International Monetary Fund. Asia and Pacific Dept
This Selected Issues paper analyzes saving to understand history and identify the drivers in Malaysia. IMF analysis suggests that Malaysia’s current account (CA) surplus is higher than warranted by medium-term fundamentals and desired policies. The changes in the corporate saving rate almost entirely reflect the changes within each group of firms of similar size or age. Leveraging firm-level data for listed firms, the paper focuses on the contribution to the CA surplus of private non-financial corporations. The trend analysis indicates a high dependence of listed firms in Malaysia on internal funds (savings) to finance their investments or, equivalently, a lower dependence on external funds. The results suggest that relaxing firms’ external financing constraints and lifting productivity growth could help encourage investment and reduce excess corporate saving. The regression results show that the transaction cost and precautionary saving motives, as well as their interaction with external financing dependence, could play an important role in explaining corporate net saving.
This Selected Issues paper examines the labor market and migration in Sweden. Sweden enjoys a broadly well-functioning labor market. The labor force has been expanding at a healthy pace, in part reflecting rising participation including by females. This paper discusses the compositional changes in the labor force, employment, and unemployment over the past decade. A brief overview of migration flows, their composition, and their demographic benefits is provided. An assessment of the potential implications of the projected increase in migration for unemployment is done. The features of Sweden’s labor market that contribute to the higher unemployment rates of the lower skilled and foreign-born are also outlined.
International Monetary Fund. Asia and Pacific Dept
External trade plays an important role in Singapore’s economy, providing an important share of total value added. Singapore’s exports have a relatively large import share; however, they also have a high level of complexity. As emphasized in previous studies, value-added in exports plays an important role in trade elasticities. The paper finds evidence that this is indeed the case for Singapore’s export products. Products that have higher domestic value-added share also tend to have higher export price elasticity. Economic complexity is also related to export price elasticities: higher economic complexity is associated with lower price elasticity of exports. This relationship is stronger within certain product segments such as the machinery, mechanical appliances and computers as well as the pharmaceuticals segments. Trade elasticities are important to understand Singapore’s exchange rate based monetary policy transmission. Exchange rate changes can affect profits and trade volumes differently, depending upon the price pass-through to import and export prices and the price elasticity of exports and imports. The import and export price pass-through can in return depend on trade elasticities. The paper also shows that there is important product heterogeneity with respect to trade elasticities; both across different product groups but also within individual product groups. This implies that structural changes in the product composition of trade can lead to sizeable changes in Singapore’s trade elasticities.
KEY ISSUES 2014 marked the tenth anniversary of accession to the EU of the first group of Central and Eastern European (CEE) countries. The first NMS Policy Forum was launched in the fall of 2014 as a platform for discussing policy frameworks and issues relevant for non-euro area NMS. It brought together representatives of the six CEE countries that are EU members but are not yet in the euro area - Bulgaria, Croatia, Czech Republic, Hungary, Poland, and Romania (NMS-6), as well as the ECB, the European Commission and the IMF. Discussions focused on four themes: Euro adoption: A once sizeable country risk premium associated with joining the euro area has mostly vanished, as the euro crisis has exposed flaws in the euro area’s institutional framework. Further, the crisis has illustrated both risks and benefits from adoption: monetary autonomy has proven helpful for absorbing shocks, while foreign currency mismatches—that can be much reduced with euro adoption—have shown to be a key vulnerability. Flexible labor markets, fiscal and macro-prudential policy space, and income convergence are prerequisites for successful adoption. Opting into the Banking Union (BU) before euro adoption: The lack of equal (or fully equivalent) treatment of the BU members and non-euro area opt-ins—regarding their role in the Single Supervisory Mechanism (SSM), as well as access to common liquidity and fiscal backstops—makes opting into the BU before euro adoption less attractive. Countries that would benefit most from early opt-in are those that see the BU as a way to enhance the quality and credibility of bank supervision or to gain access to larger industry-funded common backstops. The EU’s fiscal framework and pension reform: In the wake of the crisis, many NMS abolished second pillar pension funds. Further reforms to the EU’s fiscal framework are warranted to remove disincentives for setting up and maintaining second pension pillars and, more generally, for structural reforms. Making the most of the EU single market and EU Services Directive: Structural reforms to strengthen human capital, skills match, labor market efficiency, and foreign investment environment will help NMS to reap full benefits from EU integration. Further liberalization of trade in services will likely benefit the NMS-6 more than other EU members.
Overall competitiveness of the Dutch economy seems adequate, but domestically produced exports have lost market share recently. Over the past three decades, globalization has greatly influenced economies as countries have become more integrated. Empirical studies on business cycles synchronization and transmission of shocks among countries have provided conflicting results. In its descriptive part, this study concludes that Dutch export competitiveness is not a problem so far. This also finds that the Netherlands is relatively more exposed to supply-driven shocks while Germany is more exposed to demand-driven shocks.
This Selected Issues paper and Statistical Appendix on Bhutan underlie the macroeconomic impact of Tala, rapid private sector credit growth, and macroeconomic risks. In Bhutan, as the bulk of Tala-related flows go through the government accounts, this requires an appropriate fiscal stance and skillful expenditure management. Strong economic growth will require and lead to a deepening and further development of the financial system in Bhutan. The financial sector seems to be relatively shielded from adverse events, although risks remain.
The technical note on Mexico’s Financial Sector Assessment Program update analyzes that the private pension system’s regulator in Mexico has introduced innovate rules. Mexico, as with many other countries in Latin America, has adopted an individual capitalization pension system. The design of these pension reforms confers the administration of pension funds to private companies. Under these schemes, competition plays a key role, keeping prices low, a good quality of service, and an efficient investment allocation.
U.S. shocks explain a large part of French output common components. This paper analyzes the economic implications of two alternative welfare financing reforms: a reduction in payroll taxes funded by an increase in consumption taxes, and the other funded by a new levy on business value added. The importance of financial market constraints and whether the recent mortgage market reform is likely to ease these constraints is assessed. Rechargeable mortgages are attractive and encourage collateralization, but bolder measures are needed to limit legal and other fees.
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.