nep-mac New Economics Papers
on Macroeconomics
Issue of 2006‒08‒19
38 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. The Timing of Monetary Policy Shocks By Giovanni Olivei; Silvana Tenreyro
  2. EMU Enlargement, Policy Uncertainty and Economic Reforms By Carsten Hefeker
  3. Response of Venezuelan output to monetary policy, deficit spending, and currency depreciation: a VAR model By HSING, Yu
  5. Extent and real implications of downward nominal wage rigidity. An investigation for the German labour market By Bläs, Barno
  6. Evidence of Bank Lending Channel for Argentina and Colombia By José Gómez González; Fernando Grosz
  7. Una evaluación de los pronósticos de inflación en Colombia bajo el esquema de inflación objetivo By NUÑEZ AMORTEGUI, Héctor Mauricio
  8. Evaluating Inflation Targeting Using a Macroeconometric Model By Ray C. Fair
  9. Central Bank Independence and inflation: the case of Greece By PANAGIOTIDIS, Theodore; TRIAMPELLA, Afroditi
  10. The controversy over employment policy: Low labor costs and openness, or demand policy? A sectoral analysis for Turkey By Özlem Onaran; Nursel Aydiner-Avsar
  11. Credit risk mitigation in central bank operations and its effects on financial markets - the case of the Eurosystem By Ulrich Bindseil; Francesco Papadia
  12. The Effects of Rounding on the Consumer Price Index By Elliot D. Williams
  13. The U.S. External Deficit and the Developing Countries By William R. Cline
  14. O papel da moeda nas teorias do desenvolvimento desigual: uma abordagem pós-keynesiana By Ana Tereza Lanna Figueiredo
  15. The Role of the IMF in Well-Performing Low-Income Countries By Steve Radelet
  16. Are Internet Prices sticky? By Patrick Lünnemann; Ladislav Wintr
  17. A New Non-ergodic Endogenous Growth Model By Masanao Aoki
  18. Política monetaria internacional By FEDESARROLLO
  19. The Effect of Personal Income Tax Rates on Individual and Business Decisions - A Review of the Evidence By Mark Rider
  20. The Marginal Product of Capital By Francesco Caselli; James Feyrer
  21. El panorama internacional afecta las expectativas macroeconómicas By FEDESARROLLO
  22. The Impact of Uncertainty Shocks: Firm Level Estimation and a 9/11 Simulation By Nick Bloom
  23. Aumentan las expectativas de inflación y depreciación By FEDESARROLLO
  24. Regional-Local Dimension of Russia's Fiscal Equalization By Jorge Martinez-Vazquez; Andrey Timofeev
  26. Japanese Foreign Exchange Intervention and the Yen/Dollar Exchange Rate: A Simultaneous Equations Approach Using Realized Volatility By Eric Hillebrand; Gunther Schnabl; Yasemin Ulu
  27. The Theory of Money and Financial Institutions: A Summary of a Game Theoretic Approach By Martin Shubik
  28. A Policymakers' Guide to Dutch Disease By Owen Barder
  29. Unequal Pay or Unequal employment? A Cross-Country Analysis of Gender Gaps By Claudia Olivetti; B Petrongolo
  30. Privatization: A Summary Assessment By John Nellis
  31. Venezuela sale de la CAN: ¿un evento que se veía venir? By FEDESARROLLO
  32. The Business Community, Policy Makers, and Tax Reform in Spain (1977 - 2004) By Emilio Albi
  33. Collateral Restrictions and Liquidity Under-Supply: A Simple Model By Ana Fostel; John Geanakoplos
  34. Retornan las expectativas de apreciación del peso By FEDESARROLLO
  35. Nomination processes and policy outcomes By Jackson, Matthew O.; Mathevet, Laurent; Mattes, Kyle
  36. Superstars and Renaissance Men: Specialization, Market Size and the Income Distribution By Richard Walker
  37. A Country-Level Analysis of Competitive Advantage in the Wine Industry By Richard Castaldi; Susan Cholette; Mahmood Hussain
  38. Are the planned increases in aid too much of a good thing? By Owen Barder

  1. By: Giovanni Olivei; Silvana Tenreyro
    Abstract: A vast empirical literature has documented delayed and persistent effects of monetary policy shockson output. We show that this finding results from the aggregation of output impulse responses thatdiffer sharply depending on the timing of the shock: when the monetary policy shock takes place inthe first two quarters of the year, the response of output is quick, sizable, and dies out at a relativelyfast pace. In contrast, output responds very little when the shock takes place in the third or fourthquarter. We propose a potential explanation for the differential responses based on uneven staggeringof wage contracts across quarters. Using a stylized dynamic general equilibrium model, we show thata very modest amount of uneven staggering can generate differences in output responses similar tothose found in the data.
    Keywords: monetary policy, wage contracts
    JEL: E1 E52 E58 E32 E31
    Date: 2006–05
  2. By: Carsten Hefeker
    Abstract: The paper analyzes the relation between monetary uncertainty and government incentives to implement economic reforms that reduce structural distortions and make economies more flexible. It is shown that uncertainty about the central bank’s reaction function leads to more reforms. I relate this result to the debate about central bank setup in a larger monetary union.
    Keywords: transparency of monetary policy, ECB voting structure, European Monetary Union, optimal representation, labor market regulation
    JEL: D72 E52 E58 F33
    Date: 2006
  3. By: HSING, Yu
    Abstract: This study applies the VAR model to find possible responses of real GDP to selected macroeconomic variables in Venezuela. Based on an annual sample during 1961 - 2001, the author finds that the real GDP responds positively to a shcock to real M2 , goverment déficit spending, exchange rate depreciation, and the lagged output and negatively to a shick to the inflation rate during some of the time periods. Except for the lagged output, government deficit spending and the inflation rate are the most influential variable in the first year, and real M2 and the real exchange rate are more influential and have longer - term after the first year.
    Date: 2004–10–01
  4. 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.
    Keywords: Identification, Fiscal Policy, SVAR, SVEC
    JEL: E62 E63 C32 C51 C52 C53
  5. By: Bläs, Barno
    Abstract: Dieser Beitrag analysiert die Existenz und das Ausmaß nach unten starrer Nominallöhne, sowie deren realwirtschaftliche Implikationen für den deutschen Arbeitsmarkt. Unter Verwendung von drei alternativen Modellvarianten für die proportionale Abwärtsnominallohnrigidität wurde auf Grundlage der IABS-Regionalstichprobe (1975-2001) nachgewiesen, dass das Ausmaß der Abwärtsnominallohnrigidität in Deutschland erheblich ist. Die realen Implikationen der nach unten starren Nominallöhne sind bei konstantem Rigiditätsgrad umso höher, je geringer die Inflationsrate ist. Für Inflationsraten unter zwei Prozent sind diese realen Effekte nicht mehr vernachlässigbar. Andererseits konnte im Rahmen dieses Beitrags nachgewiesen werden, dass das Ausmaß der Abwärtsnominallohnrigidität selbst vom inflationären Umfeld abhängt und in Jahren mit niedriger Inflation sinkt.
    Keywords: nominal wage rigidity, equilibrium unemployment, Phillips Curve, Lucas Critique, Germany
    JEL: J30 E24 E31
    Date: 2006–08–08
  6. By: José Gómez González; Fernando Grosz
    Abstract: In this paper we find empirical evidence of bank lending channel for Colombia and Argentina. As for Argentina, we do not find evidence that changes in the interbank interest rate affect the growth rate of total loans directly. However, it does indirectly through interactions: the interbank interest rate affects the loan supply through its interactions with capitalization and liquidity. As for Colombia, there is direct bank lending channel, which is reinforced through interactions with capitalization and liquidity. Also, using a panel data of more than 3300 firms, we provide additional support to the existence of a bank lending channel for Colombia.
    Keywords: Monetary Transmission; Bank Lending Channel; Argentina; Colombia
    JEL: E5 E52 G21
  7. By: NUÑEZ AMORTEGUI, Héctor Mauricio
    Abstract: Based on the understanding of inflation forecasts as an intermediate policy objective, this paper evaluates forecasts of different inflation models in Colombia during the inflation targeting (IT) period. The evaluation is done using three different statistical methodologies. The results suggest that the best models, in terms of precision, are the Food’s Relative Price and the traditional P* models. Additionally, a multiplier analysis is performed over these models, in which the sensitivity of short and medium term forecasts to shocks in the exogenous variables is assessed
    Date: 2005–03–01
  8. By: Ray C. Fair
    Date: 2006–08–11
  9. By: PANAGIOTIDIS, Theodore; TRIAMPELLA, Afroditi
    Abstract: This paper discusses the argument for Central Bank Independence (CBI) in the case of Greece. Using a time series approach and the last data available before Greece joined the EMU , the hypothesis that Central Bank Independence is important for controlling inflation is examined. Employing two indices, which serve as proxies for CBI and inflation was confirmed. The interactions between the variability of inflation and CBI were also investigated. Furthermore, evidence was found to suggst that the rate of turnover Granger causes inflation.
    Date: 2006–01–01
  10. By: Özlem Onaran (Department of Economics, Vienna University of Economics & B.A.); Nursel Aydiner-Avsar (University of Utah)
    Abstract: The purpose of this paper is to test the effects of labor cost, openness, and demand side variables on employment for the case of Turkey using the panel data of private manufacturing industry at three digit level for 25 sectors for the period of 1973-2001. We use a seemingly unrelated regression (SUR) model, which allows for cross-sectoral heterogeneity. The estimation results show that higher growth is more effective in stimulating employment compared to lower labor costs. The reliance of Turkey and many developing countries on labor market flexibility and openness as the unique tools of employment policy reflects a pro-capital incomes policy bias rather than a necessity. The results confirm the Keynesian emphasis on demand-side policies to fight against unemployment.
    JEL: J23 E24 F16
    Date: 2006–08
  11. By: Ulrich Bindseil (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Francesco Papadia (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany)
    Abstract: This paper reviews the role and effects of the collateral framework which central banks, and in particular the Eurosystem, use in conducting temporary monetary policy operations. First, the paper explains the design of such a framework from the perspective of risk mitigation, which is the purpose of collateralisation. The paper argues that, by means of appropriate risk mitigation measures, the residual risk on any potentially eligible asset can be equalised and brought down to the level consistent with the risk tolerance of the central bank. Once this result has been achieved, eligibility decisions should be based on an economic cost-benefit analysis. Second, the paper looks at the effects of the collateral framework on financial markets, and in particular on spreads between eligible and ineligible assets.
    Date: 2006–08
  12. By: Elliot D. Williams (U.S. Bureau of Labor Statistics)
    Abstract: The Bureau of Labor Statistics rounds the Consumer Price Index (CPI) to a single decimal place before releasing it, and the published CPI inflation series is calculated from those rounded index values. While rounding has only a relatively small effect on the level of the CPI series at present, it can have a significant effct on CPI inflation, the monthly percent changes in the CPI. This paper estimates the impact of rounding error on the published CPI inflation for both contemporaneous and historical data. Using an unrounded CPI series from January 1986 to July 2005 as a benchmark, I find that published CPI inflation differs from its full-precision counterpart approximately 25% of the time, and that reporting the CPI levels to three decimal places would reduce these discrepancies to under 0.5%. Further, the variance introduced by rounding error is large when compared to the sampling variation in CPI inflation. I find that the BLS could reduce total CPI inflation error variance by 42% by simply reporting more digits in the CPI index, resulting in a significantly more accurate reflection of monthly inflation. In order to extend these results to the CPI historical series, I derive the distribution of the rounding error component of inflation. From this analysis, it is possible to estimate the probability of large rounding errors for a given CPI level and rounding precision. Three regimes emerge. Before the 1970’s inflation, discrepancies due to rounding were both frequent and frequently large relative to the underlying inflation rate. During the inflationary period of the mid-1970’s to mid-1980’s, both the probability and relative magnitude of discrepancies decrease dramatically. Finally, the last twenty years are characterized by a slowly falling probability of any rounding-induced error, but a roughly constant probability of an error of a given size.
    Keywords: Consumer Price Index, Variance, Rounding, Inflation
    JEL: C80 E31
    Date: 2006–08
  13. By: William R. Cline
    Abstract: In the absence of US fiscal adjustment and a further correction of the dollar, the current account deficit is headed to $1.3 trillion by 2010 (8 to 8.5 percent of GDP) and net US foreign liabilities to over $8 trillion (50 percent of GDP). According to CGD/IIE Senior Fellow William R. Cline, the rising trade deficit and associated borrowing from abroad are now financing a decline in personal saving and a rise in the government deficit. This imbalance will increasingly put the US economy—and the developing countries—at risk. This working paper focuses on the impact that the US external deficit and a possible “hard landing” for the US and world economies will have on developing countries. Cline finds that these countries are at risk since they have relied heavily on a continuing expansion of trade surpluses with the United States as a source of demand. Developing countries with high borrowing abroad are also doubly sensitive to a spike in world interest rates—once directly from higher US interest rates, and once indirectly through higher risk spreads—that might be associated with a hard landing. This Working Paper is based on The United States as a Debtor Nation, a book published in 2005 by the Center for Global Development and the Institute for International Economics.
    Keywords: trade deficit, personal savings, world economy, trade surplus
    JEL: E21 E0 E4 F4
    Date: 2006–03
  14. By: Ana Tereza Lanna Figueiredo (Cedeplar-UFMG)
    Abstract: The theory of unequal development is set to inquire why some countries and/or regions grow more than others. In the attempt to solve this problem, scholars have not explicitly considered money as an important factor in such a scenario. However, in accordance with a post-Keynesian approach, money is not neutral. It does play a major role in decision-making by economic agents, and it is crucial to the determination of the accumulation dynamics of the economy. This paper purports to identify whether the theory of unequal development includes, however implicitly, the notion of money non-neutrality in the development process of a country or region. On the basis of this analysis, it may be concluded that, despite the fact that the theories of Rosenstein-Rodan (1943), Ragnar Nurske (1955), Albert Hirschman (1961), and Gunnar Myrdal (1960), presented herein, do not make explicit the role of money in this process, most of them imply it as they introduce uncertainty as a crucial factor in the determination of agents’ behavior in investment decisions.
    Keywords: money; unequal development; post-Keynesian economics
    JEL: E12 O20 O40
    Date: 2006–08
  15. By: Steve Radelet
    Abstract: The IMF began to play a prominent role in low-income countries in the late 1970s and 1980s when many countries faced overvalued exchange rates, growing budget deficits, high inflation, and low reserves. But times have changed, and many low-income countries no longer face these problems and do not need classic IMF programs. This paper explores options for the role of the IMF in well-performing low-income countries that no longer require IMF financing. It argues that in these countries the IMF should use more non-funded programs, and it should play a much less dominant role in overall conditionality. These countries should be able to focus more on achieving high-priority development goals that are outside the expertise of the IMF, such as in health, water, education, private sector development, and agriculture. While playing a less prominent role, the Fund should continue to be engaged in helping countries to maintain an appropriate macroeconomic framework. For some countries, a non-funded program like the new Policy Support Instrument (PSI) would be appropriate, while others could shift further to a program of surveillance and monitoring. In well-performing countries the Fund should provide public ratings on macroeconomic policy, ideally fully incorporated into the World Bank’s CPIA rating system.
    Keywords: IMF, exchange rate, budget deficit, inflation, reserves, conditionality
    JEL: F0 F4 O0 E0 E4 E43
    Date: 2006–02
  16. By: Patrick Lünnemann; Ladislav Wintr
    Abstract: This paper studies the behaviour of Internet prices. It compares price rigidities on the Internet and in traditional brick-and-mortar stores and provides a cross-country perspective. The data set covers a broad range of items typically sold over the Internet. It includes more than 5 million daily price quotes downloaded from price comparison web sites in France, Germany, Italy, the UK and the US. The following results emerge from our analysis. First, and contrary to the recent findings for common CPI data, Internet prices in the EU countries do not change less often than online prices in the US. Second, prices on the Internet are not necessarily more flexible than prices in traditional brick-and-mortar stores. Third, there is substantial heterogeneity in the frequency of price change across shop types and product categories. Fourth, the average price change on the Internet is relatively large, but smaller than the respective values reported for CPI data. Finally, panel logit estimates suggest that the likelihood of observing a price change is a function of both state- and time-dependent factors.
    Date: 2006–06
  17. By: Masanao Aoki
    Abstract: Política monetaria internacional y expectativas macroeconómicas: Se reafirman las expectativas de incrementos en la tasa de interés de intervención. Expectativas de desaceleración del ritmo de crecimiento en los próximos seis meses. Continúa la percepción de que el mercado colombiano de acciones está sobrevalorado. Disminuye la preferencia por TES de corto plazo: La preferencia por TES de corto plazo disminuye respecto a las acciones, a los bonos indexados a la DTF y a los bonos indexados al IPC. Aumento en el apetito por acciones colombianas.
    Date: 2005–12–05
  19. By: Mark Rider (Andrew Young School of Policy Studies)
    Abstract: An important goal of a state's economic policy is to create an attractive place to do business and well paying jobs for the future so that Rhode Island 's talented and well educated youth choose to pursue careers at home rather than in neighboring states. As discussed in greater detail, high state PIT rates make it more difficult for a state to achieve this objective. Federal and state governments frequently use progressive personal income tax (PIT) rate structures to address concerns about income inequality. However, the ability of state governments to do so may be limited because high PIT rates may adversely affect business location decisions, work effort, the form of compensation (e.g., fringe benefits, stock options, etc.), capital investment, and economic growth. The purpose of this study is to review the evidence regarding the effect of high state PIT rates on business and individual decisions.
    Keywords: Personal Income Tax Rates, PIT rate and Business Decisions,state's economic policy
    Date: 2006–04–01
  20. By: Francesco Caselli; James Feyrer
    Abstract: Whether or not the marginal product of capital (MPK) differs across countries is a questionthat keeps coming up in discussions of comparative economic development and patterns ofcapital flows. We use easily accessible macroeconomic data to shed light on this issue, andfind that MPKs are remarkably similar across countries. Hence, there is no prima faciesupport for the view that international credit frictions play a major role in preventing capitalflows from rich to poor countries. Lower capital ratios in these countries are insteadattributable to lower endowments of complementary factors and lower efficiency, as well asto lower prices of output goods relative to capital. We also show that properly accounting forthe share of income accruing to reproducible capital is critical to reach these conclusions.One implication of our findings is that increased aid flows to developing countries will notsignificantly increase these countries' incomes.
    Keywords: investment, capital flows
    JEL: E22 O11 O16 O41
    Date: 2006–08
    Abstract: El panorama internacional afecta las expectativas macroeconómicas para los próximos seis meses: Retorno a las expectativas de depreciación del peso. Expectativas de inflación al alza e incrementos en la tasa de interés del BR. Las expectativas macroeconómicas se reflejan en la posición de activos para el próximo mes: Incremento en la posición de TES a corto plazo y Bonos indexados al IPC Reducción en la posición de acciones colombianas y TES a largo plazo.
    Date: 2005–11–04
  22. By: Nick Bloom
    Abstract: Uncertainty appears to vary strongly over time, temporarily rising by up to 200% aroundmajor shocks like the Cuban Missile crisis, the assassination of JFK and 9/11. This paperoffers the first structural framework to analyze uncertainty shocks. I build a model with atime varying second moment, which is numerically solved and estimated using firm leveldata. The parameterized model is then used to simulate a macro uncertainty shock, whichproduces a rapid drop and rebound in employment, investment and productivity, and amoderate loss in GDP. This temporary impact of a second moment shock is different from thetypically persistent impact of a first moment shock, highlighting the importance forpolicymakers of identifying their relative magnitudes in major shocks. The simulation of anuncertainty shock is then compared to actual 9/11 data, displaying a surprisingly good match.
    Keywords: Labor, investment, uncertainty, real options
    JEL: D92 E22 D8 C23
    Date: 2006–03
    Abstract: La evolución de las expectativas macroeconómicas señala que los administradores de portafolio esperan un aumento en la inflación y depreciación del peso en los próximos meses. En julio el porcentaje neto de administradores que espera que la inflación aumente creció a un 68% Solo un 13% neto de los administradores de portafolio esperan que el spread de la deuda pública aumente en los próximos meses. El Índice de Confianza del Mercado (ICM) continua recuperándose. Las expectativas de inflación evitaron un mayor incremento en el ICM. Los títulos atados a la DTF son la principal opción a la hora de invertir El Índice de Aversión al Riesgo presentó un fuerte incremento.
    Date: 2006–08–04
  24. By: Jorge Martinez-Vazquez (Andrew Young School of Policy Studies); Andrey Timofeev (Andrew Young School of Policy Studies)
    Abstract: National equalization policies often are concerned with the quality and accessibility of services delivered at the lowest level (or local) government. When these policies are implemented in a hierarchical fashion through the intermediate level governments, national equalization policies need to take into account possible offsetting effects originating on regional or provincial government policies. In this paper, we examine recent fiscal equalization outcomes for about 2,000 Russian local governments to assess and explain the extent of equalization differences between and within regions. In particular, we examine the claim that intraregional policies should be blamed for rising disparities in local fiscal outcomes despite Russia 's federal government efforts to equalize sub-national government finances.
    Keywords: Russia's Fiscal Equalization, equalization differences, local fiscal, sub-national government finances
    Date: 2006–05–01
  25. By: Ana María Tribín Uribe
    Abstract: Arnold Harberger en 1969 estimó la tasa de rendimiento de capital para Colombia. En su investigación desarrolló una metodología para calcular las variables relevantes que se necesitan para estimarla. Este trabajo replica la metodología de Harberger con datos recientes y encuentra el costo de oportunidad del capital para tres escenarios diferentes. En el primer escenario se toman los datos de las Cuentas Nacionales y de las Naciones Unidas y se desarrolla la metodología de Harberger, los resultados que se obtuvieron indican que la tasa de rendimiento al capital se ubica entre 8.1% y el 7.4%. En el segundo escenario se ajusta la tasa de depreciación, ya que Harberger explica que está sobre estimada y por tanto, se debe calcular de nuevo la tasa de rendimiento del capital haciendo un ajuste en las tasas de depreciación. Siguiendo los pasos de Harberger se modifica la tasa de depreciación y se encuentra que la tasa de retorno al capital se localiza entre 7.7% y 7.1%. Finalmente, debido a que la proporción de capital sobre el Producto Interno Bruto que se obtiene es muy alta relativa a los datos de Planeación Nacional, se construye un tercer escenario en que se decide utilizar una serie de capital alternativa, la cual modifica el valor estimado de la tasa de retorno al capital al ubicarla entre 11% y 10%.
    Keywords: Tasa de interés, La tasa de rendimiento de capital, Cuentas Nacionales.
    JEL: E01 E43
  26. By: Eric Hillebrand; Gunther Schnabl; Yasemin Ulu
    Abstract: We use realized volatility to study the influence of central bank interventions on the yen/dollar exchange rate. Realized volatility is a technical innovation that allows specifying a system of equations for returns, realized volatility, and interventions without endogeneity bias. We find that during the period 1995 through 1999, interventions of the Japanese monetary authorities did not have the desired effect with respect to the exchange rate level and we measure an increase in volatility associated with interventions. During the period 1999 through 2004, the estimations are consistent with successful interventions, both in depreciating the yen and in reducing exchange rate volatility.
    JEL: C32 E58 F31 F33 G15
    Date: 2006
  27. By: Martin Shubik
    Date: 2006–08–11
  28. By: Owen Barder
    Abstract: It is sometimes claimed that an increase in aid might cause Dutch Disease—that is, an appreciation of the real exchange rate which can slow the growth of a country’s exports— and that aid increases might thereby harm a country’s long-term growth prospects. This essay argues that it is unlikely that a long-term, sustained and predictable increase in aid would, through the impact on the real exchange rate, do more harm than good, for three reasons. First, there is not necessarily an adverse impact on exports from Dutch Disease, and any impact on economic growth may be small. Second, aid spent in part on improving the supply side—investments in infrastructure, education, government institutions and health—result in productivity benefits for the whole economy, which can offset any loss of competitiveness from the Dutch Disease effect. Third, the welfare of a nation’s citizens depends on their consumption and investment, not just output. Even on pessimistic assumptions, the additional consumption and investment which the aid finances is larger than any likely adverse impact on output. However, the macroeconomic effects of aid can cause substantial harm if the aid is not sustained until its benefits are realized. The costs of a temporary loss of competitiveness might well exceed the benefits of the short-term increase in aid. To avoid doing harm, aid should be sustained and predictable, and used in part to promote economic growth. This maximizes the chances that the long-term productivity and growth benefits will offset the adverse effects—which may be small if they exist at all—that big aid surges may pose as a result of Dutch Disease.
    Keywords: Foreign aid, dutch disease, exchange rate,economic growth, consumption
    JEL: E20 O0
    Date: 2006–07
  29. By: Claudia Olivetti; B Petrongolo
    Abstract: There is evidence of a negative cross-country correlation between gender wage and employment gaps. We arguethat non-random selection of women into work explains an important part of such correlation and thus of theobserved variation in wage gaps. The idea is that, if women who are employed tend to have relatively high-wagecharacteristics, low female employment rates may become consistent with low gender wage gaps simplybecause low-wage women would not feature in the observed wage distribution. We explore this idea across theUS and EU countries estimating gender gaps in potential wages. We recover information on wages for those notin work in a given year using alternative imputation techniques. Imputation is based on (i) wage observationsfrom nearest available waves in the sample, (ii) observable characteristics of the nonemployed and (iii) astatistical repeated-sampling model. We then estimate median wage gaps on the resulting imputed wagedistributions, thus simply requiring assumptions on the position of the imputed wage observations with respectto the median, but not on their level. We obtain higher median wage gaps on imputed rather than actual wagedistributions for most countries in the sample. However, this difference is small in the US, the UK and mostcentral and northern EU countries, and becomes sizeable in Ireland, France and southern EU, all countries inwhich gender employment gaps are high. In particular, correction for employment selection explains more thana half of the observed correlation between wage and employment gaps.
    Keywords: median gender gaps, sample selection, wage imputation
    JEL: E24 J16 J31
    Date: 2005–12
  30. By: John Nellis
    Abstract: In the last 25 years many thousands of formerly state-owned and operated firms have been privatized in developing and transition countries, generating over $400 billion (US) in sales proceeds. In addition, thousands of firms have been transferred by privatization processes in which no money was raised (though a surprising number of state-owned firms remain in these regions). The vast majority of economic studies praise privatization’s positive impact at the level of the firm, as well as its positive macroeconomic and welfare contributions. Moreover, contrary to popular conception, privatization has not contributed to maldistribution of income or increased poverty——at least in the best-studied Latin American cases. In sum, the technical picture is generally positive. Nonetheless, public opinion in the less developed world is generally suspicious of, and often hostile to, privatization. A good part of the problem is that privatization has proven harder to launch, and is more likely to produce errant results, in low-income, institutionally weak states, particularly in the most important infrastructure sectors. Privatization is hard to sell politically; it has become a lightning rod and handy scapegoat for all discontent related to liberalization and globalization. What is needed are reform mechanisms that give incentives and comfort to reputable private investors, that create and sustain the policy and regulatory institutions that make governments competent and honest partners with the private operators, while at the same time protecting consumers, particularly the most disadvantaged, from abuse.
    Keywords: privatization, weak institutions, poverty, liberalization, globalization, incentives
    JEL: E21 E20 D60 F4 O1
    Date: 2006–03
    Abstract: Desde hace más de cuatro años Venezuela ha estado implementando medidas que buscan el mayor intervencionismo del Estado en la economía. La salida de Venezuela de la CAN y el G3 se pudo haber llevado a cabo no sólo por las negociaciones del TLC, sino como un adendo a las nuevas políticas allí implementadas. El futuro de la integración regional genera incertidumbre. El efecto que esto tenga sobre la industria colombiana dependerá de la fuerza de los lazos comerciales con Venezuela, de la capacidad de las empresas para diversificar los mercados de exportación y de las acciones que tome el vecino país en los próximos años. La industria venezolana también puede verse afectada por la medida. De cualquier forma, lo más prudente es que los empresarios colombianos procuren buscar nuevos destinos para sus productos. Educación, el gran reto de la política pública en los próximos años A pesar de los avances, las últimas cifras del Censo 2005 revelan el rezago en materia de educación que persiste en Colombia. Los puntos críticos están en la cobertura y deserción en secundaria, el acceso a la educación superior y la calidad de la educación básica. Para aumentar la escolaridad de la población colombiana algunas de las medidas que se proponen son: Ampliar los programas de transferencias condicionadas a la secundaria. Extender la iniciativa de colegios por concesión de Bogotá a otras ciudades. Hacer de las empresas centros de capacitación y desarrollo técnico. Cambiar el esquema de focalización del SENA de estratos a Sisben. Encuesta de Opinión Financiera Los administradores de portafolio esperan incrementos en la tasa de inflación durante los próximos seis meses. Dadas las expectativas de depreciación, los administradores de portafolio esperan incrementar su posición en renta fija denominada en dólares. Cae la preferencia por los TES de corto plazo. Encuesta de Confianza del Consumidor La confianza de los consumidores ha aumentado notablemente en lo corrido del año. Es de esperar una aceleración en el consumo de los hogares durante el primer trimestre de 2006. Los hogares manifiestan que esperan una menor tasa de desempleo en los próximos doce meses. Encuesta de Opinión Empresarial La confianza industrial retorna a los niveles observados durante el primer trimestre de 2004. Los industriales manifiestan que el incremento salarial para el presente año se llevó a cabo teniendo en cuenta la tasa de inflación observada en 2005. A pesar del comportamiento favorable de las exportaciones en lo corrido del año, los industriales perciben que la actividad exportadora es menor a la del año anterior.
    Date: 2006–06–02
  32. By: Emilio Albi (Universidad Complutense de Madrid)
    Abstract: Over twenty-five years have passed since the original predecessors of today's Personal and Corporate Income Taxes came into force on January 1, 1979 and since the Urgent Measures on Tax Reform were published on November 14, 1977. The latter signaled the start of a major reform process aimed at modernizing Spanish public finance, which continues today. With the perspective of time, this long fiscal reform process contains elements of considerable interest for the analysis of taxation. Personally, so many years of tax reform in Spain places one in an ambivalent position. On the one hand, it is stimulating to study, with the objectives I will soon establish, such an important issue as a country's tax reforms over such a lengthy period. On the other hand, and this is slightly less pleasant, one of the possible comparative advantages I have when considering these matters is age; having been an active witness of the preparation and onset of the 1977-78 tax reform and the large number of changes made since then.
    Keywords: Tax Reform in Spain, Corporate income tax, Spanish public finance, fiscal reform
  33. By: Ana Fostel (Dept. of Economics, George Washington University); John Geanakoplos (Cowles Foundation, Yale University)
    Abstract: We show that very little is needed to create liquidity under-supply in equilibrium. Credit constraints on demand by themselves can cause an under-supply of liquidity, without the uncertainty, intermediation, asymmetric information or complicated international financial framework used in other models in the literature. We show that the under-supply is a non-monotone function of the demand distortion that causes it, a result that may have interesting implications for emerging markets economies. Finally, when we make the credit constraint endogenous, the inefficiency can be large due to the presence of a multiplier.
    Keywords: Liquidity under-supply, Credit constraint, Non-monotonicity, Multiplier, Collateral equilibrium
    JEL: D51 E44 F30 G15
    Date: 2004–06
    Abstract: Retornan las expectativas de apreciación del peso colombiano. Se mantienen las expectativas de una menor inflación durante los próximos seis meses. Los administradores de portafolio confían en el buen desempeño económico de largo plazo, lo cual se refleja en un mayor "apetito" por este tipo de inversiones.
    Date: 2006–02–07
  35. By: Jackson, Matthew O.; Mathevet, Laurent; Mattes, Kyle
  36. By: Richard Walker
    Abstract: A general equilibrium model of individual specialization is presented in which agents tradeoff the productivity and price implications of producing a narrower range of goods. Agentswith highly specific skills turn out to benefit most from large markets. The model is able toreplicate features of the long-term evolution of the US income distribution, withspecialization-biased technical change and the increase in employed population playing keyroles. Among the results is that, at least along one dimension of ability, the skill premium isincreasing in the relative supply of skills.
    Keywords: specialization, aggregate demand, inequality, market size
    JEL: O11 E23 E25
    Date: 2005–11
  37. By: Richard Castaldi (San Francisco State University); Susan Cholette (San Francisco State University); Mahmood Hussain (San Francisco State University)
    Abstract: The purposes of this paper are (1) to examine driving forces and key success factors related to the increasing globalization of the wine industry, and (2) to analyze the current competitive advantage positions of four Old and five New World wine producing countries. Each country will be profiled using key industry data and analyzed regarding their national capabilities to address five key success factors that contribute to their national competitive advantage position. The countries fall into three groups with respect to their national comparative competitive advantage position. The group with the strongest competitive position includes United States, Australia, and Chile. Australia and Chile both have small populations that provide for a tiny domestic market with little potential for growth. However they are very well positioned to produce and export wine with their adaptive, large-scale producers and their great lure for foreign investments, providing them with a position of a strong competitive advantage. With respect to production, cost structures suggest Australia and Chile may be better positioned that the US. However, economies of scale and economies of scope in marketing offer an advantage to the US because it is a populous and affluent nation. While the US wine market is already significantly larger than Australia and Chile, it has even more potential to expand. The group of countries with moderate competitive advantages includes Italy, Spain, Argentina and South Africa. Lingering economic concerns and disadvantages of scale prevent Argentina from being ranked as competitively as neighboring Chile. Likewise, South Africa has strong marketing economies of scale and moderate production economies of scale, but currently domestic unrest has diminished its attraction for foreign investment and ability to expand its home market. In the Old World, Spain and Italy are hampered by decreased consumption rates and weak economies of scale in production. However, on the positive side, they have shown promise in their ability to adapt to an increasingly internationalized marketplace and to attract foreign investment. The countries with the weakest competitive advantage positions in the global wine industry are two traditional strongholds of wine production in the Old World: France and Germany. While they have large domestic markets, there is little opportunity for further growth. The concentration of production into small wineries, scarce land and labor, complex labeling practices and inability to leverage new production, and marketing techniques does not bode well for effective competition in a global market place. Nor does either country hold much potential for attracting foreign investment, save for some traditionally undervalued areas of France, like Languedoc. In conclusion, it is clear that the New World countries are currently positioned better to capitalize on the opportunities created through industry globalization and other current driving forces. Italy and Spain emerge as the best positioned Old World nations. This competitive advantage scenario should be a wake-up call to many wine producing countries. Indeed, some Old World countries have begun efforts to better adapt to industry-wide improvements in production and marketing practices. However, it is clear that many nations need to increase support that will encourage production and marketing innovations to improve their competitive advantage position to help local wineries succeed in the changing and increasingly competitive wine marketplace.
    Keywords: Wineries, Globalization, Competitive Advantage, Exports, Markets
    JEL: L11 M21 E32
    Date: 2006–05
  38. By: Owen Barder
    Abstract: Donor countries have committed themselves to increase aid to developing countries by 60 percent over the next five years; and larger increases would be needed to meet the Millennium Development Goals (MDGs). But there are concerns that there may be a limit on the amount of aid that developing countries can absorb and use effectively—and that large aid flows might even be harmful. Could a large increase in aid be “too much of a good thing?” This essay disentangles the seven possible reasons why additional aid might not be effective. These include microeconomic effects (e.g., transactions costs), macroeconomic effects (e.g., ‘Dutch Disease’) and the impact on political economy (e.g., the ‘Resource Curse’). The paper looks at each possible constraint in turn. The paper finds that there are indeed serious obstacles to effective use of increased aid, but that none is immutable. All of the constraints which limit the effective use of additional aid can be addressed by a relatively small set of practical improvements in the way that aid is provided and used. Donors have already committed themselves to a significant program of aid reform. If the measures to which donors are committed were consistently implemented, the seven constraints to effective aid absorption could be relaxed. The paper concludes that, provided increased aid is accompanied by reforms to the way aid is delivered, the capacity of developing countries to absorb and use aid should not be presented as a barrier to the increases in aid which would be needed to meet the MDGs.
    Keywords: Foreign aid, dutch disease, absorption, millenium development goals, transaction costs, resource curse, aid reform
    JEL: E01 D23 O0
    Date: 2006–07

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