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on Macroeconomics |
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Issue of 2006‒03‒11
57 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Andreas Thams |
| Abstract: | This paper analyzes empirically the impact of fiscal policy on the price level for the cases of Germany and Spain. We investigate whether the fiscal theory of the price level (FTPL) is able to deliver a reasonable explanation for the different performances of the price level in these two countries during recent years. We apply two different approaches. The first is a Bayesian VAR model using sign restrictions to assess the relation between surpluses and public debt. Afterwards, we use a Bayesian regime-switching model to uncover changes in monetary and fiscal policy behavior. The analysis basically shows that in each of the two countries fiscal shocks have a significant impact on the price level. Nonetheless, the FTPL does not deliver a reasonable explanation for the differences in the pattern of inflation between the two countries. |
| Keywords: | Fiscal theory, policy interaction, monetary policy, public debt, price level, Euro area |
| JEL: | E30 E31 E42 E62 E63 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2006-016&r=mac |
| By: | Iris Biefang-Frisancho Mariscal (School of Economics, University of the West of England); Peter Howells (School of Economics, University of the West of England) |
| Abstract: | The conduct of monetary policy emphasises institutional arrangements which make monetary policy decision-making more ‘transparent’. Judged by these institutional features neither the Bundesbank, nor the ECB, score very highly. We test for (i) agents’ average ability to anticipate policy rate changes under the Bundesbank and the ECB and (ii) and agents’ forecasting unanimity of money market rates. Rising forecasting uncertainty may either be due to a lack of ECB transparency or to larger inflation and growth forecasting errors. Our results indicate that inflation forecast spreads widened amongst private agents and that inflation forecasting uncertainty increased the forecasting spread of money market rates |
| Keywords: | transparency, yield curve, forecasting uncertainty, Bundesbank, ECB |
| JEL: | E58 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:uwe:wpaper:0410&r=mac |
| By: | Gregory E. Givens |
| Abstract: | In a stylized economy with price and wage stickiness, this paper argues that delegating a nominal wage target to a central bank operating under discretion generally delivers better social outcomes than delegating price level or inflation targets. Although both policies impart inertia into central bank actions, wage targeting dominates price level targeting because the former delivers a more favorable tradeoff between the stabilization goals appearing in the social welfare function, namely, price inflation, wage inflation, and the output gap. Delegation of a dual policy featuring both price level and nominal wage targets, however, nearly replicates the efficient outcome accompanying the precommitment policy from a timeless perspective. |
| Keywords: | Price Level Targeting, Wage Targeting, Delegation, Timeless Perspective |
| JEL: | E42 E50 E52 E58 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:mts:wpaper:200601&r=mac |
| By: | Giuseppe Fontana; Alfonso Palacio-Vera |
| Abstract: | A central tenet of the so-called new consensus view in macroeconomics is that there is no long-run trade-off between inflation and unemployment. The main policy implication of this principle is that all monetary policy can aim for is (modest) short-run output stabilization and long-run price stabilityÑi.e., monetary policy is neutral with respect to output and employment in the long run. However, research on the different sources of path dependency in the economy suggests that persistent but nevertheless transitory changes in aggregate demand may have a permanent effect on output and employment. If this is the case, then, the way monetary policy is run does have long-run effects on real variables. This paper provides an overview of this research and explores how monetary policy should be implemented once these long-run effects are acknowledged. |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_430&r=mac |
| By: | Wynne Godley; Marc Lavoie |
| Abstract: | This paper sets out a rigorous basis for the integration of Keynes-Kaleckian macroeconomics (with constant or increasing returns to labor, multipliers, mark-up pricing, etc.) with a model of the financial system (comprising banks, loans, credit money, equities, etc.), together with a model of inflation. Central contentions of the paper are that, with trivial exceptions, there are no equilibria outside financial markets, and the role of prices is to distribute the national income, with inflation sometimes playing a key role in determining the outcome. The model deployed here describes a growing economy that does not spontaneously find a steady state even in the long run, but which requires active management of fiscal and monetary policy if full employment without inflation is to be achieved. The paper outlines a radical alternative to the standard narrative method used by post-Keynesians as well as by Keynes himself. |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_441&r=mac |
| By: | Shouyong Shi |
| Abstract: | In this lecture, I explain what the microfoundations of money are about and why they are necessary for monetary economics. Then, I review recent developments of a particular microfoundation of money, commonly known as the search theory of money. Finally, I outline some unresolved issues. |
| JEL: | E40 E50 E31 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-211&r=mac |
| By: | Bennett T. McCallum; Edward Nelson |
| Abstract: | The fiscal theory of the price level (FTPL) has attracted much attention but disagreement remains concerning its defining characteristics. Some writers have emphasized implications regarding interest-rate pegging and determinacy of RE solutions, whereas others have stressed its capacity to generate equilibria in which price level trajectories mimic those of bonds and differ drastically from those of money supplies. We argue that the FTPL attained prominence precisely because it appeared to provide a theory whose implications differ greatly from conventional monetary analysis; accordingly we review monetarist writings to identify the primary distinctions. In addition, we review recent findings concerning learnability – and therefore plausibility – of competing RE equilibria. These indicate that when FTPL and monetarist equilibria differ, the latter are more plausible in the vast majority of cases. Under Ricardian assumptions, necessary for clear distinctions, theoretical analysis indicates that fiscal and monetary coordination is not necessary for macroeconomic stability. |
| JEL: | E5 E6 D8 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12089&r=mac |
| By: | Iris Biefang-Frisancho Mariscal (School of Economics, University of the West of England); Peter Howells (School of Economics, University of the West of England) |
| Abstract: | It is widely believed that institutional arrangements influence the quality of monetary policy outcomes. Judged on its ‘transparency’ characteristics, therefore the Bank of England should do better than the Bundesbank/ECB. We show that this is not confirmed by agents’ ability to anticipate central bank decisions. Furthermore, benefits from transparency should also show in a narrowing of the diversity in cross sectional forecasts. We show that the diversity in interest rate forecasts is no greater under the Bundesbank/ECB than the Bank of England. This suggests that other factors than ‘transparency’ may affect interest rate uncertainty. Increasing difficulty in forecasting inflation appears to play a part in the UK while being less of a problem in Germany. |
| Keywords: | transparency, yield curve, forecasting uncertainty, Bank of England, Bundesbank/ ECB |
| JEL: | E58 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:uwe:wpaper:0508&r=mac |
| By: | L. Randall Wray |
| Abstract: | In the debate on monetary policy strategies on both sides of the Atlantic, it is now almost a commonplace to contrast the Fed and the ECB by pointing out the formerÕs flexibility and capacity to adjust rigidity, and the latterÕs extreme caution, and obsession with low inflation. In looking at the foundations of the two banksÕ strategies, however, we do not find differences that can provide a simple explanation for their divergent behavior, nor for the very different economic performance in the U.S. and Euroland in recent years. Not surprisingly, both central banks share the same conviction that money is neutral in the long period, and even their short-term policies are based on similar fundamental principles. The two policy approaches really differ only in terms of implementation, timing, competence, etc., but not in terms of the underlying theoretical orientation. We then draw the conclusion that monetary policy cannot represent a significant variable in the explanation of the different economic performances of Euroland and U.S. The two economic areasÕ differences must be explained by considering other factors among which the most important is fiscal policy. |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_431&r=mac |
| By: | Lilia Maliar (Universidad de Alicante); Luidmila Hvozdyk (University of Munich); Serguei Maliar (Universidad de Alicante) |
| Abstract: | We study the determinants of Downward Nominal Wage Rigidity(DNWR) in the context of a new-Keynesian heterogeneous-agent model. Laborproductivity of agents is subject to perfectly insurable idiosyncratic shocks.Wage contracts are signed one period ahead and specify the minimum wagethat the firm should pay to each worker conditional on her future expectedmarginal product. The model predicts a simple structural equation: the degreesof DNWR are entirely determined by unexpected shocks to technology andmoney supply. We test this model's implication with data on the U.S. economy,and we find that the above two shocks can account for about 60% of variation inthe aggregate measures of DNWR. |
| Keywords: | Downward Nominal Wage Rigidity, New-Keynesian model |
| JEL: | E12 E24 J31 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2006-04&r=mac |
| By: | Phil Bodman (MRG - School of Economics, The University of Queensland) |
| Abstract: | This paper examines whether monetary policy shocks have asymmetric effects on output in Australia. Using methods similar to Cover (1992) together with some other simple threshold models, evidence is found of certain types of asymmetries when comparing monetary contractions to monetary policy expansions. Unanticipated decreases in interest rates appear to significantly raise GDP growth rates, whilst unexpected increases in rates do not appear to significantly lower growth. These findings are also found in a brief examination of the investment and consumption channels within the monetary policy transmission process. Economic growth is also significantly higher in a low interest rate regime (when interest rates are below a certain threshold, such as the sample average or average over some longer time period) than in a high interest rate environment. These results appear to refute the idea that monetary policy is like `pushing on a string', at least for Australian data over the period 1973:1-2005:1. |
| URL: | http://d.repec.org/n?u=RePEc:qld:uqmrg6:04&r=mac |
| By: | Eduardo Loyo (Department of Economics PUC-Rio); Luciano Vereda (Department of Economics PUC-Rio) |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:rio:texdis:502&r=mac |
| By: | Gloria M. Soto Pacheco (Universidad de Murcia); Mª Asunción Prats Albentosa (Universidad de Murcia) |
| Abstract: | The aim of this paper is to determine whether there have been differences in the effectiveness of the transmission mechanism of monetary policy in Germany, France, Italy, Spain and the United Kingdom since Economic and Monetary Union (EMU) establishment. The analysis is based on the fulfilment of the Expectations Hypothesis under rational expectations and the methodology is implemented through a VAR model with ARCH disturbances.The evidence obtained shows that the analysed countries started from different monetary transmission structures and that these differences still remain at a larger extent. Also, the EMU seems not to have increased the power of the transmission mechanism in every single country. Its contribution is shown to be poor in the case of the Mediterranean countries (Spain and Italy). However, in Continental countries, Germany and especially in France, the effectiveness of monetary transmission is outstanding nowadays. Este trabajo analiza las diferencias en la efectividad del mecanismo de transmisión monetaria en Alemania, Francia, Italia, España y el Reino Unido en el periodo previo y posterior a la UEM. El análisis se centra en el estudio de la estructura temporal de los tipos de interés y emplea como marco analítico el contraste de la Teoría de las Expectativas bajo la hipótesis de racionalidad. La metodología econométrica se implementa mediante un modelo VAR con perturbaciones ARCH.Los resultados obtenidos muestran que los países analizados partían de estructuras de transmisión monetaria diferentes que aún permanecen en la actualidad. La UEM no parece haber aumentado significativamente la capacidad de transmisión monetaria en cada uno de ellos. En los países mediterráneos (España e Italia) los resultados muestran una transmisión débil, mientras que en los países continentales (Alemania y Francia) la evidencia es mucho mayor y hasta un horizonte de medio plazo. |
| Keywords: | Estructura temporal, transmisión monetaria , VAR, cointegración, expectativas Term structure, monetary transmission, VAR, cointegration, expectations hypothesis |
| JEL: | C22 E52 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasec:2006-04&r=mac |
| By: | Frode Brevik; Manfred Gärtner |
| Abstract: | This paper attempts two things: First, to modernize partisan theory by merging the idea of partisan differences in macroeconomic preferences with recent, optimizing models of aggregate supply that account for sluggish nominal adjustment. This aids in resolving some puzzles posed by the current state of partisan theory research. Second, to exploit partisan patterns for a comparison of the empirical performance of the new Keynesian Phillips curve with that of a recent challenger, the sticky-information Phillips curve. It turns out that the sticky-information Phillips curve clearly outperforms its better established rival: in accounting for econometric estimates of partisan patterns in OECD countries, and in tracking post-war experience in the US. |
| JEL: | E0 E3 E6 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:usg:dp2006:2006-05&r=mac |
| By: | Patrick Francois (University of British Columbia); Huw Lloyd-Ellis (Queen's University) |
| Abstract: | We develop a model of "intrinsic" business cycles, driven by the decentralized behaviour of entrepreneurs and firms making continuous, divisible improvements in their productivity. We show how equilibrium cycles, associated with strategic delays in implementation and endogenous innovation, arise even in the presence of reversible investment. We derive the implications for the cyclical evolution of both tangible (physical) and intangible (knowledge) capital. In particular, our framework is consistent with key aspects of the somewhat puzzling relationship between fixed capital formation and the stockmarket at business cycle frequencies. |
| Keywords: | Tobin\'s Q, fixed capital formation, intangible investment, cycles and growth |
| JEL: | E0 E3 O3 O4 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1040&r=mac |
| By: | Lea Zicchino; Dimitrios Tsomocos; Charles Goodhart; Oriol Aspachs |
| Abstract: | This paper proposes a measure of financial fragility that is based on economic welfare in a general model calibrated against UK data. The model comprises a household sector, three active hetrogeneous banks, a central bank/regulator, incomplete markets and endogenous default. We address the impact of monetary and regulatory policy, credit and capital shocks in the real and financial sectors and how the response of the economy to shocks relates to our measure of financial fragility. Finally we use panel VAR techniques to investigate the relationships between the factors that characterise financial fragility in our model i.e. banks' probabilities of default and banks' profits - to a proxy of welfare |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgdps:dp554&r=mac |
| By: | Peter Howells (School of Economics, University of the West of England); Iris Biefang-Frisancho Mariscal (School of Economics, University of the West of England) |
| Abstract: | The last fifteen years have seen the emergence of widespread consensus that optimum monetary policy is designed on the basis of three pillars: a short-term official rate of interest as the sole policy instrument and the placing of that instrument in the hands of a central bank which is (a) independent of government and (b) transparent in its decision-making. We take a critical look at each of these. In the first case, we focus attention on the failure of mainstream economics to recognise the choice of instrument and the implications of its adoption. In the case of independence we argue that he theoretical case for independence has been misunderstood and that it is not an essential requirement for successful policy. We also show that ‘independence’ is not best measured against a checklist of statutory characteristics. As regards ‘transparency’ our argument is slightly different, though we come to a similar conclusion. Unlike independence, ‘transparency’ does address a real problem for central banks. However, the evidence suggests that transparency is not the only, or even the best, solution. A variety of evidence tells us that agents can understand and anticipate the actions of the most secretive institutions. |
| Keywords: | Monetary policy; central banks; independence; transparency |
| JEL: | E31 E42 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:uwe:wpaper:0512&r=mac |
| By: | Andres Arias; Gary D. Hansen; Lee E. Ohanian |
| Abstract: | This paper shows that a standard Real Business Cycle model driven by productivity shocks can successfully account for the 50 percent decline in cyclical volatility of output and its components, and labor input that has occurred since 1983. The model is successful because the volatility of productivity shocks has also declined significantly over the same time period. We then investigate whether the decline in the volatility of the Solow Residual is due to changes in the volatility of some other shock operating through a channel that is absent in the standard model. We therefore develop a model with variable capacity and labor utilization. We investigate whether government spending shocks, shocks that affect the household's first order condition for labor, and shocks that affect the household's first order condition for saving can plausibly account for the change in TFP volatility and in the volatility of output, its components, and labor. We find that none of these shocks are able to do this. This suggests that successfully accounting for the post-1983 decline in business cycle volatility requires a change in the volatility of a productivity-like shock operating within a standard growth model. |
| JEL: | E3 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12079&r=mac |
| By: | Andreas Röthig (Institute of Economics, Darmstadt University of Technology and Center for Empirical Marcroeconomics, University of Bielefeld); Willi Semmler (Center for Empirical Marcroeconomics, University of Bielefeld and New School University New York); Peter Flaschel (Center for Empirical Marcroeconomics, University of Bielefeld) |
| Abstract: | This paper explores the linkage between corporate risk management strategies, investment, and economic stability in an open economy with a flexible exchange rate regime. Firms use currency futures contracts to manage their exchange rate exposure ? caused by balance sheet effects as in Krugman (2000) ? and therefore their investments? sensitivity to currency risk. We find that, depending on whether futures contracts are used for risk reduction (i.e., hedging) or risk taking (i.e., speculation), the implied magnitudes of recessions and booms are decreased or increased. Corporate risk management can therefore substantially affect economic stability on the macrolevel. |
| Keywords: | Mundell-Fleming-Tobin model; foreign-debt financed investment; currency crises; real crises; currency futures; hedging; speculation |
| JEL: | E32 E44 F31 F34 |
| Date: | 2006–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:uts:rpaper:173&r=mac |
| By: | James K. Galbraith |
| Abstract: | From this paper's Preface, by Dr. Dimitri B. Papadimitriou, President: For some time, Levy Institute scholars have been engaged with issues related to the current account, government, and private sector balances. We have argued that the existing imbalances in these accounts are unsustainable and will ultimately present a serious challenge to the performance of the U.S. economy. Other scholars are also concerned, but for reasons that we do not share. They argue that the interest rate is determined by the supply and demand of saving.When the government reduces its saving, the total supply of saving falls, and the interest rate inevitably rises. The result, they say, is that interest-sensitive spending, and investment in particular, falls. Finally, these scholars say, less investment now necessarily implies less output in the future. In this new brief, Senior Scholar James K. Galbraith evaluates a recent article by William G. Gale and Peter R. Orszag, two economists who regard this view of deficits as plausible. He forwards an alternative, Keynesian view. This alternative suggests that deficits can increase overall output, possibly enabling the government to spend more money without increasing the ratio of the debt to GDP. He casts doubt on the notion that the interest rate is determined by the supply and demand of saving, arguing that monetary policy plays a much larger role than Gale and Orszag allow for. Moreover, he writes, strong demand for goods and services is more important than the supply of capital in determining the pace of technological advance and the rate of growth of output per worker. Though he is skeptical about Gale and OrszagÕs theoretical framework, Galbraith calls attention to some important econometric findings in their paper. Gale and Orszag calculate the effects of deficits on the interest rate. Consistent with GalbraithÕs view, monetary policy turns out to be a major determinant of long-term interest rates. When interest rates are measured as the current cost of funds, Gale and Orszag find that deficits have no significant impact on interest rates. GalbraithÕs theoretical view of interest rate determination, together with Gale and OrszagÕs empirical findings, constitutes a powerful rebuttal of the reflexively antideficit view. Recent economic history suggests that this rebuttal is plausible. The recent increase in the U.S. federal deficit has not yet resulted in high interest rates. Interest rates in Japan, where deficits have been very large, remain at rock-bottom levels. The Levy Institute continues to believe that, together, unsustainable economic imbalances amount to one of the nationÕs most pressing issues, as we believe our Strategic Analysis series has documented. As Galbraith demonstrates, however, some observers are placing an undue emphasis on government deficit reduction, as if the government were the source of all that ails the economy. A more balanced approach would take into account the pernicious effects of excessive private debt and the need to devalue the dollar. We believe that our readers, especially those who follow the Strategic Analysis series, will find this brief to be a helpful look at another facet of the complex and knotty deficits problem. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levppb:ppb_81&r=mac |
| By: | Patrick Francois (University of British Columbia); Huw Lloyd-Ellis (Queen's University) |
| Abstract: | We develop a Shumpeterian theory of business cycles that relates job creation, job destruction and wages over the cycle to the processes of firm restructuring, innovation and implementation that drive long-run growth. Due to incentive problems, production workers are employed via relational contracts and experience involuntary unemployment. Job destruction and firm turnover are counter-cyclical, but labour productivity growth and job creation are pro-cyclical. Endogenous fluctuations in job creation on the intensive margin are the dominant source of changes in employment growth. Our framework also highlights the counter-cyclical forces on wages due to restructuring, and illustrates the relationship between the cyclicality of wages and long-run productivity growth. 052<p type="texpara" tag="Body Text" et="abstract" > |
| Keywords: | Intrinsic business cycles, job creation and destruction, innovation, wage cyclicality |
| JEL: | E0 E3 O3 O4 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1039&r=mac |
| By: | Sandy Suardi (MRG - School of Economics, The University of Queensland); O.T.Henry; N. Olekalns |
| Abstract: | The Friedman-Ball hypothesis implies a link between the inflation rate and inflation uncertainty. In this paper we employ a new test for the joint null hypothesis of no dependence effects and no asymmetry in the G7 inflation volatility. The results show that higher inflation rates operate additively via the conditional variance of inflation to induce greater inflation uncertainty in the U.S., U.K. and Canada. In addition, positive inflationary shocks are found to generate greater inflation uncertainty than negative shocks of a similar magnitude in the U.K. and Canada. |
| URL: | http://d.repec.org/n?u=RePEc:qld:uqmrg6:03&r=mac |
| By: | Alessandra Bonfiglioli |
| Abstract: | Most US credit card holders revolve high-interest debt, often combined with substantial (i) asset accumulation by retirement, and (ii) low-rate liquid assets. Hyperbolic discounting can resolve only the former puzzle (Laibson et al., 2003). Bertaut and Haliassos (2002) proposed an 'accountant-shopper'framework for the latter. The current paper builds, solves, and simulates a fully-specified accountant-shopper model, to show that this framework can actually generate both types of co-existence, as well as target credit card utilization rates consistent with Gross and Souleles (2002). The benchmark model is compared to setups without self-control problems, with alternative mechanisms, and with impatient but fully rational shoppers. |
| Keywords: | Income inequality, financial development, capital market frictions, investor protection, instrumental variables, dynamic panel data |
| JEL: | D31 E44 G30 O15 O16 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:947&r=mac |
| By: | Vincent Bouvatier (CES-TEAM) |
| Abstract: | This paper investigates hot money inflows in China. The financial liberalization comes into effect and the effectiveness of capital controls tends to diminish over time. As a result, China is fuelled by hot money inflows. The US interest rate cut since 2001 and expectations of exchange rate adjustments are the main factors explaining these capital inflows. This study use the Bernanke and Blinder (1988) model extended to an open economy to examine implications of hot money inflows for the Chinese economy. A Vector Error Correction Model (VECM) on monthly data from March 1995 to March 2005 is estimated to investigate the recent upsurge in foreign reserves and shows that the interaction between domestic credit and foreign reserves was stable and consistent with monetary stability. Granger causality tests are implemented to show how the People's Bank of China (PBC) achieved this result. |
| Keywords: | Hot money inflows, domestic credit, VECM, Granger causality. |
| JEL: | C32 E5 F32 F33 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:mse:wpsorb:bla06011&r=mac |
| By: | L. Randall Wray |
| Abstract: | This paper first examines two approaches to money adopted by Keynes in the General Theory (GT). The first is the more familiar Òsupply and demandÓ equilibrium approach of Chapter 13 incorporated within conventional macroeconomics textbooks. Indeed, even Post Keynesians utilizing KeynesÕs Òfinance motiveÓ or the ÒhorizontalÓ money supply curve adopt similar methodology. The second approach of the GT is presented in Chapter 17, where Keynes drops Òmoney supply and demandÓ in favor of a liquidity preference approach to asset prices that offers a more satisfactory treatment of moneyÕs role in constraining effective demand. In the penultimate section, I return to KeynesÕs earlier work in the Treatise on Money (TOM), as well as the early drafts of the GT, to obtain a better understanding of the nature of money. I conclude with policy implications. |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_438&r=mac |
| By: | Hubert KEMPF |
| Abstract: | The so-called Constitutional Treaty (CT) of the EU, currently in the middle of the ratification process, is seen by its advocates as a major step for the advancement of European integration, conc iliating simultaneously a democratic deepening, a more efficient decision- making process in the EU, and a clearer definition of t he aims and founding principles of the EU. Given the successful e stablishment of the Euro, the EU is facing new challenges in term s of macroeconomic policies. The Treaty tackles this issue. The p resent paper offers a preliminary assessment of what is achieved and concludes that the new framework represents a limited but cle ar progress for macroeconomic coordination and integration and of fers scope for further changes. It also comments on the implicit version of fiscal federalism present in the Treaty. |
| Keywords: | EU Constitution, Macroeconomic Policy, Institutional framework |
| URL: | http://d.repec.org/n?u=RePEc:mil:wpdepa:2006-05&r=mac |
| By: | Phil Bodman (MRG - School of Economics, The University of Queensland) |
| Abstract: | A number of papers have documented a significant decline in real GDP volatility in several major OECD economies. Some authors have presented evidence to suggest that this is the outcome of a one-off structural break from a high to low volatility state whilst others have estimated regime switching models that indicate low volatility regime states have dominated in recent years. This paper provides a different perspective on volatility decline. Evidence is provided of a smoother, longer term decline that would appear to be the result of many more general changes in the economy over time, rather than particular events, such as abrupt changes in inventory management methods, the floating of exchange rates or changes to the conduct of monetary policy. The paper also provides estimates of various GARCH models of real GDP growth to further examine shorter term volatility features of the economy associated with the business cycle. A linear trend term is maintained in all models of the conditional variance to account for the general long-term decline in volatility and evidence is provided of significant business cycle effects, including asymmetries that suggest recessions are times of higher output volatility than economic expansions. |
| URL: | http://d.repec.org/n?u=RePEc:qld:uqmrg6:01&r=mac |
| By: | Verma, R. (University of Wollongong); Wilson, E.J. (University of Wollongong) |
| Abstract: | There is a large research literature on the roles of domestic savings and investment in promoting long run economic growth. This paper attempts to identify the major interdependencies between savings, investment, foreign capital inflows and real output for India since independence. An endogenous growth model is adapted to specify the possible complex interrelationships between the sectors of a growing economy. The time series of real per worker household, private corporate and public savings and investment, per worker foreign capital inflows and GDP are tested for stationarity under structural change where the structural break is determined endogenously. The Johansen’s FIML cointegration procedure is used to provide efficient long run and short run parameter estimates for the non-stationary variables in a simultaneous setting. The elasticity estimates provide robust evidence of the Solow proposition that household, and to a lesser extent private corporate, per worker savings have driven household per worker investment in the Indian economy from 1950 to 2001. There is also evidence of an inverse, crowding-out relationship between per worker household and public investment. Foreign capital inflow per worker is found to be unstable in the short run and residually determined by per worker household and private corporate savings and investment. Despite the strong links between the sectors, there is little evidence that sectoral per worker savings and investment affect GDP in the long run. Whilst per worker GDP has significant but small effects on per worker household savings and investment in the short run, the feedbacks to GDP are non existent in the long run and only small and imprecise in the short run. Whilst savings certainly affect investment, there are only weak links from investment to output. These findings do not support the Solow and endogenous growth policy prescriptions that it is necessary to increase household savings and investment in order to promote economic growth in India. |
| Keywords: | Savings, investment, foreign inflows, economic growth |
| JEL: | F43 E21 E22 C22 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:uow:depec1:wp05-23&r=mac |
| By: | Korkut A. Erturk |
| Abstract: | The sharp exchanges that Keynes had with some of his critics on the loanable funds theory made it harder to appreciate the degree to which his thought was continuous with the tradition of monetary analysis that emanates from Wicksell, of which KeynesÕs A Treatise on Money was a part. In the aftermath of the General Theory (GT), many of KeynesÕs insights in the Treatise were lost or abandoned because they no longer fit easily in the truncated theoretical structure he adopted in his latter work. A part of KeynesÕs analysis in the Treatise which emphasized the importance of financial conditions and asset prices in determining firmsÕ investment decisions was later revived by Minsky, but another part, about the way self-sustained biases in asset price expectations in financial markets exerted their influence over the business cycle, was mainly forgotten. This paper highlights KeynesÕs early insights on asset price speculation and its link to monetary circulation, at the risk perhaps, of downplaying the importance of the GT. |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_435&r=mac |
| By: | Olivier Allain (Université Paris 5 René Descartes et CES-MATISSE) |
| Abstract: | Keynes' principle of effective demand constitutes a pillar for Post Keynesians theories. But Keynes' presentation remains difficult to interpret, mainly because the aggregate demand function is based on entrepreneurs' expectations. The problem is then to demonstrate how these entrepreneurs (whose only concern is making profits) are led to produce the effective demand (which partially results from the consumers' and investors' behaviour). Previous studies by authors like Weintraub or Davidson highlight the trial and error procedure here at stake. However, since their analyses are not built on a precise accounting of monetary flows, they fail to formally demonstrate the coherence of the whole adjustment process. The aim of this article is to provide such a formal demonstration. We thus concentrate on the General Theory to verify how it constitutes a coherent framework to analyse temporary equilibriums (at the end of every elementary period) and short-term dynamics which bring the economy towards the stationary equilibrium |
| Keywords: | Keynesian economics, General Theory, macroeconomics, effective demand, short-term expectations. |
| JEL: | B20 B22 E12 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:mse:wpsorb:bla06018&r=mac |
| By: | Verma, R. (University of Wollongong); Wilson, E.J. (University of Wollongong) |
| Abstract: | This paper considers per worker household, private corporate and public sector savings and investment, foreign capital inflows and economic growth for India in a multivariate setting for the period 1950-2001. The analysis, uses FIML to estimate the long run cointegrating equilibriums and short run Granger causing dynamics for the non-stationary time series data, which includes endogenously detected structural breaks in 1989 and 1993, consistent with the recent period of financial reforms in India. The estimates do not support the commonly accepted Solow and endogenous models of economic growth. The popular view that increases in savings are a necessary condition for economic growth is supported with the detected strong direct links from per worker household and private corporate savings to output in the long run and sectoral per worker savings to investment links in both the short and long run. This implies the need to encourage savings, which is being realised with the estimated significantly higher growth rates in household and private corporate per worker savings during deregulation in the late 1980s and early 1990s. However, the link from investment to output is missing. Despite extensive analysis, per worker private corporate and household sector investment are not found to affect output in the short run or long run as required by the Solow and endogenous growth models. Indeed household investment, being the largest sector for gross domestic capital formation, does not appear to have any influence on other variables. Per worker public investment is found to adversely affect output per worker in the short and long run, contradicting Barro’s hypothesis of the benefits of the public provision of capital. These findings, plus the estimated reductions in the rates of growth in sectoral per worker investment during the 1990s, are worrying. The lack of empirical validation of commonly accepted growth theories is p roblematic for policy formulation and further research on the role of investment in the post-reform Indian economy is required. |
| Keywords: | Savings, investment, economic growth |
| JEL: | F43 E21 E22 C22 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:uow:depec1:wp05-24&r=mac |
| By: | Virmani Vineet |
| Abstract: | This study is part of an on-going work on assessing the information content of the term structure in India for future inflation, future short rates and real interest rates. In this part, first the Indian term structure is modeled using three alternative specifications and changes in slope of the term structure at the short-end assessed for forecastability of inflation. Performance of two atheoretical (Nelson and Siegel, 1987 and Svensson, 1994) models is compared against empirical implications of a general equilibrium (Cox, Ingersoll and Ross, 1985) model. While Svensson is seen to offer no improvement over Nelson-Siegel, Cox-Ingersoll-Ross comes out as marginally superior to both on the criteria of mean absolute pricing and yield errors (both in-sample and out-of-sample), behaviour of the short and the long rates, stability of the parameters and behaviour of forward rates for maturities 1-8 years. This is encouraging because models like Nelson-Siegel and Svensson are designed to fit the observed yield curves, while Cox-Ingersoll-Ross is a theoretical model derived from intertemporal description of a competitive economy. On the information content of the term structure, in the sample under study, change in the slope of the term structure seems to have no information for inflation changes over the horizon 1 month to 2 years. Results could be sample and/or sampling-frequency specific. Results for the long end of the term structure (from a bigger sample) follows. |
| Date: | 2006–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:iim:iimawp:2006-03-01&r=mac |
| By: | Kris James Mitchener |
| Abstract: | Drawing on the variation in financial distress across U.S. states during the Great Depression, this article suggests how bank supervision and regulation affected banking stability during the Great Depression. In response to well-organized interest groups and public concern over the bank failures of the 1920s, many U.S. states adopted supervisory and regulatory standards that undermined the stability of state banking systems in the 1930s. Those states that prohibited branch banking, had higher reserve requirements, granted their supervisors longer term lengths, or restricted the ability of supervisors to liquidate banks quickly experienced higher state bank suspension rates from 1929 to 1933. |
| JEL: | N2 E44 G21 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12074&r=mac |
| By: | Dilip M. Nachane (Indira Gandhi Institute of Development Research); Prasad P. Ranade (Narsee Monjee Institute of Management Research) |
| Abstract: | Relationship banking based on Okun's "customer credit markets" has important implications for monetary policy via the credit transmission channel. Studies of LDC credit markets from this point of view seem to be scanty and this paper attempts to address this lacuna. Relationship banking implies short-term disequilibrium in credit markets, suggesting the VECM (vector error-correction model) as an appropriate framework for analysis. We develop VECM models in the Indian context (for the period April 1991- December 2004 using monthly data) to analyse salient features of the credit market. An analysis of the ECMs (error-correction mechanisms) reveals that disequilibrium in the Indian credit market is adjusted via demand responses rather than supply responses, which is in accordance with the customer view of credit markets. Further light on the working of the model is obtained through the "generalized" impulse responses and "generalized" error decompositions (both of which are independent of the variable ordering). Our conclusions point towards firms using short-term credit as a liquidity buffer. This fact, together with the gradual adjustment exhibited by the "persistence profiles" provides substantive evidence in favour of "customer credit markets". |
| Keywords: | customer credit markets, monetary policy, co-integration, impulse response, persistence profiles |
| JEL: | C32 E51 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2005-010&r=mac |
| By: | Peter Howells (School of Economics, University of the West of England) |
| Abstract: | For many years, the endogenous nature of the money supply has been a cornerstone of post-Keynesian economics. In this paper we survey the empirical work which has been done on both the ‘core’ thesis – that loans create deposits – and on peripheral questions such as the origin of the demand for loans, the reconciliation of the demand for money with the loan-created supply and the accommodationist/structuralist debate. The originality of the paper lies in its demonstration that while post-Keynesians may have thought they were fighting in heroic isolation, most economists involved with the real world of monetary policy-making in practice took much the same view. The consequence is that we can find empirical investigations of issues relating to the endogeneity in a wide range of locations. |
| Keywords: | Money; endogeneity; |
| JEL: | E50 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:uwe:wpaper:0513&r=mac |
| By: | James K. Galbraith |
| Abstract: | TodayÕs federal budget deficits are a preoccupation of many American citizens and more than a few political leaders. Is the American government going bankrupt? Does our fiscal condition warrant radical surgery, as some now prescribe? Or, are we in such deep trouble that there is no plausible route of escape? |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levypn:06-2&r=mac |
| By: | Tetsuji Okazaki (Faculty of Economics, University of Tokyo) |
| Abstract: | The central bank as the Lender of Last Resort (LLR) is faced with a trade off between the stability of the financial system and the "moral hazard" of banks. In this paper we explore how this trade off was dealt with by the Bank of Japan (BOJ) in the pre-war period, and how LLR lending by the BOJ affected the financial system. In particular, this paper focuses on the following two stylized facts of Japanese financial history. First, the BOJ actively intervened in the market as the LLR under the unstable financial system in the 1920s. Second, in this period, the financial market worked well to sort out inefficient banks through failures. In providing an LLR loan, the BOJ adopted the policy of favoring those banks that had an already established transaction relationship with the BOJ. At the same time, the BOJ was selective about which banks it would enter into a transaction relationship with. That is, the BOJ chose the banks it would conduct transactions with based on criteria that included profitability, liquidity, quality of assets, and the personal assets of directors. Furthermore, the BOJ did not hesitate to suspend transaction relationships with those banks whose performance declined. This policy enabled the BOJ to act as the LLR without impairing the function of the market to sort out inefficient banks. Whereas the transaction relationship with the BOJ affected a bank's survivability, the effect was not across the board. That is, the transaction relationship did not increase the survivability of a bank directly, but it increased the influence of profitability and liquidity on survivability, especially in a period of financial crisis. This implies that the BOJ bailed out only those transaction counterparts that were profitable and prudent when the financial system was especially unstable. It is suggested that through concentrating LLR lending on its transaction counterparts, the BOJ could successfully bail out only those banks which were illiquid but solvent, and thereby avoided the moral hazard that the LLR policy might otherwise have incurred. |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2006cf398&r=mac |
| By: | R. Anton Braun (Faculty of Economics, University of Tokyo); Julen Esteban-Pretel (Faculty of Economics, University of Tokyo); Toshihiro Okada (School of Economics, Kwansei Gakuin University); Nao Sudou (Bank of Japan and Boston University) |
| Abstract: | The paper constructs a consistent set of quarterly Japanese data for the 1960-2002 sample period and compares properties of the Japanese and U.S. business cycles. We document some important differences in the adjustment of labor input between the two countries. In Japan most most of the adjustment is in hours per worker of males and females and also in employment of female. In the U.S. most of the adjustment is in employment of both males and females. We formulate, estimate and analyze a model that makes distinction between the intensive and extensive margin and allows for gender differences in labor supply. A weak empirical correlation between hours per worker and employment in Japanese data is a puzzle for our theory. |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2005cf392&r=mac |
| By: | Shouyong Shi |
| Abstract: | In this paper I examine whether a society can improve welfare by imposing a legal restriction to forbid the use of nominal bonds as a means of payments for goods. To do so, I integrate a microfounded model of money with the framework of limited participation. While the asset market is Walrasian, the goods market is decentralized and the legal restriction is imposed only in a fraction of the trades. I show that the legal restriction can improve the society's welfare. In contrast to the literature, this essential role of the legal restriction persists even in the steady state and it does not rely on households' ability to trade unmatured bonds for money after observing the taste (or endowment) shocks. |
| JEL: | E40 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-212&r=mac |
| By: | Jeong-Joon Lee (Towson University) |
| Abstract: | The purpose of this study is to examine the effects of a measured aggregate productivity shock on asset returns. To achieve this, a simple equilibrium business cycle model is presented to show that an aggregate productivity shock can be identified as a factor affecting asset returns. The paper uses the Solow residual to measure productivity changes, but deviates from standard practice by incorporating variations in capital utilization rates. The paper first develops the theoretical link between productivity shocks and asset returns with no adjustment costs, and then tests that link with the two measures of productivity, the Solow residual with and without variation in capital utilization. Results based on U.S post-war data show significant differences in the dynamic impacts of these two measures of productivity. The VAR evidence suggests that technology changes, measured with variation in capital utilization, have a delayed impact on asset returns, a distinct finding. Finally, policy implications of the findings are discussed. |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2006cf396&r=mac |
| By: | Joerg Bibow |
| Abstract: | This paper assesses the contribution of the European Central Bank (ECB) to GermanyÕs ongoing economic crisis, a vicious circle of decline in which the country has become stuck since the early 1990s. It is argued that the ECB continues the Bundesbank tradition of asymmetric policymaking: the bank is quick to hike, but slow to ease. It thereby acts as a brake on growth. This approach has worked for the Bundesbank in the past because other banks behaved differently. Exporting the Bundesbank Òsuccess storyÓ to Euroland has undermined its working, however; given its sheer size, Euroland simply cannot freeload on external stimuli forever. While Euroland cannot do without proper demand management, the Maastricht regime and especially the ECB are firmly geared against it. The ECBÕs monetary policies have been biased against growth and have thus proved bad for Euroland as a whole. Meanwhile, the German disease of protracted domestic demand weakness has spread across much of Euroland. Yet, by pursuing its peculiar traditions of wage restraint and procyclical public thrift, the ECBÕs policies have had even worse results for Germany. Fragility and divergence undermine the euroÕs long-term survival. |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_429&r=mac |
| By: | Erik Snowberg (Stanford GSB); Justin Wolfers (Wharton, University of Pennsylvania, CEPR, NBER and IZA Bonn); Eric Zitzewitz (Stanford GSB) |
| Abstract: | Political economists interested in discerning the effects of election outcomes on the economy have been hampered by the problem that economic outcomes also influence elections. We sidestep these problems by analyzing movements in economic indicators caused by clearly exogenous changes in expectations about the likely winner during election day. Analyzing high frequency financial fluctuations on November 2 and 3 in 2004, we find that markets anticipated higher equity prices, interest rates and oil prices and a stronger dollar under a Bush presidency than under Kerry. A similar Republican-Democrat differential was also observed for the 2000 Bush-Gore contest. Prediction market based analyses of all Presidential elections since 1880 also reveal a similar pattern of partisan impacts, suggesting that electing a Republican President raises equity valuations by 2-3 percent, and that since Reagan, Republican Presidents have tended to raise bond yields. |
| Keywords: | elections, prediction markets, political economy, event study, partisan effects |
| JEL: | D72 E3 E6 G13 G14 H6 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1996&r=mac |
| By: | Paul Dunne (School of Economics, University of the West of England); Beverly Edkins (University of KwaZulu-Natal) |
| Abstract: | Food consumption is an important issue in South Africa, not only in its relation to poverty and deprivation, but also given the importance of nutrition in allowing HIV/AIDS sufferers to lead extended, productive lives. With the pressing need to increase food security and the enormity of the epidemic, understanding the demand for food has become a vital task. It is important that the determinants of the demand for food are understood, so that responses of household food consumption to changes in the prices of foodstuffs, prices of other commodities, and total expenditure can be anticipated. There is, however, surprisingly little economic research on this topic. This paper provides an empirical analysis of the demand for food in South Africa for the years 1970 to 2002. It uses two modelling approaches, a general dynamic log-linear demand equation and a dynamic version of the almost ideal demand system to provide estimates of the short- and long-run price and expenditure demand elasticities. |
| JEL: | E58 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:uwe:wpaper:0509&r=mac |
| By: | Schlicht, Ekkehart |
| Abstract: | Uzawa (1961) has shown that balanced growth requires technological progress to be strictly Harrod neutral (purely labor-augmenting). This paper offers a slightly more general variant of the theorem that does not require assumptions about savings behavior or factor pricing and is much easier to prove. |
| JEL: | E13 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:897&r=mac |
| By: | George TRIDIMAS |
| Abstract: | The paper investigates the allocation of public consumption expen ditures in the UK. After reviewing the empirical literature on th e demand for public services, which is based on applied consumer analysis, it discusses the budgetary making process in the UK. It proceeds by estimating a system of demand equations for general government consumption expenditures in the UK during the period 1 963-96. In addition to estimating the effects of relative prices, total expenditure and demographic variables, it finds that the c onstraints of homogeneity and symmetry cannot be rejected. |
| Keywords: | Allocation of public consumption expenditure, Consumer demand systems, UK General Government consumption expenditure. |
| URL: | http://d.repec.org/n?u=RePEc:mil:wpdepa:2006-02&r=mac |
| By: | Paul Downward (Augusta State University); Andrew Mearman (School of Economics, University of the West of England) |
| Abstract: | This paper investigates the extent to which triangulation takes place within the Monetary Policy Committee (MPC) process at the Bank of England. Triangulation is at its most basic, the mixing of two or more methods, investigators, theories, methodologies or data in a single investigation. More specifically, we argue for triangulation as a commitment in research design to the mixing of methods in the act of inference. The paper argues that there are many motivations for triangulation as well as types of triangulation. It is argued that there is evidence of extensive triangulation of different types within the MPC process. However, there is very little theoretical triangulation present; raising concerns about pluralism. Also, it is argued that the triangulation which occurs is mainly undertaken for pragmatic reasons and does not reflect other, coherent ontological and epistemological positions. |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:uwe:wpaper:0505&r=mac |
| By: | Dilip M. Nachane (Indira Gandhi Institute of Development Research); Jose G. Clavel (Universidad de Murcia) |
| Abstract: | Modelling and forecasting of interest rates has traditionally proceeded in the framework of linear stationary models such as ARMA and VAR, but only with moderate success. We examine here four models which account for several specific features of real world asset prices such as non-stationarity and non-linearity. Our four candidate models are based respectively on wavelet analysis, mixed spectrum analysis, non-linear ARMA models with Fourier coefficients, and the Kalman filter. These models are applied to weekly data on interest rates in India, and their forecasting performance is evaluated vis-vis three GARCH models (GARCH (1,1), GARCH-M (1,1) and EGARCH (1,1)) as well as the random walk model. The Kalman filter model emerges at the top, with wavelet and mixed spectrum models also showing considerable promise. |
| Keywords: | Interest rates, wavelets, mixed spectra, non-linear ARMA, Kalman filter, GARCH, Forecast encompassing |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2005-009&r=mac |
| By: | Fumio Hayashi; Edward C. Prescott |
| Abstract: | The question we address in this paper is why the Japanese miracle didn't take place until after World War II. For much of the pre-WWII period, Japan's real GNP per worker was not much more than a third of that of the U.S., with falling capital intensity. We argue that its major cause is a barrier that kept agricultural employment constant at about 14 million throughout the prewar period. In our two-sector neoclassical growth model, the barrier-induced sectoral mis-allocation of labor and a resulting disincentive for capital accumulation account well for the depressed output level. Were it not for the barrier, Japan's prewar GNP per worker would have been close to a half of the U.S. The labor barrier existed because, we argue, the prewar patriarchy, armed with paternalistic clauses in the prewar Civil Code, forced the son designated as heir to stay in agriculture. |
| JEL: | E1 O1 O4 N3 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12081&r=mac |
| By: | Robert G. King |
| Abstract: | Discretionary policymaking can foster strategic complementarities between private sector decisions, thus leading to multiple equilibria. This article studies a simple example, originating with Kydland and Prescott, of a government which must decide whether to build a dam to prevent adverse effects on floods on the incomes of residents of a floodplain. In this example, it is socially inefficient to build the dam and for people to live on the floodplain, with this outcome being the unique equilibrium under policy commitment. Under discretion, there are two equilibria. First, if agents believe that few of their fellow citizens will move to the floodplain, then they know that the government will choose not to build the dam and there is therefore no incentive for any individual to locate on the floodplain. Second, if agents believe that there will be many floodplain residents, then they know that the government will choose to build the dam and even small benefits of living on the floodplain will lead them to choose that location. In this second equilibrium, all individuals are worse off. |
| JEL: | E5 E6 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12076&r=mac |
| By: | Wolfgang Lechthaler |
| Abstract: | This paper analyzes the effects of firing costs in a broader setup than what is usually done, allowing for on-the-job training. By doing so the traditional analysis is extended with respect to two points: On the one hand firing costs clearly increase firm training because worker and firm are less likely to separate. On the other hand, firm training gives firms the opportunity to lower the costs of firing restrictions: After all the value of output of a well-trained worker is less likely to turn negative. Through these two channels firm training is able to diminish the negative effects of firing restrictions usually discussed in the literature. |
| JEL: | E24 J24 J63 J68 M53 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:usg:dp2006:2006-01&r=mac |
| By: | Beach, Charles; Finnie, Ross; Gray, David |
| Abstract: | This article summarizes findings from the research paper entitled: The Impact of Macroeconomic Conditions on the Instability and Long-Run Inequality of Workers' Earnings in Canada. This paper examines the variability of workers' earnings in Canada over the period 1982-1997 and how earnings variability has varied in terms of the unemployment rate and real gross domestic product (GDP) growth over this period. Using a large panel of tax file data, we decompose total variation in earnings across workers and time into a long-run inequality component between workers and an average earnings instability component over time for workers. The analysis is done for men and women and for both long-run participants and a broad coverage of workers. We find an increase in earnings variability between 1982-1989 and 1990-1997 that is largely confined to men and largely driven by widening long-run earnings inequality. Second, the pattern of unemployment rate and GDP growth rate effects on these variance components is not consistent with conventional explanations of cyclical effects on earnings inequality and is suggestive of an alternative paradigm of how economic growth over this period widens long-run earnings inequality. Third, when the unemployment rate and GDP growth rate effects are considered jointly, macroeconomic improvement is found to reduce the overall variability of earnings as the reduction in earnings instability outweighs the general widening of long-run earnings inequality. |
| Keywords: | Labour, Personal finance and household finance, Salaries and wages, Income |
| Date: | 2006–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp3e:2006269e&r=mac |
| By: | Beach, Charles; Finnie, Ross; Gray, David |
| Abstract: | This paper examines the variability of workers' earnings in Canada over the period 1982-1997 and how earnings variability has varied in terms of the unemployment rate and real gross domestic product (GDP) growth over this period. Using a large panel of tax file data, we decompose total variation in earnings across workers and time into a long-run inequality component between workers and an average earnings instability component over time for workers. The analysis is done for men and women and for both long-run participants and a broad coverage of workers. We find an increase in earnings variability between 1982-1989 and 1990-1997 that is largely confined to men and largely driven by widening long-run earnings inequality. Second, the pattern of unemployment rate and GDP growth rate effects on these variance components is not consistent with conventional explanations of cyclical effects on earnings inequality and is suggestive of an alternative paradigm of how economic growth over this period widens long-run earnings inequality. Third, when the unemployment rate and GDP growth rate effects are considered jointly, macroeconomic improvement is found to reduce the overall variability of earnings as the reduction in earnings instability outweighs the general widening of long-run earnings inequality. |
| Keywords: | Labour, Personal finance and household finance, Salaries and wages, Income |
| Date: | 2006–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp3e:2006268e&r=mac |
| By: | Dimitri B. Papadimitriou; Edward Chilcote -Name:Gennaro Zezza |
| Abstract: | Rising home prices and low interest rates have fueled the recent surge in mortgage borrowing and enabled consumers to spend at high rates relative to their income. Low interest rates have counterbalanced the growth in debt and acted to dampen the growth in household debt-service burdens. As past Levy Institute strategic analyses have pointed out, these trends are not sustainable: Household spending relative to income cannot grow indefinitely. |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levysa:sa_jan_06&r=mac |
| By: | Beach, Charles; Finnie, Ross; Gray, David |
| Abstract: | Le present article résume les conclusions de le document de recherché intitulée : L'effet des conditions macroéconomiques sur l'instabilité et l'inégalité à long terme des gains des travailleurs au Canada. Le présent document porte sur la variabilité des gains des travailleurs au Canada de 1982 à 1997 et sur l'évolution de cette variabilité en fonction du taux de chômage et de la croissance du produit intérieur brut (PIB) réel durant cette période. En utilisant un grand panel de données fiscales, nous décomposons la variation totale des gains entre les travailleurs et au cours du temps en une composante d'inégalité à long terme entre les travailleurs et une composante d'instabilité des gains moyens de l'ensemble des travailleurs au cours du temps. Nous effectuons l'analyse séparément pour les hommes et pour les femmes, ainsi que pour les participants à long terme au marché du travail et un groupe plus général de travailleurs. Premièrement, nous observons, entre la période allant de 1982 à 1989 et celle allant de 1990 à 1997, une augmentation de la variabilité des gains qui est limitée, en grande partie, aux hommes et sous tendue principalement par l'accroissement de l'inégalité à long terme des gains. Deuxièmement, nous constatons que le profil des effets du taux de chômage et du taux de croissance du PIB sur ces composantes de la variance ne confirment pas les explications classiques des effets du cycle économique sur l'inégalité des gains et évoque un autre paradigme de l'accroissement de l'inégalité des gains à long terme sous l'effet de la croissance économique au cours de cette période. Troisièmement, si nous tenon |
| Keywords: | Travail, Finances personnelles et finances des ménages, Salaires et traitements, Revenu |
| Date: | 2006–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp3f:2006269f&r=mac |
| By: | Renate Ohr (University of Goettingen); André Schmidt (University of Goettingen) |
| Abstract: | Der europäische Stabilitäts- und Wachstumspakt zählt zu den zentralen Pfeilern der Europäischen Währungsunion. Die Erfahrungen der letzten Jahre zeigen jedoch, dass seine disziplinierende Wirkung zur Begrenzung übermäßiger Defizite in Zweifel zu ziehen ist. Auf der Basis des von Ronald Coase geforderten Denkens in „institutionellen Alternativen“ wird im folgenden Papier die Einführung handelbarer Verschuldungsrechte in der Europäischen Währungsunion diskutiert. Dabei wird gezeigt, dass handelbare Verschuldungsrechte sowohl aus politökonomischer als auch aus allokationstheoretischer Sicht dem bisherigen Regelungen des Stabilitäts- und Wachstumspaktes überlegen sind und eine höhere Anreizkompatibilität zur Verhinderung übermäßiger Defizite garantieren. |
| Keywords: | Stabilitäts- und Wachstumspakt, Handelbare Verschuldungsrechte, Währungsunion |
| JEL: | E5 E6 H6 |
| Date: | 2006–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:got:vwldps:128&r=mac |
| By: | Beach, Charles; Finnie, Ross; Gray, David |
| Abstract: | Le présent document porte sur la variabilité des gains des travailleurs au Canada de 1982 à 1997 et sur l'évolution de cette variabilité en fonction du taux de chômage et de la croissance du produit intérieur brut (PIB) réel durant cette période. En utilisant un grand panel de données fiscales, nous décomposons la variation totale des gains entre les travailleurs et au cours du temps en une composante d'inégalité à long terme entre les travailleurs et une composante d'instabilité des gains moyens de l'ensemble des travailleurs au cours du temps. Nous effectuons l'analyse séparément pour les hommes et pour les femmes, ainsi que pour les participants à long terme au marché du travail et un groupe plus général de travailleurs. Premièrement, nous observons, entre la période allant de 1982 à 1989 et celle allant de 1990 à 1997, une augmentation de la variabilité des gains qui est limitée, en grande partie, aux hommes et sous tendue principalement par l'accroissement de l'inégalité à long terme des gains. Deuxièmement, nous constatons que le profil des effets du taux de chômage et du taux de croissance du PIB sur ces composantes de la variance ne confirment pas les explications classiques des effets du cycle économique sur l'inégalité des gains et évoque un autre paradigme de l'accroissement de l'inégalité des gains à long terme sous l'effet de la croissance économique au cours de cette période. Troisièmement, si nous tenons compte simultanément des effets du taux de chômage et du taux de croissance du PIB, nous constatons que l'amélioration macroéconomique réduit la variabilité globale des gains, car la réduction de leur instabilit&eacut |
| Keywords: | Travail, Finances personnelles et finances des ménages, Salaires et traitements, Revenu |
| Date: | 2006–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp3f:2006268f&r=mac |
| By: | Jesús Rodríguez López (Department of Economics, Universidad Pablo de Olavide); Hugo Rodríguez Mendizábal (Department of Economics, Universidad Autónoma de Barcelona) |
| Abstract: | The literature on exchange regimes has recently observed that officially self-declared free floaters strongly intervene their nominal exchange rates to maintain them within some unannounced bands. In this paper, we provide an explanation for this behavior, labeled by Calvo and Reinhart (2002) as fear of floating. First, we analyze the linkages between the credibility of the exchange regime, the volatility of the exchange rate and the band width of fluctuation. Second, the model is used to understand the reduction in volatility experienced by most ERM countries after their target zones were widened on August 1993. Finally, solving the model for a subgame perfect equilibrium, fear of floating can be viewed as the credible choice of a finite non-zero band |
| Keywords: | Fear of floating, target zones, exchange rate arrangements, credibility |
| JEL: | E52 E58 F31 F33 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:pab:wpaper:06.03&r=mac |