nep-mac New Economics Papers
on macroeconomics
Issue of 2005‒01‒16
33 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Can Wage and Price Stickiness Account for Sizeable Costs of Business Cycle Fluctuations? By Matthias Paustian
  2. EU Enlargement, Migration and the New Constitution By Hans-Werner Sinn
  3. Post-Thatcher Fiscal Strategies in the U.K.: An Interpretation By Andrew Hughes Hallett
  4. The Consumption-Based Determinants of the Term Structure of Discount Rates By Christian Gollier
  5. Macroeconomic Stabilization Policies in the EMU: Spillovers, Asymmetries, and Institutions By Giovanni Di Bartolomeo; Jacob Engwerda; Joseph Plasmans; Bas van Aarle; Tomasz Michalak
  6. Asset price shocks, real expenditures, and financial structure: a multi-country analysis By Chirinko, R.S.; Haan, L. de; Sterken, E.
  7. Monetary Policy Shocks and the Role of House Prices Across European Countries By Massimo Giuliodori
  8. Does market timing drive capital structures? A panel data study for Dutch firms By Tijs de Bie; Leo de Haan
  9. Inflation Targets as Focal Points By Maria Demertzis; Nicola Viegi
  10. Biased Technological Shocks, Wage Rigidities and Low-Skilled Unemployment By Olivier Pierrard; Henri Sneessens
  11. On the Effect of Monetary Stabilisation Policy on Long-run Growth By Galindev Ragchaasuren
  12. The Relationship between Growth and Volatility under Alternative Shocks By Galindev Ragchaasuren
  13. Schooling and Business Cycle Persistence By Galindev Ragchaasuren
  14. Is there any Scope for Corporatism in Stabilization Policies? By Giovanni Di Bartolomeo; Nicola Acocella; Wilfried Pauwels
  15. On the Incidence of a Tax on Pure Rent with Infinite Horizons By Alberto Petrucci
  16. Where Are We Now? Real-time Estimates of the Macro Economy By Martin D. D. Evans(Georgetown University and NBER)
  17. When Are Fiscal Contractions Successful? Lessons for Countries Within and Outside the EMU By Hjelm, Göran
  18. Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints (Revised Version) By Ortalo-Magne, Francois; Rady, Sven
  19. Politics and Efficiency of Separating Capital and Ordinary Government Budgets By Marco Bassetto; Thomas Sargent
  20. Firm-Specific Capital, Nominal Rigidities and the Business Cycle By David Altig; Lawrence Christiano; Martin Eichenbaum; Jesper Linde
  21. Forecasting Austrian Inflation By Gabriel Moser; Fabio Rumler; Johann Scharler
  22. Labour Markets and Firm-Specific Capital in New Keynesian General Equilibrium Models By Charles Nolan; Christoph Thoenissen
  23. Modelling Institutional Change in the Payments System, and its Implications for Monetary Policy By F. H. Capie; D. P. Tsomocos; G. E. Wood
  24. Human Well-being and Economic Well-being: What Values Are Implicit in Current Indices? By Lars Osberg; Andrew Sharpe
  25. An Index of Labour Market Well-being for OECD Countries By Lars Osberg; Andrew Sharpe
  26. Financial Dependence, Banking Sector Competition, and Economic Growth By Stijn Claessens; Luc Laeven
  27. The Relative Richness of the Poor? Natural Resources, Human Capital, and Economic Growth By Claudio Bravo-Ortega; Jose de Gregorio
  28. Roads Out of Poverty? Assessing the Links between Aid, Public Investment, Growth, and Poverty Reduction By Pierre-Richard Agénor; Nihal Bayraktar; Karim El Aynaoui
  29. What ever happened to Germany? Is the decline of the former European key currency country caused by structural sclerosis or by macroeconomic mismanagement? By Eckhard Hein; Achim Truger
  30. Monetary Policy and Wage Bargaining in the EMU: Restrictive ECB Policies, High Unemployment, Nominal Wage Restraint and Rising Inflation By Eckhard Hein
  31. European Monetary Union: Nominal Convergence, Real Divergence and Slow Growth? An investigation into the effects of changing macroeconomic policy institutions associated with monetary union By Eckhard Hein; Achim Truger
  32. Are technology shocks responsible for the business cycle ? By Dufourt
  33. Sector-Specific Volatility Patterns in Investment By Matthias Kredler

  1. By: Matthias Paustian
    Abstract: This paper asks the following two questions: First, can a model with nominal rigidities in wage and price setting account for the average welfare costs of business cycle fluctuations identified in Gali, Gertler, and Lopez- Salido (2003)? Second, do we need to agree on a particular scheme for nominal rigidities to answer that question? We compute a quadratic approximation to agents expected lifetime utility and evaluate welfare for different modeling schemes of nominal rigidities that all have the same average duration of contracts. Calvo (1983) wage and price contracts can deliver sizeable welfare costs, but other contracts of the same average stickiness cannot. Calvo (1983) contracts can imply welfare costs that are up to 4 times higher than those implied by overlapping contracts in the spirit of Taylor (1980) or Wolman (1999). Furthermore, the sticky information framework of Mankiw and Reis (2002) may generate welfare costs that are even smaller. This paper calls for more research into the origins of wage and price stickiness.
    Keywords: welfare, Calvo, Taylor, sticky information, costs of nominal rigidities
    JEL: E52 E32
    Date: 2004–10
  2. By: Hans-Werner Sinn
    Abstract: The paper deals with the effects of migration resulting from EU Eastern enlargement on the welfare states of Western Europe. Although migration is good in principle, as it yields gains from trade and specialization for all countries involved, it does so only if it meets with flexible labour markets and if it is not artificially induced by gifts from the welfare state. This is not the present state of affairs in Western Europe. In addition to measures that make labour markets more flexible, the introduction of delayed integration of working migrants and the home country principle for non-working migrants is a rational reaction of the state. The proposed new EU constitution which contains far-reaching rules for a European social union should be amended accordingly.
    Keywords: EU enlargement, migration, EU constitution, social union
    JEL: E20 F20 H00 J30 J60
    Date: 2004
  3. By: Andrew Hughes Hallett
    Abstract: Fiscal policy in Britain has changed radically since the Keynesianism of the 1960s and 1970s. After a passive period under monetarism of the 1980s, fiscal policy is said to have adopted a leadership role with long term objectives (low debt, the provision of public services/ investment, and social equity), together with an independent central bank. Monetary policy, operating with instrument independence, then takes care of short run stabilisation. I test this view – confronting it with evidence from the institutional arrangements put in place since 1997; with econometric evidence from the policy responses themselves; and with theoretical evidence on the incentive to choose such a regime in the first place. I conclude that this claim is broadly correct. It appears that the UK’s improved performance is a consequence of the advantages of combining fiscal leadership with an (instrument) independent central bank. The key feature is the ability to trade target (not instrument) independence in monetary policy to secure greater coordination between fiscal and monetary strategies.
    Keywords: Stackelberg leadership, policy complementarity, institutional coordination
    JEL: E52 E61 F42
    Date: 2004
  4. By: Christian Gollier
    Abstract: The efficient rate of return of a zero-coupon bond with maturity t is determined by our expectations about the mean (+), variance (-) and skewness (+) of the growth of aggregate consumption between 0 and t. The shape of the yield curve is thus determined by how these moments vary with t. We first examine growth processes in which a higher past economic growth yields a first-degree dominant shift in the distribution of the future economic growth, as assumed for example by Vasicek (1977). We show that when the growth process exhibits such a positive serial correlation, then the yield curve is decreasing if the representative agent is prudent (u'''> 0), because of the increased risk that it yields for the distant future. A similar definition is proposed for the concept of second-degree stochastic correlation, as observed for example in the Cox-Ingersoll-Ross model, with the opposite comparative static property holding under temperance (u''''< 0), because the change in downside risk (or skweness) that it generates. Finally, using these theoretical results, we propose two arguments in favor of using a smaller rate to discount cash-flows with very large maturities, such as those associated to global warming or nuclear waste management.
    Keywords: stochastic dominance, yield curve, far distant future, cost-benefit analysis, prudence, temperance, downside risk
    JEL: E43 G12 Q51
    Date: 2005
  5. By: Giovanni Di Bartolomeo; Jacob Engwerda; Joseph Plasmans; Bas van Aarle; Tomasz Michalak
    Abstract: This paper studies the institutional design of the coordination of macroeconomic stabilization policies within a monetary union in the framework of linear quadratic differential games. A central role in the analysis plays the partitioned game approach of the endogenous coalition formation literature. The specific policy recommendations in the EMU context depend on the particular characteristics of the shocks and the economic structure. In the case of a common shock, fiscal coordination or full policy coordination is desirable. When asymmetric shocks are considered, fiscal coordination improves the performance but full policy coordination doesn’t produce further gains in policymakers’ welfare.
    Keywords: macroeconomic stabilization, EMU, coalition formation, linear quadratic differential games
    JEL: C70 E17 E58 E61 E63
    Date: 2005
  6. By: Chirinko, R.S.; Haan, L. de; Sterken, E. (Groningen University)
    Abstract: This paper examines the response of the economies of 11 EU countries, Japan, and the United States to shocks in housing and equity prices. The effects are assessed with a Structural Vector Auto Regressive (SVAR) model, and four key findings emerge. First, the impacts of asset price shocks are heterogeneous across countries. Second, these heterogeneous responses are systematically related to cross-country variation in financial structure, and we are thus able to document the importance of a wealth/balance sheet channel for consumption and an equity finance channel for investment. Third, for a given country, housing shocks have a much greater impact than equity shocks. Fourth, variance decompositions indicate that monetary policy reacts to equity price shocks but not to housing price shocks. These results highlight the important role played by asset prices on real activity, and fuel the debate about the inclusion of asset prices in the formulation of monetary policy.
    Date: 2004
  7. By: Massimo Giuliodori
    Abstract: This paper provides a discussion of the `housing market' channels of the monetarytransmission mechanism (MTM) and offers some evidence on institutional differences in the European housing and mortgage markets. Using a number of VAR models, estimated individually for nine European countries over the pre-EMU period, we find that house prices are significantly affected by monetary policy shocks. The relative role of these policy-induced fluctuations in house prices for private consumption is then investigated. We show that house prices may enhance the effects of monetary shocks on consumer spending in those economies where housing and mortgage markets are relatively more developed and competitive.
    Keywords: Monetary transmission; house prices; impulse responses.
    JEL: C32 E21 E52 R21
    Date: 2004–11
  8. By: Tijs de Bie; Leo de Haan
    Abstract: This empirical study revisits the determinants of firms' capital structures. The main focus thereby is onthe 'market timing theory', according to which the current level of the capital structure is the cumulative outcome of past attempts to `time the market', i.e. issuing shares when equity is overvalued and repurchasing shares in case of undervaluation. Since the positive evidence for this theory found by Baker and Wurgler (2002) for the US, this strand of empirical literature is growing. This paper presents evidence for a sample of 135 Dutch listed non-financial firms over the period 1983-1997 as well as for a sub-sample of 45 Dutch firms that did an initial public offering (IPO). The research methodology follows Kayhan and Titman (2004), who model capital structure as a mix of market timing, pecking order and capital structure targeting behaviour. The findings for the Dutch sample do not find strong and persistent effects of market timing on capital structures.
    JEL: C71 C78 E52
    Date: 2004–11
  9. By: Maria Demertzis; Nicola Viegi
    Abstract: The benefits of inflation targeting by comparison to alternative regimesare understood to be in terms of providing clearer objectives that help pin down private sector expectations in the long run. We argue that the mechanism for achieving this rests on the fact that monetary policy can be perceived as a matching game in which private agents aim to coordinate their expectations and thus benefit from a clearly given signal that acts as a focal point. We therefore, argue that first, the credibility of the signal achieves coordination and second that the clarity of the signal achieves welfare improvements. To demonstrate that we use Bacharach's, Variable Universe Game framework, which allows for individuals' understanding and interpretation of the signal to differ. As private agents benefit from coordination, they rely a lot on the public signal given. Following this, the Central Bank can then help increase the welfare of agents by providing clear and precise signal that increase the chance of coordination and hence increased welfare.
    Keywords: inflation targeting; high order expectations; matching games
    JEL: C71 C78 E52
    Date: 2004–11
  10. By: Olivier Pierrard; Henri Sneessens
    Abstract: The contrast between the evolution over the last decades of the EU and the US unemployment rates, especially for the low-skilled, is well known. A consensus view is that these different outcomes can be explained by the interactions between common shocks and specific institutional setups. In this paper, we emphasise the interactions between technological changes and wages ridigities. We construct a fully calibrated general equilibrium model with two types of jobs and two types of workers, and with search unemployment. Our simulations show that with wages rigidities, technological changes suffice to generate a continuous rise in the low-skilled unemployment rate and an almost unchanged high-skilled unemployment rate. Without wage rigidities, the unemployment rates remain unchanged but the wage dispersion widens.
    Date: 2004–12
  11. By: Galindev Ragchaasuren
    Abstract: This paper analyses the circumstances in which the conclusion reached by Blackburn and Pelloni (2005) can be reversed, implying that short-run monetary stabilization policy could have a negative effect on long-run growth when purposeful or internal learning (rather than serendipitous or external learning) is the engine of endogenous technological change.
    Date: 2005–01–13
  12. By: Galindev Ragchaasuren
    Abstract: This paper presents a simple stochastic endogenous growth model with multiple shocks – a preference shock and a learning shock. The model is used to predict alternative relationships between growth and volatility on the basis of the underlying impulse source of fluctuations.
    Date: 2005–01–13
  13. By: Galindev Ragchaasuren
    Abstract: This paper presents a stochastic overlapping-generations model in which human capital accumulation is a result of deliberate schooling. The model is used to show how the opportunity cost of schooling measured by foregone wage can propagate shocks within a period and overtime.
    Date: 2005–01–13
  14. By: Giovanni Di Bartolomeo (University of Rome La Sapienza); Nicola Acocella (University of Rome La Sapienza); Wilfried Pauwels (University of Antwerp)
    Abstract: This paper studies corporatism as the outcome of bargaining between the government and a representative labor union. When negotiations between these two parties only relate to macroeconomic stabilization, we show that corporatism can never be beneficial to both parties. As corporatist policies are nevertheless commonly observed in this context, we also discuss in an informal way possible explanations that reconcile the theory with actual observations. The policy implications of these explanations are also discussed.
    Keywords: Social pacts, Axiomatic bargaining, Unions, Issue linkage
    JEL: E00 E58 E61 J50
    Date: 2004–12
  15. By: Alberto Petrucci (LUISS G. Carli)
    Abstract: This paper studies the incidence of a tax on pure rent within an intertemporal optimizing model of capital accumulation and endogenous labor with infinite-lived agents. Two cases are considered for the labor market: the neoclassical theory, characterized by perfectly competitive wages and no unemployment, and the incentive-wage theory of the labor-turnover type, characterized by real wage rigidity and structural unemployment. In the neoclassical equilibrium, the land rent tax is unshifted when consumers are lump-sum compensated for the tax. If tax revenues are used to finance government spending, pure rent taxation increases employment, boosts capital accumulation and reduces real wage as well as land yield. In the incentive-wage economy, the land rent tax, regardless of the way in which tax proceeds are employed, always increases employment, capital stock, and land reward, but exerts an ambiguous effect on the wage rate.
    Keywords: Pure rent taxation, Capital formation, Land, Structural unemployment
    JEL: E21 E62 H22
    Date: 2004–12
  16. By: Martin D. D. Evans(Georgetown University and NBER) (Department of Economics, Georgetown University)
    Abstract: This paper describes a method for calculating daily real-time estimates of the current state of the U.S. economy. The estimates are computed from data on scheduled U.S. macroeconomic announcements using an econometric model that allows for variable reporting lags, temporal aggregation, and other complications in the data. The model can be applied to find real-time estimates of GDP, inflation, unemployment or any other macroeconomic variable of interest. In this paper I focus on the problem of estimating the current level of and growth rate in GDP. I construct daily real-time estimates of GDP that incorporate public information known on the day in question. The real-time estimates produced by the model are uniquely-suited to studying how perceived developments the macro economy are linked to asset prices over a wide range of frequencies. The estimates also provide, for the first time, daily time series that can be used in practical policy decisions. Classification-JEL Codes:E37 C32
    Keywords: Keywords: Real-time data, Kalman Filtering, Forecasting GDP
  17. By: Hjelm, Göran (National Institute of Economic Research)
    Abstract: In the past 25 years, many OECD countries have implemented fiscal contractions to strengthen their public finances. The macroeconomic outcomes of these efforts have <p> varied. With the aid of an econometric model, this paper seeks to identify the factors <p> that make contractions successful from a macroeconomic standpoint. The findings <p> suggest, among other things, that favorable changes in the real exchange rate prior <p> to the period of fiscal contraction and in the real quantity of money during this period <p> play an important part in the macroeconomic outcome. This indicates in turn that it <p> may be more difficult to implement successful fiscal contractions within the EMU. The <p> findings also show that the composition of the contraction in regard to the relative <p> proportions of tax increases and expenditure cutbacks, respectively, is probably less <p> important than has usually been assumed.
    Keywords: Fiscal Contractions; Fiscal Policy; Real Exchange Rate; EMU
    JEL: C20 E62 E63 H30
    Date: 2004–06–16
  18. By: Ortalo-Magne, Francois; Rady, Sven
    Abstract: We propose a life-cycle model of the housing market with a property ladder and a credit constraint. We focus on equilibria which replicate the facts that credit constraints delay some households' first home purchase and force other households to buy a home smaller than they would like. The model helps us identify a powerful driver of the housing market: the ability of young households to afford the down payment on a starter home, and in particular their income. The model also highlights a channel whereby changes in income may yield housing price overshooting, with prices of trade-up homes displaying the most volatility, and a positive correlation between housing prices and transactions. This channel relies on the capital gains or losses on starter homes incurred by credit-constrained owners. We provide empirical support for our arguments with evidence from both the U.K. and the U.S.
    JEL: R21 G21 G12 E32
    Date: 2005–01
  19. By: Marco Bassetto; Thomas Sargent
    Abstract: We analyze the democratic politics of a rule that separates capital and ordinary account budgets and allows the government to issue debt to finance capital items only. Many national governments followed this rule in the 18th and 19th centuries and most U.S. states do today. This simple 1800s financing rule sometimes provides excellent incentives for majorities to choose an efficient mix of public goods in an economy with a growing population of overlapping generations of long-lived but mortal agents. In a special limiting case with demographics that make Ricardian equivalence prevail, the 1800s rule does nothing to promote efficiency. But when the demographics imply even a moderate departure from Ricardian equivalence, imposing the rule substantially improves the efficiency of democratically chosen allocations. We calibrate some examples to U.S. demographic data. We speculate why in the twentieth century most national governments abandoned the 1800s rule while U.S. state governments have retained it.
    JEL: E6 H6 H7
    Date: 2005–01
  20. By: David Altig; Lawrence Christiano; Martin Eichenbaum; Jesper Linde
    Abstract: Macroeconomic and microeconomic data paint conflicting pictures of price behavior. Macroeconomic data suggest that inflation is inertial. Microeconomic data indicate that firms change prices frequently. We formulate and estimate a model which resolves this apparent micro - macro conflict. Our model is consistent with post-war U.S. evidence on inflation inertia even though firms re-optimize prices on average once every 1.5 quarters. The key feature of our model is that capital is firm-specific and pre-determined within a period.
    JEL: E3 E4 E5
    Date: 2005–01
  21. By: Gabriel Moser (Oesterreichische Nationalbank, Foreign Research Department, Otto-Wagner Platz 3, POB 61, A-1011 Vienna); Fabio Rumler (Oesterreichische Nationalbank, Economic Analysis Division); Johann Scharler (Oesterreichische Nationalbank, Economic Analysis Division)
    Abstract: In this paper we apply factor models proposed by Stock and Watson [18] and VAR and ARIMA models to generate 12-month out of sample forecasts of Austrian HICP inflation and its subindices processed food, unprocessed food, energy, industrial goods and services price inflation. A sequential forecast model selection procedure tailored to this specific task is applied. It turns out that factor models possess the highest predictive accuracy for several subindices and that predictive accuracy can be further improved by combining the information contained in factor and VAR models for some indices. With respect to forecasting HICP inflation, our analysis suggests to favor the aggregation of subindices forecasts. Furthermore, the subindices forecasts are used as a tool to give a more detailed picture of the determinants of HICP inflation from both an ex-ante and ex-post perspective.
    Keywords: Inflation Forecasting, Forecast Model selection, Aggregation
    JEL: C52 C53 E31
    Date: 2004–10–04
  22. By: Charles Nolan; Christoph Thoenissen
    Abstract: This paper examines the consequences of introducing firm specific capital into a selection of commonly used sticky price business cycle models. We find that modelling firm-specific capital markets greatly reduces the response of inflation to changes in average real marginal cost. Calibrated to US data, we find that models with firm-specific capital generate a less volatile, as well as more persistent series for inflation than those which assume an economy wide market for capital. Overall, it is not clear if assuming firm-specific capital helps our models match the US business cycle data.
    Keywords: Intertemporal macro; monetary policy; real and nominal labour market distortions; firm-specific capital.
    JEL: E31 E32 E37 E58
    Date: 2005–01
  23. By: F. H. Capie; D. P. Tsomocos; G. E. Wood
    Abstract: Many institutional changes have taken place to payments systems. Indeed, they have been in continual change ever since money first emerged as the dominant technology for conducting transactions. Means of settlement between banks have changed: cheques replaced cash in many transactions, and they have in their turn been replaced partially (much more in some countries than others) by cards. The aim of this paper is to appraise one such possible technological development, namely electronic barter, and to model both it and money as transactions technologies. By comparing the models, we shall be able to appraise the future of fiat money. We argue that the economising properties of fiat money will allow it to survive, despite actual and hypothetised technical progress which reduces the cost of electronic barter.
    Date: 2005
  24. By: Lars Osberg; Andrew Sharpe
    Abstract: This paper develops an Index of Economic Well-being (IEWB) for the United States, the United Kingdom, Canada, Australia, Germany, Norway and Sweden for the period 1980 to 2001 which recognizes four components: Current effective per capita consumption flows; Net societal accumulation of stocks of productive resources; Income distribution; and Economic security. Since the Human Development Index uses GDP per capita to measure “command over resources”, which implicitly makes the strong value judgment that inequality and insecurity do not matter, the paper demonstrates that a better measure of “command over resources” has a significant effect on the trend and level of the HDI – particularly for the United States, which slips to last place among the countries examined.
    Keywords: Well-being, Wellbeing, Well Being, Unemployment, Human Capital, Unemployment Insurance, IEWB, ILMW, Inequality, Poverty, Insecurity, Economic Security, Health, Health Expenditure, Single Parent, Single-parent, Family Break-up, Retirement, Old Age, Human Development Index, HDI, Command Over Resources, Human Capital, Consumption, Household Production, Leisure, Wealth, Capital Stock, Environmental Damage, R&D Stock, Research and Development, R&D, Natural Resources, Unpaid Work, Linear Scaling Technique, Social Indicator, Indicator, Weighting, Weights
    JEL: O57 I31 I32 D31 J24 C43 C82 E21 E22 E24 H54 J64 J65
    Date: 2003–08
  25. By: Lars Osberg; Andrew Sharpe
    Abstract: This report’s objective is the construction of an index of labour market well-being that is capable of measuring the well-being that individuals in a given society at a given point in time can obtain through the labour market. Besides considering simply the average return from working, workers are also typically concerned with inequality in the distribution of earnings, as well as skills acquisition that affects future returns from working and the uncertainty surrounding these future returns due to, for example, the possibilities of job loss, injury and insufficient income in retirement. The index proposed and constructed here hence attempts to incorporate each of these aspects of labour market well-being. The Centre for the Study of Living Standards has developed an Index of Economic Well-being based on trends in consumption flows, stocks of wealth, inequality, and economic security. This framework is applied here, but the focus is on the well-being of individuals as workers. The proposed Index of Labour Market Well-being (ILMW) therefore covers all persons of working age, both employed and unemployed, and includes 1) the average current return from work; 2) the aggregate accumulation of human capital, which enables future returns from work; 3) inequality in current returns from work; and 4) insecurity in the anticipation of future returns from work. Estimates of the proposed Index are developed for 16 OECD countries for the 1980-2001 period.
    Keywords: Well-being, Wellbeing, Well Being, Unemployment, Labour Market Outcomes, Labour Market, Labor Market, Wages, Earnings, Labour Compensation, Labor Compensation, Compensation, Human Capital, Long-term Unemployment, Long Term Unemployment, Earnings Inequality, Low Wage Earners, Living Wage, Retirement, Pensions, Defined Benefit, Defined Contribution, Unemployment Insurance, Workplace Injuries, Workplace Fatalities, Injuries, Fatalities, Workplace Safety, Index of Economic Well-being, IEWB, ILMW
    JEL: O57 I31 E25 J30 J60 J81 J24 J26 J28 H55
    Date: 2003–09
  26. By: Stijn Claessens; Luc Laeven (World Bank)
    Abstract: The relationships among competition in the financial sector, access of firms to external financing, and associated economic growth are ambiguous in theory. Moreover, measuring competition in the financial sector can be complex. In this paper Claessens and Laeven first estimate for 16 countries a measure of banking system competition based on industrial organization theory. They then relate this competition measure to growth of industries and find that greater competition in countries’ banking systems allows financially dependent industries to grow faster. These results are robust under a variety of tests. The results suggest that the degree of competition is an important aspect of financial sector funding. This paper—a product of the Financial Sector Operations and Policy Department—is part of a larger effort in the department to study competition in banking.
    Keywords: Domestic Finance; International Economics
    Date: 2005–01–07
  27. By: Claudio Bravo-Ortega; Jose de Gregorio
    Abstract: Are natural resources a blessing or a curse? Bravo-Ortega and De Gregorio present a model in which natural resources have a positive effect on the level of income and a negative effect on its growth rate. The positive and permanent effect on income implies a welfare gain. There is a growth effect stemming from a composition effect. However, the authors show that this effect can be offset by having a large level of human capital. They test their model using panel data for the period 1970–90. They extend the usual specifications for economic growth regressions by incorporating an interaction term between human capital and natural resources, showing that high levels of human capital may outweigh the negative effects of the natural resource abundance on growth. The authors also review the historical experience of Scandinavian countries, which in contrast to Latin America, another region well-endowed with natural resources, shows how it is possible to grow fast based on natural resources. This paper is a product of the Office of the Chief Economist, Latin America and the Caribbean Region.
    Keywords: Education; Macroecon & Growth
    Date: 2005–01–10
  28. By: Pierre-Richard Agénor; Nihal Bayraktar; Karim El Aynaoui
    Abstract: Agénor, Bayraktar, and El Aynaoui develop a macroeconomic framework that captures links between aid, public investment, growth, and poverty. Public investment is disaggregated into education, infrastructure, and health, and affects both aggregate supply and demand. Dutch disease effects are captured by accounting for changes in the relative price of domestic goods. The authors assess the impact of policy shocks on poverty by linking the model to a household survey. They calibrate the model for Ethiopia and simulate the changes in the allocation of aid and public investment. The authors also calculate the amount by which foreign aid should increase to reach the poverty targets of the Millennium Development Goals. This paper—a product of Poverty Reduction and Economic Management 2, Africa Technical Families—is part of a larger effort in the region to formulate country-specific growth strategies.
    Keywords: Macroecon & Growth
    Date: 2005–01–12
  29. By: Eckhard Hein (WSI in der Hans Böckler Stiftung); Achim Truger (WSI in der Hans Böckler Stiftung)
    Abstract: This paper challenges the institutional sclerosis view of the German crisis according to which rigid labour markets and generous welfare state institutions have driven Germany into its position as „Europe’s sick man“. In general, the view is not convincing, because the underlying hypotheses about the effects of labour market regulation and welfare state institutions on employment and growth cannot unambiguously be derived from modern labour market theory and are at least partially at odds with accepted empirical findings. In particular, the explanation is unconvincing, because in international comparison Germany’s labour market and welfare state institutions are simply not as sclerotic as often supposed. In most of the aggregate indicators for structural rigidities Germany is not worse than the average OECD or EU country. Moreover, there is a macroeconomic explanation focusing on the combined effects of restrictive and pro-cyclical monetary, fiscal and wage policies in Germany that is broadly consistent with modern macroeconomic theory and is supported by empirical data.
    Keywords: Labour market institutions, macroeconomic policy, employment, Germany, Europian Monetary Union
    JEL: E
    Date: 2005–01–07
  30. By: Eckhard Hein (WSI in der Hans Böckler Stiftung)
    Abstract: Assessing the effects of monetary policy and wage bargaining on employment and inflation in the European Monetary Union (EMU), in the first step a Post-Keynesian competitive claims model of inflation with endogenous money is developed. In this model the NAIRU is considered to be a short-run limit to employment enforced by independent and conservative central banks. In the long run, however, the NAIRU will follow actual unemployment and is therefore also dependent on the forces determining aggregate demand, including monetary policies. But the NAIRU may also be reduced by effectively co-ordinated wage bargaining as has been shown by institutional political economists. Applying these considerations to the economic performance of the EMU, different scenarios determined by wage bargaining co-ordination and the European Central Bank’s (ECB) monetary policies are developed. It is shown that the first phase of EMU was dominated by uncoordinated wage bargaining across EMU and an “anti-growth-bias” of the ECB. Therefore, the Euro area was plagued with nominal wage restraint, high unemployment and rising inflation. Economic performance will improve if the ECB abandons its asymmetric monetary strategy. This may be facilitated by a higher degree of effective wage bargaining co-ordination across EMU.
    Keywords: European Monetary Union, monetary policy, wage bargaining, inflation and employment
    JEL: E
    Date: 2005–01–07
  31. By: Eckhard Hein (WSI in der Hans Böckler Stiftung); Achim Truger (WSI in der Hans Böckler Stiftung)
    Abstract: It is by now widely accepted that the structural characteristics of the countries to become the euro area did not adhere to the conditions of an optimum currency area (OCA) when the euro was introduced in 1999. However, the satisfaction of OCA criteria may not be required for a workable currency union, because the criteria have to rely on a very restrictive concept of money and their satisfaction may be largely endogenous to shifts in the economic policy regime. Growth and convergence of prosperity across a currency union rather depend on the appropriate macroeconomic policy institutions. Therefore, in this paper the effects of the new EMU institutional framework for monetary, fiscal and wage policies on overall growth and on convergence across the euro area are analysed. It is concluded that not only the period of nominal convergence towards EMU but also the initial period of the euro area has suffered from a rather restrictive macroeconomic policy mix which has neither been conducive to aggregate growth nor to real convergence across the euro area. In order to improve growth and convergence some major institutional reforms seem to be required.
    Keywords: European Monetary Union, nominal convergence, real convergence, macroeconomic policy mix
    JEL: E
    Date: 2005–01–07
  32. By: Dufourt (BETA - University Louis Pasteur - Strasbourg I)
    Abstract: I use the restrictions implied by standard stochastic growth models to investigate whether technology shocks played a major role in the US business cycle. Business cycles are defined as fluctuations around an exogenously evolving productivity trend, identified through appropriate restrictions. My main findings can be summarized as follows: Business cycles implied by technology/supply shocks are mildly correlated to overall fluctuations, and help account for a few episodes of US postwar recessions. However, typically less than 20% of US fluctuations can be explained by these shocks. Most fluctuations seem instead to be due to 'nominal demand' shocks, ie. shocks which move output and prices in the same direction, but whose effects on output are ultimately transitory. In accordance with a recent, growing literature, our empirical results therefore cast new doubts on the view that technology shocks are a predominant source of economic fluctuations.
    Keywords: Business cycles, technological shocks, demand shocks
    JEL: E32 C32 C52
    Date: 2005–01–08
  33. By: Matthias Kredler (New York University)
    Abstract: This paper addresses the question if there are differences between time patterns in the volatility of investment across different industrial sectors. A competitive partial-equilibrium model with quadratic adjustment costs in investment and a GARCH demand shock is developed to predict aggregate investment in a sector. It is shown that under the assumptions made in the model, the GARCH property is inherited by the aggregate investment process in the rational-expectations equilibrium. The equation for investment from the model is estimated on quarterly time series from six industrial sectors in the UK. As conjectured, GARCH effects play an important role in some sectors but are not significant in others. Astonishingly, the volatility patterns are in general very different across sectors. This suggests that sector-specific factors are more important in determining investment volatility than the macroeconomic environment.
    Keywords: investment, volatility, variance, GARCH, ARCH, sector
    JEL: E22 C22
    Date: 2005–01–12

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