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This paper discusses potential growth and its drivers for Latvia 6 years after the growth turnaround and presents projections for the medium term. As the labor force is projected to decline, implementation of policies to increase investment and support total factor productivity (TFP) growth will be essential to ensure income convergence going forward. The level of potential growth has direct consequences for Latvia’s convergence path. Latvia’s GDP per capita was about 62 percent of the EU-15 average in 2015. A better understanding of potential output is important for policy setting. For example, an estimate of the output gap enters the fiscal reaction function through the cyclical adjustment of the fiscal balance and therefore directly influences policy makers’ assessments of whether fiscal policy should respond to deviations from potential. Potential output is an elusive concept and can be defined in various ways. Potential output is generally defined according to the Okun concept as the level of output consistent with stable inflation, while short-run deviations of actual from potential output, due to the slow adjustment of wages and prices to shocks, reflect the output gap—or economic slack.

Macroeconomics --- Production and Operations Management --- Macroeconomics: Production --- Production --- Cost --- Capital and Total Factor Productivity --- Capacity --- Labor Economics: General --- Labour --- income economics --- Total factor productivity --- Output gap --- Potential output --- Capacity utilization --- Labor --- Economic theory --- Industrial productivity --- Industrial capacity --- Labor economics --- Latvia, Republic of --- Income economics

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Financial sector reform in the Baltic countries is reviewed in light of the banking crises that emerged during the reform period. It is argued that the crises had their roots in the structural deficiencies specific to planned economies and the financial environment that developed before and after these countries regained their independence, thus rendering them largely inevitable. Because of the low level of financial intermediation, however, even the failure of large banks had limited systemic effects and a minor negative impact on output and incomes. The crises slowed down the financial reform process, but brought about a desired consolidation of the banking sector.

Banks and Banking --- Money and Monetary Policy --- Industries: Financial Services --- Financial Markets and the Macroeconomy --- Central Banks and Their Policies --- Financial Institutions and Services: Government Policy and Regulation --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Financial Crises --- Banking --- Monetary economics --- Economic & financial crises & disasters --- Finance --- Commercial banks --- Banking crises --- Credit --- Bank credit --- Financial institutions --- Money --- Financial crises --- Loans --- Foreign banks --- Banks and banking --- Banks and banking, Foreign --- Latvia, Republic of

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This Selected Issues paper examines the prospects for Latvia continuing to rapidly reduce its distance from the productivity frontier. It looks at the empirical record of countries that have in the past attained a similar relative level of income to that of Latvia at present, to gauge the plausibility of the forecast for Latvia’s medium term GDP growth of about 4 percent per year. It highlights that more than one-third of the countries reaching a similar stage of development managed to sustain higher subsequent growth. The paper also confirms the importance of investment and structural reforms for Latvia’s future convergence, using a sector-level analysis.

Financial crises -- Latvia. --- Latvia -- Economic conditions. --- Latvia -- Economic policy. --- Business & Economics --- Economic History --- Labor --- Macroeconomics --- Production and Operations Management --- Demography --- Emigration and Immigration --- International Migration --- Macroeconomics: Production --- Human Capital --- Skills --- Occupational Choice --- Labor Productivity --- Demographic Economics: General --- Employment --- Unemployment --- Wages --- Intergenerational Income Distribution --- Aggregate Human Capital --- Aggregate Labor Productivity --- Migration, immigration & emigration --- Labour --- income economics --- Population & demography --- Manufacturing industries --- Migration --- Productivity --- Labor productivity --- Population and demographics --- Production --- Emigration and immigration --- Industrial productivity --- Population --- Economic theory --- Latvia, Republic of --- Income economics

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This Selected Issues paper analyzes labor market challenges in Latvia. In the boom period leading up to the global financial crisis, the economy experienced widespread labor shortages and soaring wage growth. The bursting of the bubble led to a deep recession, high unemployment, and a sharp contraction in wages. With the economy now in its eighth year of recovery, Latvia is once again experiencing a tightening labor market—a situation exacerbated by unfavorable demographic trends. Latvia’s future prosperity will depend critically on whether it is able to address its labor market challenges. Employment protection legislation (EPL) is relatively restrictive. EPL refers to the procedures and costs associated with hiring and dismissing workers. Theory suggests that overly restrictive EPL reduces both job creation and job destruction and may slow productivity growth by raising labor adjustment costs for firms. Latvia’s tightening labor market calls for reforms that make the most of the country’s human resources. Reforms should aim to tackle barriers to employment, encourage more labor market participation, help Latvia’s citizens build new skills, and stem the decline in the working-age population.

Labor --- Public Finance --- Production and Operations Management --- Demography --- National Government Expenditures and Related Policies: General --- Economics of the Elderly --- Economics of the Handicapped --- Non-labor Market Discrimination --- Demand and Supply of Labor: General --- Wages, Compensation, and Labor Costs: General --- Demographic Economics: General --- Labour --- income economics --- Public finance & taxation --- Population & demography --- Macroeconomics --- Expenditure --- Aging --- Labor markets --- Wages --- Population and demographics --- Expenditures, Public --- Labor market --- Population aging --- Population --- Latvia, Republic of --- Income economics

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Humans are usually compassionate, caring and empathetic toward others, but are we really hardwired for altruism when a disaster hits? There is evidence that people exposed to natural disasters tend to behave more philanthropically, but most studies rely on small-scale surveys and experimental data. For that reason, this paper contributes to the literature by investigating whether the COVID-19 pandemic has altered prosocial tendencies and charitable donations, using a novel daily dataset of debit and credit card transactions. I conduct a real-time analysis of actual charitable donations in three European countries and find that the COVID-19 pandemic and government interventions have no significant effect on how much people contribute to charities as a share of total spending. A higher preference for precautionary savings in the midst of the pandemic appears to outweigh altruistic behavior, while government welfare programs crowds out private charitable donations.

Macroeconomics --- Economics: General --- Diseases: Contagious --- Money and Monetary Policy --- Public Finance --- Household Behavior: General --- Consumer Economics: Empirical Analysis --- Altruism --- Public Goods --- Health Behavior --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- National Government Expenditures and Related Policies: General --- Health: General --- Economic & financial crises & disasters --- Economics of specific sectors --- Infectious & contagious diseases --- Monetary economics --- Public finance & taxation --- Health economics --- COVID-19 --- Health --- Consumer credit --- Money --- Total expenditures --- Expenditure --- Currency crises --- Informal sector --- Economics --- Communicable diseases --- Expenditures, Public --- Latvia, Republic of