Download author and do not necessarily reflect those

The Current Recession and Steps Required for
Sustained Recovery and Growth
Richard Ablin
Discussion Paper 91.08
May 1991
Any views expressed in the Discussion Paper series are those of the
author and do not necessarily reflect those of the Bank of Israel
.
Research Department, Bank of Israel, POB 780. Jerusalem 91007, Israel
Abstract
article presents
The
recession" from late
1987
analytical discussion of the Israeli "growth
an
to early 1990, and of the implicit steps needed for
It identifies
(with the help of the IS­LM paradigm
and supplementary data) the primary source of
this recession as the strong trend of
recovery and sustained growth.
erosion of the real exchange rate from 1985/86 to late
1988
(itself the result of
the use of the nominal exchange rate as a relative "anchor"
disinflation,
in a situation of inflationary inertia and nominal monetary expansion
essentially adapted to nominal
A
for the purpose of
GDP
rather than the nominal exchange rate).
secondary source appears to have been a weakening of investment propensities
incident upon debt problems related (in large part) to an extraordinary surge of ex­
post real interest rates in the year of radical disinflation (1985/86).
situation at the start of
The
1990
correction (rise) of the real exchange rate,
therefore called for a significant
together with growth in real
money
balances consistent with cyclical recovery and later potential growth. 1990 however
saw the
start of the great
wave
of Soviet Aliyah.
An
appraisal of this change
that it involves several factors tending to shift the equilibrium real
(at full
employment) in both
rise in capital imports,
directions.
which
Among
would lower
exchange
shows
rate
these however, the (probable) massive
this rate, is likely to predominate
(tending to offset the previously required rise).
The
greater uncertainty on this
score suggests that recovery policy should center initially
monetary expansion consistent with the "recovery" growth
upon a
rate of real
rate of domestic
demand,
while adopting a "wait and see" approach to the need for real devaluation.
The
progress of disinflation (the object of the pre­1989 exchange rate policy)
is also analyzed,
together with further examination of the need and formula for
price shock deletion from wage linkage in the event of devaluation.
Current Recession and Steps Required for Sustained Recovery and Growth
The
R.
Ablin
April
Forward;
This article
1991
constitutes, for the most part, a macro­economic analysis of
the situation at the end of 1989,
following two years of growth recession; of
the impact on that situation of the great Aliyah
wave which began
in 1990, and
of the steps needed to achieve cyclical recovery, as well as sustained growth
at the rising potential rate. Before turning to this
however, a few words of
background and of "moral homily" are in order.
In November 1989
the Bank and the Finance Ministry were in the process
of preparing policies for
some
rise in growth in
updated to reflect the rapid rise
1990 and beyond
(successively
in anticipated Aliyahj the latest
taken into account here in July 1990).
This constituted however,
stage
a belated
response to the extremely costly growth recession which had already afflicted
the economy and the nation since the third quarter of 1987 (i.e. a
as of late
a rise of
1989, of
at least
"U" from 6
social affliction
was
to 10*).
7*
­ or over
He
NIS
GDP
"gap",
5.0 billion in 1989 prices, and
should do this in keen awareness that this
neither officially foreseen and prevented, or attacked
with all possible dispatch, by the authorities responsible for macro­economic
policy. Moreover, this tardiness was once again not free of the taint of using
recession as a preferred (rather than
less importance than full employment
"no choice") means of achieving goals
of
GDP.
Coincidentally with the first draft of this paper.
o
Measured U rose to a 9.3* high in the second quarter of 1989; but
available data ("Recent Economic Developments," Bank of Israel, June 1990)
shows that it would have reached 11* or more in the next three quartersr if
not for an obviously responsive rise in government employment (by 33,000 or
2.3* of total employment). The figure of 10. IX was reported for the second
quarter of 1990.
2
Thai
National
>
lie
recession
Vu'lgots
■.
1
J/3H7
was
not foreseen is
nnd
1988 (and
latter, published as late as January
1988,
the forecasts of the
shown by
related statements).
by many
forecast
The
growth of 3.7tf in 1988
GDP
)4.6 £ for the Business Sector).3
irony of this situation is that such a recession was entirely
The
foreseeable
(and was
conditionally foreseen) ­
Jf
policy makers failed to
prevent a prolonged erosion of the real exchange rate
still
incomplete disinflation of
designed the
1985.
(ER_), following the
after having specifically
Yet
"heterodox" freeze of the Emergency Program to avoid the usual
transitional recession,
normal
to the process of orthodox disinflation,
r.he
authorities (for whatever reasons) permitted the economy to sink directly into
such a recession in 1987­1989. The much heralded recovery of growth following
transition from the Emergency Program, which indeed began in
basis of the relatively high
quarter of
of
1987
1987, was brought
to
ERr
a
levels prevailing
no
from 1985
­
to the
on the
first
definitive halt already in the third quarter
(note: before the onset of the Intifada).
been allowed to erode by
mid 1986
less than
20/6 from
The
real exchange rate had
its average
1985
level to the
fourth quarter of 1988.
Actual growth rates were 1.6 and 1,ltf respectively. The error was
concentrated mainly in a projected growth of 5$. in exports (g+s ) which more or
less ignored the impact of the long and steep erosion ­ofER (See appendix on
both this point, and on the potential effects of Y and £J£. on the import
surplus (g+s) during cyclical recovery.)
.
I.e.
allowed continuation
of the "Relative­Inflation
­ Fixed ER
as I termed it in several papers leading up to "The Present
Inflation ­ Growth Predicament in Israel", Economic Quarterly, (in Hebrew),
December, 1987. This syndrome (whatever called) is generally recogni2ed in
recent literature. Apart from s tandard texts (e. g. Dornbusch 1978 and later
editions), see recent applications by Liviatan (1988) and (in analysis of the
"Walters critique" of the EMS) M. Miller and A. Sutherland (1990). Further
evidence is offered by country studies assembled in Harberger (1984).
Syndrome,"
3
Policy adjustments were finally undertaken in 1989, reversing for
l/6th of that decline (a fourth of the erosion
year as a whole only about
since 1986), but
more
the
importantly quietly shifting to a policy of stabilizing
the ERr (by a combination of an upward trend of
announced bands and of changes in the
ERn
adjustments within
central rates at required intervals)
.
This alarming record (especially up to the end of 1988) should not induce
despair, but it
should inspire a degree of humility in the course of our
present and future efforts. In particular
reject, the reversal of
ends
should understand clearly,
we
and
involved in choosing recession over
and means
directly applicable, and far less costly instruments, such as devaluation
incomes
policy,
controlling the
for
external
balance or
and
achieving
disinflation.
The Onset of the Present Recession
)1) The fallback of actual
of
1987 through 1988 and 1989
GDP(Y) from
potential GDP(Y^,
from
the second half
is broadly consistent (although precise quantification
is difficult) with the "multiplied" impact of the fall in "net exports" (exports­
imports or
of
Y
NX)
atY_ .
NX
from IL was at least
^
momentum
at
Yp
fell
3
or
4X. (We
by about
2
to
2cfX
of
GDP
in 1988.
The
shortfall
consider thesenuarbers in more detail below.)
discuss (in the final section) a new tendency,
during 1990, toward an "upcreep" of the trend ERj. .
We
gathering
some
We should also resist the temptation
to gloss over our policy failure
in view of the similar performance by many other (by no means all)
In fact, this "traditional" approach has long been used with
greater restraint in the most advanced (i.e. public welfare oriented)
democracies, such as Sweden and the U.S. and, in effect, rejected during most
governments.
much
,
of the last decade.
easily obtain reasonable consistency with this appraisal if we
the range suggested by statistical work in this
area. (See appendix 1, especially Table 1, footnote 3.) These imply an '88
rise of M­^+s ­­ 2.5* of GDP (with a further rise in '89) due to '86 to '88
We
apply "ER^"
ERj.
erosion.
elasticities in
k
(2) This
broad
result of a shock to
(EIL ). But
(DD) ,
fact implies that the recession
NX
arising
it also implies that the policy factors affecting domestic
NX
policy), have been relatively tight ­ in the sense that
offset the negative multiplier effect upon
"NX = 0"
its
1986
Y
The
Y
.
equilibrium (for example, the
reader
Dornbusch and
may
Fischer's
1988)9
a
­,
demand
)e.g. monetary
they did not tend to
and Y.
aid of the well­known
an initial
(that is, the current account is in equilibrium;
to the last quarter of
Q
shock
implies, in figure 1,
be considered
desirable net capital imports) at
from
of
case to
The
position in which
X =
DD
can strengthen this verbal description with the
model.
IS­LM
first of all,
erosion of the real exchange rate
from the
apart from its multiplier equilibration to the
We
was,
M­
The
effect of a long erosion of
1UX
decline from the average level
would be to
shift the
NX =
0
ERr
line to
refer to such a standard (but excellent) text as
Macroeconomics, (e.g. p. 608­610, 1978 edition). To
slightly simplify the discussion of the text, "r" is substituted for "i" in
Figure 1. This merely allows us to avoid one or two formal steps to arrive at
essentially the same result. As Dornbusch and Fischer point out (p. 588) the
assumption of fixed P (and zero n) in the presentation of the IS­LM diagram is
made merely "to develop the details of the analysis most simply" (i.e.
most
clearly for pedagogical purposes). D S F themselves show the effect of the
relaxed assumption (variable P and n) only in connection with the "Y ­ Ys"
diagram. It is in this latter diagram incidentally, that the "NX = 0" curve
assumes a negative slope ­because it is shown against P, not i or r. In the
IS­LM diagram "NX = 0" is vertical (I.e. the level of GDP at which external
balance is achieved­ is a function of the ERj. and hence of P, given ERn but
not of i or r.)
IS and LM may be shown against " i " by adding an n premium ­ on the
vertical axis ­ for steady or expected n. It would then be necessary to show
any shifts in IS or LM (due to AM3, AER etc.) as consisting of both a
horizontal real shift, and a vertical nominal shift for An. Since we are here
concentrating upon explaining the real changes, it is simplest to show IS and
LM
against the vertical interest rate axis deflated for P, keeping in mind
that policies which shift these curves (e.g. a + AE^, stimulating a rightward
shift in NX = 0 and in the IS curve) may also have some effect upon 71. (We
consider the latter effect elsewhere.)
,
;
,
a
This measures ERr according to
on a monthly basis(.
available
the relative
WPI
price index (which is
the
left
(NX =
It
02).
would then require
a
fall
from
to
Y
Y3
to restore ‫צא‬
equilibrium.
)3) The drop in
NX
at
implies a drop in aggregate expenditure (total
Y
uses); which brings about a leftward shift of the IS curve.
shows­
The
the combinations of
extent of this shift
(Y
Y
and
­
r at
Y2)
which both expenditure
indicates the drop in
these equalities (i.e. the size of the multiplier). It
than the shift
reduced S, as
and expenditure
of
NX =
Y
=
[The
Y
IS curve
I
and
= S. ]
required to restore
is
somewhat
smaller
0, because part of reduced expenditure 'leaks'
well as into a reduction of imports. Hence, the equality
into
of
is reached before wiping out the entire increase in the
Y
NX
deficit. 10
‫^­>)א‬
Fiqure
ftX*o,
1
.1
t
More formally stated, the difference of the leftward shift of NX = 0
tbat of IS is caused by the fact that the NX = 0 multiplier (i.e. the
fall in Y needed to cut the NX deficit back at its original level) depends
only upon the "marginal propensity to import," while the IS (Y) multiplier
depends upon this plus the marginal propensity to save.
The size of this
difference in a small economy such as Israel, is greatly reduced, however, by
the fact that imports (and MPM) are large relative to MPS.
Quite possibly,
therefore the Y multiplier may equal 3/4ths, or more, of the NX = 0 shift.
10
from
6
(O
by the
The
fall
shift of
in
would then be
Y
IS along an unchanged
further
dampened (to
curve
LM
Yj
(i.e. implying
rather than
Y2)
decline in
some
r and consequent rise in I).
If the situation is as
)5)
)approximate) fall of
that some additional
the recession of
all the
Y
new
way to
the
IS­LM
,
the
is portrayed
position in
1988
implies
shock must have added to
NX
by a leftward
intersection at
greater leftward shift
of
LM
This is
Y2.
(r
NX =
would have
a generally downward course,
shift of
( to LM ^)
LM
closer to, but
reduced
Y
IS
still
further, but would
we know
that
r was in
there is a greater likelihood of
additional factor increasing the original
1
.
also have raised r above its original level. Since
on
0
NX =
then the observed
possible candidate; an "accommodative" (or pro­
Y. One
slightly above the level corresponding to
A
new
factor or factors besides
cyclical) reduction inM
producing a
postulated here,
shift.
And, indeed,
fact
some
examination
of investment behaviour suggests that such a factor was present; namely, that
the shock to
NX
given
r).
Y
and
wave, which was
was
supplemented by a shock to the propensity to invest (I
at
This would have been a probable outcome of the "bad debt"
also moving towards its crescendo in 1988.
the growth rate of I
in fixed assets
was
The
collapse in
similar to that in export growth
)although only about half as large in absolute terms).
Such
a
further source of IS shift (to
IS 3)
suitably brings us to
a
Such a pro­cyclical shift of M5 (detailed below), was, indeed,
contrary to most past behaviour. (E.g., in reaction to the "mitun" of the
1960s, in which Mlj. (during yr) rose from ­2X in 1966 to 193i average in 1967
and 1968; or to the 1953 recession, in which Mlr rose from ­12tf in 1952 to 2Di
in 1953.) See Figure
I
crisis in
2
below.
have discussed the predominantly temporary character of
"High Interest Rates, Spreads and Margins in Israel",
Israel Discussion Paper, July 1990).
this debt
(Bank of
7
position in general agreement with the observed facts; a drop in Y(to VjJ
sufficient to preserve the
balance of the previous year, and some reduction
NX
in r (to r3).13
One
might, indeed, formulate
slightly different scenario consistent
some
with the broad facts cited, but the basic thrust of the explanation would be
similar ­ that the recession
which includes
demand,
generated by shocks to
was predominantly
NX),
and
(GDP
Y*^
that monetary policy (and domestic
demand
policy in general) permitted the multiplier effects of these shocks to
themselves out
in a. reduction of
Y
more or
less sufficient
to
work
stabilize
NX.1A
The
Actual Figures in
We
the
may
money
policy.
We
M
supplement
Growth
the above analysis with a look at the actual behaviour of
aggregates ­ with a view to evaluating "revealed" (or de­ facto) monetary
first
show
that the trend of
wide
recessionary real rates, following an initial
show
growth
rates for nominal
Ml,
M2
and
M3
M
growth (M3) went
surge
in late
for a recent
steadily
1986 and 1987.
12 month
down
­ to
We
then
period (August­
October 1988 to August­October 1989) in the midst of the recession..
This is also consistent with the rough quantification of our original
stylized facts: A fall of NX at Yp of ­­­2* of GDP, divided by a MPM + MPS of
about .7 or .8, would yield a "multiplied" short fall of Y of about 2. 5tf. The
actual shortfall was larger (up to 4XJ; leaving room for the effect of the
other recessionary factors.
that fiscal policy
was also essentially passive in both 1988 and
fiscal deficit at Yp (full employment) was kept
approximately constant, although the actual deficit was allowed to rise with
the cyclical slowdown in tax revenue, etc. (This is pointed out, inter alia,
in the Public Sector chapters of Bank of Israel Annual Reports.)
Note
1989,­
that
is,the
.
Year
August ­ October'88­
M3r
CPI
1
'89
(year to year percent change(
1987
33
20
1988
19
16
1989
17
20
standard.
The
negative
relatively higher rate of
Ml demand
12 5%
.
=
­■
M.3%
­­
(i.e. potential
TL
later period has been at least 26^
the
21.'0*
=
K
K
­n,
Since the growth rate of nominal
in
K
+m
GDP
plus inflation)
rates are low by any
these
is apparently the reflection of the
Ml
relation to the real interest rate (r);
which was declining
during the first half of this period. This factor tended to shift funds within
M2
and
toward Ml. But even with this boost; ML did not get
M3
*
of nominal
The
term nominal
(relative to
Y
(consistent with a constant r) of all
2696
more than
real interest) still
and
fell
is not necessarily inconsistent with this evaluation. With a stable
equation, the fall in
from
or ahead
(while the others fell well below it).
fact that "r" (short
somewhat
M
Y_
up to
to 20"^).
Nominal Ms
Y
M
(essentially
)
would
M3S) was
apparently reduced by even
on r was more than
offset
by
the shock to the I propensity, "arm­ twisting") which were
also tending to reduce r
To sum
rate
(e.g.
aggregates "proportionately"
this, but the potential positive effect
other factors (e.g.
reduce the growth
.
up; whatever the
precise truth,
policy did not act in a counter­cyclical
way
it is at least certain
in
1988 and 1989
to
that
M3
offset the
recessionary process (the original shocks or the multiplier). Although
interest rates
down
went down
somewhat,
further to do this (i.e. the
it
LM
was
curve
clearly necessary for
in figure
1
would
them to go
have to
shift
rightward beyond
its original position
simultaneous correction
right); this
of the
would have meant
EIL,
a
Y
of LM^).
erosion (shifting
recovery at
course,
Of
NX
= 0
without a
back to
the expense of a larger
the
NX
deficit. Even this would not have been intolerable however, given our foreign
currency reserve position during 1988 and 1989; at least, as a short terar
expedient
to achieve
support this recovery
On
radical
3
was being more
the well known premise
contrast
Israel's
at best,
recovery while the adequacy of the exchange rate to
two
on
that "one picture is worth 1,000 words," the
between unambiguous
earlier recessions (in the
accommodative policy in
for data
carefully evaluated.
M,
"
1989[.
shown
in Figure 2. (See Appendix
and on the shorter duration of the earlier
recessions.)
2
failure of MS to move in this direction was a departure
is also reflected in recent statistical results [Tal and
That
norm
monetary policy in
'50s and 160s), and pro­cyclical or,
this one, is
Figure
past
counter­cyclical
from the
Elkayam,
10
.Developments
in 1989
low Y)
During 1989,
continued at about the 1988 level;
additional
rise
of the
(implying, of course, a large
contrast
This
Gap).
GDP
(i.e
rose, while the growth recession
NX
to
1988 can
be easily
understood in the light of our previous analysis. It reflects the fact that,
in 1989, there
NX
effect
further decline of
was no
of the continued fall
from 1986 to the
tending to balance the positive
relative
Y
a partial correction was finally
noted,
made
to
Y
in the
On
.
ERj.
the contrary, as
(~
/tif of
Y
was now
the decline­
fourth quarter of 1988).
With the leftward shift of
(relative to
more
of
ERr
Y_)
0
NX =
slowed or stopped,
than necessary merely to keep
Diagram 1, the IS­LM intersection
now
NX
falling
by
constant. (In terms of
occurred to the left of the new
NX =
0
line).
The
Y
question remains of what caused the continuing fall of
(i.e.
in 1989
There can be
the continuation of
little
Y
~ X.2%
doubt that lags are involved in
a change
(e.g. fall) in
least
quarter) and this effect widens over
2­3
one
years).
initiating
The
NX =
ERr
this outcome. For
example,
0" with a
.lag (at
affect
only begins to
a
0
shift
"NX =
considerable period (possibly
also requires time.
relative to
Y
slight signs of
and
improvement.
Y_
relative to
of, say, S.5%).
Y
Multiplier process (then induced) itself
continuing decline in
showing
versus a
Y
This
lags behind the
could explain a
in 1989, even while
Nor should we
NX
is already
forget the other factors
)discussed above) which were involved in initiating the recession (a fall in
the I propensity and tightening
M
)
.
The
effects of these also occur over
a
distributed lag.
The
a
size of the
NX =
0
shift,
relatively larger contribution
and the
was made
Y
shortfall in
1988, suggest
that
to the continuing growth recession
11
in
1989 by the non
"NX"
(i.e
factors.
non­ERj. )
suggest a gradual continued decline of
As
noted above , the numbers
into 1989, and it also quite
ifr
possible that the weakening of the investment propensity
may
have
hit
bottom
only in this year.
In sum, this analysis suggests
include lower
)1990),
we
DD
and higher
NX
how
a still
than in 1988,
recessionary
and
that,
Y
in 1989 might
in the next stage
should expect to observe a return toward the potential growth rate
although certainly not the closing of a major portion of the
)Y ) ,
GDP
level
gap.17
How Much n Had
We
Been Squeezed Out and How Much Remained (by the
have thus
start
of 1990)
persisted through 1988­1989 (at the high cost described) in
effort to complete our disinflation by orthodox means; first holding both
ERn and J£. and latterly only /af, below the existing rate of inflation.
What
an
has been our success so far? The answer is,
first of all, that our experience
)since 1985) has added to the abundant international evidence of the inertia
of n) with respect to cyclical fluctuations in real growth. Israeli
rise during the surge of
growth in
1986­87, and
it has fallen
/r
did not
by
only a
noted before, the declining trend of short term r, despite falling
reflect the exceptional slump in I demand. Theoretically,
the latter is partly "cyclical" (reflecting a relation of I to Y and expected
Y) and partly "exogenous" (i.e. a fall in the I propensity apart from Y). In
reality, these two factors in I determination are difficult to separate; and
social psychology suggests that they interact. In any case the I propensity is
likely to slump further (and over a longer period) if the authorities give no
sign of a serious counter­cyclical policy reaction (a description which, as we
have seen, corresponds to the stance of Israeli macro­economic policy in both
As
M_,
might largely
1988 and 1989).
Preliminary estimates in late 1990 tend to confirm this expectation.
12
fraction (its
"ERr corrected"
rate, that is) during the long growth recession
of 1988­1989.
One way
of
to see this is summarized in Figure 3, showing the actual rates
inflation, versusj (a) these rates
WPI
of actual devaluations;
impacts
(b)
excluding the
1
for the
adjusted
'normal' P­level
total of
same
devaluation, but carried out in a "smooth" manner; (c) adjusted for the extent
its
of devaluation which would have kept ESr approximately stable at
level, and
reduce the
The
adjusted for the (saaller) extent of devaluation needed to
(d).
decline from
EBj,
1985
to
1989 from about 20&
finally
1986, the recession of 1988­1989
(by perhaps
4
managed
us
(at the start of
level of about
"Sal")
of
16&
underlying fall
­ versus
[1990
4­5X1
1990) with
an
OECD
a
Y­
titne
since
to cut the "underlying"
percentage points).
estimates described above as nearest to the
left
to about 10^.
results of this exercise suggest that, for the first
during 1989
1985
taking even the (d)
But
equilibrium of
"true" (i.e.
WPI
£R
EKj, ,
this
still
corrected) inflation
level (or level in the countries of the
figures ­ to June ­ support the conclusion of an
in n, and suggest
de­ facto policy of stable
ER^.
a
further decline.
­ fell to
an
The WPI
annual
­ with the
rate of only
new
11&.
Ironically, this trend has been obscured once again in the public view (which
0
concentrates upon the CPI); this time by the
housing prices.
Even this
*
Aliyah related
surge in
]
fractional cut in excess Israeli inflation (about l/3rd), has
are not included in the WPI, which is based on
goods^. " The CPI, excluding housing prices,
significantly ­
the WPI. It is true that in a perfectly flexible price economy; a
Housing prices
"industrial
new
fell,
in line with
surge in one relative price, even as weighty as housing, "should" not raise
the overall P level. In the real world it undoubtedly does (especially in the
short run); but the "net of housing price" rises (both CPI and WPI) probably
do somewhat overstate the true drop in underlying n.
13
Figure 3: Analysis of Wholesale Price (WPI) Inflation, 1986­1989
\
**\\ to
eM0t
91 C*'
ifct<Jm,\ £.81 .ift'/ ,, .
.<7.oyi ro +*** V9?
)b)
C
f
Etf,.
Ml
shock.
■x.
.£
' '9$
'It
(2)
.
WPI
)Dec. ­Dec.)
ER"
(Sal)
)Dec. ­Dec. )
(3)
'Normal1
P Shock
(­­­
(D­(3)
(4)
(5)
Corrected (O
WPI excl. )3)
V
1986
15.1
6.5
3.2
11.9
11.5
1987
20.9
14.2
7.1
13.8
12.8
1988
15.8
1.3
0.6
15.2
15.1
21.5
20.0
10.0
11.5
10.4
1989
*
*i0yi)(t\)
‫ י‬Extrapolated from first eight months; assuming same changes as in 1988
during the rest of year. ER" assumes no change after August. [Note that these
estimates were carried out in October­November 1989. The final 1989 figure for
WPI (19.5^ suggest a somewhat further advance in disinflation then this
estimate. ] This would imply a similar downward correction of the several "ER
adjusted" 1989 rates in the above diagram (e.g. rate "d" to about 16.5*).
14
as
at the price of at least 2.5 years of growth
have seen, been purchased
we
recession.
the
On
covintry the
hand, this is strong evidence against imposing on
one
immense
additional cost of getting
all the
71
levels by further pursuit of the "orthodox" route.
implies that,
convert it
if
we welcome
into a true cyclical
■.
by
1990: Entry of
the Soviet Aliyah
recovery,
1989;
have to
freeze program)
a second
forego further
but need not be
Wave
that is, the eve of the
found a cyclical recession,
a
Y
gap
new wave
of at least
of Soviet
7^, and a
U
of
in excess of the (relatively high) base position of 1987.
To
the (large) extent to which the recession had been due to the erosion
FJ^.
(i.e.
the continued uptrend of
rate of nominal devaluation),
)1)
we may
43>
about
of
We
the other hand, it
far concentrated upon the definition of our macro­economic
position as of the end of
Aliyah.
OECD
the prospect of a serious rise in inflation. 18
frightened off
have so
to
the prospective growth recovery and wish to
disinflation (in the absence of
We
On
way down
the
the ideal
P
and f^
way
against
a
policy restrained
to deal with the problem
was
to;
reverse the accumulated erosion of ERr by devaluation (with, of course,
proper deletion from
resulting one­time
P
W
linkage), (2) provide monetary accommodation for
effect
and for the positive
impact on
NX
the
together with
The inertia of 71, as noted above, works in both directions. The sharp
boost of growth from 1985­1986 to 1986­1987 (from 3.2 to 7.8cf) or its
reflection in 1987 as a whole, failed to raise 71, and this started from a
position closer to full employment than the present one. In both of the two
earlier Israeli recessions (reflected in Figure 2)j strong cyclical recovery
over one or two years hardly budged 71. Internationally as well, cyclical
)including employment) recoveries (which have proceeded more from stimuli to
demand, deliberate or "accidental," than from the market induced fall in Wr)
have had only moderate temporary effects on P. (See, inter alia, Summers
)1990) and Appendix 3 below.)
15
the subsequent multiplier adjustment of
the
stabilisation of the
ERr
policy makers
had
1
stabilization.
ER^
(3) choose between combining
shifted
indeed
n
trend (at least,
through repeated small devaluations.
clear in the course of
became
Y,
with the completion of disinflation by means of a
temporarily) and stabilizing
It
and
or accepting the existing
freeze,
second temporary
DD
early 1990,
1989 and
ade­
to
facto
that Israeli
policy
of
EKj.
g
In this section
we
shall not attempt to appraise recent estimates of the
it is large
(as in July 1990 Bank projections), to
determine qualitatively whether, and if
so, in what manner, this major new
Aliyah wave, but, assuming
development
alters the appropriate policy for the recovery of
macro­economic
equilibrium.
can approach the
We
4
below) to
the
analytical problem most simply by returning (in fig.
IS­LM paradigm
concluded that the
of Figure
1.
In our earlier discussion,
recession was, in all probability, not only the result of
the erosion of
ERj.
(shifting the current account equilibrium
the left of
),
but also of one or more shocks to
Y
we
DD
"NX
=
0"
line to
independent of this
disturbance.
The
entry of the Aliyah
context (although financing
capital imports
may
wave
much
per se has three basic effects in this
of the complementary investment wave by
alter the outcome ­ as
the existing "rules of the game," this
wave of
effective domestic
necessarily raises
i
Y_, and
we
shall see below). (1) Because of
human wave
demand (DD). (2) With a
is translated into a rising
slight lag, the surge in
the resulting rise in L/K quite possibly raises the
Signs of a further shift to a de­ facto policy of "upcreep" in the
evident in mid­1990. (See "Afterward" below.)
became more
Ls
ER
16
Y_
equilibrium level of
ER_
(3) Because of the
as well.20
"I" component of this additional expeaditure
business investment in general),
iarport­oriented
than
in
DD
we may
assume
general.
(housing, infrastructure and
that the addition to
This amounts
"compositional" change affecting the import surplus
The
ERy
at
to
(i.e. at a
itself such a compositional (or import intensity) effect
equilibrium
disproportionate
DD
is
more
a temporary
given
would also
ERj.
).
By
raise the
Y_ .
Effects of Alternative Sources of Finance: If
we
assume
that only the
increase in the import surplus induced (at the given level of
ERy) by
the
compositional factor will be financed by an increase in capital imports, then,
)abstracting froa the possibleL/K­ effects noted above), the shortfall of the
"NX =
0"
line
from
its
proper
by the
coopositional effect), which
The rise inL is
The broad effect
possibility curve) with a
position would remain unchanged.21
import surplus at
regard as the "equilibrium"
before the Aliyah wave,
TL
we
amount
would
Y
now be
What
we
larger than
of additional net ioports (i.e. the
finance by additional capital imports.
a rise in
of this
L/K
as well,
even if spread over. several
Yp
(i.e. the production
bias toward non­tradables (NT). This follows from
the higher labor intensity of NT, and implies a rise in the equilibrium level
ofPT/Pw.jr. (i.e. in ERj.) atY^ . On the other hand, the differing character of
the new L (more human capital), will probably oppose this broad or neutral
effect, since it is likely to somewhat favor tradables. The broad effect is
especially likely to predominate in the first few years. (Appendix 5 provides
a diagrammatic view of this question.)
years .
.
is to raise
Note that, even in this case, the assumed increase of foreign capital
has an effect in the capital market, as well as in the foreign currency
ararket. It provides a substitute for an increase in domestic S which would
otherwise be needed to cover this portion of the increase in "I". However,
because this increase in capital iarport just balances the increase in demand
for imports (i.e. in "T") which this I­oriented program. of increased DD is
assumed to cause , it neutralizes the need for a shift in the economy's
position on the production possibility curve (i.e. relative output of T and
HT) and, hence, in the equilibrium PT/P"T (= ERr) . With no increase in capital
import, ER would have to risej and with a greater increase (see below), to
fall.
17
Finally however,
the more optimal case in which a
must consider
we
greater increase in capital import is induced by the rise in
from
the Aliyah wave.
L/K
resulting
latter raises the marginal productivity of
The
)physical) capital in the country, and, (in the absence of capital import),
the real interest rate
saving.
as well,
the limited elasticity
due to
of domestic
this financial resource can only be used directly for net
Since
importsj i.e. for tradeables, its optimal exploitation requires some shift of
the economy's
equilibirum
resources toward non­tradables, and thus, a reduction in the
own
ERj.
at
(at least during the course of the Aliyah program).
Y
)See appendix 5, for a diagrammatic
Returning
first to
essentially unchanged,
constitutes a
DD
in Figure 4) in the direction of
The
by
ER^
at K remains
find that the surge in "I" linked to the Aliyah
"shock" which must
implications of this
clarification of this case.)
the case in which the equilibrium
we
willy­nilly push the
a useful exercise,
As
Yp
economy
wave
(the IS curve
we may
clarify the
considering three possible cases:
positive shock to IS
may
approximately equal, fall
short of,
)quite probably ­ as expected Aliyah rises) exceed the earlier negative
shocks which supplemented the shock to
the
first
IS
at the position to
case (equality) in Figure
which
it
was
In this case, the correct rise of
backto
00
Y_),
t\t\
NX
4
arising
by a
shift
from ER_ erosion.
will also suffice to shift
(i.e. the rise
DD
picture
I S3 to IS2. This leaves
from
driven by the effect of
ERj,
We
or
which
IS2 back to ISj
,
ERj.
erosion alone .
will shift
intersecting
NX =
LM
0
at
It should be kept in mind that the stimulus for this large capital
import is temporary ­ subsiding with the recovery of "normal" K/L ratios.
Furtherj the equilibrium level of external debt and, hence, capital service
payments to the rest of the world, will be permanently higher following this
period, requiring (cateris paribus) a somewhat higher equilibrium ERr at Y
than prior to the rise in capital imports.
n
Figure
'v*a0rf.*
1987
(2) IS2=
Negative
(3) IS,=
IS
(5)
IS4b=
rMzQu
or Future Potential IS intersecting
)1( ISr=
(A) IS,*= IS
shift of
shift including
shift
IS due
to
shift
ERr
due to Aliyah
due to Aliyah
ERr
Yp
NX =
(7)IS5b=
Total IS shift including (6) and
<
0
IS2­IS3
correction (return to
related I shock if
IS
ERr
Import Surplus, in equilibrium
Leftward
at
erosion and shift of
related I shock if
(6)158*=
(9)"NX=Os8­8s =
LM
(2) and supplementary shocks to I
Total IS shift incl. (4) and
(8("NX=0B7=
4
shift of equilibrium
>
IS2­IS3
induced return to
at
NX = 0B7)
NX = 0a7
Yp
import surplus in
relation to
Yp
19
.Y.^
Neither supplementary demand stimulus or restraint would be necessary
If the positive
falls short of the earlier negative
shock to IS
shocks, ISo moves to IS^a. In this event, this
of
brings
ERy
somewhat
NX
=0
toY
to the left
of
;
Y .
still
but
plus the correct rise
(IS^ )
the IS­LM intersection
leaves
In this case then,
stimulus (monetary or fiscal)
demand
shock
DD
would be
DD
some supplementary domestic
needed to and restore
full
equilibrium.
If the positive shock to
IS
exceeds
the earlier negative shocks
)shifting IS 3 to ISga), the addition of the correct
of IS to an intersection beyond
Y_
(to
IS5
ERr
rise implies
). In this case then,
restraint would be called for (to fully restore an
demand
some
IS­LM
a
shift
domestic
intersection
onYp).24
Finally,
imports
we
may
note
implies that the
)not necesarily to
Y )
that
"NX =
the more optimal case of "large"
0"
line of Figure
4
would
capital
shift to the right
without the need of a rise in ERr from
its present
)recessionary) position. This would not however, in this case, imply a
rightward shift of IS;
much
but rather, would allow (and require,
larger rise in domestic
to reachY
)
,
a
demand.
00
To simplify this analysis; we assume in Figure 4 that the LM line has
been and remains stable (i.e. M policy is purely accommodative). Figure 3 also
abstracts, as usual, from the rightward movement of all curves over time with
potential growth (including the boost to the rate of potential growth (Y \ due
to the Aliyah wave itself).
This restraint includes by definition the increase in taxation which
the government feels it must impose to finance at least part of its expected
Absorption expenditure, as well as additional monetary or fiscal steps which
might be taken as the recovery proceeds "to avoid excess demand."
most
Indeed, in this case, the required
of) the work of both the "DD" and the
Figure 4.
DD
ER
shock to IS should do all (or
shocks described in relation to
20
Figure 5: Projected Civil ®­\+B with Present ERj.('89­ '90) and
Alternative Cyclical and AHyah Assumptions
"
(A)
0
Y =
*
0
(B)
Yp, ERr = 1989­90
Y =
Ypj EHr = 89­90
level ­ in absence of Aliyah
level: Including effects of Aliyah wave ­ in effect
Y gap
(Bank of Israel memo. op. cit. "With Plan"
without closing of the
estimate).
if
(C)Y=Y
.<
|Y gap over each of
Aliyan wave (appendix 1).
)D)
(see appendix I).
wave
Y
=
■!­
Yp +
)Coabmes
&Y
B
first
two
gap over two years: then
and C. )
years ; then =Y
;
in absence of
p
= Yo;
P'
including effects of Aliyah wave.
21
Orders of Magnitude of the Cyclical and Aliyah Program Effects on the
Figure
provide us
may
5
(before
idea of the
with some
up)
summing
quantitative implications for external balance [i.e. civilian
cyclical recovery
It
M­X
(M­Xg+S)]
of
and of the Aliyah program.
suggests (in line
A)
that merely returning
Y
to the potential growth
rate (Y_), without the effects of first closing the cyclical level gap, or of
the
new
1988­89
Aliyah wave,
would have kept
(say s 3.3* of GDP).27 Line
followed by
Y ,
M­X
C
in the vicinity of its
indicates that
cyclical recovery
without the new Aliyah related effects, (i.e. closing the
gap created in 1988­89 over two years) would have raised
GDP
a
levels in
M­X
* 7*
by about 5.5* of
(to 8.1*).
Line
that,
B
suggests the effects of the
without overcoming
approximately
suggests that
Y_
(now
M­X
would
new
Aliyah wave on
the cyclical gap,
the assumption
growth goes
increased by the Aliyah wave).
forward
at
This projection
rise from recent levels to temporary peaks of =12* of
is based upon estimates in this paper (Appendix
1 below) of
with cyclical recovery and upon model exercises in
the Research Department (especially in a Bank memorandum, "Economic Policy in
a Period of Aliyah," July 1990). These exercises assumed a total wave of
700,000 immigrants over four years and investment expenditure to achieve a
)moderate) restoration of K/L ratios. They also assumed that increased capital
imports will finance the bulk of the increased investment (so that, for
example, "C" will not have to fall by more than a fraction of the rise in 1
Figure
5
the potential rise in
M­X
and G).
A statistical caution:
The figures shown (in Figure 5) for M­X +s
)2.6* of GDP in 1989) are based upon balance of payments data. For reasons
which are not entirely clear, different figures are provided for the same
concept in the National Accounts (e.g. Chapter 1 of the Bank of Israel
Report). 1989 M­X registers as 5.0* of GDP in the latter data.
For this purpose we use the "with plan" projection of the recent
exercises ­ a projection which implies a potential growth rate without
Aliyah similar to that underlying the estimates in lines A and C (~ 5*), plus
an average Aliyah effect of another 2%/year over the 1991­1995 period.
model
22
GDP
followed by a
This would be
(1992­ 1993).
decline toward recent levels
)5.^ in1995). 29
(in line
When
D)
we
years)
recovery f/% over
two
peak levels of
to 17­18* of
M­X
additional growth necessary for cyclical
add the
to the assumptions of line
increase the
B, we
(followed by a decline to no less than
GDP
119£
even by 1995).
The
)and
we
precise size of these potential rises in
shall raise
some doubts
M­X
is of course debatable
But that, in the best case,
ourselves below).
there would be a quite massive rise for both reasons cannot be doubted.
Capital Import Versus Domestic Savings:
discussion of Figure
to the
A)
We
have already
that, if additional capital imports
level which "offsets" (i.e.
held merely
were
supplies the foreign currency for) the
extra import component of the assumed Aliyah related program,
appropriate
ERr
"target" at
appropriate rise in
ERr
(in the
seen
Yp would
then our
have remained unchanged
to reach that target from the eroded
(and
ERr
the
level of
1989­90).
Capital
M
(as a substitute for domestic S) can only directly supply more
net imports. If it is allowed therefore (or, more realistically,
to finance
a
much
larger part of the total I program (presumably
optimal course, which would hold domestic r closer
levels) , then this factor must push
These
encouraged)
projections
assume
down
at its earlier ­ or world
the equilibrium
that the Aliyah
a more
wave
ERy
at
Yp
.
essentially ends in
1994.
on
A
general equilibrium diagram (see Appendix 5) makes this quite
obvious. Capital import financing must "convert" the net additional resources
needed for the I program into imports by 1"educing P,j,/PNT; thus inducing a
shift of domestic output toward NT, and a rise in net imports equal to the
additional capital transfer.
23
Unfortunately
factors (e.g.
we
greater
the higher
L/K and
optimal rise of capital imports).
the "target" ERr at
rise
in
ER
rate.
called for
a
,
by the
vs.
DD
the
in uncertainty as to
(e.g. whether the significant
recovery alone, would
now be
decline of the equilibrium
ER
at
points to an "agnostic" (or "wait and see") approach to the exchange
return to Yp).
It
larger growth in domestic
Y
offset
intensity of
are therefore left
the sake of cyclical
Policy should still
)i.e.
We
import
over the next few years
Y
completely, or only partially,
Yp). This
the net effect of these counteracting
cannot quantify
and not merely the
center upon the need for full
initially
would however now
demand (with
raised
Y
"I­ type" expenditure) would then
seek this
goal via a
real monetary growth targeted toward
of the Aliyah period).
growth of the import surplus and of
cyclical recovery
The
consistency of the
capital imports (together with the rise of
be monitored
with a readiness to
make ERj.
adjustments if the evidence points fairly clearly in that direction.
Model
Projections, Macro­Economic Targets and
Recommended
Steps
It appears possible that the projections described
somewhat
point to
above
the necessary I component of Aliyah related growth.
make
exaggerate
The
vital
here, however, is simply that quantitative estimates of detailed
elements should not distract policy from the central
macro­economic targets.
Obviously, the above remarks are couched in terms of the present
"adjustable peg" system: a floating ER would be a possible alternative (which
ideally should adjust endogenous ly to the factors described; but which, of
course, introduces its own uncertainties). It would also be possible, and even
desirable, to estimate orders of magnitude of the net effect on equilibrium
ER^. But because of the drastic size of the factors involved, these should
only supplement, rather than preempt, the "wait and see" approach.
32
See for example the analysis of U.S. recovery from the Great
Depression and wartime growth with little additional investment in L. Summers
)1990).
24
Market forces ,
not central
hence, the extent
)and,
planing will determine the size of the I
wave
1
of the; "coiapositional" effect on
M­X)
closure of the cyclical
accompany the wave of Aliyah and the
which
will
gap. At the same
time, market forces will tend to equilibrate the rise in Ij and the shares of
internal
and external
sources of finance (with the former rising,
example, "country­risk"
raises the cost of foreign capital). Policy should
concentrate on: <a) aiming domestic
toward
Y
targets corresponding to
Y
demand
and
if
necessary,
EKy
stimuli
and, simultaneously toward an external
balance consistent with "economic" capital imports;
(b)
creating a less
restrictive environment for market adjustments within these
This
if for
will allow greater flexibility to
K/Y and
macro
targets.
strengthen incentives for
financing (especially via foreign direct investment) the large rise in I which
undoubtedly will prove profitable.
A
the self­confirming tendency of official "forecasts". The
word about
practice in Israel (not only here) has often been, in effect, to disguise
national account targets as "forecasts", as if they were estimates of what
virtually
must occur
­ without clearly distinguishing, or fully identifying,
the policy and the exogenous factors
While partly the
which will
in fact
determine them.
result of National Account conventions, this procedure tends
­" As a major example of the role of policy reform in expediting these
endogenous adjustments; we should remove capital export restrictions, which
have always tended to discourage direct investment and other forms of private
capital import (partly included in the "transfers" items of B of P
accounting).
The
remarks
apply, for example,
to "National Budgets" and to
many
internal papers as well. Only the fiscal policy variables gain some
representation in the "forecasts" (as "real" components of the National
Accounts) and even these only in "ex­post" values, rather than the "ex­ante"
values (i.e. change in full employment G­T) which actually measure policy
action.
25
short­circuit proper debate
to
GDP
growth).
We
over targets themselves (especially the
rate of
should try to resist the charm of this effect for officialdom;
describe such estimates as conditional
outcomes, given the policy settings,
settings ­ monetary, fiscal and exchange rate
and include these policy
­
in
the published package.
In this spirit
of "Glasnost"
we may
again summarize the chief lines of
policy .implied by the analysis of this paper; this time, taking into account
the onset of the
new wave
of Aliyah from the Soviet Union.
the recovery of internal and external
)1) Our must urgent need is for
equilibrium, together with rapid "absorption" of the
entered an
wave. The Aliyah wave
economy
still
new
Aliyah
in the grip of
recession induced in large part
by
complementary increase
imports, the entry of
in capital
ER
erosion.
a
Without a
this
massive labor increasing factor would probably only further raise
the target
)or
FQ.
level (i.e. the equilibrium
encouraging)
capital
however,
a
massive
would
move
ERj.
atY ).
Allowing
(and probably optimal) inflow
of
the equilibrium ERr target in the
opposite direction. This suggests a pragmatic policy of cyclical
recovery led by domestic demand stimulus; with a "wait and see"
approach to devaluation.
)2) Policy. should concentrate upon
needed for the
finance
recovery of
of the Aliyah
Y .
the monetary and fiscal steps
We
should encourage external
program aiming
toward
the optimal
As noted,
the structural changes in the economy involved are so
exceptional that it seems doubtful that empirical estimates could restore the
relative clarity of the "pre­Aliyah" situation.
26
equalization of internal and external "r". Reforms (especially
full convertibility) should be considered part of this
toward
process.
)3)
If
we
wish to do so,
it is not precluded (although it is less
urgent and adds complication)
disinflation
objective
undermining
GDP
during this
a
fulfill
period ­
earlier
our
without again
This could be done by the introduction of
growth.
a "second" temporary wage­price­ER
that such
still
to
freeze. It
goes without saying
freeze (as in 1985) includes a temporary break in
wage
linkage.36
Some
"Details"
For
on Real
Devaluation,
real devaluation to
a
)temporarily),
along with,
We
and When Necessary^
effective, real
be
fall
by the
have achieved this
adjustment.
in general.
P
shock
P
index)
(itself largely
from
W
one could regard the pre­devaluation Wr as approximately
level consistent with general (i.e.
fall
in the past, and can do so again, by an
the weight of tradeables in the
If
must
"external price shock" (EPS) of the
agreed ad­hoc deletion of part of the one­time
function of
wages
but more than, private real income
Factor incomes in general must
devaluation.
If
internal
except for the income effect of ERr erosion,
and
a
linkage
at
the
external) equilibrium
then the proper deletion
(i.e.
the EPS) would be determined by the weight of the import surplus. This would
leave
Wr
or
and other
factor prices in the
same
relative position
as
before the
See Appendix 4 on the inflationary potential of ER "upcreep" without
explicit deletion of P effects from W linkage.
3' The following paragraphs expand upon the analysis in Ablin (1985).
27
the inertial
devaluation. Since however,
post
EIL
erosion of
1985
EIL
prices);
and world
deletion of the entire
was
,
W
P
centered in
and Pnt (with
V^
its
must exceed
Bj,
restrained by
general equilibrium level. While
shock (given by the weight of tradeables in income)
would be excessive (implying
that
would be reasonable to delete
Monetary Policy:
inflation which has underlain the
erosion arose only from excessive
EIL
at least
most of the
W),
it
shock (say tf or tf).38
P
growth should of course accommodate the expected
M
0
P
shock
in the case of a devaluation as described above. If a second "freeze" were
yf (e.g.
undertaken (with or without a devaluation),
greatly reduced.
For
(Ml
M3n)
should obviously be
should be expected to grow more rapidly in this case.)
cyclical recovery,
Mr (M3r)
must
clearly
)e.g., at an additional 3.5* per year for
2
be
years).
targeted in excess of
Y
This will in effect tend
to accommodate , restrain or stimulate I, as needed.
There is some uncertainty as
Whatever the
4
Y_
to what
must not
be
­ even in the short run.
5.5X of 1987 than the Z.5% of 1985­1988),
forgotten that current
during the. cyclical recovery.
like
may be
assumed (we have seen earlier why the pre­Aliyah rate was more
likely to be in the vicinity of the
it
Y
A
few
Y
can and should be higher
than
Yp
years of sustained growth at something
levels should also begin to reverse the negative feedbacks which
Yp
worked to reduce
Y
in the past and to give Israel its
long era
of near
This would, for example, imply an "immediate" W fall of about 5* (for
and a one time AP ss 7X) . Some of my previous references to
appropriate deletion of devaluation induced P shocks gave inadequate weight to
the probable upward distortion of Wn/P^. (A more detailed clarification of the
issues involved is desirable, but must be reserved for other occassions.)
a AEI^=15*
M policy
more generally. Even when ERn was held fixed
cycles" allowed) capital mobility was far from precluding counter­
cyclical M policy (Tal and Elkayam, 1989). Until our (still distant) merging
into a larger state, national counter­cyclical policy, although requiring
changing modalities, will remain an important challenge.
A
)and
"EIL
word about
28
stagnation.
can, however, leave
We
this pleasant prospect to the test of
the future.
Afterward:
Our
discussion should not close without noting a degree of recent
convergence of actual
policy (especially during 1990) with the
recommendations given above.
stabilizing
ERj.
From merely
halting the long erosion trend
(following a partial correction at the
shifted toward a gradual "upcreep" of the
start
rise
a 4
Bank and
and
of 1989), policy
rise
ERr. This achieved a cumulative
of about S.5% over the 1988 level as of June­August1990. 41
published by the
"Pre­Aliyah"
then
The program
the Treasury in September proposed to add to this
percentage point cut in Employer's National Insurance taxation. For
trade, such
a
step approaches
a
similar rise in theERj, .
Operating in the
opposite direction (by perhaps the equivalent of a one percent cut in
ERj. )
the
Treasury reduced the "export insurance" premium for export earnings.
These steps together
ERj.
would imply a moderate
levels of 1988­89 ­ as
we
rise
from
the "recession"
enter the era of the Aliyah inspired surge in
investment and other domestic demand. In contrast to past tendencies,
should be willing to raise
i^f
the
ER_
further, rather than
choke
off
demand growth,
rise of the import surplus with cyclical recovery clearly
reasonable limits for capital
we
exceeds any
import. But, as noted, whether this will occur
is quite uncertain.
" Such feedbacks are recognized in the literature on "hysteresis"
)Summers, 1990). See also partial measurements for Israel in the. 1970s (Ablin,
1979).
.
:
*
A serious
drawback in this tactic has been that it has ignored
explicit deletion of "P shock" effects from W linkage. Experience suggests
that we still need such explicit deletion, especially when we move (as we
should) out of the position of cyclical recession. (See Appendix 4.)
kZ As
of this writing however, this step has not been implemented.
■
29
By
visible.
late
M3r
1990
a further convergence,
this time in monetary growth became
its flat trend
broke out of
during 1988 and 1989 and headed
towards a rise of 5. 5­6. 096 during 1990. This change apparently represented
shift toward accommodation of
Y
,
but should clearly be carried to a somewhat
higher rate to support the closure of the
Purs\1ing
GDP
gap as well.
policy of "orthodox" disinflation against our post
a
residual inflation,
1987)
until
mid­1990.
effect waited for an unexpected accident ­ the great Aliyah
episode should
do
this
now be
1985
failed to conduct a counter­cyclical policy from the
we
start of the current recession (in late
U.S.S.R. ­to
a
work
for us
(that is, to force us to
We
have, in
wave from
do
it).
the
This
put definitively behind us. The problem of our remaining
relative inflation can
be handled,
either
now
or later,
without returning to
this excessively costly treatment.
This is reminiscent of the failure of the U.S. government to achieve
true recovery from the Great Depression, until forced to do so by the need for
rearmament in 19<+0­^l. The difference however in macroeconomic knowledge and
experience is obvious.
30
Appendix
X GDP,
1
National Budget Forecast and Actual 1986­1989
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
­ National Budget
Forecast
0
­0.5
1987
1986
1988
above diagram demonstrates
The
1989
that as late as January 1988,
year into the growth recession), there was no
recession in 1988.
The
1990
official expectation of
(i.e.
j
a growth
recession appears in the forecasts only in 1989; \\
years after its actual onset.
in this error lies in the forecast of export growth
The major element
)g+s). This
is clarified in the following numbers:
Implied ifYandM
=
(ER . =
Mg+S2( imports)
3.9
­­­2.9
Ag+s
Forecast | Impliedif
actual levels)
Y =
­ 5.4
­­2.9
GDP
Difference in
as *GDP
­1.9*
NX(x­M)
are based on the conservative assumption that the short
1.0, and that there is no SR elasticity of X with
For computations
reflecting such cyclical non­price
These estimates
run
Y
elasticity ofM
respect
to
Y.
­2.6
+s =
elasticities; see below.
Excluding direct defense imports.
!i.2%1
31
The
calculations above
decline of
at
NX
at least2­2.
by
Y
the recession (i.e. via a rise in
actualized
that in
show
this rise in
the
erosion of ERr generated a
5* of GDP. Thus, avoidance or
without correction of the
DD)
deficit
NX
1988 the
at
Y
This
.
situation
EB
reversal of
would have
was not altered
fundamentally during 1989.
A
ERy
set of rough estimates
which take account
of the elasticity effects of
(current and previous yea::), and of the greater than unity
changes
elasticity of Imports with respect to
it deviates
when
Y
from
Y
ST
(i.e.
the
cyclical non­ price effect) gives something like the picture presented in table
1
If
(1)
below :J
Y
in
stable at the (slightly
roughly unchanged from
the
same
would
fall
by say,
additional rise in
(­­7*) M­X may
EB^
rise
improved) 1989
its
low
7*, and
Y
Y
J
and ERr
average rate, then
billion
at 88p). If, with
ERj.
erosion trend were allowed, average
(*A
of
NIS
could rise by over 2.0* of
sufficient to close the
A
GDP,
(if
ERj.
Y
gap created
were
GDP.
in
M­X
ER"
(3) With an
1988 and
held stable) and by
1989
8X,
if
latter figures
far above) its 1987­1988 level.
preliminary check, as well as economic logic, suggests that, if they
include the
similar
far below (i.e.
should remain
M­X
erosion were allowed to continue. Note that either of these
imply 'NX'
is held
level
M­X
by over 5X
(assume *
5%
1989
of the
resumption
Y,
to
moves up
1990
vital
ERr
effect, other estimates
would provide a
qualitatively
picture.
These are broadly based on elasticities suggested by the literature on
1979; Lavi and Beenstock, 1990), with some "assumed"
corrections for changes in Y growth rate trends. (See table 1, note 2 below.)
this subject (e.g. Ablin,
32
Table 1: Conditional Estimates; 1987­1990
)All figures in 1988 prices ­ Billion NIS)
(1)
(2a)
(2b)
1987
1988
Actual
1988
(88p)
If
1
Y=5^x
(3)
(4a)
(4b)
(4c)
(4d)
1989
Forecast
1990
1990
1990
Y=12^2
1990
ER=0
ER­­­7£
ER
30.0
M
h
24.6
(7.8)
24.2
With
actual
31
r5
31.9
)4.5)
(5.9)
27.2
26.0
26.5
(3.0)
(­2.0)
5.9
8.1
9.8
24.6
25.8
5.9
7.6
4.4
2.9
­1.5
0.5
ERr
(of
(6.6)
(3.3)
1987 and 1988),
(5.8)
(0.9)
.3
­0.1
(­0.2)
plus continued
Y
34.6
(15.0)
1.6
3.7
(2.3)
(5.6)
at SS in
growth
1988.
These columns compute the effect of the closing of the Y gap as if it occurred in
one year (1990). This is only for computational simplicity. The factors taken into
account in this exercise(ER Y and Y gap) would yield a similar AM­X for a slower
cyclical recovery. The implicit
?licit equations are:
are:MM. = 5,0 + 1.5(Y­5.0) ­ 0.2ER". ­
,
,
O^ERp.j
X +g =
5.0 ­ 0.4(Y­5.0)
9
+ 0.7ERT
­ CSER­j,.!
Excluding direct defense imports (i.e. civil imports g+s, as shown in the National
Accounts).
Appendix 2: Wr and the Aliyah Wave
It is not difficult to gain
)assumed to
a
total 700,000 in the
significant absolute fall in
While
this
determinants
would be
(K,
some
Bank
Wr
the obvious
to
idea of whether the wave of Aliyah
of Israel July exercises) would require
maintain full employment equilibrium.
result of a
K
jump in
L ,
total factor productivity) constant; there
fair chance that the cyclical recovery effect
rise of
Y=12^2
(0.2)
(­2.4)
(0.7)
=0
30.1
(­1.9)
&M­X
CSS GDP)
I.e.
32.2
(0.0)
5.4
M­X
J
30.0
Y=5*
ER=­7
on "TFP" and
with all other
appears to be a
a (accelerated)
over the time period of the wave, will avoid this.additional strain.
35.1
(16.4)
25.2
5.5
(8.1)
33
perform a
We
exercise here assuming a "neutral" rise in
simple
compare the outcome
with that implied (for
Wr)
by the
Bank
L .
and
of Israel July
projections.
Suppose the
additional entry to the labor force occurs in four years
)1991­1994). at an annual
to
~ 5tf
total
average of 4* of the Labor Force (raising
aLS
per year) and that this labor requires a one year lag to be absorbed
into employment.
We
.
AL
&K
A
obtain the following:
1991­1995 (­­ 5%/yr)
1991­1995 (­­ 3%/yr)
=
=
IFfect
22.7*
15.9*
Total Factor Productivity (TFP)
(­­2. 5%/yr)
=
13.0*
Multiplicative Total = 37.1*
Implied rise in Y/L (average labor productivity)
It will
the reader that
be evident to
=
137/123
We
L
and
K
TFP. The
latter in fact rose
utilization
five years
simple exercise with
July projections,
we
find,
shown
elasticity of
in both
K
and
Y
(2)
in
in 1990 by about 3*.
is also higher,
the implied result
despite differences
later are consistent in broad
outcome
Specifically they imply a rise in
Y
1
a simple
given a
upswing and the rise in human capital.)
Comparing this
Israel
assumptions about the rise
by 2.8*/year in 1986­87 and
probable rise over the
)The
+11*
corresponding to their shares in factor income).
used very conservative
have
=
applied
Cobb­Douglas production function approach (implying a marginal
with respect to
Y
13.0*
have here (1)
we
on
(x.67) = 15.2£
(x.33) ­ 5.2*
and even
of the Bank of
in detail,
slightly
more
(Business Sector) of about 50*
q
that the
favorable.
(to 1995),
realistic case of a rise in L possessing more human capital,
will only ten!
tend to raise average productivity and equilibirum Wr, relative to a
neutral
The more
rise.
34
based upon somewhat larger percentage rises in
rise in
This yields a
Y/L of about 21*, and,
rise (in these projections, a fall in
implicit rise in
The
Wr
L
(27*),
K
(30*) and TFP (£183).
after absorbing
an assumed "ERr"
/exports) of 7*, this leaves an
W
/L of about 13*.
important result is
that, although the faster
rise of
rise in average labor productivity which might otherwise take place,
would remain to allow both a negative adjustment of
that proves necessary (as
net rise in
Wr
we
this is uncertain), plus
have seen,
enough
with a rise in
W
the
slows
L
EIL.
,
if
moderate
a
over the period as a whole.
should note however a few qualifications: (1) There is the possibility
We
of a moderate "squeeze" during the first half of the five year period, due to
the earlier bunching of the rise in L,
in
However, the surge
L
and inevitable
lags in that of
K.
implies an end, and at least partial reversal, of a
large previous slump in capital utilization (due to the 1988­1989 recession).
This provides a
sharp stimulus
"absorption"
of both additional
elasticity of
L
than the
LR
during this period.
to
TFP
K
and L
might imply a
a lower
would not
above
even in the
offset the probable surge in
recovery level of
realistic
elasticity
L
Y
may
LR.
by the
Fortunately,
SR
above
not be Cobb­Douglas and
TFP, (even
during this period). (3)
source of concern, if
significantly lower
elasticity implied
(Cobb­Douglas)
approach; or the relevant production function
imply
(2) Lags in the
may
this difference
less so, with a true
Finally, and probably our most
the total number of immigrants rises greatly
the figures assumed above, there
is greater chance of encountering
Note that statistical L" elasticities in general (e.g. Beenstock, 1990)
suggest figures lower than the implicit Cobb­Douglas elasticity of ­3 (But
figures in the vicinity of ­1, which tend to occur in these studies,
necessarily reflect short run frictions, since they would imply a marginal
product of labor of zero).
=5
35
external capital import "constraints." This
K/L
and provide a
separate burden to
PDY,
would
both delay the recovery of
insofar as it necessitates
more
financing by taxation.
These
qualifications notwithstanding,
the exercises
shown
here should
help to guard against a widespread but unsoundly based pessimism.
Appendix
The monetary growth
represented
*
by Mlr
3
­ Data Underlying Figure
rates for the recessions of
2
1952­53
during the year (December­December). 1 E.g.
during the year (1966) following the pre­recession
the
Mr
GDP
then known). The next
Mr
(e.g. 1967)
shows the
For 1988­90 however,
M3r
ER
"1966" shows
level (the last
M
policy during
GDP.
is
shown, to avoid
December­December
changes due to
on a Year­Year average basis
significantly distorting fluctuations in the
GDP
reaction in
the year following publication of the first recession year
the
and 1966­67 are
speculative cycles in this period. (The December­December figures
essentially the
same
show
story ­ especially if smoothed.)
A "wide"
monetary aggregate such as M3 is not readily available (and
of less significance in comparison to Ml) for the earlier recessions.
36
Monetary Responsein Thre e Recessions (Yr
GDPr)
=
Mir
M1r
1952
First year of recession
M3_
1966
1988
­24.0
1.5
­3.0
­2.0
2.1
3.0
­12. V
Second year of
recession
1953
1967
1989
5.3
­3.8
­0.7
26.1
1.3
­2.0
2TT01
Third year of recession
1954
1968
1990
or recovery
16.3
a December­December
b
As
.U7
(not smoothed)
=
11.5
12.1
(­5.2),
1988
3.4
(1st h)
(4.9).
1989
Klinov and Halevi, (Y. Weiss), 1968; Figures adjusted for suppressed
Appendix 4: ERrUpcreep , Non­Deletion and
We
have noted, in the
proposed
employer national insurance taxation
Of
ERy.
somewhat
"upcreep")
inflation
,
more
not implemented)
than relative
escalation
­
by
the reduction of
VAT
contains no inflationary potential,
Israeli
while directly raising
these,
­ with revenue offsets through higher
although subject to certain other qualifications .
by
Inflation Risk
final section of the text, several recent actual or
steps relevant to the de­facto
)proposed, but still
!‫ז‬.
ERj. ,
WPI
The
policy of raising
EJ^
(i.e.
ERy
inflation
however,
has run an unnecessary
risk of
neglecting the step of explicit deletion of
P
To obtain the implicit rise *n Pj/^NT with this measure requires
negative flexibility of PNT (whereas an equal rise in ERlf directly raises PT ).
This measure also differs from a rise in ER in providing no direct stimulus to
capital imports (i.e. via a rise in the real NIS value and hence the
purchasing power of foreign, capital over domestic assets).
37
.shocks from
W
linkage
'
Summary
­ "Revealed" Actual Real
Exchange Rate Policy
* Change
ERj^
)WPI
average
1985
1986 average
1987
1988
1988
average
­
IV.
average
1989 average
1990 1st five months
1990 June­August
"if
'
index)
from 1985
108.8
100.9
97.2
85.3
87.7
89.4
­6.6
­10.0
­21.0
­18.8
­17.2
92.9
­14.0
90.3­16.
A
Inflation (n) Escalation Potential8
)1) "Extra" Eofn (i.e.E*Rn­ rel. WPI)
)1988 to June­August 1990)
)2) "One Time" AP shock~
)3) Net AER (before "Echo")
(4) External Price Shock (EPS) relevant to
( o/o )
~ 8.5
­­
2.8b
5.5
*
1.9
W
)assume 2/3rds of (2))
)5) An/ Period (Period=half year)
"Period" = 1.0 half x EPS
"lag"
0.67 half
)6) *An at annual ratea­
2.8
­­
5.7
Footnotes to above calculations:
a
For formula used in
this estimation, see Ablin,
The accumulated P shock of this gradual "extra"
)1)) is here assumed to be one third. From the
1985.
devaluation (shown in
data, this appears to
have been closer to the actual event in this period than the earlier
normal relation of about one half (related to weight of tradables).
This appears to reflect the repressive effect of recession and rising
U.
38
Thus, the accumulated upcreep of
deletion from
W
ERj.
linkage ­ created a potential
earlier portion of this
(up to
early
to August 1990) ­ without
(1988
n
escalation of about
1990) may have been
5.73£.
EPS
The
partly (or largely)
suppressed by the pressure of recession but most of the P shock is
concentrated in
to offset the
quarters of
arid ­ 1990, and the
decline in the
effect although still
n which became
WPI
1990 (from about 16­17*
Appendix 5: The
LS
not clear, threatens
apparent in the first three
to about 12£).
Surge and Potential
T
and NT1
­A­
­B­­
/
Diagrams
A
and
B
clarify several possible impacts
of the Aliyah related surge
J
in
I3 per se (i.e.
See Dornbusch (1974). Ablin (1989).
upon
ERj.
equilibri unr
excluding the effects of
39
capital import.*
illustrate
They
to determine effective
combine
Diagram
A
)with physical
policies determining both
how
GDP
and ERr
DD
demand (Yd).
pictures the (unrealistic) simple case in which the rise of
lagging behind) raises the potential output of
K
L
"T" and "NT"
proportionately. But it gains in relevance because it also reflects the
situation in which, despite the lag of physical
"human
KV
in the
new
particular case in
homogenous
,
L/K
which
rise,
favors T. It
L ,
K,
interpreted as showing the
may be
this effect just offsets the normal effebt
which favors
service component). Since at the
(largely
NT
pictures the
favor output of
PPCg.
NT,
more normal case
expanding the production
In this case, equilibrium requires
inEPj. )
and
,
negative inflexibility in
further
ER^
a
movement
*n PT^PNT = ERr)
AL .
in which the
1?
possibility curve
fall in
to
PNT
surge tends to
from
,relative to
PPC^
Pm
to
(a rise
pointAto B (the tangency of PPC2
creates several possibilities for trouble if there is
full equilibrium shifts
with P­0 line 2­2). This
the latter 's higher
due to
this position simply requires a proportionate rise in
B
of a
equilibrium (B), no change in the slope
new
of the P­0 (price­outlay) line is needed (i­e.
Diagram
the larger endowment of
PNT
and
from
unwillingness to raise P^ by means of
adjustment:
)1) Suppose the
expansion of aggregate domestic demand (i.e.
Price­Outlay line)
is held to equality with that of
tangency with PPC, ). In the extreme case
flexibility) this shifts
Not all effects
" compos it ional "
us
to
PO
3­3;
(i.e.
no
tangent to
Y_
(i.e. to
negative
PPC2
the
at
P^m
C.
C
discussed in this paper are illustrated (e.g. the
effect on import demand which would here imply a
change in the shape of the community indifference currves). The effect of a
large increase in capital imports is considered below (Diagram C).
temporary
;
40
is only the position of "preferred" output;
however
of equilibrium in demand is then at
of output, initially
importsof
)2)
gap); it
(i.e.
E
a
result is a constraint
recession gap),
new
and net
T = DE.
get output up to the
To
Y
to
The
D.
the position
new PPC
curve (and avoid a
raise domestic
would be necessary to
new
or enlarged
demand to
PO
4­4
1
)i.e. by more than the rise in
at
which
level of
for
T
(at
goods
(on
C
PPC 2) . The
F) would then have
still
greater
to be satisfied
a still larger rise in imports (to FC).
by
The
)with
preferred output is at
demand
to the "high­half equilibrium"
Y )
appropriate policy in this case would be to ease the shift to
its full equilibrium
tangency at
T
B) by a
rise in
EIL
PO
(and hence in
2­2
PT )
­c­
,r1
'c
‫­יי­י‬
.
r
­
­
T,
­
w
V
;
1
i
Nc
ER_
N,
PPC
NT
This refers of course to a rise effectively translated into a rise in
of appropriate deletion of P shock effects from W linkage.
by means
41
­ along with the
YL
The
an accommodative
rise in K
and hence
in
DD
to the
C~
rise in
as in (1) above).
Effect of Large CapitalImport
Diagram
:
potential large capital import, attracted
consequent increase (in the absence
introduces the effect of the
C
the rise
by
of
and the
L/K
of rising capital imports) in both the
marginal productivity of physical capital and the domestic real interest rate.
qualitative effect is straightforward:
The
which would otherwise
spent directly on
T. But
to simply
original equilibrium point
P
fall.
curve.)
equilibrium
new
M
­
P2
same
level of
NT
AB
of
through
much
T
relative price
and
T
to the
T­NT
can only be
combination at the
consistent with equilibrium
B
would
not be tangent to an
in demand, its
(PT/PN^
in production,
=ERj. )
we
(A P­
relative price must
which would yield
require
a
price line
tangent to an indifference curve; whose parallel price
line, excluding the capital
P2
this
in both demand
including the Capital
at the
Pq­Pq
To add
find the
To
add
This, by nature,
= AB.
(A); would not be
line wit the slope of
indifference
ER
prevail.
(rise in) capital import
Suppose a
lowering of the equilibrium
a
M,
is tangent to the production possibility curve
(for which production and consumption must
be
equal).
represents this line.
With
this relative
This result
was
P
(ERr), some domestic production
first
clarified
in the
debate
shifts to
over the
NT
(thus
classical
and has become well known in post war literature in
connection with such phenomena as the "Dutch disease," the OPEC revenue boom
and even the earlier (1950­1960) phase of Israeli development.
"transfer" problem
Note
that
^^2 is slightly
steeper (i.e.
has a higher Pf/P^T ratio),
"B" (but would leave
than a line (PjP­jy which would equilibriate demand at
desired production of NT in excess of demand).
42
allowing the capital
consume
at
There
D;
M
importing
to indirectly "buy"
CD
is, of course,
Diagram, G would
here)
As
NT).
We
produce at.
of
T (=
no
a­priori; assurance that the capital
G
and
AB).
fully offset the opposite effect of Diagram
plus the needed rise in ERr from
diagrams.)
to
some
B;
we
effect of
or the latter,
its recession equilibrium (not
noted in the text, this poses problems (which
M
shown in
do
the
not tackle
for econometric research, but, from a practical standpoint, strong
arguments for a
flexible approach to the real exchange rate.
43
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‫סדרות מאמרים לדיון‬
1987
M.
Bar­Nathan, J. Baruh, ­
Determinants of the Tariff
Structure
of
87.01
the Israeli Industrial Sector 1965­1977.
R.
Melnick, ­ Inflationary Expectation Formation in Israel:
A
Specification Test.
L. (Rubin) Meridor, Trying
Deficits
:The
.‫חוב חיצוני מול אינפלציה‬
M.
87.02
Bruno, S. Piterman
to
Cope With Large Government
87.03
Israeli Experience.
:‫הממשלה‬
‫ ­ מימון גירעון‬,‫)רובין( מרידור‬
­ Israel's Stabilization, a Two­year
.‫ל‬
Review.
87.04
87.05
­ 46 ­
1988
R. Ablin
­
Logic of "Ricardian Equivalence" and the
Deficit­Inflation
Debate.
88.01
The
­ ,‫ לויתן‬.‫ע‬
.‫הגורמים המשפיעים על הרכב תקציב הממשלה‬
.‫ ­ מדדים לרווחיות היצוא‬,‫פסח‬
‫הערך‬
‫ובחינת יעילות שוק ניירות‬
‫פרסום מדד המחירים לצרכן‬
.‫ש‬
­ ,‫ יריב‬.‫ד‬
88.02
88.03
88.04
.‫בישראל‬
A,
Cukierman. Meir , Sokoler■ ­ Monetary Policy and Institutions
88.05
in Israel ­ Past, Present and Future.
‫העבודה על‬
Y.
‫כוח‬
Artstein,
‫של‬
88.07
Fiscal And Monetary Dynamics Of
Israeli Inflation: A Co integrated Analysis 1970­1987
88.08
Beenstock,
R. Melnick,
88.06
Policy Durimg Disinflation:
Israeli Stabilization Program of 1985
Z. Sussman, ­ Wage
The
M.
‫ ­ השפעת שינויים במבנה הותק‬,‫ קלינוב‬.‫ ר‬,‫ אמיר‬.‫ש‬
.‫ גישת הקבועים וה­זמניים‬:1972­1983 ,‫השכר‬
Ben­Gad ­ The
M.
­ The Demand for Liquid Assets in Israel,
1970 ­ 1985
M.
Beenstock, Mishel Kahanaman ­ The Trade Balance Ratio and the
Real Exchange Rate in Israel 1955 ­ 1986
A.
Offenbacher,
M.
Beenstock, ­
­ Short­Run Monetary Control in Israel
A
Cycle
Democratic Model of the 11Rent­Sought" Benefit
88.09
88.10
88.11
88.12
­ 47 ­
1989
‫הריבית הריאלית והנומינלית על החוב הפנימי‬
­
,‫פיטרמן‬
,‫ס‬
,‫אורבך‬
.‫צ‬
89.01
.‫והחצוני‬
M.
Beenstock,
­
The Factorial
Distribution
of Income in the
89.02
Union Bargaining Model
R.
Ablin, ­ Erosion of the Real Exchange Rate; Demand and
Growth
A.
Bregman,
M.
A
89.03
Diagrammatic Clarification
Fuss, and
Israeli
89.04
‫ ­ סקר החברות‬,‫ פישר‬.‫ י‬,‫ גבע‬.7
89.05
Haim Regev ­
High­Tech Firms in
Industry.
,‫בנק ישראל ­ בחינה מחודשת‬
R.
1983
‫של‬
Melnick, ­ Forecasting Short Run
An Evaluation
,‫המשק‬
Inflation in Israel
1983­1987
‫ ­ נטל הריבית על האשראי הבנקאי לזמן קצר בענפי‬,‫ בן­רוה‬.‫י‬
89.06
89.07
.1988 ‫עד‬
,‫קטור העסקי‬0‫ה‬
A. Bregman,
‫משק של‬
‫בענפי‬
‫על ההשקעה‬
‫ ­ השפעת שערי הריבית‬,‫ לביא‬.‫י‬
.1987 ­ 1962 ­ ‫במשק הישראלי‬
89.08
.‫ ­ הרפורמה בשוק ההון ­ יעדים ותוצאות ראשונות‬,‫ בן­בסט‬.‫א‬
89.09
­ Technological Progress, Structural Change, and
Productivity in Industry: The Case of Israel.
89.10
.‫ ­ מדדים למחירי מוצרים סחירים ובלתי סחירים‬,‫ בן­בסת‬.‫ע‬
Leora (Rubin) Meridor and Shula Pessach, ­ The Balance­of ­Payments
Offset to Monetary Policy: An Examination of The
Israeli
Case.
89.11
89.12
­
4S
­
1990
Leora (Rubin) Meridor, ­
from Stabilization
to Sustainable
Michael Bruno
£
The Costly
Transition
Growth: Israel's
90.01
Case.
­ Monetary Aggregates and the
Balance of Payments: Israel, 1970­1988
David Elkayam and Yitzhak Tal,
90.02
Richard Ablin ­ High Interest Rates, Spreads and Margins in Israel ­
90.03
An
Analytical Review
Shula Pessach and Assaf Razin, ­ Targeting the Exchange Rate:
An
90.04
Empirical Investigation
Avi Ben­Bassat and Daniel
Gottlieb ­ Optimal International Reserves 90.05
and Sovereign Risk
Avraham Ben­Bassant and Daniel Gottlieb
­
A
Note on the Effect of
90.06
Opportunity Cost on International Reserve Holdings
‫ ההתפתחות הכלכלית‬,‫ "קשרי גומלין בין התפתחות הרכב הגילים‬,‫מלכה ברון‬
"‫ושיעורי הנישואין והילודה בשני העשורים האחרונים‬
‫עם‬
‫ במודל מסורתי ובמודל‬,‫ "השפעת הריבית על הצריכה הפרטית‬,‫יעקב לביא‬
"1988­1962 ,‫צפיות רציונאליות; מימצאים אמפיריים‬
‫"הגורמים המשפיעים על משך האבטלה של פרטים הזכאים לדמי‬
,‫סיגל ריבון‬
"‫אבטלה‬
90.07
90.08
90.09
­ 49 ­
1991
Rafi Melnick and Yehudit Golan ­ Measurement of Business
Fluctuations in Israel.
‫ כוחות שוק‬:‫שכר בישראל‬
‫עליות‬
‫של‬
‫ ­ "דינאמיקה‬, inoir .y , vototim.
"‫והשוואות בינענפיות‬
91.01
>
Meir Sokoler ­ Seigniorage and Real Rates of Return in a Banking
91.0;!
91.03
Economy
Edward K. Offenbacher
­
Tax Smoothing and
Tests of Ricardian
91.04
Equivalence: Israel 1961­1988
‫בריה"מ‬
‫עולי‬
‫ ­ "קליטה בתעסוקה‬,‫ )קלינר( קסיר‬.‫ נ‬,‫ פלוג‬.‫ ק‬,‫ עופר‬.‫ג‬
."‫ והחלפת משלחי יד‬.‫ היבטים של שמירר‬:‫ והלאה‬1990 ‫בשנת‬
‫של‬
‫ ­ "פערים ביו בכירים וזוטרימ ומשברים במערכת‬,‫ זכאי‬.‫ד‬
."1990 ‫ עד‬1974 ‫שכר הרופאים בשנים‬
,‫ זוטמן‬.‫צ‬
:‫ציבורית‬
91.05
91.06
Michael Beenstock, Yaakov Lavi and Sigal Ribon ­ The Supply and
Demand for Exports in Israel.
91.07
Richard Ablin ­ The Current Recession and Steps Required for
91.08
Sustained Recovery and Growth.