|
on Macroeconomics |
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Issue of 2005‒10‒08
34 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | David Laidler (University of Western Ontario) |
| Abstract: | This paper briefly discusses why a monetary policy framework that emphasises interest rates has become standard in recent years, and why so many economists have been persuaded simultaneously to downgrade the importance of monetary aggregates. Then it describes Michael Woodford's particular contribution to these developments, and contrasts it with a more traditional approach to the theory of money that stresses its means of exchange role. It suggests that, though there are difficulties aplenty with the latter, Woodford's cashless simplification of the monetary economy presents problems of its own, both for monetary theory per se, and for the discussion of currently relevant monetary policy questions. It concludes that the theoretical basis for monetary policy should embrace wary eclecticism. |
| Keywords: | money; interest rates; inflation; monetarism; cashless economy; open-market operations rates; unemployment; multiplier |
| JEL: | E10 E31 E42 E44 E52 E58 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:uwo:epuwoc:20058&r=mac |
| By: | David Andolfatto (Simon Fraser University) |
| JEL: | E |
| Date: | 2005–10–04 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0510005&r=mac |
| By: | Eric M. Leeper; Tack Yun |
| Abstract: | The paper presents the fiscal theory of the price level in a variety of models, including endowment economies with lump-sum taxes and production economies with proportional income taxes. We offer a microeconomic perspective on the fiscal theory by computing a Slutsky-Hicks decomposition of the effects of tax changes into substitution, wealth, and revaluation effects. Revaluation effects arise whenever tax changes alter the value of outstanding nominal government liabilities by changing the price level. Under certain assumptions on monetary and fiscal behavior, the revaluation effect reflects the fiscal theory mechanism. When taxes distort, two Laffer curves arise, implying that a tax increase can lower or raise the price level and the revaluation effect can be positive or negative, depending on which side of a particular Laffer curve the economy resides. |
| JEL: | E31 E52 E62 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11646&r=mac |
| By: | Robert E. Hall |
| Abstract: | Macroeconomists——especially those studying monetary policy——often view the business cycle as a transitory departure from the smooth evolution of a neoclassical growth model. Important ideas contributed by Friedman, Lucas, and the developers of the sticky-price macro model generate this type of aggregate behavior. But the real-business cycle model shows that the neoclassical model implies anything but smooth growth. A purely neoclassical model, devoid of anything resembling a business cycle in the sense of transitory departures from neoclassical equilibrium, nevertheless explains most of the volatility of GDP growth at all frequencies. Monetary policymakers looking to a neoclassical model to provide the neutral levels of key variables-potential GDP, the natural rate of unemployment, and the equilibrium real interest rate, need to solve a complicated and controversial model to find these constructs. They cannot take average or smoothed values of actual data to find them. Further, low-frequency movements of unemployment suggest a failure of the basic idea that departures from the neoclassical equilibrium are transitory. I discuss new theories of the labor market capable of explaining the low-frequency movements of unemployment. I conclude that monetary policymakers should not try to discern neutral values of real variables. Some branches of modem theory do not support the concepts of potential GDP, the natural rate of unemployment, and the equilibrium real interest rate. Even the theories that do support the concepts suggest that measurement in real time is impractical. |
| JEL: | E32 E52 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11651&r=mac |
| By: | Leon Berkelmans (Reserve Bank of Australia) |
| Abstract: | Credit is an important macroeconomic variable that helps to drive economic activity and is also dependent on economic activity. This paper estimates a small structural vector autoregression (SVAR) model for Australia to examine the intertwined relationships of credit with other key macroeconomic variables. At short horizons, shocks to the interest rate, the exchange rate, and past shocks to credit are found to be important for credit growth. Over longer horizons, shocks to output, inflation and commodity prices play a greater role. The response of credit to changes in monetary policy is found to be relatively slow, similar to that of inflation and slower than that of output. The model suggests that an unexpected 25 basis point increase in the interest rate results in the level of credit being almost half of a percentage point lower than it otherwise would have been after a bit over one year, and almost 1 per cent lower after four years. Estimates from the model indicate that in responding to the macroeconomic consequences of a credit shock, monetary policy appears to stabilise the economy effectively. As a result of monetary policy’s response, output and the exchange rate are barely affected by a credit shock. The credit shock results in higher inflation for about two years, but it would be higher still over this period in the absence of a monetary policy response. Changes in credit are also moderated as a result of monetary policy’s response. |
| Keywords: | credit; credit channel; monetary policy |
| JEL: | E51 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2005-06&r=mac |
| By: | B Bhaskara Rao (University of the South Pacific) |
| Abstract: | The aggregate demand and supply model (ADAS) is interpreted as a synthesis of the Keynesian and neoclassical models. It uses the ISLM model, without explaining its nature, to derive aggregate demand (AD). It is combined with an aggregate supply (AS) curve to explain price- inflation and output dynamics. This paper argues that neither the AD nor AS curve is conceptually the same as its microeconomic counterpart and ADAS is not a synthesis. In fact ADASimplies that discretionary policy is necessary and that price changes do not perform their traditional negative feedback function. |
| Keywords: | eynesian and neo classical models, aggregate demand and supply, monetary policy rule, price adjustments, stabilization policy |
| JEL: | E |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0510001&r=mac |
| By: | Jordi Galí |
| Abstract: | The present paper describes recent research on two central themes of Keynes’ General Theory: (i) the social waste associated with recessions, and (ii) the effectiveness of fiscal policy as a stabilization tool. The paper also discusses some evidence on the extent to which fiscal policy has been used as a stabilizing tool in industrial economies over the past two decades. |
| Keywords: | business cycles, inefficient allocations, government spending multiplier, non-Ricardian households, countercyclical policies |
| JEL: | E32 E63 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:886&r=mac |
| By: | Q. Farook Akram (Norges Bank (Central Bank of Norway)); Gunnar Bårdsen (Norges Bank (Central Bank of Norway)); Øyvind Eitrheim (Norges Bank (Central Bank of Norway)) |
| Abstract: | We investigate whether there is a case for asset prices in interest rates rules within a small econometric model of the Norwegian economy, modeling the interdependence of the real economy, credit and three classes of assets prices: housing prices, equity prices and the nominal exchange rate. We compare the performance of simple and efficient interest rate rules that allow for response to movements in asset prices to the performance of more standard monetary policy rules. We find that including housing prices and equity prices in the policy rules can improve macroeconomic performance in terms of both nominal and real economic stability. In contrast, a response to nominal exchange rate fluctuations can induce excess volatility in general and prove detrimental to macroeconomic stability. |
| Keywords: | Monetary policy, asset prices, simple interest rate rules, econometric model |
| JEL: | C51 C52 C53 E47 E52 |
| Date: | 2005–10–03 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2005_09&r=mac |
| By: | Eckhard Hein (Macroeconomic Policy Institute IMK in the Hans Boeckler Foundation) |
| Abstract: | In the present paper we explicitly introduce interest payments and debt into a Kaleckian distribution and growth model with an investment function very close to Kalecki’s original writings. The effects of interest rate variations on the short-run equilibrium values of capacity utilisation, capital accumulation and the rate of profit are derived, and the long run effects on the equilibrium debt-capital-ratio are also analysed. It is shown, that the effects of interest variations on the endogenously determined equilibrium values of the model do not only depend on the parameter values in the saving and investment functions but also on the interest elasticity of distribution and in some cases on initial conditions with respect to the interest rate and the debt- capital-ratio. If the conditions for short-run ‘normal’ effects of interest rate variations are given, the economy will be characterised by a long-run unstable debt-capital-ratio and by the macroeconomic ‘paradox of debt’. These results are similar to other models and hint to the robustness of Kaleckian ‘monetary’ models of distribution and growth with respect to the specification of the investment function. |
| Keywords: | Interest rate, debt, capital accumulation, Kaleckian model |
| JEL: | E12 E22 E25 E44 O42 |
| Date: | 2005–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0510007&r=mac |
| By: | Viv B. Hall |
| Abstract: | Arguments for and against abandoning independent national currencies and monetary policies have varied considerably over time and by country. For New Zealand, it can be argued that a key driving force behind recent debates has been the conduct of monetary policy and the need for improved overall economic performance in the longer term, rather than major dissatisfaction with its floating exchange rate system. In that context, this paper initially considers some issues considered important by other countries, and factors specific to New Zealand. It then utilises deterministic and stochastic simulation results from the RBNZ's core FPS model, to illustrate what New Zealand's inflation, output and trade outcomes might have been, had it faced US or Australian interest rate and exchange rate movements of the 1990s. The paper concludes with some implications for future research, and some ways forward for New Zealand policy. |
| JEL: | E58 F36 E31 E37 E17 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2005-21&r=mac |
| By: | B Bhaskara Rao (University of the South Pacific); Singh Rup (University of the South Pacific) |
| Abstract: | The demand for money, especially in the developing countries, is an important relationship for formulating appropriate monetary policy and targeting monetary variables. In this paper we estimate the demand for narrow money in India and evaluate its robustness. It is found that there is a stable demand for money for almost half a century from 1953 to 2003. There is no evidence for any significant effects of the $1991$ financial reforms. |
| Keywords: | Demand for money, Developing countries, Income and interest rate elasticities, Cointegration, Financial reforms. |
| JEL: | C1 C5 C8 |
| Date: | 2005–10–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0510002&r=mac |
| By: | Hillinger, Claude |
| Abstract: | The paper reports the principal findings of a long term research project on the description and explanation of business cycles. The research strongly confirmed the older view that business cycles have large systematic components that take the form of investment cycles. These quasi-periodic movements can be represented as low order, stochastic, dynamic processes with complex eigenvalues. Specifically, there is a fixed investment cycle of about 8 years and an inventory cycle of about 4 years. Maximum entropy spectral analysis was employed for the description of the cycles and continuous time econometrics for the explanatory models. The central explanatory mechanism is the second order accelerator, which incorporates adjustment costs both in relation to the capital stock and the rate of investment. By means of parametric resonance it was possible to show, both theoretically and empirically how cycles aggregate from the micro to the macro level. The same mathematical tool was also used to explain the international convergence of cycles. I argue that the theory of investment cycles was abandoned for ideological, not for evidential reasons. Methodological issues are also discussed. |
| JEL: | C50 C32 E32 E22 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:694&r=mac |
| By: | Constantin Gurdgiev; (Department of Economics, Trinity College) |
| Abstract: | This paper presents a model of endogenous growth in the presence of habit formation in consumption. We argue that in addition to the traditional disutility effects of habitual consumption, the past history of consumption represents a past record of transactions as well. As a result, the knowledge acquired in the process of past consumption leads to efficiency gains in allocating time to other activities. In particular, the investment technology in broad household capital can be seen as benefiting from the habitual consumption knowledge, while being subject to the costly new consumption pathways learning. These learning-by-consuming effects imply a faster speed of convergence to the steady state growth rate in consumption and a higher steady state ratio of capital to habits. Alternatively our model allows for the case where new consumption is associated with the accumulation of broad capital, as is consistent with the case where consumption goods can also be used in production. In this case convergence to steady state growth rate is slower. |
| JEL: | D13 E21 E22 O40 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:tcd:tcduee:20055&r=mac |
| By: | Amit Bhaduri |
| Keywords: | macroeconomic stability, globalization, growth, employment |
| Date: | 2005–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:ilo:empstr:2005-11&r=mac |
| By: | B Bhaskara Rao (University of the South Pacific) |
| Abstract: | In growth and development policy investment ratio is an important policy instrument. However, there is no well defined framework to determine what should be the investment ratio for a given growth target. This paper explains the potential of Solow (1956) and Solow (1957) to explain the relationship between the target growth rate and investment ratio. Hypothetical data are used for illustration. |
| Keywords: | Investment ratio, Growth targets, Growth accounting, Total Factor Productivity, Neo classical growth model. |
| JEL: | E |
| Date: | 2005–10–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0510003&r=mac |
| By: | Marcela Eslava; John Haltiwanger; Adriana Kugler; Maurice Kugler |
| Abstract: | In this paper, we analyze employment and capital adjustments using a panel of plants from Colombia. We allow for nonlinear adjustment of employment to reflect not only adjustment costs of labor but also adjustment costs of capital, and vice-versa. Using data from the Annual Manufacturing Survey, which include plant-level prices, we generate measures of plant-level productivity, demand shocks, and cost shocks, and use them to measure desired factor levels. We then estimate adjustment functions for capital and labor as a function of the gap between desired and actual factor levels. As in other countries, we find non-linear adjustments in employment and capital in response to market fundamentals. In addition, we find that employment and capital adjustments reinforce each other, in that capital shortages reduce hiring and labor shortages reduce investment. Moreover, we find that the market oriented reforms introduced in Colombia after 1990 increased employment adjustments, especially on the job destruction margin, while reducing capital adjustments. Finally, we find that while completely eliminating frictions from factor adjustments would yield a dramatic increase in aggregate productivity through improved allocative efficiency, the reforms introduced in Colombia generated only modest improvements. |
| JEL: | E22 E24 O11 C14 J63 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11656&r=mac |
| By: | Madhavi Bokil (Clark University) |
| Abstract: | This paper explores the idea that “Fear of Floating” and accompanying pro-cyclical interest rate policies observed in the case of some emerging market economies may be justified as an optimal discretionary monetary policy response to shocks. The paper also examines how the differences in monetary policies may lead to different degrees of this fear. These questions are addressed with a small open economy, new- Keynesian model with endogenous capital accumulation and sticky prices. The economy consists of two sectors- traded and non-traded. International credit markets are assumed to be imperfect, so that only the traded sector enjoys the ability to borrow internationally in foreign currency. The firms in the traded sector could potentially hold a large proportion of their debt in foreign currency, while the liabilities of the non-traded sector firms are entirely denominated in the domestic currency. Domestic exchange rate volatility adversely affects the balance sheets of the traded sector firms, while interest rate volatility creates problems for the firms in the non-traded sector. In such a situation, the monetary authorities face a dilemma when reacting to shocks. The numerical solution of the model indicates that the central bank’s reaction to shocks depends not only on the net effect of exchange rate movements on output gap and inflation, but also on the relative weight the central bank allocates to stabilizing output in the traded sector as against the non-traded sector. A central bank that assigns relatively higher importance to output stability in the traded goods sector also displays greater aversion for exchange rate volatility. |
| Keywords: | fear of floating, exchange rates, exchnage rate volatility, monetary policy, emerging countries |
| JEL: | F3 F4 |
| Date: | 2005–10–04 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpif:0510002&r=mac |
| By: | Juan F. Castro (Universidad del Pacífico); Eduardo Morón (Universidad del Pacífico) |
| Abstract: | Based on the significance of a Minimum Variance Portfolio (MVP) for the understanding of dollarization equilibria, a significant strand of the debate concerned with the driving forces behind this phenomenon has focused on analyzing the determinants of the relative volatility of inflation vis-à-vis real depreciation. This analysis contributes in the identification of those factors by extending the basic CAPM formulation via the introduction of credit risk that is directly linked to the shock that determines real returns for dollar denominated assets: unanticipated shifts in the real exchange rate. We show this ingredient can end up altering the perceived relative volatility of peso and dollar assets in a way that fuels financial dollarization (by increasing the relative hedging opportunities offered by the latter). We calibrate our model using Peruvian data for the period 1998-2004, and its predictions show a better fit with observed financial dollarization ratios than those of the basic CAPM model. |
| Keywords: | Financial dollarization, Minimum Variance Portfolio, Peru |
| JEL: | E44 E58 C34 |
| Date: | 2005–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0509027&r=mac |
| By: | Benjamin M. Friedman |
| Abstract: | This paper begins by examining the persistence of movements in the U.S. Government’s budget posture. Deficits display considerable persistence, and debt levels (relative to GDP) even more so. Further, the degree of persistence depends on what gives rise to budget deficits in the first place. Deficits resulting from shocks to defense spending exhibit the greatest persistence and those from shocks to nondefense spending the least; deficits resulting from shocks to revenues fall in the middle. The paper next reviews recent evidence on the impact of changes in government debt levels (again, relative to GDP) on interest rates. The recent literature, focusing on expected future debt levels and expected real interest rates, indicates impacts that are large in the context of actual movements in debt levels: for example, an increase of 94 basis points due to the rise in the debt-to-GDP ratio during 1981-93, and a decline of 65 basis point due to the decline in the debt-to-GDP ratio during 1993-2001. The paper next asks why deficits would exhibit the observed negative correlation with key elements of investment. One answer, following the analysis presented earlier, is that deficits are persistent and therefore lead to changes in expected future debt levels, which in turn affect real interest rates. A different reason, however, revolves around the need for markets to absorb the increased issuance of Government securities in a setting of costly portfolio adjustment. The paper concludes with some reflections on “the Perverse Corollary of Stein’s Law”: that is, the view that in the presence of large government deficits nothing need be done because something will be done. |
| JEL: | E62 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11630&r=mac |
| By: | Robert E. Hall |
| Abstract: | New data compel a new view of events in the labor market during a recession. Unemployment rises almost entirely because jobs become harder to find. Recessions involve little increase in the flow of workers out of jobs. Another important finding from new data is that a large fraction of workers departing jobs move to new jobs without intervening unemployment. I develop estimates of separation rates and job-finding rates for the past 50 years, using historical data informed by detailed recent data. The separation rate is nearly constant while the job-finding rate shows high volatility at business-cycle and lower frequencies. I review modern theories of fluctuations in the job-finding rate. The challenge to these theories is to identify mechanisms in the labor market that amplify small changes in driving forces into fluctuations in the job-finding rate of the high magnitude actually observed. In the standard theory developed over the past two decades, the wage moves to offset driving forces and the predicted magnitude of changes in the job-finding rate is tiny. New models overcome this property by invoking a new form of sticky wages or by introducing information and other frictions into the employment relationship. |
| JEL: | E24 J64 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11678&r=mac |
| By: | Oldrich Kyn (Boston University); Jiri Slama (Osteuropa Institut, Muenchen) |
| Abstract: | This paper presents estimates of the macroeconomic consumption function for a Soviet type economy. Systemic differences, however, require that two relations instead of the usual single behavioral relation be estimated. The first relation, which we call the 'planners' consumption function', models planners' decisions to allocate a certain portion of national income to consumption. Clearly such decisions are closely related to their investment decisions. The 'planners' consumption function' appears to be - at least for Czechoslovakia - basically linear in form, it has a very high positive intercept - implying a declining average share of consumption in national income; its slope is only slightly above .5 - implying that planners allocate for consumption only about one half of the increment of national income; the observed 'counter cyclical' fluctuations in consumption suggest that planners behave in a way similar to the permanent income hypothesis, namely that they determine aggregate consumption more on the basis of 'permanent income' than on the basis of 'transitory income'. The second behavioral relation, which we call the 'consumers' consumption function', models the aggregate effect of the millions of independent decisions of individual consumers to divide their disposable income between consumption expenditures and savings. This function is conceptually closer to the macroeconomic consumption functions for Western market economies. The empirical estimates for Czechoslovakia showed the 'consumers' consumption function' to be again linear in form but different from the Western-type consumption function as well as from the 'planners' consumption function' in the following respects: its intercept is small and it is not significantly different from zero, which implies an almost constant share of consumption expenditures in disposable income; its slope - marginal propensity to consume - is extremely high (about .96); no time lags in consumer behavior could have been detected, which implies either very myopic consumers or the almost total absence of transitory incomes in the Czechoslovak economy. |
| Keywords: | Consumption Function, Planners, Consumers, Saving, Czechoslovakia, Socialism, Soviet-type economy |
| JEL: | E |
| Date: | 2005–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0510006&r=mac |
| By: | Joshua Aizenman; Reuven Glick |
| Abstract: | This paper studies the empirical and theoretical association between the duration of a pegged exchange rate and the cost experienced upon exiting the regime. We confirm empirically that exits from pegged exchange rate regimes during the past two decades have often been accompanied by crises, the cost of which increases with the duration of the peg before the crisis. We explain these observations in a framework in which the exchange rate peg is used as a commitment mechanism to achieve inflation stability, but multiple equilibria are possible. We show that there are ex ante large gains from choosing a more conservative not only in order to mitigate the inflation bias from the well-known time inconsistency problem, but also to steer the economy away from the high inflation equilibria. These gains, however, come at a cost in the form of the monetary authority’s lesser responsiveness to output shocks. In these circumstances, using a pegged exchange rate as an anti-inflation commitment device can create a “trap” whereby the regime initially confers gains in anti-inflation credibility, but ultimately results in an exit occasioned by a big enough adverse real shock that creates large welfare losses to the economy. We also show that the more conservative is the regime in place and the larger is the cost of regime change, the longer will be the average spell of the fixed exchange rate regime, and the greater the output contraction at the time of a regime change. |
| JEL: | F15 F31 F43 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11652&r=mac |
| By: | Hans Fehr; Sabine Jokisch; Laurence J. Kotlikoff |
| Abstract: | This paper develops a dynamic, life-cycle, general equilibrium model to study the interdependent demographic, fiscal, and economic transition paths of China, Japan, the U.S., and the EU. Each of these countries/regions is entering a period of rapid and significant aging requiring major fiscal adjustments. In previous studies that excluded China we predicted that tax hikes needed to pay benefits along the developed world's demographic transition would lead to capital shortage, reducing real wages per unit of human capital. Adding China to the model dramatically alters this prediction. Even though China is aging rapidly, its saving behavior, growth rate, and fiscal policies are very different from those of developed countries. If this continues to be the case, the model's long run looks much brighter. China eventually becomes the world's saver and, thereby, the developed world's savoir with respect to its long-run supply of capital and long-run general equilibrium prospects. And, rather than seeing the real wage per unit of human capital fall, the West and Japan see it rise by one fifth by 2030 and by three fifths by 2100. These wage increases are over and above those associated with technical progress. |
| JEL: | E2 E4 H2 H3 H5 H6 J1 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11668&r=mac |
| By: | Oleg Korenok (Department of Economics, VCU School of Business) |
| Abstract: | The goal of this paper is to provide a fair empirical comparison of two alternative explanations of the relationship between aggregate price and output. We compare the empirical performance of the sticky price and the Mankiw and Reis (2002) sticky information models. We put both models in a similar analytical form and use the same data set on unit labor cost and aggregate prices in the U.S. after WWII to evaluate the models. We use the Bayesian full information likelihood approach for parameter estimation, uncertainty evaluation, and model comparison. Statistical comparison of the two non-nested models and estimates of the empirical encompassing model lead to the same result - the sticky information model is dominated by the sticky price model. |
| Keywords: | sticky price, sticky information, model selection, full information likelihood, Bayesian model comparison |
| JEL: | E12 E3 C32 |
| Date: | 2005–10–03 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0510004&r=mac |
| By: | Francisco Covas |
| Abstract: | The author analyzes a general-equilibrium model of a heterogeneous agents economy in which the agents are subject to borrowing constraints and uninsurable idiosyncratic production risk. In particular, he addresses the impact of these frictions on entrepreneurial investment and illustrates the trade-off between production risk and precautionary savings faced by the entrepreneur. In contrast to other studies, the author's results suggest that, when entrepreneurs' earnings are poorly diversified and production risk mainly affects the total output produced, the underaccumulation of capital in the entrepreneurial sector of the model economy is less likely to hold, because of a strong precautionary savings motive. Furthermore, the presence of these frictions on entrepreneurial investment exacerbates the overaccumulation of capital in the corporate sector of the economy that is reported in Bewley models with uninsurable labour income risk. |
| Keywords: | Economic models; Financial institutions; Financial markets |
| JEL: | E22 G11 M13 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:05-26&r=mac |
| By: | Adriana Kugler; Giovanni Pica |
| Abstract: | This paper uses the Italian Social Security employer-employee panel to study the effects of the Italian reform of 1990 on worker and job flows. We exploit the fact that this reform increased unjust dismissal costs for firms below 15 employees, while leaving dismissal costs unchanged for bigger firms, to set up a natural experiment research design. We find that the increase in dismissal costs decreased accessions and separations for workers in small relative to big firms, especially in sectors with higher employment volatility. Moreover, we find that the reform reduced firms' employment adjustments on the internal margin as well as entry rates while increasing exit rates. |
| JEL: | E24 J63 J65 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11658&r=mac |
| By: | Zeljko Bogetic (The World Bank) |
| Abstract: | The paper reviews the salient features of officially dollarized economies (with particular reference to Panama) and discusses costs and benefits of official dollarization. Also, the paper reviews existing and some potential seigniorage sharing arrangements and discusses conditions that are conducive to official dollarization, especially in Latin America. |
| Keywords: | dollarization monetary unions seigniorage Panama Latin America |
| JEL: | F3 E O P |
| Date: | 2005–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpif:0510006&r=mac |
| By: | Zeljko Bogetic (The World Bank) |
| Abstract: | The paper compares the costs and benefits of dollarization for the dollarizing country and the 'anchor' country. |
| Keywords: | dollarization, dollarisation, costs and benefits, monetary unions |
| JEL: | F3 G E O P |
| Date: | 2005–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpif:0510009&r=mac |
| By: | Russell Cooper; Hubert Kempf; Dan Peled |
| Abstract: | This paper studies the repayment of regional debt in a multi-region economy with a central authority: who pays the obligation issued by a region? With commitment, a central government will use its taxation power to smooth distortionary taxes across regions. Absent commitment, the central government may be induced to bailout the regional government in order to smooth consumption and distortionary taxes across the regions. We characterize the conditions under which bailouts occur and their welfare implications. The gains to creating a federation are higher when the (government spending) shocks across regions are negatively correlated and volatile. We use these insights to comment on actual fiscal relations in three quite different federations: the US, the European Union and Argentina. |
| JEL: | E6 F4 R5 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11655&r=mac |
| By: | Zeljko Bogetic (The World Bank) |
| Abstract: | As more nations in the Western Hemisphere consider adopting the U.S. dollar as their own major currency, this IMF economist separates fact from fiction concerning dollarization. How will the dollarized nations react to U.S. monetary policy over which they will have no say? |
| Keywords: | dollarization seigniorage spreads Latin America |
| JEL: | F3 E O P |
| Date: | 2005–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpif:0510007&r=mac |
| By: | Arturo Galindo; Fabio Schiantarelli (Boston College); Andrew Weiss (Boston University) |
| Abstract: | Using firm level panel data from twelve developing countries we explore if financial liberalization improves the efficiency with which investment funds are allocated. A summary index of the efficiency of investment allocation that measures whether investment funds are going to firms with a higher marginal return to capital is developed. We examine the relationship between this and various measures of financial liberalization and find that liberalization increases the efficiency with which investment funds are allocated. This holds after various robustness checks and is consistent with firm level evidence that a stronger association between investment and fundamentals after financial liberalization. |
| Keywords: | financial liberalization, investment, efficiency, reform, development |
| JEL: | E22 E44 G28 O16 |
| Date: | 2005–10–04 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:625&r=mac |
| By: | Andrés Felipe Giraldo Palomino |
| Abstract: | El efecto de las variables nominales, en particular el dinero, sobre las variables reales es uno de los temas centrales en la macroeconomía. En este documento se presenta una revisión teórica de las principales escuelas que tratan sobre la neutralidad del dinero y la dicotomía clásica. Este debate tiene consecuencias para la política monetaria y, junto al debate de reglas y discreción, constituye uno de los elementos clave para su ejecución y el análisis de su efectividad. |
| Keywords: | neutralidad del dinero |
| JEL: | E49 |
| Date: | 2005–10–06 |
| URL: | http://d.repec.org/n?u=RePEc:col:000139:001383&r=mac |
| By: | Zeljko Bogetic (The World Bank); Johannes Fedderke (University of Cape Town, South Africa) |
| Abstract: | The paper provides three principal results. First, we benchmark South African infrastructure performance in terms of access, pricing, and quality against key comparator groups of countries using the most recent World Bank benchmarking data base (2005). Second, we establish clear empirical links between infrastructure and productivity using South African time-series data. And third, we estimate long-run demand for electricity and telephony using a panel of 52 low-income and middle- income countries for the period 1980-2002 and then project investment needs in these sectors until 2010. Our projections indicate average annual electricity generating requirement of US$0.5 billion or about 0.2% of GDP, and US$1.98 billion or 0.75% of GDP for telephony. |
| Keywords: | infrastructure, growth, productivity, investment, South Africa |
| JEL: | D5 D6 D7 H O P E C1 C8 |
| Date: | 2005–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwppe:0510006&r=mac |
| By: | Hassan Molana (University of Dundee); Catia Montagna (University of Dundee) |
| Abstract: | Using a two-sector-two-country model with aggregate scale economies and unionisation, we show that optimal welfare state policy entails positive levels of unemployment benefits under free-trade and capital mobility. In this setting, economic integration does not reduce the revenue raising capacity of governments and thus does not lead to a race-to-the- bottom in social standards. Instead, trade and capital flows interact with welfare state policies in increasing welfare even when each government acts independently (non-cooperatively) in determining its optimal welfare payment. Cooperation is shown to improve upon noncooperative outcomes by raising both the generosity of the welfare state and aggregate welfare. |
| Keywords: | circular causation; international trade; capital mobility; optimal policy; welfare state |
| JEL: | E6 F1 F4 H3 J5 |
| Date: | 2005–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpit:0510002&r=mac |