Prakash Loungani

• International Monetary Fund

ABSTRACT: We examine the impact of formal adoption of inflation targeting (IT) on inflation, growth and anchoring of inflation expectations in advanced economies and emerging markets and developing economies (EMDEs). Our paper reports several findings relevant to assessing the success of IT regimes. We find that while the early adopters of IT (pre-...

This paper provides evidence on the impact of major epidemics from the past two decades on income distribution. The pandemics in our sample, even though much smaller in scale than COVID-19, have led to increases in the Gini coefficient, raised the income share of higher-income deciles, and lowered the employment-to-population ratio for those with b...

We construct unanticipated government spending shocks for 103 developing countries from 1990 to 2015 and study their effects on income distribution. We find that unanticipated fiscal consolidations lead to a long‐lasting increase in income inequality, while fiscal expansions lower inequality. The results are robust to several measures of income dis...

This paper provides cross-country evidence on the relationship between growth in CO2 emissions and real GDP growth from 1960 to 2018. The focus is on distinguishing longer-run trends in this relationship from short-run cyclical fluctuations, and on documenting changes in these relationships over time. Using two filtering techniques for separating t...

The economy-climate interaction and an appropriate mitigation policy for climate protection have been treated in various types of scientific modeling. Here, we specifically focus on the seminal work by Nordhaus [14, 15] on the economy-climate link. We extend the Nordhaus type model to include optimal policies for mitigation, adaptation and infrastr...

Can inflation anchoring foster growth? To answer this question, we use panel data on sectoral growth for 22 manufacturing industries from 39 advanced and emerging market economies over 1990–2014 and employ a difference-in-differences strategy based on the theoretical prediction that higher inflation uncertainty particularly depresses investment in...

Major epidemics of the last two decades (SARS, H1N1, MERS, Ebola, and Zika) have been followed by increases in inequality [Furceri et al. (2020), COVID Economics, 12, 138–157]. In this article, we show that the extent of fiscal consolidation in the years following the onset of these pandemics has played an important role in determining the extent o...

Historically, richer countries have had larger cities than poorer countries. Today, urban giants are no longer concentrated in rich countries. However, there are clear differences in physical city characteristics associated with country incomes. These differences are easily reconciled mathematically as population is the product of land area, struct...

This paper analyzes alternative channels of adjustment to nominal exchange rate flexibility in response to shocks faced by countries and regions that are part of a monetary union. Over our full sample period of analysis (1977-2018), the results suggest a dominant role of interstate migration as an adjustment channel to labor demand shocks for the U...

This chapter provides evidence on the impact of major epidemics from the past two decades on inequality and job prospects. Our results justify the concern that the COVID-19 pandemic could significantly raise inequality; past events of this kind, even though much smaller in scale, have led to increases in the Gini coefficient, lowered the employment...

This paper provides evidence that financial globalization—liberalization of the capital account—makes income distribution more uneven by raising the share of income that goes to the richest income deciles. We also offer evidence that changes in domestic fiscal policies in the aftermath of financial globalization are one channel through which these...

This paper revisits, by means of both time series and panel data analyses, the empirical regularity identified by Okun’s (in: Proceedings of the business and economics statistics section, American Statistical Association, Washington, DC, 98–103, 1962) seminal paper. Based on a sample of 85 advanced and developing economies between 1978 and 2014, we...

This paper compares the performance of Okun’s Law in advanced and developing economies. On average, the Okun coefficient—which measures the short-run responsiveness of labor markets to output fluctuations—is about half as large in developing as in advanced countries. However, there is considerably heterogeneity across countries, with Okun’s Law fit...

We take a fresh look at the aggregate and distributional effects of policies to liberalize international capital flows—financial globalization. Both country‐ and industry‐level results suggest that such policies have led on average to limited output gains while contributing to significant increases in inequality. The country‐level results are based...

It is obvious that holding city population constant, differences in cities across the world are enormous. Urban giants in poor countries are not large using measures such as land area, interior space or value of output. These differences are easily reconciled mathematically as population is the product of land area, structure space per unit land (i...

This paper provides an assessment of the IMF's unemployment forecasts, which have not received much scrutiny to date. The focus is on the internal consistency of the IMF's growth and unemployment forecasts, and specifically on seeing whether the relationship between the two is consistent with the relationship in the data, i.e., with Okun's Law. We...

This paper assesses the performance of the IMF’s unemployment forecasts for 84 countries, both advanced and emerging market economies, between 1990 and 2015. The forecasts are reported in the World Economic Outlook, a leading IMF publication. The forecasts display a small amount of bias—they tend to predict lower unemployment outcomes than occur—wh...

We find that Okun’s Law holds quite well for most U.S. states but the Okun coefficient—the responsiveness of unemployment to output—varies substantially across states. We are able to explain a significant part of this cross-state heterogeneity on the basis of the state’s industrial structure. Our results have implications for the design of state an...

For the world's 20 largest emitters, we use a simple trend/cycle decomposition to provide evidence of decoupling between greenhouse gas emissions and output in richer nations, particularly in European countries, but not yet in emerging markets. If consumption-based emissions—measures that account for countries’ net emissions embodied in cross-borde...

We describe the evolution of forecasts in the run‐up to recessions. The GDP forecasts cover 63 countries for the years 1992–2014. The main finding is that, while forecasters are generally aware that recession years will be different from other years, they miss the magnitude of the recession by a wide margin until the year is almost over. Forecasts...

We describe the evolution of forecasts in the run-up to recessions. The GDP forecasts cover 63 countries for the years 1992 to 2014. The main finding is that, while forecasters are generally aware that recession years will be different from other years, they miss the magnitude of the recession by a wide margin until the year is almost over. Forecas...

We provide a comprehensive analysis of the relationship between greenhouse gas (GHG) emissions and GDP in China using both aggregate and provincial data. The trend or Kuznets elasticity is about 0.6 for China, higher than that in advanced countries but below that of major emerging markets. The elasticity is somewhat lower for consumption-based emis...

We study the impact of fluctuations in global oil prices on domestic inflation using an unbalanced panel of 72 advanced and developing economies over the period from 1970 to 2015. We find that a 10 percent increase in global oil inflation increases, on average, domestic inflation by about 0.4 percentage points on impact, with the effect vanishing a...

This paper provides new evidence of the effect of conventional monetary policy shocks on income inequality. We construct a measure of unanticipated changes in policy rates-changes in short-term interest rates that are orthogonal to unexpected changes in growth and inflation news-for a panel of 32 advanced and emerging market countries over the peri...

This paper asks how well Okun's Law fits short-run unemployment movements in the United States since 1948 and in 20 advanced economies since 1980. We find that Okun's Law is a strong relationship in most countries, and one that is fairly stable over time. Accounts of breakdowns in the Law, such as the emergence of “jobless recoveries,” are flawed o...

Episodes of account liberalization increase the Gini measure of inequality, based on panel data estimates for 149 countries from 1970 to 2010. These episodes are also associated with a persistent increase in the share of income going to the top. We investigate three channels through which these impacts could occur. First, the impact of liberalizati...

We show that an increase in aggregate uncertainty-measured by stock market volatility-reduces productivity growth more in industries that depend heavily on external finance. The mechanism at play is that during periods of high uncertainty, firms that are credit constrained switch the composition of investment by reducing productivity-enhancing inve...

This paper examines the distributional impact of capital account reforms and the linkage among liberalization, inequality and inclusion in low-income countries. Using a panel data for 29 low-income countries from 1970 to 2010, we find that capital account liberalization reforms are associated with statistically significant and persistent increase i...

We used a panel of 29 advanced and emerging market countries to investigate whether the IMF's World Economic Outlook (WEO) fiscal forecasts add value in terms of forecast accuracy and information content, relative to private sector forecasts (from Consensus Economics). We find that: (i) WEO forecasts are not significantly less accurate than Consens...

We provide evidence on the relative importance of cyclical and structural factors in explaining unemployment, including the sharp rise in U.S. long-term unemployment during the Great Recession of 2007–09. About 75 % of the forecast error variance of unemployment is accounted for by cyclical factors—real GDP changes (“Okun’s Law”) and monetary and f...

We present new evidence on the evolution of labor mobility in the United States over the past four decades. Building on the seminal methodology by Blanchard and Katz (1992), combined with multiple sources of regional population and migration data, we show that interstate mobility in response to relative labor demand conditions is not as high as pre...

We study the impact of global food price shocks on domestic inflation in a large group of countries. For advanced economies, a 10% increase in global food inflation raises domestic inflation by about 0.5 percentage point after a year; however, the impact has declined over time and become less persistent. The global food price shocks of the 2000s ha...

We show that an increase in aggregate uncertainty—measured by stock market volatility—reduces productivity growth more in industries that depend heavily on external finance. This effect is larger during recessions, when financing constraints are more likely to be binding, than during expansions. Our statistical method—a difference-in-differen...

This paper provides new evidence of the effect of monetary policy shocks on income inequality. Using a measure of unanticipated changes in policy rates for a panel of 32 advanced and emerging market countries over the period 1990-2013, the paper finds that contractionary (expansionary) monetary actions increase (reduce) income inequality. The effec...

We explore the role of uncertainty shocks in explaining unemployment dynamics over the time period 1963-2014. The novelty of our approach is that we distinguish between aggregate and sectoral channels of uncertainty and compare their effects on the unemployment rate. Using S&P500 data we construct both an aggregate measure of time-series volatility...

This paper provides evidence of the quality of private sector forecasts of the budget balance between 1993 and 2009 for a sample of 29 countries, grouped into advanced and emerging countries. We find large differences across the two groups: forecasts for advanced economies are much more accurate than for emerging economies and much less subject to...

This article provides an introduction to the JMCB special issue on housing bubbles, the global financial crisis, and the ensuing recessions in countries that experienced housing busts. We focus on five themes that are important for policymakers and researchers alike: the domestic and international factors driving housing booms and busts, the releva...

The paper studies the impacts of wage moderation in the euro area. Simulation results show that if a single euro area crisis-hit economy undertakes wage moderation, the impact on output is positive for that economy and for the entire euro area. If all crisis-hit economies undertake wage moderation together, their output still expands, albeit to a l...

This paper examines the distributional impact of capital account liberalization. Using panel data for 149 countries from 1970 to 2010, we find that, on average, capital account liberalization reforms increase inequality and reduce the labor share of income in the short and medium term. We also find that the level of financial development and the oc...

We study forecasts of real GDP growth using a large panel of individual forecasts from 36 advanced and emerging economies over the period 1989–2010. We show that the degree of information rigidity in average forecasts is substantially higher than that in individual forecasts. Individual-level forecasts are updated quite frequently, a behavior which...

This paper provides an assessment of the consistency of unemployment and output forecasts. We show that, consistent with Okun’s Law, forecasts of real GDP growth and the change in unemployment are negatively correlated. The Okun coefficient—the responsiveness of unemployment to growth—from forecasts is fairly similar to that in the actual data for...

Financial crises are typically associated not only with sharp economic downturns but also with a substantial deterioration of fiscal positions (Reinhart and Rogoff, 2009). Declining revenues owing to weaker economic conditions, higher expenditures associated with bailout costs and demand stimuli have historically led to a rapid deterioration of fis...

This paper studies how minimum wage policies affect firm employment in China using a unique county level minimum wage data set matched to disaggregated firm survey data. We investigate both the effect of imposing a minimum wage, and the effect of the policies that tightened enforcement in 2004. We find that the average effect of minimum wage change...

This paper studies how minimum wage policies affect firm employment in China using a unique county level minimum wage data set matched to disaggregated firm survey data. We investigate both the effect of imposing a minimum wage, and the effect of the policies that tightened enforcement in 2004. We find that the average effect of minimum wage change...

This paper examines the linkages between the global business cycle and national cycles. We first analyse the evolution of the global business cycle and present its main properties during global recessions and recoveries. We then consider how the sensitivity of national cycles to the global cycle varies over different phases of the global cycle and...

We examine the behavior of forecasts for real GDP growth using a large panel of individual forecasts from 30 advanced and emerging economies during 1989–2010. Our main findings are as follows. First, our evidence does not support the validity of the sticky information model (Mankiw and Reis, 2002) for describing the dynamics of professional growth...

This paper asks how well Okun's Law fits short-run unemployment movements in the United States since 1948 and in twenty advanced economies since 1980. We find that Okun's Law is a strong and stable relationship in most countries, one that did not change substantially during the Great Recession. Accounts of breakdowns in the Law, such as the emergen...

This paper asks how well Okun's Law fits short-run unemployment movements in the United States since 1948 and in twenty advanced economies since 1980. We find that Okun's Law is a strong and stable relationship in most countries, one that did not change substantiallyduring the Great Recession. Accounts of breakdowns in the Law, such as the emergenc...

An overview is provided of recent work on commodity prices, focusing on three themes: (i) "financialization" of commodity markets--commodities being considered by financial investors as a distinct asset class, (ii) trends and forecasts of commodity prices, and (iii) fracking—a shorthand for the emergence of new sources of energy supply. Lessons are...

In this paper we present and analyze the IMF’s labor market recommendations for advanced economies since the beginning of the crisis, both in general and specifically in program countries. Our analysis is informed by our reading of the theoretical and empirical literature on the design of labor market policies and institutions in advanced economies...

This paper examines the distributional effects of fiscal consolidation. Using episodes of fiscal consolidation for a sample of 17 OECD countries over the period 1978–2009, we find that fiscal consolidation has typically had significant distributional effects by raising inequality, decreasing wage income shares and increasing long-term unemployment....