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We consider the problem of modeling the investments in an imperfect capital market in which the interest on loans significantly exceeds the interest on deposits. To determine the cash flow deflator, we propose to use the Cantor–Lippman model in which the investment environment is described by a pool of stationary and replicable projects. The pool of investment projects defines the investment function, which is built as the pointwise maximum of Laplace transforms of the cash flows of investment projects. The Cantor–Lippman model of investment in an imperfect capital market allows us to build a Bellman function, which can be used to assess the financial state of the investor. We study the properties of the Bellman operator in the problem of an optimal investment strategy. It is shown that the minimum positive root of the investment function should be used as a cash flow deflator. We also study a dynamic control system describing the investment process. Modes of balanced growth are built. The Neumann growth rate and the Neumann equilibrium states are determined. A weak turnpike theorem is proved.

El presente trabajo utiliza la metodología de contabilidad de crecimiento, llamada Two-Deflator Approach, para estimar la productividad total de los factores (PTF) en Costa Rica entre 1960 y 2019. Los resultados indican que el 14 % del crecimiento económico es explicado por el crecimiento de la PTF. El resto del crecimiento económico se asocia a las contribuciones del capital (52%) y del trabajo (34%), las cuales han sido positivas durante todas las décadas de este periodo. En cuanto a la contribución del trabajo, su aporte al crecimiento económico ha sido por la cantidad y no por la calidad de la mano de obra, con excepción del primer (1960-1969) y último periodo (2010-2019) en donde la calidad aportó positivamente al crecimiento económico. En términos de cambios, los resultados muestran que el 69% del cambio en la tasa de crecimiento durante el periodo está explicado por cambios en la PTF; el restante 31 % se explica por cambios en las contribuciones de los factores de producción (trabajo y capital). Una vez estimada la PTF, se utiliza un modelo GARCH para estimar la relación entre la instabilidad macroeconómica y el crecimiento de la PTF. Así, se encontró evidencia de que el crecimiento de la PTF en Costa Rica se ve afectado negativamente por inflaciones altas. Por su parte, el crecimiento de la PTF se beneficia de un mayor crecimiento de la apertura comercial, medida por la suma de importaciones y exportaciones a PIB, y se perjudica cuando existe una mayor volatilidad de la profundización financiera, medida por la razón de M1 o M2 al PIB.

In this paper, we study arbitrage theory in a basic multi-period market model. Malamud and Trubowitz (Math Financ Econ 1(2): 129–161, 2007) used an aggregate state-price deflator and an orthogonal projection onto the payoff subspace to describe the recursive structure of optimal consumption streams. We present explicit expressions of these instruments. We also prove that the density process of a unique minimal martingale measure, with respect to an original measure, can be the aggregate state-price deflator in a market discounted by a numeraire.

In this paper we study arbitrage theory of financial markets in the absence of a numeraire both in discrete and continuous time. In our main results, we provide a generalization of the classical equivalence between no unbounded profits with bounded risk and the existence of a supermartingale deflator. To obtain the desired results, we introduce a new approach based on disintegration of the underlying probability space into spaces where the market crashes at deterministic times.

Though an accumulating body of work has analysed fiscal policy and macroeconomic relationship in Indian context, the framework adopted is largely single-equation one and the analysis is conducted mostly at the aggregate level, resulting in the documentation of conflicting results. The study develops a structural macroeconometric model which is primarily eclectic in nature. The generalised method of movements is used for estimation of behavioural equations, while Gauss–Seidel algorithm is used for model simulation purpose. The paper presents results of two policy simulations from the estimated model that highlight the impact of fiscal policy and resulting fiscal deficit under two financing options such as Reserve Bank credit to government and commercial bank credit to government. We find that under both the financing scenarios public investment crowds in private investment with long-run cumulative multiplier equal to 1.64 and 1.30, respectively. First, real output under both options also witnesses an increase in the long run with cumulative multipliers equal to 3.48 and 2.72, respectively. Second, under monetary financing scenario, aggregate deflator along with overall price level witnesses an increase of about.4.01 and 3.84%, respectively, in the long run, while a reversal under commercial bank credit to government (− 2.72 and − 2.61). Thus, we find an evidence of Sargent and Wallace (1981) view of price level. Third, we find evidences of twin-deficit hypothesis in case of monetary financing scenario and twin divergence in case of commercial bank credit to the government. Further, we find that deficit interest rate linkage also varies under the two financing scenarios, negative relationship in case of the first, while positive relationship in case of the second.

In this work we build a Bayesian vector autoregression model to estimate the impact of global economic activity shocks, supply shocks in the global oil market, as well as speculative oil shocks on key macroeconomic variables of the Russian economy: GDP, household consumption, fixed capital investment, import, export, real effective exchange rate, real wages and income, MIACR interest rate and GDP deflator. The model uses real oil prices, the index of global economic activity, oil production and oil inventories as exogenous variables. The model parameters are estimated for the period from Q1 1999 to Q4 2019. The dynamics of four exogenous variables is described using a separate external vector autoregression model, which is estimated over an extended time period from Q1 1974 to Q4 2019 in order to more accurately estimateits parameters and identify shocks. Shocks are identified based on the approach proposed in [Kilian, Murphy, 2014], which uses sign restrictions and restrictions on the price elasticities of oil demand and oil supply. According to estimates of impulse responses, such variables as real household consumption, imports, and the exchange rate respond positively and statistically significantly to all three shocks leading to an increase in oil prices. However, a shock to global economic activity has a stronger impact. With an increase in oil prices for real GDP, investment and exports a stable and statistically significant positive impact is observed only when this price increase is due to a shock to global economic activity. The work also estimates a forecast error variance decomposition and a historical decomposition of the domestic variables by shocks, which indicate the prevailing role of shocks in global economics activity in the dynamics of Russian macroeconomic variables.

There is a large literature evaluating the forecasts of the Federal Reserve by testing their rationality and measuring the size of their forecast errors. There is also a substantial literature and debate on the impact of the Fed’s monetary policy on the economy. We know little, however about the impact of the Fed’s forecast errors on economic outcomes. This paper constructs a measure of a forecast error shock for the Federal Reserve based on the assumption that the Fed follows a forward-looking Taylor rule. Given the effort the Fed puts towards producing forecasts that do not have an endogenous error component, we treat the Fed’s forecast errors as a shock, analogous to a monetary policy shock. Our shock, however, is different in that it is completely unintended by the monetary authority rather than simply unanticipated by the public. We follow Romer and Romer (2004) and investigate the effect of the forecast error shock on output and price movements. Our results suggest that although the absolute magnitude of the forecast error shock is large, the impact of the shock on the macroeconomy is quite small. This finding is robust across a range of different specifications. The maximum impact suggests a decline of less than 0.3 percent of real GDP and less than 0.4 percent of GDP deflator in response to a 100 basis point contractionary forecast error shock.

This paper investigates the public-private remuneration patterns in South Africa with time-series methods for the first time since the introduction of an inflation-targeting framework in 2000. Co-integration tests and analysis confirm that there is a stable, long-run relationship between nominal and real remuneration in the public and private sector. The adjustment to the deviations from this long-run relationship is strong and significant for public-sector remuneration, while private-sector wages neither respond to deviations from the long-run relationship nor lagged changes in public-sector remuneration. The causal direction from private- to public-sector remuneration does not change if real earnings are calculated with the gross domestic product deflator. This is confirmed by simple Granger-causality tests.

Die EZB plant ebenso wie die US-amerikanische Federal Reserve, ihr Infl ationsziel leicht auf 2 % anzuheben und dies im Durchschnitt mehrerer Jahre zu erreichen. Tatsächlich liegt die Infl ationsrate aber trotz der sehr lockeren Geldpolitik deutlich unter 2 %. Werden die Maßnahmen gegen die Corona-Krise die Preissteigerung erhöhen? Während der Finanzkrise war es nicht dazu gekommen. Auch die derzeit erwartete Wirtschaftsentwicklung spricht nicht für hohe Preissteigerungen. Aber welche Rate sollte als Indikator für die "wahre" Infl ation gemessen werden? Sollten die Vermögenspreise berücksichtigt werden? Was spricht für den BIP-Defl ator, was für den Konsumentenpreisindex? Wie ist eine hedonische Qualitätsbereinigung zu bewerten? Über diese Fragen diskutieren die Teilnehmer*innen des Zeitgesprächs. The ECB is discussing how to raise its inflation target slightly to 2 %, just as the US Federal Reserve is raising it slightly and aiming to achieve it over several years on average. In reality, however, the inflation rate is well below 2 % despite the very relaxed monetary policy. Will the measures against the corona crisis increase the inflation rate? This did not happen during the financial crisis despite the increase in the money supply. Even current economic developments do not explain the high price increases. So what rate should be measured as an indicator of "true" inflation? Should asset prices be taken into account? What about the GDP deflator, or the consumer price index? How should a hedonic quality adjustment be assessed? These are the questions that Zeitgespräch participants will discuss.

This paper contrasts real exchange rate (RER) measures based on different deflators (CPI, GDP deflator, and ULC) and discusses potential implications for the link—or lack thereof—between RER and external balance. We begin by documenting patterns in the evolution of different measures of RERs, and confirm that the choice of deflator plays a significant role in RER movements. A subsequent empirical investigation based on 35 developed and emerging market economies over 1995 to 2014 yields comprehensive and robust evidence that only the RER deflated by ULC exhibits contemporaneous patterns consistent with the expenditure-switching mechanism. We rationalize the empirical findings by introducing a simple model featuring nominal rigidity and trade in intermediate goods as the one in Obstfeld (2001) and Devereux and Engel (2007), which is shown to generate qualitatively identical patterns to empirical findings.

This paper considers a simple Bayesian vector autoregressive model for the Russian economy based on data for real GDP, GDP deflator and oil price as an exogenous variable that acts as a proxy variable for the terms of trade. Along with the impact of oil price shocks, the model estimates the impact of supply and demand shocks, the identification of which is based on the approach of sign restrictions. According to the results obtained, at the end of 2014 and in 2015, demand shocks had a positive impact on GDP growth, which can be interpreted as a positive effect of the ruble devaluation at the end of 2014. In the next years, demand shocks led mainly to a slowdown in economic growth. The paper also attempts to identify monetary policy shocks and assesses their impact on GDP, household consumption and investment. According to the results, the effect of monetary shocks in 2015—2019 on all endogenous variables was negative. However, an increase in the interest rate at the end of 2014 is identified mostly as an endogenous reaction to other shocks, and the effect of the monetary shock on GDP in 2015 is nearly zero. In 2017, monetary shocks slowed down GDP by 0.92 percentage points.

Problem and purpose. In 2019, official inflation reached the record low of 3,042 %, which is below the adopted inflation target of 4 %. First of all, this level of inflation plays the role of a politically correct social indicator. Despite the low CPI level, there is an opinion in society about higher inflation. To clarify this issue, you can use alternative indicators of price increases. The purpose of the article is to identify and analyze alternative inflation indicators. Methods. The article uses the analytical method. In particular, the main indicators of inflation are analyzed. Results. The analysis revealed indicators of price increases, which serve as alternative indicators of inflation. The analysis carried out in the article allows us to determine the versatility of inflationary processes and the possibility of the formation and use of alternative indicators of price increases. Conclusions. The analysis of inflation indicators showed that the price growth trend is bearish. In the modern economy, real inflationary processes are less intense compared with the data of various experts. The search for an indicator that really reflects price processes is relevant. Today it is the CPI. Its value is important, as it is used to adjust the minimum wage, pensions, benefits and can lead to a deterioration in the standard of living of significant groups of the population

The aim of this paper is to present how countries can be compared on the basis of the development of selected macroeconomic indicators. The economic similarity of the four founding Mercosur countries (i.e., Argentina, Brazil, Paraguay, and Uruguay), based on the development of five selected macroeconomic indicators in the period 1991–2016, is investigated. The following indicators were analyzed: current account balance, GDP per capita, trade-to-GDP ratio, unemployment rate, and the GDP deflator, using data from the World Bank database. Using hierarchical cluster analysis of changes in time series (differences and growth rates), it was found that the obtained clusters of countries are different. For this reason, cluster analysis was carried out for two different groups of indicators on the basis of the averages of the Euclidean distances obtained for the individual indicators. Celem tego artykułu jest ukazanie w jaki sposób można dokonać porównań państw na podstawie wybranych wskaźników makroekonomicznych. Zbadano podobieństwo gospodarek czterech krajów założycielskich Mercosur (tj. Argentyny, Brazylii, Paragwaju i Urugwaju) w analizując zmiany pięciu wybranych wskaźników makroekonomicznych w latach 1991–2016. Przeanalizowano następujące wskaźniki: saldo obrotów bieżących, PKB per capita, wskaźnik handlu do PKB, stopę bezrobocia i deflator PKB, wykorzystując dane z bazy danych Banku Światowego. Za pomocą hierarchicznej analizy skupień zmian szeregów czasowych (różnic i wskaźników wzrostu) wykazano, że uzyskane skupienia poszczególnych krajów są różne. W związku z tym analizę skupień przeprowadzono na podstawie średnich odległości euklidesowych uzyskanych dla poszczególnych wskaźników dla dwóch różnych grup wskaźników.

Comparisons of real income within a country generally imply a deflation for relative price differences across regions. Housing services are the main source of spatial price difference because of the fixity of land supply. This paper argues that housing prices can synthetically reflect the general price level and proposes to estimate the subnational purchasing power parities (PPPs) based on the housing market as a distinctive spatial deflator to measure real income disparity. With a sample of urban and rural regions ranging from 1999 to 2015, house price relatives are estimated with the country-product-dummy (CPD) method; then, the subnational PPPs are calculated with the classic Gini-Elteto-Koves-Szulc (GEKS) method. The results show that the subnational PPPs in the east regions are always high, while those in the middle and west regions are usually low for both urban and rural areas. The values of subnational PPPs for different regions change over time, while the trends are inconsistent between the east regions and the middle and west regions. Taking the subnational PPPs as a new distinctive spatial deflator, provincial income disparity exhibits an obvious descending trend. Notably, income disparity decreased significantly after deflating, for both urban and rural regions.

This paper highlights the prospect of a Covid-19 led upsurge in the government debt-GDP ratio of 19 countries in the G-20 group. Many of these countries have Fiscal Responsibility Legislations (FRLs) where government debt-GDP ratios have been tar-geted. A key policy implication of our findings is that most countries will find that the post-Covid slippage in their government debt-GDP ratio is so large as to call for major changes in their fiscal policy framework. In some cases, even a modification of their FRL may be warranted. The evolution of debt of these countries over the period 1996 to 2019 indicates that major economic crises have led to one-time upsurges in their debt-GDP ratios covering both government and private debt. These ratios tend to re-main at high levels well after the crises are over, showing downward rigidity. We esti-mate that Covid-19 induced increase in government debt-GDP ratio for the selected countries, would amount to 14.9% points on average which is more than 141% higher than the increase of 6.2% points resulting from the 2008 crisis. We propose a methodology to project the government debt-GDP ratio as a function of incremental borrowing relative to GDP, real GDP growth and GDP deflator-based infla-tion. We also estimate the relative contribution to the increase in government debt-GDP ratio, individually of these factors. We find that the upsurge in the Covid led government debt-GDP ratio is large because of the reversal of the role of the growth factor in explaining the change in the debt-GDP ratio between two successive years. In particular, instead of appearing with a negative sign, which is the case in a normal year, it appears with a positive sign in a crisis year. Further, the fiscal deficit-GDP ratio also increases due to large stimulus packages in a crisis year

We analyse the role played by data and modelling choices as determinants of the size of estimated fiscal multipliers. Using data for European economies, we assess empirically how the methodology used to obtain the multiplier affects its size and accuracy. The results based on over twenty million fiscal multiplier estimates indicate that many seemingly harmless choices play a significant role. Narrower definition of government revenues lead to an increase in the multiplier (and the precision of its estimate), whereas narrower definition of government spending lead to a decrease of the tax cut multiplier (and the precision of its estimate). If the fiscal data is smoothed beforehand, the multipliers are estimated as higher and with lower volatility. In case that fiscal shocks are identified with causal ordering, extending the data used for inflation and the interest rate increases the value of the multiplier. For spending multipliers, using HICP to deflate nominal variables (instead of GDP deflator) and following ESA 95 (instead of ESA 2010) increases the estimate of the multiplier.

In empirical macroeconomics, proxy structural vector autoregressive models (SVARs) have become a prominent path towards detecting monetary policy (MP) shocks. However, in practice, the merits of proxy SVARs depend on the relevance and exogeneity of the instrumental information employed. Our Monte Carlo analysis sheds light on the performance of proxy SVARs under realistic scenarios of low relative signal strength attached to MP shocks and alternative assumptions on instrument accuracy. In an empirical application with US data we argue in favor of the specific informational content of instruments based on the dynamic stochastic general equilibrium model of Smets and Wouters (2007). A joint assessment of the benchmark proxy SVAR and the outcomes of a structural covariance change model imply that from 1973 until 1979 monetary policy contributed on average between 2.2 and 2.4 units of inflation in the GDP deflator. For the so-called Volcker disinflation starting in 1979Q4, the benchmark structural model shows that the Fed’s policy measures effectively reduced the GDP deflator within three years (i.e. by -3.06 units until 1982Q3). While the empirical analysis largely conditions on a small-dimensional trinity SVAR, the benchmark proxy SVAR shocks remain remarkably robust within a six-dimensional factor-augmented model comprising rich information from Michael McCracken’s database (FRED-QD).

This paper is a preliminary attempt to use both the value added approach with double deflation and the expenditure approach to deflate China's nominal GDP over 15 years (2004-2018). The results show that China's real GDP growth during the period has significantly more fluctuations than the official statistics indicate. Additionally, inflation, as measured by the official implicit GDP deflator, is generally overestimated during boom years but underestimated during downturn years. In particular, it is shown that China's growth slowdown in recent years before the COVID19 pandemic may have been more severe than official figures suggest.

•Distribution of much of the benefits from productivity gains across sectors through adjustment of relative prices causes value added per unit of output to fall in the progressive and rise in the relatively stagnant sectors. Under such circumstances, if total factor productivity is sought to be measured by taking value added as a proxy for output the result will inevitably be underestimate for the progressive and an overestimate for the relatively stagnant sectors.•Transformation of a low-growth inward looking economy into a substantially liberalized, globalized, high-growth economy had implications for the technical (intermediate input) structure of production as well as adjustment (erosion and buildup) of value added across sectors through changes in relative prices. The study observes that the relative price for the manufacturing sector (vis-a-vis the GDP deflator) declined steadily while that for the service subsector EHPAD (education, health, public administration and defence) increased fast, causing significant adjustment of sectoral value added.•The most interesting finding is the drag on the share of the manufacturing sector caused by adjustment of relative prices; this paring of sectoral share is an important explanation for the stagnation of relative share of manufacturing in GDP of India.•Admitting that the precise measures of sectoral gains or losses are inevitably subject to limitations of quality of data, the very consistent behaviour of the manufacturing and the EHPAD sectors over all the phases of our study lends strong support to the basic hypothesis of Baumol’s disease for the Indian economy and throws light on the apparent stagnation of manufacturing’s GVA share.

The relationship of labor productivity with other macroeconomic indicators has been analyzed: the level of wages in current prices and taking into account the Paasche deflator index; dynamics of the gross domestic product; the dynamics of the share of food in the consumer basket; the indicators of changes in clean investments, that is a key factor in economic growth in the national economy. On the basis of empirical data, the trends of productivity growth in comparison with the growth of other macroeconomic indicators algebraically and graphically have been shown. It has been concluded, that the development of human resources is necessary, since low productivity is a brake on the economic growth of the country in the conditions of catching-up development.

This paper introduces a global database that contains inflation series: (i) for a wide range of inflation measures (headline, food, energy, and core consumer price inflation; producer price inflation; and gross domestic product deflator changes); (ii) at multiple frequencies (monthly, quarterly and annual) for an extended time period (1970-2021); and (iii) for a large number of (up to 196) countries. As it doubles the number of observations over the next-largest publicly available sources, our database constitutes a comprehensive, single source for inflation series. We illustrate the potential use of the database with three applications. First, we study the evolution of inflation since 1970 and document the broad-based disinflation around the world over the past half-century, with global consumer price inflation down from a peak of roughly 17 percent in 1974 to 2.5 percent in 2020. Second, we examine the behavior of inflation during global recessions. Global inflation fell sharply (on average by 0.9 percentage points) in the year to the trough of global recessions and continued to decline even as recoveries got underway. In 2020, inflation declined less, and more briefly, than in any of the previous four global recessions over the past 50 years. Third, we analyze the role of common factors in explaining movements in different measures of inflation. While, across all inflation measures, inflation synchronization has risen since the early 2000s, it has been much higher for inflation measures that involve a larger share of tradable goods.

This paper reconstructs annual inflation figures for China, for the period 1953–1978, where inflation concerns the Consumer Price Index (CPI). One alternative index and two new models are considered. The models associate CPI based inflation with the GDP inflator and with retail prices, for the years after 1978. A combination of the three ‘forecasts’ is taken as the reconstructed series. This new inflation series has proper face value and can be used for macroeconomic data analysis in China.

We consider whether it is possible to determine if macro forecasters are attempting to forecast first estimates of data, or revised estimates. Our approach requires that data revisions are predictable prior to the first estimate being released. There is some evidence that this condition is met for some series, and that some forecasters put some weight on later estimates for consumers’ expenditure and the GDP deflator.

The presented considerations are an attempt to verify the possibility of using input-output tables for modeling and, as a consequence, to forecast inflation. The study is a continuation of previous simulation experiments performed on a limited statistical material. The study uses input-output tables expressed in current and constant prices, describing the economy of Denmark. This is the richest available set of tables of this type. Thanks to these tables it was possible to trace long-term changes in the structure of production costs and their impact on the deflator of household consumption.

Achieving food security remains a challenge for many low- and middle-income countries, including Indonesia. The aim of this study was to assess the policy space to implement food security policy in Indonesia under the World Trade Organization (WTO). The policy space for developing countries to implement administered prices for agricultural commodities is significantly circumscribed by the Agreement on Agriculture (AoA) under the WTO regime. In particular, the procurement of foodgrains at administered prices is considered “trade distorting support” and limited under the amber box. This study describes the food security policy context in Indonesia, compares existing food procurement expenditure to Indonesia’s commitments within the AoA, and evaluates the implications of different options proposed regarding public stockholding for food security purposes at the WTO. Administered prices and public procurement form part of Indonesia’s long-term commitment to food security policy, and aim to stabilize food prices for producers and consumers. Indonesia’s procurement of rice has been rising as a percentage of value of production (VoP). It is still under the de minimis limit (10%), but the applicable permissible limit on procurement has declined by nearly half, in terms of volume. This indicates that the policy space for providing product specific support is declining, as inflation is not accounted for under the AoA method of calculation. Of the different options that have been tabled to take into account inflation, using the Wholesale Price Index as a deflator increases the policy space the most. The peace clause deliberations at the WTO are of critical importance to the Government of Indonesia, as their policy space becomes increasingly constrained. In the near future, Indonesia may need to invoke the peace clause to restrain other countries from challenging its food security program.

Real prices for metals seem to have developed at a constant price level over a long period of time, up to 100 years. Based on real prices for 28 metals, using the US Producer Price Index as a deflator, we have defined long-term and short-term low-price benchmarks. The results show that real prices which developed in cycles or reacted to shocks normally returned to a certain floor price, defined as the long-term low-price benchmark in this study. Using long-term low-price benchmarks as a price signal is a useful tool for investors and buyers to act anticyclically between cycles or shocks, either to secure long-term offtake agreements or to farm into new mining assets at a low price. A combined analysis with average real total cash cost data for 11 mineral raw materials supports the low-price benchmark approach and leads to a discussion whether the lessons of the past hold true for the future. We propose that these learning effects still take place and, in consequence, the long-term real price benchmarks may be extrapolated into the next decade. However, it is possible that the cost pressure to retain or obtain the social licence to operate increases to such a degree that technical rationalization cannot keep up with the cost increases. Consequently, the operating costs at mines and the ratio of the established long-term low-price benchmark to the total cash costs are important aspects to monitor.