Western Hemisphere > Guatemala

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Aleksandra Babii, Ms. Alina Carare, Dmitry Vasilyev, and Mr. Yorbol Yakhshilikov
Traditional models relying on standard variables like the U.S. Hispanic unemployment rate fared well in explaining remittances to CAPDR and Mexico during the pre-pandemic period. However, they fail to predict the sustained growth in remittances since June 2020, including the significant increase in the average amount remitted. Using data from over 300 remittances corridors (from 23 U.S. states to 14 Salvadoran departments), we find that this increase is primarily explained by the dynamics of U.S. states real wages, as well as more temporary factors like U.S. unemployment relief (including the extraordinary pandemic support), U.S. states mobility, and COVID-19 infections at home. The paper also analyses what role the change in the modes of transmission of remittances, additional U.S. fiscal stimulus and U.S. labor market developments, especially in the sectors were CAPDR and Mexican migrants preponderantly work, play in explaining aggregate remittances growth.
Dmitry Plotnikov
This paper presents a structural model of crime and output. Individuals make an occupational choice between criminal and legal activities. The return to becoming a criminal is endogenously determined in a general equilibrium together with the level of crime and economic activity. I calibrate the model to the Northern Triangle countries and conduct several policy experiments. I find that for a country like Honduras crime reduces GDP by about 3 percent through its negative effect on employment indirectly, in addition to direct costs of crime associated with material losses, which are in line with literature estimates. Also, the model generates a non-linear effect of crime on output and vice versa. On average I find that a one percent increase in output per capita implies about ½ percent decline in crime, while a decrease of about 5 percent in crime leads to about one percent increase in output per capita. These positive effects are larger if the initial level of crime is larger.
International Monetary Fund. Western Hemisphere Dept.
This 2018 Article IV Consultation highlights that a sound monetary policy management in Guatemala has helped keep inflation expectations firmly anchored. Fiscal deficits have remained at decade lows on the back of low debt tolerance and inadequate budgetary execution. Terms of trade gains and an upsurge in remittances inflows moved the current account into a sizable surplus. The financial system is sound and well-regulated while vulnerabilities seem manageable. Growth performance nevertheless falls shorts of the rates needed to achieve Guatemala’s aspirations to meaningfully lift the living standards of its citizens. Near-term growth prospects remain subdued, at 3.2 percent in 2018 and 3.6 percent in 2019.
International Monetary Fund. Statistics Dept.
This paper discusses the key findings of the report on statistics technical assistance (TA) and training evaluation mission on Guatemala. It is observed that overall users trust macroeconomic statistics in Guatemala. Data-producing agencies viewed TA and training provided by Statistics Department, IMF during 1998–2015 as most effective to improving the quality of statistics. There is broad recognition of the Bank of Guatemala’s key role in producing and disseminating statistics. There was consensus that TA and training were effective and helped enhance data quality of all datasets, but to a modest extent Government Finance Statistics and Producer Price Index. The effectiveness of TA largely depends on capacity built in the main data-producing agencies.
International Monetary Fund. Western Hemisphere Dept.
This 2013 Article IV Consultation highlights that key developments in Guatemala since the 2012 Article IV Consultation have been positive. As commodity prices stabilized and domestic demand pressures weakened, inflation fell sharply in 2012—closing at 3.4 percent by December. Although subsequently inflation rose somewhat—to 4.3 percent by May 2013, owing mainly to domestic prices—it still remained within the central bank’s target range of 4.0±1 percent. The economic outlook is generally benign. Growth is expected to edge up to 3½ percent in 2013 and 2014, reaching its potential rate, supported by ongoing buoyant domestic demand and healthy private-sector credit.
Mr. Andrew J Swiston and Mr. Luis D Barrot
Central America experienced moderate growth during the last decade, including in the years leading up to the global financial crisis, but the rate of convergence toward advanced country income levels has still been slow. Moreover, forecasts imply that these trends will continue. What can be done to spur higher growth in Central America? We bring new data to bear on this question-version 7.0 of the Penn World Table and a new IMF database on structural reforms. Our cross-country panel regression of economic growth using System GMM captures the importance to growth of conditional convergence, factor accumulation, and macro policies. In addition, structural efficiency is a significant factor in explaining growth performance. We construct a broad index of efficiency and find that increasing the degree of structural efficiency by one standard deviation raises growth by ½ percent. This implies that Central American countries could significantly increase their long-run growth rates by increasing the flexibility of markets and improving the quality of regulation.
Mr. Alfred Schipke and Mr. Dominique Desruelle

Abstract

¿Cómo consolidar los avances logrados con tanto esfuerzo, acrecentar la capacidad de resistencia a los shocks y alcanzar un mayor crecimiento económico a fin de reducir la pobreza? Estos son los desafíos que se le presentan en el camino a América Central en el proceso de recuperación de la estabilidad macroeconómica. Este estudio analiza las políticas de América Central en los sectores real, fiscal, monetario y financiero a nivel regional, comenzando por un análisis del crecimiento y de las implicaciones macroeconómicas de las remesas. Seguidamente se abordan la sostenibilidad de los sistemas de pensiones, el desarrollo del sistema financiero, las vulnerabilidades de la deuda soberana y las formas de apoyar el avance en la reducción de la inflación fortaleciendo la credibilidad de los bancos centrales.

Mr. Alfred Schipke and Mr. Dominique Desruelle

Abstract

How to entrench hard-won gains, increase resilience to shocks, and improve growth performance to reduce poverty? As Central America moves forward in regaining macroeconomic stability, these are the challenges. This study analyzes Central America’s real, fiscal, monetary, and financial sector policies at the regional level, starting with a review of growth performance and the macroeconomic implications of remittances. It then looks at the sustainability of pension systems, financial system development, sovereign debt vulnerabilities, and ways to sustain progress in reducing inflation by strengthening the credibility of central banks.

Mr. Andrei A Levchenko and Quý Toàn Ðo
We analyze the relationship between international trade and the quality of economic institutions, such as contract enforcement, rule of law, and property rights. In our model, firms differ in their preferences for institutional quality, which is determined endogenously in a political economy framework. We show that trade opening can worsen institutions when it increases the political power of a small elite of large exporters who prefer to maintain bad institutions. The detrimental effect of trade on institutions is most likely to occur when a small country captures a sufficiently large share of world exports in sectors characterized by economic profits.
International Monetary Fund

Abstract

International standards for measuring foreign direct investment (FDI) have become important in today’s global economy, where multinational enterprises exercise economic clout and FDI statistics can reflect investor sentiment about the climate of investment in a country. This joint IMF/OECD report assesses progress toward standardization in the compilation of FDI statistics and provides information on statistical methodologies in 61 countries. The report is based on data from the 2001 update of the joint IMF/OECD Survey of Implementation of Methodological Standards for Direct Investment (SIMSDI), which covers 30 OECD countries and 31 other IMF member countries