New Economics Papers
on Business, Economic and Financial History
Issue of 2005‒04‒30
nine papers chosen by

  1. The Sustainability of Fiscal Policy in the United States By Henning Bohn
  2. Why is Bangladesh Outperforming Kenya? A Comparative Study of Growth and its Causes since the 1960s By John Roberts; Sonja Fagernäs
  3. Zooming Out: The Trade Effect of the Euro in Historical Perspective By Helge Berger; Volker Nitsch
  4. Back to Keynes? By Frederick van der Ploeg
  5. Interview with Assar Lindbeck By Thorvaldur Gylfason
  6. An Interview with Thomas J. Sargent By George W. Evans; Seppo Honkapohja
  7. A Double-Sided Multiunit Combinatorial Auction for Substitutes: Theory and Algorithms By Henry Schellhorn
  8. The Evolving Relationship between Gold and Silver 1978-2002: Evidence from a Dynamic Cointegration Analysis: A Note Crisis of 1997-1998 By Brian Lucey; Edel Tully
  9. Individual Contacts, Collective Patterns. Prato 1975-97, a story of interactions. By Guido Fioretti

  1. By: Henning Bohn
    Abstract: The paper examines the sustainability of U.S. fiscal policy, finding substantial evidence in favor. I summarize the U.S. fiscal record from 1792-2003, critically review sustainability conditions and their testable implications, and apply them to U.S. data. I particularly emphasize the ramifications of economic growth. A “growth dividend” has historically covered the entire interest bill on the U.S. debt. Unit root tests on real series, unscaled by GDP, are distorted by the series’ severe heteroskedasticity. The most credible evidence in favor of sustainability is the robust positive response of primary surpluses to fluctuations in the debt-GDP ratio.
    Keywords: public debt, sustainability, primary surplus, unit root
    JEL: E60 H00 H60
    Date: 2005
  2. By: John Roberts; Sonja Fagernäs
    Abstract: ESAU Working Paper 5 examines the contrasting growth experiences of Kenya and Bangladesh since the 1960s. The paper finds that, before 1980, Kenya grew strongly, and the economy diversified. Factors behind its subsequent deterioration in the 1990s were the government’s erratic, inflation-prone macroeconomic management, the overexpansion of the public sector, domestic and external indebtedness, its uncertain conduct of structural reforms, worsening cronyism and corruption, a high-cost, non-competitive, environment for the private sector and disappointing export performance. Bangladesh’s recent relative success was built on policies of macroeconomic stability, low public expenditure and taxation, the avoidance of non-concessional debt and a competitive real exchange rate. Savings and investment, once very low, rose steadily after 1990. Agriculture revived with investment in Green Revolution technology. An indigenous private sector emerged, operating in competitive conditions, out of which emerged a very successful export-oriented garment manufacturing sector.
    Keywords: Bangladesh, Kenya, economic growth, corruption, low-income countries
    Date: 2004–09
  3. By: Helge Berger; Volker Nitsch
    Abstract: In 1999, eleven European countries formed the Economic and Monetary Union (EMU); they abandoned their national currencies and adopted a new common currency, the euro. Several recent papers argue that the introduction of the euro has led (by itself) to a sizable and statistically significant increase in trade between the member countries of EMU. In this paper, we put the trade effect of the euro in historical perspective. We argue that the creation of the EMU was a continuation (or culmination) of a series of previous policy changes that have led over the last five decades to greater economic integration among the countries that now constitute EMU. Using a data set that includes 22 industrial countries from 1948 to 2003, we find strong evidence of a gradual increase in trade intensity between European countries. Once we control for this trend in trade integration, the euro’s impact on trade disappears. Moreover, a significant part of the trend in European trade integration is explained by measurable policy changes.
    Keywords: monetary union, currency, euro, trade, European integration
    JEL: F02 F15 F33
    Date: 2005
  4. By: Frederick van der Ploeg
    Abstract: After a brief review of classical, Keynesian, New Classical and New Keynesian theories of macroeconomic policy, we assess whether New Keynesian Economics captures the quintessential features stressed by J.M. Keynes. Particular attention is paid to Keynesian features omitted in New Keynesian workhorses such as the micro-founded Keynesian multiplier and the New Keynesian Phillips curve. These theories capture wage and price sluggishness and aggregate demand externalities by departing from a competitive framework and give a key role to expectations. The main deficiencies, however, are the inability to predict a pro-cyclical real wage in the face of demand shocks, the absence of inventories, credit constraints and bankruptcies in explaining the business cycle, and no effect of the nominal as well as the real interest rate on aggregate demand. Furthermore, they fail to allow for quantity rationing and to model unemployment as a catastrophic event. The macroeconomics based on the New Keynesian Phillips curve has quite a way to go before the quintessential Keynesian features are captured.
    Keywords: Keynesian economics, New Keynesian Phillips curve, monopolistic competition, nominal wage rigidity, welfare, pro-cyclical real wage, inventories, liquidity, bankruptcy, unemployment, monetary policy
    JEL: E12 E32 E63
    Date: 2005
  5. By: Thorvaldur Gylfason
    Abstract: Macroeconomic Dynamics commissioned this interview with Assar Lindbeck for a series of such conversations with economists, starting with Duncan Foley’s interview with Wassily Leontief in 1998. Other interviews in the series include Ben McCallum’s interview with Robert Lucas (1999), Olivier Blanchard’s interview with Janos Kornai (1999), Daniel Trefler’s interview with Elhanan Helpman (1999), William Barnett and Robert Solow’s interview with Franco Modigliani (2000), John Taylor’s interview with Milton Friedman (2001), James Poterba’s interview with Martin Feldstein (2003), Brian Snowdon’s interview with Axel Leijonhufvud (2003), William Barnett’s interview with Paul Samuelson (2003), and John Campbell’s interview with Robert Shiller (2004). Forthcoming interviews include Olivier Blanchard’s interview with Stanley Fischer (2005), Omar Licandro and Pierre Dehez’s interview with Jacques Drèze (2005), and George Evans and Seppo Honkapohja’s interview with Tom Sargent (2005).
    JEL: A10
    Date: 2005
  6. By: George W. Evans; Seppo Honkapohja
    Abstract: The rational expectations hypothesis swept through macroeconomics during the 1970’s and permanently altered the landscape. It remains the prevailing paradigm in macroeconomics, and rational expectations is routinely used as the standard solution concept in both theoretical and applied macroeconomic modelling. The rational expectations hypothesis was initially formulated by John F. Muth Jr. in the early 1960s. Together with Robert Lucas Jr., Thomas (Tom) Sargent pioneered the rational expectations revolution in macroeconomics in the 1970s. We interviewed Tom Sargent for Macroeconomic Dynamics.
    JEL: E00
    Date: 2005
  7. By: Henry Schellhorn (HEC, University of Lausanne and FAME)
    Abstract: Combinatorial exchanges have existed for a long time in securities markets. In these auctions buyers and sellers can place orders on combinations, or bundles of different securities. These orders are conjunctive: they are matched only if the full bundle is available. On business-to-business (B2B) exchanges, buyers have the choice to receive the same product with different attributes; for instance the same product can be produced by different sellers. A buyer indicates his preference by submitting a disjunctive order, where he specifies how much of the product he wants, and how much he values each attribute. Only the goods with the best attributes and prices will be matched. This article considers a doubled-sided multi-unit combinatorial auction for substitutes, that is, a uniform price auction where buyers and sellers place both types of orders, conjunctive and disjunctive. We prove the existence of a linear price which is both competitive and surplus-maximizing when goods are perfectly divisible, and nearly so otherwise. We describe an algorithm to clear the market, which is particularly efficient when the number of traders is large.
    Keywords: Combinatorial auction, economic equilibrium
    JEL: C62 C63 D44
    Date: 2004–12
  8. By: Brian Lucey; Edel Tully
    Abstract: Traditionally, analysts and traders have expected to see a stable, reasonably predictable, relationship between the price (and thus the rate of return) of gold and silver. Both these metals retain important industrial, commercial and investment uses. Recent research has cast some doubt on this assumption. We find that while over the 1990’s the relationship may well have been more unstable, when a longer timeframe is examined the relationship is stable but weakening. This we hypothesise is due to the changing nature of the demand patterns for gold versus silver. Classification-
    Keywords: Cointegration, Gold
    Date: 2005–04–20
  9. By: Guido Fioretti (University of Bologna)
    Abstract: This article presents an agent-based model of an Italian textile district where thousands of small firms specialise in particular phases of fabrics production. It is an empirical model that reconstructs the communications between firms when they arrange production chains. In their turn, production chains reflect into the pattern of traffic in the geographical areas where the district extends.
    Keywords: Agent-based models, industrial clusters, industrial districts, Prato.
    JEL: R
    Date: 2005–04–28

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