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International Monetary Fund
An important aim of this paper is to take shifts in the long-term anchor in the empirical specifications. The study examines exchange-rate pass-through and external adjustment in the euro area. The impact on third-country trade and investment is also discussed. A better understanding of the economic behavior underlying limited pass-through is an important consideration for investigating the implications of currency fluctuations and the pattern of external adjustment. The impulse-response patterns suggest a high degree of local currency pricing in import prices and producer currency pricing in export prices.
International Monetary Fund

all employed persons are contributing to the public pension system). And (POP old /POP work ) is the elderly dependency ratio. Full pass-through of population aging to pension spending can now be defined as holding the three ratios in brackets on the right-hand side of equation (4) constant and allowing only changes in the elderly dependency ratio to feed through to public pension spending-GDP ratio: ( 5 ) ( P / GDP ) FP t + j  =  [ ( P / GDP ) t ( Δ

International Monetary Fund

safety and on the environment, but less on social protection; and housing and community amenities. Italy’s pension spending/GDP ratio is relatively high reflecting its aging demographics and relatively low effective retirement age, but other spending on social protection is much lower, more than offsetting the differential on pension spending. Public health care outlays were particularly low a decade ago (following an appreciable retrenchment in the early 1990s), but have recently caught up with the EU average and even somewhat exceeded it. Public Wage Bill

International Monetary Fund. European Dept.

schemes have only been introduced in the 2000s with a modest take up. 3 Public Pension Expenditure, 2010 (Percent of GDP) Sources: OECD, EC, ILO, state authorities and IMF staff estimates 2. Despite the many reforms over the past decade, Serbia’s pension spending/GDP ratio steadily increased and is now among the highest in Europe, weighing on the budget and the economy . A number of factors, including adverse demographics, ad-hoc indexations, and inefficient design, caused a rapid rise in the pension spending. In 2012, the pension bill amounted to 14

International Monetary Fund

. Euro Area: Potential Output Growth and Discounted Values of Future Incomes Potential growth Discounted value of future incomes 1/ 2.5 67 2.0 50 1.5 40 1.0 33 1/ As a multiple of current income; discount rate of 4 percent. Public finances and retirement incomes could be impacted severely. 1 Pension Spending-GDP Ratio Assuming Pull Passthrough of Population Aging to Spending Required Cuts in Average Pension (2004=100) to Stabilize Pension Spending-GDP Ratio at 2004 Level

International Monetary Fund
The continuing weakness of activity in the euro area reflects an amalgam of cyclical and long-term forces that are likely to shape the outlook and to challenge policies. Financial conditions in the area have improved along with those in global markets, though financial fragilities may be impairing the transmission to firms. The aging of the population could entail significant declines in potential output growth and lower expected lifetime income resources. Forward-looking policies are needed to improve the quality and ensure long-term sustainability.
International Monetary Fund
This Selected Issues paper applies a range of methods to assess Italy’s competitiveness gap versus other euro area members. All indicators point to a clear erosion of competitiveness in recent years, with related market share losses. Nonetheless, the estimated competitiveness gap, while appreciable, still remains quantitatively contained. The results suggest that the unwinding of the competitiveness gap will require reforms that boost productivity growth and continued wage moderation, as well as an adjustment by export firms in Italy.
International Monetary Fund
This paper focuses on Ukraine’s 2005 Article IV Consultation and Ex Post Assessment of Longer-Term Program Engagement. After four years of strong activity, annual growth has slowed sharply, from a peak of about 12 percent in 2004 to 3 percent for January–September 2005. Fiscal policy in 2005 has aimed at a significant fiscal tightening, with the supplementary 2005 budget targeting a general government deficit of 2½ percent of GDP compared with the 4½ percent of GDP realized during 2004, and the 6–7 percent of GDP implicit in the original 2005 budget.
International Monetary Fund. European Dept.
This Selected Issues paper on Serbia’s Article IV Consultation reviews the precrisis growth paradigm and its legacy vulnerabilities. The underlying growth model proved vulnerable to shocks, being associated with a high share of nontradable, low domestic savings, and a fragile external position. Convergence to EU income levels was relatively moderate. Economic growth fell following the onset of the global financial crisis and further slowed the pace of convergence. Serbia’s postcrisis income gap remains larger by comparison to more advanced regional economies. Structural bottlenecks continue to undermine overall competitiveness and constrain growth potential.