30 June 2020

The papers published in the June 2020 issue of Financial and Economic Review, the Magyar Nemzeti Bank’s academic journal, deal with the shift in the Balassa–Samuelson effect, the reduction in the government debt ratio, fiscal stabilisation, changes in investors’ intertemporal preferences and usury lending in Hungary.

In her paper, Veronika Tengely examines the Balassa–Samuelson effect through the changing role of services in the 21st century. The starting point of the paper is that the Balassa–Samuelson effect, according to which the convergence observed in the price level is largely achieved through higher services inflation, can be detected less and less. This is also proven by the results of the regression estimation of Hungarian data. One of the major conclusions of the paper is that the structural transformation taking place in the world economy and current megatrends are significantly transforming the role and tradability of services and are also affecting the productivity of the sector, influencing the fulfilment of the traditional theoretical assumptions, thereby weakening the practical operability of the Balassa–Samuelson effect.

Miklós Losoncz and Csaba G. Tóth demonstrate that in recent years the government debt ratio has declined to a nearly similar extent in the EU15 group of countries as in the period from the mid-1990s to the economic crisis of 2007. In their paper, the authors use a debt decomposition analysis to show that in the period to the 2007–2009 crisis, disciplined fiscal policy, in particular, stimulated debt reduction, the effect of real GDP growth was offset by the impact of real interest rates and other items did not play a significant role. By contrast, the effect of fiscal policy has been much smaller in the debt reduction experienced in the 2010s, whereas the lower level of interest rates and other items have contributed substantially to the consolidation process.

The paper by Gábor P. Kiss deals with the challenges and omissions characterising the analyses of fiscal stabilisation. In this framework, it emphasises the role of automatic stabilisers which are often ignored in the literature. Furthermore, it demonstrates that a stabilisation policy based on a significant change in the budget deficit cannot be successful. The reason for this is that the accumulation of debt resulting from persistent deficits is faster than the impact on GDP, and thus the debt-to-GDP ratio could start rising sharply in the foreseeable future. The paper concludes that the alternatives to a general demand impulse, i.e. structural reform and targeted measures, are more appropriate for achieving sustained GDP growth.

Zoltán Schepp, József Ulbert and Ákos Tóth-Pajor examine investors’ intertemporal preferences and estimate the implicit intertemporal discount surplus in excess of the cost of capital characterising the European listed companies. They point out that the implicit intertemporal discount surplus increased in the period between 2004 and 2016. In 2008, there was a shift in investors’ focus, when the intertemporal discount surplus exceeded the cost of equity on average by 10.1 per cent. From this point onwards, investors prioritised their short-term interests. The authors conclude that the increase in the intertemporal discount surplus can lead to a decrease in investment and undermine long-run shareholder value accumulation, and therefore it may have delayed the stimulus provided by monetary easing to investment.

For the first time in the academic literature, Nedim Márton El-Meouch, Zita Fellner, Anna Marosi, Beáta Szabó and Ákos Urbán estimate the magnitude and spatial distribution of usury lending in Hungary. With the deepening of financial intermediation, more and more attention is being paid to the low-income, uncreditworthy segments of the population that are not yet involved in financial intermediation provided by the formal institutional system. The estimates are based on Hungarian and international data. Based on their results, 3–13 per cent of the Hungarian population may be exposed to the risk of usury lending. Settlements in Borsod-Abaúj-Zemplén, Szabolcs-Szatmár-Bereg and Hajdú-Bihar counties close to the country border are most affected by usury lending.

In addition to these, the June issue of the Financial and Economic Review contains two book reviews and one conference report.

The papers can be accessed on the website of the Financial and Economic Review: https://en-hitelintezetiszemle.mnb.hu/

We wish you a very pleasant reading.

Magyar Nemzeti Bank