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Journal Cover IMF Working Papers
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   Full-text available via subscription Subscription journal
   ISSN (Print) 1018-5941
   Published by International Monetary Fund Homepage  [11 journals]
  • Inclusive Growth Framework
    • Abstract: The paper suggests an operationally usable framework for the evaluation of growthinclusiveness—the inclusive growth framework (IGF). Based on the data on growth, poverty,and inequality, the framework allows for the quantitative assessment of growth inclusiveness.The assessment relies on the decomposition of the change in poverty into growth, distribution,and decile effects, which can be calculated using the Distributive Analysis Stata Package(DASP). Availability of at least two household surveys is the main precondition for the use ofthe IGF. The application of the IGF is illustrated with two country cases of Senegal andDjibouti.
      PubDate: 30 May 2017 09:00:00 EST
  • Structural Reform Packages, Sequencing, and the Informal Economy
    • Abstract: This paper explores the macroeconomic impacts of labor and product market deregulationusing a small open-economy model with formal and informal markets. We examine both thelong-run effects and the transition towards the post-reform equilibrium, while our main focusare reform packages and sequencing. The unofficial sector is a major determinant of the sign,and, in particular, the magnitude of responses. South Africa, an emerging country, isconsidered when Bayesian estimating the model. Regarding the long run, both labor andproduct market reforms considerably increase output, although labor market reforms aremore successful in decreasing unemployment. Nevertheless, there are short-term costs, forexample, a decrease in household consumption, net exports or output, or a decrease incompetition. Combining reforms, especially with product market deregulation, are good atreducing short-term costs. Finally, concerning the speed of adjustment, it is usually better tostart with a labor market reform.
      PubDate: 26 May 2017 09:00:00 EST
  • Labor Market Adjustments to Shocks in Australia
    • Abstract: Labor markets in Australia have adjusted smoothly to significant declines in commodity priceswith little increase in unemployment. This paper examines several aspects of the adjustment,focusing on (i) evidence of increased labor market frictions following the commodity pricedecline; (ii) flexibility in labor input adjustment in response to demand shocks; (iii) changes inlabor productivity in the wake of resource reallocation with the decline in mining investment,(iv) and the role of migration in adjusting to the commodity price and mining investment cycle.We find little evidence of increased labor market frictions with the decline in commodity prices.The relatively smooth transition has been assisted by increased flexibility in adjustment ofworker hours over time. Labor productivity growth has sustained its historical average throughthe transition, despite some temporary drag as the economy rebalances. Finally, migration hasplayed a key role in labor market adjustment through the commodity cycle.
      PubDate: 24 May 2017 09:00:00 EST
  • The Right Kind of Help' Tax Incentives for Staying Small
    • Abstract: Some countries support smaller firms through tax incentives in an effort to stimulate job creation and startups, or alleviate specific distortions, such as financial constraints or high regulatory or tax compliance costs. In addition to fiscal costs, tax incentives that discriminate by firm size without specifically targeting R&D investment can create disincentives for firms to invest and grow, negatively affecting firm productivity and growth. This paper analyzes the relationship between size-related corporate income tax incentives and firm productivity and growth, controlling for other policy and firm-level factors, including product market regulation, financial constraints and innovation. Using firm level data from four European economies over 2001–13, we find evidence that size-related tax incentives that do not specifically target R&D investment can weigh on firm productivity and growth. These results suggest that when designing size-based tax incentives, it is important to address their potential disincentive effects, including by making them temporary and targeting young and innovative firms, and R&D investment explicitly.
      PubDate: 13 Jun 2017 09:00:00 EST
  • Public Investment Scaling-up and Debt Sustainability : The Case of Energy
           Sector Investments in the Caribbean
    • Abstract: The question of how scaling up public investment could affect fiscal and debt sustainability is key for countries needing to fill infrastructure gaps and build resilience. This paper proposes a bottom-up approach to assess large public investments that are potentially self-financing and reflect their impact in macro-fiscal projections that underpin the IMF’s Debt Sustainability Analysis Framework. Using the case of energy sector investments in Caribbean countries, the paper shows how to avoid biases against good projects that pay off over long horizons and ensure that transformative investments are not sacrificed to myopic assessments of debt sustainability risks. The approach is applicable to any macro-critical investment for which user fees can cover financing costs and which has the potential to raise growth without crowding-out.
      PubDate: 12 Jun 2017 09:00:00 EST
  • Capital Controls and the Cost of Debt
    • Abstract: Using a panel data set for international corporate bonds and capital account restrictions in advancedand emerging economies, we show that restrictions on capital inflows produce a substantial andeconomically meaningful increase in corporate bond spreads. A number of heterogeneities suggest thatthe effect of capital controls on inflows is particularly strong for more financially constrained firms,establishing a novel channel through which capital controls affect economic outcomes. By contrast,we do not find a robust significant effect of restrictions on outflows.
      PubDate: 09 Jun 2017 09:00:00 EST
  • Heterogeneity of Bank Risk Weights in the EU : Evidence by Asset Class and
           Country of Counterparty Exposure
    • Abstract: Concerns about excessive variability in bank risk weights have prompted their review byregulators. This paper provides prima facie evidence on the extent of risk weightheterogeneity across broad asset classes and by country of counterparty for major banks inthe European Union using internal models. It also finds that corporate risk weights aresensitive to the riskiness of an average representative firm, but not to a market indicator of afirm’s probablity of default. Under plausible yet severe hypothetical scenarios forharmonized risk weights, counterfactual capital ratios would decline significantly for somebanks, but they would not experience a shortfall relative to Basel III’s minimumrequirements. This, however, does not preclude falling short of meeting additional nationalsupervisory capital requirements.
      PubDate: 09 Jun 2017 09:00:00 EST
  • Bottom-Up Default Analysis of Corporate Solvency Risk : An Application to
           Latin America
    • Abstract: This paper suggests a novel approach to assess corporate sector solvency risk. The approach uses a Bottom-Up Default Analysis that projects probabilities of default of individual firms conditional on macroeconomic conditions and financial risk factors. This allows a direct macro-financial link to assessing corporate performance and facilitates what-if scenarios. When extended with credit portfolio techniques, the approach can also assess the aggregate impact of changes in firm solvency risk on creditor banks’ capital buffers under different macroeconomic scenarios. As an illustration, we apply this approach to the corporate sector of the five largest economies in Latin America.
      PubDate: 08 Jun 2017 09:00:00 EST
  • A Tie That Binds : Revisiting the Trilemma in Emerging Market Economies
    • Abstract: This paper examines the claim that exchange rate regimes are of little salience in thetransmission of global financial conditions to domestic financial and macroeconomicconditions by focusing on a sample of about 40 emerging market countries over 1986–2013.Our findings show that exchange rate regimes do matter. Countries with fixed exchange rateregimes are more likely to experience financial vulnerabilities—faster domestic credit andhouse price growth, and increases in bank leverage—than those with relatively flexibleregimes. The transmission of global financial shocks is likewise magnified under fixedexchange rate regimes relative to more flexible (though not necessarily fully flexible)regimes. We attribute this to both reduced monetary policy autonomy and a greatersensitivity of capital flows to changes in global conditions under fixed rate regimes.
      PubDate: 08 Jun 2017 09:00:00 EST
  • Financial Frictions, Underinvestment, and Investment Composition :
           Evidence from Indian Corporates
    • Abstract: This paper studies private investment in India against the backdrop of a significant investmentdecline over the past decade. We analyze the potential causes of weaker investment at the firmlevel, using both firm-level financial statements and a novel dataset on firms’ investment projectdecisions, and find that financial frictions have played a role in the slowdown. Firms with higherfinancial leverage invest less, as do firms with lower earnings relative to their interest expenses.Consistent with the notion of credit constraints leading to pro-cyclical investment, we also findthat firms with higher leverage are (i) less likely to undertake new investment projects, (ii) lesslikely to complete investment projects once begun, and (iii) undertake shorter-term investmentprojects.
      PubDate: 08 Jun 2017 09:00:00 EST
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