nep-mac New Economics Papers
on Macroeconomics
Issue of 2006‒12‒09
fifty-two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. New-Keynesian Macroeconomics and the Term Structure By Bekaert, Geert; Cho, Seonghoon; Moreno, Antonio
  2. New Keynesian Models, Durable Goods and Collateral Constraints By Monacelli, Tommaso
  3. The Phillips Curve Under State-Dependent Pricing By Bakhshi, Hasan; Khan, Hashmat; Rudolf, Barbara
  4. Inflation Implications of Rising Government Debt By Giannitsarou, Chryssi; Scott, Andrew
  5. Strong Goal Independence and Inflation Targets By Baltensperger, Ernst; Fischer, Andreas M; Jordan, Thomas J.
  6. Neo-Keynesian and Neo-Classical Macroeconomic Models: Stability and Lyapunov Exponents By Jan Kodera; Karel Sladký; Miloslav Vošvrda
  7. Extracting Business Cycles using Semi-parametric Time-varying Spectra with Applications to US Macroeconomic Time Series By Siem Jan Koopman; Soon Yip Wong
  8. Inflation as a Redistribution Shock: Effects on Aggregates and Welfare By Doepke, Matthias; Schneider, Martin
  9. Interest rate pass-through estimates from vector autoregressive models By Johann Burgstaller
  10. Business Cycle Moderation - Good Policies or Good Luck: Evidence and Explanations for the Euro Area By M.S.Rafiq
  11. Policies to Improve Turkey's Resilience to Financial Market Shocks By Anne-Marie Brook
  12. Fiscal Implications of Aids in South Africa By Johansson, Lars
  13. A Fiscal Rule That Has Teeth: A Suggestion for a "Fiscal Sustainability Council" Underpinned by the Financial Markets By Petr Hedbávný; Ondřej Schneider; Jan Zápal
  14. Political Pressure on Central Banks: The Case of the Czech National Bank By Adam Geršl
  15. The Role of Interest Rates in Business Cycle Fluctuations in Emerging Market Countries: The Case of Thailand By Ivan Tchakarov; Selim Elekdag
  16. Bank income and profits over the business and interest rate cycle By Johann Burgstaller
  17. Pension Systems and the Allocation of Macroeconomic Risk By Bovenberg, A Lans; Uhlig, Harald
  18. Financial Crisis, Effective Policy Rules and Bounded Rationality in a New Keynesian Framework By Ali Al-Eyd; Stephen Hall
  19. Production, Capital Stock and Price Dynamics in a Simple Model of Closed Economy By Jan Kodera; Miroslav Vošvrda
  20. Indeterminacy in a Forward Looking Regime Switching Model By Farmer, Roger E A; Waggoner, Daniel F; Zha, Tao
  21. Incorporating Judgement in Fan Charts By Österholm, Pär
  22. Functional and structural complementarities of banks and microbanks in L.D.C's By SODOKIN, Koffi
  23. Political Economy of Public Deficit: Perspectives for Constitutional Reform By Adam Geršl
  24. U.S. Labor Market Dynamics Revisited By Eran Yashiv
  25. Fiscal Policy in New EU Member States: Go East, Prudent Man! By Ondřej Schneider; Jan Zápal
  26. What Drives Personal Consumption? : The Role of Housing and Financial Wealth By Jiri Slacalek
  27. The Maastricht Inflation Criterion: How Unpleasant is Purgatory? By Jaromir Hurnik; Aleš Bulir
  28. Options for Fiscal Consolidation in the United Kingdom By Keiko Honjo; Dennis P. J. Botman
  29. Solving for Country Portfolios in Open Economy Macro Models By Devereux, Michael B; Sutherland, Alan
  30. Stock and Bond Returns with Moody Investors By Bekaert, Geert; Engstrom, Eric; Grenadier, Steve
  31. Stochastic Gradient versus Recursive Least Squares Learning By Sergey Slobodyan; Anna Bogomolova,; Dmitri Kolyuzhnov
  33. Relation between Cyclically Adjusted Budget Balance and Growth Accounting Method of Deriving ‘Net Fiscal Effort’ By Jan Zápal
  34. Origins and Consequences of Child Labour Restrictions: A Macroeconomic Perspective By Doepke, Matthias; Krüger, Dirk
  35. Risk, Uncertainty and Asset Prices By Bekaert, Geert; Engstrom, Eric; Xing, Yuhang
  36. Fiscal Implications of Demographic Uncertainty: Comparisons across the European Union By Martin Weale
  37. Convergence of Consumption Structure By Tomáš Cahlík; Tomáš Honzák; Jana Honzáková; Marcel Jiřina; Natálie Reichlová
  38. What Are Their Words Worth? Political Plans And Economic Pains Of Fiscal Consolidations In New EU Member States By Ondřej Schneider; Jan Zápal
  39. A Comparison of National Saving Rates in the UK, US and Italy By Tatiana Kirsanova; James Sefton
  40. Taxing Capital? Not a Bad Idea After All! By Conesa, Juan Carlos; Kitao, Sagiri; Krüger, Dirk
  41. Employment Fluctuations and Dynamics of the Aggregate Average Wage in Poland 1996-2003 By Michal Myck; Leszek Morawski; Jerzy Mycielski
  42. Welfare Effects of the Euro Cash Changeover By Christoph Wunder; Johannes Schwarze; Gerhard Krug; Bodo Herzog
  43. Pension reform in the Czech Republic: Not a Lost Case? By Ondřej Schneider
  44. A Rational Irrational Man? By Alexander Harin
  45. Real Wage Cyclicality in Italy By Fei Peng; W. Stanley Siebert
  46. Frictional Wage Dispersion in Search Models: A Quantitative Approach By Hornstein, Andreas; Krusell, Per; Violante, Giovanni L
  47. The nature of the decision-making process for central banks' interventions in the FX market: Evidence from the Bank of Japan. By Michel Beine; Oscar Bernal; Jean-Yves Gnabo; Christelle Lecourt
  48. Wage Structure and Public Sector Employment: Sweden versus the United States 1970-2002 By Domeij, David; Ljungqvist, Lars
  49. Estimating Russia's Impact on the Economic Performance of the Commonwealth of Independent States since 1991: The Cases of the Kyrgyz Republic, Tajikistan, Armenia, Georgia and Ukraine By Melinda Robson
  50. Federalismo fiscal a partir de un modelo de equilibrio general aplicado: Andalucía VS. España By Manuel Alejandro Cardenete Flores
  51. Are the French Happy with the 35-Hour Workweek? By Marcello Estevão; Filipa Sá
  52. Der Finanzierungsbeitrag der Ausländer zu den deutschen Staatsfinanzen: Eine Bilanz für 2004 By Holger Bonin

  1. By: Bekaert, Geert; Cho, Seonghoon; Moreno, Antonio
    Abstract: This article complements the structural New-Keynesian macro framework with a no-arbitrage affine term structure model. Whereas our methodology is general, we focus on an extended macro-model with unobservable processes for the inflation target and the natural rate of output which are filtered from macro and term structure data. We find that term structure information helps generate large and significant estimates of the Phillips curve and real interest rate response parameters. Our model also delivers strong contemporaneous responses of the entire term structure to various macroeconomic shocks. The inflation target dominates the variation in the 'level factor' whereas monetary policy shocks dominate the variation in the 'slope and curvature factors'.
    Keywords: inflation target; monetary policy; Phillips curve; term structure of interest rates
    JEL: E31 E32 E43 E52 G12
    Date: 2006–11
  2. By: Monacelli, Tommaso
    Abstract: Econometric evidence suggests that, in response to monetary policy shocks, durable and non-durable spending comove positively, and durable spending exhibits a much larger sensitivity to the policy shocks. A standard two-sector New Keynesian model with free borrowing persistently exhibits a co-movement problem: if spending contracts in one sector, it expands in the other. We argue that, even when durable prices are flexible, the introduction of a collateral constraint on borrowing and the consideration of durables as collateral assets generate both a correct sectoral co-movement and a procyclical response of durable consumption to policy shocks. In this vein, collateral constraints act as a substitute of nominal rigidity in durable prices. However, since in the model nominal non-indexed debt and the collateral constraint generate alternative channels for monetary non-neutrality, our framework leaves room for relaxing the assumption of price stickiness also for nondurable goods prices, in line with some recent micro-based evidence. In a limit case of fully flexible prices in both sectors, a policy shock still generates a sizeable degree of monetary non-neutrality, as well as the correct sectoral co-movement. In this vein, collateral constraints act as a substitute of price stickiness altogether.
    Keywords: collateral constraint; durable goods; sticky prices
    JEL: E52 E62 F41
    Date: 2006–11
  3. By: Bakhshi, Hasan; Khan, Hashmat; Rudolf, Barbara
    Abstract: This article is related to the large recent literature on Phillips curves in sticky- price equilibrium models. It differs in allowing for the degree of price stickiness to be determined endogenously. A closed-form solution for short-term inflation is derived from the dynamic stochastic general equilibrium (DSGE) model with state-dependent pricing developed by Dotsey, King and Wolman. This generalized Phillips curve encompasses the New Keynesian Phillips curve (NKPC) based on Calvo-type price-setting as a special case. It describes current inflation as a function of lagged inflation, expected future inflation, current and expected future real marginal costs, and current and past variations in the distribution of price vintages. We find that current inflation depends positively on its own lagged values giving rise to intrinsic persistence as a source of inflation persistence. Also, we find that the state-dependent terms (that is, the variations in the distribution of price vintages) tend to counteract the contribution of lagged inflation to inflation persistence.
    Keywords: inflation dynamics; Phillips curve; state-dependent pricing
    JEL: E31 E32
    Date: 2006–11
  4. By: Giannitsarou, Chryssi; Scott, Andrew
    Abstract: The intertemporal budget constraint of the government implies a relationship between a ratio of current liabilities to the primary deficit with future values of inflation, interest rates, GDP and narrow money growth and changes in the primary deficit. This relationship defines a natural measure of fiscal balance and can be used as an accounting identity to examine the channels through which governments achieve fiscal sustainability. We evaluate the ability of this framework to account for the fiscal behaviour of six industrialised nations since 1960. We show how fiscal imbalances are mainly removed through adjustments in the primary deficit (80-100%), with less substantial roles being played by inflation (0-10%) and GDP growth (0-20%). Focusing on the relation between fiscal imbalances and inflation suggests extremely modest interactions. This post WWII evidence suggests that the widely anticipated future increases in fiscal deficits, need not necessarily have a substantial impact on inflation.
    Keywords: fiscal deficit; fiscal sustainability; government debt; inflation; intertemporal budget constraint
    JEL: E31 E62
    Date: 2006–11
  5. By: Baltensperger, Ernst; Fischer, Andreas M; Jordan, Thomas J.
    Abstract: Inflation targeting has become the monetary policy framework of the nineties. At the other extreme, several central banks have recently adopted key elements of the inflation targeter's toolkit, but at the same time they have made formal declarations that they are not inflation targeters. Such a position may appear surprising. It indirectly suggests that a reneging strategy is beneficial for some. The paper considers reasons why it may be advantageous for some central banks to distinguish themselves from the inflation targeting strategy. Most importantly, we argue that explicit inflation targets can potentially undermine the goal independence of a central bank.
    Keywords: inflation targeting; medium and strong goal independence; weak
    JEL: E50 E52 E58
    Date: 2006–11
  6. By: Jan Kodera; Karel Sladký; Miloslav Vošvrda (Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic, Prague, Czech Republic; Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: The non-linear approach to economic dynamics enables us to study traditional economic models using modified formulations and different methods of solution. In this article we compare dynamical properties of Keynesian and Classical macroeconomic models. We start with an extended dynamical IS-LM neoclassical model generating behaviour of the real product, interest rate, expected inflation and the price level over time. Limiting behaviour, stability, and existence of limit cycles and other specific features of these models will be compared.
    Keywords: macroeconomic models; Keynesian and classical model; nonlinear differential equations; linearization; asymptotical stability; Lyapunov exponents S
    JEL: C00 E12 E13
    Date: 2006–04
  7. By: Siem Jan Koopman (Vrije Universiteit Amsterdam); Soon Yip Wong (Vrije Universiteit Amsterdam)
    Abstract: A growing number of empirical studies provides evidence that dynamic properties of macroeconomic time series have been changing over time. Model-based procedures for the measurement of business cycles should therefore allow model parameters to adapt over time. In this paper the time dependencies of parameters are implied by a time dependent sample spectrum. Explicit model specifications for the parameters are therefore not required. Parameter estimation is carried out in the frequency domain by maximising the spectral likelihood function. The time dependent spectrum is specified as a semi-parametric smoothing spline ANOVA function that can be formulated in state space form. Since the resulting spectral likelihood function is time-varying, model parameter estimates become time-varying as well. This new and simple approach to business cycle extraction includes bootstrap procedures for the computation of confidence intervals and real-time procedures for the forecasting of the spectrum and the business cycle. We illustrate the methodology by presenting a complete business cycle analysis for two U.S. macroeconomic time series. The empirical results are promising and provide significant evidence for the great moderation of the U.S. business cycle.
    Keywords: Frequency domain estimation; frequency domain bootstrap; time-varying parameters; unobserved components models
    JEL: C13 C14 C22 E32
    Date: 2006–11–29
  8. By: Doepke, Matthias; Schneider, Martin
    Abstract: Episodes of unanticipated inflation reduce the real value of nominal claims and thus redistribute wealth from lenders to borrowers. In this study, we consider redistribution as a channel for aggregate and welfare effects of inflation. We model an inflation episode as an unanticipated shock to the wealth distribution in a quantitative overlapping-generations model of the U.S. economy. While the redistribution shock is zero sum, households react asymmetrically, mostly because borrowers are younger on average than lenders. As a result, inflation generates a decrease in labour supply as well as an increase in savings. Even though inflation-induced redistribution has a persistent negative effect on output, it improves the weighted welfare of domestic households.
    Keywords: aggregate effects; inflation; redistribution; welfare
    JEL: D31 D58 E31 E50
    Date: 2006–11
  9. By: Johann Burgstaller (Department of Economics, Johannes Kepler University Linz, Austria)
    Abstract: The empirical literature on interest rate transmission presents diverse and sometimes conflicting estimates. By discussing methodological and specification-related issues, the results of this paper contribute to the understanding of these differences. Eleven Austrian bank lending and deposit rates are utilized to illustrate the pass-through of impulses from monetary policy and banks’ cost of funds. Results from vector autoregressions suggest that the long-run pass-through is higher for movements in the bond market than of changes in money market rates. Deposit rates have no predictive content for lending rates beyond that of market interest rates.
    Keywords: Monetary policy transmission; interest rate pass-through; retail interest rates; vector autoregression; impulse-response functions
    JEL: E43 E52 G21
    Date: 2005–12
  10. By: M.S.Rafiq (Dept of Economics, Loughborough University, United Kingdom)
    Abstract: Economic fluctuations in most of the industrialised world have for over the past 30 years been characterised by declining volatility. This decline has also been a trait witnessed for output fluctuations in the Euro Area. This paper has two objectives. The first is to provide a comprehensive characterisation of the decline in volatility using a large number of Euro area economic time series and a variety of methods designed to describe the time-varying time series processes. The second objective is to provide new evidence on the quantitative importance of various explanations for this ‘great moderation’. This paper focuses on the central elements in the literature contending why real output growth has stabilised. Such factors include shifts in the structure of the economy, improved policies, and a ‘good luck’ factor. Further, this paper goes on to investigate whether cross-country linkages in growth have shifted, perhaps in a way that can help rationalise the stabilisation in output. Taken together, the moderation in volatility is attributable to a combination of improved policy (around 5 - 30 percent) and identifiable forms of good luck that manifest themselves as smaller reduced-form forecast errors (40 percent).
    Keywords: Output Volatility, Monetary Policy, International shocks.
    JEL: E32 E60
    Date: 2006–11
  11. By: Anne-Marie Brook
    Abstract: Since the crisis of 2001, an impressive package of fiscal consolidation and institutional reform has created a strong foundation for economic growth. As a result, GDP growth has been strong and stable, inflation has fallen, and the public debt burden has been significantly reduced. Yet the current account deficit is large, exchange rate movements have been volatile, and the recent increase in inflation and rising levels of private sector external debt draw attention to Turkey?s vulnerabilities and to the need for additional policies to contain risks. This paper summarises the vulnerabilities of the Turkish economy and the steps that can be taken to improve macroeconomic resilience to shocks. This Working Paper relates to the 2006 Economic Survey of Turkey ( <P>Les politiques pour renforcer la résilience de la Turquie aux chocs émanant des marchés financiers <BR>Depuis la crise de 2001, un remarquable programme d'assainissement économique et de réforme institutionnelle a créé de robustes fondations pour la croissance économique. En conséquence, l'expansion du PIB a été forte et stable, l'inflation a décru et le fardeau de la dette publique a été nettement allégé. Cependant, le déficit de la balance courante est élevé, les fluctuations du taux de change sont irrégulières et l'accélération récente de l'inflation comme la montée de l'endettement attirent l'attention sur les points vulnérables de la Turquie et sur la nécessité de prendre de nouvelles initiatives pour contenir les risques. Ce document recense les points vulnérables de l'économie turque et présente les mesures susceptibles d'améliorer la résilience macroéconomique aux chocs. Ce Document de travail se rapporte à l’Étude économique de la Turquie 2006 (
    Keywords: fiscal policy, politique fiscale, monetary policy, politique monétaire, shocks, resilience, Turkey, debt sustainability, échanges sud-sud
    JEL: E52 E60 F40 H60
    Date: 2006–11–29
  12. By: Johansson, Lars (Dept. of Economics, Stockholm University)
    Abstract: The number of people living with HIV is alarmingly large. In addition to the incomprehensible human suffering of those directly affected, AIDS also has large, negative economic effects. In this paper, I study the fiscal implications of the HIV/AIDS epidemic in South Africa in a standard neo-classical growth model. I find that an antiretroviral program is to a large extent self financing. Improvement in dependency ratios and health care cost savings would pay for Rand 144 billion of a full epidemiological intervention. The indirect effect through the changing demographic structure will be more important than the direct health care cost saving effect. I also explore different taxation policies. The households would be willing to sacrifice an amount equal to 12% of GDP in the first period to be subject to an optimal (Ramsey) fiscal policy rather than an alternative fixed debt to GDP policy. The optimal policy implies an increase in government debt during the peak of the epidemic.
    Keywords: AIDS; Fiscal Impact; Economic Impact; Fiscal Policy; Taxation
    JEL: E17 E21 E23 E62 H21 H23
    Date: 2006–12–04
  13. By: Petr Hedbávný (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Ondřej Schneider (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Jan Zápal (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: In this paper, we set out to examine an efficient fiscal-policy framework for a monetary union. We illustrate that fiscal policy’s bias toward budget deficit only temporarily ceased at the end of the 20th century as European countries endeavored to qualify for euro-zone membership, which compelled strict limits on budgetary deficits. We then explore which mechanisms might instill a sense of fiscal disciple in governments. We find that most mechanisms suffer from the incentive-incompatible setup whereby governments restrict their own fiscal-policy freedom. We argue that even multilateral fiscal rules, such as the EU’s Stability and Growth Pact, suffer from the same endogeneity flaw. Consequently, we argue that a fiscal rule must incorporate an external authority that would impartially assess fiscal-policy developments. Using U.S. debt and bond-market data at the state level, we show that financial markets represent a good candidate as, vis-á-vis the American states, they do differentiate state debt according to the level of debt. We thus argue for a fiscal institution - what we call the Fiscal Sustainability Council - that would actively bring financial markets into the fiscal-policy process, and we explain the technique whereby this could be effected.
    Keywords: fiscal policy; European Union; sustainability
    JEL: E6 H6 H87
    Date: 2005
  14. By: Adam Geršl (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank, Prague, Czech Republic)
    Abstract: As the independence of national central banks in the European Union is one of the main institutional features of the monetary constitution of the EU, the paper tries to find out whether central banks are factually independent in their decisions about interest rates if they face political pressure. The Havrilesky (1993) methodology of the political pressure on central banks is applied to the Czech National Bank, a central bank of one of the new EU Member States, in order to test whether the conducted monetary policy has been influenced by political pressure from various interest groups.
    Keywords: political economy; monetary policy; pressure groups
    JEL: E52 D78
    Date: 2006–04
  15. By: Ivan Tchakarov; Selim Elekdag
    Abstract: Emerging market countries have enjoyed an exceptionally favorable economic environment throughout 2004, 2005, and early 2006. In particular, accommodative U.S. monetary policy in recent years has helped create an environment of low interest rates in international capital markets. However, if world interest rates were to take a sudden upward course, this would lead to less hospitable financing conditions for emerging market countries. The purpose of this paper is to measure the effects of world interest rate shocks on real activity in Thailand. The analysis incorporates balance sheet related credit market frictions into the IMF’s Global Economy Model (GEM) and finds that Thailand would best minimize the adverse effects of rising world interest rates if it were to follow a flexible exchange rate regime.
    Keywords: Interest rates , Thailand , Business cycles , Emerging markets , Exchange rate regimes , International trade , Economic models ,
    Date: 2006–05–10
  16. By: Johann Burgstaller (Department of Economics, Johannes Kepler University Linz, Austria)
    Abstract: If and how the conduct of the banking sector contributes to the propagation of aggregate shocks has become a prominent empirical research question. This study explores what a cyclicality analysis of net interest margins and spreads, as well as profitability figures, can contribute to the discussion. By using time series data for the Austrian banking sector from 1987 to 2005, it is found that many of these measures fall in economic upturns. Net interest income from granting loans and taking deposits from non-banks, however, evolves procyclically and increases with rising interest rates. Combined with the observation that the margins’ countercyclical variations are rather small, it can be concluded that there is no striking evidence for a financial accelerator caused by the Austrian banking sector.
    Keywords: Bank interest margins; business cycles; financial accelerator; impulse response analysis
    JEL: E32 G21
    Date: 2006–07
  17. By: Bovenberg, A Lans; Uhlig, Harald
    Abstract: This paper explores the optimal risk sharing arrangement between generations in an overlapping generations model with endogenous growth. We allow for nonseparable preferences, paying particular attention to the risk aversion of the old as well as overall 'life-cycle' risk aversion. We provide a fairly tractable model, which can serve as a starting point to explore these issues in models with a larger number of periods of life, and show how it can be solved. We provide a general risk sharing condition, and discuss its implications. We explore the properties of the model quantitatively. Among the key findings are the following. First and for reasonable parameters, the old typically bear a larger burden of the risk in productivity surprises, if old-age risk-aversion is smaller than life risk aversion, and vice versa. Thus, it is not necessarily the case that the young ensure smooth consumption of the old. Second, consumption of the young and the old always move in the same direction, even for population growth shocks. This result is in contrast to the result of a fully-funded decentralized system without risk-sharing between generations. Third, persistent increases in longevity will lead to lower total consumption of the old (and thus certainly lower per-period consumption of the old) as well as the young as well as higher work effort of the young. The additional resources are instead used to increase growth and future output, resulting in higher consumption of future generations.
    Keywords: overlapping generations; pension systems; risk sharing; social optimum
    JEL: E21 E61 E62 H21 H55 O40
    Date: 2006–11
  18. By: Ali Al-Eyd; Stephen Hall
    Abstract: This paper extends a standard open-economy New Keynesian model to examine the efficiency of alternative monetary policy rules (both fixed and nonlinear) during a period of financial crisis. A third-generation “balance sheet effect” is made operational through an endogenous risk premium which impacts on investment. Special attention is given to alternative expectations structures and our findings under both rational expectations and adaptive learning establish the Taylor rule as the dominant policy. Moreover, under adaptive learning, we find additional policy traction and less instrument variability in rules augmented with the exchange rate. Building on the nonlinear policy rule framework, we illustrate the debate stemming from the Asian crisis regarding the prescription of monetary policy in the presence of liability dollarization. Interestingly, under rational expectations, “Traditionalist” (or IMF-prescribed) policy is most effective at mitigating exchange rate variability, while “Revisionist” policy is most effective at mitigating real output variability. All rules in this study, however, advocate a sharp initial interest rate response to the crisis.
    Date: 2006–04
  19. By: Jan Kodera (Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic, Prague, Czech Republic; University of Economics, Department of Banking and Insurance, Prague, Czech Republic); Miroslav Vošvrda (Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic, Prague, Czech Republic; Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: The purpose of this paper is to study a price level dynamics in a simple four-equation model. A basis of this model is developed from dynamical Kaldorian model which could be noticed very frequently in works of non-linear economic dynamics. Our approach is traditional. The difference is observed in a choice of an investment function. The investment function depending on the difference of logarithm of production and logarithm of capital (logarithm of the productivity of capital) is in a form of the logistic function. These two equations create relatively closed sub-model generating both production and capital stock trajectories. Two other equations describe the price level dynamics as a consequence of money market disequilibrium and continuously adaptive expectation of inflation. Our investigation is firstly aimed to core model dynamics, i.e., a dynamics of the production and capital stock. Secondly is to analyze dynamics of the model as a whole, i.e., to the first part is superadded the price dynamics and expected inflation dynamics depending on both an adaptation parameter of the commodity market and a parameter of the expectation. Thirdly we compute Lyapunov exponents for a simple model of closed economy showing it’s a chaotic behaviour. Simulation studies are performed.
    Keywords: investment ratio; propensity to save; expected inflation; nonlinear system; price dynamics
    JEL: E44
    Date: 2005
  20. By: Farmer, Roger E A; Waggoner, Daniel F; Zha, Tao
    Abstract: This paper is about the properties of Markov switching rational expectations (MSRE) models. We present a simple monetary policy model that switches between two regimes with known transition probabilities. The first regime, treated in isolation, has a unique determinate rational expectations equilibrium and the second contains a set of indeterminate sunspot equilibria. We show that the Markov switching model, which randomizes between these two regimes, may contain a continuum of indeterminate equilibria. We provide examples of stationary sunspot equilibria and bounded sunspot equilibria which exist even when the MSRE model satisfies a 'generalized Taylor principle'. Our result suggests that it may be more difficult to rule out non-fundamental equilibria in MRSE models than in the single regime case where the Taylor principle is known to guarantee local uniqueness.
    Keywords: indeterminacy; regime switching; Taylor Principle
    JEL: C3 E4 E5
    Date: 2006–11
  21. By: Österholm, Pär (Department of Economics)
    Abstract: Within a decision-making group, such as the monetary-policy committee of a central bank,group members often hold differing views about the future of key economic variables. Such differences of opinion can be thought of as reflecting differing sets of judgement. This paper suggests modelling each agent’s judgement as one scenario in a macroeconomic model. Each judgement set has a specific dynamic impact on the system, and accordingly, a particular predictive density – or fan chart – associated with it. A weighted linear combination of the predictive densities yields a final predictive density that correctly reflects the uncertainty perceived by the agents generating the forecast. In a model-based environment, this framework allows judgement to be incorporated into fan charts in a formalised manner.
    Keywords: Forecasts; Predictive density; Linear opinion pool
    JEL: C15 C53 E17 E50
    Date: 2006–11–20
  22. By: SODOKIN, Koffi (LEG - CNRS UMR 5118 - Université de Bourgogne)
    Abstract: The prime objective of this paper is to explain the concept of monetary payments as a foundation of an analytical construction of microfinance institutions (microbanks) and official banks (banks) functional complementarity's in Less Developing Countries (L.D.C's). The second objective is to show that in L.D.C's production process, part of the non spent generated income is preserved after the payment operation, in the form of deposits accounts near microbanks and banks. The share preserved near microbanks, when it is not used to finance consumer expenditure and the income generating activities, is often invested in a portfolio of deposits account near banks. Microbanks are structurally complementary to banks. They are, for this purpose, a "super deposits accounts de facto" for households which do not have access to banks financial services. From a functional point of view and taking into account their role in microfirms production cost funding, microbanks cause monetary income generation. They are "banks de facto" and are functionally complementary to banks in L.D.C's.
    Keywords: Microfinance institutions ; non monetary intermediaries ; official banks ; money creation ; Banks ; microbanks ; complementarity ; monetary intermediation ; financial intermediation ; West Africa ; Low Developing Countries.
    JEL: E42 E44 O11 O17
    Date: 2006–10
  23. By: Adam Geršl (Czech National Bank, Monetary and Statistics Department, Prague, Czech republic; Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank, Prague)
    Abstract: The paper uses a dynamic inconsistency model known from monetary policy to assess three alternative proposals how to reform fiscal constitution in order to limit government’s incentive to use fiscal policy for maximizing political support. The return to ever-balanced-budget rule, state-contingent rules, and the establishment of an independent Fiscal Policy Committee with power to set public deficit with the aim of stabilizing the economy are discussed from the constitutional perspective, analyzing different incentives that these proposals create for government and alternative means to enhance credibility of the arrangement.
    Keywords: fiscal policy; dynamic inconsistency; political economy; public deficit
    JEL: E61 E63 P16
    Date: 2005
  24. By: Eran Yashiv (Tel Aviv University, CEPR and IZA Bonn)
    Abstract: The picture of U.S. labor market dynamics is opaque. Empirical studies of U.S. gross worker flows have yielded contradictory findings, and it is not easy to get a sense of the key moments of the data. Debates have emerged regarding the implications of these flows for the understanding of the business cycle. The early view was that worker separations from jobs are the more dominant cyclical phenomenon (relative to the hirings of workers), and that therefore it is important to analyze the causes for separations or job destruction. Later, this view was challenged by the claim that separations are roughly constant over the cycle, and that the key to the understanding of the business cycle is in the cyclical behavior of the job finding rate. This paper aims at clarifying the picture, trying to determine what facts can be established, what are their implications for the business cycle, and what remains to be further investigated. The main findings are: (i) There is considerable cyclicality and volatility of both accessions and separations. Hence, both are important for the understanding the business cycle. The paper delineates the key business cycle facts of the labor market. (ii) The major remaining problems, in need of further study, are the disparities in the measurement of flows between employment and the pool of workers out of the labor force, disagreements on the relative volatility of job finding and separation rates across data sets, and the fact that the fit of the gross flows data with net employment growth data differs across studies and is not high.
    Keywords: gross worker flows, labor market dynamics, job finding rate, separation rate, business cycle facts
    JEL: E24 J63 J64
    Date: 2006–11
  25. By: Ondřej Schneider (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Jan Zápal (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: The European Union (EU) accepted ten new member states (NMS) in 2004. These countries, mostly former socialist countries, have had to adjust their economic policies to the EU’s standards. Perhaps most difficult has proven to be fiscal policy whereby NMS must comply with the Stability and Growth Pact (SGP) rules. Indeed, six out of the ten NMS have breached the SGP limits and were put in Excessive Deficit Procedure (EDP). While the SGP is being modified, fiscal policy is set to remain on the agenda for all NMS in years to come. In this paper, we analyse fiscal policy in the NMS, focusing primarily on time period that immediately preceded their EU accession. We analyse the structure and scale of these countries’ fiscal policy and identify main trends in revenues and expenditures of their public budgets. We then explore dynamics of fiscal policy in the new member states and isolate main factors of the dynamics. Namely, we show how much of the consolidations was due to the fiscal authorities’ effort and how much was caused by external factors. We also show that most NMS’ governments have run rather inconsistent fiscal policy and have not consolidated their budgets appropriately by postponing politically difficult consolidation measures. However, we also identify a group of countries characterised by strong reform efforts and responsible fiscal policy making, supported usually by strong economic growth. In this context, room is given to economic, as well as political economy factors.
    Keywords: Fiscal Policy; New Member States; Consolidations; Stability and Growth Pact; Excessive Deficit Procedure; Growth Accounting; Probit Analysis.
    JEL: E6 E62 H6 H87
    Date: 2005
  26. By: Jiri Slacalek
    Abstract: I construct a new dataset with financial and housing wealth in 16 countries and investigate the effect of wealth on consumption. The baseline estimation method based on the sluggishness of consumption growth implies that the long-run marginal propensity to consume out of total wealth averaged across countries is 5 cents. I find substantial heterogeneity in the wealth effects: the individual country estimates typically lie between 0 and 10 cents. The wealth effects are more powerful in market-based, Anglo-Saxon and non euro area economies. The effect of housing wealth is somewhat smaller than that of financial wealth for most countries, but not the US and the UK. The housing wealth effect has risen substantially after 1988 as it has become easier to borrow against housing wealth.
    Keywords: Housing prices, wealth effect, consumption dynamics, portfolio choice
    JEL: E21 E32 C22
    Date: 2006
  27. By: Jaromir Hurnik; Aleš Bulir
    Abstract: The Maastricht inflation criterion, designed in the early 1990s to bring "high-inflation" EU countries in line with "low-inflation" countries prior to the introduction of the euro, poses challenges for both new EU member countries and the European Central Bank. While the criterion has positively influenced the public stance toward low inflation, it has biased the choice of the disinflation strategy toward short-run, fiat measures-rather than adopting structural reforms with longer-term benefits-with unpleasant consequences for the efficiency of the eurozone transmission mechanism. The criterion is also unnecessarily tight for new member countries as it mainly reflects cyclical developments.
    Date: 2006–06–27
  28. By: Keiko Honjo; Dennis P. J. Botman
    Abstract: This paper examines the macroeconomic effects of different timing and composition of fiscal adjustment in the United Kingdom using the IMF’s Global Fiscal Model. Early consolidation dampens aggregate demand in the short term, but increases output in the long term as smaller primary surpluses are needed as a result of lower interest payments. Reducing government transfers or current government spending provides larger gains than increasing taxes, in particular compared to raising corporate or personal income taxes. We show that these conclusions are robust under alternative behavioral assumptions and parameterizations. A reduction in global saving would make early consolidation more urgent from both cyclical and long-term perspectives. Finally, we show that tax reform aimed at increasing incentives to save could provide support to fiscal consolidation measures.
    Date: 2006–04–12
  29. By: Devereux, Michael B; Sutherland, Alan
    Abstract: Open economy macroeconomics typically abstracts from portfolio structure. But the recent experience of financial globalization makes it important to understand the determinants and composition of gross country portfolios. This paper presents a simple approximation method for computing equilibrium financial portfolios in stochastic open economy macro models. The method is widely applicable, easy to implement, and delivers analytical solutions for optimal gross portfolio positions in any combination of types of assets. It can be used in models with any number of assets, whether markets are complete or incomplete, and can be applied to stochastic dynamic general equilibrium models of any dimension, so long as the model is amenable to a solution using standard approximation methods.
    Keywords: country profiles; solution methods
    JEL: E52 E58 F41
    Date: 2006–11
  30. By: Bekaert, Geert; Engstrom, Eric; Grenadier, Steve
    Abstract: We present a tractable, linear model for the simultaneous pricing of stock and bond returns that incorporates stochastic risk aversion. In this model, analytic solutions for endogenous stock and bond prices and returns are readily calculated. After estimating the parameters of the model by the general method of moments, we investigate a series of classic puzzles of the empirical asset pricing literature. In particular, our model is shown to jointly accommodate the mean and volatility of equity and long term bond risk premia as well as salient features of the nominal short rate, the dividend yield, and the term spread. Also, the model matches the evidence for predictability of excess stock and bond returns. However, the stock-bond return correlation implied by the model is somewhat higher than in the data.
    Keywords: countercyclical risk aversion; equity premium; excess volatility; habit persistence; return predictability; stock-bond return correlation
    JEL: E44 G12 G15
    Date: 2006–11
  31. By: Sergey Slobodyan; Anna Bogomolova,; Dmitri Kolyuzhnov
    Abstract: In this paper, we perform an in—depth investigation of relative merits of two adaptive learning algorithms with constant gain, Recursive Least Squares (RLS) and Stochastic Gradient (SG), using the Phelps model of monetary policy as a testing ground. The behavior of the two learning algorithms is very different. Under the mean (averaged) RLS dynamics, the Self—Confirming Equilibrium (SCE) is stable for initial conditions in a very small region around the SCE. Large distance movements of perceived model parameters from their SCE values, or “escapes”, are observed. On the other hand, the SCE is stable under the SG mean dynamics in a large region. However, actual behavior of the SG learning algorithm is divergent for a wide range of constant gain parameters, including those that could be justified as economically meaningful. We explain the discrepancy by looking into the structure of eigenvalues and eigenvectors of the mean dynamics map under SG learning. Results of our paper hint that caution is needed when constant gain learning algorithms are used. If the mean dynamics map is stable but not contracting in every direction, and most eigenvalues of the map are close to the unit circle, the constant gain learning algorithm might diverge.
    Keywords: Constant gain adaptive learning, E—stability, recursive least squares,stochastic gradient learning.
    JEL: C62 C65 D83 E10 E17
    Date: 2006–10
  32. By: Philip Liu
    Abstract: The importance of the time-consistency poblem depends critically on the model one is working with and its parameterizations. This paper attempts to quantify the magnitude of stabilization bias for a small open economy using an empirically estimated micro-founded dynamic stochastic general equilibrium model. The resultant model is used to investigate the degree to which precommitment policy can improve welfare. Rather than presenting a point estimate of the welfare gain measures, the paper maps out the entire distribution of the welfare gain using the Bayesian posterior distribution of the model's parameters. The welfare improvement is an increasing function of the weight the central bank places on exchange rate variability. However, there is no simple relationship between the gains from precommitment and the degree of openness of the economy.
    JEL: C15 C51 E17 E61
    Date: 2006–12
  33. By: Jan Zápal (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; London School of Economics and Political Science)
    Abstract: This paper deals with the growth accounting method used for derivation of so called net fiscal effort. Net fiscal effort can then provide a clue whether fiscal policy is expansionary or not and together with the data about economic performance can answer the question of pro- or anti-cyclicality of fiscal stance. Traditionally, answer to such questions has been provided via cyclically adjusted budget balance measure. I argue that relatively computational intensive and data demanding process of estimation of cyclically adjusted budget balance can be without significant loss of information replaced by simple growth accounting method. I argue that in general case, answers provided via growth accounting method will not differ widely from the conclusions provided via cyclically adjusted budget balance. I then illustrate on Czech fiscal data use of growth accounting and compare the outcomes of both methods. Conclusions reached in the empirical part fit nicely conclusions of the theoretical part of the paper.
    Keywords: Expansionary/Contractionary Fiscal Policy; Cyclically Adjusted Budget Balance; Growth Accounting; Net Fiscal Effort
    JEL: C82 H62
    Date: 2006–04
  34. By: Doepke, Matthias; Krüger, Dirk
    Abstract: In this paper we investigate the positive and normative consequences of child-labour restrictions for economic aggregates and welfare. We argue that even though the laissez-faire equilibrium may be inefficient, there are usually better policies to cure these inefficiencies than the imposition of a child-labour ban. Given this finding, we investigate the potential political-economic reasons behind the emergence and persistence of child-labour legislation. Our investigation is based on a structural dynamic general equilibrium model that provides a coherent and uniform framework for our analysis.
    Keywords: child labour; inequality; political economy; welfare
    JEL: J40 J82 O11 O40
    Date: 2006–11
  35. By: Bekaert, Geert; Engstrom, Eric; Xing, Yuhang
    Abstract: We identify the relative importance of changes in the conditional variance of fundamentals (which we call "uncertainty") and changes in risk aversion ("risk" for short) in the determination of the term structure, equity prices and risk premiums. Theoretically, we introduce persistent time-varying uncertainty about the fundamentals in an external habit model. The model matches the dynamics of dividend and consumption growth, including their volatility dynamics and many salient asset market phenomena. While the variation in dividend yields and the equity risk premium is primarily driven by risk, uncertainty plays a large role in the term structure and is the driver of counter-cyclical volatility of asset returns.
    Keywords: equity premium; excess volatility; external habit; stochastic risk aversion; term structure; time variation in risk and return; uncertainty
    JEL: E44 G12 G15
    Date: 2006–11
  36. By: Martin Weale
    Abstract: We assess the implications of demographic uncertainty for the budgetary position in Belgium, Denmark, Finland, Germany, the Netherlands, Spain and the United Kingdom. We evaluate the frequency distribution of the increase in taxes needed to deliver fiscal solvency.
    Date: 2006–03
  37. By: Tomáš Cahlík (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Tomáš Honzák (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Jana Honzáková (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Marcel Jiřina (Czech Technical University in Prague, Faculty of Electrical Engineering, Center of Applied Cybernetics, Prague, Czech Republic); Natálie Reichlová (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: Purpose of this paper is to analyze the convergence of the consumption structure, both at the empirical and the theoretical levels. The basic empirical result is that the consumption structure converges quite quickly. We feel that the income effect is not sufficient to explain this high speed. That is why we introduce some post-Keynesian motives of consumer behaviour. We present a model of the dynamics of consumption structure and describe different simulation experiments with this model. These experiments are based on the actual data about consumers in the Czech Republic and in Germany (in fact, we approximate by German consumers the old EU members’ consumers). The results of simulations show that the behavior of the model really leads to the convergence of the consumption structure in the Czech Republic and the old EU members, so the post-Keynesian motives of consumer behavior are among possible explanations of the empirical fact of convergence.
    Keywords: fiscal convergence; consumption; post-Keynesian theory; model; simulation
    JEL: C6 D1
    Date: 2005
  38. By: Ondřej Schneider (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Jan Zápal (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; London School of Economics and Political Science)
    Abstract: In this paper, we track behaviour of fiscal authorities of the ten new EU member states (NSM) in the period which immediately preceded their EU accession. We first present basic stylized facts about public budgets of those countries. The paper then analyses reasons which led to periods of fiscal consolidations in NMS. Secondly, we also present evidence from Pre-Accession Economic and Convergence programmes of NMSs concerning planed steps of fiscal authorities and try to contrast them with reality. Throughout the paper, we identify two different groups of countries which significantly differ in their fiscal behaviour. On the one side is group of Baltic countries displaying strong reform effort and responsible fiscal policy usually supported by strong economic growth. On the second extreme, we identify fiscally irresponsible central European countries and two Mediterranean islands displaying lax fiscal policies and little political will to implement costly reforms. Somewhere between stand Slovenia and Slovakia, first without strong reform performance yet with budget deficit in compliance with Stability and Growth Pact and later for its recent reform efforts. Our key finding concerning behaviour of fiscally irresponsible group of countries is that their current problems with high budget deficits originate in their lax approach and inability to implement politically costly expenditure cuts which is apparent from their revision of budget plans and endeavour to shift envisioned deficit reduction into the future. Yet, this strategy has led those countries to uncomfortable position vis-a-vis European fiscal rules.
    Keywords: fiscal policy; new member states; consolidations; Stability and Growth Pact; Excessive Deficit Procedure; Convergence Programmes banking
    Date: 2006–06
  39. By: Tatiana Kirsanova; James Sefton
    Abstract: We develop the approach of Gokhale, Kotlikoff & Sabelhaus (1996), based on the lifecycle model of savings, to decompose the differences in the national saving rates between the UK, US and Italy. Our work suggests that the US saving rate is lower principally because Americans on average retire later. In contrast, the Italian saving rate is higher predominantly because Italians are credit constrained, particularly when young. We also found that demography and the different tax and benefit systems are able to explain little of the cross-sectional differences in saving rates. The study accounts for the possible importance of intergenerational private transfers in determining saving rates.
    Date: 2006–07
  40. By: Conesa, Juan Carlos; Kitao, Sagiri; Krüger, Dirk
    Abstract: In this paper we quantitatively characterize the optimal capital and labor income tax in an overlapping generations model with idiosyncratic, uninsurable income shocks, where households also differ permanently with respect to their ability to generate income. The welfare criterion we employ is ex-ante (before ability is realized) expected (with respect to uninsurable productivity shocks) utility of a newborn in a stationary equilibrium. Embedded in this welfare criterion is a concern of the policy maker for insurance against idiosyncratic shocks and redistribution among agents of different abilities. Such insurance and redistribution can be achieved by progressive labor income taxes or taxation of capital income, or both. The policy maker has then to trade off these concerns against the standard distortions these taxes generate for the labor supply and capital accumulation decision. We find that the optimal capital income tax rate is not only positive, but is significantly positive. The optimal (marginal and average) tax rate on capital is 36%, in conjunction with a progressive labor income tax code that is, to a first approximation, a flat tax of 23% with a deduction that corresponds to about $6,000 (relative to an average income of households in the model of $35,000). We argue that the high optimal capital income tax is mainly driven by the life cycle structure of the model whereas the optimal progressivity of the labor income tax is due to the insurance and redistribution role of the income tax system.
    Keywords: capital taxation; optimal taxation; progressive taxation
    JEL: E62 H21 H24
    Date: 2006–11
  41. By: Michal Myck (DIW Berlin and IZA Bonn); Leszek Morawski (Warsaw University); Jerzy Mycielski (Warsaw University)
    Abstract: The aggregate average wage is often used as an indicator of economic performance and welfare, and as such often serves as a benchmark for changes in the generosity of public transfers and for wage negotiations. Yet if economies experience a high degree of (nonrandom) fluctuation in employment the composition of the employed population will have a considerable effect on the computed average. In this paper we demonstrate the extent of this problem using data for Poland for the period 1996-2003. During these years employment in Poland fell from 51.2% to 44.2% and most of it occurred between the end of 1998 and the end of 2002. We show that about a quarter of the growth in the average wage during this period could be attributed purely to changes in employment.
    Keywords: wage distribution, aggregation, employment dynamics, transition economies
    JEL: E24 J21 J31
    Date: 2006–11
  42. By: Christoph Wunder; Johannes Schwarze; Gerhard Krug; Bodo Herzog
    Abstract: Using merged data from the British Household Panel Survey (BHPS) and the German Socio-Economic Panel (SOEP), this paper applies a parametric difference-in-differences approach to assess the real effects of the introduction of the Euro on subjective well-being. A complementary nonparametric approach is also used to analyze the impact of difficulties with the new currency on well-being. The results indicate a severe loss in well-being associated with the introduction of the new currency, with the predicted probability that a person is contented with his/her household income diminishing by 9.7 percentage points. We calculate a compensating income variation of approximately one-third. That is, an increase in postgovernment household income of more than 30% is needed to compensate for the rather drastic decline in well-being. The reasons for the negative impact are threefold. First, perceived inflation overestimates the real increase in prices resulting in suboptimal consumption decisions. Second, money illusion causes a false assessment of the budget constraint. Third, individuals have to bear the costs from the conversion and the adjustment to the new currency. Moreover, it is thought that losses are smaller when financial ability is higher. However, the impact of difficulties in using and converting the new currency is rather small, and the initial problems were overcome within one year of the introduction of euro cash.
    Keywords: Subjective well-being, euro cash changeover, perceived inflation, difference-indifferences
    JEL: E31 I31
    Date: 2006
  43. By: Ondřej Schneider (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: In this paper, we combine macro and microeconomic approaches to a pension reform. First, we modify an OLG model and estimate macroeconomic effects of a pension systém switch from a pure PAYG to a mixed system. Second, we employ macroeconomic results in a microeconomic simulation in which we estimate individual welfare gains for various income groups in each cohort affected by the pension reform. We propose an unorthodox sequencing of the pension reform in which the pre-retirement generations would enter the reformed system first. This sequencing maintains the Pareto efficiency condition for all age cohorts, but it gives governments more flexibility in the reform process.
    Keywords: pension systems; pay-as-you-go; pension reform; funded pillar
    JEL: C68 E17 H55
    Date: 2006–01
  44. By: Alexander Harin (Modern University for the Humanities)
    Abstract: A man is a key subject of economics. “A man is irrational” - this opinion can be made from Allais paradox, risk aversion and other well-known fundamental problems. For a long time, this opinion was a barrier to proper solution of these problems and the development of the economics. A radically new way is proposed to solve them and remove this barrier. The way is the generalization of a breach of a term of contract.
    Keywords: risk, business, bank, trade, industry, development, utility, contract, “ideal” economics, investment
    JEL: C D E C7 D8 E2 G11
    Date: 2006–08–14
  45. By: Fei Peng (University of Birmingham Business School); W. Stanley Siebert (University of Birmingham Business School and IZA Bonn)
    Abstract: This paper analyzes the cyclical behaviour of male real wages in Italy using the European Community Household Panel 1994-2001. We distinguish between job stayers (remaining in the same job), and within- and between-company job movers. Stayers are the large majority. We find stayers in Northern Italy to have high cyclicality of real wages, higher in fact than the US and the UK. The Northern cyclicality is significant for all sub-samples (except for public sector workers), and higher in small firms, the private sector, and for temporary workers, as expected. In contrast, we find little wage cyclicality for any sub-group in the Centre-South, even for workers in small private sector firms. Evidently, labour markets in the North of Italy operate much more competitively than in the Centre and South.
    Keywords: real wage cyclicality, job stayers, Italy, ECHP
    JEL: E32 J31 K31
    Date: 2006–11
  46. By: Hornstein, Andreas; Krusell, Per; Violante, Giovanni L
    Abstract: Standard search and matching models of equilibrium unemployment, once properly calibrated, can generate only a small amount of frictional wage dispersion, i.e., wage differentials among ex-ante similar workers induced purely by search frictions. We derive this result for a specific measure of wage dispersion---the ratio between the average wage and the lowest (reservation) wage paid. We show that in a large class of search and matching models this statistic (the 'mean-min ratio') can be obtained in closed form as a function of observable variables (i.e., interest rate, value of leisure, and statistics of labour market turnover). Looking at various independent data sources suggests that, empirically, residual wage dispersion (i.e., inequality among observationally similar workers) exceeds the model's prediction by a factor of 20. We discuss three extensions of the model (risk aversion, volatile wages during employment, and on-the-job search) and find that, in their simplest version, they can improve its performance, but only modestly. We conclude that either frictions account for a tiny fraction of residual wage dispersion, or the standard model needs to be augmented to confront the data.
    Keywords: mean-min ratio; search; wage dispersion
    JEL: E24 J31 J64
    Date: 2006–11
  47. By: Michel Beine (DULBEA, Free University of Brussels,University of Luxemburg and CESifo.); Oscar Bernal (DULBEA, Free University of Brussels); Jean-Yves Gnabo (University of Namur); Christelle Lecourt (University of Namur)
    Abstract: Intervening in the FX market implies a complex decision process for central banks. Monetary authorities have to decide whether to intervene or not, and if so, when and how. Since the successive steps of this procedure are likely to be highly interdependent, we adopt a nested logit approach to capture their relationships and to characterize the prominent features of the various steps of the intervention decision. Our findings shed some light on the determinants of central bank interventions, on the so-called secrecy puzzle and on the identification of the variables influencing the detection of foreign exchange transactions by market traders.
    Keywords: Central bank interventions; Exchange rates market; Secrecy puzzle; Nested logit
    JEL: E58 F31 G15
    Date: 2006–11
  48. By: Domeij, David; Ljungqvist, Lars
    Abstract: Swedish census data and tax records reveal an astonishing wage compression; the Swedish skill premium fell by more than 30 percent between 1970 and 1990 while the U.S. skill premium, after an initial decline in the 1970s, rose by 8-10 percent. Since then both skill premia have increased by around 10 percentage points in 2002. Theories that equalize wages with marginal products can rationalize these disparate outcomes when we replace commonly used measures of total labour supplies by private sector employment. Our analysis suggests that the dramatic decline of the skill premium in Sweden is the result of an expanding public sector that today comprises roughly one third of the labor force, and that expansion has largely taken the form of drawing low-skilled workers into local government jobs that service the welfare state.
    Keywords: employment; private sector; public sector; skill premium; Sweden; United States
    JEL: E24 J31
    Date: 2006–11
  49. By: Melinda Robson
    Abstract: This paper finds that Russia’s traditional forms of influence on growth in the case-study countries have generally declined during transition (with the notable exception of Tajikistan). Countries that have integrated into the global economy and undertaken robust domestic policy and structural reforms have overcome inherited economic distortions and reduced their ties with the CIS and Russia to a greater degree. However, new forms of economic linkage with Russia are emerging, most of which could have a significant impact on the key determinants of growth.
    Keywords: Russia, Commonwealth of Independent States, CIS, transition, economic growth, Kyrgyz Republic, Tajikistan, Armenia, Georgia, Ukraine
    Date: 2006–05
  50. By: Manuel Alejandro Cardenete Flores (Universidad Pablo de Olavide)
    Abstract: El objetivo de este trabajo es realizar a través de un modelo de equilibrio general computable bi-regional que sigue la doctrina tradicional de equilibrio walrasiano, ampliado con la inclusión del sector público y del sector exterior, y basado en las matrices de contabilidad social de Andalucía y España, elaboradas para el año 1995, estudiar los efectos de cambios tanto en los impuestos -concretamente en el impuesto sobre la renta- , como en el gasto público - y su distribución sectorial-, realizados por Andalucía o por España, bajo la perspectiva del Federalismo Fiscal, sobre ambas economías a nivel de PIB, sectores productivos, precios, recaudaciones impositivas y bienestar social.
    Keywords: Federalismo fiscal, modelos de equilibrio general aplicado, impuestos directos, gasto social
    JEL: C68 D58 H77
    Date: 2006
  51. By: Marcello Estevão (International Monetary Fund); Filipa Sá (MIT and IZA Bonn)
    Abstract: Legally mandated reductions in the workweek can be either a constraint on individuals’ choice or a tool to coordinate individuals’ preferences for lower work hours. We confront these two hypotheses by studying the consequences of the workweek reduction in France from 39 to 35 hours, which was first applied to large firms in 2000. Using the timing difference by firm size to set up a quasi-experiment and data from the French labor force survey, we show that the law constrained the choice of a significant number of individuals: dual-job holdings increased, some workers in large firms went to small firms where hours were not constrained, and others were replaced by cheaper, unemployed individuals as relative hourly wages increased in large firms. Employment of persons directly affected by the law declined, although the net effect on aggregate employment was not significant.
    Keywords: workweek, coordination, job-sharing, welfare
    JEL: E24 J22 C21
    Date: 2006–11
  52. By: Holger Bonin (IZA Bonn and DIW Berlin)
    Abstract: Diese Studie bilanziert den Beitrag der ausländischen Bevölkerung in Deutschland zu den öffentlichen Haushalten im Fiskaljahr 2004. Grundlage sind auf Basis des Sozio- Oekonomischen Panels geschätzte, auf die Staatseinnahmen und -ausgaben gemäß Volkswirtschaftlichen Gesamtrechnungen kalibrierte Profile der durchschnittlichen Zahlungen nach Alter und Nationalität für 33 verschiedene Steuern, Beiträge und Transfers einschließlich Bildung. Die Ergebnisse zeigen einen laufenden Überschuss der von Ausländern empfangenen Einnahmen über die Transferausgaben von 2.000 Euro pro Kopf. Obwohl sich der Finanzierungsbeitrag zukünftig verschlechtert, weil die ausländische Bevölkerung altert, entlasten die Ausländer den Staatshaushalt auch langfristig. Unter Status quo-Bedingungen beträgt ihr mittlerer fernerer Finanzierungsbeitrag im Barwert 11.600 Euro. Bei 7,2 Millionen Ausländern in Deutschland summiert sich dieser Überschuss auf 84 Milliarden Euro.
    Keywords: migrants, generational accounting, Germany
    JEL: F22 E66
    Date: 2006–11

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