nep-mac New Economics Papers
on Macroeconomics
Issue of 2007‒04‒28
forty-nine papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Inflation Differentials and Business Cycle Fluctuations in the European Monetary Union By Christian Proaño Acosta
  2. Monetary policy and economic growth: combining short and long run macro analysis By Gomes, Orlando
  3. Nonlinear inflation expectations and endogenous fluctuations By Gomes, Orlando
  4. Fiscal Policy Throughout the Cycle: The Colombian Experience By Ignacio Lozano; Jorge Toro
  5. Mortgage Markets, Collateral Constraints, and Monetary Policy: Do Institutional Factors Matter? By Calza, Alessandro; Monacelli, Tommaso; Stracca, Livio
  6. Stability analysis in a monetary model with a varying intertemporal elasticity of substitution By Gomes, Orlando
  7. Optimising indexation arrangements under Calvo contracts and their implications for monetary policy By Le, Vo Phuong Mai; Minford, Patrick
  8. Term Structure Transmission of Monetary Policy By Sharon Kozicki and P.A. Tinsley
  9. Optimal inflation for the U.S. By Roberto M. Billi
  10. Lessons from the ECB experience: Frankfurt still matters! By Zeno Rotondi; Giacomo Vaciago
  11. Time consistent monetary policy with endogenous price rigidity By Henry E. Siu
  12. Constraints on credit, consumer behaviour and the dynamics of wealth By Gomes, Orlando
  13. Commodity price fluctuations and their impact on monetary and fiscal policies in Western and Central Africa By Uwe Böwer; André Geis; Adalbert Winkler
  14. Deterministic randomness in a model of finance and growth By Gomes, Orlando
  15. Calvo Contracts - Optimal Indexation in General Equilibrium By Le, Vo Phuong Mai; Minford, Patrick
  16. Consumer confidence, endogenous growth and endogenous cycles By Gomes, Orlando
  17. The sustainability of euro area debt: a re-assessment By Peter Wierts
  18. The Beveridge Curve By Yashiv, Eran
  19. Nonmonetary Determinants of Inflation in Romania: A Decomposition By Felix Hammermann
  20. Business Cycle Fluctuations and the Life Cycle: How Important is Learning by Doing? (with Selo Imrohoroglu) By Gary D. Hansen
  21. Nonlinear dynamics in a model of financial development with a risk premium By Gomes, Orlando
  22. On the allocation of credit and aggregate fluctuations By Gomes, Orlando
  23. Entropy in the creation of knowledge: a candidate source of endogenous business cycles By Gomes, Orlando
  24. Can social interaction contribute to explain business cycles? By Gomes, Orlando
  25. Optimal Sticky Prices under Rational Inattention By Mackowiak, Bartosz Adam; Wiederholt, Mirko
  26. Too much of a good thing: endogenous business cycles generated by bounded technological progress By Gomes, Orlando
  27. Determinants of growth in the central and eastern European EU member states - a production function approach. By Olga Arratibel; Frigyes Ferdinand Heinz; Reiner Martin; Marcin Przybyla; Lucasz Rawdanowicz; Roberta Serafini; Tina Zumer
  28. Are real wages rigid downwards? By Steinar Holden; Fredrik Wulfsberg
  29. Assessing the Gap between Observed and Perceived Inflation in the Euro Area : Is the Credibility of the HICP at Stake ? By Luc Aucremanne; Marianne Collin; Thomas Stragier
  30. Externalities in R&D: a route to endogenous fluctuations By Gomes, Orlando
  31. Distribution and growth in France and Germany - single equation estimations and model simulations based on the Bhaduri/Marglin-model By Eckhard Hein; Lena Vogel
  32. Employment, Wage Structure, and the Economic Cycle: Differences between Immigrants and Natives in Germany and the UK By Christian Dustmann; Albrecht Glitz; Thorsten Vogel
  33. Modeling the impact of real and financial shocks on Mercosur: the role of the exchange rate regime By Jean-Pierre Allegret; Alain Sand-Zantman
  34. The Future of Social Security By Gonzalez-Eiras, Martin; Niepelt, Dirk
  35. Decentralized allocation of human capital and nonlinear growth By Gomes, Orlando
  36. Sesgo de medición del IPC: nueva evidencia para Colombia By Andrés Langebaek; Edgar Caicedo
  37. How the Distribution of After-Tax Income Changed Over the 1990s Business Cycle: A Comparison of the United States, Great Britain, Germany and Japan By Richard V. Burkhauser; Takashi Oshio; Ludmila Rovba
  38. Optimal Capital Income Taxation in a Two Sector Economy By Selim, Sheikh
  39. The Price-Level Computation Method By Sydney Afriat; Carlo Milana
  40. Simple versus optimal rules as guides to policy By William A. Brock; Steven N. Durlauf; James M. Nason; Giacomo Rondina
  41. Markov switching GARCH models of currency turmoil in Southeast Asia By Celso Brunetti; Roberto S. Mariano; Chiara Scotti; Augustine H.H. Tan
  42. The Endogeneity of the Natural Rate of Growth – an Empirical Study for Latin-American Countries By Lena Vogel
  43. Modeling the distribution of credit losses with observable and latent factors By Gabriel Jiménez; Javier Mencía
  44. Effet peso : présentation théorique et application à la politique monétaire. By Nicolas Million
  45. LABORsim: an Agent-Based Microsimulation of Labour Supply. An Application to Italy By Roberto Leombruni; Matteo Richiardi
  46. What policies should be there for employment in urban areas of developing countries? By Gugushvili, Alexi
  47. Estimating Frisch Labor Supply Elasticity in Japan By Sachiko Kuroda; Isamu Yamamoto
  48. Institutional Enforcement, Labor-Market Rigidities, and Economic Performance By Alberto Chong; César Caldeón; Gianmarco León
  49. Explaining cash usage in the Netherlands: the effect of electronic payment instruments By Nicole Jonker; Thijs Kettenis

  1. By: Christian Proaño Acosta (IMK at the Hans Boeckler Foundation, University of Bielefeld)
    Abstract: The high degree of persistence in the national inflation differentials of the majority of EMU Member States observed since the introduction of the euro has raised serious concerns among researchers and policy-makers alike. In this paper the main theoretical arguments which explain the existence of such inflation differentials within a monetary union are reviewed and, by means of econometric methods, their dynamic behaviour prior and after the introduction of the euro is analyzed. Furthermore, the empirical evidence for different degrees of correlation between the country-specific business cycles fluctuations and the arise of national inflation differentials with respect to the euro area average are investigated through single-equation GMM and panel TSLS estimations.
    Keywords: Inflation differentials, convergence and stationary tests, GMM es- timation, Phillips Curve
    JEL: C23 C33 E31 E32
    Date: 2007–03
  2. By: Gomes, Orlando
    Abstract: The new Keynesian monetary policy model studies the response of the inflation – output gap trade-off to policy decisions taken by the Central Bank, concerning the nominal interest rate time trajectory. Under an optimal setup, this model displays a saddle-path stable equilibrium and, if the stable trajectory is followed, the steady state is characterized by an inflation rate that coincides with the selected inflation target. A high inflation target has positive effects over the rise of effective output relatively to its potential level (the monetary policy problem captures this effect), but it has a perverse impact over investment decisions (the referred problem does not capture this effect, taking it as granted). This second relation can be understood by associating to the first macro model a second setup, which takes consumption and investment decisions, i.e., by considering a long term growth setup. The link between the two is present on the impact of inflation over investment decisions. With this integrated framework one is able to simultaneously study short and long-run macroeconomic phenomena and to jointly analyze the behaviour of nominal and real aggregates. The most important results consist on the determination of an optimal inflation target and on the consideration of short term supply shocks as having a long-run impact producing business cycles.
    Keywords: Monetary policy; Economic growth; Inflation targeting; Output gap.
    JEL: C61 O41 E52
    Date: 2006–10
  3. By: Gomes, Orlando
    Abstract: The standard new Keynesian monetary policy problem is, in its original presentation, a linear model. As a result, only three possibilities are admissible in terms of long term dynamics: the equilibrium may be a stable node, an unstable node or a saddle point. Fixed point stability (a stable node) is generally guaranteed only under an active monetary policy rule. The benchmark model also considers extremely simple assumptions about expectations (perfect foresight is frequently assumed). In this paper, one inquires how a change in the way inflation expectations are modelled implies a change in monetary policy results when an active Taylor rule is taken. By assuming that inflation expectations are constrained by the evolution of the output gap, we radically modify the implications of policy intervention: endogenous cycles, of various periodicities, and chaotic motion will be observable for reasonable parameter values.
    Keywords: Monetary policy; Taylor rule; Inflation expectations; Endogenous business cycles; Nonlinear dynamics and chaos
    JEL: C61 E52 E32
    Date: 2006–08
  4. By: Ignacio Lozano; Jorge Toro
    Abstract: This paper reviews the relationship between the business cycle and public finances in Colombia. The evidence shows that cyclical movements in output systematically affect the situation of public finances. Hence, the distinction between the cyclical and permanent (i.e. structural) components of the fiscal balance may allow fiscal authorities to determine the extent to which the fiscal stance in a particular year reflects their discretionary actions. Our findings indicate that the cyclical component of the central government balance in Colombia has in general been fairly small. For instance, during the recession and recovery period 1999-2003, the cyclical component attained, on average, -0,5% of the GDP which explained only 8% of the actual overall deficit. More recently in 2006, the cyclical component amounted to +0,8% of the GDP, equivalent to 17% of the actual fiscal imbalance. Governments are not usually neutral during the business cycle. Ideally, they ought to practice a counter-cyclical fiscal policy to moderate the magnitude of output fluctuations. However, in emerging economies, counter-cyclical fiscal policies are inhibited by domestic and external factors, such as credit restrictions, quality of institutions, fiscal rules, corruption, voracity effect, etc. Using a standard approach we find that fiscal policy in Colombia has been pro-cyclical over the last 45 years or so, with the primary surplus falling (and the deficit rising) as a share of GDP by approximately 1/5th of a percentage point when the output gap improves by one percentage point.
    Keywords: Fiscal Policy, Business Cycle, Stabilization, Deficit, Budget. Classification JEL: E62; E32; E63; H62; H61.
  5. By: Calza, Alessandro; Monacelli, Tommaso; Stracca, Livio
    Abstract: We study the role of institutional characteristics of mortgage markets in affecting the strength and timing of the effects of monetary policy shocks on house prices and consumption in a sample of OECD countries. With frictionless credit markets, those characteristics should in principle be immaterial for the transmission of monetary impulses. We document three facts: (1) there is significant divergence in the structure of mortgage markets across the main industrialized countries; (2) at the business cycle frequency, the correlation between consumption and house prices increases with the degree of flexibility/development of mortgage markets; (3) the transmission of monetary policy shocks on consumption and house prices is stronger in countries with more flexible/developed mortgage markets. We then build a two-sector dynamic general equilibrium model with price stickiness and collateral constraints, where the ability of borrowing is endogenously linked to the nominal value of a durable asset (housing). We study how the response of consumption to monetary policy shocks is affected by alternative values of three key institutional parameters: (i) down-payment rate; (ii) mortgage repayment rate; (iii) interest rate mortgage structure (variable vs. fixed interest rate). In line with our empirical evidence, the sensitivity of consumption to monetary policy shocks increases with lower values of (i) and (ii), and is larger under a variable-rate mortgage structure.
    Keywords: collateral constraint; house prices; monetary policy; mortgage markets
    JEL: E21 E44 E52
    Date: 2007–04
  6. By: Gomes, Orlando
    Abstract: Models dealing with monetary policy are generally based on microfoundations that characterize the behaviour of representative agents (households and firms). To explain the representative consumer behaviour, it is generally assumed a utility function in which the intertemporal elasticity of substitution is constant. Recent literature casts some doubts about the relevance of considering such a constant elasticity value. In this note, we explore the new Keynesian monetary policy model under the assumption that the elasticity of substitution changes with expectations regarding real economic performance. As a result, one observes that some combinations of parameter values allow for a stable fixed point outcome, while other combinations of parameters are compatible with cycles of various periodicities and even a-periodic fluctuations.
    Keywords: Monetary policy; Intertemporal elasticity of substitution; Stability; Nonlinear dynamics.
    JEL: C62 E52 E32
    Date: 2007–04
  7. By: Le, Vo Phuong Mai (Cardiff Business School); Minford, Patrick (Cardiff Business School)
    Abstract: This paper investigates optimal indexation in the New Keynesian model, when the indexation choice includes the possibility of partial indexation and of varying weights on rational and lagged indexation. It finds that the Calvo contract adjusted for rationally expected indexation under both inflation and price level targeting regimes delivers the highest expected welfare under both restricted and full current information. Rational indexation eliminates the effectiveness of monetary policy on welfare when there is only price-level targeting under the current micro information. If including both wage setting and full current information, monetary policy is effective; and a price-level targeting rule delivers the highest benefits because it minimises the size of shocks to prices and thus dispersion. However, even less than full rational indexation ensures that there is very little nominal rigidity in the adapted world of Calvo contracts.
    Keywords: optimal indexation; price-level target; inflation target; Calvo contracts; rational expectation; New Keynesian model
    JEL: E50 E52
    Date: 2007–03
  8. By: Sharon Kozicki and P.A. Tinsley
    Abstract: Under bond-rate transmission of monetary policy, the authors show that a generalized Taylor Principle applies, in which the average anticipated path of policy responses to inflation is subject to a lower bound of unity. This result helps explain how bond rates may exhibit stable responses to inflation, even in periods of passive policy. Another possible explanation is time-varying term premiums with risk pricing that depends on inflation. The authors present a no-arbitrage model of the term structure with horizon-dependent policy perceptions and time-varying term premiums to illustrate the mechanics and provide empirical results that support these transmission channels.
    Keywords: Interest rates; Transmission of monetary policy
    JEL: E3 E5 N1
    Date: 2007
  9. By: Roberto M. Billi
    Abstract: What is the correctly measured inflation rate that monetary policy should aim for in the long-run? This paper characterizes the optimal inflation rate for the U.S. economy in a New Keynesian sticky-price model with an occasionally binding zero lower bound on the nominal interest rate. Real-rate and mark-up shocks jointly determine the optimal inflation rate to be positive but not large. Even allowing for the possibility of extreme model misspecification, the optimal inflation rate is robustly below 1 percent. The welfare costs of optimal inflation and the lower bound are limited.>
    Date: 2007
  10. By: Zeno Rotondi; Giacomo Vaciago (DISCE, Università Cattolica; DISCE, Università Cattolica)
    Abstract: This paper compares the European Central Bank’s conduct of monetary policy (1999-2005) with that of the Bundesbank (after the German Unification: 1990-1998) in order to test the hypothesis of an ECB with “Bundesbank’s preferences” put forward in the theoretical literature (Alesina and Grilli 1993, Fatum 2006). Econometric tests and simulations based on monetary policy reaction functions show that the continuation of the former Bundesbank regime is supported by the data. Given this empirical evidence we discuss the lessons for future Monetary Unions stemming from the ECB experience.
    Keywords: EMU, Monetary Policy, Reaction Function, Taylor rule, ECB, Bundesbank
    JEL: E52 E58
    Date: 2007–03
  11. By: Henry E. Siu
    Abstract: I characterize time consistent equilibrium in an economy with price rigidity and an optimizing monetary authority operating under discretion. Firms have the option to increase their frequency of price change, at a cost, in response to higher inflation. Previous studies, which assume a constant degree of price rigidity across inflation regimes, find two time consistent equilibria—one with low inflation, the other with high inflation. In contrast, when price rigidity is endogenous, the high inflation equilibrium ceases to exist. Hence, time consistent equilibrium is unique. This result depends on two features of the analysis: (1) a plausible quantitative specification of the fixed cost of price change, and (2) the presence of an arbitrarily small cost of inflation that is independent of price rigidity.
    Keywords: Monetary policy
    Date: 2007
  12. By: Gomes, Orlando
    Abstract: This note develops a simple macro model where the pattern of wealth accumulation is determined by a credit multiplier and by the way households react to short run fluctuations. In this setup, long term wealth dynamics are eventually characterized by the presence of endogenous cycles.
    Keywords: Credit constraints; Financial development; Consumer confidence; Endogenous business cycles; Nonlinear dynamics.
    JEL: C61 O41 E32
    Date: 2007–01
  13. By: Uwe Böwer (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); André Geis (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Adalbert Winkler (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: Commodity prices play an important role in economic developments in most of the 24 Western and Central African (WCA) countries covered in this paper. It is confirmed that in the light of rising commodity prices between 1999 and 2005, net oil exporters recorded strong growth rates while net oil-importing countries – albeit benefiting from increases in their major non-oil commodity export prices – displayed somewhat lower growth. For most WCA economies, inflation rates appear less affected by commodity price changes and more determined by exchange rate regimes as well as monetary and fiscal policies. While passthrough effects from international to domestic energy prices were significant, notably in oilimporting countries, second-round effects on overall prices seem limited. Governments of oil-rich countries reacted prudently to windfall revenues, partly running sizable fiscal surpluses. A favourable supply response to rising spending as well as sterilisation efforts and increasing money demand also helped to dampen inflationary pressures. However, substantial excess reserves of commercial banks reflect challenges in financial sector developments and the effectiveness of monetary policy in many WCA countries. Given currently widelyused fixed exchange rate regimes, fiscal policy will continue to carry the main burden of macroeconomic adjustment and of sustaining non-inflationary growth, which remains the key policy challenge facing WCA authorities.
    Date: 2007–04
  14. By: Gomes, Orlando
    Abstract: Following the literature on growth, cycles and financial development, this paper develops an endogenous growth model where the source of endogenous business cycles relates to the allocation of credit between productive investment and consumption. An important role is given to consumer sentiment, because this determines the willingness of households in terms of demand for credit; in particular, optimistic beliefs about the economy’s macro performance deviate financial resources from investment in favour of consumption. The dynamic analysis indicates that Neimark-Sacker and flip bifurcations eventually separate stable and unstable manifolds, and as a result a region of nonlinear motion is generated: cycles of various periodicities and chaotic motion characterize the behaviour of the long run time paths of accumulated wealth, output and consumption.
    Keywords: Financial development; Endogenous business cycles; Endogenous growth; Credit to consumption; Local bifurcations; Nonlinear dynamics; Chaos.
    JEL: C62 O16 E32
    Date: 2007–02
  15. By: Le, Vo Phuong Mai (Cardiff Business School); Minford, Patrick (Cardiff Business School)
    Abstract: Calvo contracts, which are the basis of the current generation of New Keynesian models, widely include indexation to general inflation. We argue that the indexing formula should be expected inflation rather than lagged inflation. This is likely to optimise the welfare of the representative agent in a general equilibrium model of the New Keynesian type. This is shown analytically for a simplified model and by numerical simulation for a full model with price and wage contracts as well as capital. The consequence of such indexation is that monetary policy no longer has any effect on welfare.
    Date: 2007–03
  16. By: Gomes, Orlando
    Abstract: Endogenous growth models are generally designed to address long term trends of growth. They explain how the economy converges to or diverges from a balanced growth path and they characterize aggregate behaviour given the optimization problem faced by a representative agent that maximizes consumption utility. In such frameworks, only potential output matters and all decisions, by firms and households, are taken assuming that any output gap does not interfere with the agents’ behaviour. In this paper, we develop growth models (without and with optimization) that depart from the conventional framework in the sense that consumption decisions take into account output fluctuations. Households will raise their propensity to consume in periods of expansion and they will lower it in phases of recession. Such a framework allows to introduce nonlinear features into the model, making it feasible to obtain, for reasonable parameter values, endogenous fluctuations. These are triggered by a Neimark-Sacker bifurcation.
    Keywords: Endogenous growth; Endogenous business cycles; Nonlinear dynamics; Neimark-Sacker bifurcation.
    JEL: C61 O41 E32
    Date: 2007–01
  17. By: Peter Wierts
    Abstract: This paper re-assesses findings of the literature that the systematic debt stabilising response in fiscal policy has been sufficiently strong for keeping debt ratios on a sustainable path in Euro area countries. In doing so, it adjusts the standard approach to the specific context of Economic and Monetary Union. Results show that before 1993 policy responses towards net and gross debt are comparable. After 1993, the reaction to net debt weakens while policies react more strongly to the build-up of gross debt according to the definition of the EU fiscal rules. This suggests that financial assets have increasingly been used for managing gross debt ratios while improving net worth has received less priority.
    Keywords: debt; sustainability; EMU; stock flow adjustment
    JEL: E62 H62 H63
    Date: 2007–04
  18. By: Yashiv, Eran
    Abstract: The Beveridge curve depicts a negative relationship between unemployed workers and job vacancies, a robust finding across countries. The position of the economy on the curve gives an idea as to the state of the labour market. The modern underlying theory is the search and matching model, with workers and firms engaging in costly search leading to random matching. The Beveridge curve depicts the steady state of the model, whereby inflows into unemployment are equal to the outflows from it, generated by matching.
    Keywords: Beveridge curve; matching; search; unemployment; vacancies
    JEL: E24 J63 J64
    Date: 2007–04
  19. By: Felix Hammermann
    Abstract: Why is inflation, 15 years after transition started, still considerably higher in Romania than in the eight EU member states (EU-8) that joined in May 2004? Panel estimation based on ten central and eastern European countries allows us to decompose the inflation differential between Romania and the EU-8. The decomposition suggests that neither the revenue, nor the balance of payments, nor the financial stability motive are driving inflation; rather structural differences are at play. The employment motive, together with indicators reflecting the prolonged structural change, explain most of the inflation gap vis-à-vis the EU-8.
    Keywords: inflation, panel data, transition economics
    JEL: E58
    Date: 2007–03
  20. By: Gary D. Hansen
  21. By: Gomes, Orlando
    Abstract: The relation between the degree of financial development of an economy (measured by the extent in which constraints to credit exist) and fluctuations affecting the trend of economic growth, is a relevant theme of discussion in macroeconomics. Some of the literature on this field argues that the cyclical behaviour is generated endogenously, under the model’s assumptions, for specific levels of credit availability. Following this line of reasoning, the paper develops a theoretical framework that places a risk premium over the international interest rate as the centre piece of the explanation for the occurrence of endogenous business cycles, under particular levels of financial development. The risk premium penalizes the borrowing capacity of the less wealth endowed countries. The analysis explores both local and global dynamics.
    Keywords: Financial development; Credit constraints; Risk premia; Endogenous business cycles; Nonlinear dynamics; Chaos
    JEL: C61 O16 E32
    Date: 2007–02
  22. By: Gomes, Orlando
    Abstract: Recent literature on financial development and growth has highlighted the possibility of endogenous business cycles arising for particular levels of a given credit multiplier. These studies concentrate on loans directed to the productive activity and neglect the role of credit to consumption. In this note, we consider an endogenous growth model, where a representative agent must choose how to allocate credit; basically, the agent considers a simple rule where the share of credit to consumption reacts to deviations of the consumption – wealth ratio relatively to the corresponding steady state level. The setup generates nonlinear dynamics, which are analyzed both locally and globally.
    Keywords: Financial development; Credit to consumption; Endogenous growth; Endogenous cycles; Nonlinear dynamics.
    JEL: C61 O16 E32
    Date: 2007–03
  23. By: Gomes, Orlando
    Abstract: Two sector growth models, with physical goods and human capital produced under distinct technologies, generally consider a process of knowledge obsolescence / depreciation that is similar to the depreciation process of physical goods. As a consequence, the long term rate of per capita growth of the main economic aggregates is constant over time. This rate can be endogenously determined (in endogenous growth models, where production is subject to constant returns) or it can be the result of exogenous forces, like technological progress or population dynamics (in neoclassical growth theory, where decreasing marginal returns prevail). In this paper, we introduce a new assumption about the generation of knowledge, which involves entropy, i.e., introducing additional knowledge to generate more knowledge becomes counterproductive after a given point. The new assumption is explored in scenarios of neoclassical and endogenous growth and it is able to justify endogenous fluctuations. Entropy in the creation of knowledge will imply that human capital does not grow steadily over time. Instead, cycles of various periodicities are observable for different degrees of entropy. Complete a-periodicity (chaos) is also found for particular values of an entropy parameter. This behaviour of the human capital variable spreads to the whole economy given that this input is used in the production of final goods and, thus, main economic aggregates time paths (i.e., the time paths of physical capital, consumption and output) will also evolve following a cyclical pattern. With this argument, we intend to give support to the view of endogenous business cycles in the growth process, which is alternative to the two mainstream views on business cycles: the RBC theory and the Keynesian interpretation.
    Keywords: Growth theory; Endogenous business cycles; Nonlinear dynamics; Entropy; Knowledge
    JEL: C61 O41 E32
    Date: 2006
  24. By: Gomes, Orlando
    Abstract: Recent literature has been able to include into standard optimal growth models some hypotheses that allow for the generation of endogenous long run fluctuations. This paper contributes to this endogenous business cycles literature by considering social interactions. In the proposed model, individuals can choose, under a discrete choice rule, to which social group they prefer to belong to. This selection process is constrained essentially by the dimension of the group, which is the main determinant regarding the utility individuals withdraw from social interaction. The proposed setup implies the presence of cycles and chaotic motion describing the evolution of group dimension over time. Because being member of a group involves costs to households, the inclusion of these costs in a standard Ramsey growth model will imply that endogenous cycles might arise in the time trajectory of the growth rate of output.
    Keywords: Social interaction; Business cycles; Growth models; Nonlinear dynamics and Chaos; Discrete choice.
    JEL: C61 Z13 E32
    Date: 2006–10
  25. By: Mackowiak, Bartosz Adam; Wiederholt, Mirko
    Abstract: This paper presents a model in which price setting firms optimally decide what to pay attention to, subject to a constraint on information flow. When idiosyncratic conditions are more variable or more important than aggregate conditions, firms pay more attention to idiosyncratic conditions than to aggregate conditions. When we calibrate the model to match the large average absolute size of price changes observed in micro data, prices react fast and by large amounts to idiosyncratic shocks, but prices react only slowly and by small amounts to nominal shocks. Nominal shocks have strong and persistent real effects. We use the model to investigate how the optimal allocation of attention and the dynamics of prices depend on the firms' environment.
    Keywords: rational inattention; real effects of nominal shocks; sticky prices
    JEL: D8 E3 E5
    Date: 2007–04
  26. By: Gomes, Orlando
    Abstract: Following Jones and Williams (2000), we assume that R&D is simultaneously subject to positive and to negative external effects (e.g., the non rival nature of technology conflicts with congestion externalities). This observation allows to conceive an economy where two R&D sectors evolve without departing significantly from each other in terms of their productive results (society tends to penalize imbalances in technical progress, making negative external effects to appear associated to a sector when this outstands relatively to the other sector; the second sector, in turn, will be subject to positive externalities that reflect a catching up effect). The proposed framework, when associated to a growth setup, is able to replicate the existence of endogenous fluctuations and, therefore, it intends to be a contribution to the literature on endogenous business cycles.
    Keywords: Technology; Externalities; Endogenous business cycles; Growth models; Nonlinear dynamics and chaos.
    JEL: C61 O41 E32
    Date: 2006–07
  27. By: Olga Arratibel (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Frigyes Ferdinand Heinz (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Reiner Martin (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Marcin Przybyla (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Lucasz Rawdanowicz (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Roberta Serafini (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Tina Zumer (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: Overall, the prospects for a continued and reasonably fast real convergence process between the EU8 countries and the euro area are good. However, the continuation of the rapid progress made by many EU8 countries in the past cannot be taken for granted. In fact, in order to ensure that fast economic growth in the EU8 countries remains sustainable, it is crucial for these economies to take appropriate policy action. First it is important to recall that sound macroeconomic policies including credible monetary policy and appropriate fiscal policy are essential to ensure the appropriate framework conditions for further growth and convergence. Second, they need to address structural labour market problems, in particular by reducing regional and skill mismatches. Third, they must make further efforts to improve the business environment, in order to ensure that the capital accumulation process continues and R&D investments increase. Many of the above-mentioned facets of growth-enhancing policy will also help to ensure a continued inflow of foreign direct investment (FDI), which in turn is expected to help accelerate the convergence process.
    Date: 2007–04
  28. By: Steinar Holden (Norges Bank (Central Bank of Norway) University of Oslo and CESifo Department of Economics, University of Oslo); Fredrik Wulfsberg (Norges Bank (Central Bank of Norway) and Federal Reserve Bank of Boston)
    Abstract: This paper explores the existence of downward real wage rigidity (drwr) in 19 OECD countries, over the period 1973–1999, using data for hourly nominal earnings at industry level. Based on a nonparametric statistical method, which allows for country and year specific variation in both the median and the dispersion of industry wage changes, we find evidence of some downward rigidity of real wages in oecd countries overall, as well as for regions and time periods. There is some evidence that real wage cuts are less prevalent under strict employment protection legislation and high union density. Generally, we find stronger evidence for downward nominal than for downward real wage rigidity.
    Keywords: Downward real wage rigidity, OECD, Employment protection legislation, Wage setting
    JEL: J3 J5 C14 C15 E31
    Date: 2007–04–11
  29. By: Luc Aucremanne (National Bank of Belgium, Research Department); Marianne Collin (National Bank of Belgium, Research Department); Thomas Stragier (National Bank of Belgium, Research Department)
    Abstract: We find strong econometric support for a break in the relationship between perceived and HICP inflation in the euro area, triggered by the introduction of euro notes and coins in January 2002. The break is fairly homogeneous across individuals with different socio-economic characteristics. We found no support for the thesis according to which perceptions are systematically formed by frequently purchased products. A similar break is found when national CPIs instead of HICPs are used as benchmarks. The role of the non-inclusion of owner-occupied housing in the HICP was negligible. Therefore the credibility of the HICP per se is not at stake.
    Keywords: inflation, perceived inflation, panel unit roots tests
    JEL: C22 C23 D12 E31
    Date: 2007–04
  30. By: Gomes, Orlando
    Abstract: Technological progress produces both positive and negative economy wide externalities. Although positive spillovers seem to prevail most of the times, there is evidence and logical arguments revealing that investment in R&D can exceed the corresponding socially optimal level. Taking on board the assumption that the two kinds of externalities are possible and that, therefore, one is able to define the pace of technical progress required to maximize social welfare, we develop a standard two-sector optimal growth model with externalities in the production of technology. The added assumption allows for introducing endogenous business cycles in the Walrasian growth setup. The undertaken stability analysis discusses the local properties of a difference equation two-dimensional system, identifying the occurrence of a flip bifurcation, and looks at global dynamics, through a numerical example, in order to better illustrate and describe the non linear nature of the system.
    Keywords: Technology; Externalities; Endogenous business cycles; Two-sector growth models; Nonlinear dynamics and chaos.
    JEL: C61 O41 E32
    Date: 2007
  31. By: Eckhard Hein (IMK at the Hans Boeckler Foundation); Lena Vogel (University of Hamburg (Student))
    Abstract: The authors analyse the relationship between functional income distribution and economic growth in France and Germany from 1960 until 2005. The analysis is based on a demand-driven distribution and growth model for an open economy inspired by Bhaduri/Marglin (1990), which allows for profit- or wage-led growth. First, the authors apply a single equation approach, estimating the effects of redistribution on the demand aggregates and summing up these effects in order to obtain the total effect of redistribution on GDP growth. Since interactions between the demand aggregates are omitted from this approach, the authors also apply a simulation approach taking into account these interactions. In the single equations approach the authors find that growth in France and in Germany was wage-led. This qualitative result is confirmed by the simulation approach, but the quantitative effects differ somewhat. Whereas in the single equation approach the wage-led nature of the demand regime in Germany seems to be more pronounced than in France, in the simulation approach the effects in the two countries seem to converge.
    Keywords: Distribution, growth, demand-led accumulation regimes
    JEL: E12 E21 E22 E23 E25
    Date: 2007–03
  32. By: Christian Dustmann (Centre for Research and Analysis of Migration, Department of Economics, University College London); Albrecht Glitz (Centre for Research and Analysis of Migration, Department of Economics, University College London); Thorsten Vogel (Humboldt Universität zu Berlin and Centre for Research and Analysis of Migration.)
    Abstract: Differences in the cyclical pattern of employment and wages of immigrants relative to natives have largely gone unnoticed in the migration literature. In this paper we show that immigrants and natives react differently to the economic cycle. Based on over two decades of micro data, our investigation is for two of the largest immigrant receiving countries in Europe which at the same time are characterised by different immigrant populations as well as different economic cycles, Germany and the UK. Understanding the magnitude, nature and possible causes of differences in responses is relevant for assessing the economic performance of immigrant communities over time. We show that there are substantial differences in cyclical responses between immigrants and natives. Our analysis illustrates the magnitude of these differences, while distinguishing between different groups of immigrants. Differences in responses may be due to differences in the skill distribution between immigrant groups and natives, or differences in demand for immigrants and natives of the same skills due to differential allocation of immigrants and natives across industries and regions. We demonstrate that substantial differences in cyclical patterns remain, even within narrowly defined groups. Finally, we estimate a more structural factor type model that, using regional variation in economic conditions, separates responses to economic shocks from a secular trend and allows us to obtain a summary measure for these differences within education groups.
    Keywords: Immigration, Wage Structure, Business Cycle
    JEL: E32 F22 J31
    Date: 2006–09
  33. By: Jean-Pierre Allegret (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines]); Alain Sand-Zantman (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines])
    Abstract: This paper studies to what extent the diversity of exchange rate regimes within Mercosur exerts an influence on the feasibility of a monetary union in this area. A semi-structural VAR model is built for each country, including a set of international and domestic variables. Based on impulse response functions and forecast error decomposition, we conclude that differences of exchange rate regime explain significantly the divergences of economic dynamics triggered by foreign or domestic shocks. Second, we decompose the structural innovations generated by each country model into unobservable common and idiosyncratic components, using a state-space model. This last exercise, intended to assess the degree of policy coordination between the Mercosur members, did not disclose any common component for the structural innovations generated by the three national models.
    Keywords: co-movement ; Cycles ; Mercosur ; optimum currency area ; unobserved components model
    Date: 2007–04–19
  34. By: Gonzalez-Eiras, Martin; Niepelt, Dirk
    Abstract: We analyze the effect of the projected demographic transition on the political support for social security, and equilibrium outcomes. Embedding a probabilistic-voting setup of electoral competition in the Diamond (1965) OLG model, we find that intergenerational transfers arise in the absence of altruism, commitment, or trigger strategies. Closed-form solutions predict population ageing to lead to higher social security tax rates, a rising share of pensions in GDP, but eventually lower social security benefits per retiree. The response of equilibrium tax rates to demographic shocks reduces old-age consumption risk. Calibrated to match features of the U.S. economy, the model suggests that, in response to the projected demographic transition, social security tax rates will gradually increase to 16 percent; other policies that distort labour supply will become less important; and in contrast with frequently voiced fears, labour supply therefore will rise.
    Keywords: labour supply; Markov perfect equilibrium; probabilistic voting; saving; social security
    JEL: E62 H55
    Date: 2007–04
  35. By: Gomes, Orlando
    Abstract: The standard two-sector growth model with physical and human capital characterizes a process of material accumulation involving simple dynamics; constant long run growth is observable when assuming conventional Cobb-Douglas production functions in both sectors. This framework is developed under a central planner scenario: it is a representative agent that chooses between consumption and capital accumulation, on one hand, and between allocating human capital to each one of the two sectors, on the other. We concentrate in this second choice and we argue that the outcome of the aggregate model is incompatible with a scenario where individual agents, acting in a market economy, are free to decide, in each time moment, how to allocate their human capital in order to produce goods or to create additional skills. Combining individual incentives, the effort of a central planner (i.e., government) to approximate the decentralized outcome to the optimal result and a discrete choice rule that governs the decisions of individual agents, we propose a growth framework able to generate a significant variety of long term dynamic results, including endogenous fluctuations.
    Keywords: Endogenous growth; Human capital; Endogenous business cycles; Discrete choice; Nonlinear dynamics; Chaos.
    JEL: C61 O41 E32
    Date: 2007–01
  36. By: Andrés Langebaek; Edgar Caicedo
    Abstract: En este trabajo se estima el sesgo total del Índice de Precios al Consumidor en Colombia con base en la metodología propuesta por Hamilton (2001). El ejercicio se fundamenta en la estimación de una ecuación de demanda por alimentos para el período 1984/85 a 1994/95 con la información de la Encuesta de Ingresos y Gastos de esos años. Se llega a la conclusión de que el sesgo total de este índice osciló entre un 1.63 y un 1.69 puntos porcentuales promedio por año en este período.
    Keywords: C43; E31; D12. Classification JEL: Inflación, Curva de Engel y Sesgo del IPC.
  37. By: Richard V. Burkhauser (Cornell University); Takashi Oshio (Cornell University); Ludmila Rovba (Cornell University)
    Abstract: We find that, over their 1990s business cycles, the entire distribution of after-tax household size-adjusted income moved to the right in the United States and Great Britain while inequality declined. In contrast, Germany and Japan had less income growth, a rise in inequality and a decline in the middle mass of their distributions that spread mostly to the right, much like the United States experienced over its 1980s business cycle. In the United States and Japan, younger persons fared relatively better than older persons while the opposite was the case in Great Britain and Germany.
    Date: 2006–12
  38. By: Selim, Sheikh (Cardiff Business School)
    Abstract: We extend the celebrated Chamley-Judd result of zero capital income tax and show that the steady state optimal capital income tax is nonzero, in general. In particular, we find that the optimal plan involves zero capital income tax in investment sector and a nonzero capital income tax in consumption sector. In a two sector neoclassical economy, interdependence of labour and capital margins allows the government to choose an optimal policy that involves nonzero tax on capital income. The distortion created by capital income tax in consumption sector can be undone by setting different rates of labour income taxes. The optimal plan thus involves zero capital income tax in both sectors only if optimal labour income taxes are equal. This may not be the optimal policy if marginal disutility of work is different across sectors and/or the social marginal value of capital is different across sectors. The difference in social marginal value of capital can be undone by setting different labour income taxes across sectors. We also show that if the government faces a constraint of keeping same capital and labour income tax rates across sectors, optimal capital income tax is nonzero.
    Keywords: Optimal taxation; Ramsey problem; Primal approach; Two-sector model
    JEL: C61 E13 E62 H21
    Date: 2007–04
  39. By: Sydney Afriat; Carlo Milana
    Abstract: It has been submitted that, for the very large number of different traditional type formulae to determine price indices associated with a pair of periods, which are joined with the longstanding question of which one to choose, they should all be abandoned. For the method proposed instead, price levels associated with periods are first all computed together, subject to a consistency of the data, and then price indices that are as taken together true are determined from their ratios. An approximation method can apply in the case of inconsistency. Here is an account of the mathematics of the method
    Keywords: inflation, index-number problem, non-parametric, price index, price level, revealed preference
    JEL: C43 E31
    Date: 2007–04
  40. By: William A. Brock; Steven N. Durlauf; James M. Nason; Giacomo Rondina
    Abstract: This paper contributes to the policy evaluation literature by developing new strategies to study alternative policy rules. We compare optimal rules to simple rules within canonical monetary policy models. In our context, an optimal rule represents the solution to an intertemporal optimization problem in which a loss function for the policymaker and an explicit model of the macroeconomy are specified. We define a simple rule to be a summary of the intuition policymakers and economists have about how a central bank should react to aggregate disturbances. The policy rules are evaluated under minimax and minimax regret criteria. These criteria force the policymaker to guard against a worst-case scenario, but in different ways. Minimax makes the worst possible model the benchmark for the policymaker, while minimax regret confronts the policymaker with uncertainty about the true model. Our results indicate that the case for a model-specific optimal rule can break down when uncertainty exists about which of several models is true. Further, we show that the assumption that the policymaker’s loss function is known can obscure policy trade-offs that exist in the short, medium, and long run. Thus, policy evaluation is more difficult once it is recognized that model and preference uncertainty can interact.
    Date: 2007
  41. By: Celso Brunetti; Roberto S. Mariano; Chiara Scotti; Augustine H.H. Tan
    Abstract: This paper analyzes exchange rate turmoil with a Markov Switching GARCH model. We distinguish between two different regimes in both the conditional mean and the conditional variance: "ordinary" regime, characterized by low exchange rate changes and low volatility, and "turbulent" regime, characterized by high exchange rate movements and high volatility. We also allow the transition probabilities to vary over time as functions of economic and financial indicators. We find that real effective exchange rates, money supply relative to reserves, stock index returns, and bank stock index returns and volatility contain valuable information for identifying turbulence and ordinary periods.
    Date: 2007
  42. By: Lena Vogel (Department for Economics and Politics, University of Hamburg)
    Abstract: The aim of this paper is to analyse the sensitivity of the natural rate of growth to the actual rate of growth for a sample of eleven Latin-American countries, assuming the natural rate to be determined endogenously by changes in the actual rate of growth. The natural rates of growth are estimated in a system of SUR estimations over the period 1986-2003. In order to determine whether they react endogenously to changes in the actual rate of growth, a dummy variable for boom periods is added to the system of regressions. In the second part of the empirical analysis, the direction of causality between input growth and output growth is then tested for four of the countries in the first sample. The results confirm not only the hypothesis about the endogeneity of the natural rate of growth, but also show causality from output growth to input growth to be much stronger than the reverse. Length: 28 pages
    Keywords: Natural rate of growth, actual rate of growth, endogeneity, Granger causality, Latin America
    JEL: O40 E10 C23
    Date: 2007–04
  43. By: Gabriel Jiménez (Banco de España); Javier Mencía (Banco de España)
    Abstract: This paper develops a flexible and computationally efficient model to estimate the credit loss distribution of the loans in a banking system. We consider a sectorial structure, where default frequencies and the total number of loans are allowed to depend on macroeconomic conditions as well as on unobservable credit risk factors, which can capture contagion effects between sectors. In addition, we also model the distributions of the Exposure at Default and the Loss Given Default. We apply our model to the Spanish credit market, where we find that sectorial default frequencies are affected by a persistent latent factor. Finally, we also identify the potentially riskier sectors and perform stress tests.
    Keywords: credit risk, probability of default, loss distribution, stress test, contagion
    JEL: G21 E32 E37
    Date: 2007–04
  44. By: Nicolas Million (Banque de France et Centre d'Economie de la Sorbonne)
    Abstract: This article deals with the theoretical implications implied by the presence of Peso effects in expectations. After presenting the Peso effect as the probability of occurence of an unusual event though important enough to be taken into account in the forecasts, we present a model able to isolate the systematic expectation error. The appearance of this error comes especially from imperfect information concerning the future states as well as the current regime. This uncertainty about the current regime leads the agents to implement a learning process for the model. In the last part of this article, we show how a credible central bank can limit the occurrence of Peso effects.
    Keywords: Peso effect, efficient markets, rational expectations.
    JEL: E4 C12 C22
    Date: 2007–03
  45. By: Roberto Leombruni; Matteo Richiardi
    Abstract: Most Oecd Countries are experiencing a rapid population ageing. Italy adds to this picture a very low labour market participation of the elders, so that most projections of the impact of ageing on the labour market are rather pessimistic. However, there are other long run modifications currently underway that will presumably have a sizeable impact on the labour market, above all changes in the retirement legislation, in educational choices and participation behaviour. In this paper we present LABORsim, an agent based microsimulation model of labour supply, which offers new insights on the likely evolution of the labour force in the next decades in Italy. LABORsim integrates the current demographic projections with simulation modules modelling retirement rules, retirement behaviours, migrations, education and participation choices, plus a consolle to implement various policy scenario analyses. When all these factors are taken into account, projections for next decades are not that pessimistic. In most scenarios, the overall participation rate is expected to increase steadily for the next two decades, while shortages in the labour force supply and an unfavourable dynamics for the economic dependency rate are expected to show up only after 2020, when the baby boom generations will arrive at their retirement ages. This is not enough, however, to allow Italy to meet the EU Stockolm and Lisbon targets for male and female employment rates for many decades to come. The sharp increase in the participation rates for the elderly (aged 55-64), mainly driven by the recent changes in the retirement eligibility criteria, will make it possible to meet the Stockholm target of 50% employment rate in this age group by 2015, i.e. with only 5 years of delay.
    Keywords: microsimulation, participation, employment, retirement, education, policy evaluation.
    JEL: E24 H3 H55 I2 J1 J2 J6 N4 O52 C63
    Date: 2006
  46. By: Gugushvili, Alexi
    Abstract: This paper examines employment policies in urban areas of developing world. We follow traditional economic analysis and present the urban unemployment problem as an inequality of labour supply and demand on labour markets. The effects of demand-side and supply-side policies on informal urban employment are investigated through econometrical models. One or several variables are employed as crude proxies for every policy option. The dependent variable is informal urban employment as a per cent of total urban employment, with the data on eighteen developing countries from different parts of the world.
    Keywords: Developing countries; Urban unemployment; Employment policies
    JEL: D72 J38 C20 E24 O57
    Date: 2006–12–09
  47. By: Sachiko Kuroda (Institute for Monetary and Economic Studies, Bank of Japan (currently Hitotsubashi University, E-mail:; Isamu Yamamoto (Institute for Monetary and Economic Studies, Bank of Japan (currently Keio University, E-mail:
    Abstract: Using Japanese data from the 1990s aggregated by prefecture, age group, and sex, we estimate Frisch labor supply elasticity, which has been seldom estimated in Japan. The change in labor supply can be decomposed into two labor-supply behaviors: extensive margin, indicating workersf entry and exit from the labor market; and intensive margin, indicating changes in hours of work in response to a wage change. Our estimates of the Frisch elasticity on the extensive and intensive margins combined are in the range of 0.2 to 0.7 for males, 1.3 to 1.5 for females, and 0.7 to 1.0 for both sexes. Our estimates of the Frisch elasticity on only the intensive margin are in the range of 0.1 to 0.2 for all three categories. These results suggest that extensive margin explains the bulk of labor-supply changes in Japan. As for the changes in the estimates of the Frisch elasticity in Japan from the 1990s, it has been either unchanged or in a declining trend on the extensive and intensive margins combined, either unchanged or in a slight rising trend on only the intensive margin, and in a declining trend on only the extensive margin.
    Keywords: Labor supply, Frisch elasticity, Extensive margin, Intensive margin
    JEL: E24 J22
    Date: 2007–04
  48. By: Alberto Chong (Inter-American Development Bank); César Caldeón (World Bank); Gianmarco León (Inter-American Development Bank)
    Abstract: This paper study the issue of institutional enforcement of regulations by focusing on labor-market policies and their potential link to economic performance. It test the different impacts of enforceable and non-enforceable labor regulations by proxying non-enforceable labor rigidity measures using data on conventions from the International Labor Organization (ILO). It has been argued that non-enforceable conventions -that is, those that exist on paper and are simply de jure regulations -appear to be more distortionary and tend to be the least enforced in practice (Squire and Suthiwart-Narueput, 1997). According to Freeman (1993), these conventions reflect the ideal regulatory framework from an institutionalist perspective and cover a variety of labor market issues, from child labor to placement agencies. Whereas in theory, a country's ratification of ILO conventions gives the country legal status and thus supersedes domestic regulations relating to those issues, in practice the degree of labor-market rigidity depends on how the conventions are enforced. It is the outcome of the regulations that matters, rather than their number.
    Keywords: Institutions; Enforcement; Labor Rigidities; Growth; GMM-IV
    JEL: O10 E60 J08 O40
    Date: 2006–10
  49. By: Nicole Jonker; Thijs Kettenis
    Abstract: Since the mid-nineties, usage of the debit card by Dutch consumers has increased considerably. While accounting for three quarters of the total value of retail sales in the early nineties, in 2004 the value share of cash payments had fallen to about two quarters. If the cash to payment card ratio in 2004 had been the same as in 1990, the social costs of retail payments would have come out almost EUR 200 million higher. Consumers will have benefited from these savings through lower consumer prices and bank fees. Estimates indicate that the share of cash (in value terms) will decline further from 46% to about 20% in 2015. Changes in the payment infrastructure can yield even higher cost savings. This appears from the outcomes of fictitious scenarios in which the use of electronic means of payment is promoted by increasing the growth rate of the number of EFTPOS terminals and keeping the number of ATMs at their end-2004 level. The outcome in question is indicative of the effectiveness of any efficiency-enhancing measures that may betaken within the scope of the November 2005 Payment Covenant between banks and retailers. An increase in the number of EFTPOS terminals turns out to be especially effective.
    Keywords: cash usage; retail payments; cost efficiency
    JEL: E41 E50 H21
    Date: 2007–04

This nep-mac issue is ©2007 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.