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[answered] Macroeconomic Indicators for the Dominican Republic During


Calculate the following for CANADA

1. Real GDP growth rate for the past 5-10 years.

2. Inflation rates (CPI) and unemployment rates for the same period.

3. The budget deficit (also called fiscal deficit, public-sector balance, cash deficit). This should be expressed as a percentage of GDP.

4. The public-sector debt. This should also be expressed as a percentage of GDP.

Plot these figures and compare the relationships with the ones given in the textbook and our lectures. Specifically:

a. Indicate potential GDP growth* for your country and plot a "diagnostic" business cycle, identifying inflationary and recessionary gaps.

b. Are the relationships shown in your graphs the ones you would have expected to find? Look for evidence of the Phillips curve, Okun?s law, and the predicted relationships between the business cycle and deficits/debts.

c. Does it appear that authorities are using expansive or restrictive fiscal policies? Are those policies appropriate for the gaps you identify in the economy?

d. Is this country?s debt a problem?? Why or why not?

e. Can you find explanations for any deviations that you observe from the normal relationships discussed in class?

Your report should be turned in in Power Point format, with graphs of the evolutions of all the variables and answering all questions stated above.

See example for the DR case, so you get an idea of what you have to submit.

*The key to this report is knowing the GDP gap in order to truly evaluate and "diagnose" an economy.? This data can be obtained from sources such as the OECD, which calculates potential GDP and the output gap each year for all of its member nations (mainly developed countries); and from the IMF, which includes estimates of the output gap (Output gap in percent of potential GDP).



Attached is an example of what i need.




Macroeconomic Indicators for

 

the Dominican Republic ? During the past two years the Dominican economy has been growing above its potential.

 

Dominican Republic: Real GDP vs. Potential GDP

 

Annual Variation % 12.0 Real GDP Potential GDP 10.0 Inflationary

 

Gap 8.0 6.0 5.0

 

4.0 2.0 Recessionary

 

Gap 2005 2006 2007 -2.0 -4.0 Source: Central Bank of the Dominican Republic 2008 2009 2010 2011 2012 2013 2014 2015 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 0.0 ? Okun?s Law holds true for the Dominican Republic, i.e. there is a negative relationship

 

between inflation and unemployment.

 

Dominican Republic: Okun's Law

 

Unemployment vs. Real GDP, October 2000-2015

 

10.0 8.0 % change in Real GDP 6.0 4.0 2.0 0.0

 

-1.5 -1.0 -0.5 0.0 -2.0

 

Source: Central Bank of the Dominican Republic Change in Unemployment Rate 0.5 1.0 1.5 ? Plotting inflation and unemployment rates for the years 2014-2015 would lead us to believe

 

that Phillips Curve applies, in the short-run, i.e. there is a negative relationship between

 

inflation and unemployment.

 

Dominican Republic: Short-Run Phillips Curve

 

Unemployment vs. Inflation, 2014-2015 2.50

 

2015 Inflation Rate (% per year) 2.00 2014

 

1.50 1.00 0.50 5.9 5.9 5.9 5.9 5.9

 

Unemployment Rate (%) Source: Central Bank of the Dominican Republic 6.0 6.0 6.0 6.0 ? Considering a longer period we do not see this relationship. ? However, it is evident that growth can be achieved with low levels of inflation.

 

Dominican Republic: Long-Run Phillips Curve

 

Unemployment vs. Inflation, 2005-2015 10.00 2007 9.00 2011 8.00 2005 Inflation Rate (% per year) 7.00 Central Bank

 

begins inflation

 

targeting 2010

 

2009 6.00

 

2006

 

5.00 2008

 

2012

 

2013 4.00 3.00 2015 2.00

 

2014 1.00 - 1.0 2.0 3.0 4.0

 

Unemployment Rate (%) Source: Central Bank of the Dominican Republic 5.0 6.0 7.0 8.0 ? There is an upward trend in Government debt, which could become unsustainable if one

 

considers that on average debt service amounts to about 40.0% of total exports. ? IMF suggests fiscal consolidation, reduction of dependence on foreign currency loans,

 

development of the domestic bond market, and a unified debt management between fiscal

 

and monetary authorities.

 

Dominican Republic:

 

Central Government Debt

 

Millions of

 

US$ 37.9 32.2

 

23,204

 

27.5 27.6 37.2 Dominican Republic:

 

Central Government Debt Service

 

% of Total Exports 23,809 24,155 47.7

 

45.1 28.5

 

40.1 23.3

 

21.7 16,593

 

14,818 19.5 46.5 42.5 19,463

 

22.0 58.1 36.0 35.1 34.3

 

31.5

 

28.1 13,254 26.2 11,219 7,787 8,377 8,569 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

 

Source: Central Bank of the Dominican Republic and the Public Credit General Office 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 IMF Article IV Consultation

 

? IMF staff visited the country to conduct the Article IV consultation, the annual visit

 

to discuss and obtain information about economic performance, current policies,

 

and future prospects. ? The mission projected that in the absence of new fiscal policy measures the

 

consolidated public sector deficit, including the electricity sector and the Central

 

Bank, would reach 5.0% of GDP in the medium term. Thus consolidated public

 

debt would be less than 50.0% of GDP by 2015 and close to 54.0% of GDP by

 

2020. ? They suggested the government should speed up the fiscal consolidation process

 

so as to achieve a positive primary balance of the consolidated public sector that

 

would reverse the upward trend in debt. ? Moreover, the risk profile of the public debt would benefit from a reduction of its

 

dependence on foreign currency loans, which require further development of the

 

domestic bond market and a unified management between fiscal and monetary

 

authorities as to the term structure of emissions and the management of public

 

debt. Dominican Republic: Real GDP and Government Policies

 

Annual Variation %

 

Restrictive fiscal policy:

 

Fiscal Reform

 

Law 557-05:

 

Increased income tax rate

 

to 30.0%, broadened VAT

 

tax base, created excise

 

tax of 13.0% on fuels, etc. 9.4 Restrictive fiscal

 

policy:

 

Fiscal Rectification

 

Law 496-06:

 

New excise tax on

 

cigarettes and

 

alcohol, increased

 

excise tax on fuel to

 

16.0%, etc. 9.2 7.4 Restrictive fiscal policy:

 

Tax Reform

 

Law 139-11:

 

Increased corporate

 

income tax to 29.0%,

 

imposed new taxes on

 

gambling and casinos,

 

created a 1.0% tax on

 

banks? net assets. Expansionary fiscal policy

 

due to global economic

 

crisis: Increased

 

government spending and

 

reduced consumer tax

 

burden. 8.3 Restrictive fiscal policy:

 

Gradual implementation

 

of the 2012 Tax Reform.

 

Expansionary fiscal policy:

 

Increased capital

 

expenditure and

 

expenditure on social

 

programs, especially on

 

education. Restrictive fiscal policy:

 

Tax Reform

 

Law 253-12:

 

Reduced tax expenditure,

 

increased VAT rate to

 

18.0%, broadened VAT tax

 

base, increased tax on

 

cigarettes and alcohol,

 

modified income tax

 

application, created 3.5%

 

sales tax on free trade

 

zones, etc. 7.3 7.0 4.8 3.1 2.8 2.6 0.9 2005 2006 2007 Source: Central Bank of the Dominican Republic 2008 2009 2010 2011 2012 2013 2014 2015 ? You would expect that during an inflationary gap, when the government applies a restrictive

 

policy, the deficit and debt will decrease. Likewise, when the government implements an

 

expansionary policy during a recession the opposite should occur. ? Although that seems to be the case in some years, it is not in all of them.

 

Dominican Republic:

 

Central Government Balance, % of GDP Dominican Republic:

 

Real GDP vs. Potential GDP, Annual Variation % 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0.2 0.1

 

9.4 9.2 -0.6

 

8.3

 

7.4 7.3 3.1 2.8 -1.0

 

-2.4 -3.3 7.0 2006 2007 2008 2009 Real GDP 2010 2011 -2.8 Dominican Republic:

 

Central Government Debt, % of GDP 2.6 2012 -3.4 -3.4 -6.7 0.9 2005 -2.5 5.0 4.8 2015 2013 2014 21.7 22.0 2005 2006 19.5 23.3 27.5 27.6 28.5 2009 2010 2011 37.9 37.2 36.0 2013 2014 2015 32.2 2015 Potential GDP Source: Central Bank of the Dominican Republic and the Public Credit General Office 2007 2008 2012

 


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