Working paper 04-06 - Fiscal councils, independent forecasts and the budgetary process: lessons from the Belgian case

This paper describes the operating mode of the two existing Belgian fiscal councils as well as their role in the budgetary planning process. These institutions, created or reformed in depth in a context of large public deficits and increasing public debt-to-GDP ratios coupled with the regionalization of the Belgian state, are the result of a maturing process. The National Accounts Institute covers the positive side of the budgetary process, while the High Council of Finance deals with the normative side. Concerning the former domain, the creation of an independent institution to provide unbiased forecasts undeniably contributed to the consolidation of public finances in Belgium. In the context of the revised Stability and Growth Pact, lessons drawn from the Belgian experience can certainly be useful for other Member States willing to improve their fiscal institutional settings. Our chief recommendations for making the budgetary process successful are: institutions dealing with positive economics should enjoy a fully independent status but remain public; positive and normative issues should be completely separated from an institutional point of view; and responsibility should be shared between several strong independent institutions so as to minimize political pressure.Fiscal institution, Budgetary Process, Forecast accuracy

Fiscal Policy: Too Political?

The paper provides an analysis of the role of fiscal rules. The authors first provide a rationale for the existence of fiscal rules, namely to avoid a governmental bias toward budget deficits. The paper then surveys existing fiscal rules and analyzes their applicability in the context of the Czech Republic. The authors argue that the institutional arrangement of fiscal policy should mirror the arrangement that has emerged as regards monetary policy, namely a certain separation of powers in which an independent body would be responsible for setting the overall budget deficit level. In the case of the Czech Republic, the authors argue that the country needs a simple and transparent fiscal rule rather than a more sophisticated and seemingly more appropriate rule.fiscal policy; fiscal rules; public budgets

Macro Economy of a Least Developed Country: The Case of Bangladesh

Bangladesh is one of the least developed countries. The economy of Bangladesh suffers from both supply side and demand side problems. This study has been undertaken with a view to investigate macro economic conditions of the country over the two sub periods period a) Sub period-1: Macroeconomic policy under administrative control i.e. 1976-77 to 1989-90; b) Sub period-2: Macroeconomic policy under reform measures i.e. 1990-91 to 2004-05. The study doesn’t find full applicability of either Keynesian or Monetarist view of the macro model for this country. Authors’ suggested that the performance of the Bangladesh economy is a mixture of accomplishment and failure, not significantly different from that of the majority of poor less developed countries and thus a coordinated approach to fiscal, monetary and exchange rate and debt management policy is required to achieve the long-term goal and sustainable economic growth with inflation within control. The first section of the paper provides the background to the literature review. Section two outlines the objective and explains the research methodology applied by gathering quantitative data. Section three explains the analysis of the data and results and section four provides policy implications and finally concluding comments.

A bibliometric review of the research papers of the Central Bank of Turkey

This paper presents a bibliometric assessment of the research papers produced in the Central Bank of the Republic of Turkey from 1988 to 2009. Concentration over subjects and the Journal of Economic Literature (JEL) classification codes are provided in addition to the time distribution of bibliography cited in the research papers. Overall, it is observed that the examined series did provide an adequate pool of knowledge for both academics and the general public.Bibliometrics; Central bank research; Economic research

A Two-thirds Rate of Success: Polish Transformation and Economic Development, 1989-2008

Progress in achieving institutional changes should be evaluated through the prism of their influence on the development abilities of the relevant country. In Poland, during 20 years of comprehensive systemic shift, GDP increased more than in any other postsocialist country. To judge the transformation progress, it is not enough to review improvements in competitiveness or in growth in terms of quantity, but also social and cultural aspects should be taken into account. In Poland, there have been five distinct periods from the viewpoint of economic growth. Had there been a better policy coordination of systemic change and socioeconomic development, GDP growth over the periods considered could have increased by more than half. This opportunity was missed because of the intermittent implementation of wrong economic policies based on wrong economic theories. Poland.s transformation can be seen as a success, but only to the extent oftransformation, economic growth, development, institutions, economic policy, postcommunist period, Poland

Growth Oriented Macroeconomic Policies for Small Islands Economies: Lessons from Singapore

Most small island economies or ?microstates? have distinctly different characteristics from larger developing economies. They are more open and vulnerable to external and environmental shocks, resulting in high output volatility. Most of them also suffer from locational disadvantages. Although a few small island economies have succeeded in generating sustained rapid growth and reducing poverty, most have dismal growth performance, resulting in high unemployment and poverty. Although macroeconomic policies play an important role in growth and poverty reduction, there has been very little work on the issue for small island economies or microstates. Most work follows the conventional framework and finds no or very little effectiveness of macroeconomic policies in stabilization. They also concentrate on short-run macroeconomic management with a focus almost entirely on either price stability or external balance. The presumption is that price stability and external balance are prerequisite for sustained rapid growth. This paper aims to provide a critical survey of the extant literature on macroeconomic policies for small island economies in light of the available evidence on their growth performance. Given the high output volatility and its impact on poverty, this paper will argue for a balance between price and output stabilization goals of macroeconomic policy mix. Drawing on the highly successful experience of Singapore, it will also outline a framework for growth promoting, pro-poor macroeconomic policies for small island economies/microstates.Caribbean, Pacific Islands, fiscal policy, small open economies

The Effects of Convergence in Governance on Capital Accumulation in the Black Sea Economic Cooperation Countries

This paper aims to ascertain the effects of convergence in governance on investment decisions among a sample of 43 developing countries, using dynamic system GMM estimations. In an increasingly interdependent economic world, regions with good governance are considered to be areas of higher investment, as a result of further integration and collaborative action among member states. Since its foundation, in 1992, Black Sea Economic Cooperation (BSEC) countries have gone through a transition process and, to a large extent, this is about institutional transformation. Good governance institutions are an assurance to guarantee property rights and minimize transaction costs, thus creating an environment conducive to investment and growth. In this paper, we investigate the impact of BSEC on its member countries regarding convergence of governance institutions. We show that convergence has occurred within the region with respect to bureaucratic quality, control over corruption, law and order, internal conflict, ethnic tensions, but not to government stability and democratic accountability. The paper also calculates how much capital accumulation the region would gain by reaching the average institutional standards of the EU-12. This study is the first attempt in the BSEC region to investigate the link between regionalization and institutional convergence, at the same time as to quantify its economic impact through investment.System GMM, governance, investment, institutions, Convergence, Black Sea Economic Cooperation.

A Dynamic Macroeconometric Model of Pakistan’s Economy

In this study, an attempt has been made of develop a dynamic macroeconometric model of Pakistan’s economy to examine the behaviour of major macroeconomic variables such as output, consumption, investment, government expenditure, money, interest rates, prices, exports, and imports. The model consists of 21 equations, of which 13 are behavioural and the rest are identities. The Engle-Granger two-step cointegration procedure is used to derive the long-run and short -run elasticities for the period 1972-2009. The test of significance of each estimated equation seems to validate the model. The estimated long-run parameters are used to perform simulation experiments to determine the model’s ability to track historical data and to assess the behaviour of the key macroeconomic variables in response to the changes in selected exogenous variables. The results indicate that the majority of macroeconomic variables follow an increasing trend over the period of simulation, 2009-2013.Macroeconometric Model; Pakistan Economy, Cointegration, Forecasting

Policy Words and Policy Deeds: The ECB and the Euro

This paper examines the role of the ECB communication activities on daily Eurodollar exchange rate and interest rates. We estimate the relationship between monetary policy and the exchange rate using a technique that explicitly recognizes the joint determination of both the levels and volatilities of these variables. We also consider more traditional estimation strategies as a test of the robustness of our main results. We introduce a new indicator of ECB communications policies that focuses on what the ECB says about the future economic outlook for the euro area along five different economic dimensions. The impact of ECB communications policies is more apparent in the time series framework than in the heteroskedasticity estimator approach. Time series estimates reveal that interest rate changes generally have a much larger impact on exchange rate movements, and their volatility, than do ECB verbal pronouncements. Previous studies that conclude that news effects are significant at the daily frequency may have reached such a conclusion because the measurement of news was too highly aggregated. The endogeneity of the exchange rate-interest rate relationship is more apparent when the proxy for monetary policy is the euro area-US differential than when any other proxy for monetary policy is employed.Central bank communication, Eurodollar exchange rate