nep-mac New Economics Papers
on Macroeconomics
Issue of 2006‒12‒01
fifty-six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Optimal monetary policy rules with labor market frictions By Ester Faia
  2. Okun's Law, Creation of Money and the Decomposition of the Rate of Unemployment By Mussard, Stéphane; Philippe, Bernard
  3. Public Capital, Fiscal Deficit and Growth By Massimo Antonini
  4. The yield curve as a predictor and emerging economies By Arnaud Mehl
  5. Vintage Capital and Expectations Driven Business Cycles By Floden, Martin
  6. Existence of Bifurcation in Macroeconomic Dynamics: Grandmont was Right By William Barnett; Yijun He
  7. Structural Breaks and Optimal Monetary Policy By MATTESINI FABRIZIO; NISTICO' SALVATORE
  8. Fundamental inflation uncertainty By Charlotta Groth; Jarkko Jääskelä; Paolo Surico
  9. What is global excess liquidity, and does it matter? By Rasmus Rüffer; Livio Stracca
  10. Informal central bank independence: an analysis for three European countries By DAVID COBHAM; STEFANIA COSCI; MATTESINI FABRIZIO
  11. Modelling Central Bank Intervention Activity under Inflation Targeting By Horvath, Roman
  12. Bridging the Technology-Gap in Economic Transition, the J-curve of Growth and Unemployment By Pascal Hetze
  13. Chartist Trading in Exchange Rate Theory By Selander, Carina
  14. Optimal emerging market fiscal policy when trend output growth is unobserved By Gregory Thwaites
  15. Equilibrium of incomplete markets with money and intermediate banking system By Monique Florenzano; Stella Kanellopoulou; Yannis Vailakis
  16. Geography or skills - What explains Fed watchers’ forecast accuracy of US monetary policy? By Helge Berger; Michael Ehrmann; Marcel Fratzscher
  17. The (Ir)relevance of the NRU for Policy Making: The Case of Denmark By Marika Karanassou; Hector Sala; Pablo F. Salvador
  18. Hot Money Inflows in China : How the People's Bank of China Took up the Challenge By Vincent Bouvatier
  19. A Deliberative Independent Central Bank By Erwin Jericha; Martin Schürz
  20. Fiscal rules for debt sustainability in emerging markets: the impact of volatility and default risk By Adrian Penalver; Gregory Thwaites
  21. Financial Development and Inequality: Brazil 1985-99 By Manoel F. Meyer Bittencourt
  22. The Employment (and Output) of Nations: Theory and Policy Implications By Pietro F. Peretto
  23. Reform Redux: Measurement, Determinants and Reversals By Nauro F. Campos; Roman Horváth
  24. Public Debt, Fiscal Solvency, and Macroeconomic Uncertainty in Latin America: The Cases of Brazil, Colombia, Costa Rica, and Mexico By Mendoza, Enrique G.; Oviedo, P. Marcelo
  25. Risk, Nonconvergence and Cycles: A Two-Country Model By Tomoo Kikuchi
  26. Openness can be good for Growth: The Role of Policy Complementarities By Roberto Chang; Linda Kaltani; Norman Loayza
  27. Effective demand and short-term adjustments in the General Theory By Olivier Allain
  28. Inflación y dinero en Colombia: otro modelo P-estrella By Andrés González; Luis Fernando Melo; Carlos Esteban Posada
  29. Sustainable Fiscal Policy with Rising Public Debt-to-GDP Ratios By Oviedo, P. Marcelo
  30. Endogenous Growth and Comparative Standards of Living between Mexico and the US By Alejandro Rodríguez Arana
  31. On Prices in Myrdal's Monetary Theory By Alexander Tobon
  32. LA TASA DE INTERÉS NATURAL EN COLOMBIA By Juan José Echavarría; Enrique López Enciso; Martha Misas Arango; Juana Tellez Corredor
  33. The Effects of Age and Job Protection on the Welfare Costs of Inflation and Unemployment: a Source of ECB anti-inflation bias? By BECCHETTI LEONARDO; CASTRIOTA STEFANO; GIUNTELLA OSEA
  34. FIRM INVESTMENT AND MONETARY POLICY<br />TRANSMISSION IN THE EURO AREA By Jean-Bernard Chatelain; Andrea Generale; Ignacio Hernando; Ulf Von Kalckreuth; Philip Vermeulen
  36. Recovery Rates, Default Probabilities and the Credit Cycle By Carlos González-Aguado; Max Bruche
  37. Fiscal Implications of Pension Refprms in Italy By BRUGIAVINI AGAR; PERACCHI FRANCO
  38. Structural reforms and growth : product and labor market deregulations By Eijffinger,Sylvester C.W.; Rossi,Alberto G.P.
  39. Banks, Liquidity Crises and Economic Growth By Alejandro Gaytan; Romain Ranciere
  40. El efecto de las intervenciones cambiarias: la experiencia colombiana 2004-2006 By Hernández Monsalve, Mauricio Alberto; Mesa Callejas, Ramón Javier
  41. Bayesian inference in cointegrated VAR models - with applications to the demand for euro area M3 By Anders Warne
  42. CONVERGENCIA REGIONAL EN COLOMBIA: un enfoque en los Agregados Monetarios y en el Sector Exportador By Carolina Gómez Cuenca
  43. Transferências Voluntárias e Ciclo Político-Orçamentário no Federalismo Fiscal Brasileiro By Ferreira, Ivan F. S.; Bugarin, Mauricio S.
  44. How Much Does the UK Invest in Intangible Assets? By Mauro Giorgio Marrano; Jonathan Haskel
  45. Heterogeneity of Central Bankers and Inflationary Pressure By Bugarin, Mauricio; Carvalho. Fabia A.
  46. Rent Seeking, Policy and Growth under Electoral Uncertainty: Theory and Evidence By Konstantinos Angelopoulos; George Economides
  47. Heterogeneity of saving behaviours: does gender matter? By BETTIO FRANCESCA; CARETTA ALESSANDRA
  48. Why England? Demographic factors, structural change and physical capital accumulation during the Industrial Revolution By Nico Voigtländer; Hans-Joachim Voth
  49. Science and Ideology in Economic, Political, and Social Thought By Hillinger, Claude
  50. Longevity and Lifetime Labor Input: Data and Implications By Moshe Hazan
  51. El comportamiento de la inflación en Colombia durante el periodo 1955-2004 By Héctor Ochoa; Angela Martínez
  52. When Does Domestic Saving Matter for Economic Growth? By Philippe Aghion; Diego Comin; Peter Howitt
  53. Factor Replacement versus Factor Substitution, Mechanization and Asymptotic Harrod Neutrality By Danny Givon
  54. Returns to equity, investment and Q: evidence from the United Kingdom By Simon Price; Christoph Schleicher
  55. Antidumping Procedures and Macroeconomic Factors By Mustapha Sadni Jallab; René Sandretto; Monnet Gbakou
  56. Marché du crédit et travail décent au Burkina Faso By Adama Zerbo

  1. By: Ester Faia (Department of Economics, Universitat Pompeu Fabra, Ramon Trias Fargas 25-27, 08005, Barcelona, Spain.)
    Abstract: This paper studies optimal monetary policy rules in a framework with sticky prices, matching frictions and real wage rigidities. Optimal monetary policy is given by a constrained Ramsey plan in which the monetary authority maximizes the agents’ welfare subject to the competitive economy relations and the assumed monetary policy rule. I find that optimal policy should deviate from the strict inflation targeting since the policy maker faces a typical unemployment/inflation trade-off. In this context and unlike a standard New Keynesian model stabilizing inflation is not sufficient to stabilize the marginal cost (hence the output gap) since the latter also depends on the evolution of unemployment. The matching frictions add a congestion externality since the number of unemployed in the market and their bargaining power reduce the probability of forming matches. Hence optimal monetary policy features unemployment targeting along with inflation targeting. JEL Classification: E52, E24.
    Keywords: Optimal monetary policy rules, matching frictions, wage rigidity.
    Date: 2006–11
  2. By: Mussard, Stéphane (CEPS/INSTEAD, GEREM, GREDI); Philippe, Bernard (GEREM Université de Perpignan)
    Abstract: In this paper, we show that the rate of unemployment in period t depends on GDP and inflation rate in period t-1. We then show that GDP is related to money creation, and subsequently that the rate of unemployment is a decreasing function of this creation.
    Keywords: Creation of Money; Decomposition ; GDP ; Rate of Unemployement
    JEL: E24 E20
    Date: 2006–10
  3. By: Massimo Antonini
    JEL: O23 E62 H62
    Date: 2005–06
  4. By: Arnaud Mehl (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany)
    Abstract: This paper investigates the extent to which the slope of the yield curve in emerging economies predicts domestic inflation and growth. It also examines international financial linkages and how the US and the euro area yield curves help to predict. It finds that the domestic yield curve in emerging economies has in-sample information content even after controlling for inflation and growth persistence, at both short and long forecast horizons, and that it often improves out-of-sample forecasting performance. Differences across countries are seemingly linked to market liquidity. The paper further finds that the US and the euro area yield curves also have in- and out-of-sample information content for future inflation and growth in emerging economies. In particular, for emerging economies that have an exchange rate peg to the US dollar, the US yield curve is often found to be a better predictor than these economies’ own domestic curve and to causally explain their movements. This suggests that monetary policy changes and short-term interest rate pass-through are key drivers of international financial linkages through movements from the low end of the yield curve. JEL Classification: E44, F3, C5.
    Keywords: emerging economies, yield curve, forecasting, international linkages.
    Date: 2006–11
  5. By: Floden, Martin (Dept. of Economics, Stockholm School of Economics)
    Abstract: This paper demonstrates that increased optimism about future productivity can generate an immediate economic expansion in a neoclassical model with vintage capital and variable capacity utilization. Previous research has documented that standard neoclassical models cannot generate a simultaneous increase in consumption, investment, and hours in response to news shocks, and that optimism in these models tends to reduce investment and hours. When technology is vintage specific, however, expectations of higher future productivity raise the demand for new vintages of capital relative to old capital. Capital depreciates faster when utilization is high, but this depreciation only affects installed capital. The cost of high depreciation therefore falls when the value of installed capital falls. It is demonstrated here that with standard parameter values, more optimism raises utilization, consumption, investment, hours, and output.
    Keywords: Expectations; News; Business cycles; Vintage capital; Capital-embodied technological change
    JEL: E13 E32
    Date: 2006–11–10
  6. By: William Barnett (Department of Economics, The University of Kansas); Yijun He (School of Economic Sciences, Washington State University)
    Abstract: Grandmont (1985) found that the parameter space of the most classical dynamic general-equilibrium macroeconomic models are stratified into an infinite number of subsets supporting an infinite number of different kinds of dynamics, from monotonic stability at one extreme to chaos at the other extreme, and with all forms of multiperiodic dynamics between. But Grandmont provided his result with a model in which all policies are Ricardian equivalent, no frictions exist, employment is always full, competition is perfect, and all solutions are Pareto optimal. Hence he was not able to reach conclusions about the policy relevance of his dramatic discovery. As a result, Barnett and He (1999, 2001, 2002) investigated a Keynesian structural model, and found results supporting Grandmont¡¯s conclusions within the parameter space of the Bergstrom- Wymer continuous-time dynamic macroeconometric model of the UK economy. That prototypical Keynesian model was produced from a system of second order differential equations. The model contains frictions through adjustment lags, displays reasonable dynamics fitting the UK economy¡¯s data, and is clearly policy relevant. In addition, initial results by Barnett and Duzhak (2006) indicate the possible existence of Hopf bifurcation within the parameter space of recent New Keynesian models. Lucas-critique criticism of Keynesian structural models has motivated development of Euler equations models having policy-invariant deep parameters, which are invariant to policy rule changes. Hence, we continue the investigation of policy-relevant bifurcation by searching the parameter space of the best known of the Euler equations general-equilibrium macroeconometric models: the Leeper and Sims (1994) model. We find the existence of singularity bifurcation boundaries within the parameter space. Although never before found in an economic model, our explanation of the relevant theory reveals that singularity bifurcation may be a common property of Euler equations models. These results further confirm Grandmont¡¯s views. Beginning with Grandmont¡¯s findings with a classical model, we continue to follow the path from the Bergstrom-Wymer policy-relevant Keynesian model, to New Keynesian models, and now to Euler equations macroeconomic models having deep parameters. Grandmont was right.
    Keywords: Bifurcation, inference, dynamic general equilibrium, Pareto optimality, Hopf bifurcation, Euler equations, Leeper and Sims model, singularity bifurcation, stability.
    JEL: C14 C22 E37 E32
    Date: 2006–11
    Abstract: This paper analyzes the optimal behavior of the Central Bank in an economy characterized by balanced growth. Consistently with the view of Perron (1989) and di®erently from the standard approach in DNK literature, we model the dynamics of productivity as following a trend-stationary model subject to infrequent breaks; accordingly we characterize periods of productivity slowdown as structural breaks in trend-growth. We show that breaks in trend-growth a®ect the dynamics of in°ation, the preferences of a welfare-maximizing Cen- tral Bank and optimal monetary policy. We show that in periods of productivity slowdown, optimal monetary policy should not only guarantee the appropriate response to productivity shocks, but also take into consideration the change in trend-growth in responding to cost-push shocks. Moreover, we show that during productivity slow- downs the gains from commitment are higher than during phases of high productivity growth, while the consequences of a discretionary policy, albeit optimal, may be higher in°ation instability. JEL classification: E12, E44, E52
    Date: 2006–07
  8. By: Charlotta Groth; Jarkko Jääskelä; Paolo Surico
    Abstract: We develop a method of quantifying the uncertainty surrounding the estimates of the fundamental inflation implied by the New Keynesian Phillips Curve (NKPC). The uncertainty is represented as a band around the fundamental inflation, and encompasses the sampling uncertainty of both the estimates of the structural parameters and the estimates of the VAR used to form a projection of real marginal costs. An empirical application on UK and US data confirms that fundamental inflation tracks actual inflation reasonably well in both countries. For the United Kingdom the confidence band is sufficiently narrow, relative to the sample variance of inflation, to identify a number of periods where the predictions of the NKPC do not fully capture movements in actual inflation. In contrast, considerable uncertainty surrounds the estimates of fundamental inflation for the United States.
  9. By: Rasmus Rüffer (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Livio Stracca (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: This paper endeavours to provide a comprehensive analysis of the nature and the possible importance of “global excess liquidity”, a concept which has attracted considerable attention in recent years. The contribution of this paper is threefold. First, we present some conceptual discussion on the meaning of excess liquidity in advanced countries with developed financial markets. Second, we report some descriptive analysis on the degree of co-movement of several possible measures of excess liquidity and spill-overs between them for a relatively large sample of industrialised and developing countries. Third, we estimate a VAR model for an aggregate of the major industrialised countries and analyse the transmission of shocks to global excess liquidity to the global economy, including possible cross-border spill-over effects to a number of domestic variables in the world’s three largest economies (the US, the euro area and Japan). JEL Classification: E52, F42.
    Keywords: Global excess liquidity, monetary policy, open economy, international economics.
    Date: 2006–11
    Abstract: Changes in formal and informal central bank independence (CBI) in France, Italy and the UK in the period from the mid-1970s to the 1990s are examined; the major changes occurred in the 1990s, after the disinflations of the 1980s. Broad trends in the informal independence of central banks, defined as the ability to pursue price stability regardless of the government’s preferences, are identified on the basis of a monetary policy narrative and an analysis of a set of qualitative determinants of informal independence. The most important determinants are the social/political acceptance that monetary policy is the sphere of the central bank, the existence of anti-inflationary commitments in the form of intermediate targets for monetary policy, the degree of social consensus on the means and ends of macroeconomic policy, and the relative technical expertise of the central bank. These broad trends help to explain some of the inflation experience of the 1980s and 1990s which cannot be understood in terms of changes to formal CBI.
    Date: 2005–09
  11. By: Horvath, Roman
    Abstract: Using daily data from the Czech Republic in 1/1/1998-31/12/2002, we find that foreign exchange intervention activity is determined by the degree of exchange rate misalignment and lagged intervention. Additionally, inflation targeting regime is a binding constraint of intervention activity.
    Keywords: Foreign exchange intervention; central bank; inflation targeting
    JEL: E58 E52 F31 F33
    Date: 2006–05–10
  12. By: Pascal Hetze (University of Rostock and Max Planck Institute for Demographic Research)
    Abstract: The macroeconomic experience has been somewhat ambiguous during the historic experiment of economic transition in the former centrally-planed countries in Central and East Europe (CEE). The economic restructuring produced a notable catching-up in terms of productivity but also a J-curve shape of output growth accompanied by an increase in unemployment on a large scale. This paper models the transformation progress which leads to these contradictory outcomes. Before transition initiated catching-up, the economies suffered from two limits to growth: a gap of usable capital and a gap of technologies. Accordingly, a rapid technology transfer from the advanced Western economies led to a significant technological and structural change combined with high rates of labor reallocation. If we include frictions in the consequent matching between job seekers and jobs, the model reproduces the pattern of productivity, growth and unemployment that we find in the CEE countries.
    Keywords: catching-up, growth, unemployment, technological change, transition economies
    JEL: E24 O33 P20
    Date: 2006
  13. By: Selander, Carina (Department of Economics, Umeå University)
    Abstract: This thesis consists of four papers, of which paper 1 and 4 are co-written with Mikael Bask. Paper [1] <p> implements chartists trading in a sticky-price monetary model for determining the exchange rate. It is <p> demonstrated that chartists cause the exchange rate to "overshoot the overshooting equilibrium" of a <p> sticky-price monetary model. Chartists base their trading on a short-long moving average. The <p> importance of technical trading depends inversely on the time horizon in currency trade. The exchange <p> rate's perfect foresight path near long-run equilibrium is derived and it is demonstrated that the shorter <p> the time horizon, the greater the exchange rate overshooting. <p> The aim of Paper [2] is to see how the dynamics of the basic target zone model changes when <p> chartists and fundamentalists are introduced. Chartists use technical trading and the relative importance <p> of technical and fundamental analyses depend on the time horizon in currency trade. The model also <p> includes realignment expectations, which increase with the weight of chartists. The introduction of <p> chartists may significantly reduce and reverse, the so-called "honeymoon effect" of a fully credible <p> target zone. Further, chartists may cause the correlation between the exchange rate and the <p> instantaneous interest rate differential to become either positive or negative. <p> Using a chartist-fundamentalist set-up, Paper [3] derives the effects on the current exchange rate of <p> central bank intervention. Fundamentalists have rational expectations and chartists use so called <p> support and resistance levels in their trading. This technique results in chartists having both <p> bandwagon expectations and regressive expectations. Chartists may enhance or suppress the effect of <p> intervention depending on their expectations. The results indicate that a chartist channel exists. <p> The aim of Paper [4] is threefold; (i) to investigate if there is a unique rational expectations <p> equilibrium (REE) in a new Keynesian macroeconomic model augmented with technical trading, (ii), <p> to investigate if the unique REE is adaptively learnable and, (iii), to investigate if this unique and <p> adaptively learnable REE is desirable in an inflation rate targeting regime. The monetary authority is <p> using a Taylor rule when setting the interest rate. A main conclusion is that a robust Taylor rule <p> implies that the monetary authority should increase (decrease) the interest rate when the CPI inflation <p> rate increases (decreases) and when the currency gets stronger (weaker).
    Keywords: Chartist Trading; Foreign Exchange; Overshooting; Sterilized Intervention; Target zone; Taylor rules
    JEL: E43 E52 F31 F33 F37 F41
    Date: 2006–11–20
  14. By: Gregory Thwaites
    Abstract: This paper is concerned with how fiscal policy in emerging markets should respond to economic fluctuations. We model the behaviour of a fiscal authority in an emerging market country who can use external borrowing to smooth the effects of exogenous output shocks on domestic agents’ private consumption. We focus on the policy implications of the facts that (1) the GDP process in emerging markets is characterised by a relatively volatile trend growth rate, and (2) that policymakers cannot directly observe the output gap or the trend GDP growth rate. We have two key findings. First, we find that risk-averse policymakers who face EME-style output processes (ie processes dominated by shocks to the trend growth rate) should run tighter fiscal policies, with lower average debt-GDP ratios, than those in industrialised countries, who face different output processes. Second, our baseline parameterisation suggests that EME policymakers should run countercyclical fiscal policies. This result contrasts with other papers which have used optimising frameworks and the features of EME output processes to rationalise the observed procyclicality of EME fiscal policies or external balances. Simulations suggest that the welfare costs of naively running a fiscal policy that would be appropriate for an industrialised country are around 1% of certainty-equivalent consumption, but this result is sensitive to parameterisation. We find that a simple rule-of-thumb policy that stabilises the debt-GDP ratio in every period entails much smaller welfare losses.
  15. By: Monique Florenzano (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I]); Stella Kanellopoulou (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I]); Yannis Vailakis (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I])
    Abstract: This paper studies a simple stochastic two-period general equilibrium exchange model with money, an incomplete market of nominal assets, and a competitive banking system, intermediate between consumers and a Central Bank. There is a finite number of agents, consumers and banks. Default is not permitted. The public policy instruments are, besides real taxes implicit in the model, public debt and creation of money both implemented at the first period. The equilibrium existence is established under a Gains to trade hypothesis and the assumption that banks have a non zero endowment of money at each date-event of the model.
    Keywords: Competitive banking system, incomplete markets, nominal assets, money, monetary equilibrium, cash-in-advance constraints, public debt.
    Date: 2006–11–07
  16. By: Helge Berger (Free University Berlin, Department of Economics, Boltzmannstrasse 20, 12161 Berlin, Germany.); Michael Ehrmann (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Marcel Fratzscher (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: The paper shows that there is a substantial degree of heterogeneity in forecast accuracy among Fed watchers. Based on a novel database for 268 professional forecasters since 1999, the average forecast error of FOMC decisions varies 5 to 10 basis points between the best and worst-performers across the sample. This heterogeneity is found to be related to both the skills of analysts – such as their educational and employment backgrounds – and to geography. In particular, there is evidence that forecasters located in regions which experience more idiosyncratic economic conditions perform worse in anticipating monetary policy. Moreover, systematic forecaster heterogeneity is economically important as it leads to greater financial market volatility after FOMC meetings. Finally, Fed communication may exert an influence on forecast accuracy. JEL Classification: E52, E58, G14.
    Keywords: monetary policy, forecast, Federal Reserve, FOMC, geography, skills, heterogeneity, survey data, communication, United States.
    Date: 2006–11
  17. By: Marika Karanassou (Queen Mary, University of London, and IZA); Hector Sala (Universitat Autònoma de Barcelona, and IZA); Pablo F. Salvador (Universitat Autònoma de Barcelona, and Universitat de Girona)
    Abstract: We reconsider the central role of the natural rate of unemployment (NRU) in forming policy decisions. We show that the unemployment rate does not gravitate towards the NRU due to frictional growth, a phenomenon that encapsulates the interplay between lagged adjustment processes and growth in dynamic labour market systems. We choose Denmark as the focal point of our empirical analysis and find that the NRU explains only 33% of the unemployment variation, while frictional growth accounts for the remaining 67%. Therefore, our theoretical and empirical findings raise serious doubts as to whether the NRU should play a key instrumental role in policy making.
    Keywords: Unemployment, Natural rate of unemployment, Labour market dynamics, Frictional growth, Chain reaction theory
    JEL: E22 E24 J21
    Date: 2006–11
  18. By: Vincent Bouvatier (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I])
    Abstract: This paper investigates hot money inflows in China. The financial liberalization comes into effect and the effectiveness of capital controls tends to diminish over time. As a result, China is fuelled by hot money inflows. The US interest rate cut since 2001 and expectations of exchange rate adjustments are the main factors explaining these capital inflows. This study use the Bernanke and Blinder (1988) model extended to an open economy to examine implications of hot money inflows for the Chinese economy. A Vector Error Correction Model (VECM) on monthly data from March 1995 to March 2005 is estimated to investigate the recent upsurge in foreign reserves and shows that the interaction between domestic credit and foreign reserves was stable and consistent with monetary stability. Granger causality tests are implemented to show how the People's Bank of China (PBC) achieved this result.
    Keywords: Hot money inflows, domestic credit, VECM, Granger causality.
    Date: 2006–11–03
  19. By: Erwin Jericha (Vienna University of Technology); Martin Schürz (Oesterreichische Nationalbank, Economic Analysis Division)
    Abstract: The paper develops a communication game that is applied to the question of central bank policy and independence. The game is about the preferred degree of conservatism of monetary policy and the game setting consists of a principal (politics), an agent (central bank) and an observer (financial market participants). The extent of the welfare losses depends on the degree of knowledge, the endogenized signaling of financial market participants and the probability whether the degree of conservatism in monetary policy is adequate to nature. Consequently, a mechanism to minimize welfare losses of the principal has to be implemented. It is shown how the introduction of an institutional control mechanism with a countervailing goal function will improve the utilities for the principal.
    Keywords: accountability, agency losses, principal agent model
    JEL: E58 E59 E61 C79
    Date: 2006–06–11
  20. By: Adrian Penalver; Gregory Thwaites
    Abstract: The determinants of public debt dynamics – real interest rates, the real exchange rate, output growth and the primary fiscal balance – are typically more volatile in emerging market economies than in industrialised countries. Capital markets also typically demand higher interest rates from emerging markets when their debt dynamics deteriorate. This paper considers how these characteristics affect the choice of fiscal policy rules in emerging markets. We estimate an econometric model of the determinants of public debt dynamics on Brazilian data and use this model to simulate the effect of different fiscal policy rules for future paths of debt. We then derive the set of fiscal policy rules which stabilise public debt dynamics. We find that macroeconomic forecast uncertainty and feedback among the endogenous variables (principally from the debt-GDP ratio to interest rates) force the policy rule to be significantly more responsive to changes in public debt. Rules that would stabilise debt in a fully known world may not do so when the policymaker is faced with a realistic pattern of shocks. The method we employ may be a useful addition to the toolkit of domestic and international policymakers when assessing fiscal rules and debt sustainability.
  21. By: Manoel F. Meyer Bittencourt
    Abstract: We examine the impact that financial development had on earnings inequality in Brazil in the 1980’s and 90’s. The empirical evidence, based on panel time series and time series data, shows that more broad access to financial and credit markets had a significant and robust effect in reducing inequality during the period investigated. We suggest that this is not only because the poor can invest the acquired credit in all sorts of productive activities, but also because those with access to financial markets can insulate themselves against recurrent poor macroeconomic performance, which is exemplified by extreme inflation rates. The main implication of the results is that a seemingly non-distortionary policy, such as more credit aimed at the poor, alleviates the high inequality present in Brazil and consequently improves welfare without distorting economic efficiency.
    Keywords: Financial development and markets, credit, inequality and welfare, inflation
    JEL: D31 E44 O11 O54
    Date: 2006–06
  22. By: Pietro F. Peretto
    Keywords: Product Market, Labor Market, Market Structure, Employment, Unemployment
    Date: 2006–06
  23. By: Nauro F. Campos (Brunel University); Roman Horváth (Czech National Bank, Prague, Czech Republic; Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: We construct objective measures of privatization, internal and external liberalization reform efforts, across countries over time, and investigate their determinants, reversals and macroeconomic impacts. We find that GDP growth determines external liberalization and privatization, concentration of political power drives internal liberalization, and democracy underpins all three. We find that FDI inflows reduce the probability of privatization reversals, labour strikes increase that of internal liberalization reversals, and terms of trade shocks increase that of external liberalization reversals. We replicate previous studies and find that the macroeconomic effects of reform (when measured objectively) tend to be larger and more precisely estimated.
    Keywords: reform; liberalization; privatization; political economy; transition
    JEL: E23 D72 H26 O17
    Date: 2006–04
  24. By: Mendoza, Enrique G.; Oviedo, P. Marcelo
    Abstract: The ratios of public debt as a share of GDP of Brazil, Colombia, and Mexico were 12 percentage points higher on average during the period 1996-2005 than in the period 1990-1995. Costa Rica's debt ratio remained stable but at a high level near 50 percent. Is there reason to be concerned for the solvency of the public sector in these economies? We provide an answer to this question based on the quantitative predictions of a variant of the framework proposed by Mendoza and Oviedo (2006). This methodology yields forward-looking estimates of debt ratios that are consistent with fiscal solvency for a government that faces revenue uncertainty and can issue only non-state-contingent debt. In this environment, aversion to a collapse in outlays leads the government to respect a ``natural debt limit" equal to the annuity value of the primary balance in a ``fiscal crisis." A fiscal crisis occurs after a long sequence of adverse revenue shocks and public outlays adjust to their tolerable minimum. The debt limit also represents a credible commitment to remain able to repay even in a fiscal crisis. The debt limit is not, in general, the same as the sustainable debt, which is driven by the probabilistic dynamics of the primary balance. The results of a baseline scenario question the sustainability of current debt ratios in Brazil and Colombia, while those in Costa Rica and Mexico are inside the limits consistent with fiscal solvency. In contrast, current debt ratios are found to be unsustainable in all four countries for plausible changes to lower average growth rates or higher real interest rates. Moreover, sustainable debt ratios fall sharply when default risk is taken into account.
    Keywords: fiscal sustainability; public debt; sovereign default
    JEL: F3
    Date: 2006–11–27
  25. By: Tomoo Kikuchi
    Abstract: We develop an overlapping generations model with asset and capital accumulation to analyze the interaction between the real economy and international asset markets. The world consists of two homogenous countries with an integrated asset market, which differ only in levels of their capital stock. Two period lived consumers transfer wealth over time and across countries by holding international assets with stochastic dividends. Short sale of assets allows poor economy to take credit for productive investment. Yet, risk aversion and expectations may preclude capital stock of both countries from converging while capital flows from the rich to the poor country. The poor country needs sufficiently high capital stock initially to catch up with the rich country. Cycles in capital stocks and international capital flows occur.
    Keywords: International asset market, endogenous cycles, two-country model
    JEL: E44 F43 O11
    Date: 2006–06
  26. By: Roberto Chang; Linda Kaltani; Norman Loayza
    Abstract: This paper studies how the effect of trade openness on economic growth depends on complementary reforms that help a country take advantage of international competition. This issue is illustrated with a simple Harris-Todaro type of model where output gains after trade liberalization depend on the degree of labor market flexibility. In that model, trade protection may ameliorate the problem of underemployment (and underproduction) in sectors affected by labor market distortions; hence trade liberalization unambiguously increases per capita income only when labor markets are sufficiently flexible. We then present some panel evidence on how the growth effect of openness depends on a variety of structural characteristics. For this purpose, we use a non-linear growth regression specification that interacts a proxy of trade openness with proxies of educational investment, financial depth, inflation stabilization, public infrastructure, governance, labor-market flexibility, ease of firm entry, and ease of firm exit. We find that the growth effects of openness are positive and economically significant if certain complementary reforms are undertaken.
    Keywords: Openness, Growth, Economic Reform, Policy Complementarity
    JEL: E61 F13 F43 O40
    Date: 2005–06
  27. By: Olivier Allain (Université Paris 5 René Descartes - [Université René Descartes - Paris V], CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I])
    Abstract: Keynes' principle of effective demand constitutes a pillar for Post Keynesians theories. But Keynes' presentation remains difficult to interpret, mainly because the aggregate demand function is based on entrepreneurs' expectations. The problem is then to demonstrate how these entrepreneurs (whose only concern is making profits) are led to produce the effective demand (which partially results from the consumers' and investors' behaviour). Previous studies by authors like Weintraub or Davidson highlight the trial and error procedure here at stake. However, since their analyses are not built on a precise accounting of monetary flows, they fail to formally demonstrate the coherence of the whole adjustment process. The aim of this article is to provide such a formal demonstration. We thus concentrate on the General Theory to verify how it constitutes a coherent framework to analyse temporary equilibriums (at the end of every elementary period) and short-term dynamics which bring the economy towards the stationary equilibrium.
    Keywords: Keynesian economics, General Theory, macroeconomics, effective demand, short-term expectations.
    Date: 2006–11–08
  28. By: Andrés González; Luis Fernando Melo; Carlos Esteban Posada
    Abstract: Este documento reporta los resultados de la estimación de una versión reciente del modelo P-estrella de Gerlach y Svensson (2003) para Colombia (1980: I - 2005: IV) y sus predicciones. El modelo está diseñado para explicar la brecha de inflación (tasa observada menos la meta) con base en dos brechas: la brecha monetaria y la de producto. De acuerdo con sus resultados, la brecha de producto carece de efectos significativos en tanto que la brecha monetaria tiene un efecto significativo positivo sobre la de inflación.
    Date: 2006–11–01
  29. By: Oviedo, P. Marcelo
    Abstract: In financial and economic policy circles concerned with public debt in developing countries, a rising debt-GDP ratio is interpreted as a signal of overborrowing, warning of debt defaults if strong fiscal corrections are not adopted in time. This paper shows that this interpretation is incorrect. It does so by building a simple model of fiscal policy in which upward-sloping debt paths are observed even though the probability of default is equal to zero ``almost surely".
    Keywords: public debt, fiscal policy, debt sustainability, debt limits
    JEL: F3
    Date: 2006–11–27
  30. By: Alejandro Rodríguez Arana
    Abstract: This paper calibrates an AK model of growth for Mexico. Investment financing is modeled considering the domestic savings ratio as well as net factorial income and capital inflows of the balance of payments. Productivity A and the rate of depreciation of capital are found using econometric techniques. According to this model, actual parameters determining growth in Mexico are compatible with a sustained long run rate of growth of about 3.6%. At the same time, under these circumstances the ratio of the Mexican GDP to US GDP would be growing in time. The model is very sensible to the parameters and depends strongly of Mexicans living in the US and transferring remittances to Mexico, nonetheless. If remittances were eliminated, the actual rate of domestic savings would not be compatible with positive growth in the long run, which implies that relatively speaking the domestic savings rate in Mexico is very low. The paper concludes that to assure a positive growth that improves standards of living and the relative size of Mexico with respect to the US, it is necessary to implement policies oriented to increase the domestic savings rate and productivity. Otherwise there are high risks of macroeconomic crises in the future.
    Date: 2005–06
  31. By: Alexander Tobon (EconomiX - [CNRS : UMR7166] - [Université de Paris X - Nanterre])
    Abstract: The aim of this paper is to show how Myrdal monetary theory can contribute to the study of the behaviour of prices in disequilibrium. The analysis explains the existence of a cumulative process based on the capacity of the entrepreneur to anticipate price variations. The variation in prices explains the persistence of the cumulative process. This, we argue, represents an opposite view of the one contained in Wicksell's theory. Myrdal's theory leads to the rejection of the quantity theory of money based on Wicksell's approach. This comes as a surprising result knowing Wicksell believed his results confirmed this theory.
    Keywords: Myrdal; monetary equilibrium; cumulative process; prices; profit
    Date: 2006–10–19
  32. By: Juan José Echavarría; Enrique López Enciso; Martha Misas Arango; Juana Tellez Corredor
    Abstract: En este artículo se estima para Colombia la tasa de interés natural (TIN) para el período 1982-2005, con base en las metodologías propuestas por Laubach y Williams (2001) y Mésonnier y Renne (2004). Un modelo neokeynesiano es la base de la estimación de la TIN de “mediano plazo” como una variable no observada que cambia en el tiempo. Tal estimación se realiza mediante un filtro de Kalman que estima simultáneamente la TIN y la brecha del producto para la economía colombiana. Se sugiere que la política monetaria fue contraccionista en 1998 y 1999, y relativamente expansiva en los años recientes, aún cuando los resultados no son tan claros cuando se trabaja con los promedios móviles de la TIN. La brecha del producto ha sido positiva en 2003 y 2004, confirmando los resultados de otros trabajos en el área.
    Date: 2006–10–01
    Abstract: This paper extends the well known Di Tella et al. (2001 and 2003) analyses on the welfare costs of inflation and unemployment based on self-reported happiness data by looking at age and job market characteristic splits in a sample which includes more recent years and new countries. With both one and two stage estimating procedures we find support for the hypothesis that the relative welfare cost of unemployment versus inflation is higher than one (in contrast with the “equal-to-one” implicit assumption of the Misery Index). We also observe that the relative cost of unemployment is much higher in intermediate age cohorts and in low job protection countries. This might contribute to explain the higher concern for the level of economic activity of central bankers in countries with younger population
    Date: 2006–11
  34. By: Jean-Bernard Chatelain (EconomiX - [CNRS : UMR7166] - [Université de Paris X - Nanterre], PSE - Paris-Jourdan Sciences Economiques - [CNRS : UMR8545] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale des Ponts et Chaussées][Ecole Normale Supérieure de Paris]); Andrea Generale (Banca d´Italia - [Banca d´Italia]); Ignacio Hernando (Bank of Spain - [Bank of Spain]); Ulf Von Kalckreuth (Bundesbank - [Bundesbank]); Philip Vermeulen (ECB - European Central Bank - [European Central Bank])
    Abstract: This paper presents a comparable set of results on the monetary transmission channels on firm<br />investment (the interest rate channel and the broad credit channel) for the four largest euro-area<br />countries (Germany, France, Italy and Spain), using particularly rich micro datasets for each<br />country containing over 215,000 observations from 1985 to 1999. For each of those countries,<br />investment relationships are estimated explaining investment by its user cost, sales and cash flow.<br />A first result is that investment is sensitive to user cost changes in all those four countries. This<br />implies an operative interest channel in these euro-area countries. A second result is that investment<br />in all countries is quite sensitive to cash flow movements. However, only in Italy do smaller firms<br />react more to cash flow movements than large firms, implying that a broad credit channel might not<br />be equally pervasive in all countries.
    Keywords: Investment, Monetary Transmission Channels, User Cost of Capital
    Date: 2006–11–08
  35. By: Jean-Bernard Chatelain (EconomiX - [CNRS : UMR7166] - [Université de Paris X - Nanterre], PSE - Paris-Jourdan Sciences Economiques - [CNRS : UMR8545] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale des Ponts et Chaussées][Ecole Normale Supérieure de Paris]); Andre Tiomo (CREST - Centre de Recherche en Économie et Statistique - [INSEE] - [ École Nationale de la Statistique et de l'Administration Économique])
    Abstract: Using a large panel of 6946 French manufacturing firms, this paper investigates the effect<br />of sales, of the cost of capital and of liquidity constraint variables (cash flow or cash<br />stock) on the stock of capital from 1990 to 1999. The user cost elasticity is at the most<br />0.26 in absolute terms for all the firms of the sample. Three groups of firms representing<br />around 20 per cent of the sample (firms facing a high risk of bankruptcy, firms belonging<br />to the capital goods sector, firms making extensive use of trade credit) are more sensitive<br />to cash flow. Risky firms are less sensitive to sales, when cash stock replaces cash flow.<br />Simulations following shocks of interest rate (related to monetary policy shocks), provides<br />short run contemporaneous elasticities of investment with respect to interest rate through<br />the user cost and through debt repayments taken into account in cash flow.
    Keywords: Investment, User Cost of Capital, Liquidity Constraints, Monetary Policy<br />Shocks.
    Date: 2006–11–08
  36. By: Carlos González-Aguado; Max Bruche
    Abstract: Recovery rates are negatively related to default probabilities (Altman et al.,2005). This paper proposes and estimates a model in which this dependence is the result of an unobserved credit cycle: When times are bad, the default probability is high and recovery rates are low; when times are good, the default probability is low and recovery rates are high. The proposed dynamic model is shown to produce a better fit to the data than a standard static approach. It indicates that ignoring the dynamic nature of credit risk could lead to a severe underestimation of credit risk (e.g. by a factor of up to 1.7 in terms of the 95% VaR). Also, the model indicates that the credit cycle is related to but distinct from the business cycle as e.g. determined by the NBER, which might explain why previous studies have found the power of macroeconomic variables in explaining default probabilities and recoveries to be low.
    Date: 2006–11
    Abstract: -
    Date: 2005–02
  38. By: Eijffinger,Sylvester C.W.; Rossi,Alberto G.P. (Tilburg University, Center for Economic Research)
    Abstract: The paper focuses on labor and product market deregulations, as fundamental elements in the passage from an investment to an innovation-based economy. The approach undertaken is prominently empirical. After a very brief description of the regulatory levels on the two sides of the Atlantic, we take two cornerstone theoretical models: one developed by Robert Gordon (1997), the other developed by Blanchard and Giavazzi (2003) and we observe how well their theoretical predictions are supported by hard data. We conclude with an independent study on the accuracy of the IMD competitiveness index in predicting the overall economic performance of countries close to the technological frontier.
    Keywords: employment;unemployment;wages;growth;regulation;productivity;IMD
    JEL: E24 D24 L16 J50
    Date: 2006
  39. By: Alejandro Gaytan; Romain Ranciere
    Abstract: How do the liquidity functions of banks affect investment and growth at different stages of economic development? How do financial fragility and the costs of banking crises evolve with the level of wealth of countries? We analyze these issues using an overlapping generations growth model where agents can invest in a liquid storage technology or in a partially illiquid Cobb Douglas technology. By pooling liquidity risk, banks play a growth enhancing role in reducing inefficient liquidation of long term projects, but they may face liquidity crises associated with severe output losses. Middle income economies may find optimal to be exposed to liquidity crises, while poor and rich economies have more incentives to develop a fully covered banking system. Therefore, middle income economies could experience banking crises in the process of their development and, as they get richer, eventually converge to a financially safe long run steady state. The model also replicates the empirical fact of higher costs of banking crises for middle income economies. Finally, using GMM dynamic panel data techniques for a sample of 83 countries we show that growth implications of the model are consistent with the empirical facts.
    Keywords: OLG growth models, liquidity, financial intermediation, financial fragility, banking crises
    JEL: E44 G21 O11
    Date: 2005–06
  40. By: Hernández Monsalve, Mauricio Alberto; Mesa Callejas, Ramón Javier
    Abstract: El objetivo de este artículo es medir el tamaño relativo de las intervenciones cambiarias realizadas en el periodo de la revaluación del peso, entre 2004 y 2006, y calcular la efectividad de éstas en cuanto a sus efectos sobre la media y la varianza del tipo de cambio nominal. La propuesta de un modelo de determinación del tipo de cambio, que parte del modelo de balance de portafolio, y el uso de un índice de intervención construido para el caso colombiano, permiten concluir que las intervenciones del Banco de la República, con miras a defender el régimen de flotación controlada, han tenido efectos pequeños y transitorios en el nivel y la varianza del tipo de cambio, presentando rezagos de varios días y siendo descontadas rápidamente por el mercado
    Keywords: intervenciones esterilizadas; régimen cambiario; flotación controlada; mercado cambiario; tipo de cambio; modelo de portafolio
    JEL: E58 F31 E52 G11
    Date: 2006–10
  41. By: Anders Warne (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany)
    Abstract: The paper considers a Bayesian approach to the cointegrated VAR model with a uniform prior on the cointegration space. Building on earlier work by Villani (2005b), where the posterior probability of the cointegration rank can be calculated conditional on the lag order, the current paper also makes it possible to compute the joint posterior probability of these two parameters as well as the marginal posterior probabilities under the assumption of a known upper bound for the lag order. When the marginal likelihood identity is used for calculating these probabilities, a point estimator of the cointegration space and the weights is required. Analytical expressions are therefore derived of the mode of the joint posterior of these parameter matrices. The procedure is applied to a money demand system for the euro area and the results are compared to those obtained from a maximum likelihood analysis. JEL Classification: C11, C15, C32, E41.
    Keywords: Bayesian inference, cointegration, lag order, money demand, vector autoregression.
    Date: 2006–11
  42. By: Carolina Gómez Cuenca
    Abstract: Resumen: La Convergencia Económica -si las economías son similares- es el crecimiento más rápido de las regiones pobres comparadas con el de las ricas debido a los rendimientos decrecientes del capital; pero, si son heterogéneas, la Convergencia seria la tendencia de una economía a su propio equilibrio a partir de considerar los determinantes de su crecimiento. El estudio analiza la hipótesis de Convergencia en el PIB per cápita para 1960-2000 entre las regiones colombianas con el enfoque tradicional de Barro y Sala-I-Martín. La hipótesis se evalúa además con el enfoque de Quah a nivel de PIB per cápita y de Agregados Monetarios regionales, para el mismo periodo. En el PIB se halla evidencia de Convergencia condicional y Coalición entre regiones en los setenta y ochenta; y en el agregado monetario, marcada Coalición y Estratificación. ------------------------------------------------------------------ Abstract: The Convergence Economic implies, if the economies are homogenous, that poor regions tend to grow faster than rich ones as a result of decreasing returns of capital; but if the economies are heterogeneous the Convergence implies that an economy approaches to its own steady state by considering the growth´s determinants. This Paper studies the Convergence in the GDP per capita, in 1960-2000, between colombian regions using the traditional method proposed by Barro and Sala-I-Martín. The regional Convergence in the GDP per capita and in monetary supply, in the same period, is also evaluated across the new method proposed by Quah. For GDP there is evidence of conditional Convergence and Coalition between regions in seventies and eighties; and in Monetary Supply, evident Coalition and Stratification.
    Date: 2006–09–30
  43. By: Ferreira, Ivan F. S.; Bugarin, Mauricio S.
    Date: 2006–10
  44. By: Mauro Giorgio Marrano (Queen Mary, University of London, and CeRiBA); Jonathan Haskel (Queen Mary, University of London; AIM, CeRiBA, CEPR and IZA)
    Abstract: We attempt to replicate for the UK the Corrado, Hulten and Sichel (2005, 2006) work on spending on intangible assets in the US. Their work suggests private sector expenditure (investment) on intangibles is about 13% (11%) of US GDP 1998-2000, with intangible investment about equal to tangible capital investment. Our work, using a similar method, suggests the UK private sector spent, in 2004, about £127bn on intangibles, which is about 11% of UK GDP. The implied investment figure is around £116bn (10% of GDP) which is about equal to UK investment in tangible assets. Of the £127bn expenditure, (in round numbers) about 15% is spent on software, about 10% on scientific R&D, almost 20% on non-scientific R&D (design, product development etc.), about 14% on branding, about 20% on training and the rest on organisational capital.
    Keywords: Intangible assets, R&D, Training, Organisational capital, Investment
    JEL: O47 E22 E01
    Date: 2006–11
  45. By: Bugarin, Mauricio; Carvalho. Fabia A.
    Date: 2006–10
  46. By: Konstantinos Angelopoulos; George Economides
    Abstract: We construct an otherwise standard general equilibrium model of economic growth and endogenously chosen fiscal policy, in which individuals compete with each other for extra fiscal transfers and two political parties compete with each other for staying in power. The main prediction is that relatively large public sectors in pre-election periods distort incentives by pushing individuals away from productive work to rent seeking activities. In turn, distorted incentives hurt growth. We test this prediction by using a panel data set of a group of 25 OECD countries over the period 1982-1996, as well as a cross-section of 108 industrial and developing countries over the decade 1990-2000. There is evidence that electoral and/or political instability cause relatively large public sectors, which in turn increase rent seeking (as measured by the ICRG index), and this is bad for economic growth.
    Keywords: Political uncertainty, economic growth, incentives
    JEL: D7 D9 E6
    Date: 2005–06
    Abstract: This paper focuses on the gender heterogeneity of saving rates within the tradition of those empirical investigations that analyse saving behaviour directly for different groups of the population. We explore these issues by means of econometric estimation of a reduced form life cycle equation of savings and the subsequent simulation of saving rates. The investigation is conducted for Italy and the UK with a view to also verifying the extent to which outcomes reflect country specific factors. In order to isolate the role of preferences from that of family roles we confine the analysis to the subsample of the ‘singles’ in the population. Our results strongly suggest that (single) women do not display a greater taste for saving, but provide mixed support for the reverse possibility. Preliminary exploration of gendered consumption patterns suggests that higher expenditure on rent by women may contribute to lowering their savings with respect to men.
    Date: 2005–12
  48. By: Nico Voigtländer; Hans-Joachim Voth
    Abstract: Why did England industrialize first? And why was Europe ahead of the rest of the world? Unified growth theory in the tradition of Galor-Weil (2000) and Galor-Moav (2002) captures the key features of the transition from stagnation to growth over time. Yet we know remarkably little about why industrialization occurred so much earlier in some parts of the world than in others. To answer this question, we present a probabilistic two-sector model where the initial escape from Malthusian constraints depends on capital deepening and the use of more differentiated capital inputs. Weather-induced shocks to agricultural productivity cause changes in prices and quantities, and affect wages. In a standard model with capital externalities, these fluctuations interact with the demographic regime and affect the speed of growth. Our model is calibrated to match the main characteristics of the English economy in 1700 and the observed transition until 1850. We capture one of the key features of the British Industrial Revolution emphasized by economic historians – slow growth of output and productivity. The paper explores one additional aspect of inequality in the transition to the Post-Malthusian economy – the availability of nutrition for poorer segments of society. We examine the influence of redistributive institutions such as the Old Poor Law, and find they were not decisive in fostering industrialization. Simulations using parameter values for other countries show that Britain’s early escape was only partly due to chance. France could have attained a greater workforce in manufacturing than Britain, but the probability was less than 30 percent. Contrary to recent claims in the literature, 18th century China had only a minimal chance to escape from Malthusian constraints.
    Keywords: Industrial Revolution, Unified Growth Theory, Endogenous Growth, Transition, Calibration, British Economic Growth before 1850
    JEL: E27 N13 N33 O14 O41
    Date: 2006–06
  49. By: Hillinger, Claude
    Abstract: This paper has two sources: One is my own research in three broad areas: business cycles, economic measurement and social choice. In all of these fields I attempted to apply the basic precepts of the scientific method as it is understood in the natural sciences. I found that my effort at using natural science methods in economics was met with little understanding and often considerable hostility. I found economics to be driven less by common sense and empirical evidence, then by various ideologies that exhibited either a political or a methodological bias, or both. This brings me to the second source: Several books have appeared recently that describe in historical terms the ideological forces that have shaped either the direct areas in which I worked, or a broader background. These books taught me that the ideological forces in the social sciences are even stronger than I imagined on the basis of my own experiences. The scientific method is the antipode to ideology. I feel that the scientific work that I have done on specific, long standing and fundamental problems in economics and political science have given me additional insights into the destructive role of ideology beyond the history of thought orientation of the works I will be discussing.
    Keywords: Business cycles; Ideology; Science; Voting; Welfare measurement
    JEL: B40 C50 D71 E32
    Date: 2006–11
  50. By: Moshe Hazan
    Abstract: Recent growth theories have utilized the Ben-Porath (1967) mechanism according to which prolonging the period in which individuals may receive returns on their investment spurs investment in human capital and cause growth. An important, though sometime implicit implication of these models is that total labor input over the lifetime increases as longevity does. We propose a thought experiment to empirically evaluate the relevancy of this mechanism to the transition from “stagnation” to “growth” of the nowadays developed economies. Specifically, we estimate the expected total working hours over the lifetime of nine consecutive cohorts of American men born between 1840 and 1920. Our results show that despite a gain of almost 9 years in the expectations of life at age 20, the expected total working hours over the lifetime have declined from more than 117,000 hours to less than 90,000 between the oldest and the youngest cohorts. We conclude that the Ben-Porath mechanism have had a lesser effect than previously thought on the accumulation of human capital during the growth process.
    Keywords: longevity, human capital, hours-worked
    JEL: E20 J22 J24 J26 O11
    Date: 2006–06
  51. By: Héctor Ochoa; Angela Martínez
    Abstract: Este artículo corresponde a la investigación que se ha desarrollado para establecer el comportamiento de la inflación en Colombia durante el período 1955-2004, analizar los elementos que han incidido en su desempeño y establecer la teoría que soporta su análisis. El análisis se ha dividido en tres períodos que cubren los años 1955-2004, el primero, de 1955 a 1970 se relaciona con los años durante los cuales aún se tenía una tasa de cambio fija, tal como se había convenido en el tratado de Bretton Woods, y coincide con sucesivas crisis cambiarias que se reflejan en el comportamiento de la inflación. El segundo, de 1970 a 1990, corresponde a los años durante los cuales se hizo énfasis en la aplicación de mecanismos keynesianos de aumento del gasto público, lo cual originó, a su vez, continuas emisiones de efectivo para financiar los sucesivos déficit fiscales, y al mismo tiempo, al período durante el cual se aplicó el sistema de crowling-peg, o sea el ajuste diario de la tasa de cambio de acuerdo con la inflación para lograr mantener una tasa de cambio fija, en términos reales, para la compra por el Banco de la República de la totalidad de las divisas ingresadas al país, mediante el mecanismo de la emisión, todo lo cual se reflejó en un incremento de la inflación por encima de 20% anual. El tercer período, de 1990 a 2004, corresponde a los años de la apertura de la economía, y al inicio del funcionamiento de la autonomía del Banco de la RRepública, responsable por el control de la inflación, lo cual le ha exigido tener que operar con el esquema de una tasa objetivo de inflación. Como consecuencia, la inflación ha descendido de los altos niveles que tenía a comienzos de los años 90 a índices por debajo del 10%.
    Date: 2005–05–27
  52. By: Philippe Aghion; Diego Comin; Peter Howitt
    Abstract: Can a country grow faster by saving more? We address this question both theoretically and empirically. In our model, growth results from innovations that allow local sectors to catch up with the frontier technology. In relatively poor countries, catching up with the frontier requires the involvement of a foreign investor, who is familiar with the frontier technology, together with effort on the part of a local bank, who can directly monitor local projects to which the technology must be adapted. In such a country, local saving matters for innovation, and therefore growth, because it allows the domestic bank to cofinance projects and thus to attract foreign investment. But in countries close to the frontier, local firms are familiar with the frontier technology, and therefore do not need to attract foreign investment to undertake an innovation project, so local saving does not matter for growth. In our empirical exploration we show that lagged savings is significantly associated with productivity growth for poor but not for rich countries. This effect operates entirely through TFP rather than through capital accumulation. Further, we show that savings is significantly associated with higher levels of FDI inflows and equipment imports and that the effect that these have on growth is significantly larger for poor countries than rich.
    Keywords: Savings, growth, technology adoption, TFP, FDI
    JEL: E2 O2 O3
    Date: 2006–06
  53. By: Danny Givon
    Abstract: This paper views technical change as a labor-saving, but capital-using, mechanization process, whereby capital replaces labor; though within any given technique, factors have a limited ability to substitute one another. This is formalized by reinterpreting the “distribution-parameters” of a low substitution CES aggregate production function as time-varying weights, such that technical change corresponds to a decrease in labor’s weight, along with an increase in capital’s. This “direction” of shift is considered a natural outcome of the fact that ideas are embedded within capital. As capital’s weight tends to one, changes in it become increasingly negligible and balanced-growth is attained. Thus the proposed non-neutral mechanism is asymptotically equivalent to Harrod-neutrality. But during industrialization, when capital grows faster than output, its “dis-augmentation” is still significant; the result being constant factor-shares. This resolves a recent controversy regarding the measurement of TFP growth, specifically in East Asian NICs. The capital-using aspect of factors’ replacement, along with the limited degree of factor substitution, also lead to time-ranked “appropriate-technologies”, which are broadly consistent with under-development; despite the lack of non-convexities.
    Keywords: Mechanization, Non-Neutral Technical Change, Dis-Augmentation, CES
    JEL: O33 O11 O14 E25
    Date: 2006–06
  54. By: Simon Price; Christoph Schleicher
    Abstract: Conventional wisdom has it that Tobin’s Q cannot help explain aggregate investment. This is puzzling, as recent evidence suggests the closely related user cost approach can do so. We do not attempt to explain this puzzle. Instead, we take an entirely different approach, not using the first-order conditions from the firm’s maximisation problem but instead exploiting the present-value expression for the firm’s value. The standard linearised present-value asset price decomposition suggests that Q should be able to predict other variables, such as stock returns. Using UK data we find that it has strong long-horizon predictive power for debt accumulation, stock returns and UK business investment. The correctly signed results on both returns and investment appear to be robust, and are supported by the commonly used and bootstrapped standard error corrections, as well as recently developed asymptotic corrections.
  55. By: Mustapha Sadni Jallab (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines]); René Sandretto (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines]); Monnet Gbakou (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines])
    Abstract: This paper aims at extending some recent publications about the relationship between antidumping filings and macroeconomic factors by comparing the United States (US) and the European Union (EU), two major users of antidumping procedures. Results of our estimations confirm that the exchange rate exerts a similar influence in the two countries. Fluctuations in the real GDP influence antidumping filings only in the US. On the contrary, the evolution of industrial production does not play an important role in the US, while its impact is important in Europe. The reinforcement of international competition appears to significantly increase antidumping filings in the US while this relationship turns out not to be significant in Europe. Finally, some of the most important differences between the US and the EU seem to be explainable by the differences of<br />rules and practices implemented by the regulatory authorities.
    Keywords: dollar euro exchange rate ; antidumping initiations ; negative binomial model ; unfair trade
    Date: 2006–11–08
  56. By: Adama Zerbo (CED / IFReDE-GRES, Université Montesquieu Bordeaux IV)
    Abstract: Cette étude visait à dégager des pistes de réflexions pour une meilleure coordination des politiques visant à faciliter l’accès au crédit et à optimiser son allocation dans l’économie pour plus de travail décent au Burkina Faso. Elle montre que le marché du crédit burkinabé est compartimenté en quatre segments qui se distinguent par les mécanismes d’offre de crédit, de gestion de l’information et du risque de crédit. Par ailleurs, l’appel public à l’épargne de l’Etat s’apparente au financement des dépenses publiques par le circuit bancaire au regard de ses effets directs significatifs sur le marché crédit. Le cloisonnement du marché du crédit réduirait significativement l’efficacité des instruments traditionnels de politique monétaire, ainsi que l’impact du marché du crédit sur le travail décent. Pour y remédier, les pistes de réflexions suivantes méritent d’être approfondies : (i) la mise en place d’un système de garanties accessible aux petites et moyennes entreprises, (ii) le renforcement de l’efficacité du système judiciaire pour améliorer le taux de recouvrement des crédits en souffrance afin de réduire l’aversion des banquiers pour le risque, (iii) l’accroissement de la disponibilité et la fiabilité de l’information comptable au niveau des PME afin de permettre aux créanciers d’apprécier le risque à prendre et (iv) le développement à l’horizontale et à la verticale du micro-crédit pour une complémentarité efficace entre crédit bancaire et micro-crédit. This paper aimed to underline reflections tracks for better coordination of credit market policies in Burkina Faso so as to boost decent work. It shows that Burkina Faso credit market has four compartments which are characterized by their credit supply, information and risk management mechanisms. In addition, Treasury bond emission remains equal to the financing of public expenditure by banking system in regard to his effects on credit market. The segmentation of credit market would significantly reduce effective of monetary policy and impact of credit market on decent work. To cure it, following reflections tracks have to be thorough: (i) creating guarantees device accessible to SME; (ii) reinforcing legal system effectiveness to improve the recovery rate of overdue credits in order to reduce bankers’ aversion for risk; (iii) improving of availability and reliability of hard information in SME in turn to allow creditors to assess the risk; (iv) horizontal and vertical development of micro-credit for effective complementary between banking system and microfinance. (Full text in french)
    JEL: E3 J5
    Date: 2006–11

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