nep-mac New Economics Papers
on Macroeconomics
Issue of 2005‒08‒13
eighty-one papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Monetary Policy in the Euro Area: Lessons from Five Years of ECB and Implications for Turkey By Canova, Fabio; Favero, Carlo A
  2. Solving, Estimating and Selecting Nonlinear Dynamic Economic Models without the Curse of Dimensionality By Viktor Winschel
  3. Rationalising Public Expenditure in the Slovak Republic By Rauf Gönenç; Peter Walkenhorst
  4. Hooverism, hyperstabilisation or halfway-house? describing fiscal policy in Estonia 1996-2003 By Rasmus Kattai; John Lewis
  5. Housing Markets, Wealth and the Business Cycle By Christophe André; Pietro Catte; Nathalie Girouard; Robert Price
  6. The Jobs Challenge in Poland: Policies to Raise Employment By Andrew Burns; Przemyslaw Kowalski
  7. Non-Linearities, Large Forecasters And Evidential Reasoning Under Rational Expectations By Ali al-Nowaihi; Sanjit Dhami
  8. Work and Leisure in the US and Europe: Why So Different? By Alesina, Alberto F; Glaeser, Edward L; Sacerdote, Bruce
  9. Banking Reform in Russia: Problems and Prospects By William Tompson
  10. Alternative measures of the Federal Reserve banks’ cost of equity capital By Michelle L. Barnes; Jose Lopez
  11. The Unemployment Inflation Trade-Off in the Euro Area By Tobias Linzert
  12. The Macroeconomic Consequences of Reciprocity in Labor Relations By Jean-Pierre Danthine; André Kurmann
  13. Fiscal Policy in a Two-Sector Economy with Public Capital and Congestion By Mihaela Pintea
  14. Enhancing the Cost Effectiveness of Public Spending: Experience in OECD Countries By Isabelle Joumard; Per Mathis Kongsrud; Young-Sook Nam; Robert Price
  15. An Empirical Model of Growth Through Product Innovation By Rasmus Lentz; Dale T. Mortensen
  16. Political Business Cycles in Local Employment By Cesar Alberto Campos Coelho; Francisco José Veiga; Linda Gonçalves Veiga
  17. A Small Monetary System for the Euro Area Based on German Data By Ralf Brueggemann; Helmut Luetkepohl
  18. Monetary Policy Under Uncertainty in Micro-Founded Macroeconometric Models By Andrew T. Levin; Alexei Onatski; John C. Williams; Noah Williams
  19. The Effectiveness of Official Foreign Exchange Intervention in a Small Open Economy: The Case of the Canadian Dollar By Michael R. King; Rasmus Fatum
  20. Exogenous Oil Supply Shocks: How Big Are They and How Much do they Matter for the US Economy? By Kilian, Lutz
  21. Evaluating Labor Market Reforms: A General Equilibrium Approach By César Alonso-Borrego; Jesús Fernández-Villaverde; José E. Galdón-Sánchez
  22. Wealth Effects on Money Demand in EMU: Econometric Evidence By Laurence Boone; Fanny Mikol; Paul Van den Noord
  23. Long-Run Determinants of Inflation Differentials in a Monetary Union By Altissimo, Filippo; Benigno, Pierpaolo; Rodriguez Palenzuela, Diego
  24. Contract Adjustment under Uncertainty By Helge Holden; Lars Holden; Steinar Holden
  25. Reforming Turkey's Public Expenditure Management By Rauf Gönenç; Willi Leibfritz; Erdal Yilmaz
  26. Agent Behaviour, Financial Market and Welfare Theory By Bernard Paranque; Walter Baets; Henry Pruden
  27. Macroeconomic Policies: New Issues of Interdependence By Martín Grandes; Nicolas Pinaud; Helmut Reisen
  28. Long-Term Budgetary Implications of Tax-Favoured Retirement Saving Plans By Pablo Antolin; Christine de la Maisonneuve; Alain De Serres
  29. Fiscal Spending Shocks and the Price of Investment: Evidence from a Panel of Countries By Stuart J. Fowler
  30. Sustaining Social Security By Martín Gonzalez-Eiras; Dirk Niepelt
  31. Competition, the Lisbon Strategy and the Euro By Anindya Banerjee; Bill Russell
  32. Why do central banks intervene secretly? Preliminary evidence from the Bank of Japan By Michel Beine; Oscar Bernal
  33. Fiscal Policy in New EU Member States – Go East, Prudent Man! By Ondrej Schneider; Jan Zápal
  34. Sources of Inflation Persistence in the Euro Area By Boris Cournède; Alexandra Janovskaia; Paul Van den Noord
  35. Asset Price Cycles, “One-Off” Factors and Structural Budget Balances By Nathalie Girouard; Robert Price
  36. Consumption, Wealth, the Elasticity of Intertemporal Substitution and Long-Run Stock Market Returns By Favero, Carlo A
  37. Causality and error correction in Markov chain: Inflation in India revisited By N. Vijayamohanan Pillai
  38. Business Cycle Accounting-How important are technology shocks as a propagation mechanism? Some new evidence from Japan By Suparna Chakraborty
  39. Fiscal Gimmickry in Europe: One-Off Measures and Creative Accounting By Vincent Koen; Paul Van den Noord
  40. Policy Uncertainty, Symbiosis, and the Optimal Fiscal and Monetary Conservativeness By Giovanni Di Bartolomeo; Francesco Giuli; Marco manzo
  41. Alice Through the Looking Glass: Monetary and Fiscal Policy Interaction in a Liquidity Trap By Sanjit Dhami; Ali al-Nowaihi
  42. Systematic monetary policy and persistence By Luca Bindelli
  43. Modeling bond yields in finance and macroeconomics By Francis X. Diebold; Monika Piazzesi; Glenn D. Rudebusch
  44. A Trend-Cycle(-Season) Filter: Prgoramme Code for Eviews, Excel, and MatLab By Matthias Mohr
  45. Assessing Forecast Performance in a VEC Model: An Empirical Examination By Zacharias Bragoudakis
  46. La fonction de production et les données canadiennes By Patrick Perrier
  47. Voting Transparency in a Monetary Union By Gersbach, Hans; Hahn, Volker
  48. The "News" View of Economic Fluctuations: Evidence from Aggregate Japanese Data and Sectoral U.S. Data By Paul Beaudry; Franck Portier
  49. Parameterized Expectations Algorithm and the Moving Bounds: a comment on convergence properties By Javier J. Pérez; A. Jesús Sánchez
  50. Policy mix and debt sustainability: evidence from fiscal policy rules By Peter Claeys
  51. A Fiscal Rule that has Teeth: A Suggestion for a Fiscal Sustainability Council underpinned by the Financial Markets By Petr Hedbávný; Ondrej Schneider; Jan Zápal
  52. Efficient Tests of Long-Run Causation in Trivariate VAR Processes with a Rolling Window Study of the Money-Income Relationship By Jonathan B. Hill
  53. Do Stockholders Share Risk More Effectively Than Non- stockholders? By Fatih Guvenen
  54. What if the UK had Joined the Euro in 1999? An Empirical Evaluation Using a Global VAR By M. Hashem Pesaran; L. Vanessa Smith; Ron P. Smith
  55. Differences in Resilience Between the Euro-Area and US Economies By Aaron Drew; Mike Kennedy; Torsten Sløk
  56. Government consumption expenditures and the current account By Michele Cavallo
  57. Is There a Change in the Trade-Off Between Output and Inflation at Low or Stable Inflation Rates?: Some Evidence in the Case of Japan By Hideyuki Ibaragi; Annabelle Mourougane
  58. Money Supply and the Implementation of Interest Rate Targets By Schabert, Andreas
  60. The Tradeoff Between Efficiency and Macroeconomic Stabilization in Europe By Martinez-Mongay; Khalid Sekkat
  61. The Savings Behaviour of Temporary and Permanent Migrants in Germany By Bauer, Thomas; Sinning, Mathias
  62. Modelling Cyclical Divergence in the Euro Area: The Housing Channel By Paul Van den Noord
  63. Tax Treatment of Private Pension Savings in OECD Countries and the Net Tax Cost Per Unit of Contribution to Tax-Favoured Schemes By Alain De Serres; Kwang-Yeol Yoo
  64. Cash-in-the-Market Pricing and Optimal Bank Bailout Policy By Acharya, Viral V; Yorulmazer, Tanju
  65. Unions, fiscal policy and central bank transparency By Giuseppe Ciccarone; Giovanni Di Bartolomeo; Enrico Marchetti
  66. A Trend-Cycle(-Season) Filter By Matthias Mohr
  67. A Growth Oriented Dual Income Tax By Christian Keuschnigg; Martin D. Dietz
  68. Determinants of fixed investment: A study of Indian private corporate manufacturing sector By V.R. Prabhakaran Nair
  69. Accounting for Russia's Post-Crisis Growth By Rudiger Ahrend
  70. The Acquisition of Skills over the Life-Cycle By Stuart J. Fowler; Eric R. Young
  71. Consumption and Debt Dynamics with (Rarely Binding) Borrowing Constraints By Alexis Anagnostopoulos
  72. Housing Price Dispersion: An Empirical Investigation By Charles Ka-Yui Leung; Youngman Chun Fai Leong; Siu Kei Wong
  73. Keynesian Theory and the AD-AS Framework: A Reconsideration By Amitava K. Dutt; Peter Skott
  74. Turning a Blind Eye: Costly Enforcement, Credible Commitment and Minimum Wage Laws By Basu, Arnab K; Chau, Nancy H; Kanbur, Ravi
  75. The Impact of Fat Tails on Equilibrium Rates of Return and Term Premia By Prasad V. Bidarkota; Brice V. Dupoyet
  76. On Stability of the Demand for Money in a Developing OECD By Ferda HALICIOGLU; Mehmet UGUR
  77. Uncertainty, Wage Setting and Decision Making in a Monetary Union By Carsten Hefeker
  78. A Theory of Growth and Volatility at the Aggregate and Firm Level By Diego Comin; Sunil Mulani
  79. Understanding the Dynamic Effects of Government Spending on Foreign Trade By Gernot J. Mueller
  80. One Money, One Cycle? Making Monetary Union a Smoother Ride By Christine de la Maisonneuve; Claude Giorno; Peter Hoeller
  81. The Impact of Exchange Rate Regimes on Real Exchange Rates in South America, 1990-2002 By Anne-Laure Baldi; Nanno Mulder

  1. By: Canova, Fabio; Favero, Carlo A
    Abstract: We examine monetary policy in the euro area from both theoretical and empirical perspectives. We discuss what theory tells us the strategy of Central banks should be and contrasts it with the one employed by the ECB. We review accomplishments (and failures) of monetary policy in the euro area and suggest changes that would increase the correlation between words and actions; streamline the understanding that markets have of the policy process; and anchor expectation formation more strongly. We examine the transmission of monetary policy shocks in the euro area and in some potential member countries and try to infer the likely effects occurring when Turkey joins the EU first and the euro area later. Much of the analysis here warns against having too high expectations of the economic gains that membership to the EU and euro club will produce.
    Keywords: communication; EU newcomers; pillars; transmission
    JEL: C11 E12 E32 E62
    Date: 2005–06
  2. By: Viktor Winschel (University of Mannheim)
    Abstract: A welfare analysis of a risky policy is impossible within a linear or linearized model and its certainty equivalence property. The presented algorithms are designed as a toolbox for a general model class. The computational challenges are considerable and I concentrate on the numerics and statistics for a simple model of dynamic consumption and labor choice. I calculate the optimal policy and estimate the posterior density of structural parameters and the marginal likelihood within a nonlinear state space model. My approach is even in an interpreted language twenty time faster than the only alternative compiled approach. The model is estimated on simulated data in order to test the routines against known true parameters. The policy function is approximated by Smolyak Chebyshev polynomials and the rational expectation integral by Smolyak Gaussian quadrature. The Smolyak operator is used to extend univariate approximation and integration operators to many dimensions. It reduces the curse of dimensionality from exponential to polynomial growth. The likelihood integrals are evaluated by a Gaussian quadrature and Gaussian quadrature particle filter. The bootstrap or sequential importance resampling particle filter is used as an accuracy benchmark. The posterior is estimated by the Gaussian filter and a Metropolis- Hastings algorithm. I propose a genetic extension of the standard Metropolis-Hastings algorithm by parallel random walk sequences. This improves the robustness of start values and the global maximization properties. Moreover it simplifies a cluster implementation and the random walk variances decision is reduced to only two parameters so that almost no trial sequences are needed. Finally the marginal likelihood is calculated as a criterion for nonnested and quasi-true models in order to select between the nonlinear estimates and a first order perturbation solution combined with the Kalman filter.
    Keywords: stochastic dynamic general equilibrium model, Chebyshev polynomials, Smolyak operator, nonlinear state space filter, Curse of Dimensionality, posterior of structural parameters, marginal likelihood
    JEL: E0 F0 C11 C13 C15 C32 C44 C52 C63 C68 C88
    Date: 2005–07–29
  3. By: Rauf Gönenç; Peter Walkenhorst
    Abstract: <P>Over the past decade, public expenditure in Slovakia was characterised by substantial social transfers and high public sector wage expenses. This paper analyses the main features of Slovakia’s public expenditure system, reviews expenditure trends, and discusses recent reform initiatives. The latter have concerned the introduction of medium-term budget projections, the switch towards performance-based budgeting, the limitation of extra-budgetary funds, the devolution of spending power to sub-central administrative units, changes to the public employment regime, and reforms of the social security system. These initiatives are critically assessed and a number of recommendations concerning implementation and further reform steps are developed ...</P> <P>Rationaliser les dépenses publiques en République Slovaque <P>Durant la dernière décennie, les dépenses publiques en Slovaquie ont été caractérisées par des transferts sociaux considérables et des substantielles dépenses salariales dans le secteur public. Ce document examine les spécificités du système de dépenses publiques, passe en revue l’évolution des dépenses et discute les initiatives de réforme récentes. Ces dernières ont concerné la gestion des finances publiques dans un cadre de dépenses à moyen terme, le changement vers un système basé sur les objectifs budgétaires, la limitation des fonds extra-budgetaires, la dévolution des responsabilités budgétaires vers les administrations locales et régionales, les changements dans le système d’emploi public, et des réformes dans le système de sécurité sociale. Ces initiatives sont évaluées de façon critique et un nombre de recommandations sont développées concernant la mise en œuvre des changements et des étapes de réforme supplémentaires ...</P>
    Keywords: Public sector efficiency, budget systems, Government expenditure, Intergovernmental Relations, Relations intergouvernementales, new public management, système budgétaire, l'efficience du secteur public, système de dépenses publiques, nouveau système de gestion publique, Slovakia, La Slovaquie, dépenses gouvernementales
    JEL: E62 H1 H4 H5 H7
    Date: 2004–03–16
  4. By: Rasmus Kattai; John Lewis
    Abstract: This paper develops a simple framework for describing fiscal policy where policymakers attempt to minimise deviations in output and budget balance from target values. Optimal policy is given by minimising a quadratic loss function subject to a linear structure of the economy. This policy can be viewed as weighted average of two polar cases - the case where the budget deficit adjusts to eliminate any deviations from potential output (hyperstabilisation), and the case where taxes and spending are determined exclusively by some budgetary goal (hooverism). We find some evidence of stabilisation for Poland, Latvia and Estonia. There is no evidence for the Czech Republic, Lithuania, Slovakia and Slovenia, suggesting that fiscal policy was being used for other objectives. The best fit is for Estonia, suggesting that a strict fiscal policy environment may not be incompatible with stabilising fiscal policy.
    Keywords: Fiscal Policy, Fiscal Policy Rules, New EU Member States
    JEL: E61 E62
  5. By: Christophe André; Pietro Catte; Nathalie Girouard; Robert Price
    Abstract: <P>The paper examines the linkages between housing markets and the business cycle in OECD countries, focusing on how differences in the degree of resilience to economic shocks can be affected by the structural characteristics of housing and mortgage markets. The paper focuses specifically on: the transmission channel from housing wealth to consumption and on the factors behind house price variability, which help to determine whether the housing sector plays a stabilising role or not. Estimates of the marginal propensity to consume out of housing wealth are presented for ten OECD countries, where it is found that the strongest impact on consumption is in countries that have large, efficient and responsive mortgage markets. Particularly important in this regard is the degree of mortgage market “completeness” -- <I>i.e.</I> the extent to which the market is able to offer a variety of products and to serve a broad range of potential borrowers -- in particular, the extent to which they provide ...</P> <P>Cette étude examine les liens entre les marchés immobiliers et le cycle économique dans les pays de l’OCDE, se concentrant sur le rôle des spécificités nationales des marchés immobiliers et hypothécaires sur l’inégale résilience face aux chocs économiques. Cette étude s’intéresse particulièrement au canal de transmission de la richesse immobilière à la consommation et aux facteurs expliquant la variabilité des prix des logements ; ces deux aspects contribuent à déterminer si le secteur immobilier joue un rôle stabilisateur ou non. Des estimations de la propension marginale à consommer la richesse immobilière sont présentées pour dix pays de l’OCDE. Ces estimations indiquent que les effets les plus important sur la consummation apparaissent dans les pays ayant des marchés hypothécaires de grande taille, efficients et réactifs. Le niveau de « complétude » du marché hypothécaire -- la mesure dans laquelle le marché peut offrir une variété de produits et répondre à un large éventail ...</P>
    Keywords: consumption, wealth, house prices, consommation, richesse, prix des logements, Business cycles, cycles économiques, mortgage markets, marchés hypothècaires
    JEL: D12 E21 E32
    Date: 2004–06–22
  6. By: Andrew Burns; Przemyslaw Kowalski
    Abstract: <P>With almost 50 per cent of the working age population not working, improving labour market performance represents an essential and daunting challenge for Poland. While some of today’s joblessness is cyclical in nature, most of it appears to be structural. This paper argues that to increase employment levels policy will need to focus on reducing significantly the inactivity traps inherent in the Polish personal transfer system, while improving the efficiency and targeting of social transfers to ensure resources flow to those truly in need. Simultaneously, efforts must be extended to increase firms' propensity to hire the outof-work, by lowering the costs of low-skill labour, reducing associated administrative and regulatory costs and in the longer term by providing graduates with more relevant skills. This paper outlines reforms in each of these areas which, if implemented, would serve to reverse the recent decline in employment and improve the fairness of income ...</P> <P>Le défi de l’emploi en pologne : politiques en faveur de l’emploi <P>Alors que près de 50 pour cent de la population d’âge actif est sans emploi, améliorer les performances du marché du travail représente pour la Pologne un formidable défi. Une partie du nonemploi est certes conjoncturelle mais, pour l’essentiel, c’est un phénomène structurel. L’idée développée dans cette étude est que, pour élever le niveau de l’emploi, il faudra s’attacher à réduire notablement les pièges à l’inactivité liés au système des transferts sociaux en Pologne, tout en améliorant l’efficience et le ciblage des transferts de façon que les flux de ressources aillent vers ceux qui en ont véritablement besoin. Parallèlement, il faudra redoubler d’efforts pour inciter davantage les entreprises à embaucher les personnes sans emploi, en abaissant le coût de la main-d’œuvre peu qualifiée, en réduisant les coûts administratifs et réglementaires connexes et, à plus long terme, en orientant les étudiants vers des qualifications plus pertinentes. Cette étude présente des réformes dans ...</P>
    Keywords: Poland, Pologne, education, marché du travail, labour market policies, personal transfer system, labour costs, active labour market policies, flexibility of working rules, transfers sociaux, coûts salariaux, politiques actives concernant le marché du travail, enseignement
    JEL: E24 H52 J20 J21 J22 J23 J24 J26 J31 J32 J65 O52 O57
    Date: 2004–12–23
  7. By: Ali al-Nowaihi; Sanjit Dhami
    Abstract: Rational expectations is typically taken to mean that, conditional on the information set and the relevant economic theory, the expectation formed by an economic agent should be equal to its mathematical expectation. This is correct only when actual inflation is “linear” in the aggregate inflationary expectation or if it is non-linear then forecasters are “small” and use “causal reasoning”. We show that if actual in- flation is non-linear in expected inflation and (1) there are “large” forecasters, or, (2) small/ large forecasters who use “evidential reasoning”, then the optimal forecast does not equal the mathematical expectation of the variable being forecast. We also show that when actual inflation is non-linear in aggregate inflation there might be no solution if one identifies rational expectations with equating the expectations to the mathematical average, while there is a solution using the “correct” forecasting rule under rational expectations. Furthermore, results suggest that published forecasts of inflation may be systematically different from the statistical averages of actual inflation and output, on average, need not equal the natural rate. The paper has fundamental implications for macroeconomic forecasting and policy, testing the assumptions and implications of market efficiency and for rational expectations in general.
    Keywords: Non-linearities; large forecasters; evidential reasoning; rational expectations; endogenous forecasts; classical and behavioral game theory
    JEL: C53 D84 E47 E63
    Date: 2005–08
  8. By: Alesina, Alberto F; Glaeser, Edward L; Sacerdote, Bruce
    Abstract: Americans average 25.1 working hours per person in working age per week, but the Germans average 18.6 hours. The average American works 46.2 weeks per year, while the French average 40 weeks per year. Why do western Europeans work so much less than Americans? Recent work argues that these differences result from higher European tax rates, but the vast empirical labour supply literature suggests that tax rates can explain only a small amount of the differences in hours between the US and Europe. Another popular view is that these differences are explained by long-standing European ‘culture’, but Europeans worked more than Americans as late as the 1960s. In this paper, we argue that European labour market regulations, advocated by unions in declining European industries who argued ‘work less, work all’ explain the bulk of the difference between the US and Europe. These policies do not seem to have increased employment, but they may have had a more society-wide influence on leisure patterns because of a social multiplier where the returns to leisure increase as more people are taking longer vacations.
    Keywords: europe; hours worked; labour unions; taxation
    JEL: E00 J30
    Date: 2005–07
  9. By: William Tompson
    Abstract: <P>This paper examines the state of the Russian banking sector in 2004 and assesses the most important reform initiatives of the last two years, including deposit insurance legislation, a major reform of the framework for prudential supervision, steps to increase transparency in the sector, and measures to facilitate the development of specific banking activities. The overall conclusion that emerges from this analysis is that the Russian authorities’ approach to banking reform is to be commended. The design of the reform strategy reflects an awareness of the need for a ‘good fit’ between its major elements, and the main lines of the reform address some of the principal problems of the sector. The major lacuna in the Russian bank reform strategy concerns the future of state-owned banks. Despite a long-standing official commitment to reducing the role of the state – and of the Bank of Russia in particular – in the ownership of credit institutions, there is still a need for a much more ...</P> <P>La réforme du secteur bancaire en russie - les enjeux et les perspectives <P>Cet article examine la situation du secteur bancaire russe en 2004 et évalue les principales initiatives de réforme prises au cours des deux dernières années – la législation sur l’assurance des dépôts, une vaste refonte du cadre de la surveillance prudentielle, des mesures pour renforcer la transparence du secteur, et l’adoption de dispositions visant à faciliter le développement de certaines activités bancaires. De façon générale, il ressort de cette analyse que l’on peut saluer l’approche suivie par les autorités russes en matière de réforme bancaire. La conception de la stratégie de réforme témoigne d’une sensibilité à la nécessité de trouver une «bonne harmonie» entre ces principales composantes, et les grands axes de la réforme s’attaquent à certains des grands problèmes du secteur. La plus grande lacune de la stratégie russe pour la réforme du secteur bancaire concerne l’avenir des banques publiques. En dépit d’un engagement officiel de longue date à réduire le rôle de ...</P>
    Keywords: corruption, transparency, transparence, banking, deposit insurance, Russia, economy, state ownership, Russie, économie, entreprises d’État, prudential supervision, accounting, international financial reporting standards, Sberbank, activités bancaires, assurance de dépôts, surveillance prudentielle, comptabilité, normes comptables internationales, corruption, Sberbank
    JEL: E58 G21 G28 O52 P29
    Date: 2004–11–09
  10. By: Michelle L. Barnes; Jose Lopez
    Abstract: The Monetary Control Act of 1980 requires the Federal Reserve System to provide payment services to depository institutions through the twelve Federal Reserve Banks at prices that fully reflect the costs a private-sector provider would incur, including a cost of equity capital (COE). Although Fama and French (1997) conclude that COE estimates are “woefully” and “unavoidably” imprecise, the Reserve Banks require such an estimate every year. We examine several COE estimates based on the CAPM model and compare them using econometric and materiality criteria. Our results suggests that the benchmark CAPM model applied to a large peer group of competing firms provides a COE estimate that is not clearly improved upon by using a narrow peer group, introducing additional factors into the model, or taking account of additional firm-level data, such as leverage and line-of-business concentration. Thus, a standard implementation of the benchmark CAPM model provides a reasonable COE estimate, which is needed to impute costs and set prices for the Reserve Banks’ payments business.
    Keywords: Financial services industry ; Federal Reserve banks - Service charges ; Federal Reserve banks - Costs
    Date: 2005
  11. By: Tobias Linzert (European Central Bank and IZA Bonn)
    Abstract: This paper analyzes the relationship between unemployment and wage inflation for 10 of the euro area countries. The combination of low wage inflation and high unemployment in Europe is usually attributed to a rise in the natural rate of unemployment. Using a panel data approach, this paper models directly the specific structural determinants of the natural rate of unemployment that may account for a changing pattern in the unemployment inflation tradeoff. Moreover, it analyzes whether the responsiveness of wages crucially depends on the level of inflation and the level of unemployment. This allows to detect possible downward rigidity of wages and grease or sand effects of positive levels of inflation.
    Keywords: Phillips Curve, unemployment, panel analysis
    JEL: E24 E31 J64 C23
    Date: 2005–07
  12. By: Jean-Pierre Danthine; André Kurmann
    Abstract: We develop and analyze a structural model of effciency wages founded on reciprocity. Workers are assumed to face an explicit trade-off between the disutility of providing effort and the psychological benefit of reciprocating the gift of a wage offer above some reference level. The model provides a rationale for rent sharing - a feature that is very much present in the data but absent from previous formulations of the effciency wage hypothesis. This firm-internal perspective on effciency wages has important macroeconomic consequences: rent-sharing considerations promote wage rigidity, internal amplification and asymmetric responses to technology and demand shocks.
    Keywords: reciprocity; rent-sharing; effciency wages; wage rigidity
    JEL: E24 E32 J50
    Date: 2005–07
  13. By: Mihaela Pintea (Department of Economics, Florida International University)
    Abstract: This paper focuses on the role of government capital as a critical productive input when the level of services that the agent derives from it is subject to congestion. I develop a two-sector “nonscale” production model in which there are two types of firms, conventional profit-maximizing private firms, and “public firms”, whose objective is to produce a specified quantity of government investment goods – determined by government policy – at minimum cost. Furthermore, the production functions of the two sectors need not in general coincide. Using this two-sector production set-up I assume that the positive externality of the public capital is associated with two types of congestion, proportional and aggregate. A variety of fiscal disturbances are analyzed. Because of the complexity of the model the analysis is carried out using simulations of a calibrated economy. The effects of tax policies are remarkably robust with respect to the relative capital intensities of the two productive sectors. In contrast, the effects of government investment are much more sensitive to this aspect. The introduction of congestion decreases the steady state growth rate of the economy. The relative congestion has stronger effects when the variation in the government investment is analyzed, whereas the absolute congestion is more relevant in the analysis of the change in the tax on capital income. The papers highlight the intertemporal dimensions of fiscal policy and the tradeoffs these involve for economic performance, especially growth and welfare.
    Keywords: endogenous growth, fiscal policy, public capital, congestion
    JEL: E62 O41
    Date: 2004–01
  14. By: Isabelle Joumard; Per Mathis Kongsrud; Young-Sook Nam; Robert Price
    Abstract: <P>In most OECD countries, public spending rose steadily as a share of GDP over the past decades to the mid-1990s, but this trend has since abated. The spending pressures stemming from the continued expansion of social programmes have been partly compensated by transient or one-off factors. Pressures on public spending, however, appear likely to intensify, in particular as a consequence of ageing populations. Since most OECD economies have very little scope for raising taxation or debt to finance higher spending, reforms to curb the growth in public spending while raising its cost effectiveness are now required. This paper presents a reform strategy for progress in this direction, based on detailed country reviews for over twothirds of OECD countries. Three main areas for action are identified: the budget process; management practices and the use of market mechanisms in the delivery of public services ...</P> <P>Améliorer le rapport coûts-résultats des dépenses publiques : expériences dans les pays de l’OCDE <P>La part des dépenses publiques dans le revenu national a augmenté au cours des dernières décennies dans la plupart des pays de l’OCDE. Depuis le milieu des années 90, les chiffres font apparaître une rupture de tendance. L’expansion continue des programmes sociaux, qui a favorisé la hausse des dépenses publiques, a été en partie compensée par un certain nombre de facteurs temporaires ou ponctuels. Les pressions sur les dépenses publiques risquent néanmoins de ressurgir, en particulier en raison du vieillissement des populations. Au vu des faibles marges de manoeuvre pour financer ces dépenses par une augmentation des impôts ou de la dette publique dans la plupart des pays de l’OCDE, des réformes visant à contenir la croissance des dépenses tout en améliorant leur efficacité sont désormais nécessaires. Sur la base d’études approfondies menées sur plus des deux tiers des pays de l’OCDE, ce document de travail identifie trios principaux axes de réforme : le processus budgétaire, les ...</P>
    Keywords: budget, Efficacité du secteur public, systèmes budgétaires, Government expenditure, dépenses publiques, Structure and scope of government, structure et taille du secteur public, public sector efficiencysystems.
    JEL: E62 H4 H5 H6
    Date: 2004–02–12
  15. By: Rasmus Lentz (University of Wisconsin-Madison, Boston University and CAM); Dale T. Mortensen (Northwestern University, NBER and IZA Bonn)
    Abstract: Productivity dispersion across firms is large and persistent, and worker reallocation among firms is an important source of productivity growth. The purpose of the paper is to estimate the structure of an equilibrium model of growth through innovation that explains these facts. The model is a modified version of the Schumpeterian theory of firm evolution and growth developed by Klette and Kortum (2004). The data set is a panel of Danish firms than includes information on value added, employment, and wages. The model's fit is good and the structural parameter estimates have interesting implications for the aggregate growth rate and the contribution of worker reallocation to it.
    Keywords: labor productivity growth, worker reallocation, firm dynamics, firm panel data estimation
    JEL: E22 E24 J23 J24 L11 L25 O3 O4
    Date: 2005–07
  16. By: Cesar Alberto Campos Coelho; Francisco José Veiga (Universidade do Minho - NIPE); Linda Gonçalves Veiga (Universidade do Minho - NIPE)
    Abstract: Using employment data for municipalities, we find strong evidence of political business cycles. Employment increases shortly before elections mainly in municipalities where the mayor´s party has a majority of deputies in the municipal assembly and where she is running for reelection. Classification-JEL: D72, H7.
    Keywords: Political business cycles, local governments, employment, Portugal.
    Date: 2005
  17. By: Ralf Brueggemann; Helmut Luetkepohl
    Abstract: Previous euro area money demand studies have used aggregated national time series data from the countries participating in the European Monetary Union (EMU). However, aggregation may be problematic because macroeconomic convergence processes have taken place in the countries of interest. Therefore, in this study, quarterly German data until 1998 are combined with data from the euro area from 1999 until 2002 and these series are used for getting a small vector error correction model for the monetary sector of the EMU. A stable long-run money demand relation is found for the full sample period. Moreover, impulse responses do not change much when the sample period is extended by the EMU period provided the break in the extended data series is captured by a simple dummy variable.
    JEL: C32
    Date: 2004
  18. By: Andrew T. Levin; Alexei Onatski; John C. Williams; Noah Williams
    Abstract: We use a micro-founded macroeconometric modeling framework to investigate the design of monetary policy when the central bank faces uncertainty about the true structure of the economy. We apply Bayesian methods to estimate the parameters of the baseline specification using postwar U.S. data, and then determine the policy under commitment that maximizes household welfare. We find that the performance of the optimal policy is closely matched by a simple operational rule that focuses solely on stabilizing nominal wage inflation. Furthermore, this simple wage stabilization rule is remarkably robust to uncertainty about the model parameters and to various assumptions regarding the nature and incidence of the innovations. However, the characteristics of optimal policy are very sensitive to the specification of the wage contracting mechanism, thereby highlighting the importance of additional research regarding the structure of labor markets and wage determination.
    JEL: C11 C22 E31 E52 E61 E63
    Date: 2005–08
  19. By: Michael R. King; Rasmus Fatum
    Abstract: The Bank of Canada is one of very few central banks that has made records of the intraday timing of its intervention operations available to researchers. The authors investigate the effectiveness of sterilized intervention in the Canadian dollar exchange rate market over the period January 1995 to September 1998. They employ an event study methodology and different criteria for success, and use both daily data and high-frequency (intraday) intervention and exchange rate data. The time period covers two distinct intervention regimes, characterized by mechanistic and discretionary intervention, respectively. Furthermore, the authors address the issue of currency comovements by carrying out the analysis using both the readily observable Canadian dollar/U.S. dollar exchange rate and the Canadian dollar/U.S. dollar exchange rate adjusted for general currency co-movements against the U.S. dollar. When they analyze the high-frequency data, the authors find evidence that intervention systematically affects movements in the Canadian dollar/U.S. dollar exchange rate and in the desired direction, along with some evidence that intervention is associated with a reduction of exchange rate volatility. When investigating exchange rate movements around intervention events using daily data, the authors find some evidence supportive of effectiveness. These effects, however, are weakened when adjusting for currency comovements against the U.S. dollar.
    Keywords: Exchange rates; Financial markets
    JEL: E58 F31 G14 G15
    Date: 2005
  20. By: Kilian, Lutz
    Abstract: Since the oil crises of the 1970s there has been strong interest in the question of how oil production shortfalls caused by wars and other exogenous political events in OPEC countries affect oil prices, US real GDP growth and US CPI inflation. This study focuses on the modern OPEC period since 1973. The results differ along a number of dimensions from the conventional wisdom. First, it is shown that under reasonable assumptions the timing, magnitude and even the sign of exogenous oil supply shocks may differ greatly from current state-of-the-art estimates. Second, the common view that the case for the exogeneity of at least the major oil price shocks is strong is supported by the data for the 1980/81 and 1990/91 oil price shocks, but not for other oil price shocks. Notably, statistical measures of the net oil price increase relative to the recent past do not represent the exogenous component of oil prices. In fact, only a small fraction of the observed oil price increases during crisis periods can be attributed to exogenous oil production disruptions. Third, compared to previous indirect estimates of the effects of exogenous supply disruptions on real GDP growth that treated major oil price increases as exogenous, the direct estimates obtained in this paper suggest a sharp drop after five quarters rather than an immediate and sustained reduction in economic growth for a year. They also suggest a spike in CPI inflation three quarters after the exogenous oil supply shock rather than a sustained increase in inflation, as is sometimes conjectured. Finally, the results of this paper put into perspective the importance of exogenous oil production shortfalls in the Middle East. It is shown that exogenous oil supply shocks made remarkably little difference overall for the evolution of US real GDP growth and CPI inflation since the 1970s, although they did matter for some historical episodes.
    Keywords: Counterfactual; Economic activity; Exogeneity; inflation; oil shock; Oil supply; war; weak instruments
    JEL: C32 E32
    Date: 2005–07
  21. By: César Alonso-Borrego; Jesús Fernández-Villaverde; José E. Galdón-Sánchez
    Abstract: Job security provisions are commonly invoked to explain the high and persistent European unemployment rates. This belief has led several countries to reform their labor markets and liberalize the use of fixed-term contracts. Despite how common such contracts have become after deregulation, there is a lack of quantitative analysis of their impact on the economy. To fill this gap, we build a general equilibrium model with heterogeneous agents and firing costs in the tradition of Hopenhayn and Rogerson (1993). We calibrate our model to Spanish data, choosing in part parameters estimated with firm-level longitudinal data. Spain is particularly interesting, since its labor regulations are among the most protective in the OECD, and both its unemployment and its share of fixed-term employment are the highest. We find that fixed-term contracts increase unemployment, reduce output, and raise productivity. The welfare effects are ambiguous.
    JEL: E24 C68 J30
    Date: 2005–08
  22. By: Laurence Boone; Fanny Mikol; Paul Van den Noord
    Abstract: <P>This paper investigates the determinants of money demand (M3) in the euro area. It specifically examines the potential impact of financial and housing wealth on money demand. It tests the hypothesis, whether wealth associated with increases in asset prices is used to finance liquidity holdings in a standard portfolio context. Regressing velocity on interest rates and a wealth variable (a composite of residential property and stocks) within an error-correction framework provides evidence of positive wealth effects from financial and housing assets on money demand in the long run, but no significant impact in the short run. Tests suggests that the long-run and dynamic money demand equations are stable and have not been disrupted by the adoption of the euro on 1 January 1999, while the impact of wealth on money demand may have increased ...</P> <P>Les effets de richesse sur la demande de monnaie dans l'union économique et monétaire : une analyse économétrique <P>Cet article étudie les facteurs qui déterminent la demande de monnaie (M3) dans la zone euro. Il examine de manière explicite quels sont les effets de richesse liés aux avoirs mobiliers et immobiliers sur la demande de monnaie. Il teste l'hypothèse selon laquelle, dans un contexte classique de choix de portefeuille, la richesse résultant d'une hausse des prix des actifs est employée pour financer la détention de liquidités. Un modèle à correction d'erreur est mis en oeuvre pour effectuer une régression économétrique de la vitesse de circulation de la monnaie sur les taux d'intérêt et sur une variable composite de richesse (qui agrège immeubles et actions), faisant apparaître des effets de richesse liés aux actifs mobiliers et immobiliers sur la demande de monnaie qui sont significatifs à long terme mais non à court terme. Différents tests suggèrent que les équations de demande de monnaie, tant dynamiques que de long terme, sont stables et n'ont pas été perturbées par l'adoption de ...</P>
    Keywords: wealth, richesse, Money demand, inflation, demande de monnaie, inflation
    JEL: E41 E52
    Date: 2004–11–09
  23. By: Altissimo, Filippo; Benigno, Pierpaolo; Rodriguez Palenzuela, Diego
    Abstract: This paper analyses the long-run determinants of inflation differentials in a monetary union. First, we aim at establishing some stylized facts relating the regional dispersion in headline inflation rates in the euro area as well as in the main components of the consumer price index. We find that a relatively large proportion of it occurs in the Service category of the EU’s harmonized consumer price index (HICP). We then lay out a model of a monetary union with fully flexible prices, the long-run properties of which are analysed. Our model departs in several respects from the Balassa-Samuelson hypotheses. Our results are in contrast with the result that movements in the real exchange rate are mainly driven by regionally asymmetric productivity shocks in the traded sectors. Our results point instead to relative variations in productivity in the non-traded sector as the primary cause of price and inflation differentials, with shocks to productivity in the traded sector being largely absorbed by movements in the terms of trade in the regional economies. These shocks are also found to largely drive the variability of real wages at the country level.
    Keywords: currency area; PPP; Real Exchange Rate
    JEL: E31 F41
    Date: 2005–07
  24. By: Helge Holden; Lars Holden; Steinar Holden
    Abstract: Consider a contract over trade in continuous time between two players, according to which one player makes a payment to the other, in exchange for an exogenous service. At each point in time, either player may unilaterally require an adjustment of the contract payment, involving adjustment costs for both players. Players’ payoffs from trade under the contract, as well as from trade under an adjusted contract, are exogenous and stochastic. We consider players’ choice of whether and when to adjust the contract payment. It is argued that the optimal strategy for each player is to adjust the contract whenever the contract payment relative to the outcome of an adjustment passes a certain threshold, depending among other things of the adjustment costs. There is strategic substitutability in the choice of thresholds, so that if one player becomes more aggressive by choosing a threshold closer to unity, the other player becomes more passive. If players may invest in order to reduce the adjustment costs, there will be over-investment compared to the welfare maximizing levels.
    JEL: C72 C73 C78 E31
    Date: 2005
  25. By: Rauf Gönenç; Willi Leibfritz; Erdal Yilmaz
    Abstract: <P>Fiscal imbalances were a main cause for chronic high inflation and macroeconomic instability before the 2000/2001 crisis. Fiscal consolidation is the cornerstone of post-crisis stabilization. It has been quite successful over the past three years as sizeable primary surpluses have been sustained and the fall in interest rates has reduced the interest cost of public debt. Fiscal targets have been achieved chiefly by raising revenues which has increased the tax burden; greater emphasis should now be placed on the control of public expenditure. At the same time, core public services such as education, justice, infrastructure and rural development will need to be upgraded. Social security costs may also rise with the planned shift to universal health insurance, and the ambitious administrative decentralization project could cause upward pressure on local spending. Far-reaching rationalization of public expenditures is therefore required to meet the quantitative fiscal targets while ...</P> <P>Réformer la gestion des dépenses budgétaires en Turquie <P>Les déséquilibres fiscaux ont été une cause majeure de l’inflation forte et de l’instabilité macroéconomique avant la crise de 2000/2001. La consolidation budgétaire a été au cœur de la stabilisation après la crise. Elle a été mise en œuvre depuis trois ans avec des excédents primaires larges, et la baisse des taux d’intérêt a réduit le coût du service de la dette publique. Les objectifs budgétaires ont été atteints principalement par une hausse des revenus, augmentant la pression fiscale, et plus d’attention devra être accordée à l’avenir au contrôle des dépenses. En même temps des services publics majeurs comme l’éducation, la justice, les infrastructures et le développement rural devront être améliorés. Les dépenses de sécurité sociale pourraient aussi augmenter avec le passage annoncé à la couverture médicale universelle, et l’ambitieux projet de décentralisation administrative pourrait accroître les dépenses locales. Une forte rationalisation des dépenses devient donc ...</P>
    Keywords: Public sector efficiency, budget systems, Government expenditure, Intergovernmental Relations, Relations intergouvernementales, new public management, système budgétaire, système de dépenses publiques, nouveau système de gestion publique, dépenses gouvernementales, Turkey, La Turquie, l’efficience du secteur public
    JEL: E62 H1 H4 H5 H7
    Date: 2005–02–10
  26. By: Bernard Paranque (Euromed Marseille Ecole de Management); Walter Baets (Euromed Marseille Ecole de Management); Henry Pruden (Euromed Marseille Ecole de Management)
    Abstract: An important literature has pointed out the coordination problems faced by the agents, in particular the financial one when they have to manage risk and their portfolio. If we follow Kaldor and its definition of speculation, then we could point out that in this case agents are short term oriented because they have to face to an uncertain reality: uncertainty about the behaviour of their competitors at present time and in the future, and uncertainty about the future reality which will be built by their own decision and action. Then each agent tries to anticipate the behaviour of the others, on one hand to do the same (then in average it is a way to avoid lost), on another hand to try to find an opportunity which has not been seen by the other (the way to earn money, doing what the other can’t or may not do), that means mimetic versus opportunism (or free rider behaviour). In both case, we have a kind of reproduction of habits without any collective perspective. The latent hypothesis is that individual decision produces the people satisfaction, the social welfare. We thinks there are three reasons to disagree with this hypothesis ( cancelling that it does not work in reality): a lack of specific tool allowing us to anticipate change and communicate about it; a lack of understanding “what is the common reality”; a lack of an agreement on “what and how can we do together”. That means that we need to understand that rules are not a constraint like they could be in the contract theory but more a through out line to help us to coordinate a collective action
    Keywords: Financial behaviour , holism , agent , financial market , social welfare , value maximization , stakeholder
    JEL: C61 D6 D82 E44 G14 G30
    Date: 2005–08–01
  27. By: Martín Grandes; Nicolas Pinaud; Helmut Reisen
    Abstract: <P>Three novel macroeconomic policy challenges are discussed in this paper: the macroeconomic implications of China’s emergence; the implications of intensifying financial integration; and the interaction of Asia’s foreign exchange regime with monetary policy in the OECD area.</P><P>First, China may now be regarded as a price maker on some international commodity and energy markets. Its global impact nowadays stretches importantly not just into goods and commodity markets, but equally into world financial markets. The acquisition by the Chinese official sector of large amounts of foreign assets has raised the country’s global cyclical, financial and macroeconomic importance. Hence, China should not just be perceived as a producer of low-priced goods, but likewise of “cheap savings”. China as a swing exporter/importer could destabilise commodity markets, with important repercussions for developing countries. Variations in China’s output gap will have important repercussions on key global ...</P> <P>Ce document de travail s’intéresse à trois nouveaux défis de la politique macro-économique : les implications macro-économiques de l’émergence de la Chine ; les conséquences de l’intensification de l’intégration financière ; et l’interaction entre les régimes asiatiques de taux de change avec les politiques monétaires des pays de l’OCDE.</P><P>La Chine décide désormais du niveau des prix sur certains marchés internationaux des matières premières et de l’énergie. Son influence mondiale se fait nettement ressentir au-delà des marchés des biens et des matières premières, jusque sur les marchés financiers internationaux. L’acquisition par la banque centrale chinoise de larges quantités d’actifs étrangers a accru l’influence du pays sur les cycles économiques mondiaux et consolidé son importance d’un point de vue financier et macro-économique. La Chine ne doit donc plus seulement être perçue comme un pays producteur de biens à bas prix, mais aussi comme une source d’« épargne bon ...</P>
    Date: 2005–01
  28. By: Pablo Antolin; Christine de la Maisonneuve; Alain De Serres
    Abstract: <P>This paper provides estimates of the implicit fiscal assets as well as of the evolution over time of fiscal costs and revenues related to tax-favoured retirement saving regimes in 17 OECD countries, taking into account current and future contributions, asset accumulation and withdrawals, all of which will be strongly influenced by future demographic developments. The main results show that in the case where tax incentives are assumed to lead essentially to saving diversion rather than creation, the net budgetary cost of tax-favoured schemes would remain large, despite the sharp rise in revenues collected from withdrawals as population ages. The paper shows that this cost would significantly be reduced if tax-favoured schemes succeed in promoting additional private savings. It then explores a number of policy options to maximize the amount of additional saving ...</P> <P>Lmplications budgétaires à long terme des plans d’épargne retraite à traitement fiscal favorable <P>Cette étude présente, pour 17 pays de l’OCDE, les résultats d’estimation des avoirs nets budgétaires ainsi que de l’évolution sur le temps des coûts et revenus fiscaux liés aux plans privés d’épargne retraite à traitement fiscal favorable. Les estimations prennent en compte les contributions, l’accumulation d’actifs et les prestations présentes et futures qui seront influencées par les changements démographiques à venir. Les principaux résultats suggèrent que dans l’hypothèse où les incitatifs fiscaux ont peu d’effet sur la creation nette d’épargne et conduisent plutôt à une réallocation de l’épargne existante, le coût budgétaire net des plans d’épargne retraite à traitement fiscal favorable demeurera élevé et ce, en dépit de la forte croissance des recettes fiscales anticipée, liée à l’augmentation importante du nombre de retraités par rapport au nombre de contributeurs. L’étude montre en outre que le coût budgétaire est sensiblement réduit dans l’hypothèse où ces plans ...</P>
    Keywords: ageing, vieillissement, tax-favoured, tax-deferred, private pensions, retirement savings, fiscal revenues, public deficits, fiscalité favorable, pensions privées, épargne pour la retraite, déficit public
    JEL: E62 H20 H50 H60 J18
    Date: 2004–06–24
  29. By: Stuart J. Fowler
    Abstract: The effects of fiscal spending shocks are estimated by the introduction of a measure of fiscal policy into the neoclassical growth model via a parametric function that distorts the value of newly created capital. The model is estimated by Method of Simulated Moments (MSM) via conditional moments (IRFs) from a panel of countries. We find that fiscal spending distortions cannot be rejected as an important determinant for deviations in the relative price of investment for the OECD countries. An implication is that a one standard error shock to fiscal spending can increase GDP by as much as 1.12 percent over an eight year horizon. Alternatively, the price of investment seems not to be affected by fiscal policy shocks in less developed countries.
    Keywords: General Equilibrium Dynamics; Fiscal Spending Shocks; Method of Simulated Moments
    JEL: E32 O40
    Date: 2005–02
  30. By: Martín Gonzalez-Eiras; Dirk Niepelt
    Abstract: This paper analyzes the sustainability of intergenerational transfers in politico-economic equilibrium. Embedding electoral competition for the votes of old and young households in the standard Diamond (1965) OLG model, we find that intergenerational transfers naturally arise in a Markov perfect equilibrium, even in the absence of altruism, commitment, or trigger strategies. Not internalizing the negative effects of transfers for future generations, the political process partially resolves the distributive conflict between old and young voters by shifting some of the cost of social security to the unborn. As a consequence, transfers in politico-economic equilibrium are higher than what is socially optimal. Standard functional form assumptions yield closed-form solutions for the politico-economic equilibrium as well as the equilibrium supported by the Ramsey policy. The model predicts population ageing to lead to larger social security systems, but eventually lower benefits per retiree. Under realistic parameter values, it predicts a social-security tax rate close to the actual one, but higher than the Ramsey tax rate. Closed-form solutions for the case with endogenous labor supply, tax distortions, and multiple policy instruments prove the results to be robust.
    Keywords: social security, intergenerational transfers, probabilistic voting, Markov perfect equilibrium, saving, labor supply
    JEL: E62 H55
    Date: 2005
  31. By: Anindya Banerjee; Bill Russell
    Abstract: This paper considers whether the Euro-area economies have become more competitive since the introduction of the Euro and the implementation of the Lisbon strategy. Using a measure of the markup as a proxy for competition we show that while the markup has varied considerably over the past 25 years and declined recently, most of this variation can be explained by movements in inflation and the business cycle. Consequently, based on our data, we find little evidence of a pro-competitive impact of the introduction of the Euro and implementation of the Lisbon strategy.
    Keywords: Inflation, markup, business cycle, competition, Lisbon strategy, Euro
    JEL: C22 C32 C52 D40 E31 E32
    Date: 2004
  32. By: Michel Beine (DULBEA, Université libre de Bruxelles, Brussels); Oscar Bernal (DULBEA, Université libre de Bruxelles, Brussels)
    Abstract: This paper empirically investigates the main determinants of secret interventions in the foreign exchange (FX) market. Using the recent experience of the Bank of Japan, we estimate a model that explains the share of secret to reported interventions in the FX market. Two sets of determinants are clearly identified: the first is related to the probability of detection of the central bank orders by market participants; the second, to the central bank’s internal decision to opt for secrecy. Our estimations support the arguments of current microstructure theories that rationalize the use of secret interventions.
    Keywords: Central Bank Interventions, Exchange Rates Market, Secrecy Puzzle.
    JEL: E58 F31 G15
    Date: 2005–04
  33. By: Ondrej Schneider; Jan Zápal
    Abstract: The European Union (EU) accepted ten new member states (NMS) in 2004. These countries, mostly former socialist countries, have had to adjust their economic policies to the EU’s standards. Perhaps most difficult has proven to be fiscal policy whereby NMS must comply with the Stability and Growth Pact (SGP) rules. Indeed, six out of the ten NMS have breached the SGP limits and were put in Excessive Deficit Procedure (EDP). While the SGP is being modified, fiscal policy is set to remain on the agenda for all NMS in years to come. In this paper, we analyze fiscal policy in the NMS, focusing primarily on the time period that immediately preceded their EU accession. We analyse the structure and scale of these countries’ fiscal policy and identify main trends in revenues and expenditures of their public budgets. We then explore dynamics of fiscal policy in the new member states and isolate main factors of the dynamics. Namely, we show how much of the consolidations was due to the fiscal authorities’ effort and how much was caused by external factors. We also show that most NMS governments have run a rather inconsistent fiscal policy and have not consolidated their budgets appropriately by postponing politically difficult consolidation measures. However, we also identify a group of countries characterised by strong reform efforts and responsible fiscal policy-making, supported usually by strong economic growth. In this context, room is given to economic, as well as political economy factors.
    Keywords: fiscal policy, new member states, consolidations, Stability and Growth Pact, Excessive Deficit Procedure, growth accounting, probit analysis
    JEL: E60 E62 H20 H60 H87
    Date: 2005
  34. By: Boris Cournède; Alexandra Janovskaia; Paul Van den Noord
    Abstract: In recent years, inflation in the euro area has failed to decelerate decisively while cyclical slack built up in the economy. Is this phenomenon more than a peculiarity in recent data? Is it related to structural policy settings? Econometric analysis conducted on two decades of quarterly data covering 17 countries yields a yes on both counts. First, inflation is shown to respond significantly more weakly to cyclical slack in the euro area than in countries such as the United Kingdom, the United States or Canada. Secondly, this lack of responsiveness is found to be related in a statistically significant way to more rigid structural policy settings. The results pass a wide range of robustness checks. This Working Paper relates to the 2005 OECD Economic Survey of the euro area ( <P>Les causes de la persistance de l'inflation dans la zone euro Au cours des dernières années, l’inflation ne s’est pas ralentie de manière sensible au sein de la zone euro alors même que l’écart de production y devenait de plus en plus négatif. Ce phénomène est-il plus profond qu’une bizarrerie des statistiques économiques récentes ? Y a-t-il un lien avec les caractéristiques structurelles de la zone euro ? L’analyse économétrique de deux décennies de données trimestrielles pour dix-sept pays conduit à répondre oui à chacune de ces questions. Premièrement, il apparaît que, pour un même écart de production négatif, l’inflation ralentit moins dans la zone euro que dans des pays comme le Royaume-Uni, les États-Unis ou le Canada. Deuxièmement, il existe un lien statistiquement significatif entre ce manque de réactivité et une plus grande rigidité des politiques structurelles. La robustesse de ces résultats est confirmée par un large éventail de tests. Ce Document de travail se rapporte à l'Etude économique de l'OCDE de la zone euro, 2005 (
    Keywords: monetary policy, Economic and Monetary Union, Union Économique et Monétaire, politique monetaire, inflation, inflation
    JEL: E31 E32 E52 E58
    Date: 2005–07–20
  35. By: Nathalie Girouard; Robert Price
    Abstract: <P>This paper analyses two factors which may cause cyclically-adjusted budget balances to give a misleading picture of underlying fiscal trends. It first explores the implications of recent large asset-market related fluctuations in government revenues for the measurement of structural budget balances. And second, it reviews the impact of the increased recourse to stopgap “one-off” measures to control deficits. The results confirm that since the late 1990s revenues have been more buoyant than would have been warranted by the registered rate of nominal output growth and the impact of tax measures. The study suggests that from 1995 to 2000 the average contribution of “unwarranted” revenues to year-to-year changes in cyclically-adjusted budget positions ranged from negligible to around ½ per cent of GDP, the main countries affected being the United States, the United Kingdom, France and some Nordic countries. Conversely, the subsequent decline in tax receipts has been sharper than could ...</P> <P>Cette étude analyse deux facteurs qui peuvent contribuer à brouiller la lisibilité des positions budgétaires sous-jacentes évaluées par la mesure traditionnelle du solde budgétaire corrigé des variations cycliques. Dans un premier temps, elle étudie les implications des récentes fluctuations des recettes fiscals associées aux marchés boursiers sur la mesure du solde structurel. Dans un deuxième temps, cette etude discute des effets du recours accru aux facteurs non-récurrents sur la maîtrise des déficits. Les resultants confirment que depuis la fin des années 1990, les recettes fiscales ont été plus dynamiques que ne le laissaient suggérer le taux de croissance nominal de l’activité et les effets des mesures fiscales. Entre 1995 et 2000, la contribution moyenne des recettes non-expliquées au changement annuel du solde budgétaire corrigée pour les variations cycliques oscillerait entre zéro et ½ pour cent du PIB, les principaux pays concernés étant les États-Unis, le Royaume-Uni, la ...</P>
    Keywords: Fiscal balances, structural balances, asset prices, Solde budgétaire, solde budgétaire corrigé des variations cycliques, prix des actifs
    JEL: E32 E65 H24 H25 H6
    Date: 2004–06–07
  36. By: Favero, Carlo A
    Abstract: Consumption is striking back. Some recent evidence indicates that the well-known asset pricing puzzles generated by the difficulties of matching fluctuations in asset prices with high frequency fluctuations in consumption might be solved by considering consumption in the long-run. A first strand of the literature concentrates on multiperiod differences in log consumption, a second concentrates on the cointegrating relation for consumption. Interestingly, only the (multiperiod) Euler Equation for the consumer optimization problem is considered by the first strand of the literature, while the cointegration-based literature concentrates exclusively on the (linearized) intertemporal budget constraint. In this paper, we show that using the first order condition in the linearized budget constraint to derive an explicit long-run consumption function delivers an even more striking strike back.
    Keywords: cointegrating consumption function; elasticity of intertemporal substitution; long-run stock market returns
    JEL: E20 E44 G12
    Date: 2005–06
  37. By: N. Vijayamohanan Pillai (Centre for Development Studies)
    Abstract: The present paper proposes certain statistical tests, both conceptually simple and computationally easy, for analysing state-specific prima facie probabilistic causality and error correction mechanism in the context of a Markov chain of time series data arranged in a contingency table of present versus previous states. It thus shows that error correction necessarily follows causality (that is temporal dependence) or vice versa, suggesting apparently that the two represent the same aspect! The result is applied to an analysis of inflation in India during the last three decades separately and also together based on the monthly general price level (WPI - all commodities) and 23 constituent groups/items, as well as on the three consumer price index (CPI) numbers.
    Keywords: Markov chain, Steady state probability, India, Inflation, Return period
    JEL: E31 C1
    Date: 2004–12
  38. By: Suparna Chakraborty (University of Minnesota)
    Abstract: This paper investigates the role of technology shocks as a propagation mechanism for business cycles using the new technique of business cycle accounting (BCA) and some new evidence from Japan. BCA technique enables us to model the economy as a standard growth model, but extends it to allow multiple propagation channels (referred to as wedges). Applying it to Japan during the period 1980 to 2000, I find that though technology shocks play an important role in propagating market frictions, they are by no means enough to account for the observed economic fluctuations. Investment wedges play a major role, something that standard RBC models fail to recognize and consequently tends to overemphasize the role of technology shocks.
    Keywords: business cycle accounting, wedges, propagation mechanism, technology, aggregate fluctuations, japan
    JEL: E
    Date: 2005–08–02
  39. By: Vincent Koen; Paul Van den Noord
    Abstract: <P>Accounting conventions usually leave some room for judgment, which governments may be tempted to take advantage of, especially when fiscal rules bite or threaten to do so. The European experience over the past decade -- documented here in great detail -- illustrates that fiscal gimmicks come in many different guises, but also that some are less mischievous than others. Logit regression analysis confirms that when deficit rules or, to a lesser extent, debt thresholds tend to become more binding, recourse to gimmicks is more likely. It also suggests that more centralised budget systems are less prone to such gimmickry. The policy implications are clear as regards the virtues of transparent and consistent accounting practices, but more ambiguous regarding the merits or otherwise of one-off measures ...</P> <P>Astuces budgétaires en Europe : mesures non récurrentes et créativité comptable <P>En général, les conventions comptables sont sujettes à interprétation, et les gouvernements peuvent être tentés d’en profiter, notamment lorsqu’ils sont contraints, ou en voie de l’être, par des règles budgétaires. L’expérience européenne au cours de la décennie écoulée -- décrite ici avec force détails -- montre que les astuces budgétaires sont protéiformes, mais aussi que certaines posent moins de problèmes que d’autres. Des régressions logit confirment que lorsque les règles sur les déficits ou, dans une moindre mesure, les seuils d’endettement deviennent plus contraignants, la probabilité d’un recours à des astuces augmente. Elles corroborent également l’idée que les astuces tendent à être moins employées dans des systèmes budgétaires plus centralisés. Les implications de politique économique sont claires s’agissant des vertus de la transparence et de la cohérence des comptes, mais plus ambiguës concernant les mérites ou inconvénients des mesures non récurrentes ...</P>
    Keywords: Public debt, Dette publique, règles budgétaires, Economic and Monetary Union, Union Économique et Monétaire, Stability and Growth Pact, Pacte de stabilité et de croissance, Budgets, fiscal deficit, fiscal rules, fiscal gimmicks, national accounts, political economy, Budgets, déficit budgétaire, astuces budgétaires, comptes nationaux, économie politique
    JEL: D78 E61 H27 H6 H74 H81 H82 H87
    Date: 2005–02–10
  40. By: Giovanni Di Bartolomeo (Department of Public Economics, University of Rome 'La Sapienza'); Francesco Giuli (Department of Public Economics, University of Rome 'La Sapienza'); Marco manzo (Department of Public Economics, University of Rome 'La Sapienza')
    Abstract: This paper extends the stabilization game between monetary and fiscal authorities to the case of multiplicative (model) uncertainty. In this context, the “symbiosis assumption”, i.e. fiscal and monetary policy share the same ideal targets, no longer guarantees the achievement of ideal output and inflation, unless the ideal output is equal to its natural level. A time consistency problem arises.
    Keywords: Monetary-fiscal policy interactions, uncertainty, symbiosis.
    JEL: E61 E63
    Date: 2005–08–05
  41. By: Sanjit Dhami; Ali al-Nowaihi
    Abstract: In a liquidity trap the nominal interest rate hits its zero floor. Hence, to reduce the real interest rate, and affect an economic recovery, inflationary expectations must increase. If the economy turns out not to be liquidity trapped, the Treasury has an incentive to renege on its promise of high inflation because inflation is costly. Hence, under discretion, a rational private sector keeps its inflation expectations low and the real interest rate remains too high. We suggest an institutional solution that has two main components. First, an inflation target given to an independent Central Bank who has sole control over monetary policy. This provides a commitment to the ‘necessary’ inflation level when the economy is not in a liquidity trap. Second, the Treasury, who retains control of fiscal policy, is given something like a ‘Taylor rule’, which penalizes deviations of output from an output target and inflation from the inflation target. This ensures that fiscal policy is ‘appropriately’ expansionary in a liquidity trap. Overall, this type of delegation keeps inflationary expectations ‘suffi- ciently’ high and achieves the optimal mix of monetary and fiscal policy. We prove that this arrangement achieves the optimal rational expectations (precommitment) solution. It is tempting to conclude that the huge welfare losses associated with the Japanese experience might have been mitigated by the institutional setup suggested here.
    Keywords: liquidity trap; monetary-fiscal coordination; optimal inflation and output targets; the Japanese experience
    JEL: E63 E52 E58 E61
    Date: 2005–07
  42. By: Luca Bindelli
    Abstract: Woodford (1999 and 2003) has raised the theoretical possibility that in a standard, forward looking sticky price model, an independent channel of inertia might arise as a result of policy behavior. We analyze this assertion empirically, and estimate a standard model, in which the monetary authority is assumed to commit to an optimal rule. We contribute to the existing literature by identifying the purely policy induced persistence present in the model. We also analyze the role of the structural parameters reflecting policy preferences and price flexibility in altering the policy induced, as well as the overall persistence properties of the model. We find that such a model is able to replicate most of the data's moments. In constrast to previous empirical literature, lagged terms in both modelled Phillips and IS curves are found to be either insignificant or very small. Commitment policy alone can explain a substantial part of output persistence. While the pricing mechanism at the heart of this model helps transfer output persistence into inflation persistence, commitment policy manages to undo this link by undershooting the inflation target following a positive 'cost push' shock so that inflation persistence is slightly reduced compared to the discretionary policy case.
    Keywords: persistence; optimal monetary policy; supply shock; Kalman filter
    JEL: E52 E58
    Date: 2005–05
  43. By: Francis X. Diebold; Monika Piazzesi; Glenn D. Rudebusch
    Abstract: From a macroeconomic perspective, the short-term interest rate is a policy instrument under the direct control of the central bank. From a finance perspective, long rates are risk-adjusted averages of expected future short rates. Thus, as illustrated by much recent research, a joint macro-finance modeling strategy will provide the most comprehensive understanding of the term structure of interest rates. We discuss various questions that arise in this research, and we also present a new examination of the relationship between two prominent dynamic, latent factor models in this literature: the Nelson-Siegel and affine no-arbitrage term structure models.
    Keywords: Bonds ; Macroeconomics ; Finance ; Econometric models
    Date: 2005
  44. By: Matthias Mohr (European Central Bank)
    Abstract: This zip archive contains implementations of the trend-cycle-season filter in Eviews, Excel, and MatLab. The trend-cycle-season filter is another univariate method to decompose a time series into a trend, a cyclical and a seasonal component: the Trend-Cycle filter (TC filter) and its extension, the Trend-Cycle-Season filter (TCS filter), see paper ewp-em/0508004 at rs/0508/0508004.abs
    Keywords: economic cycles, time series, filtering, trend-cycle decomposition, seasonality
    JEL: C13 C22 E32
    Date: 2005–08–03
  45. By: Zacharias Bragoudakis (Bank of Greece)
    Abstract: This paper is an exercise in applied macroeconomic forecasting. We examine the forecasting power of a vector error-correction model (VECM) that is anchored by a long-run equilibrium relationship between Greek national income and productive public expenditure as suggested by the economic theory. We compare the estimated forecasting values of the endogenous variables to the real-historical values using a stochastic simulation analysis. The simulation results provide new evidence supporting the ability of the model to forecast not only one-period ahead but also many periods into the future.
    Keywords: Cointegration, Forecasting, Simulation Analysis, Vector error- correction models
    JEL: C15 C32 C53 E0 E6
    Date: 2005–07–25
  46. By: Patrick Perrier
    Abstract: This study has two aspects. First, the author examines the theoretical properties of the constant elasticity of substitution (CES) production function and the implications of this formulation for the properties of a structural macroeconomic model. He then seeks to determine whether Canadian macroeconomic data correlate better with a CES production function with an elasticity of substitution between labour and capital equal to one, which would be the case with a Cobb-Douglas function, or with a CES function whose elasticity of substitution is different from one. Cobb-Douglas-type production functions have some very attractive properties, which is probably why they are so widely used in macroeconomic models. Referring to results from previous studies, the author demonstrates that it is possible to retain these properties when using a CES production function with an elasticity of substitution different from one, provided it features constant returns to scale and that technological progress only increases the efficiency of the labour factor. In terms of empirical analysis, the estimation frameworks used in this study and applied to Canadian macroeconomic data yield an elasticity of substitution of capital for labour lying between 0.4 and 0.6, or well below one. Most of the tests reject use of the Cobb-Douglas formulation for representing Canadian data. These results suggest that capital and labour are much more complementary than is assumed by a Cobb-Douglas production function.
    Keywords: Economic models
    JEL: E23 O40 D24
    Date: 2005
  47. By: Gersbach, Hans; Hahn, Volker
    Abstract: We examine whether the central bank council of a monetary union should publish its voting records when members are appointed by national politicians. We show that the publication of voting records lowers overall welfare if the private benefits of holding office are sufficiently low. High private benefits of central bankers lower overall welfare under opacity, as they induce European central bankers to care more about being re-appointed than about beneficial policy outcomes. We show that opacity and low private benefits jointly guarantee the optimal welfare level. Moreover, we suggest that non-renewable terms for national central bankers and delegating the appointment of all council members to a European agency would be desirable.
    Keywords: central banks; transparency voting
    JEL: D70 E58
    Date: 2005–07
  48. By: Paul Beaudry; Franck Portier
    Abstract: This paper uses aggregate Japanese data and sectoral U.S. data to explore the properties of the joint behavior of stock prices and total factor productivity (TFP) with the aim of highlighting data patterns that are useful for evaluating business cycle theories. The approach used follows that presented in Beaudry and Portier [2004b]. The main findings are that (i) in both Japan and the U.S., innovations in stock prices that are contemporaneously orthogonal to TFP precede most of the long run movements in total factor productivity and (ii) such stock prices innovations do not affect U.S. sectoral TFPs contemporaneously, but do precede TFP increases in those sectors that are driving U.S. TFP growth, namely durable goods, and among them equipment sectors.
    JEL: E3
    Date: 2005–08
  49. By: Javier J. Pérez (Centro de Estudios Andaluces); A. Jesús Sánchez (Centro de Estudios Andaluces)
    Abstract: In this paper we analyze the convergence properties of the moving bounds algorithm to initialize the Parameterized Expectations Algorithm suggested by Maliar and Maliar (2003) [Journal of Business and Economic Statistics 1, pp. 88-92]. We carry out a Monte Carlo experiment to check its performance against some initialization alternatives based on homotopy principles. We do so within the framework of two standard neoclassical growth models. We show that: (i) speed of convergence is poor as compared to alternatives; (ii) starting from a not very accurate initial guess might prevent convergence in relatively simple models. The results suggest the need to fine tune Maliar and Maliar's method to improve its convergence properties.
    Keywords: Nonlinear models; Numerical solution methods; Parameterized Expectations algorithm; Optimal growth
    JEL: C63 E17
    Date: 2005
  50. By: Peter Claeys
    Abstract: This paper characterises rules-based fiscal policy setting. Basically, we translate a standard monetary policy rule into a simple fiscal policy rule. We then infer on fiscal policymakers' reaction coefficients by testing the rule with GMM. Interaction is also tested directly by the inclusion of monetary policy setting. Our results qualify existing evidence on systematic fiscal policy in two respects. First, fiscal policy usually stabilises public debt. And there is indeed substantial interaction between fiscal and monetary policy via the debt channel. Second, sustainability is achieved with a "stop-go" cycle of consolidation. Unless debt ratios were high, consolidation did not come at the cost of less cyclical stabilisation.
    Keywords: Monetary policy, fiscal policy, policy interaction and policy rules, debt sustainability
    JEL: E61 E63
    Date: 2005
  51. By: Petr Hedbávný; Ondrej Schneider; Jan Zápal
    Abstract: In this paper, we set out to examine an efficient fiscal-policy framework for a monetary union. We illustrate that fiscal policy’s bias toward budget deficit only temporarily ceased at the end of the 20th century as European countries endeavored to qualify for euro-zone membership, which compelled strict limits on budgetary deficits. We then explore which mechanisms might instill a sense of fiscal disciple in governments. We find that most mechanisms suffer from the incentive-incompatible setup whereby governments restrict their own fiscal-policy freedom. We argue that even multilateral fiscal rules, such as the EU’s Stability and Growth Pact, suffer from the same endogeneity flaw. Consequently, we argue that a fiscal rule must incorporate an external authority that would impartially assess fiscal-policy developments. Using U.S. debt and bond-market data at the state level, we show that financial markets represent a good candidate as, vis-à-vis the American states, they do differentiate state debt according to the level of debt. We thus argue for a fiscal institution––what we call the Fiscal Sustainability Council––that would actively bring financial markets into the fiscal-policy process, and we explain the technique whereby this could be effected.
    Keywords: fiscal policy, European Union, sustainability
    JEL: E60 H60 H87
    Date: 2005
  52. By: Jonathan B. Hill (Department of Economics, Florida International University)
    Abstract: This paper develops a simple sequential multiple horizon non-causation test strategy for trivariate VAR models (with one auxiliary variable). We apply the test strategy to a rolling window study of money supply and real income, with the price of oil, the unemployment rate and the spread between the Treasury bill and commercial paper rates as auxiliary processes. Ours is the first study to control simultaneously for common stochastic trends, sensitivity of causality tests to chosen sample period, null hypothesis over-rejection, sequential test size bounds, and the possibility of causal delays. Evidence suggests highly significant direct or indirect causality from M1 to real income, in particular through the unemployment rate and M2 once we control for cointegration.
    Keywords: multiple horizon causality, Wald tests, parametric bootstrap, money-income causality, rolling windows, cointegration
    JEL: C12 C32 C53 E47
    Date: 2004–07
  53. By: Fatih Guvenen (University of Rochester)
    Abstract: This paper analyzes the extent of risk-sharing among stockholders and among nonstockholders. Wealthy households play a crucial role in many economic problems due to the substantial concentration of asset holdings in the U.S. data. Hence, to evaluate the empirical importance of market incompleteness, it is essential to determine if idiosyncratic shocks are important for the wealthy, who have access to better insurance opportunities, but also face different risks, than the average household. We study a model where each period households decide whether to participate in the stock market by paying a fixed cost. Due to this endogenous entry decision, the testable implications of perfect risk- sharing take the form of a sample selection model, which we estimate and test using a semi-parametric GMM estimator proposed by Kyriazidou (2001). Using data from PSID we strongly reject perfect risk-sharing among stockholders, but perhaps surprisingly, do not find evidence against it among non-stockholders. These results appear to be robust to several extensions we considered. These findings indicate that market incompleteness may be more important for the wealthy, and suggest further focus on risk factors that primarily affect this group, such as entrepreneurial income risk.
    Keywords: Perfect risk-sharing, incomplete markets, semiparametric estimation, Generalized Method of Moments, limited stock market participation.
    JEL: C33 G11 E52
    Date: 2005–08–06
  54. By: M. Hashem Pesaran; L. Vanessa Smith; Ron P. Smith
    Abstract: This paper attempts to provide a conceptual framework for the analysis of counterfactual scenarios using macroeconometric models. As an application we consider UK entry to the euro. Entry involves a long-term commitment to restrict UK nominal exchange rates and interest rates to be the same as those of the euro area. We derive conditional probability distributions for the difference between the future realisations of variables of interest (e.g UK and euro area output and prices) subject to UK entry restrictions being fully met over a given period and the alternative realisations without the restrictions. The robustness of the results can be evaluated by also conditioning on variables deemed to be invariant to UK entry, such as oil or US equity prices. Economic interdependence means that such policy evaluation must take account of international linkages and common factors that drive fluctuations across economies. In this paper this is accomplished using the Global VAR recently developed by Dees, di Mauro, Pesaran and Smith (2005). The paper briefly describes the GVAR which has been estimated for 25 countries and the euro area over the period 1979-2003. It reports probability estimates that output will be higher and prices lower in the UK and the euro area as a result of entry. It examines the sensitivity of these results to a variety of assumptions about when and how the UK entered and the observed global shocks and compares them with the effects of Swedish entry.
    Keywords: Global VAR (GVAR), counterfactual analysis, UK and Sweden entry to Euro
    JEL: C32 C35 E17 F15 F42
    Date: 2005
  55. By: Aaron Drew; Mike Kennedy; Torsten Sløk
    Abstract: <P>This paper is concerned with how stylised differences in monetary policy transmission mechanisms and product and labour market rigidities between the US and euro-area economies affect their resilience to temporary shocks. To address this issue, a small general equilibrium model with long-run neoclassical and short-run neo-Keynesian features is calibrated to replicate the key properties of the US economy (as in the US Fed’s FRB-US model). To this model, features of the euro area’s financial and then product and labour markets are added sequentially with a view to replicating what is generally agreed are aspects of the functioning of the euro-area economy (as captured by the ECB’s Area-Wide Model). Most of the analysis is conducted assuming identical monetary policy reaction functions, although the sensitivity of the results to this assumption is tested. The results illustrate the importance of adjustment patterns in financial, product and labour markets for economies’ ...</P> <P>Les différences, en termes de résilience, entre l’économie américaine et celle de la zone euro <P>Ce document étudie les principales différences en matière de transmission de la politique monétaire et de rigidités des marchés des produits et du travail, et leurs effets sur la résilience des économies des États-Unis et de la zone euro aux chocs temporaires. Un petit modèle d’équilibre général, de facture néo-classique sur le long terme et néo-keynésienne sur le court terme, est calibré pour reproduire les comportements clés de l’économie américaine (tels que les décrit le modèle FRB-US de la Banque de réserve fédérale des États-Unis). Des caractéristiques des marchés financiers puis des marchés des produits et du travail de la zone euro sont ensuite incorporées dans le modèle afin de mieux capter certains aspects du fonctionnement de l’économie de la zone euro (tels que les décrit le modèle de la BCE couvrant la zone euro). L’analyse repose largement sur des fonctions de réaction de la politique monétaire identiques, mais l'importance de cette hypothèse est testée. Les résultats ...</P>
    Keywords: modèle EGC, zone euro, euro area, Transmission mechanism, resilience, labour and product market rigidities, CGE modelling, mécanisme de transmission, resilience, rigidités des marchés des produits et du travail
    JEL: E21 E22 E30 E52
    Date: 2004–03–04
  56. By: Michele Cavallo
    Abstract: This paper distinguishes between two components of government consumption, expenditure on final goods and expenditure on hours, and compares the effects of changes in these two on the current account. I find that changes in government expenditure on hours do not directly affect the current account and that their impact is considerably smaller than the impact produced by changes in government expenditure on final goods. These findings indicate that considering government consumption as entirely expenditure on final goods leads to overestimating its role in accounting for movements in the current account balance.
    Keywords: Expenditures, Public ; Trade ; Gross domestic product
    Date: 2005
  57. By: Hideyuki Ibaragi; Annabelle Mourougane
    Abstract: <P>This paper examines the relationship between the output gap and inflation in Japan by estimating Phillips curves and testing for changes since the advent of low inflation and/or the stabilisation of the rate of change of inflation. The work provides empirical support for the hypothesis of a change in the relationship between output and inflation in an environment of low inflation for Japan. In particular, there is evidence that the slope of the Phillips curve becomes flatter when the inflation rate is below ½ per cent (quarter-on-quarter, non-annualised) and also that there has been a break in the relationship between demand pressures and inflation in Japan since the beginning of the 1990s. Evidence is also found that the relationship changes when the inflation rate is either rising rapidly or falling sharply. At such times, changes in demand pressure have stronger effects on inflation. These results are robust to a wide range of specifications, including corrections for the ...</P> <P>La relation entre indicateurs de demande et inflation change-t-elle dans un contexte de basse ou de stabilité de l’inflation? <P>Cette étude examine la relation entre l’écart de croissance et l’inflation au Japon en estimant des courbes de Phillips et teste si cette relation se modifie dans un contexte d’inflation basse et/ou de stabilité de l’inflation. Les estimations présentées constituent un support empirique relativement détaillé de l’hypothèse d’un changement dans la relation entre indicateur de demande et inflation dans un environnement de basse inflation pour le Japon. En particulier, la pente de la courbe de Phillips s’aplatit quand le taux d’inflation est en dessous d’½ pour cent (taux trimestriel, non annualisé) et il existe un break dans la relation entre indicateur de demande et inflation au Japon au début des années 90. La relation apparaît aussi se modifier quand le taux d’inflation augmente ou baisse rapidement. Durant de telles périodes, les mouvements dans les indicateurs de demande ont un effet plus fort sur l’inflation. Les résultats obtenus sont robustes à la correction des hausses de ...</P>
    Keywords: Japan, Japon, Phillips curves, asymmetry, low inflation environment, Courbes de Phillips, asymétrie, environnement de basse inflation
    JEL: C22 E31
    Date: 2004–02–02
  58. By: Schabert, Andreas
    Abstract: In this paper, we analyze the relation between interest rate targets and money supply in a (bubble-free) rational expectation equilibrium of a standard cash-in-advance model. We examine contingent monetary injections aimed to implement interest rate sequences that satisfy interest rate target rules. An interest rate target with a positive inflation feedback in general corresponds to money growth rates rising with inflation. When prices are not completely flexible, this implies that a non-destabilizing money supply cannot implement a forward-looking and active interest rate rule. This principle also applies for an alternative model version with an interest elastic money demand. The implementation of a Taylor rule then requires a money supply that leads to explosive or oscillatory equilibrium sequences. In contrast, an inertial interest rate target can be implemented by a non-destabilizing money supply, even if the inflation feedback exceeds one, which is often found in interest rate rule regressions.
    Keywords: contingent money supply; interest rate inertia; interest rate rules; macroeconomic stability; policy equivalence
    JEL: E32 E41 E52
    Date: 2005–06
  59. By: Dorothée BOCCANFUSO (Université de Sherbrooke, Département d’économique – Faculté d’administration); Tambi Samuel KABORE (CEDRES, UFR-SEG-Université de Ouagadougou, 01 BP 6693 Ouaga 01)
    Abstract: Economic growth generally refers to GDP growth. The studies on the link between growth and poverty dynamic (Datt and Ravallion, 1992; Kakwani, 1997; Shorrocks, 1999) measure growth by mean household per capita expenditures. Furthermore, many countries experience at the same time economic growth and growing poverty. It is therefore important to establish a link between these two types of growth. This key link allows a formal shift from macroeconomic growth (GDP growth) to mean per capita household expenditure growth. The purpose of this paper is to discuss the link between macroeconomic growth and mean per capita household expenditure growth with the evidence drawn from Burkina Faso data. The paper also analyzes the impact of sectoral growth on poverty using Shapley value-based decomposition approach. National Accounts consumption - which is smaller - gives greater poverty incidences for 1994 and 1998 compared to the incidence from the surveys’ consumption. An annual 3.99% increase in real per capita consumption based on the survey gives a 13.37% decrease in poverty incidence, while a 6.59% annual growth in GDP yields only 6.59% decrease in poverty incidence. Agricultural sector growth accounts for at least 80% of the decline in poverty incidence, gap and severity.
    Keywords: Growth, Poverty decomposition, Shapley Value, Burkina Faso
    Date: 2004
  60. By: Martinez-Mongay (European Commission); Khalid Sekkat (DULBEA, Université libre de Bruxelles, Brussels)
    Abstract: The paper contributes to the debate on the stability/efficiency tradeoff of automatic stabilizers. A simple AD-AS two countries model is presented and illustrates circumstances where a reduction in taxes can foster stabilization. The testable implication from the model is that tax cuts can either increase or decrease volatility depending on the structure of the taxation system. Hence, lowering taxes for efficiency purposes may not cost in terms of stabilization. This implication is tested on a sample of 25 OECD countries over the period 1960-1999 taking account of the endogeneity and omitted variables issues identified in the literature. We found acceptably robust evidence that the size of governments in OECD countries has played a stabilizing role for both output and inflation. However, the relationship between government size and macroeconomic stability is not linear. The composition of public finances, in particular the tax mix, matters for output and price volatility. Distorting taxes, namely taxes on labor and capital, might have negative effects on macroeconomic stability. Consequently, the potential trade off between stability and flexibility might not exist.
    Keywords: Automatic stabilizers, efficiency, Europe
    JEL: E3 E6 H1
    Date: 2005–02
  61. By: Bauer, Thomas; Sinning, Mathias
    Abstract: This paper examines the relative savings position of migrant households in West Germany, paying particular attention to differences between temporary and permanent migrants. Utilizing household level data from the German Socio-Economic Panel (GSOEP), our findings reveal significant differences in the savings rates between foreign-born and German-born individuals. These differences disappear, however, for temporary migrants, if their remittances are taken into account. Fixed effects estimations of the determinants of immigrants’ savings rates reveal that intended return migration does not only affect remittances, but also the savings rate of migrant households in the host country. The results of a decomposition analysis indicate that differences in the savings rate between Germans and foreigners can mainly be attributed to differences in observable characteristics. We do not find strong evidence for an adjustment of the savings rate between immigrants and natives over time, indicating deficits in the long-term integration of permanent migrants in Germany.
    Keywords: migration; savings
    JEL: C24 E21 F22
    Date: 2005–06
  62. By: Paul Van den Noord
    Abstract: <P>After the launch of the single currency the euro exchange rate fell and interest rates had converged towards the (low) German level. These shocks have worked out differently for the small and large countries. Housing markets have acted as an important vehicle of transmission of these shocks onto economic activity and inflation. Simulations with a stylised econometric model for the euro area economy, making a distinction between the small and large countries in terms of the estimated parameters, illustrate this mechanism ... </P> <P>Modélisation de la divergence conjoncturelle dans la zone euro : le canal de transmission du logement <P>Après le lancement de la monnaie unique, le taux de change de l’euro avait baissé et les taux d’intérêt avaient convergé vers les taux allemands (qui se situaient à un bas niveau). Ces chocs se sont répercutés de manière différente sur les petites et les grandes économies. Les marchés du logement ont joué un rôle important de canal de transmission de ces chocs, en les répercutant sur l’activité économique et l’inflation. Des simulations effectuées à l’aide d’un modèle économétrique de l’économie de la zone euro, établissant une distinction entre les petites et les grandes économies en termes de paramètres estimés, illustrent ce mécanisme ...</P>
    Keywords: Business cycles, Economic and Monetary Union, Union Économique et Monétaire, cycles macroéconomiques
    JEL: E32 E52 F42
    Date: 2004–09–15
  63. By: Alain De Serres; Kwang-Yeol Yoo
    Abstract: <P>This paper provides, for all OECD countries, an estimate of the net tax cost per currency unit of contribution to a tax-favoured retirement savings plan, using a present-value methodology. The latter takes into account the future flows of revenues foregone on accrued income and of revenues collected on benefit withdrawals corresponding to a unit contribution made in a given year. The net tax cost is first calculated for nine (five-year) age groups, which have different relative income levels and investment time horizons, and is then averaged across age groups. In order to take into consideration the relevant country-specific features of savings taxation, the paper also provides an overview of the tax treatment of private pension arrangements and alternative savings vehicles. The results indicate that the size of tax subsidy varies significantly across countries, ranging from nearly 40 cents per unit of contribution (Czech Republic) to around zero (Mexico, New Zealand). Over half of ...</P> <P>Traitement fiscal des pensions privées dans les pays de l’OCDE et le coût fiscal net par unité de contribution à un plan d’épargne retraite <P>Cette étude présente pour l’ensemble des pays de l’OCDE, une estimation du coût fiscal net (<I>e.g.</I> dollar ou euro) de contribution à un plan d’épargne retraite à traitement fiscal favorable, à partir d’une méthode de valeur présente. Cette dernière prend en compte les pertes futures de recettes fiscales découlant de la nontaxation des revenus d’intérêt ainsi que des recettes encaissées au moment de la perception des bénéfices par les détenteurs du plan de retraite. Le coût fiscal net est calculé pour neuf groupe d’âge (de cinq ans chacun), disposant de niveaux de revenus et d’horizons d’investissement différents. Le coût par groupe d’âge est ensuite aggrégé pour obtenir un coût moyen pour l’ensemble de la population. Les résultats indiquent que la valeur de l’incitatif fiscal varie de façon significative à travers les pays, passant de 40 cents par unité de contribution (République Tchèque) à près de zéro (Mexique, Nouvelle-Zélande). Plus de la moitié de pays de l’OCDE encourt ...</P>
    Keywords: comprehensive income tax, expenditure tax, private pension, net tax cost, revenue foregone method, Impôt sur le revenue, dépense fiscale, pension privée, coût fiscal net
    JEL: E21 G23 H21 H24 H31
    Date: 2004–10–14
  64. By: Acharya, Viral V; Yorulmazer, Tanju
    Abstract: As the number of bank failures increases, the set of assets available for acquisition by the surviving banks enlarges but the total amount of available liquidity within the surviving banks falls. This results in ‘cash-in-the-market’ pricing for liquidation of banking assets. At a sufficiently large number of bank failures, and in turn, at a sufficiently low level of asset prices, there are too many banks to liquidate and inefficient users of assets who are liquidity-endowed may end up owning the liquidated assets. In order to avoid this allocation inefficiency, it may be ex post optimal for the regulator to bail out some failed banks. Ex ante, this gives banks an incentive to herd by investing in correlated assets, thereby making aggregate banking crises more likely. These effects are robust to allowing the surviving banks to issue equity and allowing the regulator to price-discriminate against outsiders in the market for bank sales.
    Keywords: bank regulation; banking crises; herding; systemic risk; time inconsistency; too many to fail
    JEL: D62 E58 G21 G28 G38
    Date: 2005–07
  65. By: Giuseppe Ciccarone (Department of Public Economics, University of Rome 'La Sapienza'); Giovanni Di Bartolomeo (Department of Public Economics, University of Rome 'La Sapienza'); Enrico Marchetti (Department of Public Economics, University of Rome 'La Sapienza')
    Abstract: In a unionised economy with supply-side fiscal policy transparency has two contrasting effects on economic performance. Uncertainty on central bank's preferences induces unions to reduce wages but also produces a fully-anticipated expansionary fiscal policy which favours the setting of higher wages. Even if the net effect depends on the preference parameters of public entities and on the effectiveness of fiscal policy on aggregate supply: (i) the positive effects of opacity in unionised economies without fiscal policy are confirmed when the central bank is populist; (ii) if it is instead sufficiently conservative, transparency reduces inflation and the output gap, but at the cost of higher macroeconomic volatility.
    Keywords: Central bank transparency, Inflation, uncertainty
    JEL: E58
    Date: 2005–08–05
  66. By: Matthias Mohr (European Central Bank)
    Abstract: This paper proposes a new univariate method to decompose a time series into a trend, a cyclical and a seasonal component: the Trend-Cycle filter (TC filter) and its extension, the Trend-Cycle-Season filter (TCS filter). They can be regarded as extensions of the Hodrick-Prescott filter (HP filter). In particular, the stochastic model of the HP filter is extended by explicit models for the cyclical and the seasonal component. The introduction of a stochastic cycle improves the filter in three respects: first, trend and cyclical components are more consistent with the underlying theoretical model of the filter. Second, the end-of- sample reliability of the trend estimates and the cyclical component is improved compared to the HP filter since the pro-cyclical bias in end- of-sample trend estimates is virtually removed. Finally, structural breaks in the original time series can be easily accounted for.
    Keywords: economic cycles, time series, filtering, trend-cycle decomposition, seasonality
    JEL: C13 C22 E32
    Date: 2005–08–03
  67. By: Christian Keuschnigg; Martin D. Dietz
    Abstract: This paper proposes a growth-oriented dual-income tax by combining an allowance for corporate equity with a broadly defined flat tax on personal capital income. Revenue losses are compensated by an increase in the value added tax. The paper demonstrates the neutrality properties of the reform with respect to investment, firm financial decisions and organizational choice. Tax rates are chosen to prevent income shifting from labor to capital income. The reform decisively strengthens investment of domestically owned firms as well as home and foreign based multinationals and boosts savings. Simulations with a calibrated growth model for Switzerland indicate that the reform could add between 2 to 3 percent of GDP in the long run, depending on the specific scenario. Given the slow nature of capital accumulation, it also imposes considerable costs in the short run. We also consider a tax smoothing scenario to offset the intergenerationally redistributive effects.
    Keywords: tax reform, investment, financial structure, growth
    JEL: D58 D92 E62 G32 H25
    Date: 2005
  68. By: V.R. Prabhakaran Nair (Centre for Development Studies)
    Abstract: This paper analyses the determinants of fixed investment in the Indian Private Corporate Manufacturing sector for the period 1973-2002, using Annual Survey of Industries Data. It is argued that economic policy of a nation is crucial in determining the investment behaviour in developing countries rather than the traditional factors like output and profit. Against the background of the financial sector deregulation initiated in India since 1991, this study makes an attempt to analyse whether the traditional factors or the economic policy variables plays a major role in determining investment behaviour. A reduced form equation derived from the neoclassical investment theory is used for the empirical analysis. Financial Liberalisation Index is constructed for India for the analysis. The results show that, the traditional determinants like output and profit still plays a major role in determining corporate investment rather than the policy variables. Though aggregate financial liberalisation, and more prominently domestic financial liberalisation produced an environment conducive for investment, it could not succeed in creating a sustained increase in capital formation in the post reform period. In other words, firms consider the demand factor, internal liquidity position and past investment decisions etc as the major indicators for future investment. Only index shows strong positive association with corporate investment is index of money market liberalisation. It is also found that there is significant negative association between index of capital account liberalisation and corporate investment. The negative and significant relationship with index of capital account liberalisation and investment raises many concerns over the credibility of external (international) financial reforms.
    Keywords: Investment, Manufacturing
    JEL: E22 O14
    Date: 2005–03
  69. By: Rudiger Ahrend
    Abstract: <P>This paper provides an in depth analysis of Russia’s recent growth, with a view to understanding the prospects for its continuation. It examines in detail the main drivers of growth, as well as the main developments and policies that have been underlying it. A key finding is that the role of the oil sector, and particularly privately owned oil companies, has been vastly more important in driving economic growth since 2001 than most analyses have recognised. The oil sector’s contribution to growth has hitherto been severely underestimated as official data do not account for transfer pricing and thus fail to reflect fully the importance of the hydrocarbon sector in the Russian economy. The paper further argues that prudent postcrisis fiscal policy, by balancing the federal budget over the oil-price cycle, has also been essential for creating a macroeconomic environment conducive to strong growth. Looking forward, it is argued that - given its economic structure - Russia is bound to ...</P> <P>Bilan de la croissance après la crise en Russie <P>Cet article analyse en profondeur la croissance économique récente en Russie afin de comprendre les perspectives de sa continuité. L’article examine en détail les principaux moteurs de la croissance, ainsi que les principales évolutions et politiques sous-jacentes. Un des principaux résultats est que le rôle du secteur pétrolier, en particulier les compagnies pétrolières privées, a été considérablement plus important comme moteur de la croissance depuis 2001 que ne l’ont constaté la plupart des analystes. La contribution à la croissance du secteur pétrolier a jusqu’à présent été grandement sous-estimée à cause des données officielles qui ne prennent pas en compte l’utilisation des prix de transfert, et par conséquent ne reflètent pas entièrement l’importance du secteur des hydrocarbures dans l’économie russe. Cet article fait également le point sur la politique budgétaire prudente d’après la crise, qui en gardant le budget fédéral équilibré sur l’ensemble du cycle des cours ...</P>
    Keywords: Economic growth, croissance économique, Transition, Transition, fiscal policy, politique budgétaire, monetary policy, politique monétaire, gas, gaz, Russia, Russie, Real Exchange Rate, Capital Flight, Natural Resources, Dutch Disease, Resource Curse, Oil, Property Rights, Diversification, taux de change réel, fuite des capitaux, ressources naturelles, syndrome néerlandais, malédiction des ressources, pétrole, droits de propriété, diversification
    JEL: E6 O1 O52 P2 Q43
    Date: 2004–09–30
  70. By: Stuart J. Fowler; Eric R. Young
    Abstract: The cyclical behavior of the acquisition of skills over the life-cycle is investigated. The OLG model employed includes the human capital production sector of Heckman (1976) that has two possible responses in skill acquisition to a productivity shock; a substitution and an income effect. The calibrated model predicts, for all age groups, that the substitution effect dominates the income effect implying opportunity-cost considerations tend to make schooling countercyclical. However, the data on college enrollments suggests that the ability-to-pay consideration, or the income effect, is more important for the very young since enrollments for the recently graduated from high-school are procyclical. By making human capital acquisition shocks positively correlated with the TFP shock, the income effect of the young is increased thereby replicating the observed data.
    Keywords: Human Capital; OLG; Perturbation
    JEL: J24 J31 E24
    Date: 2004–04
  71. By: Alexis Anagnostopoulos
    Abstract: This paper examines consumption and savings dynamics in a standard model of incomplete markets. Existence of equilibrium requires the imposition of exogenous debt limits but these are often ignored because of the computational difficulties that arise in models with occasionally binding constraints. I claim that borrowing constraints have a significant qualitative and quantitative effect on equilibrium allocations even if they rarely bind. Contrary to standard results in the literature, debt exhibits mean reversion, consumption responds strongly to idiosyncratic income shocks and interest rates respond to both aggregate and idiosyncratic innovations in income. The implication is that market incompleteness can generate much lower consumption correlations than was previously thought.
    Keywords: Incomplete markets, consumption/savings dynamics, non-linear dynamic methods
    JEL: C63 E21 E32
    Date: 2004
  72. By: Charles Ka-Yui Leung; Youngman Chun Fai Leong; Siu Kei Wong
    Keywords: price dispersion, search models, macroeconomic factor, time aggregation
    JEL: C32 D61 D83 E30 R31
    Date: 2005–07
  73. By: Amitava K. Dutt (University of Notre Dame); Peter Skott (University of Massachusetts Amherst)
    Abstract: Contrary to what has been argued by a number of critics, the AD-AS framework is both internally consistent and in conformity with Keynes’s own analysis. Moreover, the eclectic approach to behavioral foundations allows models in this tradition to take into account aggregation problems as well as evidence from behavioral economics. Unencumbered by the straightjacket of optimizing microfoundations, the approach can provide a useful starting point for the analysis of dynamic macroeconomic interactions. In developing this analysis, the AD-AS approach can draw on insights from the Post Keynesian, neo-Marxian and structuralist traditions, as well as from the burgeoning literature on behavioral economics. JEL Categories: E12, O11, B22, B41, B50
    Keywords: AD-AS, Keynes, New Keynesian theory, microeconomic foundations
    Date: 2005–08
  74. By: Basu, Arnab K; Chau, Nancy H; Kanbur, Ravi
    Abstract: In many countries, the authorities turn a blind eye to minimum wage laws that they have themselves passed. But if they are not going to enforce a minimum wage, why have one? Or if a high minimum wage is not going to be enforced one hundred percent, why not have a lower one in the first place? Can economists make sense of such phenomena? This paper argues that we can, if a high official minimum wage acts as a credible signal of commitment to stronger enforcement of minimum wage laws. We demonstrate this as an equilibrium phenomenon in a model of a monopsonistic labour market in which enforcement is costly, and the government cannot pre-commit to enforcement intensity. In this setting we also demonstrate the paradoxical result that a government whose objective function gives greater weight to efficiency relative to distributional concerns may end up with an outcome that is less efficient. We conclude by suggesting that the explanations offered in this paper may apply to a broad range of phenomena where regulations are imperfectly enforced.
    Keywords: dynamic consistency; equity and efficiency; minimum wage; non-complience
    JEL: D60 E61 J38
    Date: 2005–06
  75. By: Prasad V. Bidarkota (Department of Economics, Florida International University); Brice V. Dupoyet (Department of Finance, Florida International University)
    Abstract: We investigate the impact of ignoring fat tails observed in the empirical distributions of macroeconomic time series on the equilibrium implications of the consumption-based asset-pricing model with habit formation. Fat tails in the empirical distributions of consumption growth rates are modeled as a dampened power law process that nevertheless guarantees finiteness of moments of all orders. This renders model-implied mean equilibrium rates of return and equity and term premia finite. Comparison with a benchmark Gaussian process reveals that accounting for fat tails lowers the model-implied mean risk-free rate by 20 percent, raises the mean equity premium by 80 percent and the term premium by 20 percent, bringing the model implications closer to their empirically observed counterparts.
    Keywords: pricing model, habit formation, term premium, equity premium, fat tails, dampened power law
    JEL: G12 G13 E43
    Date: 2004–07
  76. By: Ferda HALICIOGLU (The University of Greenwich); Mehmet UGUR (The University of Greenwich)
    Abstract: This paper empirically analyses the stability of the narrow money demand function (M1) in Turkey for the period 1950-2002. As part of the IMF-sponsored stabilisation programme, Turkey has been pursuing base money targets. To ascertain whether this policy framework satisfies the necessary condition for effectiveness, we estimate and test for the stability of Turkish M1 by employing a recent single cointegration procedure proposed by Pesaran et al. (2001) along with the CUSUM and CUSUMSQ stability tests. We demonstrate that there is a stable money demand function and it could be used as an intermediate target of monetary policy in Turkey.
    Keywords: co-integration, money demand, stability, Turkey
    JEL: E41 E52
    Date: 2005–08–01
  77. By: Carsten Hefeker
    Abstract: The enlargement of the European Monetary Union is likely to lead to an increase in uncertainty regarding the transmission of monetary policy for the larger union. Adding new members to the central bank council will in addition imply that the policy reaction of the enlarged council will be uncertain in the initial period. The paper considers the influence of both types of uncertainty on wage-setting behavior in the larger monetary union and its effects on unemployment. In light of these effects, I also derive implications for the adequate structure of the central bank.
    Keywords: monetary policy uncertainty, wage setting, European Central Bank, Euro area, accession countries
    JEL: D72 E58
    Date: 2005
  78. By: Diego Comin; Sunil Mulani
    Abstract: This paper presents an endogenous growth model that explains the evolution of the first and second moments of productivity growth at the aggregate and firm level during the post-war period. Growth is driven by the development of both (i) idiosyncratic R&D innovations and (ii) general innovations that can be freely adopted by many firms. Firm-level volatility is affected primarily by the Schumpeterian dynamics associated with the development of R&D innovations. On the other hand, the variance of aggregate productivity growth is determined mainly by the arrival rate of general innovations. Ceteris paribus, the share of resources spent on development of general innovations increases with the stability of the market share of the industry leader. As market shares become less persistent, the model predicts an endogenous shift in the allocation of resources from the development of general innovations to the development of R&D innovations. This results in an increase in R&D, an increase in firm-level volatility, and a decline in aggregate volatility. The effect on productivity growth is ambiguous. On the empirical side, this paper documents an upward trend in the instability of market shares. It shows that firm volatility is positively associated with R&D spending, and that R&D is negatively associated with the correlation of growth between sectors which leads to a decline in aggregate volatility.
    JEL: D9 E3 L1
    Date: 2005–08
  79. By: Gernot J. Mueller
    Abstract: In order to understand the dynamic effects of government spending on foreign trade the present paper proceeds in two steps. First, using U.S. time series data for the post-Bretton-Woods period, the dynamic effects of government spending are investigated within a structural Vector Autoregression framework: the nominal exchange rate is found to depreciate, the terms of trade to appreciate and the trade balance to increase significantly after a temporary increase in government spending. In a second step, a New-Keynesian general equilibrium model is used to rationalize these effects. Two findings emerge: i) a low elasticity of substitution between home and foreign goods is necessary for the trade balance to improve after an increase in public spending. ii) an accommodating monetary policy is found to dampen the effects of government spending on foreign trade.
    Keywords: Government Spending, Exchange Rate, Trade Balance, Terms of Trade, Policy Interaction
    JEL: E62 F41 F42
    Date: 2004
  80. By: Christine de la Maisonneuve; Claude Giorno; Peter Hoeller
    Abstract: <P>In recent years the euro area has shown less resilience to the negative and largely OECD-wide common shocks than the English-speaking countries, but most of the smaller euro area countries have fared better than the large ones. This paper reviews policy issues that are important in fostering a speedy adjustment to shocks. We argue that the small countries are well placed to adjust swiftly to asymmetric shocks, because they are well integrated with the rest of the area. An activist fiscal policy is not needed and also not powerful enough to smooth the cycle. However, asset bubbles are a cause of concern as their limited weight means that the common monetary policy is more likely to be out of line with their cyclical position. Large countries are less well placed to cope with shocks and sluggish adjustment can be expected. Reforms should focus on raising trade linkages via the completion of the single market, on improving wage and price flexibility and on making their housing markets ...</P> <P>Même monnaie, même cycle ? Rendre plus souple le fonctionnement de l'union monétaire <P>Au cours des dernières années, la zone euro a fait preuve d'une moindre résistance que les pays nglo-saxons aux chocs négatifs qui ont affecté dans une large mesure l'OCDE dans son ensemble; mais la lupart des plus petits pays de la zone ont mieux tirer leur épingle du jeux que les grands. Cet article passe n revue les questions de politique économique qui sont importantes afin de favoriser un ajustement rapide ux chocs. Nous défendons l'idée que les petits pays sont mieux armés pour s'ajuster promptement à des hocs asymétriques du fait de leur bonne intégration avec le reste de la zone. Une politique budgétaire ctiviste n'est pas nécessaire ni suffisamment puissante pour amortir le cycle. Néanmoins, l'apparition de ulles spéculatives est une source de préoccupation dans leur cas en raison de leur poids limité, lequel mplique que la politique monétaire commune est susceptible d'être plus fréquemment incohérente avec eur position cyclique. Les grands pays sont moins bien armés pour ...</P>
    Keywords: taxation, fiscalité, fiscal policy, politique budgétaire, Business cycles, cycles économiques, Economic and Monetary Union, Union Économique et Monétaire
    JEL: E3 E6 H2 H6
    Date: 2004–09–16
  81. By: Anne-Laure Baldi; Nanno Mulder
    Abstract: <P>This paper analyses the impact of exchange rate regimes on real exchange rates, as defined by the relative price of nontradables to tradables in Argentina, Brazil, Chile (ABC) and Mexico from 1990 to 2002. The real exchange rate is determined in the long-run by the Balassa-Samuelson effect, but in the medium run also by government expenditure and terms of trade. Another determinant is fixed exchange rate regimes, which force exporters to adjust their local price of tradables. Moreover, fixed regimes attract portfolio inflows that increase demand and prices for nontradables. The econometric results of the paper confirm the impact of exchange rate regimes on relative prices in all countries except Chile, which maintained exchange rate flexibly and adopted capital controls ...</P> <P>L'impact des régimes de change sur le taux de change réel en Amérique latine, 1990-2002 <P>Cet article analyse l'impact des régimes de change sur le taux de change réel- défini comme le prix relatif des biens du secteur abrité et des biens du secteur exposé- en Argentine, Brésil, Chili (ABC) et au Mexique de 1990 à 2002. Le taux de change réel est déterminé dans le long terme par l'effet Balassa- Samuelson et à moyen terme par les dépenses du gouvernement et les termes de l'échange. Les régimes de change fixes peuvent constituer un nouveau déterminant car ils forcent les exportateurs à geler le prix local des biens échangeables. Simultanément ils attirent des flux de portefeuille qui exercent une pression à la hausse sur la demande et donc les prix des biens abrités. Les résultats économétriques de l'article confirment l'impact des régimes de change sur les prix relatifs de tous les pays sauf le Chili qui a aintenu une flexibilité de change et imposé des contrôles de capitaux ...</P>
    Keywords: exchange rate policy, real exchange rates, Latin America, politique de change, taux de change reels, Amérique latine
    JEL: E52 N16
    Date: 2004–06–30

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