nep-mac New Economics Papers
on Macroeconomics
Issue of 2005‒07‒03
thirty-two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. New Estimates of Government Net Capital Stocks for 22 OECD Countries 1960-2001 By Christophe Kamps
  3. Monetary Policy Impulses, Local Output and the Transmission Mechanism By Massimo Caruso
  5. Collective economic decisions and the discursive dilemma By Carl Andreas Claussen; Øistein Røisland
  6. Perfect Competition and the Keynesian Cross:Revisiting Tobin By Partha Sen
  7. Monetary Policy: From Theory to Practices By Thierry Warin
  8. The European Monetary Union as a Commitment Device for New EU Member States By Federico Ravenna
  9. A micro simulation model of demographic development and households' economic behavior in Italy By Albert Ando; Sergio Nicoletti-Altimari
  10. Trade Liberalisation, Growth and Poverty in Senegal: a Dynamic Microsimulation CGE Model Analysis By Nabil Annabi; Fatou Cisse; John Cockburn; Bernard Decaluwe
  12. LA TASA DE CAMBIO REAL EN COLOMBIA. ¿MUY LEJOS DEL EQUILIBRIO? By Juan José Echevarría; Diego Vásquez; Mauricio Villamizar
  13. The Contagion Effect of Public Debt on Monetary Policy: The Brazilian Experience By Fernando de Holanda Barbosa
  14. Public and Private Expenditures on Health in a Growth Model By Bhattacharya, Joydeep; Qiao, Xue
  15. Implications of WTO Agreements and Domestic Trade Policy Reforms for Poverty in Bangladesh: Short vs. Long Run By Nabil Annabi; H. Khondker Bazlul; Selim Raihan; John Cockburn; Bernard Decaluwe
  16. Doha Scenarios, Trade Reforms, and Poverty inthe Philippines: a CGE Analysis By Caesar B. Cororaton; John Cockburn; Erwin Corong
  17. Investment-Based Underperformance Following Seasoned Equity Offerings By Evgeny Lyandres; Le Sun; Lu Zhang
  18. Estimating Euler Equations with Noisy Data: Two Exact GMM Estimators By Sule Alan; Orazio Attanasio; Martin Browning
  19. Implications of Dynamic Factor Models for VAR Analysis By James H. Stock; Mark W. Watson
  20. Capital Shallowness: A Problem for New Zealand? By Julia Hall; Grant Scobie
  21. What Do German Short-Term Interest Rates Tell Us About Future Inflation? By Harald Grech
  22. Financial Differences and Business Cycle Co-Movements in A Currency Area By Ester Faia
  23. Monetary Policy, Expectations and Commitment By George W. Evans; Seppo Honkapohja
  24. Hours Worked: Long-Run Trends By Jeremy Greenwood; Guillaume Vandenbroucke
  25. A Generic Model of Financial Repression By Rangan Gupta
  26. Fiscal Squeeze and Social Policy During the Cardoso Administration (1995-2002) By Matias Vernengo
  27. Incomplete Intertemporal Consumption Smoothing and Incomplete Risksharing By Pierfederico Asdrubali; Soyoung Kim
  28. Adaptive Learning and Inflation Persistence By Fabio Milani
  29. Regime Shifts and the Stability of Backward Looking Phillips Curves in Open Economies By Efrem Castelnuovo
  30. Recent Increases in Prices of Oil Products and their Possible Effects on the 2001-2002 Disinflation Program in Turkey (in Turkish) By Aykut Kibritcioglu
  31. East Asian Economic Development: Two Demographic Dividends By Andrew Mason; Tomoko Kinugasa
  32. Financial Liberalization Era in Turkey: Critique on Decree No.32 By Onur Koska

  1. By: Christophe Kamps (Kiel Institute for World Economics)
    Abstract: The issue of whether government capital is productive has received a great deal of recent attention. Yet empirical analyses of public capital productivity have generally been limited to the official capital stock estimates available in a small sample of countries. Alternatively, many researchers have investigated the output effects of public investment- recognizing that investment may be a poor proxy for the corresponding capital stock. This paper attempts to overcome the data shortage by providing internationally comparable capital stock estimates for 22 Organization for Economic Cooperation and Development (OECD) countries.
    Keywords: Capital stock, capital goods, public capital, perpetual inventory method, OECD countries, public investment, productivity
    JEL: C82 E22 E62 H54
    Date: 2005–06–23
  2. By: Esteban Gómez; Diego Vásquez; Camilo Zea
    Abstract: Derivatives are contingent claims that complete financial markets. Their use allow agents and firms to ameliorate the impact over consumption, production and investment given a change in relative prices induced by an active monetary policy. In this sense, derivatives generate in some cases a loss in the effectiveness of the traditional monetary transmission channels in the short run, and in others, they promote an increase in the speed of transmission itself. Using an investment model, the impact of the use of interest rate and exchange rate derivatives in the dilution of colombian monetary channels is verified. Empirical exercises suggest that monetary policy has lost effectiveness in the short run. In spite of the surprise this result may offer given the relative immatureness of domestic derivative markets, the marginal effect of these instruments appears to be significant, in the face of local financial markets' imperfections. In addition, not only the hedge directly taken by firms with access to this instruments matter; there could be hedging spill- overs whenever commercial banks use derivatives, which allow for a more stable and cheap credit supply for firms with no access to those markets. The natural recommendation deriving from this conclusion suggests an urgent analysis of the derivatives impact over the speed of monetary transmission in Colombia.
    Keywords: Derivatives;
    JEL: E22
    Date: 2005–05–31
  3. By: Massimo Caruso (Banca d'Italia, Sede di Roma, Nucleo per la ricerca economica, via XX Settembre 97/e 00187 Rome ITALY)
    Abstract: This paper evaluates the effects of unanticipated monetary policy shocks on Italian output on the basis of highly disaggregated data and a VAR methodology. The impact of unexpected changes in the money market interest rate on the pattern of industrial production - based on qualitative business opinion survey data - has been computed for 164 local industries. The perceived output effects of monetary impulses go up for local industries with higher investment expenditures, less liquid firms and for industrial sectors that have a higher correlation with the aggregate business cycle. The hypothesis that small firms bear a disproportionate burden of monetary policy does not find support in this sample.
    Keywords: monetary policy shocks, business opinion surveys, heterogeneity
    JEL: E52 E58 R12
    Date: 2004–12
  4. By: Lorenzo Forni (Bank of Italy); Sandro Momigliano (Bank of Italy)
    Abstract: This paper examines the information-related problems associated with the analysis of fiscal policies, an issue recently analyzed in connection with monetary policies but largely ignored in the literature on budgetary actions. The results indicate that reliance on the information actually available to policy-makers in real-time is important for the assessment of past policies. We show that estimating fiscal policy rules based on ex post revised data tends to provide a misleading assessment of the sensitivity of discretionary policies to cyclical conditions. The results also suggest that part of the problems the Stability and Growth Pact encountered may have come from a misjudgment of cyclical conditions in some European countries in recent years.
    Keywords: Real-time information, OECD countries, stabilization policies, fiscal policy rules
    JEL: E61 E62
    Date: 2004–12
  5. By: Carl Andreas Claussen (Norges Bank); Øistein Røisland (Norges Bank)
    Abstract: Most economic decisions involve judgments. When decisions are taken collectively, various judgment aggregation problems may occur. Here we consider an aggregation problem called the "discursive dilemma", which is characterized by an inconsistency between the aggregate judgment on the premises for a conclusion and the aggregate judgment on the conclusion itself. It thus matter for the decision whether the group uses a premise- or a conclusion-based decisionmaking procedure. The current literature, primarily within jurisprudence, philosophy, and social choice, consider aggregation of qualitative judgments on propositions. Most economic decisions, however, involve quantitative judgments on economic variables. We develop a framework that is suitable for analyzing the relevance of the discursive dilemma for economic decisions. Assuming that decisions are reached either through majority voting or by averaging, we find that the dilemma cannot be ruled out, except under some restrictive assumptions about the relationship between the premise-variables and the conclusion.
    Keywords: Collective economic decisions, Judgement aggregation, Inconsistency
    JEL: D71 E60
    Date: 2005–06–29
  6. By: Partha Sen (Delhi School of Economics)
    Abstract: I look at an exogenous decrease in the desire to save in a two-sector-two-period overlapping generations model, where the consumption good is capital-intensive and the elasticities of substitution in production are "small". It is shown that there is a Keynesian-type multiplier at work, even though the model is a competitive one with full employment (and inelastic labour supply). It is reminiscent of Tobin (1975) who had shown thirty years ago that Keynesian results could be obtained with (short run) Marshallian dynamics (albeit in an ad-hoc model).
    Keywords: Overlapping Generations, Two-sector Models, Multiplier, Keynesian Cross.
    JEL: D90 E12 O41
    Date: 2005–05
  7. By: Thierry Warin
    Abstract: The paper proposes an overview of the literature on monetary policy. It shows the influence of the debates in the theoretical literature on the actual implementation of policies, as well a the counter effect. The European Economic and Monetary Union (EMU) is largely studies a an exampe of this counter effect with regard to the study of the credibility concept in an open economy setting.
    JEL: E50 E52 E58
    Date: 2005–06
  8. By: Federico Ravenna (Economics Department, University of California)
    Abstract: We show that the credibility gain from permanently committing to a fixed exchange rate by joining the European Monetary Union can outweigh the loss from giving up independent monetary policy if the domestic monetary authority does not enjoy full credibility. Using a DSGE model, this paper shows that when the central bank enjoys only limited credibility a pegged exchange rate regime yields a lower loss compared to an inflation targeting policy, even if this policy ranking would be reversed in a full-credibility environment. There exists an initial stock of credibility that must be achieved for a policy-maker to adopt inflation targeting over a strict exchange rate targeting regime. Full credibility is not a precondition, but exposure to foreign and financial shocks and high steady state inflation make joining the EMU relatively more attractive for a given level of credibility. The theoretical results are consistent with empirical evidence we provide on the relationship between credibility and monetary regimes using a Bank of England survey of 81 central banks.
    Keywords: Inflation targeting, Credibilty, Open Economy, Exchange Rate Regimes, Monetary Policy
    JEL: E52 E31 F02 F41
    Date: 2005–05–12
  9. By: Albert Ando; Sergio Nicoletti-Altimari (European Central Bank)
    Abstract: The relationship between the demographic structure and the saving rate of a society is the reflection of the aggregation of the behaviour of heterogeneous households, differing from one another in the type of living arrangements and in the characteristics of their members. In order to contribute to the understanding of this relationship, we construct a dynamic micro model capable of simulating the demographic development of a population, including the creation, destruction, dimension and various other important characteristics of households and their members. The demographic model is then combined with a specification of the processes generating income, social security wealth, retirement and consumption behaviour of households, and applied to a data set derived from survey data on the Italian household sector. Simulations of the model are used to study the evolution of aggregate income, saving and asset accumulation over the period 1994-2100. If fertility and mortality assumptions of recent official projections are adopted and marriage and divorce rates maintained at current levels, the dramatic ageing of the population and the marked decline in the share of population living in traditional households would lead, other things being equal, to a substantial decline in the aggregate saving rate. However, the reduction in the number of children per household and, above all, the decline in the ratio of social security wealth of households to disposable income as the effects of the recently introduced reforms begin to be felt act as offsetting factors. As a result, the aggregate saving rate increases over the initial 30 years of the simulation and moderately decreases thereafter, stabilizing slightly above the original level. Implications of changes in a number of key assumptions regarding the demographic evolution, productivity growth and individual behavioural responses are also analyzed.
    Keywords: demographic developments, family structure, consumption, saving, social security, micro simulation model
    JEL: D12 D31 D91 E21 H55 J10 J26
    Date: 2004–12
  10. By: Nabil Annabi; Fatou Cisse; John Cockburn; Bernard Decaluwe
    Abstract: An integrated sequential dynamic computable general equilibrium model is used to study the potential poverty and inequality effects of a complete tariff removal in Senegal. The model is calibrated with a 1996 social accounting matrix and a 1995 survey of 3278 households. The outcomes indicate small short run negative impacts in terms of welfare and poverty. In the long run, growth effects captured by the model bring an expansion of the industrial and services sectors and substantial poverty decreases. However, the decomposition of the results shows that the contribution of the redistribution component to poverty alleviation is negative.
    Keywords: Dynamic CGE model; trade liberalisation; poverty; inequality; Senegal; market access; CGEM
    JEL: D33 D58 E27 F17 I32 O15 O55
    Date: 2005–05
  11. By: Jorge Toro; Juan Manuel Julio
    Abstract: En este trabajo se hace una evaluación de la efectividad de la intervención discrecional utilizando una base de datos única que contiene información de alta frecuencia sobre el comportamiento intradía de la tasa de cambio, y de la intervención del Banco de la República. Se estima un modelo ARCH para los retornos (variaciones) de la tasa de cambio en intervalos de diez minutos. Se encuentra que la intervención obtiene el efecto deseado (un incremento permanente en la tasa de devaluación) sólo si se emite una señal creíble y no ambigua, acompañada de montos de intervención significativos. Adicionalmente, se obtiene que el diferencial entre la tasa de interés interna y externa es un determinante fundamental del retorno promedio. El conflicto entre el esquema de inflación objetivo y la intervención cambiaria ha debilitado la credibilidad de los agentes sobre la efectividad de la intervención, lo que se ha reflejado en un incremento de la volatilidad de los retornos. Los resultados econométricos son consistentes con la transmisión de los efectos a través del canal de Microestructura, y de la debilidad del canal de señales.
    Date: 2005–05–31
  12. By: Juan José Echevarría; Diego Vásquez; Mauricio Villamizar
    Abstract: La discusión sobre el comportamiento y los determinantes de la tasa de cambio ha resurgido en Colombia a raíz de la revaluación que tuvo lugar en 2004 (cercana a 12%, la mayor en la región) y la que ha tenido lugar en 2005. El sector privado en su conjunto ha manifestado honda preocupación ante lo sucedido, incluso con el apoyo de algunos grupos que podrían beneficiarse transitoriamente con la revaluación. En este trabajo se presenta la evolución de diferentes tasas de cambio, se consideran sus determinantes, con base en los cuales se explica la revaluación de 1991-97 y la posterior devaluación de 1997- 03. Luego de comparar nuestros resultados con los de otros trabajos sobre Colombia, la Sección final discute cuán lejos del equilibrio se encuentra la tasa de cambio actual. Se define la tasa de cambio de equilibrio o de largo plazo como aquella que resulta al remover los elementos especulativos (reflejo de disturbios en los mercados de activos) y cíclicos (dadas las rigideces en precios y salarios). Dicha tasa es compatible con una balanza de pagos sostenible en el largo plazo para un nivel dado de los fundamentos.
    Date: 2005–05–31
  13. By: Fernando de Holanda Barbosa (EPGE/FGV)
    Date: 2005–06
  14. By: Bhattacharya, Joydeep; Qiao, Xue
    Abstract: This paper introduces endogenous longevity risk in an otherwise standard overlapping generations model with capital. In the model, an agent may increase the length of her old age by incurring investments in her own health funded from her wage income. Such private health investments are more "productive" if accompanied by complementary tax-financed public health programs. The public input in private longevity is socially desirable; yet its presence may expose the economy to aggregate chaotic fluctuations.
    JEL: E0
    Date: 2005–06–28
  15. By: Nabil Annabi; H. Khondker Bazlul; Selim Raihan; John Cockburn; Bernard Decaluwe
    Abstract: We examine the impacts of WTO agreements and domestic trade policy reforms on production, welfare and poverty in Bangladesh. A sequential dynamic computable general equilibrium (CGE) model, which takes into account accumulation effects, is used allowing for long run analysis. The study is based on 2000 SAM of Bangladesh including fifteen production sectors, four factors of production (skilled and unskilled labour, agricultural and non-agricultural capital) and mine household groups (five in rural areas and four in urban areas) based on the year 2000 household survey. To examine the link between the macro effects and micro effects in terms of poverty we use the representative household approach with actual intra-group income distributions. The study presents five simulations for which the major findings are: (1) the Doha scenario has negative implications for the overall macro economy, household welfare and poverty in Bangladesh. Terms of trade deteriorate and consumer prices, particularly food prices, increase more than nominal incomes, especially among poor households; (2) Free world trade has similar, but larger, impacts; (3) Domestic trade liberalisation induces an expansion of agricultural and light manufacturing sectors, favourable changes in the domestic terms of trade. Although the short run welfare and poverty impacts are negative, these turn positive in the long run when capital has adjusted through new investments. Rising unskilled wage rates make the poorest household the biggest winners in terms of welfare and poverty reduction; (4) Domestic liberalisation effects far outweigh those of free world trade when these scenarios are combined; (5) Remittances constitute a powerful poverty-reducing tool given their greater importance in the income of the poor.
    Keywords: Dynamic CGE model, International trade, Poverty, Bangladesh
    JEL: D33 D58 E27 F17 I32 O15 O53
    Date: 2005
  16. By: Caesar B. Cororaton; John Cockburn; Erwin Corong
    Abstract: Since the early 1980s, the Philippines have undertaken substantial trade reform. The current Doha round of WTO negotiations is now likely to bring further reform and shocks to world import and export prices and world export demand. The impact of all these developments on the poor is not very clear and is the subject of very intense debate. A detailed economy-wide CGE model is used to run a series of policy experiments. Poverty is found to increase slightly with the implementation of the Doha scenario. These effects are focused primarily among rural households in the wake of falling world prices and demand for Philippines agricultural exports. The impacts of full liberalization involving free world trade and complete domestic liberalization are found to depend strongly on the mechanism the government adopts to offset forgone tariff revenue. If an indirect tax is used, the incidence of poverty falls marginally, but the depth (poverty gap) and severity (squared poverty gap) increase substantially. If, instead, an income tax is used, all measures of poverty increase. In both cases, full liberalization favors urban households, as exports, which are primarily non-agricultural, expand. In separate simulations, we discover that free world trade is poverty reducing and favors rural households, whereas domestic liberalization is poverty-increasing and favors urban households. Under free world trade, rural households benefit from increasing world agricultural export prices and demand. The anti-rural bias of domestic liberalization stems from the fact that import prices fall more for agricultural goods than for industrial goods, as initial import-weighted average tariffs rates are higher for the former. In conclusion, the current Doha agreement appears likely to slightly increase poverty, especially in rural areas and among the unemployed, self-employed and rural low-educated. The Philippines is found to have an interest in pushing for more ambitious world trade liberalization, as free world trade holds out promise for reducing poverty.
    Keywords: Computable General Equilibrium, Microsimulation, Poverty, International Trade, Philippines
    JEL: D33 D58 E27 F13 F14 I32 O15 O53
    Date: 2005
  17. By: Evgeny Lyandres; Le Sun; Lu Zhang
    Abstract: Adding a return factor based on capital investment into standard, calendar-time factor regressions makes underperformance following seasoned equity offerings largely insignificant and reduces its magnitude by 37-46%. The reason is that issuers invest more than nonissuers matched on size and book-to-market. Moreover, the low-minus-high investment-to-asset factor earns a significant average return of 0.37% per month. Our evidence suggests that the underperformance results from the negative investment-expected return relation, as predicted by Carlson, Fisher, and Giammarino (2005).
    JEL: E22 E44 G12 G14 G24 G31 G32
    Date: 2005–07
  18. By: Sule Alan (Department of Economics, York University, Toronto); Orazio Attanasio (Department of Economics, University College London); Martin Browning (Institute of Economics, University of Copenhagen)
    Abstract: In this paper we exploit the specific structure of the Euler equation and develop two alternative GMM estimators that deal explicitly with measurement error. The first estimator assumes that the measurement error is lognormally distributed. The second estimator drops the distributional assumption and solves out for the unknown, but constant, conditional mean. Our Monte Carlo results suggest that both proposed estimators perform much better than conventional alternatives based on the exact Euler equation or its log-linear approximation, especially with short panels.
    Keywords: nonlinear models; measurement error; Euler equation
    JEL: C13 E21
    Date: 2005–05
  19. By: James H. Stock; Mark W. Watson
    Abstract: This paper considers VAR models incorporating many time series that interact through a few dynamic factors. Several econometric issues are addressed including estimation of the number of dynamic factors and tests for the factor restrictions imposed on the VAR. Structural VAR identification based on timing restrictions, long run restrictions, and restrictions on factor loadings are discussed and practical computational methods suggested. Empirical analysis using U.S. data suggest several (7) dynamic factors, rejection of the exact dynamic factor model but support for an approximate factor model, and sensible results for a SVAR that identifies money policy shocks using timing restrictions.
    JEL: C32 E17
    Date: 2005–07
  20. By: Julia Hall; Grant Scobie (The Treasury)
    Abstract: There is now substantial evidence that New Zealand’s overall rate of economic growth relative to Australia’s has been lower in part because of lower levels and slower growth in our labour productivity. This then requires us to explore why the labour productivity is lower in New Zealand. This paper explores the extent to which a lower level of capital per hour worked (or lower capital intensity) is associated with less output per hour worked in New Zealand. We find that the capital intensity in New Zealand has not been increasing as fast as in Australia for nearly 25 years. Between 1995 and 2002, lower capital intensity explains 70 percent of the difference in output per hour worked. Whereas the cost of labour relative to capital has been rising in Australia, it has fallen by 20 percent in New Zealand between 1987 and 2002. The relative price of labour to capital in New Zealand fell to 60 percent of the Australian value in 2002 after being comparable in the late 1980’s. It is to be expected that New Zealand enterprises would therefore tend to adopt less capital intensive production methods. Differences in capital intensity could also have arisen because the underlying production technologies are different even if the relative prices of labour and capital in the two economies had been similar. We explore this issue and find a similar response of capital intensity to changes in the wage rate relative to the return on capital for the economies as a whole. However when we exclude the mining sector we find that the responsiveness in New Zealand is about one half that of Australia. Whether there are impediments or greater uncertainty in New Zealand that limit the ability of firms to respond to economic signals as much as their Australian counterparts remain as possible explanations requiring further investigation.
    Keywords: New Zealand; Australia; Capital-labour ratios; relative factor prices
    JEL: E22 E23 E24 O49
    Date: 2005–06
  21. By: Harald Grech (Oesterreichische Nationalbank, Economic Studies Division)
    Abstract: In this paper, the author empirically assesses the predictive power of short-term interest rates and term spreads for future inflation in Germany. Based on a multivariate term structure framework, a vector error forecasting equation for inflation forecasts of up to two years is constructed. The results of the alternative error correction reveal that the level of the shortterm interest rates conveys much more information on future inflation than the yield curve spreads. In particular, the one-month and three-month nominal interest rates seem to be informative on future inflation at a two-year horizon.
    Keywords: inflation, interest rates
    JEL: E31 C51
    Date: 2004–12–31
  22. By: Ester Faia (Department of Economics and Business, Universitat Pompeu Fabra)
    Abstract: I propose a unitary framework to interpret the links between di.erences in financial structures and the monetary policy regimes on the one hand, and the correlation of business cycles on the other. Using a two-country micro-founded model with financial frictions I predict that a greater financial diversity should reduce cyclical correlation under a given monetary regime, and that moving from independent monetary policies to a hard peg or a common currency should increase it, for any given degree of financial diversity. I use the recent experience of EMU to test these ideas, and show that my model explains reasonably well the broad patterns of business cycle correlation observed recently among the main euro area countries.
    Keywords: financial diversity, monetary regimes, differential transmission mechanism
    JEL: E3 E42 E44 E52 F41
    Date: 2005–05–12
  23. By: George W. Evans (University of Oregon Economics Department); Seppo Honkapohja (University of Cambridge)
    Abstract: This is a revised and shortened version of Working Paper 2002-11. Commitment in monetary policy leads to equilibria that are superior to those from optimal discretionary policies. A number of interest rate reaction functions and instrument rules have been proposed to implement or approximate commitment policy. We assess these rules in terms of whether they lead to an RE equilibrium that is both locally determinate and stable under adaptive learning by private agents. A reaction function that appropriately depends explicitly on private expectations performs particularly well on both counts.
    Keywords: Commitment, interest rate setting, adaptive learning, stability, determinacy
    JEL: E52 E31 D84
    Date: 2002–05–27
  24. By: Jeremy Greenwood (University of Rochester); Guillaume Vandenbroucke (University of Rochester)
    Abstract: For 200 years the average number of hours worked per worker declined, both in the market place and in the home. Technological progress is the engine of such transformation. Three mechanisms are stressed: (i) The rise in real wages and its corresponding wealth effect; (ii) The enhanced value of time off from work, due to the advent of time-using leisure goods; (iii) The reduced need for housework, due to the introduction of time-saving appliances. These mechanisms are incorporated into a model of household production. The notion of Edgeworth-Pareto complementarity/substitutability is key to the analysis. Numerical examples link theory and data.
    Keywords: Hours worked, leisure, housework, household production, Edgeworth-Pareto complementarity/substitutability, technological progress
    JEL: E24 J22 O11 O33
    Date: 2005–06
  25. By: Rangan Gupta (University of Connecticut)
    Abstract: The paper develops a standard neoclassical growth model in an overlapping generations framework of a financially repressed small open economy, and analyzes the effects of financial liberalization on steady-state capital stock. Repression is severe "enough" to generate an unofficial money market. The economy is also characterized by capital controls and crawling peg exchange rate regime. The following observations are made: Deregulation of interest rate reduces the steady-state stock of capital, while reduction in the multiple reserve requirements and increases in the rate of crawling, enhances it. The paper thus advocates financial liberalization policies to be oriented towards reduction of reserve requirements rather than interest rate deregulation.
    Keywords: Financial Repression; Capital Stock and Investment; Uno±cial Financial Markets.
    JEL: E22 E44 E52
    Date: 2005–06
  26. By: Matias Vernengo
    Abstract: Conventional wisdom associates the two lost decades of economic stagnation in Brazil to macroeconomic imbalances and excessive budgetary deficits. This paper suggests that, contrary to conventional wisdom, the fiscal crisis of the state in Brazil was the result of the liberalization strategy that started in 1989, and was accelerated and complemented during the Cardoso administration (1995-2002). In this view, the fiscal crisis of the State resulted from the financial liberalization of the 1990s and the increasing burden of interest payments on public debt. The interest burden, in turn, meant that fiscal spending on social policy was squeezed, a result that is common to liberalization experiences in the periphery. The amount of social spending was insufficient during the Cardoso administration, and problems were not restricted to inefficient spending.
    Keywords: Fiscal Policy, Development, Latin America
    JEL: E62 O10 O54
    Date: 2005–11
  27. By: Pierfederico Asdrubali; Soyoung Kim
    Abstract: This paper develops a method to estimate jointly the degree of (possibly incomplete) intertemporal consumption smoothing and the degree of (possibly incomplete) international/interregional risksharing. This approach generalizes and improves upon studies that either examine only intertemporal consumption smoothing, or analyze risksharing by making an extreme assumption on intertemporal consumption smoothing, or by adopting a purely empirical framework. The method is applied to the US states and OECD and EU countries to analyze how the degrees of risksharing and intertemporal consumption smoothing differ within a country and across countries. The empirical results suggest that: 1) regardless of the assumption on the degree of intertemporal consumption smoothing, the degree of risksharing within a country is larger than across countries 2) the degree of intertemporal consumption smoothing within a country is also larger than across countries, contrary to the findings of past channel studies. Finally, this paper also provides some foundations and suggests limitations of the empirical literature on channels of risksharing and intertemporal consumption smoothing.
    Keywords: Intertemporal consumption smoothing, risksharing, channels of risksharing, international vs. intranational
    JEL: E21 F36 F41
    Date: 2005–06–23
  28. By: Fabio Milani (Princeton University)
    Abstract: What generates persistence in inflation? Is inflation persistence structural? This paper investigates learning as a potential source of persistence in inflation. The paper focuses on the price-setting problem of firms and presents a model that nests structural sources of persistence (indexation) and learning. Indexation is typically necessary under rational expectations to match the inertia in the data and to improve the fit of estimated New Keynesian Phillips curves. The empirical results show that when learning replaces the assumption of fully rational expectations, structural sources of persistence in inflation, such as indexation, become unsupported by the data. The results suggest learning behavior as the main source of persistence in inflation. This finding has implications for the optimal monetary policy. The paper also shows how one's results can heavily depend on the assumed learning speed. The estimated persistence and the model fit, in fact, vary across the whole range of constant gain values. The paper derives the best-fitting constant gains in the sample and shows that the learning speed has substantially changed over time.
    Keywords: adaptive learning, inflation persistence, sticky prices, best- fitting constant gain, learning speed, expectations.
    JEL: D84 E30 E50
    Date: 2005–06–19
  29. By: Efrem Castelnuovo (University of Padua)
    Abstract: In this paper we assess the stability of open economy backward-looking Phillips curves estimated over two different exchange rate regimes. The pseudo-data employed in our econometric exercise come from the simulation of a New-Keynesian hybrid model suited for performing monetary policy analysis. Two main results arise: i) in most of the simulated scenarios the estimated reduced-form Phillips curves turn out to be unstable. However, if the structural new-keynesian model is predominantly - even if not fully - backward-looking, the estimated reduced-form parameters are stable; ii) the Chow-breakpoint test tends to underestimate the importance of regime-shifts in small samples.
    Keywords: Lucas Critique, forwardness, backward looking Phillips curves, exchange rates, Chow test.
    JEL: E17 E52 F41
    Date: 2005–06–28
  30. By: Aykut Kibritcioglu (Ankara University)
    Abstract: Following the financial crises in November 2000 and February 2001, the Turkish government canceled the 2000-2002 disinflation and economic restructuring program on February 22, 2001, and introduced a new macroeconomic-policy program on April 14, 2001. According to this new program, the annual WPI inflation is targeted as 57.6 percent for 2001. In this paper, the author discusses both (1) the degree of necessity of increases in oil-product prices after February 22, 2001, and (2) the implications of their possible inflationary effects for the targets of 2001-2002 program. He concludes that oil-product price increases can economically be justified by sharp rises in nominal exchange rates and moderate increases in world crude-oil prices. However, the accumulating inflationary pressures that stem from oil-price and exchange-rate increases may cause a remarkable deviation from the targeted inflation rate as end of December 2001. ***** TURKCE OZET: 'Turkiye'de Akaryakit Fiyat Artislari ve 2001-2002 Enflasyonla Mucadele Programi Uzerindeki Olasi Etkileri'. 2000 yýlýnda dünya ham petrol fiyatlarý 21 $/varil ile 35 $/varil arasýnda dalgalanýr, TL/Dolar kuru ise % 24.4 kadar yükselirken akaryakýt ürünlerinin fiyatlarýna yýl boyunca ortalama olarak sadece % 8.0 kadar zam yapýlmýþtýr. 57. TC Hükümetinin 2000-2002 enflasyonla mücadele programý ilk yýlda enflasyonu % 60’lardan % 30’lara dek düþürmesine raðmen, Kasým 2000 ve Þubat 2001 sonlarýnda patlak veren iki finansal kriz sonrasýnda kurlar dalgalanmaya býrakýlarak 2001-2002 yýllarý için yeni bir programýn hazýrlýklarýna giriþilmiþtir. Öte yandan, 2001’in ilk üç ayýndaki petrol fiyatý artýþlarý ayný yýlýn Þubat ve Mart ayý sonlarýndaki ciddi kur sýçramalarý ile birleþince, akaryakýt ürünlerinin fiyatlarýna özellikle Mart ve Nisan aylarýnda peþpeþe zamlar yapýlmýþtýr. Bu kýsa makalede; 2001 yýlýnýn ilk 3.5 ayýnda gerçekleþen toplam % 57.6’lýk akaryakýt zammýnýn ne ölçüde gerekli olduðu ve söz konusu artýþlarýn, Hükümetin 2001 yýlý için koyduðu % 57.6’lýk toptan eþya fiyatlarý endeksi (TEFE) artýþ hedefini ne derecede etkileyeceði sorularýna yanýt aranmaktadýr. Çalýþmanýn bulgularýna göre, yapýlan zamlar maliyet artýþlarý bakýmýndan büyük ölçüde haklýdýr. Ancak, akaryakýt zamlarýnýn olasý enflasyonist etkileri, Hükümetin 2001 yýlý TEFE artýþ hedefine ulaþýlmasýný olanaksýz kýlmasa da oldukça güçleþtirmektedir. Söz konusu hedefin tutturulabilmesi için, Hükümetin bundan böyle çok zorunlu olmadýkça akaryakýt ürünlerine zam yapmamasý gerektiði ve bir an önce kredibilitesi-güvenilirliði yüksek ve gerekli yasal reformlarla desteklenen yeni dezenflasyon programýný bir bütün olarak ve kararlýlýkla hayata geçirmesinin önemi ortaya çýkmaktadýr. [Yayinlandigi yer: Iktisat, Isletme ve Finans Dergisi, 16 (No. 184): 31- 41, Temmuz 2001]
    Keywords: oil prices, gasoline prices, high inflation, disinflation, Turkey
    JEL: E31 F40 Q43
    Date: 2005–06–21
  31. By: Andrew Mason (University of Hawaii at Manoa and East-West Center); Tomoko Kinugasa (Kobe University and University of Hawaii)
    Abstract: The important of the demographic dividend to East Asian economic growth is now widely recognized. During the last four decades of the 20th Century the working age populations grew much more rapidly than the dependent populations fueling growth in per capita income. Over the coming decades, however, demographic change is seemingly unfavorable. In the coming decades the working-age populations of many countries will grow more slowly than dependent populations because of rapid growth of the elderly. Thus, the demographic dividend will be undone. The thesis advanced in this presentation, however, is that appropriate economic policy could produce a second demographic dividend - one that is as great or greater than the first dividend and one that may last indefinitely. Contrary to popular wisdom, population aging may prove to be the source of stronger economic growth and greater prosperity in East Asia.
    JEL: J1 E1 E2
    Date: 2005–06
  32. By: Onur Koska (Hacettepe University)
    Abstract: “Financial Liberalization” winds had blown for 1980s’ Turkey, affected from developed nations, resulted from the efforts of keeping in step with world trend, and hence the law that had been put into practice in 1989, “decree no.32”, had not only affected its era, also had left countless problems in the site of country’s destiny. In the present paper, after exposing the existing political and economic circumstances in the last quarter of 20th century, the dynamics lying under the “decree no.32” are examined, pre- and post-decree situation are compared quantitatively, after then, whether “decree no.32” had an impact on the foreign exchange crisis exploded in 1994 is exposed.
    JEL: E44 E65 F40 G28 N20
    Date: 2005–06–27

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