Douglas Sutherland

Infrastructure and Growth

Investment in network infrastructure can boost long-term economic growth in OECD countries. Moreover, infrastructure investment can have a positive effect on growth that goes beyond the effect of the capital stock because of economies of scale, the existence of network externalities competition enhancing effects. This paper analyses the empirical relationship between infrastructure and economic growth. Time-series results reveal a positive impact of infrastructure investment on growth. They also show that this effect varies across countries and sectors and over time. In some cases, these results reveal evidence of possible over-investment. Bayesian model averaging of cross-section growth regressions confirms that infrastructure investment in telecommunications and the electricity sectors has a robust positive effect on long-term growth (but not in railways and road networks). Furthermore, this effect is highly nonlinear as the impact is stronger if the physical stock is lower.

Oil Price Developments: Drivers, Economic Consequences and Policy Responses

This paper analyses the factors influencing the price of oil and its likely evolution over the next quarter century. It begins by investigating the fundamental forces shaping long-term oil price developments, highlighting the importance of growth-led demand for oil, particularly that emanating from fast-growing, energy-intensive developing countries, and the implications of increasingly geographically concentrated oil reserves. The paper presents oil price projections to 2030 and examines the sensitivity of the projections to the assumptions about growth and non-OPEC supply. While certain combinations of factors could lead to a significantly higher oil price, the projections also suggest that the optimal strategy of resource-rich oil producers would be to prevent it rising too far. The paper then documents short-term influences on the oil price, which peaked at

Debt and Macroeconomic Stability

50 a barrel in 2004, and notes that they have probably led to a significant departure from the long-run equilibrium price ... Ce document analyse les facteurs qui influencent le prix du petrole et son evolution probable au cours du prochain quart de siecle. Il examine d’abord les determinants fondamentaux de l’evolution des prix du petrole a long terme, en soulignant l’importance de la demande petroliere alimentee par la croissance, en particulier celle emanant des pays en developpement a forte intensite d’energie et en expansion rapide, ainsi que les consequences de la concentration geographique croissante des reserves petrolieres. Le document presente des previsions des prix du petrole jusqu’a l’horizon 2030 et evalue leur sensibilite aux hypotheses concernant la croissance et l’offre hors OPEP. Tandis que certaines combinaisons de facteurs pourraient se traduire par un prix du petrole nettement plus eleve, les previsions montrent aussi que pour les producteurs petroliers dotes d’abondantes reserves la strategie optimale consisterait a empecher une hausse excessive des cours. L’etude decrit ensuite les ...

Debt and Macroeconomic Stability: An Overview of the Literature and Some Empirics

Debt levels have surged since the mid-1990s and have reached historic highs across the OECD. High debt levels can create vulnerabilities, which amplify and transmit macroeconomic and asset price shocks. Furthermore, high debt levels hinder the ability of households and enterprises to smooth consumption and investment and of governments to cushion adverse shocks. The empirical evidence suggests that when private sector debt levels, particularly for households, rise above trend the likelihood of recession increases. Measures of financial leverage give less warning and typically only deteriorate once the economy begins to slow and asset prices are falling. Government debt typically rises after the onset of a recession, suggesting that there is a migration of debt across balance sheets. Some policies, such as robust micro prudential regulation and frameworks to deal with debt overhangs and maintain public debt at prudent levels, can help economies withstand adverse shocks. Other policy options, such as addressing biases in tax codes that favour debt financing and targeted macro-prudential policies, will help bring down debt levels and address future run ups in debt. Endettement et stabilite macroeconomique Les niveaux d’endettement sont montes en fleche depuis le milieu des annees 90 et atteignent des sommets historiques dans la zone de l’OCDE. Un endettement important peut creer des vulnerabilites, qui amplifient et repercutent les chocs macroeconomiques et les variations des prix des actifs. Par ailleurs, dans ces conditions, les menages et les entreprises n’ont plus la possibilite de lisser leur consommation et leurs investissements et les gouvernements d’amortir les chocs negatifs. L’experience semble indiquer que, lorsque les niveaux d’endettement du secteur prive, en particulier ceux des menages, sont superieurs a la tendance, la probabilite de recession s’accroit. Les indicateurs du levier financier donnent moins de signaux d’alerte et ne se deteriorent generalement qu’une fois que l’activite economique commence a se ralentir et que le prix des actifs baissent. La dette publique augmente generalement apres le debut d’une recession, ce qui laisse penser que la dette migre entre les bilans. Certaines mesures telles que la mise en place d’une reglementation micro-prudentielle efficace et de cadres permettant de faire face au surendettement et de maintenir la dette publique a des niveaux prudents peuvent aider les economies a resister a des chocs defavorables. D’autres actions possibles, comme la correction de certains biais dans les codes des impots qui favorisent le financement par l’emprunt et des mesures macro-prudentielles ciblees, aideront a reduire les niveaux d’endettement et a contenir le gonflement de la dette dans l’avenir.

Fiscal Rules for Sub-central Governments

How does debt affect macroeconomic stability? The answer to this question has important implications, because both public and private debt levels have reached historic highs across the OECD. While accumulating debt can help smooth real activity, at high levels debt creates weaknesses in corporate, household and government balance sheets. High debt levels can create vulnerabilities, which amplify and transmit macroeconomic and asset price shocks across the economy and internationally. The empirical evidence shows that high debt levels impair the ability of households and enterprises to smooth consumption and investment and of governments to cushion adverse shocks. The empirical evidence also suggests that when private sector debt levels, particularly for households, rise above trend the likelihood of recession increases. Furthermore, when debt levels are high, recessions tend to be more severe. Dette et stabilite macroeconomique: apercu general des etudes existantes et faits constates Quels sont les effets de l’endettement sur la stabilite macroeconomique ? La reponse a cette question a des consequences importantes car les niveaux d’endettement publics et prives atteignent des sommets historiques dans les pays de l’OCDE. S’il est vrai que l’accumulation de dettes peut aider a lisser l’activite reelle, un endettement eleve affaiblit les bilans des entreprises, des menages et de l’Etat. Un fort endettement peut etre a l’origine de vulnerabilites, qui amplifient et repercutent les chocs macroeconomiques et les variations des prix des actifs dans l’economie et au plan international. L’experience montre que des niveaux eleves d’endettement limitent la possibilite pour les menages et les entreprises de lisser leur consommation et leurs investissements et, pour les gouvernements, d’amortir les chocs defavorables. Les donnees d’observations semblent aussi indiquer que lorsque la dette du secteur prive, en particulier celle des menages, depasse la tendance, la probabilite de recession s’accroit. Par ailleurs, lorsque les niveaux d’endettement sont eleves, les recessions sont generalement plus severes.

Public-Private Partnerships and Investment in Infrastructure

Against a background of mounting demands for spending on services provided by sub-central governments, this paper examines how fiscal rules can help to ensure that pressure on resources is minimised and available resources are used efficiently. Drawing on questionnaire responses and other sources, this paper gives a detailed picture of fiscal rules for sub-central governments in place among a number of OECD countries. The paper examines the rationales for using fiscal rules, the various impacts fiscal rules can have, the factors making for effective implementation and the interactions between the various types of rule. It then constructs a number of synthetic sub-indicators designed to assess the extent to which sub-central government fiscal frameworks exhibit favourable characteristics for the achievement of fiscal objectives. It concludes with the construction of a composite indicator based on the combined impacts in the different areas of fiscal policy.

The Nature of Financial and Real Business Cycles: The Great Moderation and Banking Sector Pro-Cyclicality

How can governments reap the potential benefits of public-private partnerships (PPPs) in the provision of infrastructure? Private sector involvement in the provision of public goods is long-standing, often relying on franchises or concessions. More recently, PPPs have risen in prominence, promising innovative solutions and a better allocation of inputs than traditional procurement with separate concessions. However PPPs are not without risks with the outcome depending on the identification of the most efficient bidder, the risk sharing between the public and private sector and the design of the contractual relationship. Furthermore, PPPs, particularly when they are used to circumvent budgetary constraints, present risks to government budgets by creating large contingent liabilities. Drawing on a discussion of the economics of PPPs in relation to infrastructure and questionnaire responses, synthetic indicators are used to assess how well-suited policy frameworks in the OECD are to benefit from PPPs. The results show marked heterogeneity across countries, suggesting there is scope to improve performance and gain expertise by considering other countries? experiences. Partenariats public-prive et investissement en infrastructures Comment le secteur public peut-il tirer parti des avantages eventuels des partenariats public-prive (PPP), s?agissant de la mise a disposition d?infrastructures ? Le secteur prive intervient de longue date dans l?offre de biens publics, souvent dans le cadre de concessions. Plus recemment, les PPP ont gagne en importance, presageant de solutions novatrices et d?une affectation des ressources plus efficace que celle de la passation de marches classique basee sur des concessions distinctes. Mais les PPP ne sont pas denues de risques, leur resultat etant tributaire de la selection du soumissionnaire le plus efficient, du partage des risques entre secteurs public et prive, ainsi que du montage contractuel retenu. De plus, surtout si l?on y fait appel pour echapper a des contraintes budgetaires, ils entrainent des risques pour les budgets publics parce qu?ils generent d?importants passifs eventuels. Des indicateurs synthetiques, etablis a partir d?une analyse des aspects economiques des PPP dans le domaine des infrastructures et des reponses a un questionnaire, sont utilises pour evaluer dans quelle mesure les cadres d?action des pays de l?OCDE sont adaptes pour exploiter les avantages des PPP. Il en ressort une forte heterogeneite internationale, qui laisse entrevoir des possibilites d?ameliorer les resultats et d?acquerir des connaissances en etudiant les experiences des autres pays.

Post-Crisis Debt Overhang: Growth Implications Across Countries

This paper takes a fresh look at the nature of financial and real business cycles in OECD countries using annual data series and shorter quarterly and monthly economic indicators. It first analyses the main characteristics of the cycle, including the length, amplitude, asymmetry and changes of these parameters during expansions and contractions. It then studies the degree of economic and financial cycle synchronisation between OECD countries but also of economic and financial variables within a given country, and gauges the extent to which cycle synchronisation changed over time. Finally, the paper provides some new evidence on the drivers of the great moderation and analyses the banking sector’s pro-cyclicality by using aggregate and bank-level data. The main findings show that the amplitude of the real business cycle was becoming smaller during the great moderation, but asset price cycles were becoming more volatile. In part this was linked to developments in the banking sector which tended to accentuate pro-cyclical behaviour.

Monetary Policy Reaction Functions in the OECD

Public debt in the OECD area passed annual GDP in 2011 and is still rising. For many countries, just stabilising debt - let alone bringing it down to a more sustainable level - is a major challenge. The debt overhangs can affect growth through channels such as raising the cost of capital. The main focus of this paper however is the implications for growth both in the short term and in the long term of reducing debt levels. Consolidation needs are large and most of the reduction in debt overhangs will need to come from improvements in the primary balance. In the short term, the pace of consolidation needs to balance consolidation requirements with the effects of fiscal retrenchment on aggregate demand. The trade-off will depend on the choice of fiscal instrument and on the ability of monetary policy to accommodate consolidation. However, other things being equal, a slow consolidation will ultimately require more effort to meet a fixed debt target. In this context, consolidation should aim to use instruments that are friendly to long-term growth. There is scope to improve budgetary positions by reforming transfer systems, raising the efficiency of public services, eliminating certain tax expenditures and collecting additional revenues from less distortionary tax bases.

Oil Price Developments

Monetary policy reaction functions can provide insights into the factors influencing monetary policy decisions. Empirical estimates suggest that differences exist across countries as to whether monetary policy reacts solely to expected inflation or also takes into account expected output developments. A range of other factors, such as monetary policy in large economies, can also influence monetary policy reactions in smaller ones. On the other hand, monetary policy has reacted less to contemporaneous measures of the output gap, while asset price developments do not generally appear to have influenced monetary policy decisions.