A time-varying markov-switching model for economic growth

This paper investigates economic growth’s pattern of variation across and within countries usinga Time-Varying Transition Matrix Markov-Switching Approach. The model developed follows theapproach of Pritchett (2003) and explains the dynamics of growth based on a collection of differentstates, each of which has a sub-model and a growth pattern, by which countries oscillate over time. Thetransition matrix among the different states varies over time, depending on the conditioning variablesof each country, with a linear dynamic for each state. We develop a generalization of the Diebold’sEM Algorithm and estimate an example model in a panel with a transition matrix conditioned onthe quality of the institutions and the level of investment. We found three states of growth: stablegrowth, miraculous growth, and stagnation. The results show that the quality of the institutions is animportant determinant of long-term growth, whereas the level of investment has varying roles in thatit contributes positively in countries with high-quality institutions but is of little relevance in countrieswith medium- or poor-quality institutions.

Taylor Principle And Inflation Stability In Emerging Market Countriesw

The goal of this paper is to evaluate the validity of the Taylor principle for inflation control in 12 developing countries that use inflationtargeting regimes: Brazil, Chile, Colombia, Hungary, Israel, Mexico,Peru, Philippines, Poland, South Africa, Thailand and Turkey. The test is based on a state-space model to determine when each country hasfollowed the principle; then a threshold unit root test is used to verify if the stationarity of the deviation of the expected inflation from itstarget depends on compliance with the Taylor principle. The results show that such compliance leads to the stationarity of the deviation of the expected inflation from its target in all cases. Furthermore, in mostcases, non-compliance with the Taylor principle leads to nonstationary deviation of the expected inflation.

Human capital and innovation: evidence from panel cointegration tests

Panel cointegration techniques applied to pooled data for 27 economies forthe period 1960-2000 indicate that: i) government spending in education andinnovation indicators are cointegrated; ii) education hierarchy is relevant whenexplaining innovation; and iii) the relation between education and innovation canbe obtained after an accommodation of a level structural break.

A brief history of Brazil's growth

The paper studies Brazil’s economic growth and begins with a brief overview ofevents that marked the country’s development from her discovery to the 19th century. Itthen divides the years between 1900 and 2008 into four periods. The breaks in regimeoccur in 1918, 1967 and 1980, according to the methodology created by Bai and Perron(1998, 2003). The use of the accounting methodology serves the analysis of the behaviorof productivity in the previously identified different phases of the post-World War IIperiod. High inflation might have been a reason for the decline in productivity observedbetween 1980 and mid-1990s. The paper shows that terms of trade have a significanteffect on economic growth and output fluctuations. Other factors (such as fiscal stimulusor easy access to foreign finance) also matter for output accelerations in the short run.From 2004 to 2008, terms of trade improvement and debt reduction brought economicprogress. The emergence of a new era in this millennium will depend on wiser fiscalpolicies than those of the past.

Public debt and the limits of fiscal policy to increase economic growth

Research that seeks to estimate the effects of fiscal policies on economic growth has ignored therole of public debt in this relationship. This study proposes a theoretical model of endogenous growth,which demonstrates that the level of the public debt-to-gross domestic product (GDP) ratio shouldnegatively impact the effect of fiscal policy on growth. This occurs because government indebtednessextracts part of the savings of the young to pay interest on the debts of the older generation, who are nolonger saving. Therefore, the payment of debt interest assumes an allocation exchange role betweengenerations that is similar to a pay-as-you-go pension system, which results in changes in the savingsrate of the economy. The major conclusions of the theoretical model were tested using an econometricmodel to provide evidence for the validity of this conclusion. Our empirical analysis controls for timeinvariant,country-specific heterogeneity in the growth rates. We also address endogeneity issues andallow for heterogeneity across countries in the model parameters and for cross-sectional dependence.

Monetary policy and country risk

This article develops an econometric model in order to study country risk behavior forsix emerging economies (Argentina, Mexico, Russia, Thailand, Korea and Indonesia),by expanding the Country Beta Risk Model of Harvey and Zhou (1993), Erb et. al.(1996a, 1996b) and Gangemi et. al. (2000). Toward this end, we have analyzed theimpact of macroeconomic variables, especially monetary policy, upon country risk,by way of a time varying parameter approach. The results indicate an inefficient andunstable effect of monetary policy upon country risk in periods of crisis. However, thiseffect is stable in other periods, and the Favero-Giavazzi effect is not verified for alleconomies, with an opposite effect being observed in many cases.

Environmental protection and economic growth

This paper explores the link between environmental policy and economic growth by employing an extension of the AK Growth Model. We include a state equation for renewable natural resources. We assume that the change in environmental regulations induces costs and that economic agents also derive some utility from capital stock accumulation vis-`a-vis the environment. Using the Hopf bifurcation theorem, we show that cyclical environmental policy strategies are optimal, providing theoretical support for the Environmental Kuznets Curve.

Public investment in basic education and economic growth

The main objective of this paper was to visualize the relation between governmentspending on basic education and the human capital accumulation process, observingthe impacts of this spending on individual investments in higher education, and oneconomic growth. It is used an overlapping-generations model where the governmenttax the adult generation and spent it in basic education of the next generations. Itwas demonstrated that the magnitude of the marginal effect of government spendingin basic education on growth crucially depends on public budget constrains. The paperexplains why some countries with a lot of public investment in basic education growthat low rates. In that sense if a country has only a lot of public investment in basiceducation without investment in higher education it may growth at low rates becausethe taxation can cause distortions in the agents incentives to invest in higher education.

Crime and punishment with habit formation

Moral concepts affect crime supply. This idea is modelled assuming that illegal activities is habit forming. We introduce habits in a intertemporal general equilibrium framework to illegal activities and compare its outcomes with a model without habit formation. The findings are that habit and crime presents a non linear relationship that hinges upon the level of capital and habit formation. It is possible to show that while the effect of habit on crime is negative for low levels o habit formation it becomes positive as habits goes up. Secondly habit reduces the marginal effect of illegal activities return on crime. Finally, the effect of habit on crime depends positively on the amount of capital. This could explain the relationship between size of cities and illegal activity.

Infra-estrutura e produtividade no Brasil

Este artigo analisa a relação entre infra-estrutura e produtividade total dos fatores (PTF) no Brasil entre 1950 e 2000. O estoque de capital público é utilizado como proxy para o capital de infra-estrutura. A hipótese a ser testada é a de que um aumento no estoque de infra-estrutura de maneira mais acentuada que uma elevação no estoque de capital privado tem um efeito positivo sobre a produtividade no longo prazo. Para tanto, utilizou-se o procedimento de Johansen com o objetivo de testar a cointegração entre a PTF e a razão capital público/privado. De fato, comprovou-se que essa relação de complementaridade (capital público-privado) ajuda a explicar a trajetória da PTF de 1950 a 2000. Os resultados se mostraram robustos a diferentes medidas de produtividade e da proporção capital público/privado. Além disso, a análise de curto (médio) prazo indicou que choques nesta proporção têm um impacto significativo sobre a PTF, mas o contrário não ocorre. Assim, a diminuição dos investimentos em infra-estrutura pode ser uma possível explicação para a queda da PTF verificada nos anos 70 e 80.