Monetary Policy Tightening and Economic Landing
This article presents a new approach for estimating the optimal nominal interest rate and labels it the appropriate-FFR. The analysis suggests that the US Federal Reserve is behind the curve in the present cycle and also predicts a hard landing using both the FOMC and Blue Chip consensus forecasts. Given the historical accuracy of our method, we caution decision makers to consider the possibility of a hard landing in the near future.
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The Long and Winding Road from the International Macroeconomic Policy Trilemma to the Integrated Policy FrameworkFor many years the international macroeconomic policy trilemma, which argues that it is impossible to simultaneously have a pegged exchange rate, monetary independence and an open capital account, has provided a theoretical foundation for open economy macroeconomics and international monetary economics. The original form of the trilemma has been criticised and modified to suggest that its corners can be rounded and that the constraints imposed by it may be circumvented in the short run. The trilemma has also been criticised for ignoring the importance of financial stability. The most extreme allegation has been that the trilemma does not exist at all because flexible exchange rates do not provide effective insulation from a global financial cycle and that therefore countries only have a choice between monetary autonomy and capital controls. Much of the research in international monetary economics since the inception of the trilemma has tended to focus on its key elements, particularly in terms of exchange rate policy and capital controls, in a world that exhibits increasing financial globalisation. The research agenda recently embarked upon by the International Monetary Fund under the umbrella of the Integrated Policy Framework (IPF) concentrates on how countries should respond to the volatility of international capital flows. This article provides a summary of the evolution of international monetary economics in the context of the trilemma, as well as a measured and constructive critique of the IPF. In so doing, it assesses the current state and future direction of open economy macroeconomics and international monetary economics.
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From Recession with LoveThis article examines why some conventional finance theory no longer seems to apply in the post-2008 period. It discusses the reasons for financial markets responding to good news about economic fundamentals as if it was bad news. My controversial conjecture is that (as long as inflation is no longer an imminent threat) recession news would be welcomed by the financial markets – boosting equity prices rather than lowering them. I further document the increasingly-important “flight to focal points” phenomenon, offering examples from the meme stocks and cryptocurrency asset classes as well as some predictions going forward.
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Risk through the Looking GlassThis article argues that the general acceptance of volatility constituting a good measure of risk is not appropriate in the context of capital investment appraisal. It is argued that expected loss should be employed as a measure of risk. It is further illustrated how the risk aversion attitudes of potential investors can be taken into consideration in the capital investment decision. The pursuit of return without risk inevitably leads to the transfer of wealth through an underperforming banking system which collaborates with an unregulated financial market seeking low risk and relatively safe returns for the benefit of their wealthy clients. The promise of a ‘return without the risk’ leads financial intermediaries in an elusive direction: the only way to attain this is through directing funding to capture existing assets rather than investing in the real economy to create new wealth.
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Relationship Between Macroeconomic Variables and Stock Market ReturnsThe present study is an attempt to understand the interactions between prominent macroeconomic variables and stock market returns among seven emerging economies by using a novel econometric technique, the ARDL model. The study found macroeconomic variables do have significant impact on stock market returns although varying in magnitude and direction across sample countries. Significant external impact of oil prices and exchange rates is visible on stock market returns of emerging economies. Stock returns of the emerging economies are informationally inefficient because understanding the trends in macroeconomic variables can be used to beat the market.
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Stock Prices and the Macro Economy in IndiaThis article studies the relationship between stock prices and the Indian macroeconomy assessed by the level of GDP. There are many different channels of influence between these two variables, channels which may function in either direction. There are also many hypotheses pertinent to these interrelationships. We concentrate on the empirical character of this link, which we analyse within the framework of a VAR/VEC model that allows for two-way interactions but is agnostic regarding the specific theoretical underpinnings, rather than overtly evaluating hypotheses. Using tests for stationarity and cointegration it is discovered that the relationship between stock prices and GDP is cointegrating over the long term. We estimate a VAR model and use variance decomposition. We find that there is strong evidence of long-run causality from the stock market to the economy but not vice versa. We also find modest evidence of a similar short-run effect. We rationalise our results in terms of the relatively small size of India’s stock market. It is found that Nifty 50 has strong influence on GDP but GDP does not have any influential effect on Nifty 50 in its forecast error variance. The DCC analysis indicates that there is no integration between GDP and Nifty 50 return in the short run or over long periods.
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Zombie Companies, Low Investment and Low Interest RatesThe number of zombies has risen this century and growth has slowed. Both have a common cause in the bonus culture but, unlike Japan after 1990, there is no direct causal link. Ultra-low interest rates have not slowed growth. While monetary policy is largely responsible for the surge in inflation and the current high risk of another financial crisis, higher interest rates, not offset by other measures to stimulate the economy, would have slowed rather than boosted growth. The popularity of these misconceptions arises from (i) otherwise fully justified concerns about monetary policy, (ii) misunderstanding the concept of creative destruction, and (iii) confusing companies with the businesses they own. Overleveraged companies are refinanced or liquidated; the distinction depends on the difference between their scrap and potential stock market value, the relevance of which is denied by the consensus economic model. Analysing the issue thus requires the use of other economic models.
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Gender Inequality in the Indian Informal EconomyThis article seeks to understand the different dimensions of informal employment in India from a gender perspective. It also seeks to understand the social and economic impact of COVID-19 lockdowns on the lives of female informal workers in Ludhiana (Punjab). Gender pay gaps are larger in the informal sectors examined than in the formal sector. The COVID-19 pandemic has deepened existing social and economic inequalities, resulting in loss of jobs, low income, increasing the burden of household work, concerns about payment of rent and limited access to health services for female informal workers.
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Understanding the Determinants of the Gender Gap in the EconomyThe gender gap has been central to discussing development policies in recent decades. It is considered one of the primary benchmarks for policymakers worldwide. This study aims to combine and highlight the primary determinants of the gender gap in four regions: North America, Latin America, Africa and the Middle East, including 21 countries over the period 1990–2020. The model used is backed by economic theory and previous empirical studies to examine the interaction between the gender gap represented by the wage, labour and education gaps (on one hand) and six determinants (trade openness, economic growth, the Human Development Index, population, remittances and foreign direct investment) on the other hand. The study’s empirical findings indicate that governments should seek to remove the wage gap by being transparent, to ensure women do not receive less than men. They should also support the role of women through mentorships in business, especially in jobs classified as male-dominated, and apply skills-based assessments fairly, regardless of the gender of the employee, especially in developing countries.
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The Implementation of Vouchers in Formalising Undeclared Work in the Republic of North MacedoniaThis article reviews the main challenges of the labour market in the Republic of North Macedonia and explains the various definitions of undeclared work (UW). North Macedonia (earlier former Yugoslav Republic of Macedonia or FYRM) has achieved very respectable success in its economic development and preparation of needed preconditions for economic growth. However, additional improvements and measures are needed. This article overviews the various definitions and methods for estimating UW. In the further formalisation of UW, the use of a voucher-based system can be more than useful. A service voucher is a means of payment, often co-financed by government, which allows a private user to pay an employee for conducting tasks. By providing service vouchers to those employing labour, the intention is to encourage them to purchase services on a formal rather than informal basis. The introduction of voucher schemes is not the goal per se, but it can be an important precondition for establishing the rule of law and to enable more generous public revenues.
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Is Another Eurozone Crisis Coming?The Eurozone crisis in the early 2010s was a landmark event. However, markets did not seem to see it coming. It was only once the crisis had begun that markets received a wake-up call, and risk premia began to rise sharply. Markets then began to act in a way that was more consistent with the efficient markets hypothesis. However, in the subsequent aftermath of the crisis, risk premia have fallen again, even though a number of conventional indicators of vulnerability, for example in the form of fiscal imbalances and indebtedness, suggest that some members of the Eurozone remain vulnerable. Shocks in the form of the COVID-19 pandemic and the Ukraine war are likely to expose this vulnerability and increase the risks of there being another crisis. There are various scenarios in terms of the future of the Eurozone. These have different implications for the probability of there being a crisis. Another crisis remains a distinct possibility. Are markets assessing the risks appropriately, or is it that, having woken up following the last crisis, they may have gone back to sleep? Are they underestimating the risks of another Eurozone crisis?
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Economic Shocks and Development Resilience in Nigeria: Evidence from State Fragility IndexThis article examines the prospects for and challenges of development resilience within the methodological framework of the state fragility index in Nigeria. By using a qualitative and dialectical approach we find, contrary to initial expectation, that the economy showed traces of high vulnerability to crisis with a fragility index value of 94.4 in 2006, rising steadily to 100.2 in 2010 and 103.5 in 2016 on a scale of 0–120, despite overcoming various spates of economic crisis. Nigerian’s average fragility index between 2006 to 2021 ranked 15th out of 178 countries, only better than war torn Sudan, Iraq, Somalia and so on. In fact, the country performance was worse-off than Sri Lanka, a country currently faced with social upheavals. The success story of surmounting different phases of economic shock gauged using output growth in the two decades from 1999 to 2021 have not translated to betterment in the life of the populace. The article notes with dismay the increased level of unemployment and the diminutive standard of living and vulnerability during the economic crisis, demonstrating a clear mismatch between policy priority and development resilience.
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The Impact of Financial Corruption on the Economy and Means of PreventionOur study aims to examine the impact of financial corruption on the economy in Jordan over the period 1990–2020. The study used different measures to measure financial corruption more efficiently, including the values and numbers of corruption cases. It also used the seemingly unrelated regression (SUR) technique to estimate the model. The results confirm no statistically significant impact of financial corruption on economic growth, FDI or budget deficit. At the same time, financial corruption has a negative impact on public debt. The study also recommends means to help to prevent and fight against all kinds of corruption worldwide.
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Measuring Trade Flows Between India and Latin American and Caribbean CountriesThis study has been undertaken to analyse the bilateral trade flows between India and selected Latin American and Caribbean countries and the period of study is from 2001 to 2019. The trade tool used is the augmented gravity model and the study specifically covers four countries of Latin America and the Caribbean: Brazil, Colombia, Mexico and Trinidad & Tobago. The three Latin American countries were chosen because India’s trade with them is higher than with any other LAC countries, and because they offer high potential. Trinidad & Tobago is a large, well-recognised island, and offers greater potential than other Caribbean nations. We have taken export, import and total trade as dependent variables between India and each country considered, in three different equations, and a few independent and dummy variables have also been employed. The results show that GDP, GNP, per capita GDP/GNP and openness of the economy all play a very significant role in affecting bilateral trade. Also, though trade agreements do not have much effect, openness of trade and liberal trade policies are important.
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Measuring the Non-observed Economy in VietnamThis article takes advantage of new political demand at the government’s highest level to focus on measurement of the informal economy in Vietnam from a statistical perspective. The main challenges, concepts and definitions regarding the informal economy within the framework of the non-observed economy are reviewed. A discussion of alternative methodologies for measuring the informal sector, in general and their application to Vietnam, is presented. As the two main strategies for measuring the informal sector have been conducted in parallel since 2007, this gives a unique opportunity to compare the two approaches. Based on past experiences, some recommendations for designing an improved system are made. A review is conducted of the illustrative empirical results, both on the labour market and the national accounts, and thoughts on the challenges ahead are offered.
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The Impact of Financial Corruption on Economic PerformanceThis study aims to evaluate the impact of financial corruption on economic performance in Jordan using time series data over the period 1990–2020. It used the dynamic least squares (DOLS) estimation method to examine the impact between the variables using the Corruption Perception Index (CPI) and Corruption Rank (CR) to measure financial corruption in Jordan. The results confirm that the CPI has a positive impact on economic growth, the Human Development Index, trade openness, population growth and foreign direct investment, while CR has a negative impact on economic growth, foreign direct investment, and trade openness and a positive impact on the Human Development Index and population growth. Finally, the study provides recommendations that refer to the importance of fighting corruption, especially in developing countries.
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Inequality: A Problem for the Indian EconomyThe economic slow-down and COVID-19 pandemic have highlighted India’s extreme crisis inequality. India is an unequal country: 84% of household sector income declined in 2021, at the same time that the number of billionaires went up from 102 to 142. According to the World Inequality Report, the income of the top 10% of the population is 20 times that of the bottom 50% and this group holds 64.6% of the wealth. In this research, I have used multiple inequality and poverty reports and methods to analyse the inequality in India. Furthermore, this research uses a regression analysis method to find correlations between inequality and other related factors directly affecting inequality. Moreover, the Gini coefficient (and Lorenz curve) is 0.710, showing high inequality, using different parameters to calculate inequality. Other parameters, such as the Palma, quintile and Kuznets ratios also show increasing inequality.
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Relationship of Internet Activity to Economic and Social MetricsThis paper provides a multinational analysis of the relationship of internet activity to economic and social metrics. Analyses were made of 129 countries, all those with complete data for internet usage, economic activity, economic freedom, gender equality, and social progress. The internet facilitates economic development in myriad ways, such as businesses can efficiently offer their goods and services online. Findings indicate that countries with higher levels of Internet usage are associated with significantly higher levels of economic activity, Economic freedom gives citizens the right to control their own labor and property. Countries with higher levels of internet usage are associated with significantly higher levels of economic freedom. Gender equality and social progress are valuable components of a vibrant economy. Findings of this study show that countries having higher levels of internet usage are associated with significantly higher levels of gender equality and social progress.
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Fears of Inflation: What’s Going On?Although there are global differences in rates of inflation, a sharp acceleration in inflation during 2021/22 occurred in most parts of the world. Measurement matters. Differences exist between headline and core rates of inflation. These reflect the composition of inflation. This is not the first time in the post-1945 period that inflation has accelerated and reached a relatively high level. Looking at earlier episodes may help in understanding the recent acceleration. Accumulated inflation theory also helps in explaining what’s going on. There are a number of factors at work both on the supply side and the demand side, although their contribution varies across countries. Macroeconomic policy designed to manage aggregate demand will play a key role in tackling inflation, but supply-side and labour-market issues are also important. In predicting the future of inflation, the central question is whether or not a higher rate of inflation becomes embedded in expectations.
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Out of the Frying Pan, into the FireWe ask how the war in Ukraine is likely to affect the green energy transition and its changing resource requirements in the longer term, given the resource endowments of Russia and Ukraine. We argue that the invasion of Ukraine complicates Europe’s green energy transition in the short term and may result in a new form of dependency on Russia, if Russia annexes Ukraine or installs a sympathetic government. The worldwide transition to green energy will disturb existing power relations and geopolitical equilibria and may be associated with rising geopolitical tensions with this war being a potential forebearer of what lies ahead.
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The Disconnect of Funding From Wealth CreationThis article identifies concentration of money and power and loosely regulated financial markets as impeding the efficient allocation of economic resources. The pursuit of return without risk inevitably leads to the transfer of wealth through a failing banking system which collaborates with hedge funds and global wealth management groups, who constantly seek low risk and high returns for the benefit of their wealthy clients. It is further argued that conditions conducive to economic development hardly exist in highly indebted countries and that wasteful finance inevitably brings about financial crises and recessions. The promise of a ‘return without the risk’ leads financial intermediaries in the direction of a quest, since the only way to attain this is through directing funding towards the capture of existing assets rather than it being invested back in the real economy to create new wealth.
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An Analysis of India’s Trade Intensity with Latin American and Caribbean CountriesThis article aims to establish a better trade relationship between India and Latin American and Caribbean countries, so they come closer, share common interests and find out means of enhancing bilateral trade as a result of bilateral negotiations. It presents Trade Intensity Indexes (TII) as a measure of trade between India and Latin American countries, with special reference to Brazil, Colombia, Mexico, and Trinidad and Tobago (TTO), for the years 2001 to 2019. The analysis in this article reveals India’s trade with these four countries has been less than it should have, given their respective trade potential, for a variety of reasons, notably quality, technological differences and also cost and policy deficiencies. Product diversification, infrastructural improvements and strong diplomatic and marketing efforts in which government and private sector participate would be of immense help in addressing this.
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The Drivers Behind Corruption in Official StatisticsThe manipulation of official statistics is grand corruption and political corruption. There is a mechanism that gives rise to phenomena of corruption in official statistics and has component parts: the drivers, the enabling conditions, the modalities and methods used to arrive at the phenomena, and the vectors or agents that execute or propagate the phenomena. The main focus of this article is the drivers, that is, the interests and incentives of those directly or indirectly involved in phenomena of corruption in official statistics, and without which these phenomena would not arise. To attenuate drivers (which will always be present) we propose to foster a culture of statistical ethics through specific steps of education and socialization, as well as laws and institutional setups supportive of statistical ethics.
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Nigerian Statistical Data and their TrustworthinessAs at 2020, the population of Nigeria was said to be about 200 million (World Bank, 2020). However, the actual population of Nigeria remains a subject for national debates, since there are no databases for birth or death rates. To ascertain the trustworthiness of the statistical data in Nigeria, this study used various secondary data. Critical discourse analysis was used to analyse the information obtained. We find that most of the information supplied for usage are distorted; the Bureau of Statistics lacks skilled personnel; data for the same year may vary depending on which organisation supplied it; and obsolete techniques are used for generating economic data. The study suggests that providers acknowledging data limitations will help users during usage and application.
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Exercising Economic Sovereignty in Today’s Global Financial WorldIn this article, I argue that current macroeconomic models do not recognise the role that "global investors" play in determining the space for effective macroeconomic policies. These important players must be placed at the center of macroeconomic analysis if we are to understand how macroeconomic policies work in the global financial environment. The article describes the key characteristics of global investors, analyses their power to determine the value at which public sector liabilities (money and debt) are traded on international markets and how this power affects policy effectiveness. No country is truly sovereign in a globalised world and all governments are subject to an inter-temporal budget constraint that is endogenous to global investor decisions. The policy choices of countries in today's globalised financial environment would benefit from revisiting some of J. M, Keynes's teachings, considering his in-depth knowledge of global financial markets and how they affect economies of the countries.
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Not Cyclical but SecularClassical economics assumed that interest rates would adjust, or could be adjusted, to ensure that there was no mismatch between private sector intentions to save and invest. Interest rates were therefore assumed to be the sole policy tool needed to maintain full employment. Keynes revolutionised economics by postulating the possibility of a liquidity trap in which interest rates could not fall low enough to boost demand and that fiscal deficits would then be needed to prevent large-scale unemployment. The consensus today is that demand can be maintained by some mixture of fiscal and monetary stimuli, with the latter including quantitative easing (‘QE’) as well as by the management of short-term interest rates. The underlying assumption of this consensus is that the private sector’s ex ante net savings surplus is cyclical, at least after allowing for the impact of fiscal policy, i.e. it is purely due to those temporary weaknesses in demand which accompany the business cycle and is thus not a secular problem arising from some structural change in the economy. Neoclassical economics, on which monetary policy is based, has no adequate model which explains how private sector savings and investment are determined. The consensus view that the ex ante savings surplus is cyclical has therefore no support in economic theory. Neoclassical theory wrongly assumes that the savings/investment balance is the only source of economic disequilibrium. Another is q, which is the ratio between the market value of companies and their net worth. QE drives up q, which is mean reverting through changes in equity prices which, when sharp, have a marked impact on the economy. Falls in q are faster than rises, but their timing cannot be known. The economy is thus unstable and unpredictable when q is high.
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Diversity and InclusionThis study employs the natural unemployment rate as a benchmark to characterize the state of the US labor market by race and gender. In our analysis, we find that the COVID recession produced asymmetric economic damages to some segments of the population and that the pace of recovery from the recession is slower for some races and gender than for others. This pattern matches similar trends of asymmetric damage and recovery seen over the prior three business cycles. The Black labor market was affected most by recessions and experienced the slowest pace of recovery; in particular, Black women’s pace of recovery was the slowest among any race and gender. Of all segments examined over this 30-year period, only the Black labor market never achieved full employment, making the past three business cycles “recovery-less” experiences for Black Americans. This finding, that one race never achieved full employment, suggests that policymakers should incorporate “diversity and inclusion” into their efforts to confront recessionary periods, rather than the current tradition of one-policy-fits-all. Our work proposes a new policy goal of full employment for every race and gender, which we believe would be a start to ending the “recovery-less” experience for Blacks. Typically, policymakers rely on and respond to the aggregate economic numbers; however, we believe there must be policy tools specifically focused on the race/gender-defined labor markets. Our analysis suggests that a faster recovery in the Black labor market would boost the pace of national recovery and that focusing on the Black market would also help the aggregate market. As a result, incorporating the race and gender data would help to design policies to benefit all. In other words, full employment for every race and gender should be the policy goal going forward.
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Total Factor Productivity Growth in Indian ManufacturingResearch findings suggest that the trends in total factor productivity (TFP) are highly cyclical across years during the pre-reform period and have shown a similar cyclical trend during the post-liberalisation period in all three measures—GO based, A based and KLEMS measure adopted. These results indicate higher growth in TFP during the pre-reform period when value added (double deflation) is used but not when value added (single deflation) is used. Overall, the productive performance of manufacturing industry in India has shown a gradual upward, positive trend since the initiation of economic reforms in 1991, explicitly reflecting the favourable impact of liberalisation on TFP growth. For the manufacturing sector in India, the post-reform era witnessed accelerating growth in TFP but deceleration in capital intensity and material and labour productivity. The contribution of TFP growth to the growth in output is either negative or insignificant across the entire timeframe.
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Evolving Indian PolicyAs the world reorients into a bipolar power struggle between the USA and China, India is often touted to be the counterbalancing force to China, mainly due to geographical proximity, size and population. In the post-USSR world and since economic reforms in 1991, India became strategically coupled to the USA and economically coupled to China. Since 2014, it has often been argued that India has started to decouple from China and become closer to the USA, both strategically and economically. This article shows, with the help of the publicly available data, that while India has struggled to move out of the economic dominance of China, it has remained equidistant from the USA as well. The analysis covers mainly trade and defence, while keeping the general economic, developmental and political aspects in the backdrop.
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