nep-mac New Economics Papers
on Macroeconomics
Issue of 2006‒12‒04
sixty-six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Targeting Rules with Intrinsic Persistence and Endogenous Policy Inertia. By Michael S. Hanson; Pavel Kapinos
  2. Comparing Models of Macroeconomic Fluctuations: How Big Are the Differences? By Ghent, Andra
  3. Monetary Policy Neglect and the Great Inflation in Canada, Australia, and New Zealand. By Nelson, Edward
  4. Price Level vs. Nominal Income Targeting: Aggregate Demand Shocks and the Cost Channel of Monetary Policy Transmission By Malik, Hamza
  5. What Explains the Varying Monetary Response to Technology Shocks in G-7 Countries? By Francis, Neville R; Owyang, Michael T; Theodorou, Athena T
  6. Varying Monetary Policy Regimes: A Vector Autoregressive Investigation By Michael S. Hanson
  8. Uncovering the Hit-list for Small Inflation Targeters: A Bayesian Structural Analysis By Timothy Kim; Kirdan Lees; Philip Liu
  9. Non-Robust Dynamic Inferences from Macroeconometric Models: Bifurcation Stratification of Confidence Regions By Barnett, William A.; Duzhak, Evgeniya
  10. Romania: From the quantitative monetary aggregates to inflation targeting By Voicu, Ionut Cristian; Constantin, Floricel
  11. Monetary-Exchange Rate Policy and Current Account Dynamics By Malik, Hamza
  12. The reflections of new economy on monetary policy and central banking By Haydar, Akyazi; Seyfettin, Artan
  13. Monetary Policy with Judgment: Forecast Targeting By Svensson, Lars O
  14. MONETARY POLICY RULES AND FISCAL EQUILIBRIUM IN BRAZIL By Helder Ferreira de Mendonça; Manoel Carlos de Castro Pires
  16. Existence of bifurcation in macroeconomic dynamics: Grandmont was right By He, Yijun; Barnett, William
  17. Inflation Targeting in an Emerging Market: the Case of Korea By Michael S. Hanson; Kwanghee Nam
  18. Linking Real Activity and Financial Markets: The Bonds, Equity, and Money (BEAM) Model By Céline Gauthier; Fu Chun Li
  19. The Sustainability of Budget Deficits in an Inflationary Economy By Harashima, Taiji
  20. Monetary Policy before Euro Adoption: Challenges for EU New Members By Filacek, Jan; Horvath, Roman; Skorepa, Michal
  21. Is Price Flexibility De-Stabilizing? A Reconsideration By Malik, Hamza; Scarth, William
  22. Inflación y dinero en Colombia: otro modelo P-estrella By Andrés González; Luis Fernando Melo; Carlos Esteban Posada
  23. Understanding the Backus-Smith Puzzle: It’s the (Nominal) Exchange Rate, Stupid By Hess, Gregory; Shin, Kwanho
  24. Financial Accelerator Effects in the Balance Sheets of Czech Firms By Horvath, Roman
  26. How Should Monetary Policy Respond to Asset-Price Bubbles? By Gruen, David; Plumb, Michael; Stone, Andrew
  27. Gold Rush Fever in Business Cycles By Paul Beaudry; Fabrice Collard; Franck Portier
  29. Downward wage rigidity in Italy: micro-based measures and implications By Maida Agata; Devicienti Francesco; Sestito Paolo
  30. Does Consumer Confidence Forecast Household Spending? By DION, David Pascal
  31. Globalisation and Inflation in the OECD Economies By Nigel Pain; Isabell Koske; Marte Sollie
  32. EVIDENCE ABOUT MERCOSUR’S BUSINESS CYCLE By Carlos Enrique Carrasco Gutierrez; Fábio Augusto Reis Gomes
  35. Optimal Policy Projections By Svensson, Lars O; Tetlow, Robert J
  36. Committees Versus Individuals: An Experimental Analysis of Monetary Policy Decision Making By Lombardelli, Clare; Proudman, James; Talbot, James
  38. Firm-Specific Capital and the New Keynesian Phillips Curve By Woodford, Michael
  39. Credit Cycles, Credit Risk, and Prudential Regulation By Jesus, Saurina; Gabriel, Jimenez
  40. INFLATION TARGETING IN EMERGING COUNTRIES: THE CASE OF BRAZIL By Philip Arestis; Luiz Fernando de Paula; Fernando Ferrari-Filho
  42. Other People’s Money: The Evolution of Bank Capital in the Industrialized World By Richard S. Grossman
  46. The Economics of Young Democracies: Policies and Performance By Kapstein, Ethan; Converse, Nathan
  47. Growth Collapses By Ricardo Hausmann; Francisco Rodríguez; Rodrigo Wagner
  48. Comparing Expectations and Outcomes: Application to UK Data By YU, Ge
  49. Unemployment today in the light of malinvaud's theory By Fubini Lia
  50. Depreciation, Deterioration and Obsolescence when there is Embodied or Disembodied Technical Change By Diewert, W. Erwin; Wykoff, Frank C.
  52. Explicit Evidence on an Implicit Contract By Young, Andrew; Levy, Daniel
  54. Staff, Functions, and Staff Costs at Central Banks: An International Comparison with a Labor-demand Model By Jorge Galán Camacho; Miguel Sarmiento Paipilla
  57. THE NATURAL RATE OF INTEREST IN BRAZIL BETWEEN 1999 AND 2005 By Paulo Chananeco F. de Barcellos Neto; Marcelo Savino Portugal
  58. The Distribution and Dispersion of Debt Burden Ratios Among Households in Poland and its Implications for Financial Stability By Dawid, Żochowski; Sławomir, Zajączkowski
  59. From the Washington towards a Vienna Consensus? A quantitative analysis on globalization, development and global governance By Tausch, Arno
  60. Keynes, Marshall e i filosofi di Cambridge By Spada Anna
  61. Can We Explain the Long-Term Real Equilibrium Exchange Rates through Purchasing Power Parity (PPP)?: An Empirical Investigation (1965 – 1995) By Feridun, Mete
  65. The Stochastic Advance-Retreat Course: An Approach to Analyse Social-Economic Evolution By Feng, Dai; Yuan-Zheng, Zhong

  1. By: Michael S. Hanson (Department of Economics, Wesleyan University); Pavel Kapinos (Department of Economics, Carleton College)
    Abstract: We investigate the optimality of monetary policy targeting rules in a macroeconomic model based on explicit micro-foundations for intrinsic persistence in inflation and real output. For the corresponding social welfare loss function to be minimized by the central bank, inertia arises endogenously in both the inflation and output gap stabilization objectives. In this framework, inflation targeting closely approximates the optimal precommitment policy for empirically relevant parameter values. Alternative policy rules, such as nominal income growth targeting, “speed-limit” targeting, or price level targeting, do not performas well. Previous research has demonstrated lower social welfare losses with these alternative targeting rules; such findings are shown to be primarily a consequence of assuming the central bank minimizes a simple social loss function that is not consistent with the micro-foundations of a model with intrinsic persistence.
    Keywords: Habit formation, inflation persistence, targeting rules, time consistency, institutional design of monetary policy
    JEL: E52 E58
    Date: 2006–06
  2. By: Ghent, Andra
    Abstract: I generate priors for a VAR from four competing models of economic fluctuations: a standard RBC model, Fisher’s (2006) investment-specific technology shocks model, an RBC model with capital adjustment costs and habit formation, and a sticky price model with an unaccommodating monetary authority. I compare the accuracy of the forecasts made with each of the resulting VARs. The economic models generate similar forecast errors to one another. However, at horizons of one to two years and greater, the models generally yield superior forecasts to those made using both an unrestricted VAR and a VAR that uses shrinkage from a Minnesota prior.
    Keywords: Model Evaluation; Priors from DSGE models; Economic Fluctuations; Hours Debate; Business Cycles;
    JEL: C52 E37 E32 C53 E3 C11
    Date: 2006–08
  3. By: Nelson, Edward
    Abstract: This paper studies the Great Inflation in Canada, Australia, and New Zealand. Newspaper coverage and policymakers’ statements are used to analyze the views on the inflation process that led to the 1970s macroeconomic policies, and the different movement in each country away from 1970s views. I argue that to understand the course of policy in each country, it is crucial to use the monetary policy neglect hypothesis, which claims that the Great Inflation occurred because policymakers delegated inflation control to nonmonetary devices. This hypothesis helps explain why, unlike Canada, Australia and New Zealand continued to suffer high inflation in the mid-1980s. The delayed disinflation in these countries reflected the continuing importance accorded to nonmonetary views of inflation.
    JEL: G00 G0
    Date: 2005–01–25
  4. By: Malik, Hamza
    Abstract: This paper incorporates both the traditional aggregate demand-interest rate channel and the cost channel of monetary policy in a baseline ‘new Keynesian’ model and study two targeting regimes --- price-level targeting and nominal income targeting. In light of empirical considerations, alternative specifications for the aggregate demand and aggregate supply side of the economy also considered. The main result is that the cost channel matters: in case of a moderate policy response and with the cost channel operating the volatility of real output decreases under both price-level and nominal income targeting, while it increases in case of an aggressive policy response. The paper also finds that nominal income targeting performs better than price level targeting in bringing down the volatility of real output in almost all the specifications of the macro models used in the analysis.
    Keywords: the cost channel; price level targeting; nominal income targeting
    JEL: E31 E52 E30
    Date: 2005–03
  5. By: Francis, Neville R; Owyang, Michael T; Theodorou, Athena T
    Abstract: In a recent paper, Galí, López-Salido, and Vallées (2003) examined the Federal Reserve’s response to VAR-identified technology shocks. They found that during the Martin-Burns- Miller era, the Federal Reserve responded to technology shocks by overstabilizing output, while in the Volcker-Greenspan era, the Federal Reserve adopted an inflation-targeting rule. We extend their analysis to countries of the G-7; moreover, we consider the factors that may contribute to differing monetary responses across countries. Specifically, we find a relationship between the volatility of capital investment, the type of monetary policy rule, the responsiveness of the rule to output and inflation fluctuations, and the response to technology shocks.
    Keywords: price setting; nominal rigidity; real rigidity; inflation persistence; survey data
    JEL: G00 G0
    Date: 2005–06–14
  6. By: Michael S. Hanson (Economics Department, Wesleyan University)
    Abstract: Recently, two stylized facts about the behavior of the U.S. economy have emerged: first, macroeconomic aggregates appear to be less volatile post-1984 than in the preceding two decades; second, monetary policy appears more responsive to inflationary pressures—and thereby more “stabilizing” — during the Volcker/Greenspan chairmanships relative to earlier regimes. Does a causal relationship exist between these two observations? In particular, has “better” policy by the Federal Reserve Board contributed significantly to the lessened volatility of the U.S. economy? This paper uses a structural vector autoregressive (VAR) specification to address these questions, examining the advantages and limitations of such an approach. In contrast with much of the existing research on these topics, I find that most of the quantitatively significant changes in volatility are attributed to breaks in the non-policy portion of the structural VAR, and not to the identified policy equation.
    Keywords: Monetary policy reaction function, structural VAR models, Taylor rule, Volcker disinflation, parameter instability
    JEL: E52 E58 E31 C32
    Date: 2006–01
  7. By: Wilson Luiz Rotatori
    Date: 2006
  8. By: Timothy Kim; Kirdan Lees; Philip Liu (Reserve Bank of New Zealand)
    Abstract: We estimate underlying macroeconomic policy objectives of three of the earliest explicit inflation targeters - Australia, Canada and New Zealand - within the context of a small open economy DSGE model. We assume central banks set policy optimally, such that we can reverse engineer policy objectives from observed time series data. We find that none of the central banks show a concern for stabilizing the real exchange rate. However, all three central banks share a concern for minimizing the volatility in the change in the nominal interest rate. The Reserve Bank of Australia places the most weight on minimizing the deviation of output from trend. Tests of the posterior distributions of these policy preference parameters suggest that the central banks have very similar objectives.
    JEL: C51 E52 F41
    Date: 2006–11
  9. By: Barnett, William A.; Duzhak, Evgeniya
    Abstract: Grandmont (1985) found that the parameter space of the most classical dynamic 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. The econometric implications of Grandmont’s findings are particularly important, if bifurcation boundaries cross the confidence regions surrounding parameter estimates in policy-relevant models. Stratification of a confidence region into bifurcated subsets seriously damages robustness of dynamical inferences. 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 highly regarded, 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. Criticism of Keynesian structural models by the Lucas critique have motivated development of Euler equations models having policy-invariant deep parameters, which are invariant to policy rule changes. Hence, Barnett and He (2006) chose to continue the investigation of policy-relevant bifurcation by searching the parameter space of the best known of the Euler equations macroeconometric models: the Leeper and Sims (1994) model. The results further confirm Grandmont’s views. Even more recently, interest in policy in some circles has moved to New Keynesian models. As a result, in this paper we explore bifurcation within the class of New Keynesian models. We develop the econometric theory needed to locate bifurcation boundaries in log-linearized New-Keynesian models with Taylor policy rules or inflation-targeting policy rules. Empirical implementation will be the subject of a future paper, in which we shall solve numerically for the location and properties of the bifurcation boundaries and their dependency upon policy-rule parameter settings. Central results needed in this research are our theorems on the existence and location of Hopf bifurcation boundaries in each of the cases that we consider. We provide the proofs of those propositions in this paper. One surprising result from these proofs is the finding that a common setting of a parameter in the future-looking New-Keynesian model can put the model directly onto a Hopf bifurcation boundary. Beginning with Grandmont’s findings with a classical model, we continue to follow the path from the Bergstrom-Wymer policy-relevant Keynesian model, then to the Euler equation macroeconomic models, and now to the New Keynesian models. So far, all of our results suggest that Barnett and He’s initial findings with the policy-relevant Bergstrom-Wymer model appear to be generic.
    Keywords: Bifurcation; inference; dynamic general equilibrium; Pareto optimality; Hopf bifurcation; Euler equations; New Keynesian macroeconometrics; Bergstrom-Wymer model
    JEL: E61 C13 E32 E37 C3
    Date: 2006–10–02
  10. By: Voicu, Ionut Cristian; Constantin, Floricel
    Abstract: For Romania, the shift from monetary targeting toward inflation targeting was done under the influences of following events: - The existing pressure coming from refinancing the public debt and from the necessity to remain in certain boundary with the budgetary deficit. - NBR assigned monetary control and liquidity management functions on the mechanism of minimum required reserves. - Romanian strategy was deeply hurt by the low development of its financial markets, and the low level of monetization. - A precondition of potential success in the case of inflation targeting was fulfilled - the improvement of taxes collection and the reduction of money laundry. - The important amounts of quantitative increases in Foreign Direct Investment (yearly Euro 4 billion), and also in the rest of M2’s components, forced the necessity of a new strategy based mainly on non-monetary aggregates
    Keywords: monetary policy; inflation targeting; Romania; monetary aggregates
    JEL: E58
    Date: 2006–06
  11. By: Malik, Hamza
    Abstract: A dynamic stochastic general equilibrium monetary model with incomplete and imperfect asset markets, monopolistic competition and staggered nominal price rigidities is developed to shed light on the role of exchange rate and its relation with current account dynamics in the formulation of monetary-exchange rate policies. The paper shows that because of incomplete risk sharing, due to incomplete asset markets, the dynamic relationship between real exchange rate and net foreign assets affect the behaviour of domestic inflation and aggregate output. This, in turn, implies that the optimal monetary policy entail a response to net foreign asset position or the real exchange rate gap defined as the difference between actual real exchange rate and the value that would prevail with flexible prices and complete asset markets. In comparing the performance of alternative monetary-exchange rate policy rules, an interesting and fairly robust result that stands out is that ‘dirty floating’ out-performs flexible exchange rate regime with domestic inflation targeting.
    Keywords: optimal monetary policy; incomplete asset markets; net foreign assets; current account dynamics; inflation targeting; exchange rate policy.
    JEL: E52 F41
    Date: 2005–08
  12. By: Haydar, Akyazi; Seyfettin, Artan
    Abstract: Developments in the information and communication technologies have been causing significant changes on the working mechanisms of the economy both at the national and international areas. Some of the developments can be indicated as follows: the dramatic increasing of capital movements amongst nations; the speeding of global economic integration; the effects of world’s financial markets; the creation of new payment mechanisms; the decreasing of transaction and knowledge costs; getting the information in a permanent and fast way; the fluctuations in financial markets; increasing potential growth and productivity rates. It is possible to summarize the mentioned developments with the concept of “new economy”. In this paper, the reflections of new economy on monetary policy and central banking are examined. According to the results of this study, the views about monetary policy and central banks will no longer exist in the future is not realistic. As far as we are concerned, central banks will continue to guarantee the stability of financial system all over the world as was the case in the past.
    Keywords: New economy; monetary policy; electronic money; central banking
    JEL: O33 E58 E52 E44
    Date: 2006–05–24
  13. By: Svensson, Lars O
    Abstract: Monetary Policy with Judgment: Forecast Targeting by Lars E O Svensson Princeton University Abstract "Forecast targeting", forward-looking monetary policy that uses central-bank judgment to construct optimal policy projections of the target variables and the instrument rate, may perform substantially better than monetary policy that disregards judgment and follows a given instrument rule. This is demonstrated in a few examples for two empirical models of the U.S. economy, one forward looking and one backward looking. A complicated infinite-horizon central-bank projection model of the economy can be closely approximated by a simple finite system of linear equations, which is easily solved for the optimal policy projections. Optimal policy projections corresponding to the optimal policy under commitment in a timeless perspective can easily be constructed. The whole projection path of the instrument rate is more important than the current instrument setting. The resulting reduced-form reaction function for the current instrument rate is a very complex function of all inputs in the monetary-policy decision process, including the central bank’s judgment. It cannot be summarized as a simple reaction function such as a Taylor rule. Fortunately, it need not be made explicit.
    Keywords: Inflation targeting; optimal monetary policy; forecasts
    JEL: G00 G0
    Date: 2005–02–08
  14. By: Helder Ferreira de Mendonça; Manoel Carlos de Castro Pires
    Date: 2006
  15. By: Akyazi, Haydar; Artan, Seyfettin
    Abstract: Developments in the information and communication technologies have been causing significant changes on the working mechanisms of the economy both at the national and international areas. Some of the developments can be indicated as follows: the dramatic increasing of capital movements amongst nations; the speeding of global economic integration;the effects of world’s financial markets; the creation of new payment mechanisms; the decreasing of transaction and knowledge costs; getting the information in a permanent and fast way; the fluctuations in financial markets; increasing potential growth and productivity rates. It is possible to summarize the mentioned developments with the concept of “new economy”. In this paper, the reflections of new economy on monetary policies and central banking are examined. According to the results of this study, the views about monetary policies and central banks will no longer exist in the future is not realistic. As far as we are concerned, central banks will continue to guarantee the stability of financial system all over the world as was the case in the past.
    Keywords: New economy; monetary policy; electronic money; central banking
    JEL: E44 E58 E52
    Date: 2006–05–24
  16. By: He, Yijun; Barnett, William
    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: E37 C1 E32 C32 E10 E60
    Date: 2006–11–08
  17. By: Michael S. Hanson (Department of Economics, Wesleyan University); Kwanghee Nam (School of Economics, Kookmin University, Jeongneung-dong)
    Abstract: To evaluate the effectiveness of targeting monetary policy strategies in a small open economy, we develop a dynamic optimizing model calibrated to recent Korean data. We then explore the consequences of alternative specifications of the loss function for society and the central bank, with particular focus on exchange rate volatility. Policy simulations include variations on inflation targeting, nominal income growth targeting and exchange rate targeting. Our results indicate that inflation targeting remains the most preferred policy regime, even when an explicit motive for exchange rate smoothing is introduced. In this case, the optimal inflation targeting and nominal income growth targeting policies are characterized by a “conservative” central bank that places greater weight on both the primary target variable and on the exchange rate than in society’s objective function. However, the optimal policy reacts to changes in degree of exchange rate pass-though in a non-linear fashion, complicating the robustness of inflation targeting recommendations for emerging markets.
    Keywords: Korean economy, inflation targeting, optimal monetary policy, small open economy
    JEL: E52 F41
    Date: 2005–09
  18. By: Céline Gauthier; Fu Chun Li
    Abstract: The authors estimate a small monthly macroeconometric model (BEAM, for bonds, equity, and money) of the Canadian economy built around three cointegrating relationships linking financial and real variables over the 1975–2002 period. One of the cointegrating relationships allows the identification of a supply shock as the only shock that permanently affects the stock market, and a demand shock that leads to important transitory stock market overvaluation. The authors propose a monetary policy reaction function in which the impact of a permanent inflation shock on the overnight rate is simulated and the future path of the overnight rate adjusted accordingly, to prevent any forecast persistent deviation from the inflation target. They introduce a technical innovation by showing under which conditions permanent shocks can be identified in a vector error-correction model with exogenous variables.
    Keywords: Financial markets; Financial stability
    JEL: C5 E4
    Date: 2006
  19. By: Harashima, Taiji
    Abstract: This paper examines fiscal sustainability in an inflationary environment, particularly the interrelation between government debt and inflation. A model that explicitly incorporates the political utility/objective function of government is constructed. The government’s borrowing behavior and inflation are determined through the simultaneous optimization of government and households. The sustainable fiscal debt in an inflationary environment was found to equal the present value of primary balances discounted by the time preference rate of government, not by the interest rate. This result raises the question of whether it is appropriate to apply the fiscal sustainability test of Hamilton and Flavin to high inflation countries.
    Keywords: Fiscal sustainability; Inflation; The present-value of primary balances; The fiscal theory of the price level; Leviathan
    JEL: H63 E31
    Date: 2006–11–27
  20. By: Filacek, Jan; Horvath, Roman; Skorepa, Michal
    Abstract: This article analyzes the main issues for monetary policy in new EU member states before their euro adoption. These are typically rooted in the challenge of fulfilling concurrently of the Maastricht inflation and exchange rate criterion, as these countries are experiencing equilibrium real exchange rate appreciation. In this article we first distinguish between the wording, written interpretation and “revealed” interpretation of the inflation and exchange rate criteria. Then we discuss the options for monetary policy in the period of fulfilment of these criteria in terms of its transparency, its continuity with the previous monetary policy regime, the choice of central parity for the ERM II, the setting of the fluctuation bandwidth, the probability of fulfilment of both criteria and the impact on economic stability.
    Keywords: monetary policy; euro adoption; ERM II; EU
    JEL: E58 F42 F33 E52
    Date: 2006–09–25
  21. By: Malik, Hamza; Scarth, William
    Abstract: Using a New Neoclassical Synthesis model of monetary policy for a small open economy, this paper explores the impact of an increased degree of price flexibility on output volatility. Previous analysis of this question – based on the earlier generation of descriptive macro systems with model-consistent expectations – offered mixed conclusions, especially in an open economy context. We update that literature by reconsidering the issue within models that involve optimization-based behavioural equations. We find clear support for Keynes’ concern that a higher degree of price flexibility raises output volatility – but only under flexible exchange rates. We discuss the implications of our findings for current macro policy discussions in both European and other economies.
    Keywords: price flexibility; exchange rate policy; monetary policy in an open economy
    JEL: E52 F41
    Date: 2005–07
  22. By: Andrés González; Luis Fernando Melo; Carlos Esteban Posada
    Abstract: Este documento reporta los resultados de la estimaci´on de una versi´on 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 inflaci´on (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 inflaci´on.
    Keywords: inflación, demanda de dinero, mínimos cuadrados ordinarios dinámicos (DOLS), predicción. Classification JEL: C51; C53; E31; E37; E41
  23. By: Hess, Gregory; Shin, Kwanho
    Abstract: Backus, Kehoe and Kydland (BKK 1992) showed that if international capital markets are complete, consumption growth correlations across countries should be higher than their corresponding output growth correlations. In stark contrast to the theory, however, in actual data the consumption growth correlation is lower than the output growth correlation. By assuming trade imperfections due to non-traded goods, Backus and Smith (1993) showed that there is an additional impediment that works to lower the consumption growth correlation. While Backus and Smith’s argument was successful in partially explaining the low growth correlation puzzle, it contributed to generating another puzzle because the data forcefully showed that consumption growth is negatively correlated with the real exchange rate, which is a violation of the theory. In this paper, by decomposing the real exchange rate growth of the OECD countries into the nominal exchange rate growth and the inflation differential, we find that nominal exchange rate movements are the main source for the Backus-Smith puzzle. We find that the nominal exchange rate moves counter-cyclically with consumption movements, which is a violation of the risk sharing theory with non-traded goods. We also find that the violations are more pronounced when nominal exchange rate changes are larger in absolute value . In contrast, the negative of bilateral inflation differentials is positively correlated with bilateral consumption movements. The latter finding is in accordance with the theory. Furthermore, using intranational data for the United States where the nominal exchange rate is constant, the Backus-Smith puzzle disappears, although complete risk sharing is rejected.
    Keywords: Risk Sharing; Exchange Rate
    JEL: F36 E44 E32 E21 F31
    Date: 2006–02
  24. By: Horvath, Roman
    Abstract: The paper examines a financial accelerator mechanism in analyzing determinants of corporate interest rates. Using a panel of the financial statements of 448 Czech firms from 1996–2002, we find that balance sheet indicators matter interest rates paid by firms. Market access is particularly important in this regard. The strength of corporate balance sheets seem to vary with firm size. There is also evidence that monetary policy has a stronger effect on smaller than on larger firms. On the other hand, we find no asymmetry in the monetary policy effects over the business cycle.
    Keywords: balance sheet channel; financial accelerator; interest rates; monetary policy transmission
    JEL: G32 E52
    Date: 2006–11–14
  25. By: Jose Angelo Divino
    Date: 2006
  26. By: Gruen, David; Plumb, Michael; Stone, Andrew
    Abstract: We present a simple macroeconomic model that includes a role for an asset-price bubble. We then derive optimal monetary policy settings for two policymakers: a skeptic, for whom the best forecast of future asset prices is the current price; and an activist, whose policy recommendations take into account the complete stochastic implications of the bubble. We show that the activist’s recommendations depend sensitively on the detailed stochastic properties of the bubble. In some circumstances the activist clearly recommends tighter policy than the skeptic, but in others the appropriate recommendation is to be looser. Our results highlight the stringent informational requirements inherent in an activist policy approach to handling asset-price bubbles.
    JEL: G00 G0
    Date: 2005–05–24
  27. By: Paul Beaudry; Fabrice Collard; Franck Portier
    Abstract: Gold rushes are periods of economic boom, generally associated with large increases in expenditures aimed at securing claims near new found veins of gold. An interesting aspect of gold rushes is that, from a social point of view, much of the increased activity is wasteful since it contributes simply to the expansion of the stock of money. In this paper, we explore whether business cycle fluctuations may sometimes be driven by a phenomenon akin to a gold rush. In particular, we present a model where the opening of new market opportunities causes an economic expansion by favoring competition for market share, which is essentially a dissolution of rents. We call such an episode a market rush. We construct a simple model of a market rush that can be embedded into an otherwise standard Dynamic General Equilibrium model, and show how market rushes can help explain important features of the data. We use a simulated-moment estimator to quantify the role of market rushes in fluctuations. We find that market rushes may account for over half the short run volatility in hours worked and a third of the short run volatility of output.
    JEL: E32
    Date: 2006–11
  28. By: Fernando Blanco; Santiago Herrera
    Date: 2006
  29. By: Maida Agata (University of Turin); Devicienti Francesco; Sestito Paolo
    Abstract: We estimate the degree of downward wage rigidity in ItaIy using a micro-econometric model in which wages may be subject to both nominal and real downward rigidities. We lise the recently released Worker History Italian Panel (WHIP), an administrative individual-level data set covering both the high-inflation and automatic-indexation regime prevailing before the 1990s, and the regime that emerged after the indexation system was dismantled. Overall, we fmd a sizable amount of downward rigidities, downward real wage rigidity being much more relevant than downward nominal wage rigidity. aver time, downward rigidities bave become less important, with the reduction in real rigidities more than offsetting the rise in nominaI rigidities. This pattern is consistent with the labour market reforms Italy experienced and specifically with the abolition of the automatic price-indexation clause. In arder to verify the robustness of these results we aIso explore an identification strategy in which the reaI rigidity threshold, instead of being centred around price inflation far aII workers, is centred around the wage rise specificaIly dictated far each worker by the relevant industry-wide national collective contract. Our main results afe broadly confmned. Equipped with these more precisely identified measures of downward rigidities, we further explore their relationship with severaI labour market outcomes. We fmd that downward wage rigidities afe positively related to fmn turnover - which we interpret in terms of employment adjustments substituting far wage adjustments - and local unemployment rates - which hints at the macroeconomic relevance of our micro-based rigidity measures.
    Date: 2005–03
  30. By: DION, David Pascal
    Abstract: The traditional consumption function based on the life cycle permanent income hypothesis (LC-PIH) considers that consumer spending is based on households’ expectations of their future income. However, in short-term forecasting, the traditional economic determinants of consumption do not perform accurately. In addition to these macroeconomic variables, a measure of uncertainty is needed to better assess the short-term dynamics of the consumption function. Such a measure of uncertainty may be given by households’ expectations about their personal financial situation and general economic situation. A measure of these expectations is provided by consumer confidence (measured by the Consumer Confidence Index - CCI). In addition, consumer confidence seems to contain both a forecasting and independent explicative ability to predict consumption. Economic variables do not fully explain confidence, suggesting that its independent explicative power stems from its idiosyncratic features. We discuss in detail these features thanks to a review of the theoretical and empirical literature by discussing the consistency of consumer confidence with the standard consumption theory, analysing the determinants of the CCI and studying the predictive and causal power of the CCI.
    Keywords: Consumer confidence; consumption function; forecasting
    JEL: D12 C52 D11 E27 E21 C53
    Date: 2006–11–22
  31. By: Nigel Pain; Isabell Koske; Marte Sollie
    Abstract: Over the past 25 years inflation has moderated considerably in all OECD economies. At the same time, the production of many goods and services has become increasingly internationalised and the level of trade between the OECD and non-OECD economies has risen markedly. This paper investigates the extent to which the observed changes in the inflation process can be attributed to the increasing integration of non-OECD economies into the global economy. The results of the analysis show that i) import prices have become a more important driver of domestic consumer prices since the mid-1990s; ii) the sensitivity of inflation to domestic economic conditions has declined whereas the sensitivity to foreign economic conditions has risen, working through import prices; and iii) the strong GDP growth in the non-OECD economies over the past five years has contributed to the growth of real oil and metals prices. A scenario analysis shows that globalisation has put upward pressure on inflation via higher commodity prices and downward pressure via lower non-commodity import prices with the latter effect having dominated in most OECD economies. <P>Mondialisation et inflation dans les économies de l'OCDE <BR>Au cours des 25 dernières années, l’inflation a considérablement diminué dans toutes les économies de l'OCDE. Pendant ce temps, la production de nombreux biens et services est devenue de plus en plus internationalisée et le niveau du commerce entre les pays de l'OCDE et les pays non membres a sensiblement augmenté. Ce papier étudie dans quelle mesure les changements observés dans le mécanisme d'inflation peuvent être attribués à l'intégration croissante des pays non membres de l'OCDE dans l'économie mondiale. Les résultats de l'analyse montrent que i) les prix d'importation jouent un rôle plus important dans la détermination des prix de consommation domestiques depuis le milieu des années 1990 ; ii) la sensibilité de l'inflation aux conditions économiques domestiques a diminué alors que la sensibilité aux conditions économiques extérieures a augmenté, en jouant à travers les prix d'importation ; et iii) la croissance forte du PIB dans les pays non membres au cours des cinq dernières années a contribué à l'augmentation des prix réels du pétrole et des métaux. Les simulations montrent que la globalisation a entraîné des pressions inflationnistes via des prix des matières premières plus élevés et des pressions désinflationnistes via des prix des importations des produits hors matières premières plus faibles. Le dernier effet semble avoir dominé dans la plupart des pays de l'OCDE.
    JEL: E31 E37 E52 F15
    Date: 2006–11–21
  32. By: Carlos Enrique Carrasco Gutierrez; Fábio Augusto Reis Gomes
    Date: 2006
  33. By: Marcos Antonio C. da Silveira
    Date: 2006
  34. By: Fernando Motta Correia; José Luís da Costa Oreiro
    Date: 2006
  35. By: Svensson, Lars O; Tetlow, Robert J
    Abstract: We outline a method to provide advice on optimal monetary policy while taking policymakers’ judgment into account. The method constructs optimal policy projections (OPPs) by extracting the judgment terms that allow a model, such as the Federal Reserve Board staff economic model, FRB/US, to reproduce a forecast, such as the Greenbook forecast. Given an intertemporal loss function that represents monetary policy objectives, OPPs are the projections — of target variables, instruments, and other variables of interest — that minimize that loss function for given judgment terms. The method is illustrated by revisiting the economy of early 1997 as seen in the Greenbook forecasts of February 1997 and November 1999. In both cases, we use the vintage of the FRB/US model that was in place at that time. These two particular forecasts were chosen, in part, because they were at the beginning and the peak, respectively, of the late 1990s boom period. As such, they differ markedly in their implied judgments of the state of the world in 1997 and our OPPs illustrate this difference. For a conventional loss function, our OPPs provide significantly better performance than Taylor-rule simulations.
    JEL: G00 G0
    Date: 2005–08–08
  36. By: Lombardelli, Clare; Proudman, James; Talbot, James
    Abstract: We report the results of an experimental analysis of monetary policy decision making under uncertainty. A large sample of economics students played a simple monetary policy game, both as individuals and in committees of five players. Our findings - that groups make better decisions than individuals - accord with previous work by Blinder and Morgan. We also attempt to establish why this is so. Some of the improvement is related to the ability of committees to strip out the effect of bad play, but there is a significant additional improvement, which we associate with players learning from each other’s interest rate decisions.
    Keywords: Monetary policy; experimental economics; central banking; uncertainty
    JEL: G00 G0
    Date: 2005–02–08
  37. By: Jennifer Hermann
    Date: 2006
  38. By: Woodford, Michael
    Abstract: A relation between inflation and the path of average marginal cost (often measured by unit labor cost) implied by the Calvo (1983) model of staggered pricing – sometimes referred to as the "New Keynesian" Phillips curve – has been the subject of extensive econometric estimation and testing. Standard theoretical justifications of this form of aggregate-supply relation, however, either assume (1) the existence of a competitive rental market for capital services, so that the shadow cost of capital services is equated across firms and sectors at all points in time, despite the fact that prices are set at different times, or (2) that the capital stock of each firm is constant, or at any rate exogenously given, and so independent of the firm’s pricing decision. But neither assumption is realistic. The present paper examines the extent to which existing empirical specifications and interpretations of parameter estimates are compromised by reliance on either of these assumptions. The paper derives an aggregate-supply relation for a model with monopolistic competition and Calvo pricing in which capital is firm specific and endogenous, and investment is subject to convex adjustment costs. The aggregate-supply relation is shown to again take the standard New Keynesian form, but with an elasticity of inflation with respect to real marginal cost that is a different function of underlying parameters than in the simpler cases studied earlier. Thus the relations estimated in the empirical literature remain correctly specified under the assumptions proposed here, but the interpretation of the estimated elasticity is different; in particular, the implications of the estimated Phillips-curve slope for the frequency of price adjustment is changed. Assuming a rental market for capital results in a substantial exaggeration of the infrequency of price adjustment; assuming exogenous capital instead results in a smaller underestimate.
    JEL: G00 G0
    Date: 2005–02–08
  39. By: Jesus, Saurina; Gabriel, Jimenez
    Abstract: This paper finds strong empirical support of a positive, although quite lagged, relationship between rapid credit growth and loan losses. Moreover, it contains empirical evidence of more lenient credit standards during boom periods, both in terms of screening of borrowers and in collateral requirements. We find robust evidence that during upturns, riskier borrowers get bank loans, while collateralized loans decrease. We develop a regulatory prudential tool, based on a countercyclical, or forward-looking, loan loss provision that takes into account the credit risk profile of banks’ loan portfolios along the business cycle. Such a provision might contribute to reinforce the soundness and the stability of banking systems.
    Keywords: credit risk; lending cycles; loan loss provisions; bank capital; collateral
    JEL: G00 G0
    Date: 2006–03–20
  40. By: Philip Arestis; Luiz Fernando de Paula; Fernando Ferrari-Filho
    Date: 2006
  41. By: Ricardo Meirelles de Faria; Maria Carolina da Silva Leme
    Date: 2006
  42. By: Richard S. Grossman (Department of Economics, Wesleyan University)
    Date: 2006–04
  43. By: Christiane R. Albuquerque; Marcelo S. Portugal
    Date: 2006
  44. By: Fabiana Rocha; Ana Carolina Giuberti
    Date: 2006
  45. By: Nelson Barbosa-Filho; Codrina Rada; Lance Taylor; Luca Zamparelli
    Date: 2006
  46. By: Kapstein, Ethan; Converse, Nathan
    Abstract: Since the “third wave” of democratization began in 1974, nearly 100 states have adopted democratic forms of government, including, of course, most of the former Soviet bloc nations. Policy-makers in the west have expressed the hope that this democratic wave will extend even further, to the Middle East and onward to China. But the durability of this new democratic age remains an open question. By some accounts, at least half of the world’s young democracies—often referred to in the academic literature as being “unconsolidated” or “fragile”—are still struggling to develop their political institutions, and several have reverted back to authoritarian rule. Among the countries in the early stages of democratic institution building are states vital to U.S. national security interests, including Afghanistan and Iraq. The ability of fledgling democracies to maintain popular support depends in part on the ability of their governments to deliver economic policies that meet with widespread approval. But what sorts of economic policies are these, and are they necessarily the same as the policies required for tackling difficult issues of economic stabilization and reform? Conversely, what sorts of economic policies are most likely to spark a backlash against young and fragile democratic regimes? Do the leaders of young democracies face trade-offs as they ponder their electoral and economic strategies? These are among the questions we explore in this paper, which provides an overview of the monograph we are currently writing on the economics of young democracies. We do so first by exploring the hypothesized relationships between democratic politics and economic policy, as well as the findings of several important empirical studies with respect to the economic performance of young democracies around the world. We then provide some descriptive statistics on how the new democracies have fared in practice, making use of a new dataset that we have compiled (and which, among other things, is more up-to-date than most others cited herein). Do the data reveal any distinctive economic patterns with respect to democratic consolidation and reversal? We will show that they do. In particular, we find that deteriorating or stagnant economic performance constitutes a red flag or warning signal that the country is at risk of democratic reversal. Moreover, we find considerable variation in economic performance, suggesting that the design of political institutions in new democracies may have a significant influence on the probability of their survival.
    Keywords: democracy; economic growth; inflation; political development
    JEL: P16 P17 E52 E62
    Date: 2006–03
  47. By: Ricardo Hausmann (Harvard University); Francisco Rodríguez (Economics Department, Wesleyan University); Rodrigo Wagner (Harvard University)
    Abstract: We study episodes where economic growth decelerates to negative rates. While the majority of these episodes are of short duration, a substantial fraction last for a longer period of time than can be explained as the result of business-cycle dynamics. The duration, depth and associated output loss of these episodes differs dramatically across regions. We investigate the factors associated with the entry of countries into these episodes as well as their duration. We find that while countries fall into crises for multiple reasons, including wars, export collapses, sudden stops and political transitions, most of these variables do not help predict the duration of crises episodes. In contrast, we find that a measure of the density of a country’s export product space is significantly associated with lower crisis duration. We also find that unconditional and conditional hazard rates are decreasing in time, a fact that is consistent with either strong shocks to fundamentals or with models of poverty traps.
    Date: 2006–10
  48. By: YU, Ge
    Abstract: The validity of the rational expectations hypothesis is explored using 12 years direct individual expectations data derived from the BHPS. The usage of micro data drives off the possibility of spurious rejections caused by the existence of micro-heterogeneity. And the 12 years BHPS micro panel data can release the average-out problem in a comparatively short term micro panel data. In short, I test if the individual expectations are unbiased and efficient in a comparatively long term in this paper. As a result, expectations errors are found to be biased and inefficient. Furthermore, the hypothesis that expectations errors are random is investigated by exploring the existence of systematic components in expectations errors. There exists the micro-heterogeneity among different types of respondents. Also, the factors that significantly affect individual’s expectations are identified.
    Keywords: rational expectations; systematic heterogeneity; forecast errors; rational expectations hypothesis; subjective
    JEL: E13 E2 E17
    Date: 2003
  49. By: Fubini Lia (University of Turin)
    Abstract: An important contribution by Malinvaud presents a theory of unemploment not sufficiently considered by modern macroeconomics. This paper employs his theory to explain some features of contemporary unemployment with special reference to Italy. Empirical evidence appears to be in line with the theory.
    Date: 2005–01
  50. By: Diewert, W. Erwin; Wykoff, Frank C.
    Abstract: The paper considers how to measure capital in a model where technical progress is either embodied in new units of capital or it is "disembodied" and simply causes the price of capital services to fall. The disembodied case is considered in sections 2-4. Sections 2 and 3 set out standard vintage capital aggregation models when there is no embodied technical progress. Section 4 discusses disembodied obsolescence in more detail. Section 5 introduces new (more efficient) models of the capital good so that technical progress is embodied in the new models. Section 6 shows how the parameters in the Jorgenson model of capital services could be estimated by statistical agencies if their investment surveys covered sales and retirements of used assets as well as purchases of new assets. Section 7 concludes.
    JEL: C43 C81 D24 D92 E22 M4
    Date: 2006–11–23
  51. By: Luiz Humberto Cavalcante Veiga; Joaquim Pinto de Andrade; André Luiz Rossi de Oliveira
    Date: 2006
  52. By: Young, Andrew; Levy, Daniel
    Abstract: We offer the first direct evidence of an implicit contract in a goods market. The evidence we offer comes from the market for Coca-Cola. We demonstrate that the Coca-Cola Company left a substantial amount of written evidence of its implicit contract with its consumers—a very explicit form of an implicit contract. In general, observing implicit contracts directly is difficult because of their implicit nature. To overcome the difficulty, we adopt a narrative approach. Based on the analysis of a large number of historical documents obtained from the Coca-Cola Archives and other sources, we offer evidence of the Coca-Cola Company not only saying that it had an important implicit contract with its consumers, but also acting on it. This study makes an additional and unique contribution by exploring quality as a margin of adjustment available to Coca-Cola. We present evidence that the implicit contract included a promise not only of a constant nominal price but also a constant quality. We document the dedication to a 6.5oz serving of the "Secret Formula." Indeed, during a period of over 70 years, we find evidence of only a single case of true quality change. By studying the margin of adjustment the Coca-Cola Company chose in response to changes in market conditions, we demonstrate that the perceived costs of breaking the implicit contract were large. In addition, we are able to offer one piece of direct evidence on the magnitude of these costs by studying the events surrounding the failed introduction of the New Coke in 1985.
    Keywords: E12; E31; L14; L16; L66; M30; N80; A14
    JEL: L16 L14 E31
    Date: 2006–10–18
  53. By: Jose Ricardo da Costa e Silva; Ryan A. Compton
    Date: 2006
  54. By: Jorge Galán Camacho; Miguel Sarmiento Paipilla
    Abstract: During the period 2000-2004 central banks sustained a generalized reduction in their staff, which was accompanied, in most cases, with significant increases in staff costs. This could obey to an enhanced interest of central banks in focusing on their core functions. In fact, central banks have changed the ways they perform their operative functions (e.g. currency operations, payment systems operation, printing notes, etc.) through different strategies aimed at gathering the participation of third parties. These strategies differ according to the relationship that central banks have with the financial sector and the government, as well as to their historical tradition and modernization trend. To explain the effect of these changes on the staff, we estimated a short-term labor demand function for 66 central banks using a panel data model with random effects. Results indicate that central banks’ labor demand is strongly determined by the country’s population, economic development level and changes in operative functions, as well as by staff costs. In addition, we found a low employment-wage elasticity suggesting the presence of a flexible budgetary constrain in central banks.
    Keywords: Central Banking, Labor Demand, Modernization, Functions, Staff Costs, Panel Data, Random Effects. Classification JEL: E50; J23; J30; C33
  55. By: Fábio Augusto Reis Gomes; Cleomar Gomes da Silva
    Date: 2006
  56. By: Vladimir K. Teles; Mario Brundo
    Date: 2006
  57. By: Paulo Chananeco F. de Barcellos Neto; Marcelo Savino Portugal
    Date: 2006
  58. By: Dawid, Żochowski; Sławomir, Zajączkowski
    Abstract: Debt burden ratio as measured on the aggregate level does not give an adequate assessment of the ability of the household sector to repay its debt. The low level of financial deepening in Poland is primarily reflected in a low percentage of households that have been granted a loan. Therefore, the average debt burden for households, which have any debt outstandings could be much higher than the one measured on the aggregate level. If the debt is concentrated among groups of households with lower incomes, it can threat the financial stability in case of FX or interest rate shocks. Using the data from Polish Households Budget Survey we first define three different measures of debt burden and calculate its dispersion in time and distribution among income groups. We find that (1) the total debt service burden and loan service burden ratios are on lower levels than in other European countries and recently have not risen substantially, (2) the mortgage debt service burden ratio has been rapidly increasing in the last four years especially in lower income groups of households reaching in 2004 the 3/4 of the level noted in EU-15. In comparison with EU it seems that the level of indebtedness of house- holds in Poland is on a secure level. However, we notice that the secure level of debt burden ratio is on a lower level in emerging market countries than in wealthier countries because of the higher share of basic living costs in total consumption expenditure. Therefore, the increasing levels of mortgage debt service ratios in lower-income groups could pose a potential threat to the financial stability in case of FX or interest rate shock.
    Keywords: Financial stability; debt burden; sebt service burden; haousehold indebtedness
    JEL: G21 G0 E58
    Date: 2006–07–31
  59. By: Tausch, Arno
    Abstract: This publication empirically evaluates and develops core aspects of the literature on global governance. Analyzing world social, gender, ecological and economic development on the basis of the main 9 predictors, compatible with the majority of the more than 240 published studies on the cross-national determinants of the “human condition” around the globe, it presents the results of 32 equations about development performance from 131 countries. We come to the conclusion that while there is some confirmation for the “blue”, market paradigm as the best and most viable way of world systems governance concerning economic growth, re-distribution and gender issues, the “red-green” counter-position is confirmed concerning such vital and basic indicators as life expectancy and the human development index. This work also challenges the neo-liberal consensus about democracy and the pure market economy as the way to development, equality, a good environment and peace by showing that selected market interventions and the fairly regulated regime of the early post-war years assured stability in Europe and Japan and contributed to social and economic recovery from the Great Depression and the Second World War. Present attempts to stabilize the world order by bringing in the major western industrialized countries plus Russia (the so-called G-8, composed by France; United States; United Kingdom; Russian Federation; Germany; Japan; Italy; Canada; European Union) must face up to the fact that these countries represent a declining part of world purchasing power. The rise of Asia makes the present G7/G8 structure increasingly irrelevant. This publication also re-establishes the notion that capitalist development is of cyclical nature, with strong fluctuations every 50 years. For us 1756, 1832, 1885, 1932 and 1975 are the beginnings of new Kondratiev waves, while 1756, 1774, 1793, 1812, 1832, 1862, 1885, 1908, 1932, 1958, 1975, and 1992 are the turning points (troughs) of the Kuznets cycles. So, where are we now? 1870? 1913? 1938? World systems theory is full of speculation about the future, and much of world systems research writing projects a major global war by around 2020 or 2030. The danger arises that instability and not democratization will triumph in the end in the countries of the periphery and the semi-periphery, especially in countries like those of the former USSR. We also show that Europe’s crisis is not caused by what the neo-liberals term a “lack of world economic openness” but rather, on the contrary, by the enormous amount of passive globalization that Europe – together with Latin America – experienced over recent years. The “wider Europe” of the EU-25 is not too distantly away from the social realities of the more advanced Latin American countries. So, what should be done? By the governments of the world, and by the globalization critical social movements? Only a movement towards global democracy is the valid answer to the fact that the peoples of the world live in a single global social system. The establishment of a European democratic federal state would be the first and most important step in the direction of a socio-liberal world democracy.
    Keywords: Key words: Cross-Section Models; Income Distribution; Prices; Business Fluctuations; and Cycles – General; International Economic Order; Inequality; Economic Integration: General
    JEL: F02 D31 E00 C21 F5
    Date: 2006
  60. By: Spada Anna
    Abstract: L'influenza esercitata da Marshall sul pensiero di Keynes è stata per un lungo periodo oggetto di scarsa attenzione. In generale, gli studi su Keynes riconoscono come fonti del suo pensiero filosofico e metodologico, Russell (in una prima fase), Moore e Wittgenstein, tralasciando del tutto il ruolo di Marshall. Nell 'ultimo decennio tuttavia l'influenza marshalliana sul pensiero filosofico e metodologico di Keynes è stata affrontata da più parti. I contatti biografici e gli scambi intellettuali tra Marshall e Keynes si susseguirono dal periodo della formazione di Keynes nel laboratorio marshalliano (1905) alla ripresa da parte di Keynes del pensiero di Marshall dopo la sua morte (1924) in occasione della stesura dello scritto commemorativo e della pubblicazione postuma degli "Official Papers" (1926), curata da Keynes. Il confronto delle reazioni di Keynes in questi due momenti di vicinanza al pensiero di Marshall mostra come egli passi nel corso degli anni da un 'iniziale resistenza ad una successiva completa acquisizione delle idee marshalliane sulla natura, gli scopi e il metodo dell 'economia. In più mostra come il ruolo di Marshall nella formazione del pensiero di Keynes non sia stato affatto marginale anzi abbia avuto un 'importanza cruciale, e possa collocarsi alla base della revisione di Keynes per l'entusiasmo nei confronti di logica e matematica. Il ruolo di Marshall è stato importante anche per la maturazione dell 'idea che la teoria debba adattarsi alla pratica e non viceversa, che caratterizzerà l'esito delle riflessioni di Keynes rispetto a quello dei filosofi di Cambridge, con il pensiero dei quali si era a lungo confrontato. La prospettiva dell'influenza esercitata dai filosofi di Cambridge su Keynes, e soprattutto della interpretazione originale che egli ne hafornito, è utile per chiarire il ruolo svolto da Marshall nella formazione del pensiero filosofico, metodo logico ed economico di Keynes e, più in generale, per comprendere l'origine e le caratteristiche delle affinità tra le idee di Marshall e quella di Keynes sulla natura, gli scopi e il metodo dell'economia.
    Date: 2005–11–24
  61. By: Feridun, Mete
    Abstract: Purchasing Power Parity (PPP) is the most conventional and fundamental means through which the long-term equilibrium exchange rate can be explained. This article examines the monthly and quarterly data from January 1965 – Janu-ary 1995 aiming at testing the validity of PPP as a long-term equilibrium condi-tion for the bilateral exchange rates between US Dollar and the currencies of a set of five industrialized countries, namely Germany, France, Australia, Canada, and the United Kingdom, using Augmented Dickey Fuller (ADF) unit root test. Results indicate that both monthly and quarterly US Dollar – Canadian Dollar real exchange rates are stationary. In case of US Dollar – Australian Dollar real exchange rate, only monthly data is found to be stationary. Strong evidence emerges that US Dollar – French Franc, US Dollar – German Mark, and US Dollar – Great Britain Pound exchange rates are non-stationary, which invalidates the PPP hypothesis.
    Keywords: purchasing power parity; exchange rate determination; unit root test
    JEL: E00
    Date: 2005–02
  62. By: Antonio Carlos Macedo e Silva
    Date: 2006
  63. By: Ricardo Azevedo Araujo; Gilberto Tadeu Lima
    Date: 2006
  64. By: Gilvan Cândido da Silva
    Date: 2006
  65. By: Feng, Dai; Yuan-Zheng, Zhong
    Abstract: The paper presents the basic theory and conceptual model for advance-retreat course and provides the analytic model the stochastic advance-retreat course and the solving method of it, discusses the relations between the endogenous resistance and subject interests increase with the periodic vibration in an advance-retreat course, gets some results, like heightening appropriately the risk-free interest rate will be favorable to subject interests’ increasing in stable, interests increasing in high-speed will result in the fast increase of resistance, the subject progress in a appropriate pace may bring the conclusion such as lasting interests increase and return with higher-level interests, etc. Finally, the empirical researches empirical, on data of USA GDP (chained) price index, has been made to the stochastic advance-retreat model, and the results show that the stochastic advance-retreat model can describe USA economic development process in recent 65 years.
    Keywords: Economic process; advance-retreat course; the basic theory; analytic model
    JEL: O11 C73 E17 C53
    Date: 2006–10–05
  66. By: Gabriel Porcile; Gilberto Tadeu Lima
    Date: 2006

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