White Papers
IMF-Walkways, Not Walls
December 31, 2024 -Macroeconomics, by definition, focuses on the big picture. It neglects smaller micro developments at the business or sectoral level. In 2007, Edward Leamer, an economics professor at the University of California, Los Angeles, pointed out the high costs of this neglect by arguing that it's meaningless to try to understand business cycles without paying attention to the housing sector.
As he argued in a now-famous paper titled "Housing IS the Business Cycle," the housing market is central to understanding why economies go through booms and busts. He pointed out that nearly all recessions in the United States since World War II were preceded by problems in the housing sector. Macroeconomics would, in other words, be better served by building walkways to housing economics rather than simply walling it off.
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Source: imf.org
New IRENA-WTO report highlights key trade policies for renewable hydrogen and derivatives
November 14, 2024--The International Renewable Energy Agency (IRENA) and the WTO Secretariat launched on 14 November at the 29th UN Climate Change Conference (COP29) in Baku a new report which outlines key policy considerations for fostering trade in renewable hydrogen and its derivatives. The report highlights, in particular, their crucial role in helping economies achieve decarbonization goals by 2050.
Building on the WTO-IRENA joint report published last year about scaling up green hydrogen production, the new publication titled "Enabling global trade in renewable hydrogen and derivative commodities" further explores the critical role of sound and coherent trade strategies in promoting renewable hydrogen and derived feedstocks and fuels, such as renewable ammonia, methanol and e-kerosene.
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Source: World Trade Organization (WTO)
IMF Working Paper-How Far Has Globalization Gone? A Tale of Two Regions
December 8, 2023--Summary:
We study the evolution of trade globalization in a set of countries in Latin America (mostly the largest ones) and Asia over the past 25 years. Relying on structural gravity models, we first estimate a proxy of trade globalization that captures the ease of trading internationally with respect to trading domestically. Results indicate that the evolution of trade globalization since the mid-1990s has been similar between the two regions, but very heterogeneous within them.
Trade globalization has been particularly strong in agriculture, mining and manufacturing, but has lagged in services. The paper also documents that trade globalization has been particularly strong in agriculture, mining and manufacturing, but it lagged in services. Within region heterogeneity is associated to a set of trade policy instruments, including tariffs, non-tariff measures, WTO membership. and trade agreements. Next, we quantify the economic implications of the estimated globalization trends. Simulations of a multi-sector trade model point to heterogeneous long-term impacts of globalization on GDP-some countries exhibiting substantial gains and others experiencing large losses-, with no single sector playing a preponderant role.
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Source: imf.org
IMF Working Papers-Feeling Rich, Feeling Poor: Housing Wealth Effects and Consumption in Europe
December 8, 2023-Summary:
Households across Europe are struggling with a double crisis-the worst inflation shock since the World War II and a sudden correction in house prices. There is a rich literature on how housing price cycles affect consumer spending, finding mixed results with a wide range of consumption responses to changes in housing wealth.
In this paper, using quarterly data on 20 countries in Europe over the period 1980-2023, we analyze the dynamic relationship between inflation-adjusted housing wealth and consumer spending and obtain statistically significant and economically intuitive results.
Household consumption responds positively and swiftly to changes in real house prices and gross disposable income as expected. Using the estimated coefficients, we can deduce that the average quarter-on-quarter decline of -1.96 percent in real house prices in the first quarter of 2023 in Europe could dampen consumer spending by about -0.51 percentage points in real terms on a cumulative basis over a horizon of eight quarters.
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Source: imf.org
IMF Working Papers-Geoeconomic Fragmentation: What's at Stake for the EU
December 1, 2023-- Summary:
Geoeconomic fragmentation (GEF) is becoming entrenched worldwide, and the European Union (EU) is not immune to its effects. This paper takes stock of GEF policies impinging on-and adopted by-the EU and considers how exposed the EU is through trade, financial and technological channels.
Motivated by current policies adopted by other countries, the paper then simulates how various measures-raising costs of trade and technology transfer and fossil fuel prices, and imposition of sectoral subsidies-would affect the EU economy.
Due to its high-degree of openness, the EU is found to be exposed to GEF through multiple channels, with simulated losses that differ significantly across scenarios. From a welfare perspective, this suggests the need for a cautious approach to GEF policies. The EU's best defence against GEF is to strengthen the Single Market while advocating for a multilateral rules-based trading system.
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Source: imf.org
IMF Working Paper-Digital Tokens: A Legal Perspective
July 28, 2023--Summary:
Tokens are units digitally represented in a distributed ledger or blockchain. The various uses of this technology have the potential to transform a wide array of economic activities, from traditional commercial transactions to sophisticated financial undertakings.
This paper explores the similarities and differences of tokens with traditional legal instruments in commercial law and how tokens could offer superior solutions, provided that proper legal foundations are established for their operation, including aspects of the law of securities and consumer protection law.
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Source: imf.org
IMF Working Paper-Climate Shocks and Domestic Conflicts in Africa
December 16, 2022--Summary:
This paper analyzes the interlinkages between climate shocks, domestic conflicts, and policy resilience in Africa. It builds on a Correlated Random Effect model to asess these interrelationships on a broad sample of 51 African countries over the 1990-2018 period.
We find suggestive evidence that climate shocks, as captured through weather shocks, increase the likelihood of domestic conflicts, by as high as up to 38 percent. However, the effect holds only for intercommunal conflicts, not for government-involved conflicts. The effect is maginified in countries with more unequal income distribution and a stronger share of young male demographics.
The results are robust to a wide set of sensitivity checks, including using various indicators of weather shocks and domestic conflicts, and alternative estimation techniques. The findings shed light on key policy resilience factors, including steadily improving domestic revenue mobilization, strengthening social protection and access to basic health care services, scaling up public investment in the agriculture sector, and stepping up anti-desertification efforts.
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Source: imf.org
Government Debt and Growth: The Role of R&D
February 7, 2025--Summary:
Economic growth in the advanced economies (AEs) has been slowing down since the early 2000s, while government debt ratios have been rising. The recent surge in debt at the onset of the Covid-19 pandemic has further intensified concerns about these phenomena. This paper aims to offer insight into the high-debt low-growth environment in AEs by exploring a causal link from government debt to future growth, specifically through the impact of debt on R&D activities.
Using data from manufacturing industries since the 1980s, it shows that (i) government debt leads to a decline in growth, particularly in R&D-intensive industries; (ii) the differential effect of government debt on these industries is persistent; and (iii) more developed or open financial systems tend to mitigate this negative impact. These findings contribute to our understanding of the relationship between government debt and growth in AEs, given the role of technological progress and innovation in economic growth.
view the IMF Working paper-Government Debt and Growth: The Role of R&D
Source: IMF
IMF Working paper-Commodity Price Shocks and Financial Sector Fragility
February 1, 2016--Summary: This paper investigates the impact of commodity price shocks on financial sector fragility. Using a large sample of 71 commodity exporters among emerging and developing economies, it shows that negative shocks to commodity prices tend to weaken the financial sector, with larger shocks having more pronounced impacts.
More specifically, negative commodity price shocks are associated with higher non-performing loans, bank costs and banking crises, while they reduce bank profits, liquidity, and provisions to nonperforming loans. These adverse effects tend to occur in countries with poor quality of governance, weak fiscal space, as well as those that do not have a sovereign wealth fund, do not implement macro-prudential policies and do not have a diversified export base. These findings are robust to a battery of robustness checks.
view the IMF Working paper-Commodity Price Shocks and Financial Sector Fragility
Source: IMF
IMF Working Paper-China's Demography and its Implications
March 28, 2013--Summary: In coming decades, China will undergo a notable demographic transformation, with its old-age dependency ratio doubling to 24 percent by 2030 and rising even more precipitously thereafter.
This paper uses the permanent income hypothesis to reassess national savings behavior, with greater prominence and more careful consideration given to the role played by changing demography. We use a forward-looking and dynamic approach that considers the entire population distribution. We find that this not only holds up well empirically but may also be superior to the static dependency ratios typically employed in the literature. Going further, we simulate global savings behavior based on our framework and find that China’s demographics should have induced a negative current account in the 2000s and a positive one in the 2010s given the rising share of prime savers, only turning negative around 2045. The opposite is true for the United States and Western Europe. The observed divergence in current account outcomes from the simulated path appears to have been partly policy induced. Over the next couple of decades, individual countries’ convergence toward the simulated savings pattern will be influenced by their past divergences and future policy choices. Other implications arising from China’s demography, including the growth model, the pension system, the labor market, and the public finances are also briefly reviewed.
view the IMF Working paper-China's Demography and its Implications
Source: IMF
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