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Journal Cover   OECD Journal : Economic Studies
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   ISSN (Print) 1995-2848 - ISSN (Online) 1995-2856
   Published by OECD - Organisation for Economic Co-operation and Development Homepage  [83 journals]
  • The future of health and long-term care spending
    • Abstract: This paper proposes a new set of public health and long-term care expenditure projections until 2060, following up on the previous set of projections published in 2006. It disentangles health from long-term care expenditure as well as the demographic from the non-demographic drivers, and refines the previous methodology, in particular by better identifying the underlying determinants of health and long-term care spending and by extending the country coverage to include BRIICS countries. A cost-containment and a cost-pressure scenario are provided together with sensitivity analysis. On average across OECD countries, total health and long-term care expenditure is projected to increase by 3.3 and 7.7 percentage points of GDP between 2010 and 2060 in the cost-containment and the cost-pressure scenarios, respectively. For the BRIICS over the same period, it is projected to increase by 2.8 and 7.3 percentage points of GDP in the costcontainment and the cost-pressure scenarios, respectively.
      PubDate: 2015-03-27T00:00:00Z
  • Foreign direct investment and reverse technology spillovers
    • Abstract: The paper analyses the "feedback effect" of Foreign Direct Investment (FDI) on Total Factor Productivity (TFP) growth in emerging economies via technology spillovers across borders. We study the effect of R–D spillovers resulting from outward FDI flows from 18 emerging economies into 34 OECD countries over the 1990-2010 period, comparing the impact with that of spillovers resulting from inward FDI flows. The result confirms that FDI enhances productivity growth; however the impact is much larger when R-D-intensive developed countries invest in the emerging economies than the other way round. Country-specific bilateral elasticities also support this outcome. JEL classification: F210, F430, F620, O470.
      Keywords: Outward FDI, Inward FDI, Reverse technology spillovers, Total factor productivity.
      PubDate: 2015-03-27T00:00:00Z
  • Japan's challenging debt dynamics
    • Abstract: A small simulation model is used to evaluate the contribution that the three arrows of the government’s strategy – bold monetary policy to achieve higher inflation, flexible fiscal policy and growth-boosting structural reforms – could make to reversing the rise in Japan’s public debt ratio, currently about 230% of GDP. The findings indicate that with fiscal consolidation amounting to around 7½ percentage points of GDP by 2020, modestly higher growth coming from increased female labour force participation and higher productivity growth, as well as inflation gradually rising to 2% thanks to unconventional monetary policy measures, the debt ratio could be put on a downward trajectory by the end of this decade, although it is likely to remain above 200% of GDP in 2035. Among the many uncertainties surrounding this scenario, the risk of a larger-than-projected increase in interest rates stands prominently and could prevent the turnaround in debt dynamics. JEL classification codes: E63; H68.
      Keywords: Japan; debt; deficit; fiscal; budget; projection; simulation; arrow; consolidation; growth; inflation; reform.
      PubDate: 2015-03-27T00:00:00Z
  • Lessons from OECD forecasts during and after the financial crisis
    • Abstract: This paper assesses the OECD’s projections for GDP growth and inflation during the global financial crisis and recovery, focusing on lessons that can be learned. Growth was repeatedly overestimated in the projections, which failed to anticipate the extent of the slowdown and later the weak pace of the recovery. Similar errors were made by many other forecasters. At the same time, inflation was stronger than expected on average. Analysis of the growth errors shows that the OECD projections in the crisis years were larger in countries with more international trade openness and greater presence of foreign banks. In the recovery, there is little evidence that an underestimate of the impact of fiscal consolidation contributed significantly to forecast errors. Instead, the repeated conditioning assumption that the euro area crisis would stabilise or ease played an important role, with growth weaker than projected in European countries where bond spreads were higher than had been assumed. But placing these errors in a historical context illustrates that the errors were not without precedent: similar-sized errors were made in the first oil price shock of the 1970s. In response to the challenges encountered in forecasting in recent years and the lessons learnt, the OECD and other international organisations have sought to improve their forecasting techniques and procedures, to improve their ability to monitor near-term developments and to better account for international linkages and financial market developments. JEL classification: E17, E27, E32, E37, E62, E66, F47, G01
      Keywords: Forecasting, economic outlook, economic fluctuations, fiscal policy
      PubDate: 2015-03-27T00:00:00Z
  • Rescuing the Phillips curve
    • Abstract: Despite the increased importance of cyclically-adjusted measures of labour market slack for policymaking, estimates of the NAIRU have become increasingly fragile. Particularly for euro area countries, NAIRU estimates represent a crucial input to compute cyclically-adjusted budget balances adopted to formulate medium-term fiscal objectives under the EU fiscal surveillance framework. However, the apparent reduced sensitivity of inflation to labour market dynamics and unemployment gaps seriously undermines the use of Phillips curve equations in estimating the NAIRU. Estimates of the NAIRU are particularly problematic when changes in unemployment are both very large and rapid as in the aftermath of the global crisis. This paper proposes a refinement to the standard OECD approach of using a Kalman filter to estimate the NAIRU in the context of the Phillips curve. The proposed refinement strengthens the relationship between inflation and labour market developments by considering the risk of hysteresis effects associated with changes in long-term unemployment. Testing the revised methodology on a broad selection of OECD countries gives mixed results. For a group of countries in the euro area periphery (Greece, Ireland, Italy, Portugal and Spain) there is an increase in the magnitude and statistical significance of the unemployment gap, with the NAIRU revised upward by on average 1¾ percentage points. However, the revised methodology provides less improvement to the standard OECD methodology for a second set of countries considered, namely the G7 excluding Italy. The United States is an interesting intermediate case as the statistical evidence for the proposed methodology is marginal, but the policy implications of the revised point estimate of the NAIRU are major. JEL classification: C32, E24, E31, E32, J64.
      Keywords: Long-term unemployment, flattening Phillips curve, NAIRU, euro area periphery, Kalman filter.
      PubDate: 2015-03-27T00:00:00Z
  • The effect of the global financial crisis on OECD potential output
    • Abstract: Potential output losses from the global financial crisis are estimated by comparing recent OECD published projections with a counter-factual assuming a continuation of pre-crisis productivity trends and a trend employment rate which is sensitive to demographic trends. Among the 19 OECD countries which experienced a banking crisis over the period 2007-11 the median loss in potential output in 2014 is estimated to be about 5½ per cent, compared with a loss in aggregate potential output across all OECD countries of about 3½ per cent. The loss does, however, vary widely across countries, being more than 10% for several smaller European, mainly euro area, countries. The largest adverse effects come from lower trend productivity, which is a combination of both lower total factor productivity and lower capital per worker. Despite large increases in structural unemployment in some countries, the contribution of lower potential employment is limited because the adverse effect on labour force participation is generally much less than might have been expected on the basis of previous severe downturns. This may partly reflect pension reforms and a tightening up of early retirement pathways. Pre-crisis conditions relating to over-heating and financial excesses, including high inflation, high investment, large current account deficits, high total economy indebtedness and more rapid growth in capital-per-worker are all correlated with larger post-crisis potential output losses. This suggests that underlying the potential output losses was a substantial misallocation of resources, especially of capital, in the pre-crisis boom period. On the other hand, more competition-friendly product market regulation is associated with smaller losses of potential output, suggesting that it facilitates a reallocation of resources across firms and sectors in the aftermath of an adverse shock and so helps to mitigate its consequences. JEL classification: E32; E44.
      Keywords: Banking crisis, financial crisis, global financial crisis, potential output.
      PubDate: 2015-03-27T00:00:00Z
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