White Papers
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
A Perspective on Predicting Currency Crises-IMF Working paper
October 13, 2010--Currency crises are difficult to predict. It could be that we are choosing the wrong variables or using the wrong models or adopting measurement techniques not up to the task. We set up a Monte Carlo experiment designed to evaluate the measurement techniques.
In our study, the methods are given the right fundamentals and the right models and are evaluated on how closely the estimated predictions match the objectively correct predictions. We find that all methods do reasonably well when fundamentals are explosive and all do badly when fundamentals are merely highly volatile.
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Source: IMF
Can Global Liquidity Forecast Asset Prices?-IMF Working paper
August 25, 2010--During the period leading up to the global financial crisis many asset classes registered rapid price increases. This coincided with a significant rise in global liquidity. This paper attempts to determine the extent to which the rise in asset prices was influenced by developments in global liquidity.
We confirm that global liquidity had a significant impact on the buildup in house prices; however, the impact on equity prices was limited. In contrast to common perception, we find that the impact of global liquidity declined during the period of the Great Moderation. The paper also examines spillovers from global liquidity to domestic variables and concludes that domestic factors generally played a more significant role in house price appreciation relative to global factors. This contradicts the hypothesis of weakened potency of domestic monetary policy in the presence of increased international liquidity.
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Source: IMF
Islamic Banking: How Has it Diffused?-IMF Working Paper
August 25, 2010--This paper investigates the determinants of the pattern of Islamic bank diffusion around the world using country-level data for 1992 - 2006. The analysis illustrates that income per capita, share of Muslims in the population and status as an oil producer are linked to the development of Islamic banking, as are economic integration with Middle Eastern countries and proximity to Islamic financial centers. Interest rates have a negative impact on Islamic banking, reflecting the implicit benchmark for Islamic banks.
The quality of institutions does not matter, probably because the often higher hurdle set by Shariah law trumps the quality of local institutions in most countries. The 9/11 attacks were not important to the diffusion of Islamic banking; but they coincided with rising oil prices, which are a significant factor in the diffusion of Islamic banking. Islamic banks also appear to be complements to, rather than substitutes for, conventional banks.
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Source: IMF
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