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Research Topics

Macroeconomics


On Corporate Borrowing, Credit Spreads and Economic Activity in Emerging Economies: An Empirical Investigation
Fernandez, Andres; Park, Jongho; Caballero, Julian
Working Papers - English - Aug, 2016

This paper studies the influence of external financial factors on economic activity in emerging economies (EMEs) motivated by a considerable increase in foreign financing by the corporate sector in EMEs since the early 2000s, mainly in the form of bond issuance. A quarterly external financial indicator for several EMEs is built using bond-level data on spreads of corporate bonds issued in foreign capital markets, and its relationship with economic activity is examined. Results show that the indicator has considerable predictive power on future economic activity. Furthermore, an identified adverse shock to the financial indicator generates a large and protracted fall in real output growth, and about a third of its forecast error variance is associated with this shock. These findings are robust to controlling for possible spillovers from sovereign to corporate risk, among other considerations.

Related JEL Codes:
E32 - Business Fluctuations; Cycles
E37 - Forecasting and Simulation
F34 - International Lending and Debt Problems
F37 - International Finance Forecasting and Simulation
G15 - International Financial Markets


Revelation of Expectations in Latin America(REVELA) - Issue 63
Powell, Andrew; Sosa, Mariano
Newsletter / Journal - English - Aug, 2016

The May 2016 surveys of expectations conducted by Central Banks with inflation targeting regimes indicate that simple average growth expectations for 2016 for the eight countries covered by REVELA have remained constant at 1.7% compared to the previous month. Similarly, the GDP weighted average growth expectations remained stable at -0.7%. Also inflation expectations for 2016 remained stable in May compared to previous month both on the simple average basis at 5.3% and on the GDP weighted average basis at 5.5%. At the individual country level, growth expectations remained constant in six countries: Guatemala at 3.7%, Paraguay at 3.0%, Colombia at 2.9%, Mexico at 2.4%, Chile at 1.7% and Uruguay at 0.3% and decreased by 0.1% in both Brazil and Peru. Inflation expectations fell in Mexico by 0.1%, remained constant in Uruguay at 10.1%, in Colombia at 6.0%, in Paraguay at 4.8%, and in Chile and Peru at 3.5%. Finally, they increased in Paraguay by 0.2% and in Brazil and Guatemala by 0.1% in both countries. Expected growth for the region is as low as -3.9% for Brazil and as high as 3.7% in Guatemala, while expected inflation ranges from 3.1% in Mexico to 10.1% in Uruguay.


Democracy Does Not Cause Growth: The Importance of Endogeneity Arguments
Slipowitz, Amy; Vuletin, Guillermo; Ruiz Pozuelo, Julia
Working Papers - English - Jul, 2016

This article challenges recent findings that democracy has sizable effects on economic growth. As extensive political science research indicates that economic turmoil is responsible for causing or facilitating many democratic transitions, the paper focuses on this endogeneity concern. Using a worldwide survey of 165 country-specific democracy experts conducted for this study, the paper separates democratic transitions into those occurring for reasons related to economic turmoil, here called endogenous, and those grounded in reasons more exogenous to economic growth. The behavior of economic growth following these more exogenous democratizations strongly indicates that democracy does not cause growth. Consequently, the common positive association between democracy and economic growth is driven by endogenous democratization episodes (i.e., due to faulty identification).

Related JEL Codes:
E02 - Institutions and the Macroeconomy
E20 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment: General
N40 - Government, War, Law, and Regulation: General, International, or Comparative


Online Appendix for Paper Entitled “Democracy Does Not Cause Growth: The Importance of Endogeneity Arguments”
Slipowitz, Amy; Vuletin, Guillermo; Ruiz Pozuelo, Julia
Technical Notes - English - Jun, 2016

This online appendix presents a thorough analysis of the nature, dynamics, and most important events for 38 cases of democratization, including the list of democracy experts and key country-specific references obtained from the survey and from numerous books and academic articles.

Related JEL Codes:
E02 - Institutions and the Macroeconomy
E20 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment: General
N40 - Government, War, Law, and Regulation: General, International, or Comparative


Varieties of Saving and Crises
Fernández-Arias, Eduardo; Cavallo, Eduardo A.; Marzani, Matias
Technical Notes - English - Jun, 2016

This paper shows, using probit analysis, that low national savings increase the risk of macroeconomic crisis. Foreign savings are a poor substitute of national savings not only for domestic investment (Feldstein-Horioka result), but also for stability. It is found that deeper financial integration does not cure low investment and can improve the situation only to the extent that the risks of the foreign saving portfolio can be kept under control. Overall, a fundamental conclusion is that strong national savings are key for robust growth. Extending the probit analysis, the paper shows that the composition of foreign assets and liabilities matters substantially for portfolio risk and derives an index to assess the associated country risk.

Related JEL Codes:
E21 - Consumption; Saving; Wealth
E22 - Capital; Investment; Capacity
E44 - Financial Markets and the Macroeconomy
F32 - Current Account Adjustment; Short-Term Capital Movements
F34 - International Lending and Debt Problems
G01 - Financial Crises
G15 - International Financial Markets
H63 - Debt; Debt Management


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