On The Macroeconomic Consequences Of Over Optimism
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On The Macroeconomic Consequences Of Over Optimism
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Author : Paul Beaudry
language : en
Publisher: International Monetary Fund
Release Date : 2018-05-30
On The Macroeconomic Consequences Of Over Optimism written by Paul Beaudry and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018-05-30 with Business & Economics categories.
Is over-optimism about a country's future growth perspective good for an economy, or does over-optimism also come with costs? In this paper we provide evidence that recessions, fiscal problems, as well as Balance of Payment-difficulties are more likely to arise in countries where past growth expectations have been overly optimistic. To examine this question, we look at the medium-run effects of instances of over-optimism or caution in IMF forecasts. To isolate the causal effect of over-optimism we take an instrumental variables approach, where we exploit variation provided by the allocation of IMF Mission Chiefs across countries. As a necessary first step, we document that IMF Mission Chiefs tend to systematically differ in their individual degrees of forecast-optimism or caution. The mechanism that transforms over-optimism into a later recession seems to run through higher debt accumulation, both public and private. Our findings illustrate the potency of unjustified optimism and underline the importance of basing economic forecasts upon realistic medium-term prospects.
Macrofinancial Causes Of Optimism In Growth Forecasts
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Author : Mr. Yan Carriere-Swallow
language : en
Publisher: International Monetary Fund
Release Date : 2021-11-12
Macrofinancial Causes Of Optimism In Growth Forecasts written by Mr. Yan Carriere-Swallow and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021-11-12 with Business & Economics categories.
We analyze the causes of the apparent bias towards optimism in growth forecasts underpinning the design of IMF-supported programs, which has been documented in the literature. We find that financial variables observable to forecasters are strong predictors of growth forecast errors. The greater the expansion of the credit-to-GDP gap in the years preceding a program, the greater its over-optimism about growth over the next two years. This result is strongest among forecasts that were most optimistic, where errors are also increasing in the economy’s degree of liability dollarization. We find that the inefficient use of financial information applies to growth forecasts more broadly, including the IMF’s forecasts in the World Economic Outlook and those produced by professional forecasters compiled by Consensus Economics. We conclude that improved macrofinancial analysis represents a promising avenue for reducing over-optimism in growth forecasts.
Optimism Pessimism And Short Term Fluctuations
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Author : Gabriel Di Bella
language : en
Publisher: International Monetary Fund
Release Date : 2018-01-05
Optimism Pessimism And Short Term Fluctuations written by Gabriel Di Bella and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018-01-05 with Business & Economics categories.
Economic theory offers several explanations as to why shifting expectations about future economic activity affect current demand. Abstracting from whether changes in expectations originate from swings in beliefs or fundamentals, we test empirically whether more optimistic or pessimistic potential output forecasts trigger short-term fluctuations in private consumption and investment. Relying on a dataset of actual data and forecasts for 89 countries over the 1990-2022 period, we find that private economic agents learn from different sources of in- formation about future potential output growth, and adjust their current demand accordingly over the two years following the shock in expectations. To provide a theoretical foundation to the empirical analysis, we also propose a simple Keynesian model that highlights the role of expectations about long-term output in determining short-term economic activity.
Optimism Bias In Growth Forecasts The Role Of Planned Policy Adjustments
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Author : Kareem Ismail
language : en
Publisher: INTERNATIONAL MONETARY FUND
Release Date : 2020-11-08
Optimism Bias In Growth Forecasts The Role Of Planned Policy Adjustments written by Kareem Ismail and has been published by INTERNATIONAL MONETARY FUND this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020-11-08 with Business & Economics categories.
Are IMF growth forecasts systematically optimistic? And if so, what is the role of planned policy adjustments on this outcome? Are program forecasts as biased as surveillance forecasts? We try to answer these questions using a comprehensive database on IMF forecasts of economic growth in surveillance and program cases during 2003–2017. We find that large planned fiscal and external adjustments are associated with optimistic growth projections, with significant non-linearities for both program and surveillance cases. Specifically, we find evidence that larger planned fiscal adjustment is associated with higher growth optimism in IMF non-concessional, non-precautionary financial arrangements. Our results show the tendency for optimism has persisted in the period after the Global Financial Crisis. Moreover, the strong correlation between the magnitude of the optimism and expected fiscal consolidation provides a cautionary signal for the post-COVID IMF projections as countries embark on a path of fiscal adjustment.
Reality Check
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Author : Roberta Gatti
language : en
Publisher: World Bank Publications
Release Date : 2022-04-11
Reality Check written by Roberta Gatti and has been published by World Bank Publications this book supported file pdf, txt, epub, kindle and other format this book has been release on 2022-04-11 with Business & Economics categories.
The Middle East and North Africa economies face an uncertain recovery. The war in Ukraine presents significant challenges to the global economy and the MENA region. Inflationary pressures brought about by the pandemic are likely to be further exacerbated by the conflict. The potential for rising food prices is even higher, which is likely to hurt the wallets of the poor and vulnerable in the region. The COVID-19 pandemic continues to cast a shadow. As the latest variant sweeps over the region, countries grapple with a host of problems depending on initial conditions and policy priorities. The region, like the rest of the world, is not out of the woods yet. Vaccinations remain the effective path out of the pandemic, leading to lower hospitalizations and death rates. Testing helps curb the spread. During times of uncertainty, it is important to not be overconfident about the region’s growth prospects. Growth forecasts serve as a significant signpost for policymakers to chart a path forward. Over the last decade, growth forecasts in the MENA region have often been inaccurate and overly optimistic, which can lead to economic contractions down the road due to ebullient borrowing. There is considerable room for the region to improve its forecasts that are largely hindered by opaque data systems, growth volatility and conflict. The MENA region lags considerably in the timely production of credible statistics. A key finding of the report is that the best way to improve forecasters is to provide forecasters with as much good quality information as possible.
Macroeconomic Fluctuations And Policies
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Author : Edouard Challe
language : en
Publisher: MIT Press
Release Date : 2023-09-19
Macroeconomic Fluctuations And Policies written by Edouard Challe and has been published by MIT Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023-09-19 with Business & Economics categories.
The basic tools for analyzing macroeconomic fluctuations and policies, applied to concrete issues and presented within an integrated New Keynesian framework. This textbook presents the basic tools for analyzing macroeconomic fluctuations and policies and applies them to contemporary issues. It employs a unified New Keynesian framework for understanding business cycles, major crises, and macroeconomic policies, introducing students to the approach most often used in academic macroeconomic analysis and by central banks and international institutions. The book addresses such topics as how recessions and crises spread; what instruments central banks and governments have to stimulate activity when private demand is weak; and what “unconventional” macroeconomic policies might work when conventional monetary policy loses its effectiveness (as has happened in many countries in the aftermath of the Great Recession.). The text introduces the foundations of modern business cycle theory through the notions of aggregate demand and aggregate supply, and then applies the theory to the study of regular business-cycle fluctuations in output, inflation, and employment. It considers conventional monetary and fiscal policies aimed at stabilizing the business cycle, and examines unconventional macroeconomic policies, including forward guidance and quantitative easing, in situations of “liquidity trap”—deep crises in which conventional policies are either ineffective or have very different effects than in normal time. This book is the first to use the New Keynesian framework at the advanced undergraduate level, connecting undergraduate learning not only with the more advanced tools taught at the graduate level but also with the large body of policy-oriented research in academic journals. End-of-chapter problems help students master the materials presented.
Mena Economic Update April 2021
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Author : Roberta Gatti
language : en
Publisher: World Bank Publications
Release Date : 2021-04-02
Mena Economic Update April 2021 written by Roberta Gatti and has been published by World Bank Publications this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021-04-02 with Business & Economics categories.
Part I of this report discusses the short- and medium-term growth prospects for countries in the Middle East and North Africa (MENA). The region is expected to grow at a subdued rate of 0.6 percent in 2019, rising to 2.6 percent in 2020 and 2.9 percent in 2021. The growth forecast for 2019 is revised down by 0.8 percentage points from the April 2019 projection. MENA’s economic outlook is subject to substantial downside risks—most notably, intensified global economic headwinds and rising geopolitical tensions. Part II argues that promoting fair competition is key for MENA countries to complete the transition from an administered to a market economy. Part II first examines current competition policies in MENA countries and to promote fair competition calls for strengthening competition law and enforcement agencies. It also calls for corporatizing state-owned enterprises, promoting the private sector and creating a level-playing field between them. Any moves to reform MENA economies would be aided by professional management of public assets, which could tap into a new source of national wealth.
Macroeconomic Consequences Of Remittances
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Author : Connel Fullenkamp
language : en
Publisher: International Monetary Fund
Release Date : 2008-03-11
Macroeconomic Consequences Of Remittances written by Connel Fullenkamp and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008-03-11 with Business & Economics categories.
Given the large size of aggregate remittance flows (billions of dollars annually), they should be expected to have significant macroeconomic effects on the economies that receive them. This paper directly addresses the two main issues of interest to policymakers with regard to remittances--how to manage their macroeconomic effects, and how to harness their development potential--by reporting the results of the first global study of the comprehensive macroeconomic effects of remittances on recipient economies. In broad terms, the findings of this paper tend to confirm the main benefit cited in the microeconomic literature: remittances improve households' welfare by lifting families out of poverty and insuring them against income shocks. The findings also yield a number of important caveats and policy considerations, however, that have largely been overlooked. The main challenge for policymakers in countries that receive significant flows of remittances is to design policies that promote remittances and increase their benefits while mitigating adverse side effects. Getting these policy prescriptions correct early on is imperative. Globalization and the aging of developed economy populations will ensure that demand for migrant workers remains robust for years to come. Hence, the volume of remittances likely will continue to grow, and with it, the challenge of unlocking the maximum societal benefit from these transfers.
The Fiscal Presource Curse Giant Discoveries And Debt Sustainability
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Author : Matteo Ruzzante
language : en
Publisher: International Monetary Fund
Release Date : 2022-01-21
The Fiscal Presource Curse Giant Discoveries And Debt Sustainability written by Matteo Ruzzante and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2022-01-21 with categories.
This paper investigates the dynamic impact of natural resource discoveries on government debt sustainability. We use a 'natural experiment' framework in which the timing of discoveries is treated as an exogenous source of within-country variation. We combine data on government debt, fiscal stress and debt distress episodes on a large panel of countries over 1970-2012, with a global repository of giant oil, gas, and mineral discoveries. We find strong and robust evidence of a 'fiscal presource curse', i.e., natural resources can jeopardize fiscal sustainability even before 'the first drop of oil is pumped'. Specifically, we find that giant discoveries, mostly of oil and gas, lead to permanently higher government debt and, eventually, debt distress episodes, specially in countries with weaker political institutions and governance. This evidence suggest that the curse can be mitigated and even prevented by pursuing prudent fiscal policies and borrowing strategies, strengthening fiscal governance, and implementing transparent and robust fiscal frameworks for resource management.
The Sustainability Of Asia S Debt
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Author : Ferrarini, Benno
language : en
Publisher: Edward Elgar Publishing
Release Date : 2022-02-22
The Sustainability Of Asia S Debt written by Ferrarini, Benno and has been published by Edward Elgar Publishing this book supported file pdf, txt, epub, kindle and other format this book has been release on 2022-02-22 with Business & Economics categories.
This is an open access title available under the terms of a [CC BY 3.0 IGO] License. It is free to read, download and share on Elgaronline.com. Asia has shown the world what success in economic development looks like. From the amazing transformations of Japan, the Republic of Korea, and the other ‘tigers’ in the early 70s, to the more recent takeoffs of the People’s Republic of China (PRC), India, and the leading economies in Southeast Asia, the region has prospered at a startling pace. Technologies were adopted, productivity raised, and export markets conquered. Billions were lifted out of poverty. What was once a backwater is now a global engine of growth.