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MDGs and new aid-effectiveness targets are an opprtunity for donors to explain what they do before growing scepticism erodes taxpayer support for aid.

This article explores the main trends of multinational enterprise (MNE) spillovers involving technology and human resources development, with special attention to policy implications, in the developing countries of Asia and Latin America with the Caribbean. Developing Asian countries have dynamically attracted foreign direct investment (FDI) and have been successful in instituting policy measures to enhance MNE spillovers, with positive impacts on domestic productivity. Latin American countries have lagged behind developing Asian countries as regards enhancing MNE spillovers. Despite a convergence of the inward FDI trend in the two regions, with the recent catching-up trend of Latin American countries, the latter region shows more limited spillovers. Selected research findings are surveyed and various policy measures suggested, particularly in relation to two policy issues: i) complementarity, co-ordination and synchronisation; and ii) targeting specific firms, industries and HRD (mostly in training and education).

This document examines the future of machine-to-machine communication (M2M), with a particular focus on mobile wireless networks. M2M devices are defined, in this paper, as those that are actively communicating using wired and wireless networks, are not computers in the traditional sense and are using the Internet in some form or another. While, at the global level, there are currently around five billion devices connected to mobile networks, this may by some estimates increase to 50 billion by the end of the decade. The report provides examples of some of the uses to which M2M is being put today and its potential to enhance economic and social development. It concludes that to achieve these benefits, however, changes to telecommunication policy and regulatory frameworks may be required. Some of the main areas that will need to be evaluated, and implications of M2M assessed, include: opening access to mobile wholesale markets for firms not providing public telecommunication services; numbering policy; frequency policy; privacy and security; and access to public sector information.

In the 1960s, the principle of subsidies for agricultural inputs was unquestioned. The advent of Structural Adjustment Plans led however to a re-examination of this principle, as preference moved towards liberalisation of the agricultural sector. Given the very low consumption of fertilizers in sub-Saharan Africa — a consumption level which is currently the lowest for all world regions — its agricultural development calls imperatively for an increase in the use of fertilizers.

Widespread diffusion of the most modern agricultural practices is therefore a sine quo non for agricultural policies in this region. Hitherto, the cessation of subsidies has always resulted in reduced use of fertilizers. This is due to the specific nature of private demand for agricultural inputs, which is particularly sensitive to the risk factor associated with the use of fertilizers. Users must accordingly be protected against the economic hazards consequent upon the introduction of modern ...

The paper explores the issue of macro-prudential policies in the light of empirical evidence on the determinants of bank systemic risk, and the effectiveness of capital controls. In many ways this reflects a step back in time towards sector approaches to monetary policy that were so prevalent in the 1960s, 1970s and early 1980s. Complexity and interdependence is such that proposals on these issues should be treated with care until much more is understood about the issue.
JEL Classification: C23, C25, F21, F43, G01.
Keywords: Macro-prudential policies, capital controls, economic growth, emerging economies, financial crisis.

This paper presents a macro simulation model to quantify the effects of stabilisation packages on the distribution of income and wealth. It is a macro-micro model since it combines macroeconomic aspects with the microeconomic optimising behaviour characteristic of computable general equilibrium models. It can be applied to many developing countries by changing the institutional characteristics that describe commodity markets, financial markets and labour markets. Since the simulation package incorporated quite a large number of closures, the model is referred to as a "maquette."

The paper closes with illustrative simulations of the maquette showing how the distribution of income and wealth of a primary exporting economy is likely to be affected by alternative fiscal, monetary and exchange rate policies in response to a reduction in the availability of external funds to finance a fiscal deficit ...

This paper is a state-of-the-art report on the scope and efficacy of macroeconomic policies, both demand-management and supply-side, in relation to the level and composition of aggregate domestic savings (household, corporate, and government) performance in developing countries. Its central focus is on the extent to which macroeconomic policies help or hinder the optimal mobilisation and allocation of voluntary and contractual savings. It analyses: the impact of fiscal policies (fiscal balance, taxation, tax incentives); fiscal reforms and savings; and the interaction between Government and private savings; the financial repression and inflationary finance as contributory factors to low domestic savings; implications of financial liberalisation for savings and investment; the linkages between formal and informal finance; the regulatory, prudential, and developmental role of central banks; exchange rate and external finance policies and their bearing on capital flight and inflows of ...

This paper brings together a number of interrelated issues concerning the implications of financial liberalisation for macroeconomic outcomes. Deregulation has tended to reduce the importance of liquidity constraints within and between countries, while at the same time giving markets a much greater role in utilising available information to achieve efficient outcomes. This has had implications for private spending behaviour and the transmission channels of monetary policy; for the volatility of financial prices; for the price and credit risks which arise; and for the integration of international financial markets and the process of external adjustment ...

In this paper we aim to answer the following two questions: 1) has the Common Monetary Area in Southern Africa (henceforth CMA) ever been an optimal currency area (OCA)? 2) What are the costs and benefits of the CMA for its participating countries? In order to answer these questions, we carry out a two-step econometric exercise based on the theory of generalised purchasing power parity (G-PPP). The econometric evidence shows that the CMA (but also Botswana as a de facto member) form an OCA given the existence of common long-run trends in their bilateral real exchange rates. Second, we also test that in the case of the CMA and Botswana the smoothness of the operation of the common currency area — measured through the degree of relative price correlation — depends on a variety of factors. These factors signal both the advantages and disadvantages of joining a monetary union. On the one hand, the more open and more similarly diversified the economies are, the higher the benefits they ...

Using overlapping generations (OLG) models calibrated on seven OECD countries -- the United States, Japan, France, Canada, Italy, the United Kingdom and Sweden -- the authors investigate the macroeconomic impact of possible pension reform strategies as populations age. Simulations include a reduction in the level of pensions, phased abolition of PAYG schemes and general fiscal consolidation. By raising the national saving rate future GDP levels are higher, but not enough to offset the affects of ageing. A rise in the retirement age has larger effects, but implies significant loss of leisure time ...

The forecasting profession, especially when producing forecasts intended to support economic policy, does not currently enjoy a good reputation. Complaints are sometimes voiced about its lack of scientific discipline, which in turn implies that the forecast results may be viewed as arbitrary. At other times, it is the excessively mechanical nature of the forecasting process which is criticised, on the grounds that it prevents a proper evaluation of any information concerning changes that alter the functioning of the economic system. Moreover, the use of structural models is often deemed superfluous, or even dangerous, and reduced forms are suggested as a preferable alternative. Drawing on the actual forecasting experience at the Bank of Italy, this paper argues that these views stem largely from a biased perception of how forecasting works, what it consists of and which goals it pursues. In particular, forecasting does not simply amount to producing a set of figures: rather, it aims at assembling a fullyfledged view – one may call it a "story behind the figures" – of what could happen: a story that has to be internally consistent, whose logical plausibility can be assessed, whose structure is sufficiently articulated to allow one to make a systematic comparison with the wealth of information that accumulates as time goes by. This implies that the forecasts are not the result of a black-box process that completely lacks discipline; neither are they the outcome of a purely mechanical process that cannot take new information into account. This paper tries to show that forecasting can be rigorous, not mechanical, informative, and useful even in the face of unprecedented situations.

The estimated medium-term impact of Basel III implementation on GDP growth is in the range of -0.05 to -0.15 percentage point per annum. Economic output is mainly affected by an increase in bank lending spreads as banks pass a rise in bank funding costs, due to higher capital requirements, to their customers. To meet the capital requirements effective in 2015 (4.5% for the common equity ratio, 6% for the Tier 1 capital ratio), banks are estimated to increase their lending spreads on average by about 15 basis points. The capital requirements effective as of 2019 (7% for the common equity ratio, 8.5% for the Tier 1 capital ratio) could increase bank lending spreads by about 50 basis points. The estimated effects on GDP growth assume no active response from monetary policy. To the extent that monetary policy will no longer be constrained by the zero lower bound, the Basel III impact on economic output could be offset by a reduction (or delayed increase) in monetary policy rates by about 30 to 80 basis points.

This paper describes a number of alternative medium-term scenarios for the OECD economies and related policy stimulations using the OECD world model INTERLINK. The starting point of the analysis is a reference scenario to 2000 featuring a general recovery of the OECD economies to steady state non-inflationary growth. The paper goes on to examine the implications of slower growth for the paths of fiscal balance and public debt, and the changes in policy mix which might be necessary to restore announced fiscal policy objectives whilst limiting damage to the wider range of policy objectives. A further section goes on to examine the simulated effects of changes of fiscal and monetary policy stance on output, employment, inflation and public debt over the medium term ...

Three novel macroeconomic policy challenges are discussed in this paper: the macroeconomic implications of China’s emergence; the implications of intensifying financial integration; and the interaction of Asia’s foreign exchange regime with monetary policy in the OECD area.

First, China may now be regarded as a price maker on some international commodity and energy markets. Its global impact nowadays stretches importantly not just into goods and commodity markets, but equally into world financial markets. The acquisition by the Chinese official sector of large amounts of foreign assets has raised the country’s global cyclical, financial and macroeconomic importance. Hence, China should not just be perceived as a producer of low-priced goods, but likewise of “cheap savings”. China as a swing exporter/importer could destabilise commodity markets, with important repercussions for developing countries. Variations in China’s output gap will have important repercussions on key global ...

This paper analyses the major changes in both monetary and fiscal policy that have taken place over the past two decades and, within the limits of the existing empirical research, evaluates the overall costs and benefits for the OECD economies. The general findings for monetary policy are that, while it was costly to lower inflation (in terms of output and employment), there are also benefits in terms of lower risk premiums on interest rates, a more favourable investment climate and an improvement in economic efficiency. That said, the paper concludes that there is not much of a case for lowering inflation further from its already low level. While inflation was being lowered, in a number of cases central banks were also undergoing rather significant changes to their institutional structures and policy-making frameworks. There is some limited evidence that these changes have helped in terms of better anchoring inflation expectations. At the same time there is no firm answer on how ...

Improvements in the macroeconomic policy framework over the past two decades and prudent regulation of the financial system have contributed to reduce output volatility in Mexico relative to other OECD countries. The sharp recession in 2008-09 illustrated that output volatility has nonetheless remained high. The fiscal rule has helped to balance the federal budget and keep the level of government debt low, while strengthening fiscal credibility, but it could be improved further to provide a stronger buffer against shocks. Although output contracted sharply in early 2009, actual and expected inflation remained above target, in part because rigidities in product and labour markets limit price flexibility. This constrained the monetary policy response. The banking system withstood the recession of 2008-09 well, but the contraction in bank credit was sharper than in other OECD countries, in part related to a boom-and-bust cycle in consumer credit that preceded the recession. While in other OECD countries the services sector stabilises output, in Mexico it contributes to output volatility. The volatility partly reflects the dominance of services with strong links to manufacturing, while modern and more stable consumer-related services remain underdeveloped. Output volatility could be further reduced by amending the fiscal rule to accumulate larger buffers of financial assets during economic upswings or periods of high oil prices, and by taking measures to enhance the flexibility of prices. Mexico should also adopt internationally-accepted statistical conventions for its budget accounts to make them more easily comparable with those in other countries. There would be merit in moving towards macro-prudential regulation and supervision to reduce the pro-cyclicality of the financial system. Finally, entry barriers to services should be lowered to boost the development of a modern consumer-related services sector.

This paper presents new simulation results for the UK combining macroeconomic simulations in ThreeME, a computable general equilibrium model, with household-level micro-simulations with the aim to provide consistent estimates of macroeconomic and distributional consequences of policy action to curb greenhouse gas emissions. One main and overarching result is that if an economy-wide and significant carbon price is introduced it leads to large emission reductions. Macroeconomic and distributional consequences are very limited in comparison. Redistributing 30% of total tax revenue as a lump-sum transfer to households would ensure that a majority of income deciles in most regions increase their disposable income, with gains notably in the lower part of the income distribution.

The sharp rise in debt experienced by most OECD countries raises questions about the prudent debt level countries should target. It also raises questions about the fiscal frameworks needed to reach them and to accommodate cyclical fluctuations along the path towards a prudent debt target. The objective of this paper is to define long-run prudent debt targets for OECD countries and country-specific fiscal rules. To this end, a semi-structural macroeconomic model for OECD countries and primary balance reaction functions are estimated. The shocks derived from these estimations are used to assess uncertainties surrounding the development of macroeconomic variables. The model is simulated up to 2040 to derive the prudent debt target for each country and design country-specific fiscal rules.
In Norway house prices have risen to high levels, associated with very strong credit growth, in a context of low interest rates. Such a combination was in many countries a contributory factor to the 2008- 09 crisis. The Norwegian authorities have been well aware of the problem. Below-target inflation and low interest rates abroad have kept policy interest rates low. “Macro-prudential” tools have been developed as additional policy instruments with a view to strengthen the banking system’s resilience to possible shocks and dampen systemic risk. This chapter notes that although authorities seem to have succeeded in containing over-heating pressures in the housing market, high levels of household indebtedness persist, a phenomenon which was an important factor in the last major Norwegian recession. The chapter also provides some longer run considerations on resource allocation in the housing market. This Working Paper relates to the 2014 OECD Economic Survey of Norway (www.oecd.org/eco/surveys/economic-survey-norway.htm).
Mitigation pledges put forward by countries under the UNFCCC process are "made to measure" in that they are tailored to fit each country's individual circumstances. However, the pledges also need to be made to be measured so that we have a full understanding of how the various commitments add up to an aggregate global mitigation effort. The Kyoto Protocol provides the only existing international emissions accounting framework, but it applies only to developed countries with specific commitments. This paper assesses what would be required, in addition to existing reporting requirements, to build a robust emissions accounting framework under the UNFCCC applicable to a broad range of Parties.

The paper first identifies necessary building blocks for an emissions accounting framework and assesses progress made in agreeing international reporting processes. It then looks in detail at the two most challenging areas for emissions accounting. The first area is accounting for flows of tradable units from market-based mechanisms, including international flows between linked domestic trading systems as well as from offset crediting mechanisms. The second area is accounting for emissions and removals from the forestry and land-use sectors, which have characteristics that make emissions accounting challenging: the need to distinguish anthropogenic emissions from natural variations, to deal with long time-frames and to measure sinks as well as sources of emissions. Finally, options are presented for how these issues might be taken forward in the negotiations, and how negotiators can build on recent progress made on reporting formats.

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