EFFECTS OF DEMOGRAPHIC STRUCTURE IN GROWTH ACCOUNTING AND LABOUR MARKET DECOMPOSITIONS

Impact of demographic structure on labor market and macroeconomic aggregates might be pronounced in some countries. Despite this fact, only a handful of approaches dealing with quantifications such effects have been derived so far. The aim of this paper is therefore to fill this methodological gap and to introduce methodological approaches for capturing changes in demographic structure, with many applications in growth accounting and labor market decompositions. Firstly, a novel additive decomposition will be presented, as an alternative to traditional models using fixed population weights. This will be followed by the presentation of a multiplicative decomposition, which can be applied to all kinds of growth accounting exercises based on multiplicative identities.

The Impact of the COVID-19 Pandemic on the Macroeconomic Aggregates of the European Union

Economic experts’ predictions of a slowdown in the EU’s global economy and economic growth in the year 2020 were based on various risks and uncertainties existing on a world scale, ranging from the US-China trade war, traditionally strained relations of the EU and the US on the one hand and the Russian Federation on the other, all the way to BREXIT and economic migration to developed EU countries. However, the COVID-19 pandemic has further aggravated those forecasts, so that the entire EU is recording a historic decline in all macroeconomic aggregates. The beginning of the pandemic in the EU was accompanied by the complete border lockdown of the entire Union, which greatly affected the economies of the member states. The EU is experiencing a decline of both real and nominal GDP, declining incomes, employment decline and unemployment increase. This paper will investigate the impact of COVID-19 onto GDP, unemployment, and EU public debt. Correlation-regression analysis confirms the positive correlation between these variables and the economic crisis caused by the COVID-19 pandemic. In addition to the economic crisis, a crisis of EU health systems, which requires huge economic investments. A more prominent economic recovery is hard to expect until the global pandemic ends. One thing is for certain, this economic crisis will continue in 2021, whereby a more significant recovery is expected only in the year 2022. Certainly, it will take years to make up for the economic losses caused by the pandemic.

Volatility Risk Pass-Through

We develop a novel measure of volatility pass-through to assess international propagation of output volatility shocks to macroeconomic aggregates, equity prices, and currencies. An increase in country’s output volatility is associated with a decrease in its output, consumption, and net exports. The average consumption pass-through is 50% (a 1% increase in output volatility increases consumption volatility by 0.5%) and it increases to 70% for shocks originating in smaller countries. The equity volatility pass-through is larger and in the order of 90%. A novel channel of risk sharing of volatility risks can explain our empirical findings.

Effects of Demographic Structure in Labour Market Decompositions

Impact of demographic structure on labor market and macroeconomic aggregates might be pronounced in some countries. Despite this fact, only a handful of approaches dealing with quantifications such effects have been derived so far. The aim of this paper is therefore to fill this methodological gap and to introduce methodological approaches for capturing changes in demographic structure, with many applications in growth accounting and labor market decompositions. Firstly, a novel additive decomposition will be presented, as an alternative to traditional models using fixed population weights. This will be followed by the presentation of a multiplicative decomposition, which can be applied to all kinds of growth accounting exercises based on multiplicative identities.JEL classificationJ11; C02

Analysis of the systemic credit risk component in the banking sector of the Republic of Serbia

The subject of this research paper is quantification of the degree of systemic risk exposure of the Serbian banking sector's loan portfolio in the period from 2008Q4 to 2019Q3, including by main commercial segments (corporate and retail). The Basel Committee on Banking Supervision, under its regulatory framework, makes a distinction between corporate and retail loans regarding the exposure to systemic risk. Based on the above, the following hypotheses are set: a) There is a significant difference in systemic risk exposure between corporate and retail loans in the Serbian banking sector and b) Forecasting the exposure to systemic risk of the entire Serbian banking sector can be performed on the basis of corporate loans due to the specificity of the economic system of the Republic of Serbia. The results of the research corroborated the truthfulness of both hypotheses, which has a multifold significance for commercial banks' management, macroeconomic and macroprudential policy makers. First, banking and accounting regulations require stress-testing of probability of default on the change in macroeconomic aggregates and its impact on the bank's capital. Second, a bank's sensitivity to changes in macroeconomic aggregates predominantly depends on the loan portfolio structure by commercial segments. Third, the conclusion of the academic elite that the development of the capital market would lead to an increase in the macroeconomic stability of the Republic of Serbia and reduce the procyclicality of credit risk was confirmed. We used the autoregressive distributed lags model (ARDL model) because there is a difference in order of integration in the observed time series (I(0) and I(1)), and because this method provides good results for relatively small sample data sizes.

The Response of US Macroeconomic Aggregates to Price Shocks in Crude Oil vs. Natural Gas

Price fluctuations in crude oil and natural gas, as important sources of energy, have a remarkable influence on our economies and daily lives. Therefore, it is extremely important to react appropriately and to formulate appropriate policies or strategies to reduce the expected negative effects of fluctuations. However, as Kilian suggested, not all oil price shocks are similar; price increases can have diverse impacts on the real price of oil, depending on the underlying determinants of the price fluctuation. Therefore, economists, policymakers, and investors need to decompose real price shocks and evaluate the responses of macroeconomic aggregates to different types of shocks. In this study, we investigate and compare the different effects crude oil and natural gas price shocks have on US real GDP and CPI levels, utilizing a two-stage method based on a structural vector autoregression (SVAR) model proposed by Kilian. We found that a crude oil specific demand shock made larger contributions to the real price of oil than a natural gas specific demand shock did to the real price of gas, and that specific demand shocks in crude oil and natural gas markets had different effects on US CPI inflation and had similar effects on the real US GDP level.

THE DETERMINANTS OF INDIA’S FDI INFLOWS: THE BOUND TEST ANALYSIS

Purpose of the study: This paper aims to empirically examine the determinants of FDI inflows which include policy factors along with macroeconomic aggregates prevailing in India that serve as an important factor for attracting FDI in the country. Methodology: This paper has applied the Auto Regressive Distributed Lag (ARDL) modeling technique to empirically examine the co-integration relationship among FDI inflows and various macroeconomic aggregates prevailing in India to determine the factors affecting the flow of FDI in India. Main Findings: The study finds that there exists a co-integration relationship between the variables in the model. The estimated coefficient reveals that FDI inflows in India are positively influenced by trade openness, domestic investment, moderate domestic prices and exchange rate in the long-run. The outcomes also reveal that FDI inflows are positively influenced by the past level of FDI inflows, the past year of GDP per capita, past level of trade openness and currency exchange rate in the country in the short-run. Applications of the study: The study will be helpful in the formulation of suitable policies towards foreign investment inflows and to optimize its role in the host country. The study will be also helpful to the government for the enrichment of socioeconomic overheads in the host country to maximize the gains from FDI inflows. The novelty of the Study: The outcome of the study with an addition to the existing literature by incorporating the new variables in the model provides a new variable specific influence on FDI inflows in the country. This will also provide a scope for further study by establishing backward and forward spill over effects of FDI inflows in enhancing income, output, and employment in the country.

Revisions in Utilization-Adjusted TFP and Robust Identification of News Shocks

This paper documents large revisions in a widely-used series of utilization-adjusted total factor productivity (TFP) by Fernald (2014) and shows that these revisions can materially affect empirical results about the effects of news shocks. We trace these revisions to changes in estimated factor utilization that are evocative of cyclical measurement issues with productivity. We propose an alternative identification that is robust to these measurement issues. Applied to U.S. data, the shock predicts delayed productivity growth while simultaneously generating strong responses of novel indicators of technological innovation and forward-looking variables. The shock does not lead to comovement in macroeconomic aggregates.