Band 6, Heft 3

This paper constructs a coincident indicator for the Gulf Cooperation Council (GCC) area business cycle. The resulting coincident indicator provides a reliable measure of the GCC business cycle over the last decade, where the GCC coincident index and the real GDP growth have moved closely together. Since the indicator is constructed using a small number of common factors, the strong correlation between the indicator and real GDP growth points to a high degree of commonality across GCC economies. The timing and direction of movements in macroeconomic variables are characterized with respect to the coincident indicator. Finally, to obtain a meaningful economic interpretation of the latent factors, their behavior is compared to the observed economic variables.

Whether government spending can boost the pace of economic growth is widely debated. In the neoclassical growth model, it is supplies of productive resources and productivity that determine growth in the long-run. In endogenous growth models, an increase in government spending may raise the steady-state rate of growth due to positive spillover effects on investment in physical and/or human capital. This paper examines the relationship between government spending and non-oil GDP in the case of Saudi Arabia. Using time-series methods and data for 1969-2005, we find that increases in government spending have a positive and significant long-run effect on the rate of growth. Estimated effects of current expenditure on growth turn out to exceed those of capital expenditure—suggesting that government investment in infrastructure and productive capacity has been less growth-enhancing in Saudi Arabia than programs to improve administration and operation of government entities and support purchasing power. We discuss possible reasons for this finding in the Saudi case and draw some policy implications.

In this paper, we use the Markov switching model, the state-space model with Markov switching heteroskedasticity and the local level model with GARCH(1,1) disturbances to investigate the link between the level of Egyptian inflation and its uncertainty. We use different ways to measure inflation uncertainty. First, we consider it as the variance of unanticipated inflation. Second, we measure it as the unconditional variance of unanticipated changes in inflation. Finally, we measure it by the conditional variance modeled as GARCH effect. We find evidence of a positive effect of inflation level on inflation uncertainty for the three models. By making the distinction between the long run and the short run, we conclude that inflation has a significant positive effect on uncertainty in the short run but no effect in the long run. We state that the cost of inflation is mainly due to the association between higher inflation and higher short-run uncertainty. Reversing the causality link between inflation and its uncertainty, we find that inflation uncertainty has a positive effect on inflation level in the short run but this effect dies out in the long run, which is indicative of a stabilization monetary policy in Egypt. According to the likelihood-based information criteria (Akaike and Schwarz Bayesian criteria), the state-space model with Markov switching heteroskedasticity and the two-state Markov switching model outperform all others.

The topic of trade effects on economic growth has been usually controversial. Former empirical evidence linking trade to growth in Israel has been mixed and inconclusive either. This study reexamines the role of trade in Israel by testing for cointegration and causality from both exports and imports to output and total factor productivity over the period 1960-2004. The results suggest that both output and TFP are positively long-run correlated with exports and imports. The Granger causality tests indicate positive effects of exports on both output and TFP, where imports influence output only. In addition, physical capital has also been found to be Granger-caused by imports. This may suggest that the impact of imports on output is through the accumulation of physical capital and/or improvement in TFP over time.