We Talk About Output Gaps?
Jelle Barkema
,
Tryggvi Gudmundsson
, and
Mr. Mico Mrkaic
Estimates of output gaps continue to play a key role in assessments of the stance of business cycles. This paper uses three approaches to examine the historical record of output gap measurements and their use in surveillance within the IMF. Firstly, the historical record of global output gap estimates shows a firm negative skew, in line with previous regional studies, as well as frequent historical revisions to output gap estimates. Secondly, when looking at the co-movement of output gap estimates and realized measures of slack, a positive, but limited, association is found between the two. Thirdly, text analysis techniques are deployed to assess how estimates of output gaps are used in Fund surveillance. The results reveal no strong bearing of output gap estimates on the coverage of the concept or direction of policy advice. The results suggest the need for continued caution in relying on output gaps for real-time policymaking and policy assessment.
Keywords:
Output gaps; monetary policy; fiscal policy; WP; output gap estimate; delta real-time output gap; output gap uncertainty; output gaps discussion; output gap coverage; output gap measurement error; overestimated output gap; business cycles; underestimated output gap; Output gap; Potential output; Inflation; Current account balance; Global
Cover IMF Working Papers
Macroeconomic Consequences of Tariffs
Davide Furceri
,
Mrs. Swarnali A Hannan
,
Mr. Jonathan David Ostry
, and
Mr. Andrew K. Rose
We study the macroeconomic consequences of tariffs. We estimate impulse response functions from local projections using a panel of annual data that spans 151 countries over 1963-2014. We find that tariff increases lead, in the medium term, to economically and statistically significant declines in domestic output and productivity. Tariff increases also result in more unemployment, higher inequality, and real exchange rate appreciation, but only small effects on the trade balance. The effects on output and productivity tend to be magnified when tariffs rise during expansions, for advanced economies, and when tariffs go up, not down. Our results are robust to a large number of perturbations to our methodology, and we complement our analysis with industry-level data.
Keywords:
WP; sensitivity analysis; protection; output; productivity; unemployment; inequality; exchange rate; trade balance.; tariff change; output tariff effect; tariff increase; input tariff; tariff consequence; tariff rate; Tariffs; Trade balance; Real exchange rates; Protectionism; Global; Africa
Cover IMF Working Papers
Assessing the Impact of Structural Reforms Through a Supply-side Framework: The Case of Argentina
Ms. Lusine Lusinyan
The paper uses a supply-side framework based on a production function approach to assess the role of structural reforms in boosting long-term GDP growth in Argentina. The impact of product, labor, trade, and tax reforms on each supply-side channel—capital accumulation, labor utilization, and total factor productivity, proxied with an efficiency estimate—is assessed separately and then combined to derive the total impact on growth. The largest effect of structural reforms, involving regulatory changes that promote competition and facilitate flexible forms of employment, comes through the productivity/efficiency channel. Pro-competition regulation also improves labor utilization, while lower entry barriers and trade tariffs are important for capital accumulation. Structural reforms could have substantial effects on Argentina’s long-term GDP growth; for example, an ambitious reform effort to improve business regulatory environment would add 1–1½ percent to average annual growth of GDP.
Keywords:
WP; product market; Argentina; employment; product market reform; Economic growth; structural reforms; productivity; product market competition; labor market reforms; trade openness; employment rate; technical efficiency; labor market indicator; trade tariff; Total factor productivity; Commodity markets; Capital productivity; Australia and New Zealand
Cover Advancing the Frontiers of Monetary Policy
Advancing the Frontiers of Monetary Policy
Mr. Tobias Adrian
,
Mr. Douglas Laxton
, and
Mr. Maurice Obstfeld

Abstract

Contributors working at the International Monetary Fund present 14 chapters on the development of monetary policy over the past quarter century through the lens of the evolution of inflation-forecast targeting. They describe the principles and practices of inflation-forecast targeting, including managing expectations, the implementation of a forecasting and policy analysis system, monetary operations, monetary policy and financial stability, financial conditions, and transparency and communications; aspects of inflation-forecast targeting in Canada, the Czech Republic, India, and the US; and monetary policy challenges faced by low-income countries and how inflation-forecast targeting can provide an anchor in countries with different economic structures and circumstances.

Keywords:
BOOK; central bank; monetary policy; inflation expectation; quantitative easing; monetary policy committee; transmission mechanism; inflation rate; Inflation; Inflation targeting; Central bank policy rate; Output gap; Real interest rates; Global; Sub-Saharan Africa; Africa; monetary policy report