nep-mac New Economics Papers
on Macroeconomics
Issue of 2006‒04‒22
79 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Money Rules By Cees Ullersma; Jan Marc Berk; Bryan Chapple
  2. Central Bank Instruments, Fiscal Policy Regimes, and the Requirements for Equilibrium Determinacy By Andreas Schabert
  3. Economic Shocks, Progressiveness of Taxation, and Indexation of Taxes and Public Expenditure in EMU By Markku Kotilainen
  4. Macroeconomic Regime Switches and Speculative Attacks By Bartosz Mackowiak
  5. Optimal Monetary Policy When Agents Are Learning By Krisztina Molnár; Sergio Santoro
  6. External Shocks, U.S. Monetary Policy and Macroeconomic Fluctuations in Emerging Markets By Bartosz Mackowiak
  7. Optimal Inflation Targeting under Alternative Fiscal Regimes By Pierpaolo Benigno; Michael Woodford
  8. House Prices and Monetary Policy in Colombia By Martha Misas A.
  9. Does Neoclassical Theory Account for the Effects of Big Fiscal Shocks? Evidence From World War II By Ellen R. McGrattan; Lee E. Ohanian
  10. Monetary and fiscal policy interactions in a New Keynesian model with capital accumulation and non-Ricardian consumers By Campbell Leith and Leopold von Thadden
  11. Joining the European Monetary Union - Comparing First and Second Generation Open Economy Models By Le, Vo Phuong Mai; Minford, Patrick
  12. Exchange Rate Changes and Inflation in Post-Crisis Asian Economies: VAR Analysis of the Exchange Rate Pass-Through By Takatoshi Ito; Kiyotaka Sato
  13. Calvo Contracts - Optimal Indexation in General Equilibrium By Le, Vo Phuong Mai; Minford, Patrick
  14. Dissent and Disagreement on the Fed's FOMC: Understanding Regional Affiliations and limits to Transparency By Ellen Meade
  15. Back to Wicksell? In search of the foundations of practical monetary policy By Roberto Tamborini
  16. The Relationship Between Exchange Rates and Inflation Targeting Revisited By Sebastian Edwards
  17. Impulse Response Functions from Structural Dynamic Factor Models: A Monte Carlo Evaluation By Kapetanios, George; Marcellino, Massimiliano
  18. Openness and the Case for Flexible Exchange Rates By Corsetti, Giancarlo
  19. Macroeconomic policy and the distribution of growth rates By Vatcharin Sirimaneetham; Jonathan Temple
  20. Pareto Improving Monetary Policy in Incomplete Markets By Sergio Turner; Norovsambuu Tumennasan
  21. Output fluctuations persistence: Do cyclical shocks matter? By Silvestro Di Sanzo
  22. The Persistence of Inflation in OECDCountries: a Fractionally Integrated Approach By Laura Mayoral
  23. Real Wages and the ‘Malthusian Problem’ in Antwerp and South-Eastern England, 1400 - 1700: A regional comparison of levels and trends in real wages By JOHN H MUNRO
  24. A Dynamic Perspective for the Reform of the Stability and Growth Pact By Christian Deubner
  25. Currency Areas and Monetary Coordination By Qing Liu; Shouyong Shi
  26. A Pressure-Augmented Taylor Rule for Italy By Chiara Dalle Nogare; Matilde Vassalli
  27. Forecasting interest rate swap spreads using domestic and international risk factors: Evidence from linear and non-linear models. By Ilias Lekkos; Costas Milas; Theodore Panagiotidis
  28. Macroeconomic Policies and Institutions By Jean-Paul Fitoussi
  29. Business Cycle and Stock Market Volatility: A Particle Filter Approach By Roberto Casarin; Carmine Trecroci
  30. Flight to Quality and Collective Risk Management By Ricardo J. Caballero; Arvind Krishnamurthy
  31. Monetary policy regime shifts: new evidence from time-varying interest rate rules By Carmine Trecroci; Matilde Vassalli
  32. How Far Are We From The Slippery Slope? The Laffer Curve Revisited By Mathias Trabandt; Harald Uhlig
  33. Households' Response to Wealth Changes: Do Gains or Losses make a Difference? By Robert Paul Berben; Kerstin Bernoth; Mauro Mastrogiacomo
  34. Booms and busts: consumption, house prices and expectations By Orazio Attanasio; Laura Blow; Robert Hamilton; Andrew Leicester
  35. How Occupied France Financed Its Own Exploitation in World War II By Filippo Occhino; Kim Oosterlinck; Eugene N. White
  37. Capital Income Taxation and Specialization Patterns: Investment Tax vs. Saving Tax By Yoshiyasu Ono; Akihisa Shibata
  38. What Explains the Canada-US ICT Investment Intensity Gap? By Centre for the Study of Living Standards
  39. Was There a British House Price Bubble? Evidence from a Regional Panel By Cameron, Gavin; Muellbauer, John; Murphy, Anthony
  40. A Parametric Estimation Method for Dynamic Factor Models of Large Dimensions By Kapetanios, George; Marcellino, Massimiliano
  41. The Caring Hand that Cripples: The East German Labor Market After Reunification (Detailed Version) By Dennis J. Snower; Christian Merkl
  44. The Real Effects of EMU By Philip R. Lane;
  45. LA TASA DE DESEMPLEO DE LARGO PLAZO EN COLOMBIA By Luis Eduardo Arango; Carlos Esteban Posada
  46. Public Debt around the World: A New Dataset of Central Government Debt By Dany Jaimovich; Ugo Panizza
  47. From Golden Age to Golden Age: Australia’s "Great Leap Forward"? By Paul Frijters; Robert Gregory
  48. Unexploited connections between intra- and inter-temporal allocation By Thomas Crossley; Hamish Low
  49. The Dynamics of the Age Structure, Dependency, and Consumption By Heinrich Hock; David N. Weil
  50. "A Random Walk Down Maple Lane?: A Critique of Neoclassical Consumption Theory with Reference to Housing Wealth" By Greg Hannsgen
  51. Labour and Product Market Reforms in the Economy with Distortionary Taxation By Nikola Bokan; Andrew Hughes Hallett
  52. Further evidence on the statistical properties of Real GNP By Laura Mayoral
  53. Is the observed persistence spurious? A test for fractional integration versus short memory and structural breaks By Laura Mayoral
  54. Arbitrage, Covered Interest Parity and Long-Term Dependence between the US Dollar and the Yen By Peter G. Szilagyi; Jonathan A. Batten
  56. Zombie Lending and Depressed Restructuring in Japan By Ricardo J. Caballero; Takeo Hoshi; Anil K. Kashyap
  57. Policy Coherence Towards East Asia: Development Challenges for OECD Countries By K. Fukasaku; M. Kawai; M. G. Plummer; A. Trzeciak-Duval
  58. Did Political Constraints Bind during Transition? Evidence from Czech Elections 1990-2002 By Orla Doyle; Paul Patrick Walsh
  59. Real Exchange Rate Adjustment In European Transition Countries By Maican, Florin G.; Sweeney, Richard J.
  60. Darstellung der Beschäftigungseffekte von Exporten anhand einer Input-Output-Analyse By Gesa Pelzer
  62. Employment Subsidies and Substitutable Skills: An Equilibrium Matching Approach By Gabriele Cardullo; Bruno Van der Linden
  63. Product market reforms, labour market institutions and unemployment By Rachel Griffith; Rupert Harrison; Gareth Macartney
  65. La Zone Euro et la monnaie unique face à l'élargissement de l'Union Européenne By Michel Lelart
  66. A.K. Sen et J.E. Roemer : une même approche de la responsabilité ? By Herrade Igersheim
  67. Interacting Agents in Finance By Cars Hommes
  68. - La concurrence euro-dollar dans la perspective de l'élargissement de l'Union européenne By Michel Lelart
  69. Cues for Coordination: Light, Longitude and Letterman By Daniel S. Hamermesh; Caitlin Knowles Myers; Mark L. Pocock
  70. Indicator and boundaries of financial stability By Jan Willem van den End
  71. Capital Deepening and Wage Differentials: Germany vs. US By Winfried Koeniger; Marco Leonardi
  72. Skill Shortages, Labor Reallocation, and Growth By Pascal Hetze
  73. Investment Taxes and Equity Returns By Clemens Sialm
  74. Bubbles and Busts: The 1990s in the Mirror of the 1920s By Eugene N. White
  75. Simultaneous Search with Heterogeneous Firms and Ex Post Competition By Pieter A. Gautier; Ronald P. Wolthoff
  76. Simultaneous Search with Heterogeneous Firms and Ex Post Competition By Pieter A. Gautier; Ronald P. Wolthoff
  77. Functional Forms and Parametrization of CGE Models By Nabil Annabi; John Cockburn; Bernard Decaluwé
  78. New Neural Network Methods for Forecasting Regional Employment: An Analysis of German Labour Markets By Roberto Patuelli; Aura Reggiani; Peter Nijkamp; Uwe Blien
  79. Information Technology, Organisational Change and Productivity Growth: Evidence from UK Firms By Gustavo Crespi; Chiara Criscuolo; Jonathan Haskel

  1. By: Cees Ullersma; Jan Marc Berk; Bryan Chapple
    Abstract: We assess a New Keynesian macro-economic model that is supplemented with a micro-founded role for money in determining aggregate demand and supply in order to better describe monetary policy transmission. In this model welfare is higher if the monetary authority takes money growth explicitly into account when setting interest rates.
    Keywords: money; monetary policy; monetary transmission
    JEL: E52 E58
    Date: 2006–04
  2. By: Andreas Schabert (Universiteit van Amsterdam)
    Abstract: This paper examines the role of the monetary instrument choice for local equilibrium determinacy under sticky prices and different fiscal policy regimes. Corresponding to Benhabib et al.'s (2001) results for interest rate feedback rules, the money growth rate should not rise by more than one for one with inflation when the primary surplus is raised with public debt. Under an exogenous primary surplus, money supply should be accommodating -- such that real balances grow with inflation -- to ensure local equilibrium determinacy. When the central bank links the supply of money to government bonds by controlling the bond-to-money ratio, an inflation stabilizing policy can be implemented for both fiscal policy regimes. Local determinacy is then ensured when the bond-to-money ratio is not extremely sensitive to inflation, or when interest payments on public debt are entirely tax financed, i.e., the budget is balanced.
    Keywords: Fiscal-Monetary Policy Interaction; Money Growth; Bond-to-Money Ratio; Local Equilibrium Determinancy
    JEL: E52 E63 E32
    Date: 2006–03–08
  3. By: Markku Kotilainen
    Keywords: Economic and monetary union, EMU, taxation, public expenditure, progressiveness of taxation, indexation
    JEL: E32 E62 E63 E64 F33 F41 F42
    Date: 2006–04–03
  4. By: Bartosz Mackowiak
    Abstract: This paper explains a currency crisis as an outcome of a switch in how monetary policy and fiscal policy are coordinated. The paper develops a model of an open economy in which monetary policy starts active, fiscal policy starts passive and, in a particular state of nature, monetary policy switches to passive and fiscal policy switches to active. The probability of the regime switch is endogenous and changes over time together with the state of the economy. The regime switch is preceded by a sharp increase in interest rates and causes a jump in the exchange rate. The model predicts that currency composition of public debt affects dynamics of macroeconomic variables. Furthermore, the model is consistent with evidence from recent currency crises, in particular small seigniorage revenues.
    Keywords: Coordination of monetary policy and fiscal policy, policy regime switch, currency crisis, speculative attack, fiscal theory of the price level
    JEL: E52 E61 F33
    Date: 2006–04
  5. By: Krisztina Molnár; Sergio Santoro
    Abstract: Most studies of optimal monetary policy under learning rely on optimality conditions derived for the case when agents have rational expectations. In this paper, we derive optimal monetary policy in an economy where the Central Bank knows, and makes active use of, the learning algorithm agents follow in forming their expectations. In this setup, monetary policy can influence future expectations through its e ect on learning dynamics, introducing an additional tradeo between inflation and output gap stabilization. Specifically, the optimal interest rate rule reacts more aggressively to out-of-equilibrium inflation expectations and noisy cost-push shocks than would be optimal under rational expectations: the Central Bank exploits its ability to "drive" future expectations closer to equilibrium. This optimal policy closely resembles optimal policy when the Central Bank can commit and agents have rational expectations. Monetary policy should be more aggressive in containing inflationary expectations when private agents pay more attention to recent data. In particular, when beliefs are updated according to recursive least squares, the optimal policy is time-varying: after a structural break the Central Bank should be more aggressive and relax the degree of aggressiveness in subsequent periods. The policy recommendation is robust: under our policy the welfare loss if the private sector actually has rational expectations is much smaller than if the Central Bank mistakenly assumes rational expectations whereas in fact agents are learning.
    Keywords: Optimal Monetary Policy, Learning, Rational Expectations
    JEL: C62 D83 D84 E0 E5
    Date: 2006–03–15
  6. By: Bartosz Mackowiak
    Abstract: Using structural VARs, I find that external shocks are an important source of macroeconomic fluctuations in emerging markets. Furthermore, U.S. monetary policy shocks affect quickly and strongly interest rates and the exchange rate in a typical emerging market. The price level and real output in a typical emerging market respond to U.S. monetary policy shocks by more than the price level and real output in the U.S. itself. These findings are consistent with the idea that “when the U.S. sneezes, emerging markets catch a cold.” At the same time, U.S. monetary policy shocks are not important for emerging markets relative to other kinds of external shocks.
    Keywords: Structural vector autoregression, monetary policy shocks, international spillover effects of monetary policy, external shocks, emerging markets
    JEL: F41 E3 O11
    Date: 2006–04
  7. By: Pierpaolo Benigno; Michael Woodford
    Abstract: Standard discussions of flexible inflation targeting as an optimal monetary policy abstract completely from the consequences of monetary policy for the government budget. But at least some of the countries now adopting inflation targeting have substantial difficulty in controlling fiscal imbalances, so that the additional strains resulting from strict control of inflation are of substantial concern, and some (notably Sims 2005) have argued that inflation targeting can even be counterproductive under some fiscal regimes. Here, therefore, we analyze welfare-maximizing monetary policy taking explicit account of the consequences of monetary policy for the government budget, and under a variety of assumptions about the nature of the fiscal regime. The paper contrasts the optimal monetary policies under three alternative assumptions about fiscal policy: (i) the case in which little distortion is required to raise additional government revenue, and the fiscal authority can be relied upon to ensure intertemporal government solvency [the implicit assumption in standard analyses]; (ii) the case in which only distorting sources of revenue exist, but distorting taxes are adjusted optimally; and (iii) the case in which tax rates cannot be expected to change in response to a change in monetary policy [the problematic case emphasized by Sims]. In both of cases (ii) and (iii), it is optimal for monetary policy to allow the inflation rate to respond to fiscal developments (and the optimal responses to other shocks are somewhat different than in the classic analysis, which assumes case (I)). Nonetheless, optimal monetary policy can still be implemented through a form of flexible inflation targeting, and it remains critical, even in the most pessimistic case (case (iii)), that inflation expectations (beyond some very short horizon) not be allowed to vary in response to shocks.
    JEL: E52 E63
    Date: 2006–04
  8. By: Martha Misas A.
    Abstract: This paper investigates the possible responses of an inflation-targeting monetary policy in the face of asset price deviations from fundamental values. Focusing on the housing sector of the Colombian economy, we consider a general equilibrium model with frictions in credit market and bubbles in housing prices. We show that monetary policy is less efficient when it responds directly to asset price of housing than a policy that reacts only to deviations of expected inflation (CPI) from target. Some prudential regulation may provide a better outcome in terms of output and inflation variability.
    Date: 2006–03–01
  9. By: Ellen R. McGrattan; Lee E. Ohanian
    Abstract: There is much debate about the usefulness of the neoclassical growth model for assessing the macro- economic impact of fiscal shocks. We test the theory using data from World War II, which is by far the largest fiscal shock in the history of the United States. We take observed changes in fiscal policy during the war as inputs into a parameterized, dynamic general equilibrium model and compare the values of all variables in the model to the actual values of these variables in the data. Our main finding is that the theory quantitatively accounts for macroeconomic activity during this big fiscal shock.
    JEL: E0 E6
    Date: 2006–04
  10. By: Campbell Leith and Leopold von Thadden
    Abstract: This paper develops a small New Keynesian model with capital accumulation and government debt dynamics. The paper discusses the design of simple monetary and fiscal policy rules consistent with determinate equilibrium dynamics in the absence of Ricardian equivalence. Under this assumption, government debt turns into a relevant state variable which needs to be accounted for in the analysis of equilibrium dynamics. The key analytical finding is that without explicit reference to the level of government debt it is not possible to infer how strongly the monetary and fiscal instruments should be used to ensure determinate equilibrium dynamics. Specifically, we identify in our model discontinuities associated with threshold values of steady-state debt, leading to qualitative changes in the local determinacy requirements. These features extend the logic of Leeper (1991) to an environment in which fiscal policy is non-neutral and requires us to pay equal attention to to monetary and fiscal policy in designing policy rules consistent with determinate dynamics.
    JEL: E52 E63
  11. By: Le, Vo Phuong Mai; Minford, Patrick
    Abstract: We log-linearise the Dellas and Tavlas (DT) model of monetary union and solve it analytically. We find that the intuition of optimal currency analysis of DT's second generation open economy model is essentially the same as that of first generation models. Monetary union results in no welfare loss if its member states are symmetric. However, asymmetry causes loss in welfare both due to the failure of the union policy to deal suitably with a country's asymmetric shocks and due to an active monetary policy by union in pursuit of its distinct objectives. The asymmetry in DT is largely due to the differing wage rigidities across countries.
    Keywords: asymmetry; monetary union; multi-country model; representative agent model; wage rigidity
    JEL: E42 F41 F42
    Date: 2006–04
  12. By: Takatoshi Ito; Kiyotaka Sato
    Abstract: The pass-through effects of exchange rate changes on the domestic prices in the East Asian countries are examined using a VAR analysis including several price indices and domestic macroeconomic variables as well as the exchange rate. Results from the VAR analysis show that (1) the degree of exchange rate pass-through to import prices was quite high in the crisis-hit countries; (2) the pass-through to CPI was generally low, with a notable exception of Indonesia: and (3) in Indonesia, both the impulse response of monetary policy variables to exchange rate shocks and that of CPI to monetary policy shocks are positive, large and statistically significant. Thus, Indonesia's accommodative monetary policy as well as the high degree of the CPI responsiveness to exchange rate changes was important factors that resulted in the spiraling effects of domestic price inflation and sharp nominal exchange rate depreciation in the post-crisis period.
    Date: 2006–04
  13. By: Le, Vo Phuong Mai; Minford, Patrick
    Abstract: Calvo contracts, which are the basis of the current generation of New Keynesian models, widely include indexation to general inflation. We argue that the indexing formula should be expected inflation rather than lagged inflation. This optimises the welfare of the representative agent in a general equilibrium model of the New Keynesian type. This is shown analytically for a simplified model and by numerical simulation for a full model with price and wage contracts as well as capital. The consequence of such indexation is that monetary policy no longer has any effect on welfare.
    Keywords: Calvo contracts; indexing; New Keynesian
    JEL: E0
    Date: 2006–04
  14. By: Ellen Meade
    Abstract: This paper addresses two important, but distinct, issues in monetary policy. The first issue concerns regional influences on voting within a monetary policy committee. In a committee that includes representatives from different regions or countries, is there a regional element to the monetary policy decision or to the votes cast by monetary policymakers? The second issue concerns possible limits to transparency. In an independent central bank that strives to be accountable and to communicate its policy effectively, are there circumstances under which increasing transparency could be harmful? The answer to both of these questions with respect to the Federal Reserve is "maybe".
    Keywords: central banking; Federal Reserve; FOMC; voting
    JEL: E58 F33 E42 E65
    Date: 2006–03
  15. By: Roberto Tamborini
    Abstract: It is now widely held that the New Neoclassical Synthesis (NSS) offers central banks a "user friendly", though rigorous, theoretical framework consistent with current practice of systematic stabilization policy based on interest rate rules (e.g. Woodford (2003)). Particular interest and curiosity have been aroused by Woodford's argument that the NNS theory of monetary policy is in its essence a modern restatement and refinement of Wicksell's interest-rate theory of prices (1898). This paper deals with two main issues prompted by Woodford's Neo-Wicksellian revival. The first questions the consistency between the NNS and Wicksell. The second concerns the value added for monetary policy of Wicksellian ideas in their own right. Section 2 clarifies some basic theoretical issues underlying the NNS and its inconsistency with a proper Wicksellian approach, which should be based on saving-investment imbalances that are precluded by the NNS theoretical framework. Section 3 presents a proper Neo-Wicksellian dynamic model whereby it is possible to assess, and hopefully clarify, some basic issues concerning the macroeconomics of saving-investment imbalances. Section 4 examines implications for monetary policy, in particular for Taylor rules, and section 5 concludes.
    Date: 2006
  16. By: Sebastian Edwards
    Abstract: This paper deals with the relationship between inflation targeting and exchange rates. I address three specific issues: first, I analyze the effectiveness of nominal exchange rates as shock absorbers in countries with inflation targeting. This issue is closely related to the magnitude of the "pass-through" coefficient. Second, I investigate whether exchange rate volatility is different in countries with an inflation targeting regime than in countries with alternative monetary policy arrangements. And third, I discuss whether the exchange rate should play a role in determining the monetary policy stance under inflation targeting. An alternative way of posing this question is whether the exchange rate should have an independent role in an open economy Taylor rule.
    JEL: F02 F43
    Date: 2006–04
  17. By: Kapetanios, George; Marcellino, Massimiliano
    Abstract: The estimation of structural dynamic factor models (DFMs) for large sets of variables is attracting considerable attention. In this paper we briefly review the underlying theory and then compare the impulse response functions resulting from two alternative estimation methods for the DFM. Finally, as an example, we reconsider the issue of the identification of the driving forces of the US economy, using data for about 150 macroeconomic variables.
    Keywords: factor models; principal components; structural identification; structural VAR; subspace algorithms
    JEL: C32 C51 E52
    Date: 2006–04
  18. By: Corsetti, Giancarlo
    Abstract: Models of stabilization in open economy traditionally emphasize the role of exchange rates as a substitute for nominal price flexibility in fostering relative price adjustment. This view has been recently criticized on the ground that, to the extent that prices are sticky in local currency, the exchange rate does not play the stabilizing role envisioned by the received wisdom. An important question is whether, for this very reason, stabilization policies should limit exchange rate movements, or even eliminate them altogether. In this paper, I re-assess this issue by extending the Corsetti and Pesenti (2001) model to allow for home bias in consumption | so that I can exploit the advantages of closed-form solutions. While this extension leaves most properties of the model unaffected, home bias implies that the real exchange rate in an efficient equilibrium is not constant, but fluctuates with the terms of trade. The weight that monetary authorities optimally place on stabilizing domestic marginal costs is increasing in Home bias: with asymmetric shocks, fixed exchange rates are incompatible with efficient monetary rules. Yet, the adverse welfare consequences of exchange rate movements constrain the optimal intensity of monetary responses to domestic shocks. Openness matters: in our specification each country produces an equal share of the world value added; the lower the import content of consumption, the higher the exchange rate volatility implied by optimal stabilization rules. In relatively closed economy, optimal monetary rules tend to converge, regardless of the nature of nominal rigidities in the exports market.
    Keywords: exchange rate pass-through; exchange rate regimes; international policy cooperation; nominal rigidities; optimal monetary policy
    JEL: E31 E52 F42
    Date: 2006–04
  19. By: Vatcharin Sirimaneetham; Jonathan Temple
    Abstract: We examine the view that high-quality macroeconomic policy is a necessary, but not sufficient, condition for economic growth. We first construct a new index of the quality of macroeconomic policy. We then directly compare growth rate distributions across countries with good and bad policies; use Bayesian methods to examine the partial correlation between policy and growth; and outline how growth and steady-state income levels might have differed, had all countries achieved good policy outcomes. One finding is that bad macroeconomic policies can be offset by other factors, but the fastest-growing countries in our sample all shared high-quality macroeconomic management.
    Keywords: macroeconomic policy, economic growth, Washington Consensus, Bayesian Model Averaging, counterfactuals
    JEL: O23 O40
    Date: 2006–03
  20. By: Sergio Turner; Norovsambuu Tumennasan
    Date: 2006
  21. By: Silvestro Di Sanzo (Departamento de Fundamentos del Analisis Economico, Universidad de Alicante)
    Abstract: The aim of this paper is to identify the different sources of persistence of output fluctuations. We propose an unobserved components model that allows us to decompose GDP series into a trend component and a cyclical component. We let the drift of the trend component to switch between different regimes according to a first-order Markov process. To calculate an appropriate p-value for a test of linearity we propose a bootstrap procedure, which allows for general forms of heteroskedasticity. The performance of the bootstrap is checked by means of a Monte Carlo simulation. Our study concerns the U.S. As suggested by the Endogenous Growth theory, cyclical shocks appear to play an important role on the observed persistence of output. We argue that the traditional explanation of persistence, which is related to Real Business Cycle models with exogenous productivity, is not consistent with our data. We also find that the majority of business cycle fluctuations in the U.S. are due to real shocks.
    Keywords: Business cycle; Persistence; Unobserved Components model; First-order Markov process; Wild bootstrap; Monte Carlo
    JEL: C12 C13 C15 C32 E32
    Date: 2006
  22. By: Laura Mayoral
    Abstract: The statistical properties of inflation and, in particular, its degree of persistence and stability over time is a subject of intense debate and no consensus has been achieved yet. The goal of this paper is to analyze this controversy using a general approach, with the aim of providing a plausible explanation for the existing contradictory results. We consider the inflation rates of 21 OECD countries which are modelled as fractionally integrated (FI) processes. First, we show analytically that FI can appear in inflation rates after aggregating individual prices from firms that face different costs of adjusting their prices. Then, we provide robust empirical evidence supporting the FI hypothesis using both classical and Bayesian techniques. Next, we estimate impulse response functions and other scalar measures of persistence, achieving an accurate picture of this property and its variation across countries. It is shown that the application of some popular tools for measuring persistence, such as the sum of the AR coefficients, could lead to erroneous conclusions if fractional integration is present. Finally, we explore the existence of changes in inflation inertia using a novel approach. We conclude that the persistence of inflation is very high (although non-permanent) in most post-industrial countries and that it has remained basically unchanged over the last four decades.
    Keywords: Inflation persistence, persistence stability, ARFIMA models, long memory, structural breaks, bayesian estimations
    JEL: C22 E31
    Date: 2005–02
  23. By: JOHN H MUNRO
    Abstract: In a path-breaking but largely overlooked study, published in a festchrift thirty years ago (1975), Herman Van der Wee provided a comparison of prices and real wages of building craftsmen in the regions of Antwerp and south-eastern England, from 1400 to 1660. To do so, he constructed a composite price index modelled as closely as possibly on the famous ‘basket of consumables’ price index that Phelps Brown and Hopkins had produced, for south-eastern England, in 1956. His graphs revealed that real wages for these craftsmen in Antwerp did not suffer the same deterioration as did comparable real wages in England, and in many other parts of Europe, during the era of the Price Revolution, ca. 1520 - ca. 1640 – although the actual levels of the real wages were not shown. Most economic historians have attributed that significant fall in real wages, especially in England, to the consequences of population growth during this era: i.e., to a fall in the marginal productivity of labour, with a dramatic alteration in the land:labour ratio. There is, however, an alternative explanation: the consequences of monetarily-induced inflation, when nominal wages failed to keep pace with the rise in consumer prices (especially those for foodstuffs). This study examines the role of demographic, monetary, and also institutional factors in producing these diverging trends in real-wages. But the major contribution is to expand upon Van der Wee’s study – which used only disembodied index numbers – by calculating the annual values of the baskets of consumables in both England and the Antwerp region, and thus in presenting the actual levels of real wages, in terms of the number of such baskets that building craftsmen could purchase with their annual money wages (for 210 days of employment), in each region, combining wage rates for summer and winter work (seasonal wages). The results are very striking. As measured in 50-year harmonic means, the level of real wages for master masons in Antwerp was only 83.79% of that for master masons in south-east England, in 1401-50; and worse, only 78.15% of the level for English masons in 1451-1500; but then real wages for Antwerp master masons began to climb above those for their English counterparts: reaching 102.60% in 1501-50, 136.34% in 1551-1600; and, for the peak achievement, 154.49% in 1601-50, before falling back, somewhat, to a level of 125.58% in the final half century studied, in 1651-1700. But part of that gain or achievement for master masons in Antwerp was at the expense of the real incomes for their journeymen-labourers, who did not fare quite as well, in comparison with the English journeymen labourers: earning just 68.94% of their English counterparts in 1401-50; 69.38% in 1451-1500; 91.18% in 1501-50; 107.60% in 1551-1600; 133.46% in 1601-50; and 109.88% in the final period, 1651-1700. Oddly enough, the Antwerp masons (both masters and journeymen) fared the very best after Antwerp had passed its Golden Age. The hypothetical explanations for these divergencies may be even more interesting than the data themselves. The study concludes by examining the statistical and theoretical nature of ‘real wages’: in terms of the purchasing power of the annual nominal money wage; in terms of the marginal productivity of labour; in terms of the marginal revenue product of labour; and in terms of the Total Factor Productivity of the occupation or economy as a whole.
    JEL: C40 C43 C81 D33 E24 E31 E32 E40 E51 F40 J10 J11 J21 J22 J30 J3 J40 J51 J60 J80 L74 N13 N33 N63 N93
  24. By: Christian Deubner
    Abstract: This paper explores the functioning of the EMU Stability and Growth Pact from 1999 to 2005, year of its first explicit reform. The causes and the principal axes of that reform are analysed, as well as the main arguments for defending or critizising it. As to the Pact’s prior functioning, for almost all small and medium Euro area states this is a success story and the reform appears apt to facilitate the Pact’s future implementation. As to the larger Member States, the Pact experience has been a history of non-observance which the Pact’s reform appears only to condone and abet. This contradictory experience leads to a negative judgement on the functioning of the SGP as a whole. But recognising the success of the compliers’ group, and not only the failure of the non-compliers, justifies the Pact’s basic logic, as against certain commonly heard indictments. It permits to sharpen the analysis. These points will be explored later in this paper.
    Keywords: Economic and monetary union; EMU; stability and growth pact; single european currency; reform of the stability and growth pact; surveillance and co-ordination of economic and budgetary policies in EMU
    JEL: E61 E62
    Date: 2006–03
  25. By: Qing Liu; Shouyong Shi
    Abstract: In this paper we integrate the recent development in monetary theory with international finance, in order to examine the coordination between two currency areas in setting long-run inflation. The model determines the value of each currency and the size of each currency area without requiring buyers to use a particular currency to buy a country's goods. We show that the two countries inflate above the Friedman rule in a non-cooperative game. Coordination between the two areas reduces inflation to the Friedman rule, increases consumption, and improves welfare of both countries. This gain from coordination increases as the two areas become more integrated in trade. These results arise from the new features of the model, such as the deviations from the law of one price and the extensive margin of trade. To illustrate these new features, we show that introducing a direct tax on foreign holdings of a currency does not eliminate a country's incentive to inflate, while it does in traditional models.
    Keywords: Exchange rates; Currency areas; Coordination
    JEL: F41 E40
  26. By: Chiara Dalle Nogare; Matilde Vassalli
    Abstract: Following Havrilesky seminal work (1995) and its extension by Maier, Sturm and de Haan (2002) we construct a monthly index of external influences on Bank of Italy’s conduct for the period 1984-1998. This paper describes the index of overall pressure on Italian monetary policy and the five sub-indexes of which it is composed. We evaluate whether Bank of Italy responded to pressure by estimating Taylor rules augmented with the pressure indexes. We conclude that in most cases external pressures did affect Bank of Italy’s action.
  27. By: Ilias Lekkos (EFG Eurobank); Costas Milas (Keele University); Theodore Panagiotidis (Loughborough University)
    Abstract: This paper explores the ability of factor models to predict the dynamics of US and UK interest rate swap spreads within a linear and a non-linear framework. We reject linearity for the US and UK swap spreads in favour of a regime-switching smooth transition vector autoregressive (STVAR) model, where the switching between regimes is controlled by the slope of the US term structure of interest rates. We compare the ability of the STVAR model to predict swap spreads with that of a non-linear nearest-neighbours model as well as that of linear AR and VAR models. We find some evidence that the non-linear models predict better than the linear ones. At short horizons, the nearest-neighbours (NN) model predicts better than the STVAR model US swap spreads in periods of increasing risk conditions and UK swap spreads in periods of decreasing risk conditions. At long horizons, the STVAR model increases its forecasting ability over the linear models, whereas the NN model does not outperform the rest of the models.
    Keywords: Interest rate swap spreads, term structure of interest rates, factor models, regime switching, smooth transition models, nearest-neighbours, forecasting.
    JEL: C51 C52 C53 E43
    Date: 2006–03
  28. By: Jean-Paul Fitoussi (Observatoire Français des Conjonctures Économiques)
    Date: 2006
  29. By: Roberto Casarin; Carmine Trecroci
    Abstract: The recent observed decline of business cycle variability suggests that broad macroeconomic risk may have fallen as well. This may in turn have some impact on equity risk premia. We investigate the latent structures in the volatilities of the business cycle and stock market valuations by estimating a Markov switching stochastic volatility model. We propose a sequential Monte Carlo technique for the Bayesian inference on both the unknown parameters and the latent variables of the hidden Markov model. Sequential importance sampling is used for filtering the latent variables and kernel estimator with a multiple-bandwidth is employed to reconstruct the parameter posterior distribution. We find that the switch to lower variability has occurred in both business cycle and stock market variables along similar patterns.
  30. By: Ricardo J. Caballero; Arvind Krishnamurthy
    Abstract: We present a model of flight to quality episodes that emphasizes systemic risk and the Knightian uncertainty surrounding these episodes. Agents make risk management decisions with incomplete knowledge. They understand their own shocks, but are uncertain of how correlated their shocks are with systemwide shocks. Aversion to this uncertainty leads them to question whether their private risk management decisions are robust to aggregate events, generating conservatism and excessive demand for safety. We show that agents’ actions lock-up the capital of the financial system in a manner that is wasteful in the aggregate and can trigger and amplify a financial accelerator. The scenario that the collective of conservative agents are guarding against is impossible, and known to be so even given agents’ incomplete knowledge. A lender of last resort, even if less knowledgeable than private agents about individual shocks, does not suffer from this collective bias and finds that pledging intervention in extreme events is valuable. The benefit of such intervention exceeds its direct value because it unlocks private capital markets.
    JEL: E30 E44 E5 F34 G
    Date: 2006–04
  31. By: Carmine Trecroci; Matilde Vassalli
    Abstract: We estimate forward-looking interest-rate rules, for major advanced countries, allowing for time variation in their parameters. Traditional constant-parameter reaction functions likely blur the impact of i) model uncertainty, ii) conflicting objectives, iii) shifting preferences and iv) nonlinearities of policymakers choices. We find that monetary policies followed by the US, the UK, Germany, France and Italy, often described in terms of standard Taylor rules, are best summarized by feedback rules that allow for time variation in their parameters. Estimated rules point to sizeable differences in the actual conduct of monetary policies, even in the countries now belonging to the EMU. Also, our TVP specification outperforms the conventional Taylor rule in tracking the actual Fed funds rate.
  32. By: Mathias Trabandt; Harald Uhlig
    Abstract: The goal of this paper is to examine the shape of the Laffer curve quantitatively in a simple neoclassical growth model calibrated to the US as well as to the EU-15 economy. We show that the US and the EU-15 area are located on the left side of their labor and capital tax Laffer curves, but the EU-15 economy being much closer to the slippery slopes than the US. Our results indicate that since 1975 the EU-15 area has moved considerably closer to the peaks of their Laffer curves. We find that the slope of the Laffer curve in the EU-15 economy is much flatter than in the US which documents a much higher degree of distortions in the EU-15 area. A dynamic scoring analysis shows that more than one half of a labor tax cut and more than four fifth of a capital tax cut are self-financing in the EU-15 economy.
    Keywords: Laffer curve, US and EU-15 economy
    JEL: E0 E60 H0
    Date: 2006–04
  33. By: Robert Paul Berben; Kerstin Bernoth; Mauro Mastrogiacomo
    Abstract: We estimate the excess impact of financial asset capital losses relative to gains on household active savings and durable goods consumption in the Netherlands. The sample period covers both the stock-market boom during the 90's, and the bear period afterwards. The results suggest that households react more to capital losses than to capital gains. Failing to take into account this asymmetry may seriously bias the estimates of the marginal propensity to consume out of wealth.
    Keywords: household savings; wealth effect; capital gains
    JEL: D12 E21
    Date: 2006–03
  34. By: Orazio Attanasio (Institute for Fiscal Studies and University College London); Laura Blow (Institute for Fiscal Studies); Robert Hamilton; Andrew Leicester (Institute for Fiscal Studies)
    Abstract: Over much of the past 25 years, the cycles of house price and consumption growth have been closely synchronised. Three main hypotheses for this co-movement have been proposed in the literature. First, that an increase in house prices raises households’ wealth, particularly for those in a position to trade down the housing ladder, which increases their desired level of expenditure. Second, that house price growth increases the collateral available to homeowners, reducing credit constraints and thereby facilitating higher consumption. And third, that house prices and consumption have tended to be influenced by common factors. This paper finds that the relationship between house prices and consumption is stronger for younger than older households, which appears to contradict the wealth channel. These findings therefore suggest that common causality has been the most important factor behind the link between house price and consumption.
    Keywords: House prices, consumption booms, wealth effects, collateral effects, common causality
    JEL: C13 D10 D91 E21
    Date: 2005–11
  35. By: Filippo Occhino; Kim Oosterlinck; Eugene N. White
    Abstract: The occupation payments made by France to Nazi Germany between 1940 and 1944 represent one of the largest recorded international transfers and contributed significantly to financing the overall German war effort. Using a neoclassical growth model that incorporates essential features of the occupied economy and the postwar stabilization, we assess the welfare costs of French policies that funded payments to Germany. Occupation payments required a 16 percent reduction of consumption for twenty years, with the draft of labor to Germany and wage and price controls adding substantially to this burden. Vichy’s postwar debt overhang would have demanded large budget surpluses; but inflation, which erupted after Liberation, reduced the debt well below its steady state level and redistributed the adjustment costs. The Marshall Plan played only a minor direct role, and international credits helped to substantially lower the nation’s burden.
    JEL: E1 E6 N1 N4
    Date: 2006–04
  36. By: Peter Rowland
    Abstract: The 90-day DTF rate is the main benchmark interest rate in Colombia. Since mid-July 2002 this rate has remained more or less constant at around 7.8 percent. More importantly, it did not react to any of two 100-basis-point increases in the overnight repo rate, the main tool of monetary policy that Banco de la República has to influence domestic interest rates, which has rendered the repo rate rather inefficient as a monetary policy tool. This paper studies the DTF rate and its development over time. It shows that a significant pass-through from the overnight interest rates to the DTF rate that was present before July 2002 thereafter seems to have vanished. It also provides a number of explanations to why the DTF rate has remained constant: Overnight rates have in real terms been negative and might, therefore, have been more out of the market than the DTF rate; due to heavy government borrowing, the yield curve has been too steep to allow a further lowering of the DTF rate; competition in the financial system is low, leading to sticky interest rates; the DTF rate is not a free-market auction rate but an offer rate set by the banks; and the DTF rate is a very dominant benchmark.
    Date: 2006–02–01
  37. By: Yoshiyasu Ono (Institute of Social and Economic Research, Osaka University); Akihisa Shibata (Institute of Economic Research, Kyoto University)
    Abstract: Unless free international lending/borrowing is allowed, domestic saving equals domestic investment and hence saving and investment taxes have the identical effect, as is the case in a closed-economy context. However, if it is allowed, households can accumulate foreign assets besides domestic capital and hence saving and investment are separated, causing the two taxes to have different effects. Using a two-sector growth model, we show that the two taxes generate completely different effects on industrial structure. The investment tax always shrinks the capital-intensive sector whereas the saving tax may well expand it.
    Keywords: saving tax, investment tax, two-sector growth model, industrial structure, financial asset trade
    JEL: F41 E62
    Date: 2006–03
  38. By: Centre for the Study of Living Standards
    Abstract: It is widely recognized that machinery and equipment investment intensity is less in Canada than in the United States. What is less well know is that it is information and communications technology (ICT) investment that largely accounts for this gap. The author documents trends in ICT investment in both Canada and the United States and attempts to explain why ICT investment per worker in the Canadian business sector in 2004 was only 45 per cent of that in the US business sector. While no definitive explanation emerges, among the factors he identifies as playing a role are industrial structure, firm size distribution of employment, the price of labour compared to ICT investment goods, and the underestimation of ICT investment in official statistics.
    Keywords: Machinery and equipment investment, information and communications technology, ICT, Investment gap, Business sector, Industrial structure, Firm size
    JEL: E22 G11 J21 M00 O47 Z10
    Date: 2005–06
  39. By: Cameron, Gavin; Muellbauer, John; Murphy, Anthony
    Abstract: This paper investigates the bubbles hypothesis with a dynamic panel data model of British regional house prices between 1972 and 2003. The model consists of a system of inverted housing demand equations, incorporating spatial interactions and lags and relevant spatial parameter heterogeneity. The results are data consistent, with plausible long-run solutions and include a full range of explanatory variables. Novel features of the model include transaction cost effects influencing the speed of adjustment, and interaction effects between an index of credit availability and real and nominal interest rates. No evidence for a recent bubble is found.
    Keywords: bubble; house prices; ripple effect
    JEL: C51 E39
    Date: 2006–04
  40. By: Kapetanios, George; Marcellino, Massimiliano
    Abstract: The estimation of dynamic factor models for large sets of variables has attracted considerable attention recently, due to the increased availability of large datasets. In this paper we propose a new parametric methodology for estimating factors from large datasets based on state space models and discuss its theoretical properties. In particular, we show that it is possible to estimate consistently the factor space. We also develop a consistent information criterion for the determination of the number of factors to be included in the model. Finally, we conduct a set of simulation experiments that show that our approach compares well with existing alternatives.
    Keywords: factor models; principal components; subspace algorithms
    JEL: C32 C51 E52
    Date: 2006–04
  41. By: Dennis J. Snower (Kiel Institute for the World Economy, University of Kiel, CEPR and IZA Bonn); Christian Merkl (Kiel Institute for the World Economy and University of Kiel)
    Abstract: The East German labor market has hardly made any progress since German reunification, despite massive migration flows and support from the West. We argue that East Germany is in trouble precisely because of the support it has received. This paper explores the phenomenon of "the caring hand that cripples," arising from bargaining by proxy, the adoption of the West German welfare system and the associated employment persistence. Even the steady decrease of labor cost (normalized by productivity) since the beginning of the nineties did not help to kick start the East. We suggest that labor force participants fell into "traps," concerning low skills, ageing of the workforce, labor-saving capital and skills, capital underutilization, and unemployment arising from the decline of the tradable sector.
    Keywords: German unification, labor markets, labor market traps
    JEL: E24 J3 P2
    Date: 2006–04
  42. By: Julián Pérez Amaya
    Abstract: Empleando un modelo de equilibrio general dinámico y estocástico para una economía pequeña y abierta con imperfecciones y rigideces en el sector no transable calibrado para Colombia, se estudia la conveniencia de que la autoridad monetaria fije como medida de inflación objetivo en su función de reacción la inflación total, la inflación doméstica o la inflación externa, en un contexto en el cual la fuente de las fluctuaciones proviene del sector externo y de choques en la productividad en cada uno de los sectores. Dada la existencia de una curva de Phillips aumentada por expectativas en el sector no transable, la política monetaria implica un trade-off entre la incertidumbre sobre la inflación y la variabilidad del producto. Se encuentra que este trade-off varía de acuerdo a la medida de inflación incluida en la función de reacción de la autoridad monetaria. Además, se encuentran los siguientes resultados: Una regla de tasa de interés que responde a la inflación no transable, es la más efectiva en reducir la variabilidad del producto, al costo de tener una inflación total más volátil que en los otros dos regímenes estudiados. En el caso de tener un régimen que responde a la inflación transable se genera más volatilidad en el producto con un nivel de volatilidad medio en la inflación. La política más efectiva para reducir la variabilidad de la inflación total, es aquella en que el banco central responde a la inflación total. Dado que este régimen genera una volatilidad media en el producto, puede ser considerado como el mejor régimen en términos de minimización de la variabilidad del producto y de la inflación total.
    Date: 2006–03–01
  43. By: Martha López
    Abstract: Uno de los hechos estilizados más recientes alrededor del mundo es que, después de varias décadas, se está convergiendo a una inflación baja y estable. Algunos países ya llegaron a su estado estacionario en este sentido y otros aún están en proceso de desinflación. Dado que la inflación inflinge costos en el bienestar de los agentes y frena el crecimiento económico de largo plazo, este es uno de los logros más importantes de las autoridades monetarias. No obstante, en el corto plazo el proceso desinflacionario puede tener impacto negativo sobre el producto y el empleo. Este trabajo presenta algunos criterios que son relevantes en la determinación del nivel de inflación de largo plazo y cómo el régimen de política monetaria de Inflación-objetivo permite disminuir los costos asociados al proceso desinflacionario en la medida que la política monetaria gana credibilidad.
    Date: 2006–03–01
  44. By: Philip R. Lane;
    Abstract: We explore the impact of European monetary union (EMU) on the economies of the member countries. While the annual dispersion in inflation rates have not been much different to the variation across US regions, inflation differentials in the euro area have been much more persistent, such that cumulative intra-EMU real exchange rate movements have been quite substantial. EMU has indeed contributed to greater economic integration - however, economic linkages with the rest of the world have also been growing strongly, such that the relative importance of intra-EMU trade has not dramatically increased. In terms of future risks, a severe economic downturn or financial crisis in a member country will be the proving ground for the political viability of EMU.
    Date: 2006–04–05
  45. By: Luis Eduardo Arango; Carlos Esteban Posada
    Abstract: Se estima el componente de largo plazo de la tasa de desempleo en Colombia para los últimos veinte años. De acuerdo con los resultados, los principales determinantes del componente permanente de la tasa de desempleo son el salario real por hora, los costos laborales no salariales y la tasa de acumulación de capital. Dadas las propiedades estadísticas de las variables se adoptó un enfoque de cointegración.
    Date: 2006–01–01
  46. By: Dany Jaimovich (InterAmerican Development Bank); Ugo Panizza (InterAmerican Development Bank)
    Abstract: Commonly used datasets on the level of public debt provide incomplete country and period coverage. This paper presents a new dataset that includes complete series of central government debt for 89 countries over the 1991-2005 period and for seven other countries for the 1993-2005 period.
    Keywords: Public Debt; Debt Management; Fiscal Sustainability
    JEL: H63 F34 E63
    Date: 2006–03
  47. By: Paul Frijters (Queensland University of Technology); Robert Gregory (RSSS, Australian National University and IZA Bonn)
    Abstract: The twenty-five years after WW 2 witnessed strong labour market institutions and beneficial labour market outcomes - high wage growth and integration of low-skilled immigrants. Then came the macro shocks of the mid 1970s. Labour market outcomes deteriorated as full-time employment population ratios fell, particularly among males; unemployment and welfare use increased; and real wages grew slowly. The golden age passed. In response, successive governments have increasingly begun to dismantle the institutional framework. We address this transition within a simple long run graphical framework to help us marshal facts and arguments and to discuss the likely impact of institutional reform.
    Keywords: unemployment, wage growth, welfare use, institutional reform, Australia
    JEL: J0 D6 E6 L5 O3
    Date: 2006–04
  48. By: Thomas Crossley; Hamish Low (Institute for Fiscal Studies and Trinity College, Cambridge)
    Abstract: This paper shows that a power utility specification of preferences over total expenditure (ie. CRRA preferences) implies that intratemporal demands are in the PIGL/PIGLOG class. This class generates (at most) rank two demand systems and we can test the validity of power utility on cross-section data. Further, if we maintain the assumption of power utility, and within period preferences are not homothetic, then the intertemporal preference parameter is identi…ed by the curvature of Engel curves. Under the power utility assumption, neither Euler equation estimation nor structural consumption function estimation is necessary to identify the power parameter. In our empirical work, we use demand data to estimate the power utility parameter and to test the assumption of the power utility representation. We find estimates of the power parameter larger than obtained from Euler equation estimation, but we reject the power specification of within period utility.
    Keywords: Elasticity of intertemporal substitution, Euler equation estimation, demand systems
    JEL: D91 E21 D12
    Date: 2005–11
  49. By: Heinrich Hock; David N. Weil
    Abstract: We examine the dynamic interaction of the population age structure, economic dependency, and fertility, paying particular attention to the role of intergenerational transfers. In the short run, a reduction in fertility produces a “demographic dividend” that allows for higher consumption. In the long run, however, higher old-age dependency can more than offset this effect. To analyze these dynamics we develop a highly tractable continuous-time overlapping generations model in which population is divided into three groups (young, working age, and old) and transitions between groups take place in a probabilistic fashion. We show that most highly developed countries have fertility below the rate that maximizes steady state consumption. Further, the dependency-minimizing response to increased longevity is to raise fertility. In the face of the high taxes required to support transfers to a growing aged population, we demonstrate that the actual response of fertility will likely be exactly the opposite, leading to increased population aging.
    JEL: E10 E21 H55 J11
    Date: 2006–04
  50. By: Greg Hannsgen
    Abstract: The development of the permanent income/life cycle consumption hypothesis was a key blow to Keynesian and Kaleckian economics, and, according to George Akerlof, it Òset the agendaÓ for modern neoclassical macroeconomics. This paper focuses on the relationship of housing wealth to neoclassical consumption theory, and in particular, the degree to which homes can be treated collectively with other forms of Òpermanent income.Ó The neoclassical analysis is evaluated as a partly normative and partly positive one, in recognition of the dual function of the neoclassical theory of rationality. The paper rests its critique primarily on the distinctive role of homes in social life; theories that fail to recognize this role jeopardize the social and economic goods at stake. Since many families do not own large amounts of assets other than their places of residence, these issues have important ramifications for the relevance of consumption theory as a whole.
    Date: 2006–04
  51. By: Nikola Bokan; Andrew Hughes Hallett
    Abstract: It is widely accepted that in order to improve the economic position of the EU relative to the USA certain structural reforms need to be undertaken, mainly in the labour market. However few EU countries have undertaken such reforms. The reason lies in the fact that those reforms are going to be costly in terms of economic performance, unemployment and hence the cost of financing them - at least in the short term. Blanchard and Giavazzi (2003) develop a model based on imperfect competition in both product and labour markets in order to show the impact of deregulation on the economy. However they do not consider the question of how to finance such reforms or overcome the short run costs, a key consideration if the short run costs are large relative to the long run gains. We extend their model by including the effects of another inevitable source of imperfections: distortionary taxation - not only the most likely candidate for reform, but also the most likely instrument for financing the restructuring process. By extending the model in this way we can establish formally that reforms imply significant short run costs as well as long run gains; that (political opposition apart) the financing of such reforms will be the main stumbling block. We come to a number of conclusions which reverse the Blanchard and Giavazzi results; and find that, in addition, the composition of the reform package matters, as does the distribution of the tax burden. This model therefore supplies new results on the design and sequencing of reforms.
    Keywords: Structural Reform, Wage Bargains, Short vs Long Run Sustainability.
    JEL: E42 E43 E50
    Date: 2006–01
  52. By: Laura Mayoral
    Abstract: The well-known lack of power of unit root tests has often been attributed to the short length of macroeconomic variables and also to DGP’s that depart from the I(1)-I(0) alternatives. This paper shows that by using long spans of annual real GNP and GNP per capita (133 years) high power can be achieved, leading to the rejection of both the unit root and the trend-stationary hypothesis. This suggests that possibly neither model provides a good characterization of these data. Next, more flexible representations are considered, namely, processes containing structural breaks (SB) and fractional orders of integration (FI). Economic justification for the presence of these features in GNP is provided. It is shown that the latter models (FI and SB) are in general preferred to the ARIMA (I(1) or I(0)) ones. As a novelty in this literature, new techniques are applied to discriminate between FI and SB models. It turns out that the FI specification is preferred, implying that GNP and GNP per capita are non-stationary, highly persistent but mean-reverting series. Finally, it is shown that the results are robust when breaks in the deterministic component are allowed for in the FI model. Some macroeconomic implications of these findings are also discussed.
    Keywords: GNP, unit roots, fractional integration, structural change, long memory, exogenous growth models
    Date: 2005–05
  53. By: Laura Mayoral
    Abstract: Although it is commonly accepted that most macroeconomic variables are nonstationary, it is often difficult to identify the source of the non-stationarity. In particular, it is well-known that integrated and short memory models containing trending components that may display sudden changes in their parameters share some statistical properties that make their identification a hard task. The goal of this paper is to extend the classical testing framework for I(1) versus I(0)+ breaks by considering a a more general class of models under the null hypothesis: non-stationary fractionally integrated (FI) processes. A similar identification problem holds in this broader setting which is shown to be a relevant issue from both a statistical and an economic perspective. The proposed test is developed in the time domain and is very simple to compute. The asymptotic properties of the new technique are derived and it is shown by simulation that it is very well-behaved in finite samples. To illustrate the usefulness of the proposed technique, an application using inflation data is also provided.
    Date: 2005–10
  54. By: Peter G. Szilagyi; Jonathan A. Batten
    Abstract: Using a daily time series from 1983 to 2005 of currency prices in spot and forward USD/Yen markets and matching equivalent maturity short term US and Japanese interest rates, we investigate the sensitivity over the sample period of the difference between actual prices in forward markets to those calculated from short term interest rates. According to a fundamental theorem in financial economics termed covered interest parity (CIP) the actual and estimated prices should be identical once transaction and other costs are accommodated. The paper presents four important findings: First, we find evidence of considerable variation in CIP deviations from equilibrium that tends to be one way and favours those market participants with the ability to borrow US dollars (and subsequently lend yen). Second, these deviations have diminished significantly and by 2000 have been almost eliminated. We attribute this to the effects of electronic trading and pricing systems. Third, regression analysis reveals that interday negative changes in spot exchange rates, positive changes in US interest rates and negative changes in yen interest rates generally affect the deviation from CIP more than changes in interday volatility. Finally, the presence of long-term dependence in the CIP deviations over time is investigated to provide an insight into the equilibrium dynamics. Using a local Hurst exponent – a statistic used in fractal geometry - we find episodes of both positive and negative dependence over the various sample periods, which appear to be linked to episodes of dollar decline/yen appreciation, or vice versa. The presence of negative dependence is consistent with the actions of arbitrageurs successfully maintaining the long-term CIP equilibrium. Given the time varying nature of the deviations from equilibrium the sample period under investigation remains a critical issue when investigating the presence of longterm dependence.
    Keywords: Hurst exponent; Efficient market hypothesis; covered interest parity, arbitrage
    JEL: C22 C32 E31 F31
    Date: 2006–04–05
  55. By: Luis Eduardo Arango; Luis Fernando Melo
    Abstract: Utilizando información del sistema de ahorro individual entre 1998 y 2005, se encuentra evidencia de que la tasa de retorno real de los fondos y la población ocupada son los determinantes principales del número de cotizantes a las distintas AFP. El valor promedio del fondo, utilizado como proxy de otras variables como la capacidad que tiene cada administradora de difundir su producto y de contactar potenciales afiliados, no resultó significativo. Se utiliza la técnica de cointegración panel de Groen y Kleinbergen (2003).
    Date: 2006–03–01
  56. By: Ricardo J. Caballero; Takeo Hoshi; Anil K. Kashyap
    Abstract: In this paper, we propose a bank-based explanation for the decade-long Japanese slowdown following the asset price collapse in the early 1990s. We start with the well known observation that most large Japanese banks were only able to comply with capital standards because regulators were lax in their inspections. To facilitate this forbearance the banks often engaged in sham loan restructurings that kept credit flowing to otherwise insolvent borrowers (that we call zombies). Thus, the normal competitive outcome whereby the zombies would shed workers and lose market share was thwarted. Our model highlights the restructuring implications of the zombie problem. The counterpart of the congestion created by the zombies is a reduction of the profits for healthy firms, which discourages their entry and investment. In this context, even solvent banks will not find good lending opportunities. We confirm our story’s key predictions that zombie dominated industries exhibit more depressed job creation and destruction, and lower productivity. We present firm-level regressions showing that the increase in zombies depressed the investment and employment growth of non-zombies and widened the productivity gap between zombies and non-zombies.
    JEL: E44 G34 L16 O53
    Date: 2006–04
  57. By: K. Fukasaku; M. Kawai; M. G. Plummer; A. Trzeciak-Duval
    Abstract: OECD countries face at least five major challenges for promoting policies that are consistent with their development goals: . ensuring security and political stability; . anticipating the impacts of their macroeconomic policies on developing-country growth; . increasing both market access and capacity building for developing economies; . supporting governance structures that help maintain financial stability; . improving aid effectiveness.
    Date: 2005–05–16
  58. By: Orla Doyle; Paul Patrick Walsh
    Abstract: Many theoretical models of transition are driven by the assumption that economic decision making is subject to political constraints. In this paper we empirically test whether the winners and losers of economic reform determined voting behaviour in the first five national elections in the Czech Republic. We propose that voters, taking stock of endowments from the planning era, could predict whether they would become “winners” or “losers” of transition. Using survey data we measure the percentage of individuals by region who were “not afraid” and “afraid” of economic reform in 1990. We define the former as potential “winners” who should vote for pro-reform parties, while latter are potential “losers” who should support left-wing parties. Using national election results and regional economic indicators, we demonstrate that there is persistence in support for pro-reform and communist parties driven by prospective voting based on initial conditions in 1990. As a result, we show that regional unemployment rates in 2002 are good predictors of regional voting patterns in 1990.
    Keywords: Political Constraints, Prospective Economic Voting, Initial Conditions.
    JEL: D72 E24 E61
    Date: 2006–04–05
  59. By: Maican, Florin G. (Department of Economics, School of Business, Economics and Law, Göteborg University); Sweeney, Richard J. (McDonough School of Business, Georgetown University)
    Abstract: This paper presents unit-root test results for real exchange rates in ten Central and Eastern European transition countries during 1993:01-2003:12. Because of the shift from controlled to market economies and the accompanying crises, failed policy regimes and changes in exchange rate regimes, appropriate tests in transition countries require allowing for both structural changes and outliers. In both single-equation tests and panel tests with SUR techniques, the data reject the unit-root null for the CEE countries. Accounting for structural breaks and outliers gives much faster mean-reversion speeds than otherwise. <p>
    Keywords: Purchasing power parity; real exchange rate; Monte Carlo; unit root; transition countries; panel data
    JEL: C15 C22 C32 C33 E31 F31
    Date: 2006–02–14
  60. By: Gesa Pelzer
    Abstract: Vielfach wurde Deutschland in der Vergangenheit durch die Medien als „Exportweltmeister“ bezeichnet. Die aktuelle Diskussion in Hinblick auf die von Hans-Werner Sinn aufgestellte Basarökonomiethese befasst sich mit der Frage nach der Vorteilhaftigkeit dieses Titels für Deutschland, zumal der Wertschöpfungsanteil der deutschen Exporte nachweislich im Verlauf der zunehmenden Globalisierung abgenommen hat. Auch in der aktuellen Diskussion über die bestehende hohe Arbeitslosigkeit im Inland taucht insbesondere immer wieder die Frage nach der Bedeutung der großen Exporterfolge des Landes für die inländische Beschäftigung auf. Die Auswirkungen zusätzlicher Exporte lassen sich anhand einer Input-Ouput-Analyse quantifizieren. Der folgende Beitrag soll auf der Grundlage von Simulationen klären, welche Beschäftigungseffekte bei einer exogenen Exportsteigerung auftreten und wie sich diese Effekte zwischen 1995 und 2006 verändert haben. Es zeigt sich, dass die Beschäftigungseffekte von Exporten im Zeitablauf in ihrer Stärke abnehmen. Begründungen hierfür können die gestiegene Produktivität im Land, das vermehrte inländische und internationale Outsourcing sowie die höheren Inputkoeffizienten sein.
    Keywords: Exports, Input-Output, Employment
    JEL: E24 E27 F16 J23
    Date: 2006–04–10
  61. By: Mauricio Arias; Camilo Hernández; Camilo Zea
    Abstract: Se construyen dos medidas de expectativas de inflación a partir de los precios de la deuda pública colombiana y se comparan con la encuesta tradicional de la Subgerencia de Estudios Económicos del Banco de la República. Si bien tanto los indicadores sugeridos como la encuesta presentan algunas desventajas, los primeros tienen la facultad de proveer información diaria y a distintos plazos, por lo cual son de gran importancia para evaluar si la autoridad monetaria está anclando las expectativas de inflación de los agentes en concordancia con su banda objetivo, a mediano y largo plazo.
    Date: 2006–03–01
  62. By: Gabriele Cardullo (Catholic University of Louvain); Bruno Van der Linden (FNRS, Catholic University of Louvain and IZA Bonn)
    Abstract: The search-matching model is well suited for an equilibrium evaluation of labor market policies. When those policies are targeted on some groups, the usual juxtaposition of labor markets is however a shortcoming. There is a need for a setting where workers’ productivity depends on employment levels in all markets. This paper provides such a theoretical setting. We first develop a streamlined model and then show that it can be extended to deal with interactions among various labor market and fiscal policies. Simulation results focus on the effects of employment subsidies and in-work benefits and on their interactions with the profile of unemployment benefits and with active labor market programs.
    Keywords: unemployment, search-matching equilibrium, wage bargaining, reductions of social security contributions, unemployment insurance, labor market programs
    JEL: E24 J3 J41 J64 J65 J68
    Date: 2006–04
  63. By: Rachel Griffith (Institute for Fiscal Studies); Rupert Harrison (Institute for Fiscal Studies and University College London); Gareth Macartney (Institute for Fiscal Studies and University College London)
    Abstract: We analyze the impact of product market competition on unemployment and wages, and how this depends on labour market institutions. We use differential changes in regulations across OECD countries over the 1980s and 1990s to identify the effects of competition. We find that increased product market competition reduces unemployment, and that it does so more in countries with labour market institutions that increase worker bargaining power. The theoretical intuition is that both firms with market power and unions with bargaining power are constrained in their behaviour by the elasticity of demand in the product market. We also find that the effect of increased competition on real wages is beneficial to workers, but less so when they have high bargaining power. Intuitively, real wages increase through a drop in the general price level, but workers with bargaining power lose out somewhat from a reduction in the rents that they had previously captured.
    Keywords: Product market regulation; competition; wage bargaining; unemployment.
    JEL: E24 J50 L50
    Date: 2006–03
  64. By: Hernando Vargas H.; Dpto de Estabilidad Financiera
    Abstract: El presente trabajo ilustra cómo los altos niveles de deuda pública, a través de los riesgos de mercado, pueden convertirse en una restricción para la ejecución de la política monetaria. Dependiendo de donde se financie el sector público, un nivel grande de deuda pública se refleja en una importante exposición de éste al riesgo cambiario y/o en una exposición sustancial del sistema financiero a los riesgos de mercado. Ante esta situación, un choque a la cuenta de capitales que genere una fuerte depreciación de la moneda y una caída en los precios de los títulos de deuda pública podría restringir las acciones de la autoridad monetaria. Una política restrictiva encaminada a cumplir las metas inflacionarias podría generar pérdidas importantes por valoración en el portafolio de las instituciones financieras, afectando de esta manera la estabilidad del sistema. El documento discute por qué los riesgos de mercado de la deuda pública son un problema latente en Colombia a la vez que se discute cómo podría responder el banco central ante una salida de capitales.
    Date: 2006–03–01
  65. By: Michel Lelart (LEO - Laboratoire d'économie d'Orleans - - [CNRS : UMR6221] - [Université d'Orléans] - [])
    Abstract: Cet ouvrage constitue les Actes du Colloque organisé par la Commission pour l'étude des Communautés européennes (CEDECE) à Besançon les 17-18 octobre 2002. <br />L'élargissement en cours est le cinquième, mais il est très différent des précédents, non seulement par le nombre (douze) et la nature des pays concernés (la plupart ont été des pays communistes), mais parce qu'il est le premier depuis que l'euro existe en tant que monnaie unique des pays membres de l'Union européenne. Ma contribution analyse les conséquences de cet élargissement sur l'euro, dès avant la phase d'accession, pendant cette phase - la phase intermédiaire, sans doute la plus difficile à gérer - enfin après l'adhésion. <br /><br />Cette communication a également été présentée à un colloque organisé par la Chaire Jean Monnet de l'Université de Montréal en mai 2003. Elle est reproduite dans les Actes qui ont suivi :<br />- The Euro Zone and the Single Currency in an Enlarging European Union, <br />in N. NEUWAHL (éd.), European Union Enlargement - Law and Socio-Economic Changes, Editions Thémis, Montréal 2004, pp. 133.-162.
    Keywords: Euro ; Union européenne ; Traité de Maastricht ; élargissement
    Date: 2006–04–04
  66. By: Herrade Igersheim
    Date: 2006
  67. By: Cars Hommes (Faculty of Economics and Econometrics, Universiteit van Amsterdam)
    Abstract: Interacting agents in finance represent a behavioral, agent-based approach in which financial markets are viewed as complex adaptive systems consisting of many boundedly rational agents interacting through simple heterogeneous investment strategies, constantly adapting their behavior in response to new information, strategy performance and through social interactions. An interacting agent system acts as a noise filter, transforming and amplifying purely random news about economic fundamentals into an aggregate market outcome exhibiting important stylized facts such as unpredictable asset prices and returns, excess volatility, temporary bubbles and sudden crashes, large and persistent trading volume, clustered volatility and long memory.
    Keywords: heterogeneous agents; behavioral finance; bounded rationality; complexity
    JEL: G1 E3 D84
    Date: 2006–03–24
  68. By: Michel Lelart (LEO - Laboratoire d'économie d'Orleans - - [CNRS : UMR6221] - [Université d'Orléans] - [])
    Abstract: La session a été consacrée cette année-là aux Etats-Unis et l'Europe élargie dans le système international de sécurité. L'élargissement ne sera pas sans conséquences sur la concurrence entre les deux grandes monnaies internationales que sont le dollar, principalement, mais aussi l'euro.
    Keywords: Euro ; dollar ; élargissement ; union européenne
    Date: 2006–03–30
  69. By: Daniel S. Hamermesh (University of Texas at Austin, NBER and IZA Bonn); Caitlin Knowles Myers (Middlebury College and IZA Bonn); Mark L. Pocock (University of Texas at Austin)
    Abstract: Market productivity is often greater, and leisure and other household activities more enjoyable, when people perform them simultaneously. Beyond pointing out the positive externalities of synchronicity, economists have not attempted to identify exogenous causes that affect timing. We develop a theory illustrating conditions under which synchronicity will vary and identify three factors - the amount of daylight, the timing of television programming, and the benefits of coordinating work schedules across a large country - that can alter timing. Using the American Time Use Survey for 2003 and 2004, we first show using a natural experiment that abstracts from the impacts of daylight hours and television timing that an exogenous shock to time in one area leads its residents to alter their work schedules to coordinate more closely with people elsewhere. We then show that both television timing and the benefits of coordinating across time zones in the U.S. generally affect the timing of market work and sleep, the two most time-consuming activities people undertake. These impacts do not, however, differ greatly by people's demographic characteristics, suggesting that longitude and television establish social norms that affect everyone.
    Keywords: time use, labor supply, synchronous activities, time zones
    JEL: J22 E61
    Date: 2006–04
  70. By: Jan Willem van den End
    Abstract: This paper presents an information variable for financial stability consisting of a composite index and its related critical boundaries. It is an extension of a Financial Conditions Index with information on financial institutions. The indicator is bounded, on one side, by the instability boundary which depends on the solvency buffers of the institutions and the stress level on financial markets. On the other side, the imbalances boundary signals when extreme imbalances accumulate. This concept is applied to the Netherlands and six OECD countries which experienced a financial crisis.
    Keywords: financial stability; indicator; crisis
    JEL: E44 G10 G12 G20
    Date: 2006–04
  71. By: Winfried Koeniger (IZA Bonn and University of Bonn); Marco Leonardi (University of Milan and IZA Bonn)
    Abstract: Capital deepening may affect the evolution of the wage differential between skilled and unskilled workers differently in countries with different labor market institutions. If labor market institutions raise the relative wage of unskilled workers in Germany, firms have incentives to invest relatively more into capital equipment complementary to unskilled workers. Instead in the US, where wage-compressing institutions are weaker, firms invest more in high-skilled workers. We provide evidence consistent with this view based on an industry panel for West Germany and the US between the 1970s and 1990s. We show that capital equipment per worker is less positively associated with the wage differential in West Germany than in the US. This descriptive evidence is robust to many alternative measures for capital and skills. Our estimates imply that capital deepening in Germany in the 1980s is associated with a reduction in the wage differential of about 10-20% in most industries. In the US instead, capital deepening is associated with an increase of the wage differential between 5 and 15% in most industries.
    Keywords: capital deepening, skill premium, wage floors, institutions
    JEL: E22 E24 J31 J64
    Date: 2006–04
  72. By: Pascal Hetze (University of Rostock and Max Planck Institute for Demographic Research)
    Abstract: This paper explores the relationship between growth and unemployment. Knowledge formation is the source of growth, which includes the two dimensions technologies and skills. Both are connected through a technology-skill complementarity which may have limiting effects on the reallocation of labor and technology implementation in manufacturing. The reallocation of labor becomes necessary as growth leads to continuous job creation and job destruction. The ratio of job destruction to job creation identifies three regimes, two of which are associated with unemployment either due to restricted labor demand or due to skill shortages. While in the regime with full employment the model confirms the standard result that knowledge formation has positive effects on growth, the outcome is much more ambiguous if we consider a possible technology-skill mismatch and unemployment.
    Keywords: endogenous growth, knowledge formation, unemployment, skill mismatch
    JEL: E24 J63 O33
    Date: 2006
  73. By: Clemens Sialm
    Abstract: This paper investigates whether investors are compensated for the tax burden of equity securities. Effective tax rates on equity securities vary due to frequent tax reforms and due to persistent differences in propensities to pay dividends. The paper finds an economically and statistically significant relationship between risk-adjusted stock returns and effective personal tax rates using a new data set covering tax burdens on a cross-section of equity securities between 1927 and 2004. Consistent with tax capitalization, stocks facing higher effective tax rates tend to compensate taxable investors by generating higher before-tax returns.
    JEL: G12 H20 E44
    Date: 2006–04
  74. By: Eugene N. White
    Abstract: This paper surveys the twentieth century booms and crashes in the American stock market, focusing on a comparison of the two most similar events in the 1920s and 1990s. In both booms, claims were made that they were the consequence a “new economy” or “irrational exuberance.” Neither boom can be readily explained by fundamentals, represented by expected dividend growth or changes in the equity premium. The difficulty of identifying the fundamentals implies that central banks would not be successful in preventing pre-emptive policies, although they still would have a critical role to play in preventing crashes from disrupting the payments system or sparking an intermediation crisis.
    JEL: E5 G1 N1 N2
    Date: 2006–04
  75. By: Pieter A. Gautier (Free University of Amsterdam, Tinbergen Institute and IZA Bonn); Ronald P. Wolthoff (Free University of Amsterdam and Tinbergen Institute)
    Abstract: We study a search model where workers can send multiple applications to high and low productivity firms. Firms that compete for the same candidate can increase their wage offers as often as they like. We show that there is a unique equilibrium where workers mix between sending both applications to the high and both to the low productivity sector. Efficiency requires however that they apply to both sectors because then the coordination frictions are lowest. For many configurations, the equilibrium outcomes are the same under directed and random search. Allowing for free entry creates a second source of inefficiency.
    Keywords: directed search, efficiency, coordination frictions
    JEL: D83 E24 J23 J24 J64
    Date: 2006–03
  76. By: Pieter A. Gautier (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam); Ronald P. Wolthoff (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam)
    Abstract: We study a search model where workers can send multiple applications to high and low productivity firms. Firms that compete for the same candidate can increase their wage offers as often as they like. We show that there is a unique equilibrium where workers mix between sending both applications to the high and both to the low productivity sector. Efficiency requires however that they apply to both sectors because then the coordination frictions are lowest. For many configurations, the equilibrium outcomes are the same under directed and random search. Allowing for free entry creates a second source of inefficiency.
    Keywords: Directed search; multiple applications; efficiency
    JEL: D83 E24 J23 J24 J64
    Date: 2006–03–27
  77. By: Nabil Annabi; John Cockburn; Bernard Decaluwé
    Abstract: This study focused on the choice of functional forms and their parametrization (estimation of free parameters and calibration of other parameters) in the context of CGE models. Various types of elasticities are defined, followed by a presentation of the functional forms most commonly used in these models and various econometric methods for estimating their free parameters. Following this presentation of the theoretical framework, we review parameter estimates used in the literature. This brief literature review was carried out to be used as a guideline for the choice of parameters for CGE models of developing countries.
    Keywords: Trade liberalization, Poverty, Elasticities, Functional forms, Calibration, Computable General Equilibrium (CGE)Model
    JEL: C51 C81 C82 D58 E27
    Date: 2006
  78. By: Roberto Patuelli (Department of Spatial Economics, Vrije Universiteit Amsterdam); Aura Reggiani (Department of Economics, University of Bologna, Italy); Peter Nijkamp (Department of Spatial Economics, Vrije Universiteit Amsterdam); Uwe Blien (Institut für Arbeitsmarkt und Berufsforschung (IAB), Nuremberg)
    Abstract: In this paper, a set of neural network (NN) models is developed to compute short-term forecasts of regional employment patterns in Germany. NNs are modern statistical tools based on learning algorithms that are able to process large amounts of data. NNs are enjoying increasing interest in several fields, because of their effectiveness in handling complex data sets when the functional relationship between dependent and independent variables is not explicitly specified. The present paper compares two NN methodologies. First, it uses NNs to forecast regional employment in both the former West and East Germany. Each model implemented computes single estimates of employment growth rates for each German district, with a 2-year forecasting range. Next, additional forecasts are computed, by combining the NN methodology with Shift-Share Analysis (SSA). Since SSA aims to identify variations observed among the labour districts, its results are used as further explanatory variables in the NN models. The data set used in our experiments consists of a panel of 439 German districts. Because of differences in the size and time horizons of the data, the forecasts for West and East Germany are computed separately. The out-of-sample forecasting ability of the models is evaluated by means of several appropriate statistical indicators.
    Keywords: networks; forecasts; regional employment; shift-share analysis; shift-share regression
    JEL: C23 E27 R12
    Date: 2006–02–17
  79. By: Gustavo Crespi (University of Sussex, AIM and CeRiBA); Chiara Criscuolo (CEP, LSE, AIM and CeRiBA); Jonathan Haskel (Queen Mary, University of London)
    Abstract: We examine the relationships between productivity growth, IT investment and organisational change (Δ<i>O</i>) using UK firm panel data. Consistent with the small number of other micro studies we find (a) IT appears to have high returns in a growth accounting sense when Δ<i>O</i> is omitted; when Δ<i>O</i> is included the IT returns are greatly reduced, (b) IT and Δ<i>O</i> interact in their effect on productivity growth, (c) non-IT investment and Δ<i>O</i> do not interact in their effect on productivity growth. Some new findings are (a) Δ<i>O</i> is affected by competition and (b) we also find strong effects on the probability of introducing Δ<i>O</i> from ownership. US-owned firms are much more likely to introduce Δ<i>O</i> relative to foreign owned firms who are more likely still relative to UK firms.
    Keywords: Information technology, Productivity growth, Organisational change
    JEL: D24 E22 L22 O31
    Date: 2006–04

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