Monday, October 31, 2016

Terror and World Economy

DORINE BOUMANS, CESifo (Center for Economic Studies and Ifo Institute)
University of Freiburg - Department of Economics

We examine sources of biased terror perceptions. In particular, we investigate how international experts of the IFO World Economic Survey assess the effect of terror on the world economy and the economy of their own country. The results show that respondents from terror stricken countries have more favorable views on the effect of terror on the word economy (but not on their own countries). Male respondents and those from democratic and richer countries are likewise more optimistic. 

Global inflation

JONATHAN KEARNS, Bank for International Settlements (BIS) - Monetary and Economic Department

Inflation co-moves across countries and several papers have shown that lags of this common inflation can help to forecast country inflation. This paper constructs forecasts of common (or 'global') inflation using survey forecasts of country inflation. These forecasts of global inflation have predictive power for global inflation at a medium horizon (12 months) but not at a longer horizon. Global inflation forecasts, and forecast errors, are correlated with survey forecasts and errors of oil and food prices, and global GDP growth, but not financial variables. For some countries, forecasts of global inflation improve the accuracy of forecasting regressions that include survey forecasts of country inflation. In-sample fit and out-of-sample forecasting exercises suggest that forecasts of global inflation generally contain more information for forecasting country inflation than do lags of global inflation. However, for most countries, lagged or forecast global inflation does not improve the accuracy of survey forecasts of country inflation. Whatever information global inflation may include about country inflation, for most countries it seems that survey forecasts of country inflation have historically already incorporated that information. 

Wednesday, October 12, 2016

Secular stagnation (or not?)

Fig 1 World  per head income
Regression based on recent data
One item for heated debate amongst economists is the so-called secular stagnation. The economics tribe seems to agree on the fact that world growth is at a lower growth trajectory and that a substantial output.
Figure 1 provides some data for Earth's per capita income in constant prices. The figure seems to support the concensus view. A simple linear trend has been added to recent data up to but not including the great recession. The drop in output due to the financial crisis and the departure from trend are evident: Earth is in a serious depression.
Figure 2, however, provides an alternative longer run perspective that questions this concensus of economists.
Fig. 2 World income per head
Regression based on 1960-2007 data
In Figure 2 we use the same data (source: World Development Indicators), but extend the period of observation (1960 is earliest reported number for world per capita GDP in the WDI). Now the picture changes quite dramatically. Yes the growth rate of per capita income has slowed down, but it is still above long term trend. Clearly the consensus view is blurred by the perspective of the recent past (the decade before the Great Recession) and by the fact that the advanced economies experienced a bad time.