A model of the impact of government revenue and quality of governance on schooling

When governments have more revenue, they spend more on human capital, and spending is more effective in well-governed countries. Here, we use an equilibrium correction model to empirically investigate the relationship between government revenue per capita, six indicators of quality of governance, and school attendance, using an unbalanced panel dataset that includes nearly all countries. The results suggest a strong effect over time: as government revenue increases, school attendance rates increase, and the magnitude of this influence is mediated significantly by a country's quality of governance. Interestingly, the impact of governance is more pronounced in primary education than it is in lower or upper secondary education. This model offers the ability to demonstrate the impact of increases and decreases in government revenue in an individual country while accounting for the impact of revenue on governance and the impact of both revenue and governance on school attendance.</p

Estimates of the New Keynesian Phillips Curve for Pakistan

This paper presents estimates of the New Keynesian Phillips Curve (NKPC) for the agriculture, manufacturing and services sectors of Pakistan’s economy. The real marginal cost—derived from dynamic translog cost function—labour share of income and output gap are the indicators of economic activity along with past and expected inflation to determine inflation dynamics in each sector. The estimates of the structural parameters of the NKPC are consistent with economic theory in most of the models. Within-sample forecast performance and diagnostic tests indicate that the derived measure of real marginal cost performs better relative to the specifications with labour share of income or output gap. Further, the NKPC based on restrictive Cobb–Douglas production technology with labour input only does not perform better than the models that considers more inputs and intermediate cost. Our results show that the manufacturing is forward-looking sector followed by services and agriculture sectors

Inflation forecasting with rolling windows: An appraisal

We examine the performance of rolling windows procedures in forecasting inflation. We implement rolling windows augmented Dickey–Fuller (ADF) tests and then conduct a set of Monte Carlo experiments under stylized forms of structural breaks. We find that as long as the nature of inflation is either stationary or non‐stationary, popular varying‐length window techniques provide little advantage in forecasting over a conventional fixed‐length window approach. However, we also find that varying‐length window techniques tend to outperform the fixed‐length window method under conditions involving a change in the inflation process from stationary to non‐stationary, and vice versa. Finally, we investigate methods that can provide early warnings of structural breaks, a situation for which the available rolling windows procedures are not well suited.</p

Quantifying Spillovers Among Regions

The standard procedure for quantifying spillover effects of changes in economic fundamentals among separate regions (or countries) is to link the regions through predetermined weights – for example through fixed weighted trade indices or fixed spatial weights based on geographical distance. We provide a method for quantifying spillover effects among the U.S., the euro area, and the U.K. using spatial weights that are determined endogenously. We specify a new spatially augmented VAR model and we introduce a Bayesian estimation technique to freely estimate and quantify spatial interactions. We are able to quantify the effects of shocks to economic fundamentals in the three regions considered without imposing a priori restrictions on the size and directions of the spillovers. To illustrate our technique, we quantify the spillover effects of a series of shocks, including the recent rises in inflation and money supply shocks, in each of the three regions under consideration on the other regions.</p

Spillover effects in the nexus of finance‐institutions‐growth: New insights from spatial Durbin analysis on emerging economies

Despite extensive finance‐growth literature, the critical role of spatial interdependence between countries has often been overlooked. This paper addresses this gap by utilising spatial Durbin modelling on a 30‐year panel dataset of 56 emerging economies, examining the spillover effects of financial development (FD) and institutions on economic growth. The findings reveal FD has a significant positive within‐country impact on growth; on average, FD is expected to raise growth by approximately 5.8% holding other factors constant. Meanwhile, the FD spillover effect on growth is estimated to be around 10 times its within‐country effect, which is not surprising given that the 10‐nearest‐neighbour is the preferred matrix for conceptualising the spatial dependence between the countries under study. The results however show no evidence of significant threshold effect of FD. Political institutions emerge as the most influential in driving growth both within and across countries, whereas improvement in economic institutions moderates the growth‐effect of FD. FD's within‐country effect on growth is largely driven by financial institutions, while its spillover effect stems primarily from the neighbours' financial markets. The findings' robustness is confirmed through a battery of tests. In conclusion, this study offers valuable insights into the complex finance‐institutions‐growth nexus in emerging economies. By considering spatial interdependencies and the role of institutions, policymakers can craft effective strategies to harness FD's positive effects and foster an environment for sustained, inclusive economic growth.</p

An evaluation of the inflation forecasting performance of the European Central Bank, the Federal Reserve, and the Bank of England

We provide an overview of the formulation of the forecasts of the European Central Bank, the Federal Reserve, and the Bank of England. We also provide statistical assessments of the performance of the forecasting process of those central banks. We find that the inflation forecasts have, by‐and‐large, been unbiased and efficient at the very short‐term forecast horizon. The performance deteriorates over longer horizons. This latter finding could be attributable, inter alia, to the approach applied in the integration in the forecasting process of the assumptions on the future market‐implied interest rate path.</p