The Unassuming Economist

From a paper by José Said Sánchez Martínez:

“This article investigates the frequency, causes, and implementation of austerity policies in state governments in Mexico during the period 2009–2021. The methodology combines documentary and statistical analysis (linear regression) to characterize such policies and identify the determinants of public spending. Results show that austerity policies are routine actions, that the reduction in federal transfers and the increase in public debt are some of their cause, and that they have a real application, which is observed in cuts to public spending.”

From a F&D Article by M. Ayhan Kose, Prakash Loungani, and Marco E. Terrones:

By any measure, the ongoing global recession is the deepest and the most synchronized of the postwar period

The U.S. baseball season culminates in a championship called the World Series, reflecting a time when the United States was the world when it came to baseball. Likewise, in the 1960s, a recession in the United States could just as well have been called a global recession. The United States accounted for a large share of world output, and cyclical activity in much of the rest of the world was dependent on U.S. conditions.

What constitutes a global recession today? Although advanced economies like the United States used to account for roughly 75 percent of world output in the 1960s, their share is now only about 55 percent. As a result, the coincidence between business cycles in advanced economies and global business cycles can no longer be taken for granted. At the same time, however, the countries of the world are more integrated today through trade and financial flows than they were in the 1960s. This creates greater potential for spillover and contagion effects, increasing the odds of synchronous movements and a global business cycle.

Surprisingly, there is no commonly accepted definition of a global recession. Under the definition we propose here—a contraction in world real per capita gross domestic product (GDP) accompanied by a broad decline in various other measures of global economic activity—there have been four global recessions in the post–World War II period: 1975, 1982, 1991, and 2009. The current recession is easily the most severe of the four: output—depending on the measure—is projected to fall between four and six times as much as it did on average in the three other global recessions, and unemployment is likely to increase twice as much. The collapse in world trade this year dwarfs that in past global recessions. And no previous global recession has had so many countries in a state of recession simultaneously. Put simply, in baseball parlance, this global recession is out of the ballpark.

Let’s date

In deciding when a particular country is in recession, economists often use statistical procedures to date the peaks and troughs of a key indicator of economic activity, such as the country’s real GDP. Applying the same idea at the global level since 1960, we use annual data on world real per capita GDP, using purchasing-power-parity (PPP) weights, from 1960 to 2010 (see Box 1). The estimates for 2009–10 are based on the latest IMF growth forecasts (International Monetary Fund, 2009). A per capita measure is used to account for the vast differences in population growth rates across countries. Emerging and developing economies tend to have faster GDP growth than industrialized economies, but they also have higher population growth.

Continue reading here.

Also, see the following VoxEU article here.

From a paper by Richard Rigo, Adriana Grencikova, Karol Krajco, Valentinas Navickas, and Vytautas Snieska:

“This study estimates the economic impacts of demographic changes driven by generational changes on the labour market and business environment in the Slovak Republic and selected European countries (Hungary, Poland, Czech Republic, Germany, France, Italy). It examines how demographic changes influence sectoral labour demand and the number of business entities. The main research questions are: RQ1: How do generational disparities affect sectoral demand? RQ2: How do generational disparities affect the number of entrepreneurs in the labour market? A comparative analysis of statistical data from 2013 to 2023 shows that sectors such as wholesale, retail, industry, and information and communication technology (ICT) face a shortage of skilled labour. To address RQ2, a regression analysis covering the long-term period from 1995 to 2020 is applied. The evaluation of RQ2 is supported by two hypotheses (H). H1: Changes in population development affect the number of enterprises at a statistically significant level. H2: Changes in population development affect the size of companies in a statistically significant variable. The results indicate that demographic trends associated with generational changes are reshaping the labour market structure, with the most significant impact observed in industries with high skill requirements and the segment of small and medium-sized enterprises. These businesses are flexible yet particularly vulnerable to shortages of skilled labour.”

From a paper by Giorgio Liotti, Marco Musella, and Ferdinando Ofria:

“Mainstream economic theory posits that high public debt levels create fragile conditions within the Eurozone by undermining economic growth, forcing countries to borrow on financial markets through the issuance of government bonds, and compromising the smooth functioning of the economic system. The Washington Consensus advocates fiscal austerity as a strategy to reduce public debt. This paper assesses whether the implementation of such austerity policies indeed reduces public debt. Using data on the change in cyclically adjusted primary balance in twelve Eurozone countries between 1999 and 2019 as a proxy for austerity measures, the empirical results, obtained using a Panel Dynamic OLS (PDOLS), reject the hypothesis of an inverse relationship between changes in the cyclically adjusted primary balance and the level of public debt. Conversely, we find that the adoption of fiscal austerity measures is associated with an increase in the level of public debt.”

From a paper by João Tovar Jalles, Carola Pessino, and Ana Cristina CalderonInter:

“Widening income disparities, higher corruption, and increased informality in many emerging market and developing economies (EMDEs)—all with pressing and mounting fiscal problems—have rekindled interest in the empirical analysis of the key factors determining the occurrence of fiscal consolidations. Using discrete choice models, this paper examines the drivers of fiscal consolidation episodes in a sample of 148 EMDEs between 1980 and 2019, with a focus on Latin American and Caribbean countries. Inequality does not seem to drive consolidations—which are more likely during good economic times—while more informality increases the probability of their occurrence and corruption decreases it. In turn, when examining the drivers of successful consolidations, larger income inequality acts as a boost, while informality is a hinderance. In fact, while the size of the public investment multiplier in Latin America and the Caribbean is larger than in other regions, when informality is high, the multiplier effect is reduced to a much lower and insignificant magnitude. Results are robust to several sensitivity and robustness tests.”