The Research Summaries in the September 2013 IMF Research Bulletin focus on “External Conditions and Debt Sustainability in Latin America” (Gustavo Adler and Sebastian Sosa) and “Monetary Policy Cyclicality in Emerging Markets” (Donal McGettigan, Kenji Moriyama, and Chad Steinberg). In the Q&A, Itai Aigur and Sunil Sharma discuss “Seven Questions on Macroprudential Policy Frameworks.” The Research Bulletin also includes an updated listing of recent IMF Working Papers, Staff Discussion Notes, and Recommended Readings from the IMF Bookstore, as well as information on a forthcoming conference. The IMF Economic Review’s new Impact Factor is also highlighted.

We explore two issues triggered by the crisis. First, in most advanced countries, output remains far below the pre-recession trend, suggesting hysteresis. Second, while inflation has decreased, it has decreased less than anticipated, suggesting a breakdown of the relation between inflation and activity. To examine the first, we look at 122 recessions over the past 50 years in 23 countries. We find that a high proportion of them have been followed by lower output or even lower growth. To examine the second, we estimate a Phillips curve relation over the past 50 years for 20 countries. We find that the effect of unemployment on inflation, for given expected inflation, decreased until the early 1990s, but has remained roughly stable since then. We draw implications of our findings for monetary policy.

The paper uses a combination of micro-level datasets to document the rise of income polarization—what some have referred to as the “hollowing out” of the income distribution—in the United States, since the 1970s. While in the initial decades more middle-income households moved up, rather than down, the income ladder, since the turn of the current century, most of polarization has been towards lower incomes. This result is striking and in contrast with findings of other recent contributions. In addition, the paper finds evidence that, after conditioning on income and household characteristics, the marginal propensity to consume from permanent changes in income has somewhat fallen in recent years. We assess the potential impacts of these trends on private consumption. During 1998-2013, the rise in income polarization and lower marginal propensity to consume have suppressed the level of real consumption at the aggregate level, by about 31⁄2 percent—equivalent to more than one year of consumption.

Using a newly constructed dataset on trade in services for 192 countries from 1970 to 2014, this paper shows that services currently constitute one-fourth of world trade and an increasingly important component of global production. A detailed analysis of patterns and stylized facts reveals that exports of services are not only gaining strong momentum and catching up with exports of goods in many countries, but they could also trigger a new wave of trade globalization. Research applications of the trade in service dataset on structural transformation, resilience, labor reallocation, and income distribution are outlined.

This paper investigates the relation between growth forecast errors and planned fiscal consolidation during the crisis. We find that, in advanced economies, stronger planned fiscal consolidation has been associated with lower growth than expected, with the relation being particularly strong, both statistically and economically, early in the crisis. A natural interpretation is that fiscal multipliers were substantially higher than implicitly assumed by forecasters. The weaker relation in more recent years may reflect in part learning by forecasters and in part smaller multipliers than in the early years of the crisis.

The Research Summaries in the September 2013 IMF Research Bulletin focus on “External Conditions and Debt Sustainability in Latin America” (Gustavo Adler and Sebastian Sosa) and “Monetary Policy Cyclicality in Emerging Markets” (Donal McGettigan, Kenji Moriyama, and Chad Steinberg). In the Q&A, Itai Aigur and Sunil Sharma discuss “Seven Questions on Macroprudential Policy Frameworks.” The Research Bulletin also includes an updated listing of recent IMF Working Papers, Staff Discussion Notes, and Recommended Readings from the IMF Bookstore, as well as information on a forthcoming conference. The IMF Economic Review’s new Impact Factor is also highlighted.