1,717 research outputs found
Budgetary policies during recessions. Retrospective application of the "stability and growth pact" to the post-war period. Economic Papers No. 121, May 1997
Over recent years, the budgetary policies carried out by Western countries during the
Post-War period have been analysed extensively in the literature. Several studies have
pointed to the interaction of economic and political factors and underlined the important
role of institutions and procedures in shaping policies and outcomes1. Considerable
attention has been devoted to budgetary consolidation processes, with some studies
emphasising the role of the composition of budgetary measures in determining the
success of these policies2.
The purpose of this paper is to analyse budgetary policies carried out during and after
severe recessions, an issue which the above-mentioned literature has not yet focused
upon
Budgetary Policies during Recessions - Retrospective Application of the "Stability and Growth Pact" to the Post-War Period
Cover pagesText AnnexesThe purpose of this paper is to analyse budgetary policies carried out during and after severe recessions. Since the agreement on the "Stability and Growth Pact" by the European Council in Dublin in December 1996, interest in this issue has increased significantly. The Stability and Growth Pact, which sets the rules for budgetary behaviour in stage three of EMU, singles out severe recessions as specifically problematical periods during which a certain budgetary flexibility could be allowed. The rules laid out in the Stability and Growth Pact are used in this paper as a benchmark to evaluate past budgetary behaviour during recessions in the fifteen European Union Member States. More specifically, the paper provides elements to examine the following issues: what type of budgetary policies have been adopted during severe recessions in the past? Were the automatic stabilisers allowed to operate fully and did governments adopt an expansionary budgetary policy stance? Which factors influenced the policies undertaken and what was the composition of the measures adopted? Can the accumulation of debt, which took place in the past two decades in Europe, be explained by "tax smoothing" during periods of economic hardship?II/195/97-ENConcluding remarks The application of the provisions of the Excessive Deficit Procedure and the Stability and Growth Pact to the past is obviously a highly speculative exercise. Its results do not address the following questions: to what extent is past budgetary behaviour a reliable guide to assess the likely behaviour of national budgetary policies in EMU during recessions? More specifically, would Member States need larger or smaller changes in their budgetary positions to provide the degree of stabilisation which occurred in the past?A number of factors will play an important role:New policy regime under EMUDuring the third phase of EMU, the conduct of monetary policy will be centralised at the European level and will therefore no longer be available as a policy tool at the national level. Budgetary policy will thus be the main macroeconomic policy instrument still available for individual Member States to combat recessions, especially when shocks are asymmetric. The impossibility of lowering interest rates and resorting to currency devaluations might require larger deficit changes.On the other hand, according to the Mundell-Fleming framework, budgetary policy will in principle become more effective in dampening the amplitude of cyclical fluctuations in the new policy environment of EMU with centralised monetary policy and irrevocably fixed exchange rates between Member States.If, however, EMU enhances the process of economic integration, trade leakages of budgetary policies will gradually increase, thereby reducing the "domestic" effectiveness of budgetary policies. Unless national policies are co-ordinated, this factor raises the changes in the budget deficit required in order to attain the same degree of stabilisation achieved in the past."Pre-recession" deficit levelActual deficit changes observed during past recessions were applied in our retrospective exercise to "pre-recession" deficit levels chosen specifically for the exercise (0% and 2% of GDP). However, the actual deficit changes which took place during past severe recessions usually started from markedly higher pre-recession deficit levels. The impact on the economy of budgetary policy changes during recessions also varies depending on the deficit and debt levels. For instance, the markets' perception of an increase in the deficit from 0% to 2% of GDP during a severe recession will be different from that of a rise in the deficit from, say, 8% to 10% of GDP, the latter more likely being interpreted as shifting the deficit to an unsustainable path. This may lead to an increase in the risk premium on interest rates which reduces the effectiveness of the fiscal expansion.High budgetary imbalances may inhibit policy makers from using the budgetary instrument for stabilisation purposes. Indeed, the higher risk premiums which would raise the interest burden may represent a powerful disincentive to expanding fiscal policy in spite of the recession. As was pointed out in Section 4, budgetary reactions to economic downturns differ depending on the initial public finance conditions before the recession: countries with high deficit and debt levels tend to conduct tighter fiscal policies during recessions than those with lower deficit and debt levels. In the future, when medium-term targets have been achieved, Member States would have more room for manoeuvre to undertake accommodating policies.These factors point in different directions. As a consequence, the net effect on the requirement for budgetary stabilisation is ambiguous. If it proved necessary to reinforce the working of the automatic stabilisers during recessions in EMU, larger swings in budget deficits compared to the past would have to be allowed for. Under the provisions of the Stability and Growth Pact, this would imply, however, that during the third phase of EMU, Member States, and especially those with large automatic stabilisers, would have to run budgetary surpluses when in medium-term equilibrium.The present paper far from exhausts the issue of what can be learnt from the past budgetary behaviour for the implementation of the Stability and Growth Pact and, more generally, how budgetary authorities actually behaved in different economic circumstances.The following areas were not or were only partially covered, and therefore, provide scope for further research:Budgetary policies over the full cycle: this paper has focused essentially on recession episodes. The exercise could therefore be extended to other cyclical phases besides the recession. Indeed, as already indicated in this paper, the problem in the past has not been so much that Member States let budget deficits get out of hand too much during recessions but that they did not seize the opportunity presented by post-recession economic recovery to immediately correct their budgetary position.Composition of budgetary policies: the paper addressed the issue of the composition of budgetary policy reactions to recessions via a preliminary analysis of the overall revenue and expenditure components. Two extensions can be envisaged: first, an analysis of the composition of retrenchment policies over the years following the recession to assess, for instance, whether the length of the adjustment depends on the composition of budgetary consolidation; second, a further disaggregation of the overall components into more detailed government revenue and expenditure categories is necessary. This detailed analysis would allow conclusions to be drawn on the mechanisms causing budgetary policies to become unsustainable, as well as on the possible effectiveness and durability of budgetary consolidation efforts.recessions, modelling, fiscal policy, public finances
Foreign Currency Loans - Demand or Supply Driven?
Motivated by current concerns over foreign currency exposures in emerging economies, we examine the currency denomination of business loans made in Bulgaria prior to the current crisis. We analyze information on the requested and granted currency for more than hundred thousand loans granted by one bank to sixty thousand different firms during the period 2003- 2007. This unique data set allows us to disentangle demand-side from supply-side determinants of foreign currency loans. We find that the bank in our sample often grants loans in foreign currency even when a firm requests a loan in local currency. The bank lends in foreign currency, not only to less risky firms, but also when the firm requested a large or long-term loan and after the bank itself received more funding in euro. These results suggest that foreign currency borrowing in Eastern Europe is not only be driven by borrowers who try to benefit from lower interest rates but may be partly supply-driven with banks hesitant to lend long-term in local currency and eager to match the currency structure of their assets and liabilities.foreign currency debt;banking
Information Asymmetry and Foreign Currency Borrowing by Small Firms
We model the choice of loan currency in a framework which features a trade-off between lower cost of debt and the risk of firm-level distress costs. Under perfect information foreign currency funds come at a lower interest rate, all foreign currency earners as well as those local currency earners with high revenues and/or low distress costs choose foreign currency loans. When the banks have imperfect information on the currency and level of firm revenues, even more local earners switch to foreign currency loans, as they do not bear the full cost of the corresponding credit risk.foreign currency borrowing;competition;banking sector;market structure
Of Religion and Redemption: Evidence from Default on Islamic Loans (Replaces CentER DP 2010-136)
Abstract: We compare default rates on conventional and Islamic loans using a comprehensive monthly dataset from Pakistan that follows more than 150,000 loans over the period 2006:04 to 2008:12. We find robust evidence that the default rate on Islamic loans is less than half the default rate on conventional loans. Islamic loans are less likely to default during Ramadan and in big cities if the share of votes to religious-political parties increases, suggesting that religion – either through individual piousness or network effects – may play a role in determining loan default.Loan Default;Islamic Loans;Religion;Duration Analysis
Who Needs Credit and Who Gets Credit in Eastern Europe?
Based on survey data covering 8,387 firms in 20 countries we compare credit demand and credit supply for firms in Eastern Europe to those for firms in selected Western European countries.Credit Constraints;Banking sector;Transition economies
Caractéristiques moléculaires de l'immunité des plantes induite par les rhizobactéries non pathogènes
Molecular characteristics of the rhizobacteria-triggered plant immunity. Recognition of certain non-pathogenic rhizobacteria by plants can trigger a systemic resistance reaction that renders the host less susceptible to subsequent infection by a virulent agent. Used in combination with other approaches, this induced systemic resistance (ISR) phenomenon is considered as a promising strategy for plant disease control both in greenhouse cultures and under field conditions. This review emphasizes the molecular aspects of this three-step process involving sequentially the perception by plant cells of elicitors produced by the inducing agents that initiates the phenomenon, signal transduction that is needed to propagate the induced state systemically through the plant and expression of defense mechanisms sensu stricto that limit or inhibit pathogen penetration into the host tissues. The current state of knowledge about rhizobacteria-stimulated ISR is discussed in parallel with the better characterized systemic acquired resistance induced by incompatible pathogens
PAMPs, MAMPs, DAMPs and others: an update on the diversity of plant immunity elicitors
Plants possess a broad array of defenses that could be actively expressed in response of pathogenic organisms or parasites but also following beneficial saprophytic microorganisms recognition. Specifically, there are compounds derived from these organisms and called elicitors that are perceived by the plant to induce a locally or systemically expressed resistance. The understanding of the physiological and biological basis of these induced immunity mechanisms have greatly advanced over the past years but a deeper investigation of the mechanisms underlying the perception of elicitors is essential to develop novel strategies for pest control. The application of chemical and biological stimulators of plant immune defenses in conventional agriculture is expected to increase within the next years. Because of their organic origin and as they provide means for conferring plant protection in a non-transgenic manner, elicitors of plant immunity have a huge potential as biocontrol products. Through this review, we want to illustrate the diversity of compounds identified as stimulators of the plant immune system and describe the mechanisms by which they could be recognized at the plasma membrane level
Of Religion and Redemption:Evidence from Default on Islamic Loans (Replaces CentER DP 2010-136)
Abstract: We compare default rates on conventional and Islamic loans using a comprehensive monthly dataset from Pakistan that follows more than 150,000 loans over the period 2006:04 to 2008:12. We find robust evidence that the default rate on Islamic loans is less than half the default rate on conventional loans. Islamic loans are less likely to default during Ramadan and in big cities if the share of votes to religious-political parties increases, suggesting that religion – either through individual piousness or network effects – may play a role in determining loan default.
Of Religion and Redemption:Evidence from Default on Islamic Loans (Replaces EBC DP 2010-032)
We compare default rates on conventional and Islamic loans using a comprehensive monthly dataset from Pakistan that follows more than 150,000 loans over the period 2006:04 to 2008:12. We find robust evidence that the default rate on Islamic loans is less than half the default rate on conventional loans. Islamic loans are less likely to default during Ramadan and in big cities if the share of votes to religious-political parties increases, suggesting that religion – either through individual piousness or network effects – may play a role in determining loan default.
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