nep-mac New Economics Papers
on Macroeconomics
Issue of 2006‒07‒21
28 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Expectations, Learning and Macroeconomic Persistence By Fabio Milani
  2. Forecasting inflation with an uncertain output gap By Bjørnland, Hilde C.; Brubakk, Leif; Jore, Anne Sofie
  3. The Impact of Uncertainty on Monetary Policy Rules in the UK By Christopher Martin; Costas Milas
  4. Monetary Policy Rules in Central and Eastern Europe By Frömmel, Michael; Schobert, Franziska
  5. Adaptive Learning and Inflation Persistence By Fabio Milani
  6. Euro or “Teuro”?: The Euro-induced Perceived Inflation in Germany By Hans Wolfgang Brachinger
  7. Monetary Policy, the Bond Market, and Changes in FOMC Communication Policy By Troy Davig; Jeffrey R. Gerlach
  8. Fisher Hypothesis Revisited: A Fractional Cointegration Analysis By Saadet Kirbas Kasman; Adnan Kasman; Evrim Turgutlu
  10. U.S. natural rate dynamics reconsidered By Bårdsen, Gunnar; Nymoen, Ragnar
  11. Plant Life Cycle and Aggregate Employment Dynamics By Min Ouyang
  12. Are Average Growth Rate and Volatility Related? By Partha Chatterjee; Malik Shukayev
  13. The Relationship Between Government Size and Economic Growth: Evidence From a Panel Data Analysis By Yesim Kustepeli
  14. On the Economic and Fiscal Effects of Investment in Road Infrastructure in Portugal By Alfredo M. Pereira; Jorge M. Andraz
  15. Leisure Externalities: Implications for Growth and Welfare By Mihaela Pintea
  16. The Scarring Effect of Recessions By Min Ouyang
  17. When Inertia Generates Political Cycles By Raphäel Soubeyran
  18. Bank Lending and Asset Prices in the Euro Area By Frömmel, Michael; Schmidt, Torsten
  19. Personal Income Tax Elasticity in Turkey: 1975-2005 By Yesim Kustepeli; Onur Sapci
  20. Direct Democracy and the Stability of State Policy By Amihai Glazer; Anthony McGann
  21. The Social Cost-of-Living: Welfare Foundations and Estimation By Thomas F. Crossley; Krishna Pendakur
  22. Análisis Desagregado de la Inflación: Una Aplicación Regional By María Ángeles Caraballo; Carlos Usabiaga
  23. On Compilation of Long Term Series of GDP for the Former USSR Republics By Youri N. Ivanov
  24. Urban Extremism By Jan K. Brueckner; Amihai Glazer
  25. Commercio e migrazioni. UE, Tunisia e Marocco By Gabriele ORCALLI; Gianluca TOSCHI
  26. The Effects of Political Fragmentation on Fiscal Deficits in Turkey By Yesim Kustepeli; Gülcan Önel
  27. Reconsidering The Impact of Environment on Long-Run Growth When Pollution Influences Health and Agents Have Finite-Lifetime By Xavier Pautrel
  28. El legado colonial como determinante del ingreso per cápita departamental en Colombia By Jaime Bonet; Adolfo Meisel Roca

  1. By: Fabio Milani (Department of Economics, University of California-Irvine)
    Abstract: This paper presents an estimated model with learning and provides evidence that learning can improve the fit of popular monetary DSGE models and endogenously generate realistic levels of persistence. The paper starts with an agnostic view, developing a model that nests learning and some of the structural sources of persistence, such as habit formation in consumption and inflation indexation, that are typically needed in monetary models with rational expectations to match the persistence of macroeconomic variables. I estimate the model by likelihood-based Bayesian methods, which allow the estimation of the learning gain coefficient jointly with the "deep" parameters of the economy. The empirical results show that when learning replaces rational expectations, the estimated degrees of habits and indexation drop near zero. This …nding suggests that persistence arises in the model economy mainly from expectations and learning. The posterior model probabilities show that the specification with learning fits significantly better than does the specification with rational expectations. Finally, if learning rather than mechanical sources of persistence provides a more appropriate representation of the economy, the implied optimal policy will be different. The policymaker will also incur substantial costs from misspecifying private expectations formation.
    Keywords: Persistence, Constant-gain learning, Expectations, Habit formation in consumption, Inflation inertia; Phillips curve; Bayesian econometrics; New-Keynesian model.
    JEL: C11 D84 E30 E50 E52
    Date: 2005–08
  2. By: Bjørnland, Hilde C. (Dept. of Economics, University of Oslo); Brubakk, Leif (Norges Bank); Jore, Anne Sofie (Norges Bank)
    Abstract: The output gap (measuring the deviation of output from its potential) is a crucial concept in the monetary policy framework, indicating demand pressure that generates inflation. The output gap is also an important variable in itself, as a measure of economic fluctuations. However, its definition and estimation raise a number of theoretical and empirical questions. This paper evaluates a series of univariate and multivariate methods for extracting the output gap, and compares their value added in predicting inflation. The multivariate measures of the output gap have by far the best predictive power. This is in particular interesting, as they use information from data that are not revised in real time. We therefore compare the predictive power of alternative indicators that are less revised in real time, such as the unemployment rate and other business cycle indicators. Some of the alternative indicators do as well, or better, than the multivariate output gaps in predicting inflation. As uncertainties are particularly pronounced at the end of the calculation periods, assessment of pressures in the economy based on the uncertain output gap could benefit from being supplemented with alternative indicators that are less evised in real time.
    Keywords: Output gap; real time indicators; forecasting; Phillips curve
    JEL: C32 E31 E32 E37
    Date: 2006–05–04
  3. By: Christopher Martin (Brunel University); Costas Milas (Keele University, Centre for Economic Research and School of Economic and Management Studies)
    Abstract: Although policymakers and commentators have repeatedly stressed the impact of uncertainty about the true state of the economy on the setting of interest rates, the academic literature has largely ignored this issue. This paper provides a theoretical analysis of how uncertainty about the true state of the economy affects optimal monetary policy rules and presents empirical evidence using data for the UK since the introduction of inflation targets in October 1992. We find that the impact of inflation on interest rates is smaller when inflation is more uncertain and larger when the output gap is more uncertain; we also find that the impact of the output gap is smaller when the output gap is more uncertain. We also find that uncertainty has reduced the volatility but has not affected the average value of interest rates.
    Keywords: Monetary policy, Uncertainty.
    JEL: C51 C52 E52 E58
    Date: 2006–06
  4. By: Frömmel, Michael; Schobert, Franziska
    Abstract: We estimate monetary policy rules for six central and eastern European countries (CEEC) by taking changes in the policy settings explicitly into account. Distinguishing rather fixed and more flexible exchange rate arrangements we find that for most countries exchange rates played an important role in monetary policy during the fixed exchange rate regime, whereas their influence disappears after the introduction of floating exchange rate regimes. This indicates that most countries followed their officially announced policy settings. For Slovenia and to some extent for Romania, however, we find evidence for exchange rate targeting, although they officially announced a managed float.
    Keywords: monetary policy, Taylor rule, transition economies, CEEC, inflation targeting, interest rate policy
    JEL: E52 E58 P20
    Date: 2006–07
  5. By: Fabio Milani (Department of Economics, University of California-Irvine)
    Abstract: What generates persistence in inflation? Is inflation persistence structural? This paper investigates learning as a potential source of persistence in inflation. The paper focuses on the price-setting problem of firms and presents a model that nests structural sources of persistence (indexation) and learning. Indexation is typically necessary under rational expectations to match the inertia in the data and to improve the fit of estimated New Keynesian Phillips curves. The empirical results show that when learning replaces the assumption of fully rational expectations, structural sources of persistence in ination, such as indexation, become unsupported by the data. The results suggest learning behavior as the main source of persistence in inflation. This finding has implications for the optimal monetary policy. The paper also shows how one's results can heavily depend on the assumed learning speed. The estimated persistence and the model fit, in fact, vary across the whole range of constant gain values. The paper derives the best-fitting constant gains in the sample and shows that the learning speed has substantially changed over time.
    Keywords: Adaptive learning; Inflation persistence; Sticky prices; Best-fitting constant gain; Learning speed; Expectations
    JEL: D84 E30 E50
    Date: 2005–06
  6. By: Hans Wolfgang Brachinger (Department of Quantitative Economics)
    Abstract: After the introduction of the euro notes and coins in January 2002, throughout the Economic and Monetary Union member countries there was a widespread feeling that the euro had brought about a significant hike in consumer prices. A substantial discrepancy was evident between inflation as measured by the official consumer price indices (CPI) and the one perceived by the general public. In this paper the German case is treated. First, a short overview is given on the public discussions and the many studies published by the German Federal Statistical Office. Then a newly developed theory of inflation perception is outlined and a corresponding index of perceived inflation (IPI) is developed. This index has been calculated for Germany. In the main part of the paper, the results are presented. The IPI time series for Germany from 1996 through 2006 clearly show a special inflation around the introduction of the Euro notes and coins. During that period, the average perceived inflation was approximately 4 times higher than the official inflation rate.
    Keywords: perceived inflation; price index; prospect theory; euro cash changeover
    JEL: C43 E31 D81
    Date: 2006–07–17
  7. By: Troy Davig (Federal Reserve Bank of Kansas City); Jeffrey R. Gerlach (Department of Economics, College of William and Mary)
    Abstract: Using high-frequency data in a Markov-switching framework, we identify states that imply different responses of the yield curve to unexpected changes in the federal funds target. Empirical estimates reveal a low-volatility state where long-term bonds respond significantly, and in a predictable manner, to unexpected changes in the federal funds target. An alternative state exists with higher volatility, where unexpected changes in the federal funds target raise the short-end of the yield curve, but have no significant effect on the long-end. The low-volatility state for long-term bonds occurs from September 1995 to May 1999 and again from March 2000 to January 2002. The timing of the switches between the two states for long-term bonds coincides with changes in FOMC communication policy - though not all changes in communications policy induce a switch.
    Keywords: Monetary Policy, Bond Market, Markov-Switching, Central Bank Communications
    JEL: E43 E58 G12
    Date: 2006–07–11
  8. By: Saadet Kirbas Kasman (Department of Economics, Faculty of Business, Dokuz Eylül University); Adnan Kasman (Department of Economics, Faculty of Business, Dokuz Eylül University); Evrim Turgutlu (Department of Economics, Faculty of Business, Dokuz Eylül University)
    Abstract: This paper investigates the validity of the Fisher hypothesis using data from 33 developed and developing countries. Conventional cointegration tests do not provide strong evidence on the relationship between nominal interest rates and inflation. Therefore, we use fractional cointegration analysis to test the long-run relationship between the two variables. The results indicate that the long-run relationship between nominal interest rates and inflation do not exist for most countries in the sample when conventional cointegration test is employed. However, fractional cointegration between the two variables is found for a large majority of countries, implying the validity of the Fisher hypothesis. The results also indicate that the equilibrium errors display long memory.
    Keywords: Fisher hypothesis, interest rates, fractional cointegration, long memory
    JEL: E43 C22
    Date: 2005–11–23
  9. By: Jorge E. Restrepo; Hernán Rincón
    Abstract: Structural VAR and Structural VEC models were estimated for Chile and Colombia, aiming at identifying fiscal policy shocks in both countries between 1990 and 2005. The impulse responses obtained allow the calculation of a pesofor- peso ($/$) effect on output of a shock to public spending and to the government's net tax revenues, providing a good notion of the incidence of fiscal policy shocks in both countries. When public finances are under control, as they are in Chile, fiscal policy seems to be more effective than when they lack stability and credibility, as seems to be the case of Colombia since the mid nineties.
    Date: 2006–07–01
  10. By: Bårdsen, Gunnar (The Norwegian University of Science and Technology (NTNU)); Nymoen, Ragnar (Dept. of Economics, University of Oslo)
    Abstract: Several features of the U.S. natural rate of unemployment are reconsidered through specification and testing of econometric models. Traditionally, the choice has been between a wage Phillips curve model, PCM, or an equilibrium correction wage curve model, WECM. The models proposed in this paper feature extended equilibrium correction which reduces the consequences for natural rate dynamics of choosing between wage models. In order for the difference between PCM and WECM to become important, the extended equilibrium correction mechanism must be ‘switched off’ by restrictions. These restrictions are rejected when tested. The analysis supports the original view that natural rates depend on the macroeconomic system, rather than just the wage Phillips curve. The analysis indicates a reduction of the natural rate in the course of the 1990s, due to low worker bargaining power and other structural changes. The estimated reduction is approximately 0.5 0.8 percentage points, which is less than existing results based on Phillips curve estimation.
    Keywords: US unemployment; natural rate; NAIRU; equilibrium correction; Phillips curve
    JEL: C52 E24 E31 E37 J31
    Date: 2006–05–09
  11. By: Min Ouyang (Department of Economics, University of California-Irvine)
    Abstract: Past empirical studies have repeatedly found the link between plant life cycle and aggregate employment dynamics: cross-section aggregate employment dynamics differ significantly by plant age. Interestingly, the dynamics of plant-level productivity distribution also display a strong age pattern. This paper develops a model of plant life cycle with demand fluctuations, to capture both of these empirical regularities. We model plants to differ by vintage, and an idiosyncratic component that is not directly observable, but can be learned over time. We show that this model, developed to match the observed dynamics of plant-level productivity distribution, introduces two driving forces for job flows: learning and creative destruction. The resulting job flows can match, both qualitatively and quantitatively, the differences between young and old plants in their job-flow magnitude and cyclical responses observed in the U.S. manufacturing sector.
    Keywords: Plant life cycle; Employment dynamics; Heterogeneous employers; Job creation; Job destruction; Productivity dynamics; Demand fluctuations
    JEL: E32 L16 C61
    Date: 2006–07
  12. By: Partha Chatterjee; Malik Shukayev
    Abstract: The empirical relationship between the average growth rate and the volatility of growth rates, both over time and across countries, has important policy implications, which depend critically on the sign of the relationship. Following Ramey and Ramey (1995), a wide consensus has been building that, in the post-World War II data, the correlation is negative. The authors replicate Ramey and Ramey's result and find that it is not robust to either the definition of growth rate or the composition of the sample. They show that the use of log difference as growth rates, as in Ramey and Ramey, creates a strong bias towards finding a negative relationship. Further, they exhaustively investigate this relationship, for various growth rates, across time, countries, within groups of countries, and within states of the United States. The authors use different methods and control variables for this inquiry. Their analysis suggests that there is no significant relationship between the two variables in question.
    Keywords: Business fluctuations and cycles
    JEL: E32
    Date: 2006
  13. By: Yesim Kustepeli (Department of Economics, Faculty of Business, Dokuz Eylül University)
    Abstract: Using a panel data analysis, the relationship between government size and economic growth is investigated for the 1994-2001 period. The results show that relatively small sizes of government are detrimental to economic growth, while medium sized government affects it positively.
    Keywords: government size, economic growth, panel data, new European Union members and candidates
    JEL: E62 O40
    Date: 2005–12–06
  14. By: Alfredo M. Pereira (Department of Economics, College of William and Mary); Jorge M. Andraz (Faculdade de Economia, Universidade do Algarve)
    Abstract: The objective of this paper is to investigate the economic and fiscal impact of road infrastructure investment in Portugal, focusing on the effects for each region of both local investments and investments in other regions. We estimate VAR models for the national economy as well as for each of the five administrative regions in the country. Empirical results suggest that investment in road infrastructures has been a powerful instrument to increase private investment, new permanent jobs and to promote long-term growth in all regions. More importantly, investment in road infrastructure, both at the aggregate level and for each one of the five administrative regions, generates fiscal effects that largely exceed the initial investment itself. Accordingly, there is no trade off in the long-term between the potentially positive economic effects and the potentially negative budgetary effects of such investments, i.e., both economic and budgetary effects are positive. As a corollary, policies that would reduce current road investment as a response to the current budgetary concerns will result in lower long-term growth as well as worse future budgetary conditions.
    Keywords: public invesetment, road transportation infrastructure, regional spillovers, Portugal
    JEL: C32 H54 R53
    Date: 2006–07–13
  15. By: Mihaela Pintea (Department of Economics, Florida International University)
    Abstract: This paper develops a neoclassical growth model with leisure externalities. Ignoring positive (negative) leisure externalities leads to equilibrium consumption, labor and capital that are too high (low) and leisure that is too low (high). The government should tax (subsidize) labor income according to whether the leisure externality is positive or negative. The level of this tax (subsidy) depends on the elasticity of individual and average leisure and the consumption tax. Equilibrium dynamics are characterized, and two shocks to the economy are analyzed – an increase in the growth rate of labor productivity, and an increase in the tax on labor income – by simulating a calibrated economy. Adjustment processes of key variables in a competitive and centrally planned economy with and without leisure externalities are also compared.
    Keywords: externalities, transitional dynamics, economic growth
    JEL: D91 O40
    Date: 2006–07
  16. By: Min Ouyang (Department of Economics, University of California-Irvine)
    Abstract: Recessions often coincide with intensified restructuring. The conventional Schumpeterian view argues that recessions promote allocative efficiency by driving out less productive firms and freeing resources for more productive uses. This paper proposes that the conventional cleansing effect is offset by a scarring effect. Recessions impede the development of potentially superior firms, which might put innovations to better uses, but which are destroyed during their infancy, and never realize their potential. A model of industry dynamics that combines Schumpeterian creative destruction with firm learning is developed to capture both the cleansing and scarring effects. Calibrating the model with data from the U.S. manufacturing sector demonstrates that the scarring effect is likely to dominate the cleansing effect, and accounts for the procyclicality of average labor productivity, a phenomenon at odds with conventional cleansing models.
    Keywords: Business cycles; Cleansing effect; Scarring effect; Creative destruction; Learning; Job flows
    JEL: E32 L16 C61
    Date: 2005–11
  17. By: Raphäel Soubeyran (GREQAM)
    Abstract: We propose a simple infinite horizon of repeated elections with two candidates. Furthermore we suppose that the government policy presents some degree of inertia, i.e. a new government cannot completely change the policy implemented by the incumbent. When the policy inertia is strong enough, no party can win the election a consecutive infinite number of times.
    Keywords: Political Cycles, Inertia
    JEL: D72 H7
    Date: 2006–06
  18. By: Frömmel, Michael; Schmidt, Torsten
    Abstract: We examine the dynamics of bank lending to the private sector for countries of the Euro area by applying a Markov switching error correction model. We identify for Belgium, Germany, Ireland and Portugal stable, mean reverting regimes and unstable regimes with no tendency to return to the long term credit demand equation, whereas for some other countries there is only weak evidence. Furthermore, for these as well as for other countries we detect in the less stable regimes a strong comovement with the development of the stock market. We interpret this as evidence for constraints in bank lending. In contrast, the banks' capital seems to have only marginal impact on the lending behaviour.
    Keywords: bank lending, credit demand, Euro area, Markov switching error correction, credit channel, asset prices, credit rationing
    JEL: C32 G21
    Date: 2006–07
  19. By: Yesim Kustepeli (Department of Economics, Faculty of Business, Dokuz Eylül University); Onur Sapci (Department of Economics, Faculty of Business, Dokuz Eylül University)
    Abstract: The estimation of tax elasticity; the response of tax revenues to changes in income, is important for at least three reasons: i) formulating government budgets and monitoring tax collections (Sen, 2002), ii) the specification of tax functions, iii) the automatic stabilizing properties of the tax system and the public sector deficit (Hutton, Lambert; 1980, 1982). Among the various approaches to tax elasticity calculation in literature (Tanzi, 1969, 1976; Greytak and McHugh, 1978; Hutton and Lambert, 1980; Ehdaie, 1990), the most famous approach is Tanzi’s Method due to its simplicity and the consensus about its correctness of elasticity estimates. Johansen cointegration tests for the period 1975 - 2005 show that personal income tax elasticity in Turkey is around 0.95, indicating almost unit elasticity. Increasing income can be considered as insurance to maintain an equivalent increase in tax revenue; however it doesn’t seem to be the way to obtain higher tax revenues.
    Keywords: Personal income tax, tax elasticity, Tanzi method
    JEL: E62 H24
    Date: 2006–07–11
  20. By: Amihai Glazer (Department of Economics, University of California-Irvine); Anthony McGann (Department of Political Science, University of California-Irvine)
    Date: 2005–10
  21. By: Thomas F. Crossley; Krishna Pendakur
    Abstract: We present a new class of social cost-of-living indices and a nonparametric framework for estimating these and other social cost-of-living indices. Common social cost-of-living indices can be understood as aggregator functions of approximations of individual cost-of-living indices. The Consumer Price Index (CPI) is the expenditure-weighted average of first-order approximations of each individual’s cost-of-living index. This is troubling for three reasons. First, it has not been shown to have a welfare economic foundation for the case where agents are heterogeneous (as they clearly are.) Second, it uses an expenditure-weighted average which downweights the experience of poor households relative to rich households. Finally, it uses only first-order approximations of each individual’s cost-of-living index, and thus ignores substitution effects. We propose a “common-scaling” social cost-of-living index, which is defined as the single scaling to everyone’s expenditure which holds social welfare constant across a price change. Our approach has an explicit social welfare foundation and allows us to choose the weights on the costs of rich and poor households. We also give a unique solution for the welfare function for the case where the weights are independent of household expenditure. A first order approximation of our social cost-of-living index nests as special cases commonly used indices such as the CPI. We also provide a nonparametric method for estimating second-order approximations (which account for substitution effects).
    Keywords: Inflation, Social cost-of-living, Demand, Average derivatives
    JEL: D11 D12 D63 E31
    Date: 2006–06
  22. By: María Ángeles Caraballo (Universidad de Sevilla); Carlos Usabiaga (Universidad Pablo de Olavide)
    Abstract: Este trabajo pretende contribuir a un mejor conocimiento de la inflación andaluza y española. Los datos empleados provienen del IPC (1993-2001). Hemos trabajado con datos del agregado, de las regiones, de las provincias y de las capitales de provincia españolas. Desde otra perspectiva, también hemos trabajado a nivel sectorial (33 y 57). La amplia estadística descriptiva presentada en la primera parte de nuestro trabajo apunta hacia una notable homogeneidad de la estructura de la inflación entre los distintos entornos geográficos considerados. Sin embargo, en la comparación entre los sectores se aprecia una importante heterogeneidad. En la segunda parte de nuestro trabajo empleamos la metodología de Ball y Mankiw (1995) para detectar si existen rigideces nominales en la determinación de los precios, encontrando una evidencia muy robusta en este sentido tanto para Andalucía como para España.
    Keywords: Inflación, rigideces nominales, Andalucía
    JEL: E31
    Date: 2006
  23. By: Youri N. Ivanov
    Date: 2006–07
  24. By: Jan K. Brueckner (Department of Economics, University of California-Irvine); Amihai Glazer (Department of Economics, University of California-Irvine)
    Abstract: Consider two types of residents, who prefer two different values of a policy. A current majority in some city, seeking to increase the probability that it will set policy in the following period, may adopt current policies that are particularly unattractive to the minority, leading some members of the minority to emigrate. Such behavior can lead to extremist policies, to wasteful taxes, and to similar inefficiencies.
    Date: 2006–01
  25. By: Gabriele ORCALLI ([n.a.]); Gianluca TOSCHI ([n.a.])
    Abstract: Il paper discute il legame fra integrazione regionale nel Mediterraneo e flussi migratori. Con gli Accordi Mediterranei, l'UE si proponeva, favorendo la stabilita' e la crescita dell'area attraverso gli scambi commerciali, di ridurre gli incentivi per l'immigrazione. I dati disponibili ad oggi non sembrano, tuttavia, confermare questa tendenza: in realta', negli anni considerati, ad un significativo aumento delle esportazioni dalla Tunisia e dal Marocco si accompagna anche una crescita delle emigrazioni. La nostra verifica empirica segnala una forte difficolta' a spiegare le cause di questo fenomeno. Mentre appare chiara la correlazione fra commercio, occupazione e salari nei settori esportatori, non Š possibile spiegare la relazione fra commercio ed emigrazione, ne' nell'ipotesi di sostituibilita' fra le due variabili ne' in quella di complementarieta'.
    Date: 2006–07
  26. By: Yesim Kustepeli (Department of Economics, Faculty of Business, Dokuz Eylül University); Gülcan Önel (Department of Economics, Faculty of Business, Dokuz Eylül University)
    Abstract: Recent theoretical and empirical research has considered how differences in political arrangements affecting national policy formation might explain variation in fiscal policies pursued (Volkerink and de Haan, 2001). The experience of high government deficits of developed nations in the 1980s led researchers to analyze the reasons for this and among other factors they have argued that political variables could also explain budget deficits (Sutter, 2003). This study aims to investigate the effects of the political parties for fiscal deficits in Turkey for 1976-2004 period. Our results show that the most important variable in explaining the budget deficit to GDP ratio in Turkey is its lagged value. The political dispersion index variable, which measures the effect of the number of parties in the government in power, has proven to have a minor effect. Only the coalition governments with two or more parties are found to have higher budget deficit to GDP ratios. Ideology of the governments in power is important for the budget deficit to GDP ratio when it is considered with the number of parties in the government in power. In general, it can be said that polarization, fragmentation and ideology of the governments do not play an important role in explaining the budget deficit to GDP ratio.
    Keywords: Budget deficits, political fragmentation, dispersion indexes
    Date: 2005–11–23
  27. By: Xavier Pautrel (Université de Nantes)
    Abstract: Using an overlapping generation model à la Blanchard (1985) with human capital accumulation, this article demonstrates that the influence of environment on optimal growth in the long-run may be explained by the detrimental effect of pollution on life expectancy. It also shows that, in such a case, greener preferences are growth- and welfare-improving even if the ability of the agents to learn is independent to pollution and utility is additively separable. Finally, it establishes that it is possible to implement a win-win environmental policy.
    Keywords: Growth, Environment, Overlapping Generations, Human Capital, Health
    JEL: E62 I21 O41 Q28
    Date: 2006–06
  28. By: Jaime Bonet; Adolfo Meisel Roca
    Abstract: Este trabajo utiliza los aportes teóricos y empíricos de la reciente literatura internacional sobre los determinantes del crecimiento económico de largo plazo, para explicar el origen histórico de las enormes desigualdades económicas regionales que caracterizan a Colombia. Los resultados indican que la geografía y la cultura no son un determinante directo de las diferencias en el ingreso per cápita regional. Sin embargo, la geografía tuvo un papel indirecto a través de su influencia en los patrones de poblamiento durante el período colonial. Si bien las estimaciones econométricas muestran la enorme influencia del legado colonial sobre las diferencias actuales en los ingresos departamentales, no es claro si el efecto ocurre vía las instituciones o el capital humano. Cualquiera que sea el canal de influencia, las recomendaciones de política apuntan a considerar que la inversión en capital humano sería la estrategia adecuada para fomentar la prosperidad económica de largo plazo en todo el territorio.
    Date: 2006–07–01

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