Chile's Fiscal Rule

TBFiscal Policy

Business cycle synchronization and regional integration: a case study for Central America

In early January 2003, the United States and Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua launched official negotiations for the Central American Free Trade Agreement (CAFTA), a treaty that would expand NAFTA-style trade barrier reductions to Central America. With deeper trade integration between Central America and the United States, it is expected that there will be closer links in business cycles between Central American countries and the United States. The paper finds a relatively low degree of business cycle synchronization within Central America as well as between Central America and the United States. The business cycle synchronization is expected to increase only modestly with further trade expansion, making the coordination of macroeconomic policies within CAFTA somewhat less of a priority.TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Business in Development,Business Environment,Economic Theory&Research,Environmental Economics&Policies

Business Cycle Synchronization and Regional Integration: A Case Study for Central America

In early January 2003, the United States and Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua launched official negotiations for the Central American Free Trade Agreement (CAFTA), a treaty that would expand NAFTA-style trade barrier reductions to Central America. With deeper trade integration between Central America and the US, it is expected that there will be closer links in business cycles among Central America and the US. The aim of this paper is to assess the degree of business cycle synchronization between Central America and the US. This is not only relevant for a better understanding of the influence of important trading partners on the business cycle fluctuations in the domestic economy. It has also an important implication in terms of evaluating the costs and benefits of macroeconomic coordination.

Regime-switching in exchange rate policy and balance sheet effects

The authors apply regime-switching methods to a monetarist model of exchange rates and identify well-defined intervention policy cycles. The policy response indices include a standard exchange market pressure-based index and a model-based volatility ratio that is endogenized relative to Japan, assumed to be a"benchmark"floater. The authors find strong evidence that balance sheet effects, proxied by the stock ratio of external liabilities to assets, and economic performance, as measured by GDP and stock market indices, determine the cost of the regime shift. They use a panel of quarterly data from 1985 to 2004 for a sample of 15 countries, mostly in East Asia and Latin America.Economic Theory&Research,Economic Stabilization,Macroeconomic Management,Fiscal&Monetary Policy,Banks&Banking Reform

Trade Liberalisation and Informality: New stylized facts

The relationship between trade liberalisation and informal activity has not received the attention, whether theoretical or empirical, that it may deserve. The conventional view poses that trade liberalisation would cause a rise in informality. This paper uses three different data sets to assess the sign of the relationship. Empirical results provide a mixed picture. Macro founded data tend to produce results supporting the conventional view. Micro founded data do not. Empirical results also suggest that while informal output increases with deeper trade liberalisation, informal employment falls.Informal Sector, Trade Liberalisation, Cross-sectional Analysis, Time Series Analysis, Panel Analysis

International capital flows to emerging and developing countries: national and global determinants

This paper examines international capital flows to emerging and developing countries. We assess whether commonalities exist, the permanence of shocks to commonalities and their determinants. Also, we consider individual country coherence with global capital flows and we measure the extent of co-movements in the volatility of capital flows. Our results suggest there are commonalities in capital inflows, although aggregate or disaggregate capital flows respond differently to shocks. We find that the US long run real interest rate is an important determinant of global capital flows, and real commodity prices are relevant but to a lesser extent. We also find a role for human capital in explaining why some countries can successfully ride the wave of financial globalisation.Capital Flows; Emerging Markets; Developing Countries; Global Factors

Intersectoral dynamics and economic growth in Ecuador

The authors analyze sectoral growth in Ecuador, using multivariate co-integration analysis. They find significant long-run relationships between the agricultural, industrial, and service sectors. Moreover, they are able to derive dynamic sector models that combine the short-run links between the three sectors with long-run dynamics. When disaggregate the three sectors into their intra-sectoral components, they discover many interesting relationships that contribute to a better understandingof inter- and intra-sectoral dynamics in the context of Ecuadorian economic growth. Their findings suggest that more attention should be paid to inter-dependencies in sectoral growth, since an improved understanding of inter-sectoral dynamics may facilitate the implementation of policy aimed at increasing economic growth in Ecuador. There appears to be no direct link between the oil sector, and the non-oil industrial sectors. But strong evidence supports co-integration between the oil industry, and financial services, as well as between the oil industry, and public services. This means, among other things, that the oil industry is likely to affect other sectors through the financial sector, the public sector, or both.Economic Theory&Research,Statistical&Mathematical Sciences,Poverty Assessment,Achieving Shared Growth,Environmental Economics&Policies

Migration and human capital in Brazil during the 1990s

Nearly 40 percent of all Brazilians have migrated at one point and time, and in-migrants represent substantial portions of regional populations. Migration in Brazil has historically been a mechanism for adjustment to disequilibria. Poorer regions and those with fewer economic opportunities have traditionally sent migrants to more prosperous regions. As such, the southeast region, where economic conditions are most favorable, has historically received migrants from the northeast region. Migration should have benefited both regions. The southeast benefits by importing skilled and unskilled labor that makes local capital more productive. The northeast can benefit from upward pressures on wages and through remittances that migrant households return to their region of origin. The northeast of Brazil is a net sender of migrants to the southeast. In recent years a large number of people moved from the southeast to the northeast. Compared with northeast to southeast (NE-SE) migrants, southeast to northeast (SE-NE) migrants are less homogeneous regarding age, wage, and income. SE-NE migrants are on average poorer and less educated than the southeast average, while NE-SE migrants are financially better off and higher educated than the northeast average. The authors find that the predicted returns to migration are increasing with education for SE-NE migrants and decreasing for NE-SE migrants. They further observe that the returns to migration have been decreasing for NE-SE migrants and increasing for SE-NE migrants between 1995 and 1999. This finding helps explain migration dynamics in Brazil. While the predicted positive returns to migration for NE-SE migrants indicate that NE-SE migration follows in general the human capital approach to migration, the estimated lower returns to migration for SE-NE may indicate that nonmonetary factors also play a role in SE-NE migration.Health Monitoring&Evaluation,Anthropology,Human Migrations&Resettlements,Public Health Promotion,Voluntary and Involuntary Resettlement,Health Monitoring&Evaluation,Anthropology,Voluntary and Involuntary Resettlement,Human Migrations&Resettlements,International Migration

Euro Area Inflation: Aggregation Bias and Convergence

EMU monetary policy targets aggregate Euro Area inflation. Concerns are growing that a focus on aggregate inflation may cause national inflation rates to diverge. While different explanations for diverging aggregate Euro Area inflation have been brought forward, the very impact of aggregation on divergence has however not been studied. We find a striking difference in convergence depending on the level of aggregation. While aggregate national inflation rates are diverging, disaggregate inflation rates are converging. We find that aggregation appears to bias evidence towards non-convergence. Our results are consistent with prominent theoretical and empirical evidence on aggregation biasEuro Area Inflation; Aggregation Bias; Convergence

Oil, agriculture, and the public sector: linking intersector dynamics in Ecuador

In a recent paper, Fiess and Verner (2000) analyse sectoral growth in Ecuador and find significant long-run and short-run relationships between the agricultural, industrial and service sectors. They take this as evidence against the dual economy model which rules out a long-run relationship between agricultural and industrial output and show further that a more detailed picture of the growth process can be discovered, once the agricultural, industrial and service sectors are disaggregated further into intrasector components. This paper extends their initial results and provides insight from a multivariate cointegration analysis of intrasector components. The authors are able to identify three cointegrating relationships, each of which has its own meaningful economic interpretation: Two cointegration relationships capture the direct and indirect effects of the"petrolization"of the Ecuadorian economy. A third relationship clearly indicates a link between agriculture and industrial activity. Since this third cointegrating relationship seems to coincide in time with the trade liberalisation at the end of the 1980s, promoting agriculture appears to be an important way to promote sustainable economic growth in Ecuador.Economic Theory&Research,Environmental Economics&Policies,Scientific Research&Science Parks,Statistical&Mathematical Sciences,Agricultural Knowledge&Information Systems,Statistical&Mathematical Sciences,Economic Theory&Research,Environmental Economics&Policies,Agricultural Knowledge&Information Systems,Achieving Shared Growth