The Unassuming Economist

From the IMF’s latest report on Albania:

“Natural gas will have significant implications on Albania in the medium term. Substituting natural gas for electricity will reduce business costs and households’ expenses. The cost reductions for firms and households will not be minor considering the cost of heating can be reduced to 1/3 by substituting natural gas for electricity. The challenge is that the existing pipelines and distribution networks are almost obsolete.

Construction of new pipelines and distributions networks will be needed. The government is already analyzing the cost and potential tariffs. The economically feasible infrastructure has an approximated cost of €0.5 billion for the distribution network and about €0.2-0.3 billion for the main pipelines. A key component of this new infrastructure will be Ionian Adriatic Pipeline (IAP) to bring natural gas from Trans Adriatic Pipeline (TAP) to the main urban centers (including Tirana).

The development of this infrastructure will require significant efforts to attract private sector investment. Building a sound regulatory framework is a key priority.”

From a new IMF working paper:

“We present estimates of welfare by country for 2007 and 2014 using the methodology of Jones and Klenow (2016) which incorporates consumption, leisure, mortality and inequality, and we extend the methodology to include environmental externalities. During the period of the global financial crisis welfare grew slightly more rapidly than income per capita, mainly due to improvements in life expectancy. This led to welfare convergence in most regions towards advanced country levels. Introducing environmental effects changes the welfare ranking for countries that rely heavily on natural resources, highlighting the importance of the natural resource base in welfare. This methodology could provide a theoretically consistent and tractable way of monitoring progress in several Sustainable Development Goal (SDG) indicators.”

From a new IMF working paper: “We present a dynamic small open economy model to explore the macroeconomic impact of natural disasters. In addition to permanent damages to public and private capital, the disaster causes temporary losses of productivity, inefficiencies during the reconstruction process, and damages to the sovereign’s creditworthiness. We use the model to study the debt sustainability concerns that arise from the need to rebuild public infrastructure over the medium term and analyze the feasibility of ex ante policies, such as building adaptation infrastructure and fiscal buffers, and contrast these policies with the post-disaster support provided by donors. Investing in resilient infrastructure may prove useful, in particular if it is viewed as complementary to standard infrastructure, because it raises the marginal product of private capital, crowding in private investment, while helping withstand the impact of the natural disaster. In an application to Vanuatu, we find that donors should provide an additional 50% of pre-cyclone GDP in grants to be spent over the following 15 years to ensure public debt remains sustainable following Cyclone Pam. Helping the government build resilience on the other hand, reduces the risk of debt distress and at lower cost for donors.”

From a new IMF blog:

“The Earth’s warming affects countries very unequally. Even though low-income countries have contributed very little to greenhouse gas emissions, they would bear the brunt of the adverse consequences of rising temperatures, since they tend to be situated in some of the hottest parts of the Earth. ”

“The international community must play a key role in supporting low-income countries’ efforts to cope with climate change. Advanced and emerging market economies have contributed the lion’s share to actual and projected warming. Hence, helping low-income countries cope with its consequences is both a moral duty and sound global economic policy that helps offset countries’ failures to fully internalize the costs of greenhouse gas emissions.”

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We study the impact of fluctuations in global oil prices on domestic inflation using an unbalanced panel of 72 advanced and developing economies over the period from 1970 to 2015. We find that a 10 percent increase in global oil inflation increases, on average, domestic inflation by about 0.4 percentage point on impact, with the effect vanishing after two years and being similar between advanced and developing economies. We also find that the effect is asymmetric, with positive oil price shocks having a larger effect than negative ones. The impact of oil price shocks, however, has declined over time due in large part to a better conduct of monetary policy. We further examine the transmission channels of oil price shocks on domestic inflation during the recent decades, by making use of a monthly dataset from 2000 to 2015. The results suggest that the share of transport in the CPI basket and energy subsidies are the most robust factors in explaining cross-country variations in the effects of oil price shocks during the this period.

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