Long-Run Economic Growth: An Interdisciplinary Approach

Economic growth and development is a complicated process that falls into the domain of many disciplines in social sciences and humanities. It is natural then to study fundamental aspects of economic growth synthesizing research in relevant fields. In this short paper, we argue that this has rarely been the case in the economic growth literature. We briefly discuss past growth theories and empirics, and present a broad framework to compare and evaluate work on economic growth from an interdisciplinary perspective.Economic growth, determinants of growth, growth theories, political economy of growth

Sources of real and nominal exchange rate fluctuations in transition economies

This paper provides an empirical inquiry into the sources of movements of the real and nominal exchange rates in Hungary and Poland for during the 1990:01-1998:02 period. We decompose the exchange rate movements into those attributable to real and nominal shocks, we find that (1) nominal shocks have played a significant role in Poland, but not in Hungary, in explaining real exchange rate movements during the transition period. Instead, real shocks have dominated real exchange movements in Hungary and (2) nominal shocks explain almost all of nominal exchange rate movements in Poland and a sizable portion of nominal exchange rate movements in Hungary. These results are compared with the findings of Lastrapes (1992) and Enders and Lee (1997) for industrial countries. Finally, policy implications of the empirical results as well their lessons for modeling exchange rates in transition economies are discussed.Poland ; Hungary ; Econometric models

Sources of inflation and output fluctuations in Poland and Hungary: Implications for full membership in the European Union

This paper examines the sources of fluctuations in inflation and output in two leading transitioneconomy candidates for admission to the European Union (EU), Poland and Hungary. Using a rational expectations, dynamic open economy aggregate supply- aggregate demand model, we consider real oil price, supply, balance of payments, demand, and monetary disturbances incorporating important features of transition economies such as balance of payments disturbances and finite capital mobility. Evidence indicates that supply shocks explain a sizable portion of price level movements in Hungary while demand shocks are dominant in price level movements in Poland. Monetary shocks are an important source of output fluctuations in the short run in Hungary suggesting nominal inertia. In Poland, real demand shocks affect output in the short run (up to one year), while monetary shocks are negligible. Estimates of “core inflation” based on historical realizations of the shocks suggest that a major component of inflation has been demand driven, “core” inflation. Finally, policy implications of these findings regarding EU membership are evaluated. --Business Cycles,Inflation,Transition Economies,Time Series Models

Inflation, Output, and Stabilization in a High Inflation Economy: Turkey, 1980-2000

This paper surveys and examines the sources of fluctuations in inflation and output in Turkey. Using a dynamic open economy aggregate supply - aggregate demand model with imperfect capital mobility and structural vector-autoregressions, the authors consider real oil price, supply, balance of payments, real demand, and monetary disturbances. Empirical results indicate that inflation is driven by monetary and real demand disturbances while output is mainly driven by aggregate supply disturbances. The historical decomposition shows that a substantial portion of inflation is aggregate demand-driven core inflation. A credible disinflation program accompanied by structural reform is likely to stabilize the economy with little output costs.Stabilization Policy - Turkey; Inflation- Causes and Effects; Inflation Theories; Turkey- Macroeconomic Developments; Macroeconomics - Theory of Aggregate Supply and Aggregate Demand; Time Series Models

AGGREGATE SUPPLY, DOMESTIC ABSORPTION, AND TERMS OE TRADE: A STRUCTURAL DECOMPOSITION OE THE U.S. TRADE BALANCE

Using an interteniporal model as a reference, this article decom-/xjses U.S. trade balance movements into parts driven by supply shocks, demand shocks, and relatii>e price sfyocks. In identifying structural shocks, tve/m)lK>se a new type of long-mn restriction thai extends the preiious structural Vector Atitoregression (VAR) literatwe, and demonstrate its relationship to other identifying schemes. Em/yirical tvsults indicate that relative price shocks and denuind shocks are im/x>rtant in the short run while detnand and supply shocks dominate in the long run in explaining the U.S. trade balance. I

Multiple cointegration and structural models: applications to exchange rate determination

Structural models of the exchange rate have performed very poorly for the industrialized nations during the post-Bretton Woods period. A number of studies found that the out-of-sample forecasts of structural models are no better than those of the random walk model. This result is readily explained if the fundamental determinants of exchange rates (e.g., money supplies, income levels, and interest rates) are themselves near-random walk processes. However, some studies provide evidence that there are no cointegrating relationships between bilateral nominal exchange rates and the so-called fundamentals;One aim of this research is to estimate a structural exchange rate determination model. To this end, the Johansen cointegration technique is used to re-examine the existence of cointegrating vector(s) between the exchange rate and the supposed fundamentals;The second aim of the research is to propose a modelling strategy for models with cointegrated variables. In that regard, each cointegrating vector is viewed as either a behavioral or a reduced form equation stemming from a structural model. Identification of the behavioral equations can be facilitated by the imposition of zero restrictions on the cointegrating vector(s). Given that these equations represent long-run static properties of the data, a more complex dynamic structure can be derived combining this prior analysis to the system. This can be achieved by using conventional innovation accounting (variance decomposition and impulse response functions) techniques based on the error-correction representation;We apply the procedure to estimate a structural model of the French Franc/U.S. Dollar and Italian Lira/U.S. Dollar exchange rates. Using quarterly data from the post Bretton Woods period, we find multiple cointegrating vectors which we identify as (1) the money market equilibrium relationship(s) and (2) the modified Purchasing Power Parity (PPP) relationship consistent with the Dependent Economy Model of exchange rate determination. We also estimate the error-correction representation (with the restricted and unrestricted equilibrium errors) in order to characterize the short-run properties of the system. Using conventional accounting techniques, we show that a reasonable proportion of exchange rate variability is explained by the fundamentals.</p

Accounting for U.S. Current Account Deficits: An Empirical Investigation

This paper investigates the relationship between the U.S. current account deficit and a number of macroeconomic variables including government spending, budget balance, productivity, domestic and foreign income, real interest rates, and terms of trade. Implications of the conventional "twin deficit" and the dynamic optimizing approaches are tested using a Vector Error Correction Model. Innovation accounting results indicate that macroeconomic variables explain the current account reasonably well, and the evidence seems to support the conventional approach where budget deficits and increases in the real interest rates are associated with curent account deficits.

Real Disturbances, Relative Prices, and Purchasing Power Parity

This paper tests a modified version of Purchasing Power Parity, which hypothesizes that real shocks that alter equilibrium relative prices between tradables and non-tradables are responsible for the deviations from purchasing power parity. Using cointegration/error-correction methods and quarterly data from the post Bretton Woods period, we find supportive evidence that productivity, government spending, and real world oil price might account for deviations from purchasing power parity.