BRIEFS

POLICY BRIEF SERIES

WHAT ARE POLICY BRIEFS?

A policy brief is a concise summary of a particular issue, the policy options to deal with it, and some recommendations on the best option. It is aimed at government policymakers and others who are interested in formulating or influencing policy. If you want  to contribute to the INFFER Policy Brief Series follow the instructions here and use the template that can be availble upon request or you can download here and open it using the MsWord processor. If you are interested in submitting your contributions, please contact Cristina Badarau who is in charge of the INFER Policy Brief Series (Email: florina-cristina.badarau@u-bordeaux.fr)

VOLUME 3, ISSUE 1, MARCH 2020

SHOULD CORE COUNTRIES REGULATORS INTERNALIZE THE CORSS-BORDER SPILLOVERS OF THEIR MACROPRUDENTIAL POLICY IN THE EURO AREA?

Cristina Badarau, Marcos Carias-Flores, Jean-Marc Figuet

Financial flows between heterogeneous member states of the euro area were crucial drivers of the imbalances that culminated in the Euro crisis. Macroprudential instruments, by affecting the behavior of international banks, can have secondary effects on the financial cycles of other member states. However, countercyclical tools like the Basel III capital buffer are mostly set by independent authorities with national
stabilization mandates. Should regulators coordinate macroprudential policy, and if so how? Using a small two-country NK model with financial frictions, we show that macroprudential responses in core economies can have destabilizing spillover effects on a financially dependent periphery through interbank lending. We subsequently evaluate a policy rule in which the core regulator internalizes these spillovers and we compare it to prevailing national stabilization rule. While national rules deliver a good performance in general, under certain conditions internalization becomes preferable..(…)

VOLUME 2, ISSUE 4, DECEMBER 2019

TRADE-OFFS BETWEEN MACROECONOMIC AND FINANCIAL STABILITY OBJECTIVES

Armand Fouejieu, Alexandra Popescu, Patrick Villieu

The current global economic environment is putting central bankers in Europe and other advanced economies to the test. What should be the appropriate monetary policy stance when economic growth is sluggish, inflation is below the target, but at same time financial stability risks are on the rise? Should central banks be concerned about financial stability risks in addition to their macroeconomic stability objective? Trade-offs that central banks may face remain at the heart of policy discussions. Using a New Keynesian three-equation model upgraded to include an endogenous asset price bubble, we contribute to this discussion by assessing trade-offs between the objectives of price, output and financial stability, when the central bank attempts to actively respond to financial stability risks. We find that a “leaning against the wind” policy cannot simultaneously achieve macroeconomic and financial stability, in case of supply or assets price bubble shocks.(…)

VOLUME 2, ISSUE 3, NOVEMBER 2019

DEBT SUSTAINABILITY ISSUES IN CENTRAL AND EASTERN EUROPEAN COUNTRIES

Bettina Bökemeier and Andreea Stoian

This study investigates debt sustainability in ten Central and East European countries over the period 1998–2015. We calculate the stabilized debt ratios, turning points, and debt limits using estimates of a fiscal reaction function, capturing the response of the government to changes in their debt ratio. We find that in 2017, the public debt exceeded the stabilized debt ratio values in all the countries under investigation. However, the public debt still has a stable dynamic and is far from the level at which governments’ fiscal reaction reverses and becomes negative. After this level, public debt will have an unstable trajectory and will become unsustainable. Moreover, governments are still far from the debt thresholds of “fiscal fatigue”, a situation in which the effort to stabilize debt (in terms of adjustment in fiscal policy) exceeds the government’s ability or willingness to do so. (…)

VOLUME 2, ISSUE 2, JULY 2019

EDIBLE OIL TRADE LIBERALIZATION IN INDIA: WHAT CAN WE SAY FROM POLICY PERSPECTIVE?

Sutirtha Bondyopadhyay

India moved towards trade liberalization in early 1990s’ and edible oil was one of the sectors where import liberalization started intensely. Starting from near-autarkic policies that prohibited import of either edible oils or oilseeds, restrictions were relaxed and tariffs reduced on edible oil imports. India is now the world’s largest importer of edible oils and imports account for 70% of domestic consumption. Among all edible oils, palm oil constitutes the dominant share in India’s edible oil import. The access to cheaper imported oil increases its consumption. This is reflected in the increasing share of imported palm oil in the edible oil consumption basket during the post trade liberalization era. But the increase in edible oil consumption increases fat intake and leads to adverse health consequences. The trade liberalization of edible oils also has negative impacts on the domestic oilseeds sector in India. The decline in the tariff rate of imported oil reduces the demand for traditionally produced edible oils (like groundnut oil, rapeseed-mustard oil). Oilseeds are inputs to edible oil production. Therefore, decrease in the demand for traditional edible oils has adverse impact on the domestic oilseeds sector. We find evidence of reduction in the area devoted to traditional oilseeds production in the
post trade liberalization period. Several oil mills which used to extract edible oil from domestically produced oilseeds have shut down. This article discusses the possible policy measures that can be implemented to protect the domestic oilseeds farmers as well as oilseeds industry. (…)

VOLUME 2, ISSUE 1, MARCH 2019

WHICH EXCHANGE RATE REGIME PROVIDES THE BEST PROTECTION AGAINST UNSUITABLE EFFECTS OF A LIQUIDITY TRAP?

Cristina Badarau and Ibrahima Sangaré

A two-sector two-country DSGE model was used to study the performance of alternative exchange rate regimes in a liquidity trap caused by a large deflationary shock. Contrary to common belief during the recent euro crisis, the current study shows that the currency union can outweigh the independent floating regime in dealing with the duration and depth of a liquidity trap. This result suggests that being member of the euro area represented an advantage rather than a drawback for countries which were most affected by the recent crisis. However, we also show that targeting the exchange rate as a monetary policy rule allows an independent policy to outperform the monetary union. This would be the best option for countries that are not concerned with a monetary union. This study clearly highlights the importance of the exchange rate regime as a preventive strategy to avoid the negative effects of deflationary and recessionary shocks. (…)

VOLUME 1, ISSUE 3, DECEMBER 2018

THE ROLE OF INSTITUIONAL QUALITY IN THE CORRUPTION-GROWTH NEXUS

Réda Marakabi, Camélia Turcu and Patrick Villieu

We analyze the channels through which institutional quality affects the corruption growth nexus. To this end, we develop an endogenous growth model and empirically test its implications. Our sample consists of a panel of 136 developed and developing countries over the period 1984-2015. We show, both theoretically and empirically, that (i) the corruption-growth relation can be subject to nonlinearities highly
influenced by countries’ institutional development and (ii) private investment and public spending are two main channels through which institutional quality nonlinearly affects the relation between corruption and economic growth. (…)

VOLUME 1, ISSUE 2, NOVEMBER 2018

GLOBALIZATION AND THE ATTITUDES TOWARD HIGHER EDUCATION: A POLICY DISCUSSION

Pablo Agnese and Jana Hromcová

Globalization is rapidly changing the international landscape and is bringing new and unexpected opportunities for those who are ready to grab them. However, it is also making it more difficult for some people to adjudast to the changing conditions. In particular, those on the lower end of the skill ladder will find themselves in a tight spot if they are unable to move up. Education, both formal and informal, is thus an enabler of opportunities and a booster of low skilled workers’ productivities that can help to make up for their globalization-related losses. Understanding people’s concerns (or lack thereof) for higher education in a globalized world becomes an important political matter (…)

VOLUME 1, ISSUE 1, APRIL 2018

CREATIVE MILIEU AND FIRM LOCATION: AM EMPIRICAL APPRAISAL

Eva Coll-Martinez and Jospe-Maria Arauz-Carrod

This paper focuses on the creative industries – those industries that produce and commercialise creative goods and services – and the role played by the existing spatial distribution and agglomeration economies of these kinds of activities in their location decisions. Our main statistical source is the Register of Manufacturing Establishments of Catalonia (REIC), which has plant-level microdata on the location of new plants. We use count data models to show that location determinants are quite similar in both creative and non-creative industries and that both industries are positively influenced by the specialisation level of creative industries. Moreover, our results provide evidence that an unobserved ‘creative milieu’ has a considerable impact on attracting firms. (…)