Portuguese Economic Journal, 2017, Volume 16, Nº 3
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- Boom, slump, sudden stops, recovery, and policy options. Portugal and the EuroPublication . Blanchard, Olivier; Portugal, PedroOver the past 20 years, Portugal has gone through a boom, a slump, a sud- den stop, and now a recovery. Unemployment has decreased, but remains high, and output is still far below potential. Competitiveness has improved, but more is needed to keep the current account in check as the economy recovers. Private and public debt are high, both legacies of the boom, the slump and the sudden stop. Productiv- ity growth remains low. Because of high debt and low growth, the recovery remains fragile. We review the history and the main mechanisms at work. We then review a number of policy options, from fiscal consolidation to fiscal expansion, cleaning up of non-performing loans, labor market reforms, product market reforms, and euro exit. We argue that at this point, the main focus of macroeconomic policy should be twofold. The first is the treatment of non-performing loans, the second is product market reforms and reforms aimed at increasing micro-flexibility in the labor market. Symmetrically, we also argue that at this point, some policies would be undesirable, among them faster fiscal consolidation, measures aimed at decreasing nominal wages and prices, and euro exit.
- Is time-variant information stickiness state-dependent?Publication . Yingying, Xu; Zhixin, Liu; Zichao, Jia; Chi-Wei, SuThis paper estimates information stickiness with regard to inflation expectations in the United States and the Eurozone for the 1981/06–2015/12 and 1998/Q4–2015/Q2 periods, respectively, and further investigates whether such information stickiness is state- dependent. Based on a bootstrap sub-sample rolling-window estimation, we find that information stickiness varies over time, which contradicts the strict time dependency implied under sticky-information theory. We provide evidence that information stickiness depends on inflation volatility, which indicates that information stickiness is state-dependent and that it has a time trend. Using a threshold model, we estimate structural changes in the state- dependence and time-trend of information stickiness. The results show that information stickiness has been more dependent on inflation volatility and has had a higher time-trend in both regions following the 2008 financial crisis.
- Exchange rate volatility and capital inflows: role of financial developmentPublication . Jehan, Zainab; Hamid, AzoobaThere is vast literature examining the impact of exchange rate volatility on various macroeconomic aggregates such as economic growth, trade flows, domestic investment, and more recently capital flows. However, these studies have ignored the role of financial development while examining the impact of exchange rate volatility on capital flows. This study aims to analyze the impact of exchange rate volatility on capital inflows towards developing countries by incorporating the role of financial development over the time period 1980–2013. In this regard, the behavior of two types of capital flows is examined: physical capital inflows measured as foreign direct investment, and financial inflows quantified through remittance inflows. The empirical investigation comprises the direct as well as indirect effect of exchange rate volatility on capital inflows. The study employs dynamic system GMM estimation technique to empirically estimate the effect of exchange rate volatility on capital inflows. The empirical results of the study identify that exchange rate volatility dampens both physical and financial inflows towards developing countries. The indirect impact of exchange rate volatility through financial development, however, turns out positive and statistically significant. This finding reflects that financial development helps in reduc- ing the harmful impact of exchange rate volatility on capital inflows. Hence, the study concludes that a developed financial system is an important channel through which developing countries may improve capital inflows in the long run.
- ARDL panel estimation of stock market indices and macroeconomic environment of CEE and SEE countries in the last decade of transitionPublication . Peša, Anita Radman; Wrońska-Bukalska, Elżbieta; Bosna, JuricaWe tested the hypothesis of the procyclicality of stock exchanges regarding the economic activity of CEE and SEE countries, to measure the level of financial integration during the last decade of the transition period, and to compare these two groups of emerging countries. Our ARDL panel estimates support the hypothesis of procyclicality in the transition period in the CEE and SEE regions, and further financial integration, due to the opening up of the market economy and repricing of systematic risk, followed by large capital inflows, trade liberalization and industrial production, along with the implementation of institutional reforms regarding EU integration. In addition, the significant positive coefficient of capital inflows and negative coefficient of unemployment rate in the CEE and SEE panel ARDL results confirm the volatility of the transition process, as is obvious in higher industrial production, followed by the significant impact of import on CEE countries and the much higher significant impact of export on SEE countries.