International Comparisons of Fiscal Policy: The OECD and the IMF Measures of Fiscal Impulse

International Finance Discussion Papers Number 274

February 1986

INTERNATIONAL COMPARISONS OF FISCAL POLICY: THE OECD AND THE IMF MEASURES OF FISCAL IMPULSE

by

Garry J. Schinasi

NOTE: International Finance Discussion Papers are preliminary materials circulated to stimulate discussion and critical comment. References in publications to International Finance Discussion Papers (other than an acknow..edgment by a writer that he has had access to unpublished material) should be cleared with the author or authors.

International Comparisons of Fiscal Policy: the OECD and the IMF Measures of Fiscal Impulse

Garry J. Schinasi, Economist* International Finance Division Federal Reserve Board February 1986

* The author would like to acknowledge the most capable research assistance of Joerg Dittmer. The paper benefited from encouragement and comments from the staff of the International Finance Division at the Board of Governors, particularly M. Gavin, D.H. Howard, K.H. Johnson, C. Mann, and L.J. Promisel. The views expressed in this paper are those of the author and should not be interpreted as the views of the Board of Governors of the Federal Reserve System or its staff.

Abstract

Both the OECD and the IMF periodically estimate and publish measures of fiscal impulse to gauge the extent to which fiscal policy in the major industrial countries has become more or less expansive over time. This paper compares these measures analytically and numerically. The paper shows that the OECD and IMF measures of fiscal impulse differ in at least four fundamental ways: (1) the OECD includes fiscal drag under the presumption that it is part of the "structure" of fiscal policy, while the IMF excludes it from its adjusted measure of the budget balance; (2) the OECD and the IMF both adjust for cyclical factors but they do so differently; (3) the OECD estimates its marginal tax and expenditure rates from a structural model whereas the IMF assumes unit income-elasticity of its parameters and uses historical average tax and spending rates; and (4) each agency uses different estimates of potential output. The paper then numérically allocates differences in the published figures of the OECD and the IMF to these various sources. The paper assesses the usefulness of each measure. ‘

International Comparisons of Fiscal Policies: the OECD and IMF Measures of Fiscal Impulse

Introduction

Changes in a government's budget balance do not accurately measure changes in fiscal policy. When budgets for different countries are compared, measurement problems become more pronounced and complicated.

Both the OECD and the IMF periodically estimate and publish measures of fiscal impulse to gauge the extent to which fiscal policy in the major industrial countries has become more or less expansive over time. The OECD employs a structural approach in that it attempts to calculate at each point in time what the budget balance would be along some smoothly and appropriately defined growth path. The IMF on the other hand, attempts to measure the added stimulus of budgetary policies over some well defined time period relative to the policies of a base period. This paper compares the two.!

The paper concludes that the OECD and IMF measures of fiscal impulse differ in at least four fundamental ways: (1) the OECD includes fiscal drag under the presumption that it is part of the "structure" of fiseal policy, while the IMF excludes it from its adjusted measure of the budget balance; (2) the OECD and the IMF both adjust for cyclical factors but they do so differently; (3) the OECD estimates its marginal tax and expenditure rates from a structural model whereas the IMF assumes unit income-elasticity of its parameters and uses historical average tax and

spending rates; and (4) each agency uses different estimates of potential

\this paper focuses on the simplest form of adjusted budget balances which are not adjusted for inflation, interest rates, and other factors. Subsequent papers will focus on various adjustments to these measures.

~2output. Because the OECD and the IMF adjustments to actual budget balances are different, the two measures are different numerically. But are these differences significant? More importantly, are the measures comparable in the sense that they try to measure similar magnitudes? This paper attempts to answer these questions.

The paper is organized as follows. The first section presents and briefly discusses fiscal impulse measures for the major industrial countries published by both agencies in their most recent publications.

The second section describes the OECD and IMF methodologies.2 The third section compares the two methods by adopting a rather conventional decomposition of actual budget balances. The focus is on differences in the levels of adjusted budget balances (what is often called the fiscal. stance), which more easily reveals differences in methodologies. The fourth section numerically allocates discrepencies in adjusted balances (both levels and ratios) and changes in adjusted balances (levels and ratios) to potential sources such as differences in estimates of potential GNP. A

concluding section summarizes.

I. Estimates of Fiscal Impulse: the Nature of the Problem

Table 1 presents fiscal impulse measures published by the OECD and the IMF for the major industrial countries over the period 1979-84. These measures are defined as the negative of the change in the ratio of an

adjusted budget balance to potential GNP. The budget balance is defined as

2For a complete description of the OECD methodology see Muller and Price and for a complete description of the IMF methodology see Heller, et al.

Table 1 | Fiscal Impulse Measures

oO 3) Q 7] Nh

IMF3 Difference

L t

United States 1979 1980 1981 1982 1983 1984

b s e —t bee e e e e e NO==>17

Japan 1979 1980 1981 1982 1983 1984

bot ee

ee ee MFNMONMWMN Won OW OVI t

. eee ° WnW SEA NAO FW

trteeee Lt btrreore tee Wh aN PP

t

Germany boge 1980 1981 1982 1983 1984

L tne e e e NWOOTOWO e NUANNM FP

e eo ee

t

—

be too

oe bor

France 1979 1980 1981 1982 1983 1984

—_ ee WONW AO WRrWLEeU

—tt ee t ee WwW UIW AMO e

a t ee

NW DOWWO OFeenrra L =>

t +b °o e« ee

United Kingdom 1979 1980 1981 1982 1983 1984

WH LOVUA WODOH NW & UW DOAaAN~ —_

t

aotg+ t

L

t No +

L se @

bot

o 8 e

e FPWWOo- 4 L ~—

L

Italy 1979 1980 1981 1982 1983 1984

L —~ -t-We eo ee ©

t

—_

L L Moooa NNUAL

° NL oun NANNOWO VI e

Canada 1979 1980 1981 1982 1983 1984 1.0 7.3 17 KX minus indicates a move in the direction of less stimulus ( a smaller deficit). 2/ Change in the ratio of the structural budget balance to potential GNP,as published in OECD Economic Outlook (Dec. 1985), multiplied by minus one. 3/ Change in the ratio of fiscal stance to potential GNP multiplied by minus one, as published in the World Economic Outlook.

t

= e

- 3 revenues less expenditures, so a negative balance indicates a deficit. — When the fiscal impulse measure is positive it indicates a move towards expansion (a larger deficit or smaller surplus), while if it is negative it indicates a move towards restriction.

With the exception of Germany in 1981 and 1984 and Canada in 1982 both measures indicate the same direction of change of fiscal stimulus. Magnitudes differ by amounts ranging between ~.7 and 1.6 percentage points.

When fiscal impulse measures are translated into implicit levels. of the adjusted budget balances, differences between the two balances are large relative to the actual budget balance. Table 2 presents actual budget balances in local currencies. and implicit3 estimates of adjusted’ budget balances by the OECD and the IMF. Column 4 presents absolute differences between the two measures. As can be seen, these differences can be quite large; with two exceptions, they range between =20-and “182°. ~ percent of the actual balance.

In summary, there are substantial dirferences in implicit budget adjustments. Are these differences merely the result of discrepancies: in®*: estimates of potential (or actual) GDP, or are there substantial

differences in methodologies?

+

3These are calculated using source data provided by the OECD and the IMF.

ACTUAL AND ADJUSTED BUDGET BALANCES OECD

ACTUAL UNITED STATES (BILLIONS $): x 1979 14.53 * 1980 -30.75 * 1981 -26 .82 x 1982 -115.28 ¥ 1983 -134.2 * 1984 ~123.05 JAPAN (TRILLIONS Y): x 1979 -10.43 x 1980 -10.54 * 1981 -10.06 * 1982 -9.58 * 1983 -9.67 x 1984 -7.8 GERMANY (BILLIONS DM): x 1979 -35.63 * 1980 -42.95 x 1981 -56 .66 * 1982 -52.52 * 1983 -41.16 * 1984 , 733.82

i

FRANCE (BILLIONS FR): x 1979 ; -16.7 * 1980 5.9 * 1981 -55.6 * 1982 -97 .24 ¥ 1983 -120.92 * 1984 -119.81 UNITED KINGDOM (BILLIONS L): * 1979 6.87 * 1980 -8.09 x 1981 -7.21 * 1982 -6.49 ¥ 1983 -11.18 x 1984 -12.34 ITALY CTRILLIONS L): x 1979 -25.74 x 1980 -27 .22 x 1981 -47.9 x 1982 : -59 26 * 1983 -66.7 % 1934 ~82.9 CANADA (BILLIONS C$): x 1979 -4.63 * 1980 -8.1 x 1931 -5.44 % 1932 17.89 x 1983 -24.12 * 1934 -26.7

Table 2

-27. -32. -34. -12.

12.

“21.

-23. -49. -50. -24.

~26. -28. —48. -57. -60. -76.

NWUn 0

oOo WNNS

NOANNWO

WNANN RWG

ADUNDAWO

IMF

ll. -3. 4. -25. -49. -87.

NNW Dee

-10. -10. -13. -13. -13. -13.

14.

-32.

-25.

-81.

-5. “6. -7. -10.

-13.

DIFFERENCE

-4-

II. The OECD and IMF Adjustments to Actual Budget Balances

Generalities

This section describes the adjustments to actual budget balances made by each agency and reproduces the equations that generate these adjusted balances. Although fiscal impulse measures are defined as the change in the adjusted budget balance (level or ratio), the focus of this section is on the level of actual and adjusted budget balances4 to clearly reveal methodological differences. However, neither agency places any significance on these levels. For the purpose of cross-country comparison, the adjusted budget balance is deflated by GDP. The fiscal impulse is defined as the change in this ratio multiplied by minus one. Fiscal impulse is a concept that represents the change in the impact of

budget balances.

The OECD's Method The OECD's approach is to remove built-in-stabilizer effects from the actual budget balance.? To achieve this objective, the OECD assumes

the actual budget balance is composed of two major components: a a aaa

4the level of the adjusted budget balance is what the OECD calls the fiscal stance, whereas the IMF multiplies its adjusted balance by minus one to derive its measure of fiscal stance.

5The OECD method is similar in spirit to the method used by the Bureau of Economie Analysis. BEA's cyclically adjusted federal budget is constructed according to the following procedure: (1) choose a reference trend for GNP free of short-run fluctuations; (2) estimate response parameters (elasticities) of components of revenues and expenditures to short-run movements in GNP; (3) apply these responses to the gap between trend and actual GNP to obtain "gross-ups"; and (4) add these "gross-ups" to the actual budget to obtain a cyclically adjusted budget.

-5policy-induced or discretionary component; and an income-induced component. The adjusted balance measures that part of the budget balance which is policy related or what has been called the "structural" deficit. It includes the income-induced component which would exist were the economy expanding along a trend growth path (potential, mid-cycle, or some other

path). These ideas can be made more rigorous as follows: (1) Be = Bott mYt

where BE = actual budget balance, defined as receipts (R) less expenditures (G) Bot ® part of the budget independent of income (and in this methodology discretionary) Y_ #® actual GDP ™m 2 mR - mo where mR , m° are the marginal rates of revenues and

expenditures, respectively, with regard to GDP.

The marginal tax and spending rates are derived from elasticities which are estimated from structural models.

* Part of the income-induced component is unrelated to cyclical changes in income. Actual output can be decomposed into "cyclical" and

' "potential" as follows:

P P Y= Y + (Y, Y)-

-6yP is potential output and Y - YP is the output gap. The income-induced component decomposes into a "fiscal drag" component and a

"built-in-stabilizer" component:

P P mY, = mY, + m(Y, Y) The first term represents "fiscal drag" -- the ‘pudget balance at

"full-employment" resulting from the difference between tax and expenditure rates (i.e. non-zero m). The second term represents built-in-stabilizer effects or the balance resulting from cyclical fluctuations of the economy

along a trend growth path. Equation (1) now becomes:

P P (2) By = Bott mY, + m(Y, Y?

The OECD's adjusted budget balance is then defined as in (3).

0 P (3) ABL = By - m(y, - Y,) [= Bott @ Y

P t t t t

ut

and includes the budget balance originating in discretionary policy and fiscal drag (or "structural" components). ©

Note that when the economy is growing along its potential growth path the actual budget balance is the OECD structural balance. The O&CD

adjusted balance gives a reasonable answer to the following question: What

a oa a eS ae

6In the OECD's words: "The 'discretionary', or 'cyclically-corrected', change is made up of two principal components: (i) The effect of existing policies, reflected in the elasticity of taxes (e) and expenditures (g) relative to the growth of potential GDP....; (ii) Changes in tax yields (AR) and expenditures (AG) arising out of policy changes in year t." This eyclically-corrected component is represented by the first three terms in the equation below.

" ABE= ARE- AGEt (e(T/Y)o~ B(G/Y)o)AYE + m( AYg- AYE) ."

-7would the budget balance be, given existing budgetary policies, were the economy operating at full employment? The change in this adjusted balance attempts to measure the policy-induced change in the budget, where the budget impact of fiscal drag is presumed to be deliberate policy. The IMF's Method

The IMF attempts to calculate the "initial impulse" to aggregate demand from all fiscal sources (whether discretionary or otherwise) during a given period. To achieve this objective, the IMF defines a "cyclically neutral budget", which can be interpreted as an estimate of the cyclical component of the budget. The cyclically neutral budget is defined as in

eq. (4).

(4) CNB, =t Y,-g

P ot ar ,

% O°

R

where be = > and Ro is total receipts in the base period, fo)

% Go" UIB i and Go is total outlays in the base period, fe)

and UIBp represents unemployment insurance benefits in the base period.

The IMF defines expenditure as cyclically neutral when changes in expenditures from a base period are proportional to potential GNP. Since the IMF views unemployment insurance benefits (UIB) as cyclically neutral, it excludes UIB from expenditures and from the calculation of the expenditure-policy parameter, ga. Revenues are cyclically neutral when they change in proportion to actual GNP. These definitions imply tax

receipts are unit elastic with respect to actual GNP (marginal and average

- 8 aggregate tax rates equal) while expenditures are unit elastic with respect to potential GNP. These assumptions are not well motivated. The actual budget balance, which excludes UIB for the calculation, has two components: the cyclically neutral budget balance; and

everything else, which the IMF calls fiscal stance (FIS).

(5) Bee ty, -g Y? - FI 5) Be= tole 7 Soh, 7 F Ss,

The adjusted budget balance is then the difference between the actual

budget balance and the cyclically neutral balance: /

F (6) AB, = - (toY,-

* Pp % Be goY,) [= - FIS,]

t

Equations (3) and (6) are reproductions of the OECD and IMF methods for calculating adjusted budget balances. To calculate the fiscal impulse, one divides each measure by actual GDP (or GNP), takes first differences, and

changes the sign.

TIn the words of the IMF: "Such changes [in the adjusted balance] may be viewed as policy determined either (1) by the introduction of new measures or (2) by the operation of previously existing measures that automatically result in revenue (expenditure) changing disproportionately to the change in GNP (potential GNP) by which 'neutrality' is judged." (WEO , April 1985, p. 109)

"The net 'fiscal impulse' (FI) may be expressed in terms of the change in revenue (R), expenditure other than unemployment insurance benefits (E), actual GNP (Y), and potential GNP (YP), as follows:

FIt= -(ARE- toAYt) + (AEE- So AYPt) where ty and gp are the base year ratios of revenue to actual GNP and of

-expenditure other than unemployment insurance benefits to potential GNP, respectively." (WEO, April 1985, p. 110)

-9-

III. An Analytical Comparison of the Two Measure

Comparable Treatment of Unemployment Insurance Benefits

The derived adjusted budget balances described in the previous section, (eq.(3) and eq.(6)) treat unemployment insurance benefits differently. In estimating cyclical expenditures, the OECD treats these benefits like other government expenditures. The IMF, on the other hand, removes. UIB from its calculation of the adjusted balance by excluding it from the actual budget (B*) and its policy parameter (g*). The IMF measure

can be adjusted. Since

wo u

Byt UIB,

and sirce

0 eo} "

(Go- UIBA)/Y, we can rewrite the adjusted budget balance as

F P *, oP (7) AB, = B. (toy, BY.) + UIB, (8, g,) Ye ;

where E is comparable to the budget concept used by OECD, go is the ratio of total government expenditure to GDP in the base period, and Bo" B= (UIBop/Yo) and represents the unemployment insurance benefit payout ratio in

the base period, which will be labelled p in subsequent discussion.

- 10 - A Conventional Budget Decomposition: A Short Digression

To clarify the conceptual differences in these measures, it is useful to define budget balances as the sum of three terms representing the following concepts: (1) discretionary policy; (2) budget items that expand with the economy along trend (potential or mid-cycle trend, for example); and (3) budget items that respond to cyclical fluctuations. Equation (8)

defines the budget balance in these terms.

(8) BY Boyt Bott Bot

The subscripts D, T, and C represent discretionary, trend, and cyclical components, respectively.

Under this useful decomposition, the OECD adjusts actual changes in the budget balance by removing its estimate of the cyclical component of

the budget balance:

Py

O| reg _ (9) B ‘7 (m mn (Y Ye

Cc

The OECD adjusts the actual budget balance for cyclical revenues (mr (Y~ - YE)) and cyclical expenditures (m8 (Y, - YB)). The adjusted budget

balance in principle includes the discretionary surplus and fiscal drég (the surplus at potential output), both perceived to be structural elements of policy.

The IMF adjusted balance can be interpreted as removing both the

- 11trend component (or fiscal drag) and a cyclical component, eq.(11) and

eq.(12), respectively.8

F P (11) Bree (to g,) Ye

F P P (12) Bots tS (Y, Y) (UIB, px]

In summary, the OECD subtracts cyclical revenues and expenditures from actual budget balances to derive its adjusted budget balance. Its adjusted balance includes discretionary budget items and income sensitive components of the budget that would change along a trend growth path.

The IMF, on the other hand, subtracts its estimate of cyclical revenues and expenditures and also subtracts the budget balance at potential GDP assuming policy (parameters) has not changed since the base period. The

IMF's adjusted balance includes discretionary budgetary items and cyclical

8to decompose the IMF measure in this way let the actual budget balance be composed of three elements: a “base year surplus," chosen in a period when actual and potential output are roughly equivalent; a cyclical component; and the fiscal stance. This is represented in the equation below and is equivalent to eq.(7) in the text. P P P B= (t-g)yY +{[t (Y- Y ) - (UIB- py )] - FIS. t fe) fe) t o t t fe) t t

The first term represents the base year surplus, with to and go defined as the ratios of receipts and expenditures to output measured in the base year, a time period when actual and potential output are equivalent (or nearly so). This term then represents the full-employment budget surplus in time period t, under the policies in force in the base period (where Co and gp represent the "policies"). The second term represents cyclical revenues less cyclical expenditures. Whenever actual output is greater than potential, total receipts will exceed full-employment receipts and the actual budget deficit will include these receipts. Cyclical expenditure is estimated by cyclical unemployment insurance benefits (actual UIB minus what would be paid out at potential assuming the base period payout ratio). The fourth term, FIS, includes discretionary policy changes since time period 0 and represents the IMF's view of the "thrust" of fiscal policy.

- 12government expenditures that deviate from unit elasticity with respect to potential GDP and cyclical revenues that deviate from unit elasticity with

respect to actual GDP.

Differences in Adjusted Budget Balances

We can now return to the major objective of this paper. Equation (13) below is a precise formulation of the difference between the OECD and the IMF adjusted budget balance, where YO and yF represent potential cut put estimates by the OECD and the IMF, respectively. Eq. (13) is derived by subtracting eq. (7) from eq. (3).

fe) F r O F - BE) ~ Im™(y,- ¥P) - toy ¥E)]

(13) AB, ~ AB, = (By t

g ~ yO, a4 _ _ a *yyF _ F + [m (Y, YX) (UIB, (8, &)¥ )] + (to Ey) Ye

Differences in fiscal impulse measures arise because of differences in adjusted budget balances. We can address the questions raised in the introduction by closely examining differences in adjusted budget balances. The first term represents differences in estimates cf the actual budget balance arising, for example, from different accounting procedures used by the OECD and the IMF. The second term accounts for differences in estimates of cyclical revenues. The third term accounts for differences in estimates of cyclical expenditures. Both the second ard third terms involve differences in parameter estimates and potential cutput estimates as well as implicit methodological differences. The fourth term accounts for the fact that the IMF removes the trend budget deficit wrereas

the OECD does not.

- 13- IV. An Examination of the Numbers

Sources of the Discrepancy in Adjusted Budget Balances?

Table 3 presents the level of the adjusted budget balances implicit in the most recent OECD and IMF publications (December and October 1985, respectively) for the United States, Japan, and Canada. The table allocates the discrepancy in the two measures according to equation (13). (Note that table 4 reveals that the percent distribution of the total discrepancy in the ratio of adjusted balances to GDP among potential sources is similar to that of levels.) Referring back to table 3, note the size of the discrepancies between the two measures and the large number of discrepancies about whether the economy in question has a surplus or deficit, particularly for Japan and Canada. For the United States large discrepancies occur in the cyclical expenditure and cyclical revenue adjustments while the fiscal drag adjustment (made by the IMF and not made by the OECD) contributes very little to the discrepancy. In both Japan and Canada, fiscal drag accounts for more than 100 percent of the discrepancy in adjusted budget balances in all years except one (Canada 1983), indicating the relatively large gap between tax and Spending rates.

The more relevant comparisons are made in tables 5 and 6 which present these same allocations for changes in adjusted balances and changes

in the ratio of adjusted balances to GDP, respectively. As stated in the

Isource data for the calculations in this section were provided by the OECD and the IMF. Calculated "fiscal impulse" measures may differ from the measures actually published by the agencies due to rounding errors and discrepancies created by using Slightly updated source data.

Winona Oonw ano

L’¢T- ¢°S- 0°6I-

Z°T- 8° cet 5°

8°02-

T’- 0°- 6°60T 9°SdT O°IT- 9°Se- 2°T 0°0¢- 6°OT- g*lbb 6°2 S°9- 5° b- 0° Ld 8° sot T° 90T 2° 9°- L°8- 2°sT- 5° ST- O*<eT- T'S £"b £°8- L°8- T° 5*- £°b 0° Z°38 8° 8b o°2 9° Lb 8°82 T'82 £°S2e- g*b s*¢ b° es 286T T86T

0°-

8° ?oT 6° 82- 8° eT-

0°-

8° TdT S*0e- 2° T2-

YaHLO ovad WOSI4 SAYNLIGNAdXa IWITIDAD SHANSARY TWOTWDAD CADNWd3aedDSTA WilOl AO %) SADNOS

AINVdaYOSTA 4dWI q930 ($9 dO SNOITIIG) VAVNVS

YaHLO ovad IWOSI4 SAYNLIGNAdXa IWOTIDASD SANNSAAY IWITIDAD CADNVdSaNDSTG WLOL 40 %) SADNNOS

AINVddeOSIG 4dWI q330 CA dO SNOTTITYL) NWdVvE

YdHLO ovud WWOST4 SAYNLIGNAdXa TWOIITTDAD SSNNAAZY WOITIDAD CAONVdSaYOSTG WLOL 40 %) SADYNGS

AINVd3daOSTG AWI qo30 C$ 40 SNOITIIG) SALVIS GALINA

JONVIVa La9aNG Gaisnray NI ADNVdaYDSTIa 40 SADYNOS

€ °1T9PL

ee ee eet TE

be L° L- ZT 50T ZoZ‘eT 685 °6-

560°S- 0S2°T- 2oS * b-

OLE "S- OSE" db2T T9E°-

619° 02-

T6E°b- OLd°2 926° T-

800°<T 619°¢

020°<9 262°02

2£0°T 06 °e- £o¢°T-

T9T° TT- £0£°2T- 200° 26 S8Z°oTTI TT0°9 868° 6- 2oT°s 9Tb°ZL LTb°S- 9T6°C2- T£0° Leet 562 °S- S89°T- £90°¢S- L9b°C- 256° 9TT SoT°ITT Gb3°- set*- 650 °¢T- 05S °8- 99L°b- TZ6°5sTs'e¢ S56°T £ob°c- 820°£- 920°8¢ b8L°Ss 26S 6 STe*s Lee °SB 2TS* S82 -G00° 92- 219° 8T- 598° 826° S8b'T- S23 - 2c9°- 50T° £86T 286T

28s °- £G2°9b

569°Se- 226° 6T-

“LET 2- 8S8° S82°T-

529°S £30°80 oss °-

8ST°eT-

£20°S- 60Z2°T 9S °e-

200° Bec"b £9L° Sb 266° 2b

006°

86° 2- T L6T'°SdT Ocs * 62- 089°ST-

T —-££b°02T

86T°9 ctl’ b 29° LE 629° TS

803°

Y 9T9PL

SSb°-

OSE °?bT 209° 02- £62°Te-

Z£8T*2- £5‘ T-

43HLO Ovad IWOSI4 SSUNLIGNAdXS WOITIDAD SANNAAATA WOITIDAD CAINVdANISTG WiLOL AO %) SADUNOS

AINVdaydSIa SWI aq330 CdNO SO %) VAVNVO

43SHLO Ovad IVOSIS SAYNLIGNAdXA WWIIIDAD SSNNAAAN IWITIDAD CAINVdAYNISTIG WilOl 40 %> S30NNOS

AINVd3dedSIa 4dWI aqo30 CdND 430 %) NVdVE

YaHLo ovad WIST4 SAYMNLIGNAdXS WOITIDAD SANNAAAY IWITIDAD CAINWdSHOSTA W1OL 40 %) SADNNOS

AINVdaydSIa 4dWI a930 CdNS SO %) SALVLS GCALINNA

© ”? ud Q a

° ”

g*e- 9° 2ST- S*TIc- 5° 99%

<° £°- 0° 0°- 5°82 o°ss T° TdT 2°O0ST 6°9S £° et B°b S*26- £° oT 0° bd 6°SL- £°2b £°e- 9°S- Z’- 3° - £°b- s‘T 9°?’ 5°T- 9° L- T*e- 6°T 2° e- 0° S*052- 6° 8b 0°- T°¢90T- 2°S6T 9° bd S°ST2 £° ost 2°et T° L°- 8° S00T Test 5°9 8° >TT- T° 5° 0°e- 5° 2'T g° S*2 L° £°T 5° s° 2° 0°>T- 0°6T 2°T- ¢°l- T*5- Zt T’2? 8°2 9° 8S- 6° 209T 8°98 9°08 Z£°92T 9° ObST- ¢°2T 6°F2? 0°c- Z° 0°9 g's 8° ee- 9° 62- o°L 8° oT- 8°S2- 6° 82- b°<T 6°OT- £86T 2861 TS6T Og6T

JONVIVd La9GNd GaALSAraVY NI AONVHD NI

¢ eTdeL

WnMNO

OWN ono

4aHLO ovad IWOSTd SAYNLIGNAdXA WITIDAD SANNAATY WILTTDAD CAINVdANDSTG WiOl 40 %)> SADYINOS

AINVdAYyOSTa SWI aq330 ($9 40 SNOITIIG) VOYNVS

YaHLO ovud 1WOST4s SAYNLIGNAdXS IWOITIDAD SSNNAAAA WITTDAD CADNVdAYNDSTIG WiLOl 40 %> SFDNNOS

AONVdSayOSIa AWI q930 CA dO SNOTTIINL) NVdve

4aH1LO ovad WISTS SSYNLIGNAdXa WWOITIDAD SAANAARY WOITIDAD CAONVdaYNDSTG WLOl 40 %) SADYNOS

AINVdsaeOSIG 4dWI q940 ($ dO SNOTTIIG) SALVLS GALINA

AINVdSaNDSIa AO S3a9NNOS

SP stern

5L6°Sb- 52S b- 995° bbd- 495° TOT- S59" SEZ S68°T- 4aHLO £86°S2 SO¢*9- £95°82 £be°08 LOE * 8bz2- ‘2:7 ae Ovad IWWOSI4 eT’ gs- 625° 86 Sgo°es 566° TS¢- 9S °SLTT T29° 2S SAYaNLIGNAdXA WIIIDAD OOT*9LT 662 °2T 6S5S9°28 sot ele 569°S90T- L8b°0b SANN3ARY WOIIDAD CAONVdSaYDSIG TWLOL 40 %) SaouNOS £2e°- 20s" 622° S<£0°- 9T0°- 989° - AINVd3ayOSTa 182° T- 961° I- OLS" 59L° Tog °- b£9° AWI 656°- 602° T- 005°- S6Z° geg'- 2es*T q930 CdND AO %) VAVNVS 6¢S° 62¢° TT 29L*66E boo" SL 90 °¢- TZS* T2- 4aHLO Tee O¢ T62°¢2e- £90°Tb- 616°T OLT°9 5S0°22 ovad WVOSI4s OTS 9- £S2°9T T09°02- 26S ° LtZ°- S66°8 SAaNLIGNAdXA WWOIITDAD os9'sd 9ST° 96 860° 8e2- Sb3°8T 5S8° 16 £2S9°06 SANNSARZY WITIDAD CAONVdSYNOSTa WLOLl 4O %) SaDgNOS Sie °- S02°- 20Tt*- o<s° 6ST'- £61" - AONVd3deOSTa 2ST" £2" S¢2° 996° bd2° ors* 4dWI éZTs° S3s° Bec" Teb° 58s" 9b5L° q530 CdNO 40 %) NVdve 682° TtI- 696° ST¢° ZSOT beT ST- 625°69 0£2°28 4SHLO £98°- 98S° £03°9 260° ges‘ Tt 610° ovad 1VOST4 2cT’ 8s- S59°ST SZ8°d5sO0T 295° LbT 886°STI 9S ° OT SAaNLIGNAdXA WWIIIDAD 622°0S2 003°08 566°8661I- Seb'2e- SS0°S8- S02°T SANNZAAN WOITIDAD CAONVdSaNOSTIG WWLOl 40 %) S3a9uNOS 5bLT*- 590° 820°- 260°- TL0°- bLT° AONVdSa OSTA 506°- T99°- TL6°- S92" 209°- £8b° 4dWI Ted°- 92L°- £56°- Ls¢° sec °- 80g" q930

CdND SO %) SALVLS GALINN

586T £86T 2861 T86T O86T 6ZL6T dNY OL SUNVIVE LA90Nd daisnray JO OILVY NI JONVHD NI ADNVdSYOSTG 40 S3ADNNOS

9 eTGey

- 14 first section of this paper, the direction of change of adjusted balances (in levels and ratio form) is usually the same for both agencies; the exception here is Canada for 1982. In general, the pattern of the discrepancy in changes in levels of adjusted balances is similar to the pattern that emerges in levels or ratios. For the United States, except for 1979, most of the discrepancy in changes in levels is accounted for by estimates of cyclical revenues and/or expenditures. Fiscal drag again accounts for a relatively small fraction of the discrepancy in all year’s. 1979 was an unusual year in which estimates by each agency of the actual change in the budget balance differed a great deal ("other"). And in 1982, a year of deep recession, cyclical revenue and cyclical expenditure adjustments differed a great deal, even though the overall discrepancy was relatively small.

The data for Japan present a different picture. In most years, fiscal drag consistently accounts for a large share of the discrepancy in the change in levels, while cyclical expenditure adjustments account for a relatively small share. In 1981 and 1982, the agencies' estimates of ‘he change in the actual budget balances were quite different. Finally Canada appears to be a hybrid case where each category of adjustment, except "other", plays a major role in explaining the discrepancy in some years and a minor role in other years. Fiscal drag, however, appears to account for a consistently large share of the overall discrepancy.

The picture is somewhat different in table 6 where the discrepancy in changes in the ratio of adjusted balances to GDP are

tt

allocated among the various potential sources of differences. Although

- 15 some patterns emerge, they are less obvious. For the United States, fiscal drag again plays a minor role in explaining the overall discrepancy between fiscal impulse measures. The other three categories explain major or minor shares depending on which year is examined; in 1982, a recession year, all three categories show that the OECD and IMF measures diverged widely. For Japan, no clear pattern emerges except that cyclical revenue adjustments accounted for a consistently large share of the total discrepancy in fiscal impulse measures for Japan. Finally, for Canada no clear pattern emer ges

at all.

Isolating Differences in Adjusted Balances and Fiscal Impulse

Although eq. (13) is a useful decomposition of the discrepancy in fiscal impulse measures, one can easily think of other decompositions. For example, answers to the following question would be useful: What part of the overall discrepancy is traceable to differences in parameter estimates, differences in estimates of potential GDP, or differences in methodologies? Unfort.unately, parametric differences are difficult to interpret and methodological differences are difficult to quantify.

Parametric Differences:

Differences in the two measures arising from differences in parameter estimates are difficult to interpret. The OECD parameters for time period t are estimated marginal rates derived from estimated short-run income-elasticities of revenue and expenditure and actual revenue and expenciiture shares in time period t. The IMF parameters are actual ratios

(average rates) of revenues to GDP and expenditures to potential GDP

- 14-

measured in the base year and implicitly assume that the tax elasticity with respect to actual GNP and expenditure elasticity with respect to potential GNP are unity. These parameters are presented in table 7. Expenditure parameters differ significantly because of methodological assumptions. Setting parameters equal is artificial because each set of parameters is associated with methodological assumptions and their differences are difficult to interpret and misleading. These computations are therefore not presented. !9

Differences in Potential GNP:

Contributions to the total discrepancy in the two measur es arising from different estimates of potential GNP can be calculated anc.

interpreted unambiguously. The following expression represents the

10T9 estimate this contribution one can compare the discrepancy in adjusted balances derived in eq.(13) to one derived under alternative parameter assumptions. Two alternative assumptions are that both agencies use either the OECD parameters or the IMF parameters. Setting the OECD parameters equal to the IMF's is equivalent to assuming that the real world is characterized by unit-elasticity of tax and spending rates so that OECD estimates of marginal rates are identical to the IMF estimates of average rates. Equations (a) and (b) below represent the contribution to the total discrepancy of each agency using its own estimate rather than both ager.cies using the same parameter estimates, either the OECD's or the IMF's, respectively.

r * r® FF (a) -~-(t -m )Y¥ + (g-m )Y fe) t fe)

r g fo) (b) -C(m- t ) - (m- g )](Y - Y ) fe) (e) t t Note that mr* is not a parameter estimated by the OECD, but it can safely be assumed that it would be close to the IMF's estimate g§ ‘these equations

represent the difference between the discrepancy in adjusted balances és calculated by each agency and the discrepancy assuming each agency uses the same parameters, either the OECD's as in eq(a) or the IMF's as in eq (b).

Table 7

PARAMETER ESTIMATES USED IN NUMERICAL EXERCISES

MARGINAL TAX PARAMETER

oooo°oo . © © © ew nN ~ el

oooo°os _ nN On

Qaoooa oe 2 © we

MARGINAL EXPENDITURE PARAMETER

CMG)

~0.121 -0.102 -0.116 -0.121

-0.151

-0.005 -0.005 “0.013 -0.014

-0.02

-0.074 -0.077 ~0.08 -0.087 -0.088 -0.09

AVERAGE TAX PARAMETER (T0)

aa0ao0ooo oe © we ew Ww _ wm

oooo°oo nN & nN

- 246

«385

385 - 385

-385

onoo°osm

AVERAGE EXPENDITURE PARAMETER

Qo0nooce > 2 © © es Ww _ Wi

302

ooooos oe ee WG ao N

302

417 -417 -417 -417 417 417

aqoooce

- 17 contribution to the overall discrepancy arising from the IMF using its own

estimate of potential, rather than the OECD's. (14a) - g3(yF- yO)

Likewise, the following expression represents the contribution arising from

the OECD using its estimate rather than the IMF's.11

(14b) ~- (m? - m8)(yF - y9)

\lwe can also isolate the difference in adjusted budget balances arising from methodological choices by controlling for all other factors. These factors include parameter estimates and estimates of potential output. Assuming parameter estimates and potential output estimates are identical leaves the following expression:

r g P g P * ?p (m -m)Y +m (Y¥ - Y ) - (UIB+g Y ] t t t t o t P 0) F where Y =Y = Y t t t r g and me=t;m +g . ° °

This expression demonstrates that the IMF excludes fiscal drag (the first term) and that adjustments for cyclical expenditures are quite different (the second and third terms). Note further that if the economy operates at potential, then under these two assumptions the only difference is fiscal drag:

r g p (m -m)Y . t The OECD perceives fiscal drag as part of the structure of fiscal policy

whereas the IMF does not. This difference in adjusted budget balances remains regardless of the assumptions made.

-~ 18 -

Numerical estimates of these contributions are presented in table 8 for levels, table 9 for changes in levels, table 10 for ratios, and finally table 11 for changes in ratios. As the tables reveal, a considerable portion of the total discrepancy can be attributed to differences in estimates of potential GNP by the two agencies, regardless of whether one uses levels (ratios) or changes in levels (ratios). For levels and ratio measures the United States data has a larger share of the total discrepancy attributable to potential GNP estimates than either Japan or Canada. For the change in levels form, Japan has the largest discrepancies. For the change in the ratios data (table 11) there is no

clear pattern either within a country or across countries. V. Conclusions

General Conclusions

The OECD and IMF measures of fiscal impulse differ in at least four fundamental ways: (1) the OECD includes fiscal drag under the presumption that it is part of the "structure" of fiscal policy, while the IMF excludes it from its adjusted measure of the budget balance; (2) the OECD and the IMF both adjust for cyclical factors but they do so differently; (3) the OECD estimates its marginal tax and expenditure rates from a structural model (m’, m8) whereas the IMF assumes unit income-elasticity of its parameters and uses historical average tax and spending rates (to, 8); and (4) each agency uses different estimates of

potential output.

8° oT- L’et-

£°eTt- 0*2c- L°92o°<sT-

dN9

9°OT- Z°ot- 2° ot- 9° 9T- 0° 12- 5° ST

8° 8s

TWILN3LOd

2° 51- 2° e- T° oT- T°’ £2- 6°OT- £°l- 2° 6- 0°ST- 9°0e- 6°0e- 5°eT- o°ST- 0°9S L°59 5° Sb £° 9b 8°82 1°82 c86T T86T

6°0¢c~- S°o2-

9° 9- 0° 9T- 5°S2o°It-

3°13

2° t2- £°Se-

8°S- Z°it- 0°¢2- 9° OT-

S°06

WILN3LOd AWI ONISN LON WOUS

WILN3L10d G930 ONISN LON WOYS (1V1OL JO %>} SNOTLNGIYLNOD GALVIOST ($3 JO SNOITTIG) ADNVdAYDSIA Wwi0t

WILNSLOd SAWI ONISN LON WOYS

IWILNSLOd G30 ONISN LON WOdS C1VLOL 430 %) SNOILNGIYLNOD GALVIOSI CA dO SNOTTITYL) ADNVdSYDSIG Whole

TWIAIN3L0d JWI ONISN LON WOYS IWILN3LOd G930 ONISN LON WOYS CT¥LOL JO %> SNOTLNATYLNOD G3LVIOSTI C$ JO SNOITTIGQ® AONVdAYDSIG TWLOl SaLVLS GAaLINN

NI SSONSYSSSIC 40 (STAAR1) ADNVdaYOSIG WLOLl SHL OL SNOTLAGIYLNOD

g e1deL

£°OetT 2°es

5° G°9LT T° best 5°

wr 20 \O aw om M Sn ao |

IWILNS1L0d NI SADNSYSASTG

dO (S1dA4d1

6 Olde

6° 8T- T’ 8T-

3° - 8° b2T- 2° 18b°-

L£°0b

NI JONVHS)

IWIINA10d AWI ONISN LON WOUS IWILN310d G930 ONISN LON WOXS

C1V1OL 40 %) SNOTINGIYLNOD GAaLV10SI 6° ($9 dO SNOTTIIG) AONVdSNDSIG WWLOL

VQVNVO

IWILNS10d SWI ONISN LON WOYS IWILNS10d G930 SNISN LON WONS

C1VLOL 40 %) SNOTLAGIYLNOD GALVI1OSI

CA JO SNOTTIIYL) AONVdaeoSIa

W1LOL NVdve

e- IVILN310d SWI ONISN LON WOU IWILN310d G940 ONISN LON WOYS

C1WLOL JO %) SNOTINGIMLNOD GaLV10SI

SNOTT1T@A) ADNYAANIACTA

C$ An

Win

SALVLS GALINA

AONVdaYDSTG 1Wi0Ll AHL OL SNOITLNAIYLNOD

26S ‘bI- 8bb°ST-

560°¢- 268° Te- 6£0° 2e- T6£°5- £90 °?b OeT' Te Ze0°T

9T0°OT- TTb°TT-

LTb°¢- 96T° 9T- £1S°T2- 99L°b- 09e* lb £6T' eb 598°

obs ST OTZ°bT-

9T6°2-

5S ° 6-

£20°Te- T26°5-

629° Lb

Ges sb

826°

402° Se- LT2°¢2-

ZeT*2-

L¢6°2eT- Tee T2- £20°S-

bSsT £9

£58" Sb

006°

Ses" o2- 288° be-

TZT°2- 220° 9T- 980° 92- £bG°b- Tb6°82 829°b9 808°

Gbe" Te- 605°S¢-

28T°2-

Sel°Tt- 86S °2- 202° b-

995°T6

6S2°29

9EL°

IWILN3SLO0d JWI ONISN LON WOYS

IWIILN3SL0d G930 ONISN LON WOYS C1WWLOL 30 %) SNOTLNAIYLNOD GALVIOSI CdNS SO LNADYAd) ADNVdaYOSIG eyo

WILNSLOd 4AWI ONISA LON WOYS IWILN310d G930 ONISN LON WOYS C1WW10L 40 %) SNOTINGIYLNOD G3LVIOSI CdND 3O LNADYSd) ADNVdSaYOSIG Wid. NYdV¥E

IWILN3Z10d AWI ONISA LON WOYS IWILN3LOd G930 ONISN LON WOYS C1WWLOL 430 %) SNOTLNGIYLNOD GaLlv10sI CdNS SO LNADY¥Ad) ADNVdAYOSICG WVLOL SALVLS GALINA

MNO IWILNSLOd NI SSONSYSSSIAC JO (CSOILVY) ADNVdSYDSTIG WLOL SHL OL SNOILNGIYLNOD

OT eTIPL

en

9G8°oS- 260° 8-

eee" 9¢S°0Sebe Sf b- S2e°- TE9°ST- S86°82 5LT -

£0¢*6egd*l-

20s" SbT°SbT- 199°6 SOe°- Tbe" TSeet ss- 590°

WILNALOd NI

T2Z°¢Tt- S29°8-

622° L£L49°82LT 2T3°se Zot’ - 605° 2S S6>°STT 820° -

SAONAYNSAAIG

2LB°H2T- Lo2°T6 Lboo°L2T 680° 26

Seo°- 910 °- £96°¢T- SST‘ 2ttI- 10S °6T- 2lb* Lboss" 6ST*- Leb°bL SS¢°0S 295° 68 £G8°ee- 260° - TZ0°- T86T O86T

JO (SOTLVY NI JONVHD)

IT °T4eL

bEo*2S- IWILNALOd JWI ONISN LON WOUS 9LE° BS- IWILNALQd G9430 ONISN LON WOYS CIWW1OL 430 %) SNOTINGIYLNOD G3LVIOSI 989°- CdND JO LNADYAd) ADNVdAYDSIA WLOL VaVYNVS 805° 1S- IWILNS10d AWI ONISA LON WOYS SST°09- IWILN3LOd G940 ONISAN LON WOdS CIVLOL 40 %) SNOTLAGIYLNOD CALVIOSI £6T°- CdND 4O LN3908dd) ADNVdSYDSIA WLOl NVdvr See's IWILNALOd 4AWI ONISN LON WOUS 959° 6T IWILN310d G9430 ONISN LON WOdS CIWLOL 430 %) SNOTLAGIYLNOD C3LVIOSI 5LT° CdND SO LNADY4d) ADNVdSYOSIA WLOL

SAd1LVLS GALINA

AOINVdaYNDSTG WLOL JHL OL SNOILNAIYLNOD

- 19 -

Each measure has methodological biases. Even if each agency used the same parameters (which would move the methodologies closer to each other), and the same measure of potential GNP, and even if the economy were on its potential (or some other well defined) growth path, the two measures would differ. This difference arises because the OECD perceives "fiscal drag" as part of the structure of fiscal policy and therefore includes it in its adjusted balance, whereas the IMF removes it.

In the IMF's methodology, a change in tax receipts creates an impulse when revenues change as a share of actual GNP, while changes in expenditures creates an impulse when expenditures change as a share of potential GNP and when there is a change in the GNP gap. In other words, the IMF perceives revenues which are more than proportional to actual GNP (rather than potential GNP) as diminishing stimulus and it perceives government expenditures (other than unemployment insurance benefits) which are more than proportional to potential GNP as adding to stimulus. The OECD, on the other hand, attempts to remove all "built-in" stabilizer effects that result from deviations from potential output. In this sense, the OECD's measure is more complete and consistent in cyclically adjusting revenues and expenditures.

Which fiscal impulse measure is "best", however, clearly depends on its uses. The "structural" approach used by OECD can answer some relevant questions more accurately (but not necessarily as easily). The IMF measure gives a bad answer to the question, "What would the budget balance be along a trend path (possibly potential) of GNP?", and it gives a

bad answer to the question, "What part of the change in the actual budget

- 20 balance originates in changes in policy, either discretionary or programmed?", The IMF measure would yield poor results in comparing budget outcomes of various fiscal policy proposals (which is where the structural approach excels, as demonstrated by the Congressional Budget Office). And the IMF approach cannot accurately answer the question, "How much must the current balance be increased, using discretionary sources, to balance the budget at some level of output?".

The OECD approach can in principle answer all these questions, but it relies on parameter estimates from structural models that are not necessarily accurate or even reasonable representations of the real world. Major strengths of the IMF measure are its simplicity, that it requires no scphisticated model or data, and that it yields results that are qualitatively similar to the more complicated OECD measure. Each measure is probably more reliable as an indicator of fiscal ease or tightness within a country over time than it is as a quantitative measure comparing

fiscal impulse across countries.

Specific Conclusions

Section III of this paper created an allocation scheme for explaining the difference between estimates of fiscal impulse measures. This scheme allocated the total discrepancy to cyclical revenues, cyclical expenditures, fiscal drag, and "other". One clear pattern that emerges is that the exclusion of fiscal drag by the IMF accounts for a much smaller share of the disrepancy in measures for the United States than for Japan

and Canada, regardless of whether one examines levels (ratios) or changes

-21in levels (ratios). For the United States in particular, differences in estimates of cyclical revenues and cyclical expenditures account for consistently large shares of the total discrepancy in measures. For Japan and Canada, fiscal drag explains a much larger share of the total discrepancy, but cyclical revenues and expenditures also play a major role at times. No other consistent patterns emerge for this particular scheme.

It was also possible to quantify the contribution to the tctal discrepancy in fiscal impulse measures of differences in estimates of potential GNP. It was found that a large share of the discrepancy cén be attributed to differences in potential GNP estimates, particularly for the United States data.

Other differences, such as parameter differences, were not sensibly quantifiable. The IMF assumes that tax receipts are unit elastic with respect to actual GDP, while government expenditures (excluding unemployment insurance benefits) are unit elastic with respect to potential output. The OECD instead estimates short-run marginal tax and spending rates. While comparing the OECD's m? and m8 with the IMF's to and go might be a useful exercise | it will not capture all of the discrepancy in measures created by the different assumptions used to generate these parameter estimates. Because of this difficulty, it was not possible to quantify the effects of methodological differences (i.e., differences due to factors other than parameter differences and differences in potential GNP); but all other results point in the direction of concluding that. the

two measures are methodologically quite different.

- 22 - References

Heller, Peter, S., Richard Haas, and Ahsan Mansur, "A Review of the Fiscal Impulse Measure, with Estimates of the Structural Budget Balance." IMF Department Memorandum, DM/85/18, March 21, 1985.

Muller, Patrice and Robert W.R. Price, "Structural Budget Deficits and Fiscal Stance." OECD Working Paper #15, July 1984,

OECD Economic Outlook, OECD, December 1985.

World Economic Outlook, IMF, October 1985.

IFDP NUMBER

274

273

272 271

270

269 268

267

266

265

264

International Finance Discussion Papers

TITLES

1986 International Comparisons of Fiscal Policy: The OECD and the IMF Measures of Fiscal Impulse An Analysis of the Welfare Implications of Alternative Exchange Rate Regimes: An Intertemporal Model with an Application 1985 Expected Fiscal Policy and the Recession of 1982

Elections and Macroeconomic Policy Cycles

Assertion Without Empirical Basis: An Econometric Appraisal of Monetary Trends

in ... the United Kingdom by Milton Friedman

and Anna J. Schwartz

Canadian Financial Markets: Proposal for Reform

Was It Real? The Exchange Rate Interest Differential Relation, 1973-1984

The U.K. Sector of the Federal Reserve's Multicountry Model: The Effects of Monetary and Fiscal Policies

Optimal Currency Basket in a World of Generalized Floating: An Application to the Nordic Countries

Money Demand in Open Economies: Substitution Model for Venezuela

A Currency

Comparing Costs of Note Issuance Facilities and Eurocredits

The Government's

AUTHOR( s)

Garry Schinasi

Andrew Feltenstein David Lebow Anne Sibert,

William H. Branson Arminio Fraga Robert A. Johnson

Kenneth Rogoff Anne Sibert

David F. Hendry Neil R. Ericsson

Garry J. Sehinasi Richard Meese Kenneth Rogoff

Hali J. Edison

Hali J. Edison Erling Vardal

Jaime Marquez

Rodney H. Mills

Please address requests for copies to International Finance Discussion Papers, Division of International Finance, Stop 24, Board of Governors of

the Federal Reserve Board, Washington, D.C.

20551.

IFDP

NUMBER

263

262 261 260 259 258 257 256 255

254

253

252

251 250

249

International Finance Discussion Papers eee nn pers

TITLES

Some Implications of the President's Tax Proposals for U.S. Banks with Claims on Developing Countries

Monetary Stabilization Policy in an Open Economy

Anticipatory Capital Flows and the Behaviour of the Dollar

Simulating Exchange Rate Shocks in the MPS and MCM Models: An Evaluation

Trade Policy for the Multiple Product Declining Industry

Long Memory Models of Interest Rates, the Term Structure, and Variance Bounds Tests

Currency Substitution and the New Divisia Monetary Aggregates: The U.S. Case

The International Transmission of Oil Price Effects and OPEC's Pricing Policy

U.S. Banks' Lending to Developing Countries: A Longer~Term View

Conditional Econometric Modelling: An Application to New House Prices in the United Kingdom

Low Pushing: Doctrine and Theory

1984 (partial listing) Postwar Financial Policies in Taiwan, China

Foreign Exchange Constraints and Growth Possibilities in LDCs

The Determination of Front~end Fees on Syndicated Eurocurrency Credits

Monetary Policy Games and the Role of Private Information

AUTHOR(s) Allen B. Frankel Marcus H. Miller Arnold Kling Arnold Kling Catherine Mann Gary S. Shea Jaime Marquez Jaime Marquez Henry S. Terrell Rod Mills Neil R. Ericsson

David F. Hendry

William Darity, Jr.

Robert F. Emery Jaime Mar quez

Rodney H. Mills Henry S. Terrell

Matthew B. Canzoneri