|
on Macroeconomics |
|
Issue of 2006‒02‒05
67 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | David-Jan Jansen; Jakob de Haan |
| Abstract: | We show that comments by euro area central bankers contain information on future ECB interest rate decisions, but that the comments mainly reflect recent developments in macroeconomic variables. Furthermore, models using only communication variables are outperformed by straightforward Taylor rule models. During the first years of the European Economic and Monetary Union, comments by ECB Executive Board members and high-level Bundesbank policy-makers were more informative than comments by national central bank presidents. We also find that differences of opinion were informative when they concerned the outlook for economic growth. Finally, our results suggest that the ECB used communication especially to signal interest rate increases. |
| Keywords: | central bank communication; interest rate decisions; ECB; Taylor rule; ordered probit models |
| JEL: | E43 E52 E58 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:075&r=mac |
| By: | Peng-fei Wang; Yi Wen |
| Abstract: | We document that "persistent and lagged" inflation (with respect to output) is a world wide phenomenon in that these short-run inflation dynamics are highly synchronized across countries. We investigate whether standard monetary models are consistent with the empirical facts. We find that neither the new Keynesian sticky-price model nor the Mankiw-Reis (QJE 2002) sticky-information model can explain the international synchronization of the short-run inflation dynamics. Although the sticky-information model of Mankiw and Reis is very successful in explaining the persistent and lagged inflation dynamics for each individual country, its open-economy analogue fails to explain the synchronization of the inflation dynamics among the countries using calibrated international covariance of monetary shocks. The reason is that the dynamic effects of monetary shocks on inflation in one country cannot be effectively propagated across and preserved in other countries. We conclude that the short-run inflation dynamics and their global synchronization cannot be a monetary phenomenon, but may be instead the consequence of non-monetary shocks. An independent contribution of the paper is to provide a simple solution technique for solving general equilibrium models with lagged expectations (e.g., due to sticky information). |
| Keywords: | Money ; Inflation (Finance) |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2005-076&r=mac |
| By: | Iris Claus; Kunhong Kim |
| Abstract: | This paper assesses the effects of asymmetric information and agency costs in credit markets in an open economy with a floating exchange rate and sticky prices. A decline in agency costs lowers the cost of external finance and increases the long-run level of steady state investment, capital and output. Agency costs also affect the business cycle and the central bank's response to shocks in the economy. Following a supply (demond) shock to the economy agency costs dampen (magnify) output fluctuations. The results thus underline the importance of incorporating credit markets into macroeconomic models. |
| JEL: | E32 E44 E50 F41 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2006-04&r=mac |
| By: | Timothy Kam |
| Abstract: | The typical New-Keynesian small-open-economy model has qualitative features and monetary-policy prescriptions similar to their original closed-economy counterparts - i.e. complete stablization of domestic inflation is sufficient for optimal policy. We consider a version of the model here where that isomorphism no longer holds and where the zero-interest-rate lower bound matters. Under the commitment benchmark, the optimal interest-rate rule is intrinsically intertial. Under time-consistent policy, it is still optimal to delegate policy to an interest-rate smoothing central banker despite the fact that complete stablization od domestic inflation is no longer possible. We thus extend the analysis of Woodford (1999) to a nontrivial small open economy setting. Our result is robust to alternative degrees of pass through, the types of shocks impinging the natural rate, and minor departures from optimal pricing behaviour. |
| JEL: | E32 E52 F41 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2006-03&r=mac |
| By: | Helge Braun; Reinout De Bock; Riccardo DiCecio |
| Abstract: | This paper evaluates the dynamic response of worker flows, job flows, and vacancies to aggregate shocks in a structural vector autoregression. We identify demand, monetary, and technology shocks by imposing sign restrictions on the responses of output, inflation, the interest rate, and the relative price of investment. No restrictions are placed on the responses of job and worker flows variables. We find that both investment-specific and neutral technology shocks generate responses to job and worker flows variables that are qualitatively similar to those induced by monetary and demand shocks. However, technology shocks have more persistent effects. The job finding rate largely drives the response of unemployment, though the separation rate explains up to one third. For job flows, the destruction margin is more important than the creation margin in driving employment growth. Measuring reallocation from job flows, we find that monetary and demand shocks do not have significant effects on cumulative job reallocation, whereas expansionary technology shocks have mildly negative effects. We also estimate shock-specific matching functions. Allowing for a break in 1984:Q1 shows considerable subsample differences in matching elasticities and relative shock-specific efficiency. |
| Keywords: | Business cycles ; Labor market |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2006-004&r=mac |
| By: | Klaus Adam; Roberto M. Billi |
| Abstract: | Ignoring the existence of the zero bound on nominal interest rates one considerably understates the value of monetary commitment in New Keynesian models. A stochastic forward-looking model with an occasionally binding lower bound, calibrated to the U.S. economy, suggests that low values for the natural rate of interest lead to sizeable output losses and deflation under discretionary monetary policy. The fall in output and deflation are much larger than in the case with policy commitment and do not show up at all if the model abstracts from the existence of the lower bound. The welfare losses of discretionary policy increase even further when inflation is partly determined by lagged inflation in the Phillips curve. These results emerge because private sector expectations and the discretionary policy response to these expectations reinforce each other and cause the lower bound to be reached much earlier than under commitment. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp05-08&r=mac |
| By: | Marcio Gomes Pinto Garcia (Department of Economics PUC-Rio); Alexandre Lowenkron (Department of Economics PUC-Rio) |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:rio:texdis:508&r=mac |
| By: | Klaus Adam; Roberto M. Billi |
| Abstract: | We determine optimal monetary policy under commitment in a forward-looking New Keynesian model when nominal interest rates are bounded below by zero. The lower bound represents an occasionally binding constraint that causes the model and optimal policy to be nonlinear. A calibration to the U.S. economy suggests that policy should reduce nominal interest rates more aggressively than suggested by a model without lower bound. Rational agents anticipate the possibility of reaching the lower bound in the future and this amplifies the effects of adverse shocks well before the bound is reached. While the empirical magnitude of U.S. mark-up shocks seems too small to entail zero nominal interest rates, shocks affecting the natural real interest rate plausibly lead to a binding lower bound. Under optimal policy, however, this occurs quite infrequently and does not imply positive average inflation rates in equilibrium. Interestingly, the presence of binding real rate shocks alters the policy response to (non-binding) mark-up shocks. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp05-07&r=mac |
| By: | Jan Libich |
| Abstract: | Opponents of inflation targeting have argued that a commitment to a numerical inflation target reduces policy's stabilization flexibility - increasing output volatility under supply shocks. Using a novel game theoretic approach our paper demonstrates that this claim may fail to account for the "anchoring" effect of explicit targets on expectations and wages. Under a credible long-term inflation target and costly acquiring information/wage resetting the public may find it optimal to "look-through" shocks. This makes the policymaker's short-term interest rate instrument more effective in output stabilisation giving it greater leverage over the real rate. As a consequence, the variability trade-off is improved, i.e. volatility of both inflation and output is rediced in equilibrium. Our analysis thus adds another dimenstion to the "rule vs. discretion debate" by showing that a long-run rule may be compatible with (and in fact enhance the effectiveness of) short-run discretion. We conclude by showing that our results are consistent with several empirical findings of the literature. |
| JEL: | E42 E61 C72 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2006-02&r=mac |
| By: | William Barnett (Department of Economics, The University of Kansas) |
| Abstract: | This paper is a comment on Serletis and Shintani, 'Chaotic Monetary Dynamics with Confidence,' which is to appear in a special issue of the Journal of Macroeconomics on chaos in economics. The Editor of the special issue invited comments from discussants of all papers in the special issue, with the comments to be published in the special issue. This invited comment is to appear in the special issue along with Serletis and Shintani's paper. |
| Keywords: | chaos bifurcation Divisia money aggregation |
| JEL: | C14 C22 E37 E32 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:200602&r=mac |
| By: | Nicolien Schermer |
| Abstract: | This paper investigates the position of the Phillips curve in a single currency area, when the countries have different levels of unemployment. We will use the aggregation hypothesis to show that allowing for the dispersion of unemployment is essential to quantifying the level of inflation corresponding to any given unemployment rate. Next, we point out that the EMU countries have attained increasingly similar unemployment rates since the creation of the single market and the adoption of the single currency. This observed synchronisation in countries’ labour markets in the 1990s has reduced the effect of the aggregation hypothesis. This implies that the level of inflation is now lower for any given level of unemployment, which eases the choices of monetary policy makers. |
| Keywords: | aggregation hypothesis; Phillips curve; EMU; labour markets. |
| JEL: | C52 E24 F15 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:076&r=mac |
| By: | L. J. Álvarez; E. Dhyne; M. Hoeberichts; C. Kwapil; H. Le Bihan |
| Abstract: | This paper presents original evidence on price setting in the euro area at the individual level. We use micro data on consumer (CPI) and producer (PPI) prices, as well as survey information. Our main findings are: (i) prices in the euro area are sticky and more so than in the US; (ii) there is evidence of heterogeneity and of asymmetries in price setting behaviour; (iii) downward price rigidity is only slightly more marked than upward price rigidity and (iv) implicit or explicit contracts and coordination failure theories are important, whereas menu or information costs are judged much less relevant by firms. |
| Keywords: | Price setting; Price stickiness; consumer prices; Producer prices; survey data |
| JEL: | C25 D40 E31 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:062&r=mac |
| By: | Vincent Bodart; Olivier Pierrard; Henri R. Sneessens |
| Abstract: | RBC models with search unemployment and wage renegotiation generate too much wage volatility and too stable unemployment rate. Shimer (2004) shows that it is possible to reproduce a volatility of unemployment similar to that observed in actual economies by imposing full real wage rigidity. We use a similar model but with Calvo wage contracts. The models with full wage flexibility or full wage rigidity are obtained as particular cases. We show that a contract length of about six quarters fits best the observed cyclical properties of wages and unemployment. |
| Keywords: | search unemployment; Calvo wage; cyclical properties. |
| JEL: | E24 E32 J30 J41 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:068&r=mac |
| By: | Mark Gertler; John Leahy |
| Abstract: | We develop an analytically tractable Phillips curve based on state-dependent pricing. We differ from the existing literature by considering a local approximation around a zero inflation steady state and introducing idiosyncratic shocks. The resulting Phillips curve is a simple variation of the conventional time-dependent Calvo formulation, but with some important differences. First, the model is able to match the micro evidence on both the magnitude and timing of price adjustments. Second, holding constant the frequency of price adjustment, our state-dependent model exhibits greater flexibility in the aggregate price level than does the time-dependent model. On the other hand, with real rigidities present, our state-dependent pricing framework can exhibit considerable nominal stickiness, of the same order by a conventional time-dependent model. |
| JEL: | E1 E3 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11971&r=mac |
| By: | Robert Rich; Charles Steindel |
| Abstract: | This paper provides a review of the concept of core inflation and evaluates the performance of several proposed measures. We first consider the rationale of a central bank in setting its inflation goal in terms of a selected rate of consumer price growth and the use of a core inflation measure as a means of achieving this long-term policy objective. We then discuss desired attributes of a core measure of inflation, such as ease of design, accuracy in tracking trend inflation, and predictive content for future movements in aggregate inflation. Using these attributes as criteria, we evaluate several candidate series that have been proposed as core measures of consumer price index (CPI) inflation and personal consumption expenditure (PCE) inflation for the United States. The candidate series are inflation excluding food and energy, inflation excluding energy, and median inflation, as well as exponentially smoothed versions of aggregate inflation and the aforementioned individual series. ; For PCE inflation, we examine quarterly data starting in 1959. Unlike previous research, we confine our analysis to the methodologically consistent CPI index, which is only available starting in 1978. We find that most of the candidate series, including the familiar ex-food and energy measure, demonstrate the ability to match the mean rate of aggregate inflation and track movements in its underlying trend. In the within-sample analysis, we find that core measures derived through exponential smoothing, in combination with simple measures of economic slack, have substantial explanatory content for changes in aggregate inflation several years in advance. In the out-of-sample analysis, however, we find that no measure performs consistently well in forecasting inflation. Moreover, we document evidence of some parameter instability in the estimated forecasting models. Taken together, our findings lead us to conclude that there is no individual measure of core inflation that can be considered superior to other measures. |
| Keywords: | Inflation (Finance) ; Consumer price indexes ; Consumption (Economics) |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:236&r=mac |
| By: | William Barnett (Department of Economics, The University of Kansas) |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:200601&r=mac |
| By: | Jeremy Rudd; Karl Whelan |
| Abstract: | In recent years, a broad academic consensus has arisen around the use of rational expectations sticky-price models to capture inflation dynamics. These models are seen as providing an empirically reasonable characterization of observed inflation behavior once suitable measures of the output gap are chosen; and, moreover, are perceived to be robust to the Lucas critique in a way that earlier econometric models of inflation are not. We review the principal conclusions of this literature concerning: 1) the ability of these models to fit the data; 2) the importance of rational forward-looking expectations in price setting; and 3) the appropriate measure of inflationary pressures. We argue that existing rational expectations sticky-price models fail to provide a useful empirical description of the inflation process, especially relative to traditional econometric Phillips curves of the sort commonly employed for policy analysis and forecasting. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2005-66&r=mac |
| By: | Troy Davig; Eric M. Leeper; Hess Chung |
| Abstract: | A growing body of evidence finds that policy reaction functions vary substantially over different periods in the United States. This paper explores how moving to an environment in which monetary and fiscal regimes evolve according to a Markov process can change the impacts of policy shocks. In one regime monetary policy follows the Taylor principle and taxes rise strongly with debt; in another regime the Taylor principle fails to hold and taxes are exogenous. An example shows that a unique bounded non-Ricardian equilibrium exists in this environment. ; A computational model illustrates that because agents' decision rules embed the probability that policies will change in the future, monetary and tax shocks always produce wealth effects. When it is possible that fiscal policy will be unresponsive to debt at times, active monetary policy (like a Taylor rule) in one regime is not sufficient to insulate the economy against tax shocks in that regime and it can have the unintended consequence of amplifying and propagating the aggregate demand effects of tax shocks. The paper also considers the implications of policy switching for two empirical issues. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp05-12&r=mac |
| By: | Christian Ariel Volpe Martincus; Andrea Molinari |
| Abstract: | Does trade lead to increased cross-country regional business cycle synchronization and reduced national economic borders? The theory does not really provide an unambiguous answer. Our paper addresses empirically this question using Argentina and Brazil as case studies of developing countries. These countries liberalized unilaterally trade since the mid-1980s and also established MERCOSUR (a regional integration agreement with Paraguay and Uruguay) in 1991. As a consequence, the intensity of trade between Argentina and Brazil rose significantly. The answer to the initial question is no. The increase in bilateral trade between Argentina and Brazil did not translate into significantly more synchronized regional business cycles. Using Gross Provincial Product for Argentina and Gross State Product for Brazil for the period 1961 to 2000, we find that within-country regional business cycle synchronization is substantially larger than cross-country regional business cycle synchronization. Moreover, this difference has increased over time. These results are mainly driven by Argentina’s behavior and hold even after controlling for factors such as distance, size, sectoral specialization, and the degree of regional fiscal policy coordination. The empirical evidence based on Brazilian states and Argentina as a whole suggests that the higher level of trade among regions within a country is an important factor to that accounts for the observed border effect. In the case of Argentina additional factors such as monetary and exchange rate policies and large country-specific shocks have also played a significant role. |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa05p93&r=mac |
| By: | Michael T. Owyang; Howard J. Wall |
| Abstract: | We find that the magnitudes of the regional effects of monetary policy were considerably dampened during the Volcker-Greenspan era. Further, regional differences in the depths of monetary-policy-induced recessions are related to the concentration of the banking sector, whereas differences in the total cost of these recessions are related to industry mix. |
| Keywords: | Monetary policy |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2006-002&r=mac |
| By: | Aloisio Araujo; Mario Pascoa; Juan Pablo Torres-Martinez (Department of Economics PUC-Rio) |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:rio:texdis:513&r=mac |
| By: | Enrique G. Mendoza |
| Abstract: | This paper reports results for a class of dynamic, stochastic general equilibrium models with credit constraints that can account for some of the empirical regularities of the Sudden Stop phenomenon of recent emerging markets crises. In these models, credit constraints set in motion Irving Fisher's debt-deflation mechanism and they bind as an endogenous equilibrium outcome when agents are highly indebted. The quantitative predictions of these models yield three key lessons: (1) Sudden Stops can occur as an endogenous response to typical realizations of adverse shocks to fundamentals, in environments in which agents plan their actions taking credit constraints and expectations of Sudden Stops into account. (2) Credit constraints cause output declines during Sudden Stops when collateral constraints limit debt to a fraction of the market value of capital, when there are limits on access to working capital, or when debt-deflation lowers the value of the marginal product of factors of production. (3) The debt-deflation mechanism has significant quantitative effects in terms of the amplification, asymmetry and persistence of the responses of macroeconomic aggregates to standard shocks, and in the occurrence of Sudden Stops as infrequent events nested within regular business cycles. Precautionary saving rules out the largest Sudden Stops from the stochastic stationary state, but Sudden Stops remain a positive-probability event in the long run. |
| JEL: | F41 F32 E44 D52 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11966&r=mac |
| By: | Marco Del Negro; Frank Schorfheide |
| Abstract: | The time series fit of dynamic stochastic general equilibrium (DSGE) models often suffers from restrictions on the long-run dynamics that are at odds with the data. Relaxing these restrictions can close the gap between DSGE models and vector autoregressions. This paper modifies a simple stochastic growth model by incorporating permanent labor supply shocks that can generate a unit root in hours worked. Using Bayesian methods the authors estimate two versions of the DSGE model: the standard specification in which hours worked are stationary and the modified version with permanent labor supply shocks. The authors find that the data support the latter specification. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:06-04&r=mac |
| By: | Pedro José Pérez (Universitat de València); José Ramón García (Dpto. Análisis Económico, Universitat de València); Luisa Escriche (Universitat de València) |
| Abstract: | This paper analyses whether the impact of European shocks in the Spanisheconomy has increased after the entry of Spain in the European Community. UsingVAR models, we try to disentangle whether the change in the importance of Europe isdue to a change in the size of the shocks or in the propagation effects. The results showsthat after 1986, despite the decrease in the size of European shocks, their impact on theSpanish business cycle has increases due to a larger sensitivity of the Spanish economyto these shocks. El objetivo de este trabajo es analizar si ha aumentado la influencia de los shocks europeos en la economía española tras el proceso de integración en Europa, distinguiendo si los cambios observados se deben a un cambio en la magnitud relativa de los shocks (mundiales, europeos e internos) y/o a cambios en el grado de respuesta. Los resultados muestran que los efectos de un shock europeo han aumentado: un shock del mismo tamaño afectaría hoy más a la economía española de lo que lo hacía en los setenta, mientras que un shock doméstico provocaría hoy una respuesta sustancialmente menor. |
| Keywords: | fluctuaciones económicas, integración europea, volatilidad economic fluctuations, European integration, volatility |
| JEL: | E32 E37 C32 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasec:2005-07&r=mac |
| By: | David L. Reifschneider; John M. Roberts |
| Abstract: | We use simulations of the Federal Reserve's FRB/US model to examine the efficacy of a number of proposals for reducing the consequences of the zero bound on nominal interest rates. Among the proposals are: a more aggressive monetary policy; promises to make up any shortfall in monetary ease during the zero-bound period by keeping interest rates lower in the future; and the adoption of a price-level target. We consider two assumptions about expectations formation. One assumption is fully model-consistent expectations (MCE)--a reasonable assumption when a policy has been in place for some time, but perhaps less so for a newly announced policy. We therefore also consider the possibility that only financial markets have MCE, and that other agents form their expectations using a small-scale VAR model estimated using historical data. All of the policies noted above are highly effective at reducing the adverse effects of the zero bound under MCE, but their efficacy drops considerably when households and firms base their expectations on the historical average behavior of the economy, and only investors fully recognize the economic implications of the various proposals. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2005-70&r=mac |
| By: | Troy Davig; Eric M. Leeper |
| Abstract: | Recurring change in a monetary policy function that maps endogenous variables into policy choices alters both the nature and the efficacy of the Taylor principle---the proposition that central banks can stabilize the macroeconomy by raising their interest rate instrument more than one-for-one in response to higher inflation. A monetary policy process is a set of policy rules and a probability distribution over the rules. We derive restrictions on that process that satisfy a long-run Taylor principle and deliver unique equilibria in two standard models. A process can satisfy the Taylor principle in the long run, but deviate from it in the short run. The paper examines three empirically plausible processes to show that predictions of conventional models are sensitive to even small deviations from the assumption of constant-parameter policy rules. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp05-13&r=mac |
| By: | Refet S. Gürkaynak; Justin Wolfers |
| Abstract: | In September 2002, a new market in "Economic Derivatives" was launched allowing traders to take positions on future values of several macroeconomic data releases. We provide an initial analysis of the prices of these options. We find that market-based measures of expectations are similar to survey-based forecasts, although the market-based measures somewhat more accurately predict financial market responses to surprises in data. These markets also provide implied probabilities of the full range of specific outcomes, allowing us to measure uncertainty, assess its driving forces, and compare this measure of uncertainty with the dispersion of point-estimates among individual forecasters (a measure of disagreement). We also assess the accuracy of market-generated probability density forecasts. A consistent theme is that few of the behavioral anomalies present in surveys of professional forecasts survive in equilibrium, and that these markets are remarkably well calibrated. Finally we assess the role of risk, finding little evidence that risk-aversion drives a wedge between market prices and probabilities in this market. |
| Keywords: | Derivative securities ; Macroeconomics ; Forecasting |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2005-26&r=mac |
| By: | Peng-fei Wang; Yi Wen |
| Abstract: | This paper proposes a solution method to solve linear difference models with lagged expectations. Variables with lagged expectations tend to expand the model's state space at a rate proportional to Ný, where N is the order of lagged expectations. Hence applying conventional solution methods, such as that of Blanchard and Kahn (Econometrica, 1980), to solve this type of models is not straightforward and can become very tedious, especially when N is large. Our method transforms the system with lagged expected variables into a system without lagged expected variables. Hence, the conventional solution methods can be used without the need to expand the model's state space. Examples are provided to demonstrate the usefulness of the method. We also discuss the implications of lagged expectations on the equilibrium properties of indeterminate DSGE models, such as the serial correlation properties of sunspots shocks in these models. |
| Keywords: | Monetary policy ; Macroeconomics |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2006-003&r=mac |
| By: | Marcelo de Paiva Abreu (Department of Economics PUC-Rio); Rogério Ladeira Furquim Werneck (Department of Economics PUC-Rio) |
| Abstract: | This chapter on the Brazilian economy after 1994 is of a somewhat different nature compared to those on the economy in earlier periods. It is more speculative than its predecessors and based on a more restricted range of bibliographical material, as there is less consolidated research work on the period. It is to stress the obvious that the essay is inevitably marred to a certain degree by the lack of a sufficiently long time perspective. But it was thought that the benefits of providing a provisional account of the more recent economic developments in Brazil far outstripped the costs. The Brazilian economic history from 1995 to 2004 was still dominated by efforts to stabilise the economy. The essay is structured around an analysis of the eventful macroeconomic policies followed during the period. Other aspects are also considered, but often only to allow a clearer picture of the evolution of macroeconomic policies and the constraints they had to face. At first, the main economic policy objective was to consolidate the results of the Real Plan and to make sure that the long high inflation experience was really over. But soon the need to put public accounts under control and to make a sizable external adjustment would become the main challenges to be faced. A major balance of payments crisis in early 1999 imposed much overdue drastic changes in economic policy. Further disturbances occurred in 2002, the last year of Cardoso’s second term, as financial markets reflected fears that economic policy could be reversed with the likely victory of the opposition presidential candidate, Luiz Inácio Lula da Silva. But, somewhat surprisingly, the new government opted for policies that by and large represented a continuation of the orthodox economic policies of its predecessor. In contrast with the previous fifteen years there was success, in spite of many difficulties. Advance in the stabilisation front required reforms and institutional building efforts that brought very important changes and a sound foundation for future economic expansion. But effective growth performance over the period continued to be mediocre: between 1994 and 2004 per capita GDP (gross domestic product) increased an average of only 0.9 percent yearly. Together with structural fiscal difficulties, low economic growth imposed strict constraints on policies seeking to alleviate the country’s severe social imbalances |
| Keywords: | economic history, stabilization, Brazil |
| JEL: | N16 E63 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:rio:texdis:504&r=mac |
| By: | Edward S. Knotek |
| Abstract: | Newspapers, movie tickets, and concession stand items typically charge prices that facilitate rapid, simple transactions: their prices often coincide with available monetary units, require few pieces of money, or require little change. In this sense, these prices are more convenient than other proximate prices. I model a firm that explicitly incorporates convenience into its pricing decisions, where convenience is quantified by the number of currency units in a transaction. The model illustrates how alternating periods of price rigidity and flexibility can arise in such a setting, along with rapid switching between convenient prices. I compile time series data on newspaper cover prices and use simulations to show that convenience is an essential component of these prices. In the empirical data, firms set prices that were more convenient than adjacent prices 61% of the time. Standard menu costs cannot replicate this behavior. Because convenience appears to affect many of the consumer goods and services with the stickiest prices in the U.S. economy, studies focusing on very sticky prices must be cognizant of convenience’s role in effecting above-average price rigidity. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp05-11&r=mac |
| By: | Chetan, Dave |
| Abstract: | There is much debate over whether agents form rational expectations of variables or whether they suffer from systematic errors in judgment. This paper estimates models for plant-level survey data in order to test rationality for those manufacturing plants that report expectations of capital expenditures. An advantage of using such data is that rationality is tested in markets where agents may not have knowledge of each others' expectations so strategic motives behind purposefully irrational forecasts are minimized. Statistical estimates and test results suggest that expectations may indeed be rational depending on size. That is to say that the larger a plant is, the more resources it can expend on forecasting its future needs. Thus, the statistical results in this paper validate, for the first time, a class of assumptions in the macroeconomic literature. |
| Keywords: | Business enterprises, National accounts, Business finance, Investment and Fixed Assets |
| Date: | 2004–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp3e:2004208e&r=mac |
| By: | John M. Roberts |
| Abstract: | This paper uses the response of investment to identified structural shocks to investigate some key issues, including the nature of adjustment costs and investment's responsiveness to user cost. In the estimation, the model parameters are chosen to match as closely as possible the impulse responses from an identified VAR. In the preferred results, both investment- and capital-stock adjustment costs are important; the size of the capital-stock adjustment costs is in line with estimates from firm-level studies; the investment-adjustment costs suggest rapid adjustment of investment to its desired level; and the estimated elasticity of substitution between capital and other inputs is considerably smaller than one. There is, however, an important sensitivity: The VAR's identified aggregate demand shock leads to a large crowding out effect--when output expands, investment falls. When this shock is included among those matched, the elasticity of substitution is near one and only investment adjustment costs are important. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2005-69&r=mac |
| By: | Martin Weale; James Sefton |
| Abstract: | We assess the implications of demographic uncertainty for the United Kingdom’s fiscal position. We construct stochastic population projections and then use the framework provided by generational accounts to project government revenues and expenditures. We present stochastic paths for the budget balance over time and also evaluate the frequency distribution of the increase in taxes needed to deliver fiscal solvency. |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:250&r=mac |
| By: | Cletus C. Coughlin; Thomas A. Garrett; Rubén Hernández-Murillo |
| Abstract: | We apply spatial econometric techniques to models of state and local fiscal policy convergence. Total tax revenue and expenditures, as well as broad tax and expenditure categories, of state and local governments in each of the 48 contiguous U.S. states are examined. We extend recent work by Annala (2003) in much the same way that Rey and Montouri (1999) extended the literature dealing with income convergence among U.S. states. Our results indicate that most fiscal policies have been converging and that the growth in overall and broad categories of tax revenue and spending are dependent on the corresponding tax and spending behavior in other states. In addition, total expenditures have been converging faster than output, whereas total tax revenues have been converging slower that output. Our models further demonstrate that expenditure growth in a state is dependent upon expenditure growth in economically and demographically similar states, while output growth and revenue growth in a state are dependent on output growth and revenue growth, respectively, in contiguous states. |
| Keywords: | Fiscal policy |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2006-001&r=mac |
| By: | Raouf Boucekkine (IRES); Blanca Martínez (Universidad de Alicante); Fernando del Río (Universidade Santiago de Compostela) |
| Abstract: | We construct a vintage capital à la Whelan (2002) with both exogenous embodied and disembodied technical progress, and variable utilization of each vintage. The lifetime of capital goods is endogenous and it relies on the associated operation costs. Within this model, we identify the rate of age-related depreciation and the rate of scrapping. We study the properties of the balanced growth paths of the model. First, we show that the lifetime of capital is an increasing (resp. decreasing) function of the rate of disembodied (resp. embodied) technical progress. Second, we show that both the age-related depreciation rate and the scrapping rate increase when embodied technical progress accelerates. In contrast, the latter drops when disembodied technical progress accelerates while the former remains unaffected. |
| Keywords: | Vintage capital, operation costs, embodied technical progress, age-related depreciation, obsolescence |
| JEL: | E22 E32 O40 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2005-22&r=mac |
| By: | Abdelaziz Rouabah |
| Abstract: | This paper sheds a new light on the puzzling negative relationship between nominal stock returns and expected inflation. The assertion that stocks offer a hedge against inflation is theoretically founded on the Fisher identity. Contrary to this fundamental view, recent empirical tests reject both the Fisher hypothesis and the Fama proxy hypothesis even when accommodating expected economic growth in the estimates. This article proposes to consider different regimes underlying stock market returns in the analysis of the relationship between inflation expectations and nominal stock returns. Using monthly data for the euro area and for Luxembourg over the past two decades, our results show that the Fisher hypothesis cannot be rejected when stock market regimes are accommodated in the estimates of the Geske & Roll inverse causality relation. In this context, shares allow for hedging against inflation and their prices can be used by central banks as a leading indicator for inflation. |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:cahier_etude_18&r=mac |
| By: | P.N. Smith; S. Sorensen; M.R. Wickens |
| Abstract: | We examine the relation between US stock market returns and the US business cycle for the period 1960-2003 using a new methodology that allows us to estimate a time-varying equity premium. We identify two channels in the transmission mechanism. One is through the mean of stock returns via the equity risk premium, and the other is through the volatility of returns. We provide support for previous findings based on simple correlation analysis that the relation is asymmetric with downturns in the business cycle having a greater negative impact on stock returns than the positive effect of upturns. We also obtain a new result, that demand and supply shocks affect stock returns differently. Our model of the relation between returns and their volatility encompasses CAPM, consumption CAPM and Merton's (1973) inter-temporal CAPM. It is implemented using a multi-variate GARCH-in-mean model with an asymmetric time-varying conditional heteroskedasticity and correlation structure. |
| JEL: | G12 C32 C51 E44 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2006-05&r=mac |
| By: | Monique Ebell (Humboldt University of Berlin and University of Pennsylvania); Christian Haefke (CSIC, Universitat Pompeu Fabra, CREA and IZA Bonn) |
| Abstract: | We consider the dynamic relationship between product market entry regulation and equilibrium unemployment. The main theoretical contribution is combining a job matching model with monopolistic competition in the goods market and individual wage bargaining. Product market competition affects unemployment by two channels: the output expansion effect and a countervailing effect due to a hiring externality. Competition is then linked to barriers to entry. We calibrate the model to US data and perform a policy experiment to assess whether the decrease in trend unemployment during the 1980’s and 1990’s could be attributed to product market deregulation. Our quantitative analysis suggests that under individual bargaining, a decrease of less than two tenths of a percentage point of unemployment rates can be attributed to product market deregulation, a surprisingly small amount. |
| Keywords: | product market competition, barriers to entry, wage bargaining |
| JEL: | E24 J63 L16 O00 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1946&r=mac |
| By: | Rogério Ladeira Furquim Werneck (Department of Economics PUC-Rio) |
| Abstract: | With an overindebted public-sector, Brazil has been on the brink of a fiscal dominance problem for quite a long time. The term has been usually associated to a situation in which monetary policy becomes subordinated to fiscal needs. This paper calls attention to broader implications of prolonged exposure to impending fiscal dominance. A highdebt environment may make perfectly reasonable fiscal-reform initiatives seem extremely risky. Without any room to absorb revenue losses, in a complex fiscalfederalism arrangement, the government is bound to recurrently see badly needed tax reform, which could lead to a much less distorting tax system, as an unaffordable adventure. The paper is structured in the following way. The next section presents stylized facts that have been underlying a whole decade of unsuccessful tax-reform attempts in Brazil. Section 3 shows how the combination of those facts creates very unfavorable conditions for the approval of the kind of tax reform the country needs. A simple political economy model is developed in section 4. Simulations based on the model are analyzed in sections 5 and 6. Concluding remarks are presented in the last section. |
| Keywords: | tax reform, public debt, fiscal dominance, political economy, federalism, Brazil |
| JEL: | H20 H6 E62 H77 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:rio:texdis:505&r=mac |
| By: | Kaci, Mustapha; Maynard, Jean-Pierre |
| Abstract: | This paper examines the revision cycle for labour productivity estimates over the period 2000-2003. |
| Keywords: | Business enterprises, National accounts, Business finance, Productivity |
| Date: | 2005–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp4e:2005003e&r=mac |
| By: | Maria Demertzis; Marco Hoeberichts |
| Abstract: | In their seminal paper, Morris and Shin (2002a) argued that increasing the precision of public information is not always bene.cial to social welfare. Svensson (2005) however has disputed this by saying that although feasible, the conditions for which this was true, were not at all that likely. In that respect, therefore, increasing transparency remains most of the times beneficial to social welfare. In this paper, we extend the Morris and Shin attempt, by setting it up as an explicit interactive game between the Central Bank, the objectives of which we model explicitly, and the private sector. We show that in the absence of costs, both players benefit from transparency, in the manner described previously in the literature, and point the di¤erences in their gains. Following that, we then introduce the fact that increasing transparency comes at some costs, and show how both players face incentives to free ride on each other as a result. The presence of costs, thus alters the way in which greater transparency is attained. |
| Keywords: | Public and Private Signals; High Order Expectations; Monetary Policy. |
| JEL: | E31 E52 E58 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:080&r=mac |
| By: | Yongsung Chang; Taeyoung Doh; Frank Schorfheide |
| Abstract: | The time series fit of dynamic stochastic general equilibrium (DSGE) models often suffers from restrictions on the long-run dynamics that are at odds with the data. Relaxing these restrictions can close the gap between DSGE models and vector autoregressions. This paper modifies a simple stochastic growth model by incorporating permanent labor supply shocks that can generate a unit root in hours worked. Using Bayesian methods the authors estimate two versions of the DSGE model: the standard specification in which hours worked are stationary and the modified version with permanent labor supply shocks. The authors find that the data support the latter specification. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:06-03&r=mac |
| By: | John Kennan |
| Abstract: | Shimer (2003) pointed out that although we have a satisfactory theory of why some workers are unemployed at any given time, we don't know why the number of unemployed workers varies so much over time. The basic Mortensen-Pissarides (1994) model does not generate nearly enough volatility in unemployment, for plausible parameter values. This paper extends the Mortensen-Pissarides model to allow for informational rents. Productivity is subject to publicly observed aggregate shocks, and to idiosyncratic shocks that are seen only by the employer. It is shown that there is a unique equilibrium, provided that the idiosyncratic shocks are not too large. The main result is that small fluctuations in productivity that are privately observed by employers can give rise to a kind of wage stickiness in equilibrium, and the informational rents associated with this stickiness are sufficient to generate relatively large unemployment fluctuations. |
| JEL: | E3 J6 D8 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11967&r=mac |
| By: | Axel Börsch-Supan; Alexander Ludwig; Joachim Winter |
| Abstract: | Population aging and pension reform will have profound effects on international capital markets. First, demographic change alters the time path of aggregate savings within each country. Second, this process may be amplified when a pension reform shifts old-age provision towards more pre-funding. Third, while the patterns of population aging are similar in most countries, timing and initial conditions differ substantially. Hence, to the extent that capital is internationally mobile, population aging will induce capital flows between countries. All three effects influence the rate of return to capital and interact with the demand for capital in production and with labor supply. In order to quantify these effects, we develop a computational general equilibrium model. We feed this multi-country overlapping generations model with detailed long-term demographic projections for seven world regions. Our simulations indicate that capital flows from fastaging regions to the rest of the world will initially be substantial but that trends are reversed when households decumulate savings. We also conclude that closed-economy models of pension reform miss quantitatively important effects of international capital mobility. |
| Keywords: | aging; pension reform; capital mobility. |
| JEL: | E27 F21 G15 H55 J11 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:065&r=mac |
| By: | Joseph Engelberg; Charles F. Manski; Jared Williams |
| Abstract: | We use data from the Survey of Professional Forecasters to compare point forecasts of GDP growth and inflation with the subjective probability distributions held by forecasters. We find that SPF forecasters summarize their underlying distributions in different ways and that their summaries tend to be favorable relative to the central tendency of the underlying distributions. We also find that those forecasters who report favorable point estimates in the current survey tend to do so in subsequent surveys. These findings, plus the inescapable fact that point forecasts reveal nothing about the uncertainty that forecasters feel, suggest that the SPF and similar surveys should not ask for point forecasts. It seems more reasonable to elicit probabilistic expectations and derive measures of central tendency and uncertainty, as we do here. |
| JEL: | C42 E27 E47 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11978&r=mac |
| By: | Marcio Gomes Pinto Garcia (Department of Economics PUC-Rio); Alexandre Lowenkron (Department of Economics PUC-Rio) |
| Keywords: | Country risk, currency risk, financial crisis, interest rate, cousin risk |
| JEL: | E43 G15 F34 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:rio:texdis:507&r=mac |
| By: | Daniel Traca (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels) |
| Abstract: | This paper studies the notion that a rise in job insecurity, due to rising labor market uncertainty, leads to wage moderation - the ‘wage restraint hypothesis’. It begins by finding only mixed theoretical support for this hypothesis, as an increase in uncertainty generates an ambiguous effect on wages, although it raises job insecurity. Then, using industry data, it finds evidence of wage restraint, as volatility significantly lowers the share of(production) wages in value added. |
| Keywords: | Job-insecurity, Globalization, Wage Contracts, Volatility. |
| JEL: | E24 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:05-001&r=mac |
| By: | Alicia Pérez Alon (Universidad de Alicante); Silvestro Di Sanzo (Universidad de Alicante) |
| Abstract: | The aim of this paper is to find a possible hysteresis effect on unemployment rate series from Italy, France and the United States. We propose a definition of hysteresis taken from Physics which allows for nonlinearities. To test for the presence of hysteresis we use a nonlinear unobserved components model for unemployment series. The estimation methodology used can be assimilated into a threshold autoregressive representation in the framework of a Kalman filter. To derive an appropriate p-value for a test for hysteresis we propose two alternative bootstrap procedures: the first is valid under homoskedastic errors and the second allows for general heteroskedasticity. We investigate the performance of both bootstrap procedures using Monte Carlo simulation. |
| Keywords: | Hysteresis; Unobserved Components Model; Threshold Autoregressive Models; Nuisance parameters; Bootstrap |
| JEL: | C12 C13 C15 C32 E24 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2005-34&r=mac |
| By: | Keith Sill |
| Abstract: | Recent empirical work documents a decline in the U.S. equity premium and a decline in the standard deviation of real output growth. The author investigates the link between aggregate risk and the asset returns in a dynamic production based asset-pricing model. When calibrated to match asset return moments, the model implies that the post-1984 reduction in TFP shock volatility of 60 percent gives rise to a 40 percent decline in the equity premium. Lower macroeconomic risk post-1984 can account for a substantial fraction of the decline in the equity premium. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:06-01&r=mac |
| By: | José Ramón García (Dpto. Análisis Económico, Universitat de València); José Vicente Ríos (Dpto. Análisis Económico, Universitat de València) |
| Abstract: | En el presente trabajo se ha procedido al análisis de los efectos sobre el empleo yla producción agregada de la armonización, con el resto de Europa, del tipo medio decotización a la seguridad social pagado en el conjunto de países más alejados de lamedia de la OCDE. A tal efecto se han simulado dos modelos de negociaciónconsiderando que las horas de trabajo se determinan de forma endógena o bien queexiste un problema de evasión de esfuerzo. El resultado del trabajo muestra que estamedida apenas tiene efecto sobre la tasa de desempleo. Sin embargo, cuando se realizanreformas institucionales el efecto es considerable. |
| JEL: | E24 J32 J51 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasec:2005-21&r=mac |
| By: | Ivan Paya (Universidad de Alicante); Agustín Duarte (Universidad de Alicante); Ioannis A. Venetis (Centre of Planning and Economic Research (KEPE)) |
| Abstract: | This papers finds evidence of fractional integration for a number of monthly ex post real interest rate series using the GPH semiparametric estimator on data from fourteen European countries and the US. However, we pose empirical questions on certain time series requirements that emerge from fractional integration and we find that they do not hold pointing to ¿spurious¿ long memory and casting doubts with respect to the theoretical origins of long memory in our sample. Common stochastic trends expressed as the sum of stationary past errors do not seem appropriate as an explanation of real interest rate covariation. From an economic perspective, our results suggest that most European countries show higher speed of real interest rate equalization with Germany rather than the US. |
| Keywords: | Real interest rate; long memory, fractional integration |
| JEL: | C22 E40 F41 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2005-01&r=mac |
| By: | Arco van Oord; Howie Lin |
| Abstract: | In this paper we examine the interday and intraday time pattern of Dutch banks’ payments and which events, institutional and financial variables influence these payment flows. The payment patterns are analyzed using data from the Dutch TOP system. In this paper it is shown that announcements of the ECB concerning interest rates have no effect on the inter- and intraday pattern of the payments. On the last day of the reserve maintenance period we find an increase in the value of payments. The settlement’s days of the interest rate tenders have a positive effect on the value of payments, while the announcement and allotment of interest rate tenders have no effect on the interday pattern. During US banking holidays there is a sharp decrease in the total value, number and average value of the payments. The day before and after a US banking holiday there is an increase in the value and number of payments. These effects of a US banking holiday are especially measurable in the mornings. During holidays in the Netherlands the number and value of transactions decrease. The main result for our intraday data is that banks tend to settle their payments more and more in the same time interval. |
| Keywords: | large value payment system |
| JEL: | E58 G21 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:074&r=mac |
| By: | Baldwin, John R.; Maynard, Jean-Pierre; Wong, Fanny |
| Abstract: | The difference in the output gap (GDP per capita) between Canada and the United States is broken down into two components - differences in productivity (GDP per hour worked) and differences in effort (hours worked per capita) for the period 1994 to 2002. The paper shows that, on average, the majority of the output gap is accounted for by differences in hours worked rather than differences in productivity. Since 1994, the output gap has narrowed slightly, primarily because of an increase in hours worked in Canada relative to the United States. |
| Keywords: | National accounts, Gross domestic product |
| Date: | 2005–01–13 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp2e:2005009e&r=mac |
| By: | Lilia Maliar (Universidad de Alicante); Kateryna Garmel (National University "Kyiv-Mohyla Academy"); Serguei Maliar (Universidad de Alicante) |
| Abstract: | This paper studies how the EU Eastern enlargement can affect the economies of the old and the new EU members and the non-acceded countries in the context of a multi-country neoclassical growth model where Foreign Direct Investment (FDI) is subject to border costs. We assume that in the moment of the EU enlargement border costs are eliminated between the old and the new EU member states but they remain unchanged between the old EU member states and the nonacceded countries. In a calibrated version of the model, the short-run effects of the EU enlargement proved to be relatively small for all the economies considered. The long-run effects are however significant: in the acceded countries, investors from the old EU member states become permanent owners of about 3/4 of capital, while in the nonacceded countries, they are forced out of business by local producers. |
| Keywords: | Foreign direct investment; EU enlargement; Neoclassical growth model; Transition economies; Three-country model |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2005-29&r=mac |
| By: | J. Kim Swales; David Learmonth |
| Abstract: | The specific concern in this paper is the co-ordination difficulties within a target-setting regime where there are negative policy spillovers across regions and where these spillovers are not common knowledge amongst the government and the delegated agencies. We analyse this policy problem in a principal-agent framework, using a very simple model. In this model it is possible for both the government (the principal) and the regional agencies (the agents) to be either informed or uninformed about the nature of the inter-regional spillovers. Further, informed development agencies can either act non-cooperatively or collusively in attempting to meet the policy targets. We demonstrate that: ·where one policy objective has negative spillovers, there will be a switch in expenditure towards that policy that has the externality, ·the expenditure switch will be largest when the spillover is greatest ·where the agency is informed, the expenditure switch is reduced, ·if the number of informed agencies is increased, the extent of expenditure switching is increased unless the agencies collude, ·that such expenditure switching is arbitrary and likely to be welfare reducing ·adjustments to the targets by an uninformed government may make matters worse. The analysis is primarily done diagrammatically. |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa05p341&r=mac |
| By: | Alfredo Marvão Pereira; Maria de Fátima Pinho; José da Silva Costa |
| Abstract: | In this work we use a VAR/ECM approach to determine the effects of aggregated public investment on output, employment and private investment for five EU countries. Based on impulse-response functions associated to the estimated VAR, we obtain long-term accumulated elasticities, long-term marginal productivities and annual rates of return, allowing for an economy performance analysis. Based on our results, we can conclude that, generally, the aggregated public investment crowds in output, employment and private investment, and it can be considered a useful tool in growth in the long run. |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa05p146&r=mac |
| By: | Allard Bruinshoofd; Leo de Haan |
| Abstract: | Did ICT firms behave very differently from non-ICT firms during the global ICT boom-bust cycle on the stock markets? To answer this question we analyze the financial behavior of a sample of North-American and Western European firms during 1991-2002. We document that ICT firms are indeed what they are always said to be: relatively information intensive and risky firms. We show that they therefore hold more precautionary cash and have lower leverage targets. Though ICT firms issued more equity and debt during the boom, this was broadly unrelated to stock market conditions, in contrast to the prediction of the market timing view. ICT firms did not build up excessive cash reserves that lead to overinvestment. All in all, the financial management of ICT firms has not been all that different from non-ICT firms. |
| Keywords: | Cash Management; Market Timing; Capital Structure; ICT |
| JEL: | C33 C43 E41 G3 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:077&r=mac |
| By: | James Choi; David Laibson; Brigitte Madrian |
| Abstract: | The complexity of the retirement savings decision may overwhelm employees, encouraging procrastination and reducing 401(k) enrollment rates. We study a low-cost manipulation designed to simplify the 401(k) enrollment process. Employees are given the option to make a Quick Enrollment(TM) election to enroll in their 401(k) plan at a pre-selected contribution rate and asset allocation. By decoupling the participation decision from the savings rate and asset allocation decisions, the Quick Enrollment(TM) mechanism simplifies the savings plan decision process. We find that at one company, Quick Enrollment(TM) tripled 401(k) participation rates among new employees three months after hire. When Quick Enrollment(TM) was offered to previously hired non-participating employees at two firms, participation increased by 10 to 20 percentage points among those employees affected. |
| JEL: | D0 E21 G23 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11979&r=mac |
| By: | Fidel Pérez Sebastián (Universidad de Alicante); Lilia Maliar (Universidad de Alicante); Serguei Maliar (Universidad de Alicante) |
| Abstract: | This paper studies the effect of sovereign risk on capital flows from rich to poor nations in the context of a two-country model where Foreign Direct Investment (FDI) creates positive externalities in domestic production. We show that if externalities are large, a developing country never expropriates foreign assets, and behaves as under perfect enforcement of foreigners' property rights, jumping to the steady state in one period. If externalities are absent, a developing country always expropriates foreign assets and, then, there are no capital flows in equilibrium, as occurs in autarky. If externalities are of a medium size, our model can account for scarce capital flows from rich to poor nations, as well as other key features of the data, such as rising-over-time patterns of foreign capital and FDI in developing countries. In addition, the model offers an economic rationale for the FDI restrictions observed across nations. |
| Keywords: | Sovereign risk, Foreign direct investment, Externalities, Incentive compatibility |
| JEL: | C63 D82 E22 F15 G32 O40 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2005-27&r=mac |
| By: | Baldwin, John R.; Brown, Mark; Maynard, Jean-Pierre; Zietsma , Danielle |
| Abstract: | This paper compares gross domestic product (GDP) per capita across Canadian provinces for the period 1990 to 2003. It starts by examining relative GDP per capita measured in current dollars across provinces and over time. In the second section, growth in nominal dollar GDP is broken down into a price and a volume component to determine whether growth over the period came from a higher volume of real output or higher prices received for the products being produced. In the third section, the relationship between increases in the volume component (real GDP per capita) and changes in productivity or in labour market conditions (hours worked per employee and the proportion of the working age population employed) is explored. |
| Keywords: | National accounts, Gross domestic product |
| Date: | 2004–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp5e:2004024e&r=mac |
| By: | Baldwin, John R.; Beckstead, Desmond; Gellatly, Guy |
| Abstract: | Estimates of GDP are sensitive to whether a business expenditure is treated as an investment or an intermediate input. Shifting an expenditure category from intermediate expenditures to investment expenditures increases GDP. While the international guide to measurement (the SNA (93)) recognizes that R&D has certain characteristics that make it more akin to an investment than an intermediate expenditure, it did not recommend that R&D be treated as an investment because of problems in finding a "clear criteria for delineating [R&D] from other activities". This paper examines whether the use of the OECD Frascati definition is adequate for this purpose. It argues that it is too narrow and that attempts to modify the National Accounts would not be well served by its adoption. In particular, it argues that the appropriate concept of R&D that is required for the Accounts should incorporate a broad range of science-based innovation costs and that this broader R&D concept is amenable to measurement. Finally, the paper argues that failing to move in the direction of an expanded definition of R&D capital will have consequences for comparisons of Canadian GDP to that of other countries - in particular, our largest trading partner, the United States. It would provide a biased estimate of Canada's GDP relative to the United States. If all science-based innovation expenditures are to be capitalized, GDP will increase. But it appears that Canada's innovation system is directed more towards non-R&D science-based expenditures than the innovation systems of many other countries. If Canada were to only capitalize the narrow Frascati definition of R&D expenditures and not a broader class of science-based innovation expenditures, we would significantly bias estimates of Canadian GDP relative to those for other countries, such as the United States, whose innovation systems concentrate more on traditional R&D expenditures. |
| Keywords: | Science and technology, National accounts, Business enterprises, Innovation, Investment and Fixed Assets, Business conditions |
| Date: | 2005–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp5e:2005032e&r=mac |
| By: | Gary V. Engelhardt; Anil Kumar |
| Abstract: | Employer matching of employee 401(k) contributions can provide a powerful incentive to save for retirement and is a key component in pension-plan design in the United States. Using detailed administrative contribution, earnings, and pension-plan data from the Health and Retirement Study, this analysis formulates a life-cycle-consistent two-limit censored regression model of 401(k) saving and estimates the effect of matching on 401(k) saving accounting for non-linearities in the household budget set induced by matching. Parametric and semi-parametric estimates indicate that an increase in the match rate by 25 cents per dollar of employee contribution raises 401(k) saving by $500-$800 (in 1991 dollars), and the estimated elasticity of contributions with respect to matching ranges from 0.06-0.17 overall, with two-thirds of this effect on the extensive margin and one-third on the intensive margin. |
| Keywords: | Saving; Taxation; Private Pensions. |
| JEL: | E21 H24 J32 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:079&r=mac |
| By: | Claudia Olivetti (Boston University); Barbara Petrongolo (London School of Economics CEP, CEPR and IZA Bonn) |
| Abstract: | Gender wage and employment gaps are negatively correlated across countries. We argue that non-random selection of women into work explains an important part of such correlation and thus of the observed variation in wage gaps. The idea is that, if women who are employed tend to have relatively high-wage characteristics, low female employment rates may become consistent with low gender wage gaps simply because low-wage women would not feature in the observed wage distribution. We explore this idea across the US and EU by estimating gender gaps in potential wages. We recover information on wages for those not in work in a given year using alternative imputation techniques. Imputation is based on (i) wage observations from other waves in the sample, (ii) observable characteristics of the nonemployed and (iii) a statistical repeated-sampling model. We then estimate median wage gaps on the resulting imputed wage distributions, thus simply requiring assumptions on the position of the imputed wage observations with respect to the median, but not on their level. We obtain higher median wage gaps on imputed rather than actual wage distributions for most countries in the sample. However, this difference is small in the US, the UK and most central and northern EU countries, and becomes sizeable in Ireland, France and southern EU, all countries in which gender employment gaps are high. In particular, correction for employment selection explains more than a half of the observed correlation between wage and employment gaps. |
| Keywords: | median gender gaps, sample selection, wage imputation |
| JEL: | E24 J16 J31 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1941&r=mac |
| By: | Eliana Baici; Giorgia Casalone |
| Abstract: | Since Solow’s (1957) contribution, human capital entered in the debate on economic growth as a leading long period development factor. If from a theoretical point of view the role of human capital on economic growth both directly or throughout its use in the R&D activities is fully accepted, from an empirical perspective the results are much more controversial, strictly depending on the quality of data. A recent analysis by Aghion and Cohen (2004) put in evidence that high-level human capital has a positive effect on economic performance only if a country is close to the technological frontier: countries that are far from this frontier, specialised in traditional sectors, can growth, almost in the short run, even exploiting medium-level human capital. This analysis induce at looking at the link between human capital and growth with a greater detail, trying to disclose the effect of different human capital levels in a country, such as Italy, traditionally oriented toward a low/medium technology production. Using, beyond the usual proxies of human capital, some measures of its quality and of its interrelation with R&S sector, we would like to give a new contribution to the analysis of regional growth in Italy in the period 1980-2001. The panel approach, here used, allows us to take account of the temporal variability and to check for omitted variable specific for regions and persistent over time. |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa05p251&r=mac |
| By: | Ken Heydon |
| Abstract: | The WTO Ministerial Meeting in Hong Kong in December 2005 made some progress in advancing the Doha Development Agenda. But much remains to be done, particularly in settling negotiating modalities in agriculture and NAMA and in putting some flesh onto the bones of the GATS. And where progress was made it was qualified, whether in dealing with the concerns of African cotton producers or in improving market access for the products of the least developed countries. Given the work still to do, it is not guaranteed that new deadlines will be met or that the DDA will be concluded on time. There is much at stake should the momentum of multilateral liberalisation stall; analysis at the OECD points to the risk of both major opportunities forgone and of systemic strains to the multilateral trading framework. Developing countries would be amongst the principal losers. Charting the way ahead will require that trade policy be seen in a broader domestic context which recognises that market opening works best when it is backed by sound macroeconomic policies, flexible labour markets, a culture of competition and strong institutions. Through this lens, trade reform can be promoted as a necessary tool of growth and development rather than as a concession paid to others. |
| Keywords: | growth, labour markets, development, services, liberalisation, trade barriers, agriculture, regionalism, structural adjustment, trade facilitation, cotton, goods, negotiating modalities, macroeconomic |
| Date: | 2006–01–18 |
| URL: | http://d.repec.org/n?u=RePEc:oec:traaab:27-en&r=mac |
| By: | Baldwin, John R.; Brown, Mark; Maynard, Jean-Pierre |
| Abstract: | This paper compares output per person across Canadian provinces - using nominal or current dollar GDP per capita as the metric over the period 1990 to 2003. Differences in GDP per capita can be attributed to differences in the underlying efficiency of provincial economies. This is measured by labour productivity or GDP per hours worked. Differences also arise from the amount of human resources that are employed, as measured by work intensity or hours worked per capita. This paper examines the extent to which differences in GDP per capita can be attributed to each of these two factors. |
| Keywords: | National accounts, Gross domestic product, Productivity |
| Date: | 2005–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp2e:2005011e&r=mac |
| By: | Warren, Paul |
| Abstract: | In recent years there has been considerable international interest in key indicators. This paper surveys recent Canadian attempts to develop key indicators of economic, social, environmental or physical well-being. It classifies and discusses over forty such projects and publications in detail; briefly lists a further twenty projects; and provides references to a number of up-to-date surveys and annotated bibliographies which contain additional examples of indicator development in Canada. The paper provides information on a number of research centres working on indicator development and discusses international indicators which are relevant to the Canadian scene, either because they represent 'rototypes' of some particular kind of measure, or else might be regarded as constituting 'best practice' in an area. The paper also examines the motivations behind indicator development and seeks to address the question of whether efforts to extend measurement outside the economic field constitute attempts to "measure the unmeasurable". |
| Keywords: | National accounts, Gross domestic product, National income and expenditure accounts |
| Date: | 2005–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp5e:2005037e&r=mac |