IMF高级宏观经济学研修班课程CT1405MMF-L01Macro

– E.g., excessively loose fiscal policy
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What should policymakers do?
• Remove destabilizing policies that are themselves sources of shocks
– E.g., tighten excessively loose fiscal policy – Depends on the institutional setting
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Growth takeoff begins in time t=0 on the x-axis. (1950 for Brazil, Japan, Mexico, W. Germany; 1963 for Korea; 1979 for China; 1984 for India)
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Policies for Macroeconomic Stability
• “Conceptually, macroeconomic instability refers to phenomena that decrease the predictability of the domestic macroeconomic environment, and it is of concern because unpredictability hampers resource-allocation decisions, investment and growth.” Montiel and Servén (2005)
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Why do we care about macro stability?
• “In practice, the concept of a stable macroeconomic framework is used to mean a macroeconomic policy environment that is conducive to growth.” Fischer (1993)
– Internal balance occurs when real output is at or close to its capacity level and the inflation rate is low and non-accelerating
– External balance occurs when the current account position can be sustained by capital flows on terms compatible with the growth prospects of the economy without resort to restrictions on trade and payments
• Use policies as stabilizing instruments in response to exogenous shocks
– E.g., countercyclical fiscal policy – Depends on how vulnerable the economy is to shocks
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Volatility and growth
There appears to be a negative relationship between the average and the standard deviation of per capita GDP growth, both calculated over long periods.
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Policies for macroeconomic stability
• Fiscal policy • Monetary policy • Exchange rate policy • Financial sector policies
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Fiscal policy
• If fiscal policy is the cause of macroeconomic instability, strengthening the fiscal balance will promote internal balance and external balance
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What causes macroeconomic instability?
• Exogenous shocks
– E.g., terms of trade shocks, natural disasters, financial contagion, etc.
• Inappropriate policies
The financial sector and macroeconomic stability
Macro-prudential policies
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L-1 Macroeconomic Stability, Macroeconomic Policies, and
Macro-Prudential Policies
Joint China-IMF Training Program
Course on Macroeconomic Management and Financial Sector Issues CT 14.05
• Stability requires that the authorities choose a monetary and fiscal policy stance that is consistent with maintaining public sector solvency at low levels of inflation, while leaving some scope for mitigating the impact of real and financial shocks on macroeconomic performance
➢ CAB = S I = (Sg Ig) + (Sp Ip)
• Key measures:
– Expenditure restraint, expenditure reallocation – Revenue-raising initiatives (tax and non-tax)
• Fiscal reform must be permanent in order to be credible
88 banking crises from early 1970s to 2002
Year
Output evolution after currency crises (Percent of pre-crisis trend)
222 currency crises from early 1970s to 2002
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Public sector solvency condition
• The present value (PV) of primary surpluses (T-G) and seigniorage revenue (dM) should be at least as large as the government’s outstanding stock of net debt (B): PV { T-G + dM } = B
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Output costs of crises
Output evolution after banking crises (Percent of pre-crisis trend)
On average, output falls steadily below its pre-crisis trend until the third year after the crisis and does not rebound thereafter.
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Output growth volatility
(Rolling 10-year standard deviations of detrended growth)
Source: WEO (Ch. V, Oct. 2007)
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Volatility patterns
Source: WEO (Ch. V, Oct. 2007)
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Output growth volatility
Before the global financial crisis, output growth volatility had been steadily declining from its peak during the 1970s.
Source: WEO (Ch. V, Oct. 2007)
Source: Ramey & Ramey (AER, 1995)
92 countries, 1962-85
Growth = 0.030 – 0.154 Vol (-2.3)
R2 = 0.057
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Volatility and growth
79 countries, 1960-2000
Source: Hnatkovska and Loayza (2005)