Inclusive Growth

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Differences in consumption baskets across households and the distributional consequences of monetary policy

From a new VOX post:

“Monetary policy shocks can affect different types of agents differently. These distributional effects can have important consequences for policy effectiveness. Using US data, this column explores how shocks differentially affect the prices faced by households with different incomes. The results suggest that middle-income households’ consumption baskets have more volatile prices than those of high-income households, and they are therefore more exposed to monetary policy shocks.”

“[…] Figure 3 plots the impulse responses for selected income percentile-specific CPIs. The monetary policy shock is a 25 basis-point increase in the Federal Funds rate on impact, thus a contraction. The consumption price indices of the high-income households react substantially less to monetary policy shocks than those for the middle of the income distribution. The difference is economically meaningful. After 12 months, the top 1% households’ CPI responds by 34% less, and the 96-99th percentile households by 22% less, than the CPI of the households in the middle of the income distribution (40th-60th percentiles). After 24 months, the differences are still 12% and 6%, respectively.”

From a new VOX post:

“Monetary policy shocks can affect different types of agents differently. These distributional effects can have important consequences for policy effectiveness. Using US data, this column explores how shocks differentially affect the prices faced by households with different incomes. The results suggest that middle-income households’ consumption baskets have more volatile prices than those of high-income households, and they are therefore more exposed to monetary policy shocks.”

Read the full article…

Posted by at 9:41 AM

Labels: Inclusive Growth

Alongside rising top incomes, the level of living of America’s poorest has fallen

From a new VOX posts:

“When the poorest gain, the lower bound, or ‘floor’, of the distribution of living standards rises. Using microdata spanning the last 30 years, this column argues that the floor in the US has been sinking, alongside rising top incomes. The floor would have fallen further without public spending on food stamps, which helped protect the poorest in the wake of the 2008 financial crisis.”

“Figure 1 gives our estimates of the floor before and after SNAP. Since the official poverty thresholds vary by family size and composition, it is simpler to express the floor as a proportion of the threshold. The mean post-SNAP floor is about 36% of the official threshold. For a family of four, with two adults and two children, the threshold was about $16.50 per person per day in 2015. The floor in that year’s prices is $5.89 a day post-SNAP, while the pre-SNAP value is $5.40. ”

From a new VOX posts:

“When the poorest gain, the lower bound, or ‘floor’, of the distribution of living standards rises. Using microdata spanning the last 30 years, this column argues that the floor in the US has been sinking, alongside rising top incomes. The floor would have fallen further without public spending on food stamps, which helped protect the poorest in the wake of the 2008 financial crisis.”

“Figure 1 gives our estimates of the floor before and after SNAP.

Read the full article…

Posted by at 9:38 AM

Labels: Inclusive Growth

Female Labor Force Participation: A New Engine of Growth for Sri Lanka?

From the IMF’s latest report on Sri Lanka:

“Sri Lanka has been a trendsetter in the region in advancing gender parity in education and health. Yet, this has not been reflected in more active female labor force participation (FLFP), which is low compared to its emerging market peers and even some low-income developing countries in the region. Closing this gap is especially important as Sri Lanka faces an aging population with a labor force that could start shrinking as early as 2026. Given the potential for significant economic gains from integrating the female labor force into the labor market, the authorities’ Vision 2025 identifies policies to bridge this gap. Specifically, the Sri Lankan authorities aim to provide child care facilities, improve access to transportation, facilitate part-time and flexible work arrangements, improve maternity benefits for private sector employees, and increase access to tertiary education and vocational training. While these measures are steps in the right direction, Sri Lanka may also benefit from a more systematic approach through implementing gender responsive budgeting.”

 

From the IMF’s latest report on Sri Lanka:

“Sri Lanka has been a trendsetter in the region in advancing gender parity in education and health. Yet, this has not been reflected in more active female labor force participation (FLFP), which is low compared to its emerging market peers and even some low-income developing countries in the region. Closing this gap is especially important as Sri Lanka faces an aging population with a labor force that could start shrinking as early as 2026.

Read the full article…

Posted by at 1:49 PM

Labels: Inclusive Growth

Structural Transformation in Sri Lanka

From a new IMF country report:

“Sri Lanka has a compelling growth story. The economy has grown at an average of 5 percent over the last four decades, amidst the 30-year civil conflict, weather calamities, and swings in economic policy orientation depending on ruling parties’ ideology. Sri Lanka seesawed between protectionist and liberalization strategies: state control and import substitution in early 70s; two waves of liberalization in early 80s and 90s; closing up again in early 2000s at the height of the war; and then opening up again since the end of the war (text table below).”

“Strong economic growth has led to a significant decline in poverty rates (text table below). While a recent IMF study (IMF, forthcoming) finds that emerging markets experienced a significant increase in average growth rates in the 2000s, particularly in Asia, only half of these emerging markets are converging with developed countries in per capita income levels. Remarkably, Sri Lanka has halved its poverty gap over the last decade. Nevertheless, challenges in terms of inclusiveness, regional disparities, quality of education, and gender equality remain.”

“The government has ambitious plans to achieve upper middle-income country status in 2025 by transforming Sri Lanka in an Indian Ocean Hub for trade, investment, and services. Unlike the 70-80s when investment in the tradable sectors led the productivity boost, the post-war capital deepening was mainly driven by mega-scale public-financed infrastructure projects, which did not seem to result in immediate productivity gains, as reforms to enable the business environment lagged. Sri Lanka’s static export structure signifies an absence of competitive forces to drive trade dynamism, innovation, and diversification: for over two decades exports have remained concentrated on garments, tea, and rubber products with a declining share in global trade. Introduction of para-tariffs barriers during the last decade has effectively doubled the protection rate, making the present trade regime one of the most complex and protectionist in the world. Despite operating a complex and an expensive system of tax incentives to promote investment, FDI remains low.”

 

From a new IMF country report:

“Sri Lanka has a compelling growth story. The economy has grown at an average of 5 percent over the last four decades, amidst the 30-year civil conflict, weather calamities, and swings in economic policy orientation depending on ruling parties’ ideology. Sri Lanka seesawed between protectionist and liberalization strategies: state control and import substitution in early 70s; two waves of liberalization in early 80s and 90s;

Read the full article…

Posted by at 9:51 AM

Labels: Inclusive Growth

Optimal Monetary Policy For the Masses: the James Bullard and Larry Summers View

A new post by David Beckworth summarizes a new paper by James Bullard and Ricardo DiCecio:

“This paper builds upon the risk-sharing view of NGDP targeting. The basic idea is that in a world of fixed-price nominal debt contracts (i.e. the real world), a NGDP level target provides better risk sharing among creditors and debtors against economic shocks than does a price stability target.

This is because a NGDP level target makes inflation countercyclical. During recessions, inflation rises and causes creditors to bear some of the unexpected pain by lowering the real debt payments they receive from debtors. During booms, inflation falls and allows creditors to share in some of the unexpected gain by increasing the real debt payments they receive from debtors. Debtors, in other words, bear less risk during recessions but also share unexpected gains during expansions.

NGDP level targeting, in other words, causes a fixed-price nominal debt world to look and feel a lot like an equity-world. In a similar spirit, some observers have called for a risk-sharing mortgages as a way to avoid another Great Recession. The point of this paper is that the same benefit that such risk-sharing mortgages would bring can be had by having a central bank target the growth path of NGDP.”

A new post by David Beckworth summarizes a new paper by James Bullard and Ricardo DiCecio:

“This paper builds upon the risk-sharing view of NGDP targeting. The basic idea is that in a world of fixed-price nominal debt contracts (i.e. the real world), a NGDP level target provides better risk sharing among creditors and debtors against economic shocks than does a price stability target.

This is because a NGDP level target makes inflation countercyclical.

Read the full article…

Posted by at 10:32 AM

Labels: Inclusive Growth

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