The Unassuming Economist

A new IMF working paper “describes the compilation of the Global Debt Database (GDD), a cutting-edge dataset covering private and public debt for virtually the entire world (190 countries) dating back to the 1950s. The GDD is the result of a multiyear investigative process that started with the October 2016 Fiscal Monitor, which pioneered the expansion of private debt series to a global sample. It differs from existing datasets in three major ways. First, it takes a fundamentally new approach to compiling historical data. Where most debt datasets either provide long series with a narrow and changing definition of debt or comprehensive debt concepts over a short period, the GDD adopts a multidimensional approach by offering multiple debt series with different coverages, thus ensuring consistency across time. Second, it more than doubles the cross-sectional dimension of existing private debt datasets. Finally, the integrity of the data has been checked through bilateral consultations with officials and IMF country desks of all countries in the sample, setting a higher data quality standard.

A new IMF paper finds that “higher public spending on education, better sanitation facilities, low adolescent fertility, and narrower marriage age gaps are significantly related to narrower gender gaps in education. […] better infrastructure, a stronger institutional environment, more equal legal rights, and low adolescent fertility rates are strongly associated with higher female labor force participation. When labor market protection is low, an increase in protection is associated with a narrowing of labor force participation gaps between men and women. But when labor market protection levels are high, an increase in protection is associated with a widening in labor force participation gaps.”

From a new IMF working paper by Ralph Chami, Ekkehard Ernst, Connel Fullenkamp, and Anne Oeking”

“We present cross-country evidence on the impact of remittances on labor market outcomes. Remittances appear to have a strong impact on both labor supply and labor demand in recipient countries. These effects are highly significant and greater in size than those of foreign direct investment or offcial development aid. On the supply side, remittances reduce labor force participation and increase informality of the labor market. In addition, male and female labor supply show significantly different sensitivities to remittances. On the demand side, remittances reduce overall unemployment but benefit mostly lower-wage, lower-productivity nontradables industries at the expense of high-productivity, high-wage tradables sectors. As a consequence, even though inequality declines as a result of larger remittances, average wage and productivity growth declines, the latter more strongly than the former leading to an increase in the labor income share. In fragile states, in contrast, remittances impose a positive externality, possibly because the tradables sector tends to be underdeveloped. Our findings indicate that reforms to foster inclusive growth need to take into account the role of remittances in order to be successful.”

A new IMF working paper by Romain A Duval Davide Furceri, and Jakob Miethe find “widespread support for the crisis-induces-reform hypothesis. Reforms are also more likely to happen when other countries undertake them or there is formal pressure to implement them. Other robust correlates are more specific to certain areas—for example, political factors are most relevant for job protection reforms.”

“High unemployment, recession and/or an open economic crisis tend to be associated with a greater likelihood of reform. The effect is economically significant. For example, an increase of 10 percentage points in unemployment (as seen in several European economies in the aftermath of the Great Recession) is associated with an increase in the probability to undertake a major EPL reform for regular contract of about 5 percentage points — that is, about twice the average probability in the sample.”

“[…] outside pressure increases the likelihood of reform in certain areas. Reforms are more likely when other countries also undertake them and when there is formal pressure: many product market reforms in EU countries have occurred during their accession process, and competition-relevant EU directives have also been an important factor behind deregulation.”

From the new IMF Regional Economic Outlook for Asia Pacific:

“The main findings are as follows:

• Recent low inflation has been driven mainly by temporary forces, including imported inflation. Phillips curve estimation indicates that weaker import prices, including low commodity prices, contributed to half of the undershooting of inflation targets in advanced Asia and most of the undershooting in emerging Asia in recent years. In addition, China seems to have played an important role in driving both global and regional inflation. More generally, an analysis looking at temporary and trend components suggests that temporary shocks have accounted for the bulk of the recent reduction in inflation.
• The inflation process has become more backward-looking. While inflation expectations are generally relatively well anchored, especially in advanced Asia and in economies with inflation-targeting frameworks, the importance of expectations in driving inflation has declined in recent years with past inflation playing a larger role.
• The sensitivity of inflation to the unemployment gap has declined. There seems to be a flattening of the Phillips curve compared to the 1990s in advanced Asia and a similar but more continuous flattening in emerging Asia. Outside of Asia, the slope of the Phillips curve seems to have been more stable.”

“The main policy implications of the findings are:

• Central banks should be vigilant in responding to early signs of inflationary pressure, including from global factors. A sudden increase in inflation may then persist, and disinflating may be costly if sensitivity of inflation to the unemployment gap has declined.
• It will be important to strengthen monetary policy frameworks and improve central bank communications in order both to increase the role of expectations in driving inflation and to maintain expectations anchored to targets.
• To mitigate the role of imported inflation, exchange rates should be allowed to adjust more flexibly.
• In principle, the monetary policy response to commodity price shocks should be to accommodate first- round effects but not the second-round effects.”