Klaus Schmidt‐Hebbel

Universidad del Desarrollo del Estado de Puebla

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Luis Servén

Centro de Estudios Monetarios y Financieros

Vittorio Corbo

World Bank

César Calderón

World Bank

César Calderón

Federico Villarreal National University

Ibrahim Elbadawi

World Bank Group

Norman Loayza

World Bank

Francesco Grigoli

Consorzio Nazionale Interuniversitario per le Telecomunicazioni

Alexander Herman

University of Minnesota

Norman Loayza

World Bank

Roberto Duncan

Ohio University

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World Bank

National Bureau of Economic Research

International Monetary Fund

Banco Central de Chile

Inter-American Development Bank

Pontificia Universidad Católica de Chile

World Bank Group

University of Chile

Georgetown University

Organisation de Coopération et de Développement Economiques

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What Drives Inflation in the World

RePEc: Research Papers in Economics (2008)

César Calderón Klaus Schmidt‐Hebbel

This paper evaluates the impact of non-monetary factors on inflation for a sample of 97 countries over the period 1975-2005. We complement and extend the existing literature in the following dimensions: (i) we assemble a comprehensive set of inflation determinants classified in 5 groups — high inflation and persistence, monetary and exchange rate regimes, openness, structural variables and institutions, and business-cycle-related variables. (ii) We estimate broad specification using alternative econometric techniques and frequencies of data (e.g. annual and 5-year-averages) to assess separately for short -term and long-term inflation dynamics. (iii) We test the sensitivity of our results to different country groups and over time. Our findings mainly show that: (a) discipline and credibility enhancing effects are crucial in lowering inflation. We find that countries that adopted either inflation targeting or fixed exchange rate regimes attain lower inflation rates. Financial openness and healthy fiscal balances also exerted a disciplinary effect on inflation in the short run. (b) Countries with higher income per capita have lower inflation rates. (c) Interestingly, domestic output gap has a positive effect that is higher in industrial countries than in developing ones. (d) We fail to find a significant effect of globalization —as proxied by the foreign output gap— on domestic inflation.

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Output gap

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Fiscal and Macroeconomic Effects of Colombia`s Pension Reform

Revista de Análisis Económico – Economic Analysis Review (1997)

Klaus Schmidt‐Hebbel

In 1994 Colombia started replacing its state-run and pay-as-you-go (PAYG) pension system by a privately-run and fully-funded scheme. Numerical simulations for the government's reform transition reveal implicit PAYG debt levels and corresponding reform transition deficits that are high relative to other countries, considering that Colombia's old pension system was characterized by low coverage, low system maturity, and a young population. Simulation results show that output could increase by 10% due to higher future saving caused by financing the pension deficit by a fiscal contraction -but this would occur only in the very long term. Sooner and possibly larger gains could be reaped from higher employment and production in formal sectors, and the development of capital markets spurred by the reform. In addition, Colombia's new pension systemthat includes a redistributive pillar targeted at the poor -is potentially more equitable than the old scheme, To reap these efficiency and equity bellefits, however, the Colombian government would have to adopt complementary reforms. They include giving the private fully-funded pension pillar a commanding role, supporting the development of capital markets, and bolstering formal-sector employment by the reduction of deadweight tax burden of non-pension programs that are currently financed by payroll taxes on labor.

Payroll tax

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Equity

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Population Ageing

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Monetary Policy Under Uncertainty and Learning: An Overview

Journal Economía Chilena (2008)

Klaus Schmidt‐Hebbel Carl E. Walsh

Todo banco central debe tomar sus decisiones de politica en medio de un escenario incierto, basandose en su conocimiento imperfecto y cambiante sobre la economia. Aunque la investigacion sobre politica monetaria con incertidumbre y aprendizaje ha encontrado pocos resultados generales, una leccion contundente es que no se puede pasar por alto ni una ni otro. Este articulo hace una revision selectiva de la literatura existente sobre la incertidumbre y el aprendizaje, con enfasis en lo que atane a la conduccion de la politica monetaria. Luego analiza la investigacion de frontera presentada en la ultima conferencia anual del Banco Central de Chile, que reune nuevos resultados teoricos y evidencia empirica valida tanto para paises desarrollados como para la economia chilena.

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Pension Systems and Reform: Country Experiences and Research Issues

World Bank policy research working paper (1999)

Klaus Schmidt‐Hebbel Patricio Arrau

Pension reform is spreading around the globe, from Latin America to the OECD countries, and major reform projects are being discussed in many other developing, transition, and OECD countries. The authors survey current research issues and country experiences related to old-age social security arrangements by introducing the papers selected for a special June 1994 issue of the Revista de Analisis Economico and presented at the July 1994 Conference on Pension Systems and Reforms sponsored by Fundacao Getulio Vargas. They also present 15 research and policy design issues not addressed by the literature, including macroeconomic effects, conditions of political economy, government's role in easing or reducing old-age poverty, and design features of fully funded pension systems.

Pension System

10.1596/1813-9450-1470

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Managing the Global Financial Crisis and Economic Downturn

OECD economic outlook (2008)

Klaus Schmidt‐Hebbel

Many OECD economies are in or are on the verge of a protracted recession of a magnitude not experienced since the early 1980s. As a result, the number of unemployed in the OECD area could rise by 8 million over the next two years. At the same time, inflation will abate in all OECD countries and some even face a risk, albeit small, of deflation.

Deflation

Great recession

Global recession

10.1787/eco_outlook-v2008-2-2-en

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Monetary Policy And Key Unobservables: Evidence From Large Industrial And Selected Inflation-Targeting Countries

Documentos de Trabajo ( Banco Central de Chile ) (2009)

Klaus Schmidt‐Hebbel Carl E. Walsh

Entre las variables que juegan roles importantes en el diseno de la politica monetaria, hay varias que no son observables directamente. Las principales son la tasa de interes real neutral, la brecha del producto y la tasa natural de desempleo. Si bien los bancos centrales han hecho esfuerzos aislados por estimarlas, por lo general han aplicado criterios especificos a cada economia y no han aportado una estimacion sistematica ni una comparacion entre paises. Aqui adoptamos un enfoque de estimacion comun aplicado a un modelo parsimonioso de politica monetaria, para entregar estimaciones coherentes de las principales inobservables para Estados Unidos, la Eurozona y Japon, asi como para varios paises con metas de inflacion: Australia, Canada, Chile, Nueva Zelanda, Noruega, Suecia y el Reino Unido. Asi podemos obtener medidas comparables de las variables inobservables para un rango de paises. Utilizamos nuestras estimaciones para investigar temas como las similitudes y la convergencia entre paises para dichas variables.

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Pension Reform, Informal Markets, and Long-Term Income and Welfare

SSRN Electronic Journal (1997)

Klaus Schmidt‐Hebbel

It is well known that a pay-as-you-go (PAYG) pension system lowers saving, income, and welfare of future cohorts in a one-sector economy because it entails a transfer to the first cohorts of PAYG pensioners. Is the opposite result possible in a two-sector (formal-informal production) economy? This paper provides a positive answer to this question by reporting simulations for a representative economy based on the steady-state solution of a two-sector two-period overlapping-generations model. A PAYG system can raise long-term saving, income, and welfare in a two-sector economy if the formal sector (forced to pay mandatory PAYG taxes) is more capital intensive than the non-taxed informal sector, causing higher wages and lower interest rates. Empirically this outcome is not likely as suggested by the stylized features of real world pension systems and formal-informal market structures. Therefore, replacing PAYG by a fully-funded pension system is still more likely than not to raise long-term saving, income, and welfare levels.

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Informal sector

Overlapping generations model

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Citations (16)

Ahorro, inversión y crecimiento económico: una revisión de la literatura

Pensamiento iberoamericano (1996)

Klaus Schmidt‐Hebbel Luis Servén Andrés Solimano

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Crisis Financieras Internacionales, Prestamista de Última Instancia y Nueva Arquitectura Financiera Internacional

RePEc: Research Papers in Economics (2003)

Esteban Jadresic Klaus Schmidt‐Hebbel Rodrigo Valdés

The international financial system (IFS) has undergone a series of financial crises over the past decade.This paper analyzes the shortcomings of said system (that have contributed to the crises) and, with them in mind, reviews and evaluates the IFS reform proposals for a “New International Financial Architecture.” These proposals are intended to resolve IFS imperfections on three fronts: better crisis prevention, better crisis resolution, and better governance at the IMF, the international quasi lender of last resort. Although a number of the proposals are academic, they have been useful for the reforms that the IMF has either implemented or supported actively. These include adopting standards and codes in 12 key areas for domestic and international financial stability, such as improved country monitoring, stricter conditions for financial aid granted to countries in crisis, better IMF governance, and new collective action clauses in issuing sovereign bonds. In contrast, the IMF has found no significant support for its proposals of creating a contingent credit line and adopting mechanisms to restructure sovereign debts. But no IFS reform is a good substitute for good fundamentals at the country level, that reflect strong macroeconomic and structural policies, the best way to reduce the probability of occurrence of liquidity or solvency crises.

Restructuring

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Fiscal Adjustment and Growth: In and Out of Africa

SSRN Electronic Journal (1996)

Klaus Schmidt‐Hebbel

A deep rift separates Africa and Latin America (and to lesser extent Asia) from OECD countries with regard to fiscal adjustment, macroeconomic performance, and long-term growth. Case-study and cross-country econometric evidence drawn from a large world sample is provided to explain at least part of the OECD's better performance. This allows evaluation of Africa's generally dismal experience in the wider context of world development. Public deficits are sensitive to short-term domestic and foreign macroeconomic shocks but policy makers - not macro shocks - are to blame for persistent deficits and to compliment for sustained fiscal adjustment. Long-term tax revenue rises with per capita GDP. Inflation exhibits tax collection in all regions except Africa while adverse terms of trade shocks reduce tax revenue only in Africa. Taxation is much heavier in OECD countries than in developing nations, even after controlling for differences in the levels of development and inflation. Low public deficits and central bank independence contribute significantly to macroeconomic stability. However, after controlling for these two variables, macroeconomic stability is still significantly lower in Africa than in the rest of the world. Fiscal adjustment does not help growth directly because it does not always provide more resources for overall domestic investment. Instead the contribution of lower public deficits to growth is indirect by enabling a more stable macroeconomy. Overall macroeconomic stability is shown to be a major growth determinant while its individual components (inflation, real exchange rate variability, foreign debt, and the black market premium) are typically not significant when taken individually. Africa-and Latin America too - is also different in its growth performance: it falls well below long-run growth in other developing and in industrialized regions, after controlling for all relevant growth determinants.

Fiscal Adjustment

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