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This paper studies how fiscal policy affects loan market conditions in the US. First, it conducts a Structural Vector-Autoregression analysis showing that the bank spread responds negatively to an expansionary government spending shock, while lending increases. Second, it illustrates that these results are mimicked by a Dynamic Stochastic General Equilibrium model where the bank spread is endogenized via the inclusion of a banking sector exploiting lending relationships. Third, it shows that lending relationships represent a friction that generates a financial accelerator effect in the transmission of the fiscal shock.

Loans --- Fiscal policy --- Borrowing --- Lending --- Loans for consumption --- Finance --- Credit --- Investments --- Government policy --- Banks and Banking --- Macroeconomics --- Public Finance --- Industries: Financial Services --- Financial Markets and the Macroeconomy --- Fiscal Policy --- National Government Expenditures and Related Policies: General --- Macroeconomics: Consumption --- Saving --- Wealth --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Public finance & taxation --- Banking --- Expenditure --- Consumption --- Private consumption --- National accounts --- Financial institutions --- Government consumption --- Expenditures, Public --- Economics --- Banks and banking --- United States

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We compare business cycle fluctuations in Sub-Saharan African (SSA) countries vis-à-vis the rest of the world. Our main results are as follows: (i) African economies stand out by their macroeconomic volatility, which is is reflected in the volatility of output and other macro variables; (ii) inflation and output tend to be negatively correlated; (iii) unlike advanced economies and emerging markets (EMs), trade balances and current accounts are acyclical in SSA; (iv) the volatility of consumption and investment relative to GDP is larger than in other countries; (v) the cyclicality of consumption and investment is smaller than in advanced economies and EMs; (vi) there is little comovement between consumption and investment; (vii) consumption and investment are strongly positively correlated with imports.

Business cycles. --- Economic cycles --- Economic fluctuations --- Cycles --- Exports and Imports --- Inflation --- Macroeconomics --- Business Fluctuations --- Macroeconomic Analyses of Economic Development --- Open Economy Macroeconomics --- Comparative Studies of Countries --- Macroeconomics: Consumption --- Saving --- Wealth --- Empirical Studies of Trade --- Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) --- Price Level --- Deflation --- Current Account Adjustment --- Short-term Capital Movements --- International economics --- Economic growth --- Consumption --- Trade balance --- Business cycles --- Current account --- National accounts --- International trade --- Prices --- Balance of payments --- Economics --- Balance of trade --- South Africa

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The increased likelihood of adverse climate-change-related shocks calls for building resilient infrastructure in the Maldives. Fulfilling these infrastructure needs requires a comprehensive analysis of investment plans, including with respect to their degree of climate resilience, their impact on future economic prospects, and their funding costs and sources. This paper analyzes these challenges, through calibrating a general equilibrium model. The main finding is that there is a significant dividend associated with building resilient infrastructure. Under worsened climate conditions, the cumulative output gain from investing in more resilient technologies increases up to a factor of two. However, given the Maldives’ limited fiscal space, particularly after COVID-19, the international community should also step up cooperation efforts. We also show that it is financially convenient for donors to help build resilience prior to the occurrence of a natural disasters rather than helping finance the reconstruction ex-post.

Maldives --- Macroeconomics --- Economics: General --- International Economics --- Infrastructure --- Natural Disasters --- Public Finance --- Investments: General --- Foreign Exchange --- Informal Economy --- Underground Econom --- Investment --- Capital --- Intangible Capital --- Capacity --- Climate --- Natural Disasters and Their Management --- Global Warming --- National Government Expenditures and Related Policies: Infrastructures --- Other Public Investment and Capital Stock --- Economic & financial crises & disasters --- Economics of specific sectors --- Natural disasters --- Public finance & taxation --- National accounts --- Environment --- Public investment spending --- Expenditure --- Private investment --- Currency crises --- Informal sector --- Economics --- Saving and investment --- Public investments

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Over the past seven years, the DIG and DIGNAR models have complemented the IMF and World Bank debt sustainability framework (DSF) analysis, over 65 country applications. They have provided useful insights in the context of program and surveillance work, based on qualitative and quantitative analysis of the macroeconomic effects of public investment scaling-ups. This paper takes stock of the model applications and extensions, and extract five common policy lessons from the universe of country cases. First, improving public investment efficiency and/or raising the rate of return of public projects raises growth and lowers the risks associated with debt sustainability. Second, prudent and gradual investment scaling-ups are preferable to aggressive front-loaded ones, in terms of private sector crowding-out effects, absorptive capacity constraints, and debt sustainability risks. Third, domestic revenue mobilization helps create fiscal space for investment scaling-ups, by effectively containing public debt surges and their later-on repayments. Fourth, aid smoothens fiscal adjustments associated with public investment increases and may lower the risks of unsustainable debt. Fifth, external savings mitigate Dutch disease macroeconomic effects and serve as fiscal buffers. The paper also discusses how these models were used to estimate the quantitative macro economic effects associated with these lessons.

Public investments --- Government investments --- Investments, Public --- Expenditures, Public --- Investments --- Capital budget --- Economic development projects --- Investment of public funds --- Econometric models. --- Finance --- Exports and Imports --- Macroeconomics --- Public Finance --- Exhaustible Resources and Economic Development --- Investment --- Capital --- Intangible Capital --- Capacity --- Fiscal Policy --- International Lending and Debt Problems --- National Government Expenditures and Related Policies: Infrastructures --- Other Public Investment and Capital Stock --- Debt --- Debt Management --- Sovereign Debt --- International Investment --- Long-term Capital Movements --- Public finance & taxation --- International economics --- Public investment spending --- Public debt --- Fiscal consolidation --- Debt sustainability --- Absorptive capacity --- Expenditure --- Fiscal policy --- External debt --- Balance of payments --- Debts, Public --- Debts, External --- Capital movements --- Mozambique, Republic of

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Mozambique has great potential in natural gas reserves and if liquefied/commercialized the sum of taxes and other fiscal revenue from natural gas will, at its peak, reach roughly one third of total fiscal revenue. Recent developments in the natural resource sector have triggered a fresh round of much needed infrastructure investment. This paper uses the DIGNAR model to simulate alternative public investment scaling-up plans in alternative LNG market scenarios. Results show that while a conservative approach, which simply awaits LNG revenues, would miss significant current growth opportunities, an aggressive approach would likely meet absorptive capacity constraints and imply a much bigger (and, in an adverse scenario, unsustainable) build-up of public debt. A gradual scaling up approach represents indeed a desirable path, as it allows anticipating some, though not all, of the LNG revenue and, even in an adverse scenario, keeping public debt at sustainable levels. Structural reforms affecting selection, governance and execution of public investment projects would significantly enhance the extent to which public capital is accumulated and impact non-resource growth and, ultimately, debt sustainability.

Natural gas --- Gas, Natural --- Sour gas --- Gases, Asphyxiating and poisonous --- Hydrocarbons --- Infrastructure --- Public Finance --- Industries: Energy --- Natural Resources --- Fiscal Policy --- Exhaustible Resources and Economic Development --- National Government Expenditures and Related Policies: Infrastructures --- Other Public Investment and Capital Stock --- Hydrocarbon Resources --- Debt --- Debt Management --- Sovereign Debt --- Agricultural and Natural Resource Economics --- Environmental and Ecological Economics: General --- Investment --- Capital --- Intangible Capital --- Capacity --- Public finance & taxation --- Petroleum, oil & gas industries --- Environmental management --- Macroeconomics --- Public investment spending --- Natural gas sector --- Public debt --- Natural resources --- Expenditure --- Economic sectors --- Environment --- National accounts --- Public investments --- Gas industry --- Debts, Public --- Saving and investment --- Mozambique, Republic of