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Cover IMF Working Papers
The Trade Impact of China on EMU: Is It Even Across Members?
Mrs. Esther Perez Ruiz and Mr. Uffe Mikkelsen
This paper investigates the asymmetries in trade spillovers from sector-specific technology shocks in China to selected euro area countries. We use a Ricardian-gravity trade model to estimate sectoral competitiveness in individual euro area countries. Simulations on the impact of productivity shocks in Chinese textiles and machinery suggest that the required adjustment in wages, prices, and factor re-allocation is widely heterogenous across euro area countries on accounts of their different specialization patterns. This raises the question of the distribution of gains and losses from external trade shocks.
Keywords:
WP; International trade; China; European Monetary Union; sectoral specialization; trade share; EMU trade; surplus nation; Ricardian-gravity trade model; textiles' share; goods spending; goods market; nominal wages decline; Euro area; trade theory; exports to the euro area; cost provider; Wages; Trade deficits; Exports; Competition; Global
Cover IMF Staff Position Notes
Why Has Japan Been Hit So Hard by the Global Recession?
Mr. Martin Sommer
The Japanese economy has been hit hard by the slump in global demand for advanced manufacturing products such as cars, information technology, and machinery, which account for a larger share of production than in other G-7 economies. Most of the drop in Japan’s exports was caused by a sharp retrenchment in overseas demand for motor vehicles, information technology, and capital goods, as firms and consumers cut their investment and durable goods spending in response to the global credit crunch and extraordinary uncertainties about the outlook. Worsening domestic financial conditions deepened the current recession by reducing domestic demand, especially business investment. The short-term outlook is further clouded by the needed adjustment to inventories, which have accumulated well above normal levels in both Japan and its export markets. During the 2001 recession, industrial production started recovering about 5 months after the peak of the inventory cycle. By analogy, one could expect a bottom in industrial production around May 2009. However, since the global environment is expected to remain weak and the Japanese economy faces headwinds from tight domestic financial conditions, the production adjustment could take longer during this recession.
Keywords:
SPN; inventory adjustment; Japan; inventory; financial condition; export demand; export collapse; production adjustment; inventory-shipment ratio; Exports; Industrial production; Global
Cover IMF Staff Position Notes
Why Has Japan Been Hit So Hard by the Global Recession?1
Mr. Martin Sommer

Most of the drop in Japan’s exports was caused by a sharp retrenchment in overseas demand for motor vehicles, information technology (IT), and capital goods ( Figure 1B ), as firms and consumers cut their investment and durable goods spending in response to the global credit crunch 2 and extraordinary uncertainties about the outlook. In particular, data on motor vehicle registrations point to a collapse of car sales in a number of economies ( Figure 1C ). As a result, Japan’s car exports fell by 65 percent since September 2008, with shipments to the United States

Keywords:
SPN; inventory adjustment; Japan; inventory; financial condition; Japan's car export; export component; export destination; January shipment
Cover IMF Working Papers
Intertemporal Substitution in Consumption Revisited
Zuliu Hu
Some of the highly controversial questions in macroeconomics critically hinge on the value of a single parameter of consumer preference--the elasticity of intertemporal substitution. This paper provides new estimates of this parameter for individual G-7 and a panel of twenty OECD countries. We find that single equation GMM estimates are typically small and imprecise, consistent with Hall’s (1988) finding from the U.S. data. Estimation of a system of equations that takes into account the cross-equation restrictions implied by theory, however, generally gives larger and better determined values for the parameter. The panel procedure also yields relatively large estimates. Overall our multi-country results contradict the hypothesis of zero intertemporal substitution.
Keywords:
WP; utility function; consumption growth; Treasury bill yield; return equation; cross-equation restriction; GMM estimation; Consumption; Treasury bills and bonds; Estimation techniques; Deposit rates; Real interest rates
Cover IMF Staff Position Notes
Fiscal Multipliers
Mr. Antonio Spilimbergo, Mr. Martin Schindler, and Mr. Steven A. Symansky
This paper provides background information for policymakers on fiscal multipliers, including quantitative estimates. The fiscal multiplier is the ratio of a change in output to an exogenous change in the fiscal deficit with respect to their respective baselines. The size of the multiplier is larger if: leakages are few; the monetary conditions are accommodative; and the country’s fiscal position after the stimulus is sustainable. Fiscal expansions can be contractionary if they decrease consumers’ and investors’ confidence, especially if the fiscal expansion raises, or reinforces, fiscal sustainability concerns. Fiscal multipliers have been calculated for some countries but should be carefully re-examined considering the current events. The degree of financial market development has an ambiguous effect on multipliers, depending on how the degree of financial development affects liquidity constraints, and the government’s ability to finance the fiscal deficit. The past research on multiplier estimates can provide guidance in developing multiplier estimates, but judgment, based on current conditions, is important.
Keywords:
SPN; tax rebate; interest rate; multiplier; Taylor interest rate rule; monetary policy indicator; interest rate response; multiplier estimate; IMF staff note; Fiscal multipliers; Tax refunds; Corporate income tax; Fiscal stimulus; Income and capital gains taxes; Global
Cover IMF Working Papers
Boom-Bust Cycle, Asymmetrical Fiscal Response and the Dutch Disease
Kareem Ismail and Mr. Rabah Arezki
We examine the behavior of expenditure policy during boom-bust in commodity price cycles, and its implication for real exchange rate movements. To do so, we introduce a Dutch disease model with downward rigidities in government spending to revenue shock. This model leads to a decoupling between real exchange rate and commodity price movement during busts. We test our model's theoretical predictions and underlying assumptions using panel data for 32 oil-producing countries over the period 1992 to 2009. Results are threefold. First, we find that change in current spending have a stronger impact on the change in real exchange rate compared to capital spending. Second, we find that current spending is downwardly sticky, but increases in boom time, and conversely for capital spending. Third, we find limited evidence that fiscal rules have helped reduce the degree of responsiveness of current spending during booms. In contrast, we find evidence that fiscal rules are associated with a significant reduction in capital expenditure during busts while responsiveness to boosts is more muted. This raises concerns about potential adverse consequences of this asymmetry on economic performance in oil-producing countries.
Keywords:
WP; oil price
Cover IMF Working Papers
Growth Strategies, Employment, and Income Distribution in Brazil: An Input-Output Assessment
Mr. Benedict J. Clements
The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Keywords:
WP; income group; capital; low income income group; employment growth; employment-generating capacity; employment performance; employment effect; employment generation; Personal income; Employment; Job creation; Public expenditure review; Income distribution