Credit Guarantee and Fiscal Costs with Huixin Bi and Wei Dong
Journal of Money, Credit and Banking, February 2023.
A Practical Approach to Testing Calibration Strategies with Grey Gordon
Computational Economics, 2018, vol. 51, issues 172, pp 1-18
Fiscal Discourse and Fiscal Policy, with Era Dabla-Norris and Enrico Di Gregorio
IMF Working Paper No. 2024/194, [IMF Blog] [SUERF]
Abstract: We study the supply of fiscal ideas leveraging thousands of electoral platforms from 65 countries in the Manifesto Project to link how political parties discuss fiscal policy with fiscal outcomes. We provide three sets of results. First, fiscal discourse has become increasingly favourable to higher government spending since at least the 1990s in advanced and emerging economies and across the political spectrum. This pattern does not track survey trends in voter preferences, suggesting that parties have played a role in shifting the focus of political campaigns to fiscal issues to win over voters. Second, fiscal discourse turns conservative under more adverse fiscal conditions, including in the aftermath of debt surges and after the adoption of fiscal rules, but only to a limited extent. Third, over the medium-run, relative discourse changes in favor of government expansion and away from fiscal restraint are followed by higher fiscal deficits. Together, our results suggest that adverse shifts in the supply of fiscal ideas could add to fiscal pressures over time.
Costly Increases in Public Debt when r < g, with Vitor Gaspar and Adrian Peralta Alva
IMF Working Paper No. 2024/010
Abstract: This paper quantifies the costs of a permanent increase in debt to GDP. We employ a deterministic, overlapping generations model with two assets and no risk of default. The two assets are public debt and private (productive) capital. We assume that the return on private capital equals the interest rate on public debt plus an exogenously given spread. Employing a analytical version of the model we show an example in which a permanent rise in the public debt ratio leads to a significant reduction in steady-state GDP even as r<g. Following McGrattan and Prescott (2017) we consider a calibrated model of the US economy including a rich set of features of national accounts, fixed assets, distribution of household incomes and demographics. The intuition (and even the orders of magnitude) from the simple analytical model carries over to this richer environment: the increase in the debt ratio, from 60 to 120 percent of GDP, is associated with a reduction in the capital stock of about 15 percent and a reduction in steady state GDP of about 8 percent.
A Sentiment-Enhanced Corruption Perception Index, with Yingjie Fan ; Sandile Hlatshwayo ; Monica Petrescu ; Zaijin Zhan
IMF Working Paper No. 2021/192
Abstract: Direct measurement of corruption is difficult due to its hidden nature, and measuring the perceptions of corruption via survey-based methods is often used as an alternative. This paper constructs a new non-survey based perceptions index for 111 countries by applying sentiment analysis to Financial Times articles over 2005–18. This sentiment-enhanced corruption perception index (SECPI) captures not only the frequency of corruption related articles, but also the articles’ sentiment towards corruption. This index, while correlated with existing corruption perception indexes, offers some distinct advantages, including heightened sensitivity to current events (e.g., corruption investigations and elections), availability at a higher frequency, and lower costs to update. The SECPI is negatively correlated with business environment and institutional quality. Increases in the perceived incidence or scope of corruption influences economic agents’ behaviors, and thus economic dynamics. We found that when the SECPI is at least one standard deviation above the mean, the growth per capita falls by 0.65 percentage point on average, with more pronounced impacts for emerging market and low income countries.
Demographic Uncertainty and Macroeconomic Cycles
Abstract: This paper investigates how much demographic uncertainty can account for low-frequency movements of productivity and inflation in the US data. Because of hump-shaped life-cycle efficiency and savings, young baby boomers lowered the productivity in the 1970s, and middle-age baby boomers boosted the productivity in the late 1990s. Additionally, the monetary policy tended to be inflationary, if the monetary authority failed to recognize the impacts of young baby boomers on the natural output per capita and the natural real interest rate in the 1970s. I estimate an 80-period Overlapping Generation New Keynesian model with birth rate and mortality rate shocks using the US data during 1949-2014. I find that demographic movements can account for 25-45% of the low-frequency movements in productivity growth, and simulated inflation with only demographic shocks strongly correlates with the low-frequency movements in inflation.
The Cost of Waiting: U.S Fiscal Policy in the Long Run with Marialuz Moreno Badia and Adrian Peralta-Alva
Heterogeneous Agent and Fiscal Multipliers