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Macroeconomics


IDEA Newsletter Oct. 2017

Newsletter / Journal - English - Oct, 2017

IDEA is the newsletter of the IDB’s Research Department (RES). Every month, it provides information about our upcoming events, latest publications and blog posts, calls for papers, job opportunities, data resources, and more.


Revelation of Expectations in Latin America(REVELA) - Issue 72
Powell, Andrew; Sosa, Mariano
Newsletter / Journal - English - Sep, 2017

The April 2017 surveys of expectations conducted by Central Banks with inflation targeting regimes indicate that the simple average growth rate expected for 2017 for the eight countries covered by REVELA declined compared to the previous month by 0.1% from 2.4% to 2.3%, while the GDP-weighted average remained stable at 1.3%. On the other hand, inflation expectations for 2017 remained stable both under the simple average basis (at 4.6%) and under the GDP-weighted average basis (at 4.5%) in April compared to March. At the individual country level, growth expectations rose only in Mexico by 0.2% from 1.5% to 1.7% and declined in three countries: by 0.8% in Peru from 3.3% to 2.5%, by 0.2% in Colombia from 2.6% to 2.4%, and by 0.2% in Chile from 1.8% to 1.6%. Inflation expectations declined by 0.1% in four countries: Uruguay from 7.9% to 7.8%, Colombia from 4.5% to 4.4%, Brazil from 4.1% to 4.0% and Chile from 3.0% to 2.9%. Contrarily, they rose by 0.1% in Mexico from 5.6% to 5.7% and in Peru from 3.1% to 3.2% compared to the previous month According to surveys in April, growth expectations for the region for 2017 ranged from 0.5% in Brazil to 4.0% in Paraguay, while inflation expectations ranged from 2.9% in Chile to 7.8% in Uruguay.


Revelation of Expectations in Latin America(REVELA) - Issue 73
Powell, Andrew; Sosa, Mariano
Newsletter / Journal - English - Sep, 2017

The May 2017 surveys of expectations conducted by Central Banks with inflation targeting regimes indicate that the simple average growth rate expected for 2017 for the eight countries covered by REVELA rose compared to the previous month by 0.1% from 2.3% to 2.4%. Also, the GDP-weighted average increased by 0.1% from 1.3% to 1.4%. On the other hand, inflation expectations fell by 0.1% from 4.6% to 4.5% according to the simple average of the surveys, and they remained stable at 4.5% under the GDP-weighted average in May. At the individual country level, growth expectations rose in three countries, remained stable in five and fell in none. They increased by 0.3% both in Uruguay from 2.3% to 2.6% and in Mexico from 1.7% to 2.0% compared to April. They also rose by 0.1% in Peru from 2.5% to 2.6%. Inflation expectations declined in four countries, rose only in one and remained constant in three. The most significant fall was observed in Uruguay by 0.6% from 7.8% to 7.2%, followed by 0.1% declines in: Brazil from 4.0% to 3.9%, Guatemala from 4.5% to 4.4% and Peru from 3.2% to 3.1%. Mexico is the only country where inflation expectations for 2017 increased, by 0.2% from 5.7% to 5.9%. With these results, growth expectations for the region for 2017 ranged from 0.5% in Brazil to 4.0% in Paraguay, while inflation expectations ranged from 2.9% in Chile to 7.2% in Uruguay.


Current Expenditure Upswings in Good Times and Capital Expenditure Downswings in Bad Times?

Working Papers (Research Network) - English - Sep, 2017

This paper studies the cyclical properties of two key expenditure categories (current and public investment spending) during the different phases of the business cycle (good times and bad times). Anecdotal evidence suggests that policymakers usually cannot resist the temptation of spending more on current expenditure in good times, but only pick capital expenditures to adjust during bad times. The paper answers the following questions: do current and capital expenditures react to the business cycle? If so, by how much, and why? In a sample of more than 100 developing countries and 30 developed countries observed between 1980 and 2014, a new empirical regularity specific to developing countries is identified: upswings are associated with increases in current primary expenditures (e.g., wages, transfers) only, while public investment falls and current spending remains acyclical during downturns. Evidence is also presented that this asymmetrical response is more pronounced in countries where incumbent politicians face shorter time horizons and weak institutions. Other type of factors traditionally discussed in the literature (limited creditworthiness, fiscal rules, and tax base volatility) have limited explanatory power.

Related JEL Codes:
D72 - Models of Political Processes: Rent-Seeking, Elections, Legislatures, and Voting Behavior
E32 - Business Fluctuations; Cycles
E62 - Fiscal Policy
H50 - National Government Expenditures and Related Policies: General


Saving Rates in Latin America: A Neoclassical Perspective

Working Papers (Research Network) - English - Sep, 2017

Latin American countries have long exhibited low levels of saving rates when compared to other countries in relatively similar stages of economic development (e.g., Asian economies). Motivated by this fact, this paper examines the time path of the saving rates between 1970 and 2010 in three Latin American countries— Chile, Colombia, and Mexico—through the lens of the neoclassical growth model. The findings indicate that two factors, the TFP growth rate and fiscal policy (via tax rates and government expenditure), are capable of accounting for some of the major fluctuations in saving rates observed in these years. For instance, the impressive increase in Chile’s saving rate following the early 1980s debt crisis is likely to have resulted from a combination of high TFP growth and a tax reform that substantially reduced capital taxation. Counterfactual experiments also reveal that average saving rates in Latin America could have been some three percentage points higher, had the region experienced TFP growth similar to that of the Asian countries. This increase, however, is insufficient to bridge the observed gap between saving rates in the two regions.

Related JEL Codes:
E21 - Consumption; Saving; Wealth
O47 - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence


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