OECD Journal: Economic Studies

1995-2856 (online)
1995-2848 (print)
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OECD Journal: Economic Studies publishes articles in the area of economic policy analysis, applied economics and statistical analysis, generally with an international or cross-country dimension. While it draws significantly on economic papers produced by the Economics Department and other parts of the OECD Secretariat for the Organisation’s intergovernmental committees, the submission of articles produced by non-OECD authors is encouraged. We also welcome comments on articles previously published in the journal. Now published as part of the OECD Journal package.


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Mark Number Date Article Volume and Issue Click to Access
  22 Dec 2015 Incorporating anchored inflation expectations in the Phillips curve and in the derivation of OECD measures of the unemployment gap
Elena Rusticelli, David Turner, Maria Chiara Cavalleri

Inflation has become much less sensitive to movements in unemployment in recent decades. A common explanation for this change is that inflation expectations have become better anchored as a consequence of credible inflation targeting by central banks. In order to evaluate this hypothesis, the paper compares two competing empirical specifications across all OECD economies, where competing specifications correspond to the "former" and "new" specification for deriving measures of the unemployment gap which underlie the OECD Economic Outlook projections. The former OECD specification can be characterised as a traditional "backward-looking" Phillips curve, where current inflation is partly explained by an autoregressive distributed lag process of past inflation representing both inertia and inflation expectations formed on the basis of recent inflation outcomes. Conversely, the new approach adjusts this specification to incorporate the notion that inflation expectations are anchored around the central bank’s inflation objective. The main finding of the paper is that the latter approach systematically out-performs the former for an overwhelming majority of OECD countries over a recent sample period. Relative to the backward-looking specification, the anchored expectations approach also tends to imply larger unemployment gaps for those countries for which actual unemployment has increased the most. Moreover, the anchored expectations Phillips curve reduces real-time revisions to the unemployment gap, although these still remain uncomfortably large, in the case of countries where there have been large changes in unemployment.

JEL classification: C22, E24, E31, J64
Keywords: Anchored expectations, Phillips curve, equilibrium unemployment, real-time revisions

Volume 2015 Issue 1 Click to Access: 
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  • http://www.keepeek.com/Digital-Asset-Management/oecd/economics/incorporating-anchored-inflation-expectations-in-the-phillips-curve-and-in-the-derivation-of-oecd-measures-of-the-unemployment-gap_eco_studies-2015-5jrp104kjgmr
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  22 Dec 2015 Does the post-crisis weakness of global trade solely reflect weak demand?
Patrice Ollivaud, Cyrille Schwellnus

Global trade growth over the past few years has appeared extraordinarily weak, even in relation to weak global GDP growth. This paper shows that the apparent breakdown in the relationship between global trade and global GDP growth is largely explained by two factors: an inappropriate measurement of global GDP and extraordinary demand weakness in the euro area. As a measure of demand for traded goods, global GDP at market exchange rates is more appropriate than the conventional purchasing power parity-based measure. Moreover, extraordinary demand weakness in the euro area – which is a particularly trade intensive region – has had a substantial negative effect on intra-euro area trade flows, which are commonly counted towards global trade. When global GDP is measured at market exchange rates and intra-euro area flows are removed from the measure of global trade, econometric estimations suggest that over the past 15 years the long-term elasticity of global trade to GDP has been similar to that of the 1990s. Indeed, the overwhelming part of postcrisis trade weakness can be attributed to weak global demand rather than structural changes, according to the econometric estimations in this paper and supporting evidence on changes in global investment, international production fragmentation and protectionism.

Volume 2015 Issue 1 Click to Access: 
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  • http://www.keepeek.com/Digital-Asset-Management/oecd/economics/does-the-post-crisis-weakness-of-global-trade-solely-reflect-weak-demand_eco_studies-2015-5jrq9tzbwkr3
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  22 Dec 2015 Can pro-growth policies lift all boats?
Orsetta Causa, Alain de Serres, Nicolas Ruiz

In a majority of OECD countries, GDP growth over the past three decades has been associated with growing income disparities. To shed some lights on the potential sources of trade-offs between growth and equity, this paper investigates the long-run impact of structural reforms on GDP per capita and household income distribution. Pro-growth reforms can be distinguished according to whether they are found to generate an increase or a reduction in household disposable income inequality. Those that contribute to reduce inequality include the reduction in regulatory barriers to competition, trade and FDI, as well as the stepping-up in job search assistance and training programmes. Conversely, a tightening of unemployment benefits for the long-term unemployed is found to lift mean household income but to lower income among poorer households, thus raising inequality. Several other reforms have no significant impact on income distribution.

JEL Classification: 047, D37, E61
Keywords: Growth, inequality, pro-growth policies

Volume 2015 Issue 1 Click to Access: 
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  • http://www.keepeek.com/Digital-Asset-Management/oecd/economics/can-pro-growth-policies-lift-all-boats_eco_studies-2015-5jrqhbb1t5jb
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  22 Dec 2015 Effects of economic policies on microeconomic volatility
Boris Cournède, Paula Garda, Volker Ziemann

Economic policies shape how much people earn, as well as how stable their income and jobs are. The level and stability of earnings both matter for well-being. Standard economic aggregates do not measure accurately the economic uncertainty which households are facing. This paper shows that household-level economic instability is only very loosely related to macroeconomic volatility. It uses several household-level databases to document how structural reforms aimed at boosting growth influence household-level economic stability. Movement from less to more productive processes and firms is at the heart of economic growth, which suggests a trade-off between growth and micro-level stability. Certain policy changes boost growth but increase micro-level instability: they include reductions in tax progressivity or social transfers (including unemployment benefits), as well as moves from very to moderately tight restrictions on the flow of goods and services and on the firing of regular workers. However, the analysis also uncovers that moving to highly competitive policies in general reduces micro-level instability. This finding points to a case for comprehensive rather than marginal reform in tightly regulated countries, since a comprehensive agenda can deliver higher growth without the instability costs that a more marginal reform can entail.

JEL classification: D12, D22, J08, O40
Keywords: Stability, households, economic growth, reforms, microdata

Volume 2015 Issue 1 Click to Access: 
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  • http://www.keepeek.com/Digital-Asset-Management/oecd/economics/effects-of-economic-policies-on-microeconomic-volatility_eco_studies-2015-5jrp38st90nv
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  22 Dec 2015 The dynamics of social expenditures over the cycle
Anna Cristina D’Addio

This paper studies the cyclical behaviour of public social spending in 20 OECD countries observed over the period between 1982 and 2011. In view of the recent discussion on cutting the budget deficit, the paper pays particular attention to whether social spending is pro-cyclical or countercyclical, whether it changes asymmetrically during expansions and recessions and whether the asymmetric changes in social spending contribute to a drift in social expenditures over time. The links between social spending levels and key economic variables, such as economic growth, provide also a useful context for discussing current social expenditure trends. The estimates, based on a system-GMM estimator, suggest that an upward ratchet effect exists. The effect is robust to a large number of alternative specifications.

JEL classification: E32, E62, H50, I00
Keywords: Fiscal policy, economic cycles, social spending, ratchet effect

Volume 2015 Issue 1 Click to Access: 
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  • http://www.keepeek.com/Digital-Asset-Management/oecd/economics/the-dynamics-of-social-expenditures-over-the-cycle_eco_studies-2015-5jrs63lpkmxr
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  22 Dec 2015 Experience and the returns to education and skill in OECD countries
Stijn Broecke

Using the Survey of Adult Skills (PIAAC), this paper documents how the returns to education and skill change with experience for a sample of 22 OECD countries. It does this within the framework of the Altonji and Pierret (2001) employer learning model, and therefore also tests the relevance of this theory in a wide range of countries using comparable data and a consistent methodology. Significant heterogeneity is found in the experience profiles of the returns to education and skill across countries, and convincing evidence in support of the employer learning theory is only found in a sub-set of the countries analysed. While these countries vary significantly from one another in terms of their labour market institutions and educational systems, the analysis does seem to suggest that employer learning is most common in those countries where employment protection legislation on temporary contracts is weak. This is consistent with a model in which temporary contracts allow employers to test and learn about young workers, and give them the flexibility to adjust wages in line with observed productivity.

JEL codes: J24, J32, D83
Keywords: Employer learning, returns to education, returns to skill

Volume 2015 Issue 1 Click to Access: 
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  • http://www.keepeek.com/Digital-Asset-Management/oecd/economics/experience-and-the-returns-to-education-and-skill-in-oecd-countries_eco_studies-2015-5jrs3sqrvzg5
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  22 Dec 2015 International migration
Ben Westmore

This paper uses data of the high-skilled and low-skilled migrant stock between 92 origin and 44 destination countries to highlight the relationship between economic factors and international migration. It also attempts to uncover links with policy and demographic factors prevailing in the origin and destination countries. The analysis suggests that higher skill-specific wages in the destination are associated with more migration. This relationship appears to be particularly strong for migrants from middle-income countries, supporting theories of an inverted-U relationship between origin country economic development and the propensity to migrate. Policy differences between the destination and origin also appear important, for example in terms of regulations on businesses and labour markets, along with the relative quality of legal institutions. In some instances, the effects on high-skilled and low-skilled migrants differ markedly.

JEL classification codes: F22, J01, O15
Keywords: International migration, labour economics, economic development, public policy

Volume 2015 Issue 1 Click to Access: 
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  • http://www.keepeek.com/Digital-Asset-Management/oecd/economics/international-migration_eco_studies-2015-5jrp104jpz7j
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  22 Dec 2015 Trade patterns in the 2060 world economy
Jean Chateau, Lionel Fontagné, Jean Fouré, Åsa Johansson, Eduardo Olaberría

This paper presents long-term trade scenarios for the world economy up to 2060 based on a modelling approach that combines aggregate growth projections for the world with a detailed computable general equilibrium sectoral trade model. The analysis suggests that over the next 50 years, the geographical centre of trade will continue to shift from OECD to non-OECD regions reflecting faster growth in non-OECD countries. The relative importance of different regions in specific export markets is set to change markedly over the next half century with emerging economies gaining export shares in manufacturing and services. Trade liberalisation, including gradual removal of tariffs, regulatory barriers in services and agricultural support, as well as a reduction in transaction costs on goods, could increase global trade and GDP over the next 50 years. Specific scenarios of regional liberalisation among a core group of OECD countries or partial multilateral liberalisation could, respectively, raise trade by 4% and 15% and GDP by 0.6% and 2.8% by 2060 relative to the status quo. Finally, the model highlights that investment in education has an influence on trade and high-skill specialisation patterns over the coming decades. Slower educational upgrading in key emerging economies than expected in the baseline scenario could reduce world exports by 2% by 2060. Lower up-skilling in emerging economies would also slow down the restructuring towards higher value-added activities in these emerging economies.

JEL classification codes: E23, E27, F02, F17, F47
Keywords: General equilibrium trade model, long-term trade and specialisation patterns, trade liberalisation

Volume 2015 Issue 1 Click to Access: 
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  • http://www.keepeek.com/Digital-Asset-Management/oecd/economics/trade-patterns-in-the-2060-world-economy_eco_studies-2015-5jrs63llqgjl
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  22 Dec 2015 Policy challenges for the next 50 years
Henrik Braconier, Giuseppe Nicoletti, Ben Westmore

This paper identifies and analyses some key challenges that OECD and partner economies may face over the coming 50 years if underlying global trends relating to growth, trade, inequality and environmental pressures prevail. It highlights the growing need for international policy coordination and cooperation in a number of areas. For example, global growth is likely to slow and become increasingly dependent on the diffusion of knowledge and technology, while the economic costs of environmental damages will mount. The rising economic importance of knowledge will tend to raise returns to skills, likely leading to further increases in earning inequalities within countries. While increases in pre-tax earnings do not automatically transform into rising income inequality, the ability of governments to cushion this impact may be limited, as rising trade integration and consequent rising mobility of tax bases combined with substantial fiscal pressures may hamper such efforts. The paper discusses to what extent national structural policies and heightened international cooperation can address these and other interlinked challenges over the coming 50 years.

JEL classification: F, H, I2, I3, J1, O3, O4, Q5
Keywords: Global economy, growth, technological change, inequality, income distribution, immigration, environmental damages, climate change, tertiary education, fiscal consolidation, structural reforms, interdependence, co-ordination, projections

Volume 2015 Issue 1 Click to Access: 
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  • http://www.keepeek.com/Digital-Asset-Management/oecd/economics/policy-challenges-for-the-next-50-years_eco_studies-2015-5jrp104kjn5j
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  27 Mar 2015 The effect of the global financial crisis on OECD potential output
Patrice Ollivaud, David Turner

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.

Volume 2014 Issue 1 Click to Access: 
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  • http://www.keepeek.com/Digital-Asset-Management/oecd/economics/the-effect-of-the-global-financial-crisis-on-oecd-potential-output_eco_studies-2014-5js64l2bv0zv
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