nep-mac New Economics Papers
on Macroeconomics
Issue of 2005‒04‒24
29 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Privatisation shocks and aggregate output: testing for macroeconomic transmission channels By Emanuele Bacchiocchi; Massimo Florio
  2. Competitiveness, inflation, and monetary policy By Hashmat Khan; Richhild Moessner
  3. The stock market and capital accumulation: an application to UK data By Demetrios Eliades; Olaf Weeken
  4. Changing Composition of Human Capital: The Czech Republic, Hungary, and Poland By Byeongju Jeong; Michal Kejak; Viatcheslav Vinogradov
  5. Inflation Expectations in the Czech Interbank Market By Martin Fukac
  6. Fiscal Consequences of Monetary Integration within the Common Economic Area: the Case of Belarus, Kazakhstan and Russia By Ainura Uzagalieva
  7. Credibility and Inflation Targeting in an Emerging Market: The Case of Chile By Luis F. Céspedes; Claudio Soto
  8. Estimating the New Keynesian Phillips Curve for Italian Manufacturing Sectors By Carla Massidda
  9. Should Latin America Fear China? By Eduardo A. Lora
  10. Analysis of Regional Economic Growth in the U.S. Midwest, An By Monchuk, Daniel C.; Miranowski, John; Hayes, Dermot J.; Babcock, Bruce A.
  11. Minimum Wage or Negative Income Tax: Why Skilled Workers May Favor Wage Rigidities By Maya Bacache-Beauvallet; Etienne Lehmann
  12. Firm Size Dynamics in the Aggregate Economy By Esteban Rossi-Hansberg; Mark L.J. Wright
  13. Urban Structure and Growth By Esteban Rossi-Hansberg; Mark L.J. Wright
  14. Estimating a fiscal reaction function: the case of debt sustainability in Brazil By Luiz de Mello
  15. MONETARY UNIONS: THE POLICY COORDINATION ISSUE By Giovanni Di Bartolomeo; Jacob Engwerda; Joseph Plasmans; Bas van Aarle
  16. Manufacturing Growth and Liberalisation in India (1960-1999): A Demand Side Analysis By Rahul Shastri
  19. Declining Share of Wages in Organised Indian Industry (1973-97): A Kaleckian Perspective By Rahul Shastri; Ramana Murthy
  20. NON-NEUTRALITY OF MONETARY POLICY IN POLICY GAMES By Giovanni Di Bartolomeo; Nicola Acocella
  21. Multiple Critiques of Woodford’s Model of a Cashless Economy By David Eagle
  22. Some Novel Implications of Replacemnt and Scrapping By Georgios Bitros
  23. A cross sectional analysis of ship maintenance expenses By Georgios Bitros; Manolis Kavussanos
  24. External Debt and Pro-Poor Growth By Rolf Maier
  25. The Buffer-Stock Model and the Marginal Propensity to Consume. A Panel-Data Study of the U.S. States. By Bent E. Sørensen; Maria Jose Luengo-Prado
  26. SINGULARITY BIFURCATIONS By Yijun He; William Barnett
  27. Multilateral Aggregation-Theoretic Monetary Aggregation over Heterogeneous Countries By William Barnett
  28. Fiscal Rules and Macroeconomic Stability By Rafael Domenech; Javier Andres

  1. By: Emanuele Bacchiocchi; Massimo Florio (DEPA, University of Milan)
    Abstract: In this paper we test the empirical evidence of an impact of privatisation on output in the UK , through macroeconomic transmission channels. While most privatisation studies focus on microeconomic shocks, namely at firms' level, we are interested to see whether a large scale privatisation policy, as the one pursued in the UK in the 1980s and 1990s , had a measurable impact on output. This may contribute to the ex post evaluation of this policy and complement the microeconomic evidence. We use quartely data from 1979 to 1998 (covering the Thatcher and Major governments) of privatisation proceeds, as our impulse policy variable, and of private consumption, gross fixed capital formation, net government expenditures, as transmission channels, and aggregate output as our final response variable. The econometric methodology is based on Structural Vector Auto-regressive models and Impulse Response Functions. Non-stationarity and cointegration properties of the time series have also been considered. We find that privatisation shocks do not have an impact in the consumption-output model, have a moderate and not persistent impact in the investment and the public expenditures models.
    Keywords: privatisation in Great Britain, macroeconomic impact of policy reforms, structural VAR analysis,
    Date: 2005–04–13
  2. By: Hashmat Khan; Richhild Moessner
    Abstract: This paper examines the way in which structural changes in the level of steady-state competitiveness and the trend rate of inflation affect inflation responses to monetary policy shocks, in scenarios chosen to capture broadly the conditions of the UK economy in the early 1990s and more recently. Cyclical changes in competitiveness are also considered, since it is not clear empirically whether changes in competitiveness have been predominantly structural or cyclical. A model based on work by Woodford is used, allowing for positive trend inflation and cyclical variations in competitiveness in a tractable manner. This extension enables the separate quantification of the impact of differences in the steady-state level of and cyclical changes in competitiveness on inflation in the short term, in high and low inflation environments. The paper quantifies the extent to which procyclical (countercyclical) changes in competitiveness dampen (amplify) the impulse responses of inflation to a given monetary policy shock. In the calibration used, the inflation response to monetary policy shocks in a low inflation/high competitiveness environment is dampened compared with a high inflation/low competitiveness environment. By contrast, inflation responses to monetary policy shocks in a low inflation/low competitiveness environment are similar to those in a high inflation/high competitiveness environment.
  3. By: Demetrios Eliades; Olaf Weeken
    Abstract: Because of the difficulty in measuring investment in intangible assets and frequent data revisions, estimates based on National Accounts investment data provide an imperfect measure of the capital stock. Following the influential work by Robert Hall for the United States, this paper provides an alternative measure of the UK capital stock based on asset prices. This market-based measure reflects the premise that in fair-valued financial markets the value of firms' securities reflects the value of their productive assets. In line with Hall's results for the United States, the paper suggests that for a range of adjustment costs, depreciation rates and starting values, market-based estimates of the UK capital stock have differed substantially from those based on National Accounts investment data. Despite some advantages over National Accounts based measures, market-based measures are likely to be more volatile, because financial markets' assessment of the value of intangible assets can potentially change rapidly. Nevertheless, they can be a useful cross-check of the National Accounts based measures of the UK capital stock.
  4. By: Byeongju Jeong; Michal Kejak; Viatcheslav Vinogradov
    Abstract: We show that the business education/occupations have expanded and that the technical education/occupations have contracted in the Czech Republic and Poland since 1990. We interpret these changes as an adjustment necessary for their transition to a market economy. We do not find the same pattern in Hungary, which we attribute to its earlier timing of transition. We construct an aggregate model in which labor reallocates in response to changing demand structure. When calibrated to the Czech and Polish data, the model generates a large movement of workers with technical education and experience into business occupations in the early 1990s. The discounted sum of output loss due to the gap between the demand structure and the composition of existing human capital amounts to 20 to 40 percent of 1990 GDP.
    Keywords: Human capital; Composition; Occupation; Education; Mobility; Transition.
    JEL: J31 J62 P23 E13
    Date: 2005–01
  5. By: Martin Fukac
    Abstract: Monthly data on the inflation expectations of financial analysts in the Czech Republic exhibit a tendency for permanent bias and ineffectiveness which violates the rational expectations hypothesis assumed in macroeconomic models. This paper asks whether the surveyed data include any monetary-policy relevant information, in other words, whether the surveyed expectations correspond to the true market expectations, and hence should be reflected in macro models of the Czech economy instead of the rational expectations hypothesis. Using a methodology based on a simple Fisher rule, it is found that the difference between the surveyed and market expectations is not statistically significant.
    Keywords: Inflation expectations, Nominal interest rate, Fisher rule.
    JEL: C52 E43 E44
    Date: 2005–03
  6. By: Ainura Uzagalieva
    Abstract: The aim of this paper is to analyze the possible impact of planned monetary integration on public sector revenues from seigniorage in three countries: Belarus, Kazakhstan and Russia. Using the concept of total gross seigniorage, we investigate the main sources and uses of the central bank revenues in these countries. Special attention is given to the role of seigniorage revenues in financing public sector expenditures. Amounts of yearly transfers from central banks to the state budget in Belarus, Kazakhstan and Russia are evaluated, and the size of potential gains and looses in seigniorage revenues under different scenarios of monetary integration are estimated.
    Keywords: Seigniorage, Monetary integration, Transition economies.
    JEL: E
    Date: 2005–04
  7. By: Luis F. Céspedes; Claudio Soto
    Abstract: When the monetary authority lacks credibility it faces a larger trade-off between output and inflation. This poses important challenges for the implementation and design of an inflation targeting regime and an inflation stabilization process. In this paper we show how these challenges have determined different implementation phases of an inflation targeting regime in Chile, and how imperfect credibility is consistent with the different features of the disinflationary process followed by Chile during the 90s.
    Date: 2005–04
  8. By: Carla Massidda (University of Cagliari)
    Abstract: The purpose of this paper is to test the general validity of the NKPC previsions for the Italian manufacturing industries. In particular we are interested in estimating the extent to which the degree of nominal inertia and the fraction of backward-looking price-setters differ from industry to industry. We attempt to address this issue by testing three different model specifications: a pure forward-looking model versus a hybrid model where an income labour share marginal cost measure is considered, and a modified hybrid model specification where marginal costs are corrected to include intermediate inputs. Our results show that the backward-looking component is statistically significant and quantitatively large for all industries. Moreover, this estimate does not depend on the model’s specification. Conversely, the parameter measuring the extent of price rigidity is sensitive to the definition of firms’ cost. Interpreting the overall results, we conclude that price-setting behaviour is not totally homogeneous among Italian firms.
    Keywords: Phillips curve, Inflation, Unit labour cost
    JEL: E3
    Date: 2005–01
  9. By: Eduardo A. Lora (Research Department, Inter-American Development Bank)
    Abstract: This paper compares growth conditions in China and Latin America to assess fears that China will displace Latin America in the coming decades. China’s strengths include the size of the economy, macroeconomic stability, abundant low-cost labor, the rapid expansion of physical infrastructure, and the ability to innovate. China’s weaknesses, stemming from insufficient separation between market and State, include poor corporate governance, a fragile financial system and misallocation of savings. Both regions share important weaknesses: the rule of law is weak, corruption endemic and education is poor and very poorly distributed
    Keywords: China, Latin America, economic growth, investment climate
    JEL: E66 O57 P52
    Date: 2004–10
  10. By: Monchuk, Daniel C.; Miranowski, John; Hayes, Dermot J.; Babcock, Bruce A.
    Abstract: In this paper we examine some of the economic forces that underlie economic growth at the county level. In an effort to describe a much more comprehensive regional economic growth model, we address a variety of different growth hypotheses by introducing a large number of growth related variables. When formulating our hypotheses and specifying our growth model we make liberal use of GIS (geographical information systems) mapping software to “paint” a picture of where growth spots exist. Our empirical estimation indicates that amenities, state and local tax burdens, population, amount of primary agriculture activity, and demographics have important impacts on economic growth.
    Date: 2005–04–15
  11. By: Maya Bacache-Beauvallet (CEPREMAP, ENS Paris-Jourdan); Etienne Lehmann (ERMES, University of Paris 2 and IZA Bonn)
    Abstract: This article studies the political choice over the extent and the means of income redistribution between high and low skilled workers. Redistributive tools encompass fiscal transfers with negative income tax and minimum wage. Using fiscal instruments only is assumed optimal. We show that high skilled workers may favor a second-best minimum wage requirement. This is because minimum wage increases unemployment, hence the marginal cost of redistribution is higher which gives a pretext for high skilled workers to moderate low skilled workers claim for income redistribution.
    Keywords: unemployment, political economics, income redistribution, minimum wage
    JEL: D78 E24 H23 J38
    Date: 2005–04
  12. By: Esteban Rossi-Hansberg; Mark L.J. Wright
    Abstract: Why do firm growth and exit rates decline with size? What determines the size distribution of firms? This paper presents a theory of firm dynamics that simultaneously rationalizes the basic facts on firm growth, exit, and size distributions. The theory emphasizes the accumulation of industry specific human capital in response to industry specific productivity shocks. The theory implies that firm growth and exit rates should decline faster with size, and the size distribution should have thinner tails, in sectors that use human capital less intensively, or correspondingly, physical capital more intensively. In line with the theory, we document substantial sectoral heterogeneity in US firm dynamics and firm size distributions, which is well explained by variation in physical capital intensities.
    JEL: E2 D2 L2
    Date: 2005–04
  13. By: Esteban Rossi-Hansberg; Mark L.J. Wright
    Abstract: Most economic activity occurs in cities. This creates a tension between local increasing returns, implied by the existence of cities, and aggregate constant returns, implied by balanced growth. To address this tension, we develop a theory of economic growth in an urban environment. We show that the urban structure is the margin that eliminates local increasing returns to yield constant returns to scale in the aggregate, which is sufficient to deliver balanced growth. In a multi-sector economy with specific factors and productivity shocks, the same mechanism leads to a city size distribution that is well described by a power distribution with coefficient one: Zipf's Law. Under certain assumptions our theory produces Zipf's Law exactly. More generally, it produces the systematic deviations from Zipf's Law observed in the data, including the under-representation of small cities and the absence of very large ones. In general, the model identifies the standard deviation of industry productivity shocks as the key parameter determining dispersion in the city size distribution. We present evidence that the relationship between the dispersion of city sizes and the variance of productivity shocks is consistent with the data.
    JEL: E0 O4 R0
    Date: 2005–04
  14. By: Luiz de Mello
    Abstract: This paper reviews recent trends in fiscal performance in Brazil, estimates fiscal reaction functions for the consolidated public sector and different levels of government, and tests for the sustainability of the public debt dynamics. The empirical analysis, based on monthly data for the period 1995-2004, suggests that all levels of government react strongly to changes in indebtedness by adjusting their primary budget surplus targets. In addition, the central government appears to follow a spend-and-tax policy: changes in revenue are affected strongly by expenditure, with about two-thirds of changes in primary spending being offset through higher revenue over the long term. Institutions are also found to matter for fiscal sustainability. The responsiveness of sub-national fiscal stance to indebtedness, as well as that of central government revenue to changes in primary spending, appears to have strengthened after 1998, when ceilings on indebtedness were introduced. <p> Estimation des fonctions de réaction budgétaire: la soutenabilité de la dynamique de la dette publique au Brésil <p> Cet article examine les tendances récentes des performances budgétaires au Brésil, estime les fonctions de réaction budgétaire pour le secteur public consolidé et les différents niveaux d'administration, et teste la soutenabilité de la dynamique de la dette publique. L'analyse empirique, basée sur des données mensuelles pour la période 1995-2004, suggère que tous les niveaux d'administration réagissent fortement aux changements de l'endettement en ajustant leurs cibles d'excédent budgétaire primaire. En outre, l'administration centrale semble suivre une politique de " dépenses suivi d'impôt ": les changements de revenu sont affectés fortement par les dépenses, avec environ deux tiers des changements de la dépense primaire étant compensée par un plus haut revenu sur le long terme. Les institutions budgétaires sont également importantes en matière de soutenabilité budgétaire. La réaction des administrations locales à l'endettement, ainsi que celle du revenu de l'administration centrale aux changements de la dépense primaire, semble s'être renforcé après 1998, quand des plafonds sur l'endettement ont été introduits.
    Keywords: Brazil; fiscal reaction function; debt sustainability; fiscal rules
    JEL: E62 H62 H63
    Date: 2005–04–01
  15. By: Giovanni Di Bartolomeo (Public Economics Department, University of Rome La Sapienza); Jacob Engwerda (Department of Econometrics, Tilburg University); Joseph Plasmans (Faculty of Applied Economics UFSIA-RUCA, University of Antwerp); Bas van Aarle (Faculty of Economics LICOS, Catholic University of Leuven)
    Abstract: In this paper we build a three-country dynamic model of a monetary union (MU), where we focus on how coalitions among policy-makers are formed and what are their effects on the stabilization of output and price. Some preliminary results based on numerical simulations are provided.
    Keywords: Macroeconomic stabilization, coalitions, LQ differential games.
    JEL: E
    Date: 2005–04–16
  16. By: Rahul Shastri (National Akademi of Development)
    Abstract: The trend in manufacturing has not shifted post-91. Liberalisation shares in the high trend phase in manufacturing, that was ushered in after 1981, which continued even after 1991. Liberalisation however, seems to have changed the structure of demand responses of manufacturing output. In contrast to pre-liberalisation years, after 1991, manufacturing growth seems to have become highly sensitive to growth in personal consumption expenditure. After 1991, a one percentage point increase in personal consumption expenditure seems to change manufacturing growth by nearly 2 percentage points! Liberalisation also seems to have increased the responsiveness of manufacturing growth to fluctuations in growth of gross capital formation and exports. However, the increase in responsiveness to changes in export growth is not statistically significant.
    Keywords: Liberalisation, Indian Manufacturing, Demand-side analysis, personal consumption, exports, Keynesian Economics
    JEL: A E L N
    Date: 2005–04–15
    Abstract: This paper studies the interaction between two autonomous policymakers, the central bank and the government, in managing public debt as the result of a two-stage game. In the first stage the institutional regime is established. This determines the equilibrium solution to be applied in the second stage, in which a differential game is played between the two policymakers. It is shown that, if the policymakers can communicate before the game is played, (multiple-equilibrium) coordination problems can be solved by using the concept of correlated equilibrium. Unlike Nash equilibrium, which only allows for individualistic and independent behaviour, a correlated equilibrium allows for
    Keywords: monetary and fiscal policies, differential games, correlated equilibrium.
    JEL: C73 E58 F33 F42
    Date: 2005–04–16
    Abstract: This paper examines the information provided to the private sector by central anks. By using the principal component analysis, we investigated the variance of the procedural rules followed by nine major central banks about information reatments. We investigate problems related to the information coming from the entral banks by focusing on the quantity and quality perspectives and highlight the methodological complexity of the investigation. We find that a synthetic uantitative index of transparency is not enough to represent the phenomenon ince it can result misleading in understanding the behavior of institutionally different central banks associated with the same index values.
    Keywords: Central bank transparency, principal components, monetary policy.
    JEL: E52 E58
    Date: 2005–04–16
  19. By: Rahul Shastri (National Akademi of Development); Ramana Murthy (NALSAR)
    Abstract: The share of wages in organised Indian industry declined considerably between 1973 and 1997. The end to end drop was 19 per cent, and the wage share fell from 51.7 per cent to 32.8 per cent. In proportionate terms, the decline in wage share was between 30-40 per cent. The period of analysis divides into two phases. In the first phase of fifteen years (1973-87), wage share declined by 5½ percentage points, while the fall accelerated after 1987, and the decline from 1987-97 was by 13½ percentage points. If it is possible to identify the period 1987-97 with the period of liberalisation, it may be inferred that 70 per cent of the decline in the wage share was during the period of liberalisation. The period of liberalisation has witnessed an acceleration in the decline of the wage share. Faster growth of low-wage-share industries was responsible for a substantial part of the decline the share of labour. More than 1/3 of the total decrease in the wage share (1973-97) was due to the faster growth of low wage-share industries. Growing importance of low wage-share industries was the sole reason for the decline in wage share between 1973-87. After 1987, the relative growth of low wage-share industries contributed only 9 per cent of the fall in the aggregate wage share. In the period as a whole, the decline in wage share at the individual industry level contributed at least half (9½ percentage points) of the total decline in the aggregate wage share. In the first period, 1973-87, the industry level wage shares actually rose. However, in the second period, the industry level shares have been falling rapidly. They fell by 12.3 percentage points against the total decline of 13.5 percentage points in the wage share in this period. Thus, the decline in industry level wage shares contributed more than 90 per cent of the total decline in wage share in the second period (1987-97). If this period may be called the period of liberalisation, it may said that wage shares fell drastically at individual industry levels during liberalisation. For the period as a whole, the decline in industry level wage share was entirely due to the rise in material/wage (m/w) ratio. Constant composition mark-up remained the same end to end between 1973- 97. This study also examines the reasons for the consistent rise in m/w ratio and finds it to be due to technical change. Almost the entire increase in the m/w ratio was due to the rise in the material used per employee. This index rose from 100 to 380 over the period. Most of the increased material used found its way into greater output. Thus, O/L (index) rose from 100 to 346 over the time period. A small fraction of the rise in the material intensity per employee went into a rise in the material output ratio, whose index rose from 100 to 110. Thus, the study reveals a drastic decline in the aggregate share of wages between 1973- 97. This decrease came about as a result of a faster growth of low wage share industries over the period, as well as a rise in the material intensity per employee in the production process. Thus changes in output mix and technical change were responsible for the 19 percentage point drop in the share of wages. Mark-ups played no role in the decline in the period as a whole.
    Keywords: markups, material-wage ratio, technical change, output mix, wage share, distribution of income, Indian industry
    JEL: L E J D1 D4
    Date: 2005–04–19
    Abstract: The main aim of this article is to investigate the sources of non- neutrality in policy games involving one or more trade unions. We use a simple set up in order to clearly expose the basic mechanisms that also work in more complex frameworks. We show that there are common roots in the nonneutrality results so far obtained in apparently different contexts as, e.g., an inflation-averse union playing against the government; a union sharing some other common objective with a policy maker; or when more than one union interacts with monopolistic competitors in the goods market and a policymaker. We finally show that there are other cases where the nonneutrality result can arise.
    Keywords: neutrality, money, unions, policy game.
    JEL: E00 E52 J51
    Date: 2005–04–16
  21. By: David Eagle (Eastern Washington University)
    Abstract: Woodford’s (2003) model of a cashless economy is the basis for his book Interest and Prices. Since Woodford assumes complete markets, this paper explicitly includes state-contingent securities with either temporary money or a cash-in-advance constraint to analyze Woodford’s logic. This analysis finds four logical problems with Woodford’s analysis: (1) Woodford’s assumption that his solution is bounded is inappropriate. (2) Any finite version of Woodford’s model is incomplete. (3) Woodford’s central bank does not control nominal interest rates. (4) Woodford argument that interest rates determine prices and that prices affect the interest rate is circular and hence invalid.
    Keywords: cashless economy, monetary economics, pegging interest rates, central banking
    JEL: E52 E42 E58 E44 E31
    Date: 2005–04–19
  22. By: Georgios Bitros (Athens University of Economics & Business)
    Abstract: The emphasis of capital theory in recent decades has moved away from the implications of useful life as an important economic variable and has turned on the microeconomic and macroeconomic consequences of investment irreversibilities. Thus the voluminous literature that has developed ignores the marked difference be-tween replacement and scrapping and glosses over their significant implications for microeconomic and aggregate dynamics. This paper highlights the gains in explana-tory power that result when useful life, replacement and scrapping are placed in the center of the analysis. It does so by considering an economy with two representative firms that differ only in that the one applies replacement and the other scrapping. Among other interesting findings, at the microeconomic level it turns out that the de-mand for replacement investment is not invariant with respect to the type of capital policy being applied, whereas at the macroeconomic level it is shown that we cannot obtain consistent aggregates of capital stock and replacement investment.
    Keywords: Capital, investment, service life, replacement, scrapping
    JEL: E22
    Date: 2005–04–21
  23. By: Georgios Bitros (Athens University of Economics & Business); Manolis Kavussanos (Athens University of Economics & Business)
    Abstract: This paper introduces an econometric model to explain the determinants of expenditure in ship maintenance and repair. The data refer to 112 vessels of different types that operated in 1999 and were collected from ten Greek ship owning and management companies. On the meth-odological plain the best functional form is obtained when estimating a semi log- linear model. As expected from theory, the empirical results show that maintenance expenditure is positively related to utilization, age, and size. In addition the effect of age is found to be stronger on vessels younger than 20 years. This may be due to the fact that vessels less than 20 years old can be sold more easily in the second-hand market, whereas older vessels have a shorter lifetime and are also constrained by safety regulations. Therefore, ship owners are more reluctant to spend more once the vessel passes its 4th and especially its 5th special survey. To trace the effect of company poli-cies we included in the model company dummy variables. We found that such effects are present particularly when stores expenses are estimated separately. In turn, this suggested that company policies have still some control on maintenance expenses. Another result is that the elasticities of maintenance expenses with respect to utilization, age, and size at least in 1999 were uniformly less than one, thus revealing the existence of significant economies of scale. And still another result is that the type of ship, the flag, the classification and even the yard where maintenance takes place are significant determinants of the respective outlays.
    Keywords: ship maintenance expenses, utilization
    JEL: E
    Date: 2005–04–21
  24. By: Rolf Maier
    Abstract: To reveal effects and consequences of high indebtedness on income poverty, this paper explores empirically a linear and non-linear impact of external debt on pro-poor growth in developing and transitional countries. To examine this hypothesis, we test the distribution effect of external debt to GDP, external debt to exports, and debt services to exports on the poorest 20 and 20 to 40 percent in a cross-country approach. In addition, we estimate the total effect, i.e. the distribution and growth effect, to analyse potential trade-offs between the impact of unsustainable external debt levels on poverty through overall economic growth and via distribution. To test the poverty effects, we collect an irregular and unbalanced panel of time-series cross-country data on the first and second quintile of 58 developing and transitional countries for the period 1970 – 1999. We apply two econometric specifications, a growth equation and a system GMM estimation, to cover econometric issues, cross-country variation and dynamic aspects of within-country changes of the income of the poor. Empirical findings of the impact of the debt indicators on pro-poor growth have to be interpreted carefully due to inconsistent results of the sensitivity analyses. Thus results do not indicate an optimal external debt level with respect to pro–poor growth. On the contrary, higher external debt levels are associated with negative effects on the level of the income of the poorest 40 percent without exhibiting any significant effects on the growth rates. Thus concise policy recommendations with respect to debt sustainability levels and debt relief are difficult. A cautious conclusion would be that debt relief may affect the poor positively, but seems not to be a sufficient policy instrument for improved growth rates of the income of the poorest 40 percent. This policy proposal would be in line with calls for more poverty-targeted capital inflows, as even total debt relief would release only insufficient resources for poverty reducing activities. With this interpretation, however, we abstract from political economy and bad governance issues which may prevent poverty reducing debt relief initiatives.
    JEL: E
    Date: 2005–04–21
  25. By: Bent E. Sørensen (Department of Economics, University of Houston); Maria Jose Luengo-Prado (Northeastern University)
    Abstract: We simulate a buffer-stock model of consumption, explicitly aggregate over consumers, and estimate (aggregate) state-level marginal propensities to consume out of current and lagged income using simulated data generated by the model. We calculate the predicted marginal effects of changing state-specific persistence of income shocks, uncertainty of statespecific output, and individual-level risk. Next, we estimate marginal propensities for U.S. states using panel-data methods. We find effects of persistence that clearly correspond to the predictions of the model and while the effect of state-level uncertainty cannot be determined precisely, indicators of individual-level uncertainty have strong effects consistent with the model. Overall, the buffer-stock model clearly helps explain differences in consumer behavior across states.
    Keywords: Buffer-stock, Consumption, Precautionary saving.
    JEL: E21
    Date: 2005–02
  26. By: Yijun He (Department of Economics , Washington State University); William Barnett (Department of Economics, The University of Kansas)
    Abstract: equation models represent an important class of macroeconomic systems. Our ongoing research (He and Barnett (2003)) on the Leeper and Sims (1994) Euler equations macroeconometric model is revealing the existence of singularity-induced bifurcations, when the model¡¯s parameters are within a confidence region about the parameter estimates. Although known to engineers, singularity bifurcation has not previously been seen in the economics literature. Knowledge of the nature of singularity-induced bifurcations is likely to become important in understanding the dynamics of modern macroeconometric models. This paper explains singularity-induced bifurcation, its nature, and its identification and contrasts this class of bifurcations with the more common forms of bifurcation we have previously encountered within the parameter space of the Bergstrom and Wymer (1976) continuous time macroeconometric model of the UK economy. (See, e.g., Barnett and He (1999, 2002)).
    Date: 2004–10
  27. By: William Barnett (Department of Economics, The University of Kansas)
    Abstract: We derive fundamental new theory for measuring monetary service flows aggregated over countries within a multicountry economic union. We develop three increasingly restrictive approaches: (1) the heterogeneous agents approach, (2) the multilateral representative agent approach, and (3) the unilateral representative agent approach. Our heterogeneous agents approach contains our multilateral representative agent approach as a special case. These results are being used by the European Central Bank in the construction of its Divisia monetary aggregates database, with convergence from the most general to the more restrictive approaches expected as economic convergence within the euro area proceeds. Our theory is equally as relevant to other economic unions, with or without a common currency. We use a stochastic approach to aggregation across countries over heterogeneous representative agents. Our theory permits monitoring the effects of policy at the aggregate level over a multicountry economic union, while also monitoring the distribution effects of policy among the countries of the multicountry area. The resulting index number theory assures internal consistency of the data construction methodology with the theory used in applications of the data in modeling and policy.
    Keywords: Monetary Aggregation, Aggregation over Countries, Heterogeneous Agents, Multilateral Aggregation, EMU.
    JEL: C43 C82 E41 E51 F31
    Date: 2004–11
  28. By: Rafael Domenech (Institute of International Economics, University of Valencia); Javier Andres
    Abstract: In this paper we analyze the impact of fiscal rules on the effectiveness of fiscal policy as a macroeconomic stabilizing instrument. First, we review the available evidence on the effects of fiscal policy to affect output in the short run and real interest rates and investment and growth in the long run, and we show how the use of fiscal rules has proved useful in restraining debt and deficits. Secondly, we discuss if debt consolidation rules trade off higher output instability in exchange for lower deficits, using three alternative representations of the intertemporal substitution mechanism in a SDGE framework. Our main conclusion is that both the impact of discretionary fiscal policy and the strength of automatic stabilizers are largely unaffected by the 'tightness' of these rules. Therefore, there is nothing in the design of fiscal rules aimed at preventing huge and long-lasting deviations of debt from the steady state level, which makes them an impediment to fiscal policy carrying out its job as a significant stabilizing policy instrument.
    Keywords: fiscal rules,output volatility,automatic stabilizers
    JEL: E32 E52 E63
    Date: 2005–04
  29. By: Mahesh Kumar Tambi (ICFAI Institute for Management Teachers)
    Abstract: M&A and Takeovers are the powerful ways to achieve corporate growth, but because of their complex nature, to protect the interest of all the parties, curb the malpractices and to facilitate orderly development these activities are regulated by a takeover code in most part of the world. In India after liberalization Govt. started to regulate these activities by introducing a takeover code. This code has gone through various major and minor changes since then to respond the challenges it faced during implementation and also to overcome its shortcomings. My study is an attempt to discover what challenges it faced and what changes were incorporated in the code over the period of time. Whether these successive changes are leading Indian takeover code in a proper direction, also what are the major shortcomings of the code at present. What are the critical issues, which need immediate attention to make it more effective. In the paper I tried to explain these challenges by quoting major controversial takeover battles after 1990s.
    Keywords: Indian Takeover Code, Threshold limit, Conditional Offer, Cripping facility, Trigger point, Negotiated offer, Bail-out takeover
    JEL: E
    Date: 2005–04–15

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