nep-mac New Economics Papers
on Macroeconomics
Issue of 2006‒09‒11
39 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Optimal monetary policy in the generalized Taylor economy By Engin Kara
  2. Flexible inflation targeting and financial stability: Is it enough to stabilise inflation and output? By Q. Farooq Akram; Øyvind Eitrheim
  3. The Long-Run Phillips Curve and Non-Stationary Inflation By Bill Russell, Anindya Banerjee
  4. Quantifying Inflation Pressure and Monetary Policy Response in the United States By Diana N. Weymark; Mototsugu Shintani
  5. Financial predictors of real activity and the propagation of aggregate shocks By Johann Burgstaller
  6. The Economic Importance of Fiscal Rules By Michael J. Artis, Luca Onorante
  7. Identifying Monetary Policy Shocks via Changes in Volatility By Markku Lanne, Helmut Luetkepohl
  8. Understanding inflation persistence - a comparison of different models By Huw Dixon; Engin Kara
  9. Sticky Information Phillips Curves : European Evidence By Jörg Döpke; Jonas Dovern; Ulrich Fritsche; Jirka Slacalek
  10. The Boom-Bust Cycle in Finland and Sweden 1984-1995 in an International Perspective By Lars Jonung; Ludger Schuknecht; Mika Tujula
  11. Dynamic Consumption Behavior: Evidence from Japanese Household Panel Data (Revised version) By Yukinobu Kitamura
  12. The Consumption-Tightness Puzzle By Morten O. Ravn
  13. Modelling European Business Cycles (EBC Model) : A Macroeconometric Model of Spain ; February 2005 By Katja Rietzler
  14. Has EMU Had Any Impact on the Degree of Wage Restraint? By Adam S. Posen; Daniel Popov Gould
  15. Modelling European Business Cycles (EBC Model) : A Macroeconometric Model of Germany ; Version March 2005 By Manh Ha Duong; Camille Logeay; Sabine Stephan; Rudolf Zwiener with the Collaboration of Serhiy Yahnych
  16. Macroeconomic Models and the Determination of Crowding Out. By Lee C. Spector
  17. Modelling European Business Cycles (EBC Model) : A Macroeconometric Model of the Netherlands ; Version April 2005 By Camille Logeay; Christian Proano-Acosta; Sabine Stephan; Rudolf Zwiener with the Collaboration of Serhiy Yahnych
  18. Public Investment and Budgetary Consolidation in Portugal By Alfredo M. Pereira; Maria de Fátima Pinho
  19. Forecasting Emerging Market Indicators: Brazil and Russia By Victor Bystrov
  20. Business cycle synchronisation in East Asia By Fabio Moneta; Rasmus Rüffer
  21. Modelling European Business Cycles (EBC Model) : A Macroeconometric Model of France By Camille Logeay; Julia Schwenkenberg; Sabine Stephan; Christian Proano-Acosta with the Collaboration of Serhiy Yahnych
  22. The Target Rate and Term Structure of Interest Rates By Marco Realdon
  23. Regular adjustment - theory and practice. By Jerzy (Jurek) D. Konieczny; Fabio Rumler
  24. Notes on Habit Formation and Socially Optimal Growth By Simone Valente
  26. Does Wealth Explain Black-White Differences in Early Employment Careers? By Silvio Rendon
  27. Price Rigidity and Flexibility: New Empirical Evidence By Daniel Levy
  28. ¿Por qué ha crecido tanto la cantidad de dinero?: teoría y evidencia internacional (1975-2002)§ By Mauricio A. Hernández; Munir Jalil Barney; Carlos Esteban Posada
  29. ¿Por qué ha crecido tanto la cantidad de dinero?: teoría y Evidencia Internacional (1975-2002) By Mauricio Hernández Monsalve; Munir A. Jalil Barney; Carlos Esteban Posada
  30. Estimación de la estructura a plazos de las tasas de interés en Colombia por medio del método de funciones B-spline cúbicas By VÁSQUEZ, Diego Mauricio; MELO, Luis Fernando
  31. Holiday Non-Price Rigidity and Cost of Adjustment By Georg Müller; Mark Bergen; Shantanu Dutta; Daniel Levy
  32. Documentation of CORTAX By Leon Bettendorf; Albert van der Horst
  33. The regulation of entry and aggregate productivity By Markus Poschke
  34. The Macroeconomic Implications of the New Banking Capital Regulation in Emerging Markets: A Duopoly Model Adapted to Risk Averse Banks By NIETO, Sebastián
  35. Endogenous Growth and Time-to-Build: the AK Case By Mauro Bambi
  36. Capital-Energy Substitution and Shifts in Factor Demand: A Meta-Analysis By Mark J. Koetse; Henri L.F. de Groot; Raymond J.G.M. Florax
  37. A New Explanatory Model for Policy Analysis and Evaluation By Marije Schouwstra; Michael Ellman
  38. The Impact of Uncertainty on Investment: A Meta-Analysis By Mark J. Koetse; Henri L.F. de Groot; Raymond J.G.M. Florax
  39. Who benefits from tax competition in the European Union? By Leon Bettendorf; Joeri Gorter; Albert van der Horst

  1. By: Engin Kara (University of York, Heslington, York, YO10 5DD, United Kingdom.)
    Abstract: In this paper we use the Generalized Taylor Economy (GTE) framework in which there are many sectors with overlapping contracts of different lengths to analyze the design of monetary policy. We derive a utility based objective function of a central bank for this economy and use it to evaluate the performance of alternative simple rules. We find that a simple rule that targets an index that gives more weight to the sectors which have longer contracts and are more important in the aggregate index yields a welfare outcome nearly identical to the optimal policy. However, we find that potential gains in targeting sector specific inflation rates rather than the aggregate inflation rate is very sensitive to the shape of the distribution. We show that except for the cases where prices/wages are reoptimized very frequently, the performance of the sectoral rule can be closely approximated by a simple rule that targets aggregate inflation. JEL Classification: E32, E52, E58.
    Keywords: Inflation targeting, Optimal Monetary Policy.
    Date: 2006–09
  2. By: Q. Farooq Akram (Norges Bank (Central Bank of Norway)); Øyvind Eitrheim (Norges Bank (Central Bank of Norway))
    Abstract: We investigate empirically whether a central bank can promote financial stability by stabilising inflation and output, and whether additional stabilisation of asset prices and credit growth would enhance financial stability, in particular. We employ an econometric model of the Norwegian economy to investigate the performance of simple interest rate rules that allow a response to asset prices and credit growth, in addition to inflation and output. We find that output stability also promotes financial stability, while inflation stability is achieved at the expense of both output and financial stability. A stabilisation of house prices, equity prices and/or credit growth enhances stability in both inflation and output, but not financial stability. By contrast, stabilisation of the nominal exchange rate induces excess volatility in general.
    Keywords: Monetary policy, financial stability, asset prices, interest rate rules.
    JEL: C51 C52 C53 E47 E52
    Date: 2006–08–31
  3. By: Bill Russell, Anindya Banerjee
    Abstract: Modern theories of inflation incorporate a vertical long-run Phillips curve and are usually estimated using techniques that ignore the non-stationary behaviour of inflation. Consequently, the estimates obtained are imprecise and are unable to distinguish between competing models of inflation and test the veracity of a vertical long-run Phillips curve. We estimate a Phillips curve model taking into account the non-stationary properties in inflation and identify a small but significant positive relationship between inflation and unemployment. The results provide some evidence that the trade-off between inflation and the unemployment rate in the short-run worsens as the mean rate of inflation increases.
    Keywords: Inflation, unemployment, long-run Phillips curve, business cycle, GMM
    JEL: C22 C32 C52 D40 E31 E32
    Date: 2006
  4. By: Diana N. Weymark; Mototsugu Shintani
    Date: 2006–09–02
  5. By: Johann Burgstaller (Department of Economics, Johannes Kepler University Linz, Austria)
    Abstract: Bond yield and retail interest rate spreads are presumed to lead real activity on the basis of financial accelerator mechanisms, markup cyclicality or simply because they are forward-looking. Empirical results for Austria show that retail rate spreads outperform many other indicators in this respect. Nevertheless, there is no evidence for a financial accelerator being behind this finding.
    Keywords: Leading indicator; business cycle; shock propagation; financial accelerator; bank markup
    JEL: E32 E44 G12 G21
    Date: 2006–09
  6. By: Michael J. Artis, Luca Onorante
    Abstract: The present paper provides an assessment of the effect of the recent revision of the Stability and Growth Pact (SGP) on the European economies. A set of structural VARs, one for each eurozone country, is estimated. The estimated models are then used to assess the possible effect of alternative sets of fiscal rules, with particular attention to the Stability and Growth Pact in its old and reformed versions. The investigation suggests that fiscal policy has had in the past a limited smoothing effect on the cycle, and therefore the cost of the old rules in the corrective arm of the Pact was also limited. As for the reform of the Pact, the analysis is overall supportive of the new country-specific Medium Term Objectives. The modified rules of the Excessive deficit procedure are likely to give the governments only a limited extra leeway to reduce the variability of the cycle.
    Keywords: European Monetary Union, Stability and Growth Pact, fiscal-monetary interactions
    JEL: E61 E62 E62
    Date: 2006
  7. By: Markku Lanne, Helmut Luetkepohl
    Abstract: A central issue of monetary policy analysis is the specification of monetary policy shocks. In a structural vector autoregressive setting there has been some controversy about which restrictions to use for identifying the shocks because standard theories do not provide enough information to fully identify monetary policy shocks. In fact, to compare different theories it would even be desirable to have over-identifying restrictions which would make statistical tests of different theories possible. It is pointed out that some progress towards over-identifying monetary policy shocks can be made by using specific data properties. In particular, it is shown that changes in the volatility of the shocks can be used for identification. Based on monthly US data from 1965-1996 different theories are tested and it is found that associating monetary policy shocks with shocks to nonborrowed reserves leads to a particularly strong rejection of the model whereas assuming that the Fed accommodates demand shocks total reserves cannot be rejected.
    Keywords: Monetary policy, structural vector autoregressive analysis, vector autoregressive process, impulse responses
    JEL: C32
    Date: 2006
  8. By: Huw Dixon (Economics Department, University of York, Heslington, York, YO10 5DD, United Kingdom.); Engin Kara (University of York, Heslington, York, YO10 5DD, United Kingdom.)
    Abstract: This paper adopts the Impulse-Response methodology to understand inflation persistence. It has often been argued that existing models of pricing fail to explain the persistence that we observe. We adopt a common general framework which allows for an explicit modelling of the distribution of contract lengths and for different types of price setting. In particular, we find that allowing for a distribution of contract lengths can yield a more plausible explanation of inflation persistence than indexation. JEL Classification: E17, E3.
    Keywords: DGE models, inflation, persistence, price-setting.
    Date: 2006–09
  9. By: Jörg Döpke; Jonas Dovern; Ulrich Fritsche; Jirka Slacalek
    Abstract: We estimate the sticky information Phillips curve model of Mankiw and Reis (2002) using survey expectations of professional forecasters from four major European economies. Our estimates imply that inflation expectations in France, Germany and the United Kingdom are updated about once a year, in Italy about once each six months.
    Keywords: Inflation expectations, sticky information, Phillips curve, inflation persistence
    JEL: D84 E31
    Date: 2006
  10. By: Lars Jonung (European Commission); Ludger Schuknecht (European Central Bank and Center for Financial Studies); Mika Tujula (European Central Bank)
    Abstract: This paper compares the boom-bust cycle in Finland and Sweden 1984-1995 with the average boom-bust pattern in industrialized countries as calculated from an international sample for the period 1970-2002. Two clear conclusions emerge. First, the Finnish-Swedish experience is much more volatile than the average boom-bust pattern. This holds for virtually every time series examined. Second, the bust and the recovery in the two Nordic countries differ markedly more from the international pattern than the boom phase does. The bust is considerably deeper and the recovery comes earlier and is more rapid. We explain the highly volatile character of the Finnish and Swedish boom-bust episode by the design of economic policies in the 1980s and 1990s. The boom-bust cycle in Finland and Sweden 1984-1995 was driven by financial liberalization and a hard currency policy, causing large pro-cyclical swings in the real rate of interest transmitted via the financial sector into the real sector and then into the public finances.
    Keywords: Boom, Bust, Asset Price Cycles, Real Interest Rates, Financial Crisis, Finland, Sweden
    JEL: E32 E62 E63
    Date: 2006–05–22
  11. By: Yukinobu Kitamura
    Abstract: Household consumption and saving behavior have been the central theme of recent macroeconomic literature. Following the work of Robert Hall (1978) and a series of papers by Fumio Hayashi, the focus of the literature has been on dynamic consumption behavior. Using the Family Income and Expenditure Survey (FIES), we conducted a dynamic panel analysis of consumption behavior. We examined intertemporal smoothing and the durability of consumption behavior with or without liquidity constraints. Our results are summarized as follows: (1) households with debt as well as debt-free households with low annual incomes and net savings faced disposable income constraints; (2) for these types of households, parameter values of lagged dependent variables between MLE and GMM are very close and therefore statistically significant and the implications for each remain more or less the same; (3) debt-free households with high annual incomes and net savings also faced a disposable income constraint in MLE that is not expected in the permanent income-lifecycle hypothesis.
    Keywords: dynamic consumption, panel data, liquidity constraints
    JEL: C23 D12 E21
    Date: 2006–09
  12. By: Morten O. Ravn
    Abstract: This paper introduces a labor force participation choice into a labor market matching model embedded in a dynamic stochastic general equilibrium set-up with production and savings. The participation choice is modelled as a tradeoff between forgoing the expected benefits of being search active and engaging in costly labor market search. The model induces a symmetry in firms’ and workers’ search decision since both sides of the labor market vary search effort at the extensive margins. We show that this set-up is of considerable analytical convenience and that it gives rise to a linear relationship between labor market tightness and the marginal utility of consumption. We refer to the latter as the “consumption - tightness puzzle” because (a) it gives rise to a number of counterfactual implications, and (b) it is a robust implication of theory. Amongst the counterfactual implications are very low volatility of tightness, procyclical unemployment, and a positively sloped Beveridge curve. These implications all derive from procyclical variations in participation rates that follow from allowing for the extensive search margin.
    Keywords: Labor market participation, matching models, intensive search margin, labor market tightness, unemployment, homework.
    JEL: E24 E32 J20 J41 J64
    Date: 2006
  13. By: Katja Rietzler
    Date: 2005
  14. By: Adam S. Posen (Institute for International Economics); Daniel Popov Gould (Institute for International Economics)
    Abstract: This working paper investigates the European Monetary Unification’s (EMU) effect on wage restraint—the degree to which wage increases do or do not exceed productivity growth. We find in cross-sectional investigations that wage restraint either is unchanged or has increased following EMU in the vast majority of countries. This finding contradicts the predictions of a widely cited family of models of coordination of labor market bargaining. In particular, one would have expected Germany to display the greatest decline in wage restraint post-EMU under these models, but in our time-series analysis we find no indication of such a decline. The overall shift toward greater wage restraint is consistent with the models that emphasize the gains from monetary credibility. The time-series evidence on Italy, which shows a significant increase in wage restraint after eurozone entry, also supports this view. That said, the increase in wage restraint in the eurozone is matched by that associated with the increase in credibility seen in the United Kingdom and Sweden after their adoption of inflation targeting post-1992.
    Keywords: EMU, wage bargaining, monetary credibility, productivity
    JEL: E58 E25 J58
    Date: 2006–08
  15. By: Manh Ha Duong; Camille Logeay; Sabine Stephan; Rudolf Zwiener with the Collaboration of Serhiy Yahnych
    Date: 2005
  16. By: Lee C. Spector (Department of Economics, Ball State University)
    Abstract: The importance of crowding out has been an ongoing question in the Economics literature for many years. Some economists believe that deficits replace private spending while other economists feel that most of this crowding out is offset by Ricardian equivalence. In an attempt to resolve this controversy, many economists have formulated macroeconomic models and have used these models to empirically test the notion of crowding out. This paper revisits this methodology. It examines four useful macroeconomic models and shows the relationship between the model assumed, the empirical results obtained and the conclusions concerning crowding out. We demonstrate that the same empirical results may be obtained from different models, but can yield very different conclusions concerning crowding out. It is concluded that the answer to this controversy involves, in part, a more complete understanding of the structural foundations of the macroeconomic models being tested.
    Date: 2005–12
  17. By: Camille Logeay; Christian Proano-Acosta; Sabine Stephan; Rudolf Zwiener with the Collaboration of Serhiy Yahnych
    Date: 2005
  18. By: Alfredo M. Pereira (Department of Economics, College of William and Mary); Maria de Fátima Pinho (Instituto Superior de Contabilidade e Administração)
    Abstract: In this paper we find that public investment in durable goods has a positive effect on long-term economic performance in Portugal. We also find that these positive effects are not strong enough for public investment to pay for itself in the form of future tax revenues. Therefore, cuts in public investment, although costly in terms of long-term economic performance seem to be an effective way of alleviating pressure on the public budget. It is important to note, however, that this general result is in contrast with the evidence found in this paper for public investment in equipment, a small component of public investment in durable goods, as well as with evidence elsewhere for public investment in transportation infrastructures. For these, the effects on output are strong enough for public investment to pay for itself. Therefore, cuts in these two types of public investment, would have negative long-term economic effects as well as negative long-term budgetary effects. Clearly, not all public investment is created equal.
    Keywords: public investment, economic growth, budgetary consolidation, Portugal
    JEL: C32 E62 H54 O52
    Date: 2006–08–30
  19. By: Victor Bystrov
    Abstract: The adoption of inflation targeting in emerging market economies makesaccurate forecasting of inflation and output growth in these economies of primary importance. Since only short spans of data are available for such markets, autoregressive and small-scale vector autoregressive models can be suggested as forecasting tools. However,these models include only a few economic time series from the whole variety of data available to forecasters. Therefore dynamic factor models, extracting information from a large number of time series, can be suggested as a reasonable alternative. In this paper two approaches are evaluated on the basis of data available for Brazil and Russia. The results allow us to suggest that the forecasting performance of the models considered depends on the statistical properties of the series to be forecast, which are affected by structural changes and changes in operating regime. This interaction between the statistical properties of the series and the forecasting performance of models requires more detailed investigation.
    Keywords: forecasting, emerging markets, factor models
    JEL: C53 C32 E37
    Date: 2006
  20. By: Fabio Moneta (Finance Department, Carroll School of Management, Boston College, 140 Commonwealth Avenue, Chestnut Hill, MA 02467-3808, USA.); Rasmus Rüffer (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: Against the background of the rapid inter- and intraregional integration of East Asia, we examine the extent and nature of synchronisation of business cycles in the region. We estimate various specifications of a dynamic common factor model for output growth of ten East Asian countries. A significant common factor is shared by all Asian countries considered, except China and Japan. The degree of synchronisation has fluctuated over time, with an upward trend particularly evident for the newly industrialised countries. Synchronisation appears to mainly reflect strong export synchronisation, rather than common consumption or investment dynamics. Cross-country spill-over effects explain only a small part of the comovement in the region. More importantly, a number of exogenous factors, such as the price of oil and the JPY-USD exchange rate, play an important role in synchronising activity. In addition, economic linkages with Europe and North America may also have contributed to the observed synchronisation. JEL Classification: E30, F00.
    Keywords: Business cycles synchronisation, East Asia, dynamic factor model.
    Date: 2006–08
  21. By: Camille Logeay; Julia Schwenkenberg; Sabine Stephan; Christian Proano-Acosta with the Collaboration of Serhiy Yahnych
    Date: 2005
  22. By: Marco Realdon
    Abstract: This paper presents a tractable bond valuation model, which further develops the approach proposed by Piazzesi (2005). The short term inter-bank interest rate is equal to the target rate set by the central bank plus a spread. Bond yields are driven by the intensities that determine the probabilities that the central bank may raise or cut the target interest rate. Unlike in Piazzesi (2005), negative intensities have a convenient interpretation and do not complicate estimation, and two accurate approximations to the bond pricing equation provide new closed form solutions for discount bond prices that require no numerical integration. Unlike in Piazzesi the target interest rate can be constrained to be non-negative. Yields, especially long term ones, decrease when the central bank is expected to decide more frequent and/or larger average future changes in the target interest rate. The model lends itself to easy calibration and estimation.
    Keywords: Bond valuation, target interest rate, closed form solution, yield curve, central banker's meeting
    JEL: G13
    Date: 2006–08
  23. By: Jerzy (Jurek) D. Konieczny (Department of Economics, Wilfrid Laurier University, Waterloo, Ontario, Canada, N2L 3C5.); Fabio Rumler (Oesterreichische Nationalbank, Otto Wagner Platz 3, A-1090 Vienna, Austria.)
    Abstract: We ask why, in many circumstances and many environments, decision-makers choose to act on a time-regular basis (e.g. adjust every six weeks) or on a state regular basis (e.g. set prices ending in a 9), even though such an approach appears suboptimal. The paper attributes regular behaviour to adjustment cost heterogeneity. We show that, given the cost heterogeneity, the likelihood of adopting regular policies depends on the shape of the benefit function - the flatter it is, the more likely, ceteris paribus, is regular adjustment. We provide sufficient conditions under which, when policy makers differ with respect to the shape of the benefit function (as in Konieczny and Skrzypacz, 2006), the frequency of adjustments across markets is negatively correlated with the incidence of regular adjustments. On the other hand, if policy makers differences are due to the level of adjustment costs (as in Dotsey, King and Wolman, 1999), then the correlation is positive. To test the model we apply it to optimal pricing policies. We use a large Austrian data set, which consists of the direct price information collected by the statistical office and covers 80% of the CPI over eight years. We run cross-sectional tests, regressing the proportion of attractive prices and, separately, the excess proportion of price changes at the beginning of a year and at the beginning of a quarter, on various conditional frequencies of adjustment, inflation and its variability, dummies for good types, and other relevant variables. We find that the lower is, in a given market, the conditional frequency of price changes, the higher is the incidence of time- and state-regular adjustment. JEL Classification: E31, L11, E52, D01.
    Keywords: Optimal pricing, attractive prices, menu costs.
    Date: 2006–08
  24. By: Simone Valente (Center of Economic Research, Swiss Federal Institute of Technology Zurich (ETH))
    Abstract: The interaction between habit formation and pollution-type ex- ternalities modifies the social optimum through discount effects and elasticity effects. If the substitution elasticity does not exceed unity, both effects reduce optimal consumption and capital in the long run, and the optimal capital-income tax increases with the relative impor- tance of habits. Similar results hold with high elasticity if the relative importance of habits is sufficiently high.
    Keywords: externalities, habit formation, pollution, optimal growth.
    JEL: D62 D91 E21
    Date: 2006–02
  25. By: Juan Nicolás Hernández
    Abstract: A la luz de la historia comprendida en el periodo 1954-2002, que abarca episodios de creciente volatilidad en el producto para Colombia, el objetivo del trabajo es hallar empíricamente a partir de la información macroeconómica disponible y en el contexto de las diversas teorías, que variables guardan una relación de largo plazo con el consumo de los hogares y cuantificar su incidencia. Adicionalmente y partiendo de las especificaciones encontradas determinar la calidad del pronóstico, evaluando la posible contribución de su bondad a la discusión teórica. Dentro de los resultados se corrobora para el caso colombiano que la estructura demográfica no resulta tan relevante, el efecto negativo de la tasa de interés, el papel de la riqueza y el ingreso disponible, así como el rol del sistema financiero. Hacia el largo plazo los hogares con un mayor acceso al sistema financiero tenderían a ahorrar.
    JEL: E21 E27 C32
  26. By: Silvio Rendon (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))
    Abstract: In this paper I inquire about the effects initial wealth has on black-white differences in early employment careers. I set up a dynamic model in which individuals simultaneously search for a job and accumulate wealth, and fit it to data from the National Longitudinal Survey (1979-cohort). The estimates show that borrowing constraints are tight for both race groups. Regime changes reveal that differences in initial wealth account almost fully for the racial gap in wealth and wages at the beginning of employment careers, but their effect tapers off and completely dissapears several years after graduation. In contrast, differences in the labor market environment and in preferences are shown to account fully for both racial gaps, in wealth and in wages, persisting several years after High School graduation.
    Keywords: Job search, wealth, racial differences, borrowing constraints, consumption, unemployment, estimation of dynamic structural models
    JEL: C33 E21 E24 J64
    Date: 2006–05
  27. By: Daniel Levy
    Abstract: The marketplace, along with its price system, is the single most important institution in a western-style free enterprise economy. The ability of prices to adjust to changes in supply and demand conditions enables the market to function efficiently and lies behind the magical invisible hand mechanism. To the behaviour of prices and in particular to the ability of prices to adjust to changes in market conditions, therefore, have fundamental implications for many key issues in many areas of both microeconomics as well as macroeconomics. It is, therefore, critical to study and understand whether there are barriers to price adjustments, what are the nature of these barriers, how the barriers lead to price rigidity, what are possible implications of these rigidities, etc. This introductory essay briefly summarizes the fourteen empirical studies of price rigidity that are included in this special issue.
    Date: 2006–09
  28. By: Mauricio A. Hernández; Munir Jalil Barney; Carlos Esteban Posada
    Abstract: os rasgos característicos de muchas economías desarrolladas y en desarrollo de los últimos dos decenios han sido la gran expansión de sus agregados monetarios, por encima del aumento de su ingreso nominal, y la reducción de sus tasas de inflación. Suponiendo que la conjunción de ambos rasgos indica aumentos significativos de la demanda de saldos reales de dinero, en este documento se reporta un intento de estimación de la demanda de saldos reales de moneda doméstica mediante un ejercicio realizado bajo el método denominado mínimos cuadrados ordinarios dinámicos en panel para una muestra de 63 países a lo largo del período 1975- 2002. De acuerdo con los resultados, los aumentos del gasto en consumo privado, la caída de los diferenciales de inflación con respecto a Estados Unidos y la reducción de la tasa de interés en Estados Unidos (tasa a tres meses sobre Treasure bills) contribuyeron a aumentar la demanda de dinero doméstico en el período mencionado.
    Keywords: demanda de dinero; consumo; tasa de interés; inflación, panel; cointegración; mínimos cuadrados ordinarios dinámicos.
    JEL: C23 E41
  29. By: Mauricio Hernández Monsalve; Munir A. Jalil Barney; Carlos Esteban Posada
    Abstract: Dos rasgos característicos de muchas economías desarrolladas y en desarrollo de los últimos dos decenios han sido la gran expansión de sus agregados monetarios, por encima del aumento de su ingreso nominal, y la reducción de sus tasas de inflación. Suponiendo que la conjunción de ambos rasgos indica aumentos significativos de la demanda de saldos reales de dinero, en este documento se reporta un intento de estimación de la demanda de saldos reales de moneda doméstica mediante un ejercicio realizado bajo el método denominado “mínimos cuadrados ordinarios dinámicos en panel” para una muestra de 63 países a lo largo del período 1975- 2002. De acuerdo con los resultados, los aumentos del gasto en consumo privado, la caída de los diferenciales de inflación con respecto a Estados Unidos y la reducción de la tasa de interés en Estados Unidos (tasa a tres meses sobre Treasure bills) contribuyeron a aumentar la demanda de dinero doméstico en el período mencionado.
    Date: 2006–08–01
  30. By: VÁSQUEZ, Diego Mauricio; MELO, Luis Fernando
    Abstract: En este documento se presenta la descripción y los resultados de la estimación de la estructura a plazos de las tasas de interés en Colombia utilizando el método de funciones B-spline cúbicas. Adicionalmente, se llevan a cabo comparaciones entre los resultados obtenidos a través de esta metodología y los presentados por Arango, Melo y Vásquez (2002) respecto a los métodos de Nelson y Siegel, y de la Bolsa de Valores de Colombia. Se observa que el desempeño del método de estimación de funciones Bspline cúbicas es similar al de Nelson y Siegel, y estos dos métodos superan al de la Bolsa de Valores de Colombia.
    Date: 2004–10–01
  31. By: Georg Müller; Mark Bergen; Shantanu Dutta; Daniel Levy
    Abstract: There has been increasing interest in understanding how firms undertake non-price adjustment activities, especially in situations where prices may be rigid despite changes in market conditions. Using scanner price data for over 4,500 different food products from a large US supermarket chain, we document periods of rigidity in product additions and deletions: new products are less likely to be introduced, and existing products are less likely to be discontinued during holiday periods than throughout the rest of the year. We argue that this is due to higher costs of undertaking these kinds of product assortment activities during holiday periods. We discuss how this relates to the exiting literature on non-price adjustment and price rigidity.
    Date: 2006–09
  32. By: Leon Bettendorf; Albert van der Horst
    Abstract: CORTAX is applied in Bettendorf et al. (2006), a simulation study on the economic and welfare implications of reforms in corporate income taxation. This technical documentation of the model consists of the derivation and listing of the equations of the model and a justification of the calibration.
    Keywords: corporate income taxation; tax competition; applied general equilibrium model
    JEL: E62 H25
    Date: 2006–08
  33. By: Markus Poschke
    Abstract: The aim of this paper is to contribute to explaining differences in aggregate productivity between similar, industrialized countries such as the US and European Union (EU) member states. By introducing shifts in administrative entry cost and a firm technology adoption decision in a model of heterogeneous firms close to Hopenhayn (1992), it matches the following facts: higher entry cost is associated with (1) both lower labor and total factor productivity, (2) more capital-intensive production, and (3) lower firm turnover. Compared to previous studies of reallocation intensity and aggregate productivity, endogenizing capital intensity through technology choice leads to stronger results; higher equilibrium capital intensity acts as an entry barrier to new firms, and protects low-productivity incumbents. Notably, the very small differences in the administrative cost of entry as documented by Djankov, La Porta, Lopez-de-Silanes and Shleifer (2002) suffice to explain 10 to 20% of differences in TFP and the capital-output ratio between Europe and the US. To obtain this, both heterogeneity of firms and allowing for technology choice are crucial.
    Keywords: growth theory, aggregate productivity, technology adoption, firm dynamics, entry and exit, reallocation, selection, regulation of entry
    JEL: E22 G38 L11 L16 O33 O40
    Date: 2006
  34. By: NIETO, Sebastián
    Abstract: In order to analyze the impact of the new banking capital regulation (Basel II) on the business cycle in an emerging economy, I develop a duopoly model composed of domestic and foreign banks. The principal results are: by the conduct of new banking capital regulation, the assessment of credit risk carried out by an international bank in a given country not only affects the total loans in that country but also the total assets supplied in other countries. Second, analyzing risk-averse banks, as portfolio diversification increases, the change in loans allocated in a given country by an international bank as a proportion of the original investment and the total level of loans for that country can be harshly affected by the behavior of a foreign bank following only “news” through the new capital regulation. Finally, even in the case that portfolio diversification increases without limits, the macroeconomic implication of a change of credit risk estimation, via the new capital regulation, is larger when banks are risk-neutral than risk-averse.
    Date: 2004–12–01
  35. By: Mauro Bambi
    Abstract: In this paper, a continuous time AK model is fully analyzed under the time-to-build assumption. Existence and uniqueness of a balance growth path, as well as oscillatory convergence are proved. Moreover, the role of transversality conditions and capital depreciation are highlighted. Numerical simulations are also provided for different choices of the time-to-build delay.
    Keywords: AK Model; Time-to-Build; D-Subdivision method
    JEL: E00 E3 O40
    Date: 2006
  36. By: Mark J. Koetse (Vrije Universiteit Amsterdam); Henri L.F. de Groot (Vrije Universiteit Amsterdam); Raymond J.G.M. Florax (Purdue University, and Vrije Universiteit)
    Abstract: This paper presents results of a meta-regression analysis on empirical estimates of capital-energy substitution. Theoretically it is clear that a distinction should be made between Morishima substitution elasticities and cross-price elasticities. The former represent purely technical substitution possibilities while the latter include an income effect and therefore represent economic substitution potential. We estimate a meta-regression model with separate coefficients for the two elasticity samples. Our findings suggest that primary model assumptions on returns to scale, technological change and separability of input factors matter for the outcome of a primary study. Aggregation of variables and the type of data used in empirical research are also relevant sources of systematic effect-size variation. Taking these factors into consideration, we compute ideal-typical elasticities for the short, medium and long run. The resulting figures clearly show that s! ubstitution elasticities are substantially higher than cross price elasticities. Therefore, despite considerable technical opportunities for capital-energy substitution, they are almost entirely outweighed by the negative income effect brought about by energy price increases; the short and medium run cross price elasticities are not statistically different from zero. In the long run this pattern does not hold. Our findings therefore suggest that actual changes in the demand for capital due to energy price increases take time.
    Keywords: production function; capital-energy substitution; cross-price elasticity; Morishima substitution elasticity; meta-analysis
    JEL: C10 D24 D33 E23 O33 Q40
  37. By: Marije Schouwstra (Faculty of Economics and Econometrics, Universiteit van Amsterdam); Michael Ellman (Faculty of Economics and Econometrics, Universiteit van Amsterdam)
    Abstract: This model of policy evaluation has been developed to identify factors that cause policy outcomes to diverge from the intended results. In this model the explanatory factors may be inherent to the conceptual and institutional framework to which policy makers adhere, or they may be ‘real world’ factors such as badly-defined performance indicators or cyclical economic problems. This model can be used by scholars for analyzing and evaluating government policies and the policies of international organizations and by policy makers to improve their policies. The model can also be used for cross-country comparisons to establish why a certain policy works in one country or situation and why it does not work in another country or situation.
    Keywords: model of policy analysis model of policy evaluation public policy international financial institutions evaluation international organizations cross country comparison policy analysis conceptual framework institutional framework normative formal
    JEL: E61 F35 F37 F53 G38 H43 H83 O19 O21 O22
    Date: 2006–07–13
  38. By: Mark J. Koetse (Vrije Universiteit Amsterdam); Henri L.F. de Groot (Vrije Universiteit Amsterdam); Raymond J.G.M. Florax (Purdue University, and Vrije Universiteit)
    Abstract: In this paper we perform a meta-analysis on empirical estimates of the impact between investment and uncertainty. Since the outcomes of primary studies are largely incomparable with respect to the magnitude of the effect, our analysis focuses on the direction and statistical significance of the relationship. The standard approach in this situation is to estimate an ordered probit model on a categorical estimate, defined in terms of the direction of the effect. The estimates are transformed into marginal effects, in order to represent the changes in the probability of finding a negative significant, insignificant, and positive significant estimate. Although a meta-analysis generally does not allow for inferences on the correctness of model specifications in primary studies, our results give clear directions for model building in empirical investment research. For example, not including factor prices in investment models may seriously affect the model outco! mes. Furthermore, we find that Q-models produce more negative significant estimates than other models do, ceteris paribus. The outcome of a study is also affected by the type of data used in a primary study. Although it is clear that meta-analysis cannot always give decisive insights into the explanations for the variation in empirical outcomes, our meta-analysis shows that we can explain to a large extent why empirical estimates of the investment-uncertainty relationship differ.
    Keywords: investment; uncertainty; meta-analysis
    JEL: C10 D21 D80 E22
    Date: 2006–07–10
  39. By: Leon Bettendorf; Joeri Gorter; Albert van der Horst
    Abstract: Statutory tax rates have declined in the European Union in the recent decades. An applied general equilibrium model on corporate taxation sheds light on the economic and welfare implications of tax rate reforms. Domestic distortions proof highly relevant as even unilateral reductions of the corporate income tax rate might reduce welfare if the labour tax rate has to be increased. Profit shifting induces countries to underbid each others tax rates, but this effect is sizable only if two countries are closely linked. The harmful external effects of CIT rate reductions are limited, which reduces the need for European coordination of CIT rates.
    Keywords: corporate income taxation; tax competition; applied general equilibrium model
    JEL: C68 E62 F23 H25
    Date: 2006–08

This nep-mac issue is ©2006 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.