nep-mac New Economics Papers
on Macroeconomics
Issue of 2008‒04‒04
thirty-two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. The Stress of Having a Single Monetary Policy in Europe By Jan-Egbert Sturm; Timo Wollmershäuser
  2. Federal Reserve Policy viewed through a Money Supply Loss By Ibrahim Chowdhury; Andreas Schabert
  3. Inflation and Unemployment in the Long Run By Aleksander Berentsen; Guido Menzio; Randall Wright
  4. Anticipated and unanticipated oil price shocks and optimal monetary policy By Wohltmann, Hans-Werner; Winkler, Roland
  5. Predicting the Fed By Kenneth B. Petersen; Vladimir Pozdnyakov
  6. Measuring Real Value and Inflation By Hillinger, Claude
  7. The choice between state- and time-dependent price rules By Fregert, Klas
  8. Rise of the Japanese fiscal state By Masaki Nakabayashi
  9. The German sub-national government bond market: evolution, yields and liquidity By Schulz, Alexander; Wolff, Guntram B.
  10. Financialization in Kaleckian economies with and without labor constraints By Soon Ryoo; Peter Skott
  11. What Determines the Saving Behavior of German Households? An Examination of Saving Motives and Saving Decisions By Schunk, Daniel
  12. Comparing the DSGE model with the factor model: an out-of-sample forecasting experiment By Wang, Mu-Chun
  13. The measurement of financial intermediation in Japan By Gunther Capelle-Blancard; Jézabel Couppey-Soubeyran; Laurent Soulat
  14. Africa in 2007: Multifaceted Growth By Kenneth G. Ruffing
  15. A Review of Forecasting Techniques for Large Data Sets By Jana Eklund; George Kapetanios
  16. Hopf bifurcation for the discrete - delay Kaldor - Kalecki model By Loretti I. Dobrescu; Dumitru Opris
  17. Assets returns volatility and investment horizon: The French case By Frédérique Bec; Christian Gollier
  18. Seigniorage Revenue or Consumer Revenue? Theoretical and Empirical Evidences By Tatsuyoshi Miyakoshi
  19. Economic Growth and Threatened and Endangered Species Listings: A VAR Analysis By Catherine M. Chambers; Catherine M. Chambers; John C. Whitehead
  20. Financial markets and the current account – emerging Europe versus emerging Asia By Herrmann, Sabine; Winkler, Adalbert
  21. The Currency Denomination of Trade and Price Discrimination: The Euro after European Union Expansion By Mark David Witte;
  22. Resolving the Anglo-German Industrial Productivity Puzzle, 1895-1935 : A Response to Professor Ritschl By Broadberry, Stephen; Burhop, Carsten
  23. The formation of financial industries in USA, France and Russia By Irina Peaucelle
  24. The Effect of the Exchange Rates on Investment in Mexican Manufacturing Industry By Caglayan, Mustafa; Muñoz Torres, Rebeca I.
  25. Social Decision Theory: Choosing within and between Groups By Fabio Maccheroni; Massimo Marinacci; Aldo Rustichini
  26. Strategic Outsourcing, Profit Sharing and Equilibrium Unemployment By Koskela, Erkki; König, Jan
  27. Macroeconomic effects of ownership structure in OECD countries By Donatella Gatti
  28. Macroeconomic Effects of Ownership Structure in OECD Countries By Gatti, Donatella
  29. High Technology VCs: a distinct species on the investment market? By M. KNOCKAERT; B. CLARYSSE
  30. Liquidity and Ambiguity: Banks or Asset Markets? By Eichberger, Jürgen; Spanjers, Willy
  31. A structure theorem for graphs with no cycle with a unique chord and its consequences By Nicolas Trotignon; Kristina Vuskovic
  32. When Does Improving Health Raise GDP? By Quamrul Ashraf; Ashley Lester; David Weil

  1. By: Jan-Egbert Sturm (KOF Swiss Economic Institute, ETH Zurich Switzerland and CESifo); Timo Wollmershäuser (Ifo Institute for Economic Research, Munich Germany and CESifo)
    Abstract: This paper estimates forward-looking Taylor rules for the euro area. Using the asymmetries in inflation and cyclical output developments across countries, we investigate the adequacy of the single monetary policy for each of the European Monetary Union (EMU) member countries. Notable differences emerge across the countries. Taking a euro area perspective, we also show that it depends upon the underlying country weighting scheme in the monetary decision process of the ECB whether or not there has been a synchronisation of business and inflation cycles among the EMU member countries over the years. Finally, we produce an estimate of the actual policy weights the ECB has implicitly attached to each of the member countries. Developments in small member countries have received more than proportional weights in actual monetary policy decisions of the ECB.
    Keywords: Taylor rule, monetary policy, ECB, stress, business cycle synchronisation
    JEL: C22 E32 E52 E58
    Date: 2008–02
  2. By: Ibrahim Chowdhury (Swiss National Bank); Andreas Schabert (University of Dortmund, University of Amsterdam)
    Abstract: Federal Reserve nonborrowed reserve supply systematically responded to changes in inflation and in the output gap over the period 1969-2000. While the feedback from output gap is always negative, the response of money supply to changes in inflation varies considerably across time. Nonborrowed reserves decreased with inflation in the post-1979 period and increased in the pre-1979 period. Applying a standard macro-model, the estimated reaction functions are shown to ensure equilibrium determinacy. Viewed through the money supply lens, Federal Reserve policy substantially changed over time, but has never allowed for endogenous fluctuations, which contrasts conclusions drawn from federal funds rate analyses.
    Keywords: Money supply; reaction functions; nonborrowed reserves; real-time data; equilibrium determinacy
    JEL: E51 E52 E32
    Date: 2008–03–06
  3. By: Aleksander Berentsen (Department of Economics, University of Basel); Guido Menzio (Department of Economics, University of Pennsylvania); Randall Wright (Department of Economics, University of Pennsylvania)
    Abstract: We study the long-run relation between money, measured by inflation or interest rates, and unemployment. We first discuss data, documenting a strong positive relation between the variables at low frequencies. We then develop a framework where both money and unemployment are modeled using explicit micro-foundations, integrating and extending recent work in macro and monetary economics, and providing a unified theory to analyze labor and goods markets. We calibrate the model, to ask how monetary factors account quantitatively for low-frequency labor market behavior. The answer depends on two key parameters: the elasticity of money demand, which translates monetary policy to real balances and profits; and the value of leisure, which affects the transmission from profits to entry and employment. For conservative parameterizations, money accounts for some but not that much of trend unemployment — by one measure, about 1/5 of the increase during the stagflation episode of the 70s can be explained by monetary policy alone. For less conservative but still reasonable parameters, money accounts for almost all low-frequency movement in unemployment over the last half century.
    Keywords: inflation, unemployment, search
    JEL: E24 E52
    Date: 2008–03–18
  4. By: Wohltmann, Hans-Werner; Winkler, Roland
    Abstract: This paper studies the welfare effects of severalmonetary policy rules in the presence of anticipated and unanticipated oil price shocks. Our analysis is based on a stylized New Keynesian model of a small open economy. Our main findings are the following: i) Standard interest rate rules amplify the welfare loss compared to neutral monetary policies. ii) The optimal policy under commitment, by contrast, dampens the welfare loss. iii) Optimized simple rules can replicate the outcome under the optimal unrestricted rule if they are history-dependent, contain the exchange rate and, in the anticipated case, forward-looking elements. iv) Anticipated oil shocks lead to a higher welfare loss than unanticipated shocks.
    Keywords: Anticipated Shocks, Oil Price Shocks, Open Economy, Optimal Monetary Policy, Simple Policy Rules
    JEL: E32 E52 F41
    Date: 2008
  5. By: Kenneth B. Petersen (Laffer Associates and University of Connecticut); Vladimir Pozdnyakov (University of Connecticut)
    Abstract: Predicting the federal funds rate and beating the federal funds futures market: mission impossible? Not so. We employ a Markov transition process and show that this model outperforms the federal funds futures market in predicting the target federal funds rate. Thus, by using purely historical data we are able to better explain future monetary policy than a forward looking measure like the federal funds futures rate. The fact that the federal funds futures market can be beaten by a statistical model, suggests that the federal funds futures market lacks eciency. The mar- ket allocates too much weight to current Federal Reserve communication and other real-time macro events, and allocates too little weight to past monetary policy behavior.
    Keywords: Monetary policy, Federal funds futures market, Markov modeling
    JEL: E44 E47 E52 E58 G13
    Date: 2008–03
  6. By: Hillinger, Claude
    Abstract: The most important economic measures are monetary. They have many different names, are derived in different theories and employ different formulas; yet, they all attempt to do basically the same thing : to separate a change in nominal value into a ‘real part’ due to the changes in quantities and an inflation due to the changes in prices. Examples are: real national product and its components, the GNP deflator, the CPI, various measures related to consumer surplus, as well as the large number of formulas for price and quantity indexes that have been proposed. The theories that have been developed to derive these measures are largely unsatisfactory. The axiomatic theory of indexes does not make clear which economic problem a particular formula can be used to solve. The economic theories are for the most part based on unrealistic assumptions. For example, the theory of the CPI is usually developed for a single consumer with homothetic preferences and then applied to a large aggregate of diverse consumers with non-homothetic preferences. In this paper I develop a unitary theory that can be used in all situations in which monetary measures have been used. The theory implies a unique optimal measure which turns out to be the Törnqvist index. I review, and partly re-interpret the derivations of this index in the literature and provide several new derivations. The paper also covers several related topics, particularly the presently unsatisfactory determination of the components of real GDP.
    Keywords: Consumer price index, consumer surplus, money metric, price and quantity indexes, welfare measurement
    JEL: C43 C82 D61
    Date: 2008
  7. By: Fregert, Klas (Department of Economics, Lund University)
    Abstract: Large review costs lead to time-dependent price setting rules. State-dependent rules become more likely when there is an increase in: set-up costs, the variability of the equilibrium price or the efficiency loss associated with being away from equilibrium.
    Keywords: time-dependent price rule; state-dependent price rule
    JEL: E31 E32
    Date: 2008–03–24
  8. By: Masaki Nakabayashi (Graduate School of Economics, Osaka University)
    Abstract: A sustainable fiscal state needs to have two critical factors: A stable tax base and access to an efficient bond market. The Tokugawa Shogunate had a stable land tax revenue, which was inherited to modern Japan after the Meiji restoration. Taxation, however, was restricted by the constitution after the Meiji restoration. The parliament opposed to expansionary policy in the early 1890s, and then it turned to support that at the exchange of governmental commitment to investment in social infrastructure. The government committed to investment to increase productivity, and was allowed to raise tax rate. About the bond market, at the other hand, the government had issued bonds only in the domestic market until the mid 1890s. In the late 1890s, after Japan joined the international gold standard, the government began to issue considerable amount of bonds, and the balance surged during the Russo-Japanese war in 1904-1905. Now the London market efficiently financed Japanese government. In the early 20th century, the government was one and only one player that had established its own reputation in the international financial market. Hence balance of Japanese government bonds was the only route to import capital. This route also provided Japanese economy with macroeconomic stability, offsetting short-term current account deficit by import of capital. Japan had finally been equipped with necessary instruments as a stable and sustainable fiscal state.
    Keywords: Fiscal state, government bonds, macroeconomic stability
    JEL: N45 N25
    Date: 2008–03
  9. By: Schulz, Alexander; Wolff, Guntram B.
    Abstract: The paper presents a comprehensive data set of all bonds issued by the sixteen German states (L¨ander) since 1992. It thus provides a complete picture of a capital market comparable in size to funds raised in the German fixed income market for corporations. The quantitative analysis reveals that L¨ander follow different issuing strategies: while some concentrate to a greater extend on large issues or issue joint bonds with other L¨ander (Jumbos), others rely more on comparatively small but frequent issues. Moreover, some L¨ander issue a significant volume-share of their bonds in foreign currencies. Suitable bonds are used to compute yields for the respective L¨ander at a daily frequency. In addition, we construct a measure of liquidity based on the standard deviation of yields of those bonds that are used to compute the average yield.
    Keywords: sovereign bond market, yields, liquidity, fiscal federalism, Germany
    JEL: E43 E44 G10 G12 G18 H63 H74
    Date: 2008
  10. By: Soon Ryoo (University of Massachusetts, Amherst); Peter Skott (University of Massachusetts, Amherst)
    Abstract: Most Kaleckian models assume a perfectly elastic labor supply, an assumption that is questionable for many developed economies. This paper presents simple labor- constrained Kaleckian models and uses these models to compare the implications of financialization under labor-constrained and dual-economy conditions. The paper complements the analysis in Skott and Ryoo (2008) which did not include labor- constrained Kaleckian economies. We show that for plausible parameter values the financial changes commonly associated with financialization tend to be expansionary in both dual-economy and labor-constrained settings. JEL Categories: E12, E44
    Keywords: financialization, stock-flow consistency, labor constraints, Kaleckian model.
    Date: 2008–03
  11. By: Schunk, Daniel (Sonderforschungsbereich 504)
    Abstract: Many motives for saving a portion of one’s income co-exist and their relative importance changes over the life-cycle. However, most existing work focuses on only one of those motives and makes simplifying assumptions about the other motives so that they can be relegated to the background. All the more it is important to investigate heterogeneity in saving behavior in the presence of various co-existing saving motives. This paper is concerned with linking heterogeneity in German households’ savings decisions to four coexisting saving motives. First, I find that the importance that households attach to the saving motives is related to how much households save at different life stages. Second, I classify the saver type of the households based on whether they engage in regular savings plans, or rather save irregularly and without a savings plan and I find that saving motives are related to the saver type of the household. The results show that heterogeneity in saving behavior along two dimensions – with respect to the saving rate and the saver type – is systematically related to the importance that households attach to different saving motives. This suggests that policy reforms that change the importance of certain saving motives in the eyes of private households might alter household saving behavior in various ways.
    Date: 2007–05–31
  12. By: Wang, Mu-Chun
    Abstract: In this paper, we put DSGE forecasts in competition with factor forecasts. We focus on these two models since they represent nicely the two opposing forecasting philosophies. The DSGE model on the one hand has a strong theoretical economic background; the factor model on the other hand is mainly data-driven. We show that by incooperating large information set using factor analysis can indeed improve the short horizon predictive ability, as claimed by manyresearchers. The micro founded DSGE model can provide reasonable forecasts for inflation, especially with growing forecast horizons. To a certain extent, our results are consistent with the prevailling view that simple time series models should be used in short-horizon forecasting and structural models should be used in long-horizon forecasting. Our paper compareds both state-of-the art data-driven and theory-based modelling in a rigorous manner.
    Keywords: DSGE models, factor models, forecasting, forecastevaluation
    JEL: C2 C3 C53 E37
    Date: 2008
  13. By: Gunther Capelle-Blancard (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Jézabel Couppey-Soubeyran (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Laurent Soulat (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: In this paper, we examine the evolution of the Japanese financial structure, in order to challenge the expected incidences of the financial liberalization. We compute financial intermediation ratios for Japan (1979-2004) on a book value basis. According to our results, the intermediation ratio has remained quite stable, at around 85%. This stability is the result of two opposite trends: a decrease in credits and an increase in financial securities owned by financial (mostly, non-banking) institutions. These two trends are partly the consequence of the heavier weight of the Government in domestic external financing, which is traditionally less financed by credits than companies are. Besides, these two trends would not have appeared if we had used intermediation ratios in market value or other traditional indicators (Deposits/GDP, Loans to private sector/GDP, stock market capitalization/GDP, etc.). Our results provide evidence for a very close relationship between intermediate financings and market financings and tend to reject the hypothesis of the Japanese financial system’s convergence toward a capital market-based system.
    Keywords: Disintermediation, financial system, intermediaries, capital markets
    Date: 2008–01
  14. By: Kenneth G. Ruffing
    Abstract: Growth will accelerate for net oil exporters and weaken slightly for oil importers, strengthening the trends projected in African Economic Outlook 2006. For the oil importers, moreover, inflation is moving to double-digit levels. Budget deficits in oil-importing countries appear to have stabilised. The current account deficits of these same countries have increased from 2 % in 1998-2004, to about 4 % since 2005. * This Policy Insights introduces the African Economic Outlook 2007.
    Date: 2007–04
  15. By: Jana Eklund (Bank of England); George Kapetanios (Queen Mary, University of London)
    Abstract: This paper provides a review which focuses on forecasting using statistical/econometric methods designed for dealing with large data sets.
    Keywords: Macroeconomic forecasting, Factor models, Forecast combination, Principal components
    JEL: C22 C53 E37 E47
    Date: 2008–03
  16. By: Loretti I. Dobrescu (Università di Padova); Dumitru Opris (West University of Timisoara)
    Abstract: The present work will focus on a Kaldor - Kalecki non - linear business cycle model in income and capital, with discrete time and delay argument characteristics. What it will state, considering an investment function similar to the one proposed by Rodano and using the linear approximation analysis, are the local stability property and local bifurcations conditions, given the parameter space. Numerical examples will be given in the end, to support the theoretical results obtained.
    Keywords: business cycle, Hopf bifurcation, discrete-delay time
    Date: 2008
  17. By: Frédérique Bec (THEMA, Université de Cergy-Pontoise et CREST, Malakoff, France.); Christian Gollier (Toulouse School of Economics (LERNA and IDEI), France.)
    Abstract: This paper explores French assets returns predictability within a VAR setup. Using quarterly data from 1970Q4 to 2006Q4, it turns out that bonds, equities and bills returns are actually predictable. This feature implies that the investment horizon does indeed matter in the asset allocation. The VAR parameters estimates are then used to compute real returns conditional volatility across investment horizons. The results reveal the same kind of horizon effect as the one found in recent empirical studies using quarterly U.S. data. More specifically, the annualized standard deviation of French stocks returns goes down from 22% for a 1-year horizon to only 2.8% for a 25-year investment horizon. They suggest that long-horizon investors overstate the share of bonds in their portfolio choice when neglecting the horizon effect on risk of asset returns predictability.
    Keywords: Asset return predictability, Investment horizon, Vector Autoregression.
    JEL: G11
    Date: 2008
  18. By: Tatsuyoshi Miyakoshi (Osaka School of International Public Policy, Osaka University)
    Abstract: The purpose of this paper is to propose a seigniorage model including the contributions of Bailey (1956) and Marty (1976), using a different framework to Mankiw (1987), to test whether their results are supported, and use a numerical example to estimate the seigniorage model. The government decides the money growth rate to maximize the social welfare function for each of seigniorage revenue aversion, loving and neutrality. The numerical example using Japanese data shows that the social welfare function supports seigniorage revenue aversion, supporting the results of Bailey and Marty, and that the degree of seigniorage revenue aversion is stronger in the 2000s than in the 1990s.
    Keywords: Bailey and Marty; Social welfare function; Mankiw model; Numerical example
    JEL: E40 E50 C40 C50
    Date: 2008–03
  19. By: Catherine M. Chambers; Catherine M. Chambers; John C. Whitehead
    Abstract: We conduct several analyses to examine the link between threatened and endangered species listings and macroeconomic activity. Preliminary tests using ordinary least squares are run on both time series data on the national level and cross sectional data at the state level. The analysis is then extended using vector autoregressive (VAR) techniques. VAR results, impulse response functions and variance decompositions are reported to shed more light on the causal relationships between threatened and endangered species, GDP and population. Our results indicate that there is little or no empirical evidence that GDP growth rates lead to changes in the number of threatened and endangered species listings. Key Words: Economic growth, endangered and threatened species, vector autoregression
    Date: 2008
  20. By: Herrmann, Sabine; Winkler, Adalbert
    Abstract: Financial globalisation has been associated with divergent current account patterns in emerging market economies. While countries in emerging Asia have been running sizeable current account surpluses, countries in emerging Europe have been facing large current account deficits. In this paper we test for the relevance of financial market characteristics in explaining divergent current account patterns in emerging Europe and emerging Asia based on the assumption that both regions constitute two different convergence clubs with the euro area and the US representing the core, respectively. In line with the theoretical literature, we find that better developed and more integrated financial markets increase emerging markets´ ability to borrow abroad. The degree of financial integration within the convergence clubs as well as the extent of reserve accumulation are found to be the most significant factors to explain divergent current account patterns in emerging Europe and emerging Asia. We conclude that the overall character of integration matters for the pattern of current account developments in catching-up economies.
    Keywords: real convergence, economic integration, saving and investment, current account developments, financial markets, emerging market economies
    JEL: F15 F21 O16 O52 O53
    Date: 2008
  21. By: Mark David Witte (Department of Economics and Finance, College of Charleston);
    Abstract: If a country’s imports are invoiced in a foreign currency then the import prices paid by consumers, and the importing country’s inflation rate, are vulnerable to exchange rate movements. Using a unique multiple market model I exam a representative firm’s currency denomination decision when selling to different countries. The simulation studies the impact of EU expansion on the currency denomination of trade. Results suggest that when preferences are similar across countries EU expansion decreases the likelihood of price discrimination and could decrease the use of the euro as an invoicing currency in the original EU’s imports.
    Keywords: currency invoicing, exchange rate, inflation, EU expansion, price discrimination
    JEL: F14 F31
  22. By: Broadberry, Stephen (Department of Economics, University of Warwick,); Burhop, Carsten (Max Planck Institute for Research on Collective Goods)
    Abstract: This paper offers a critical appraisal of the claim of Ritschl (2008) to have found a “possible resolution” to what he calls the “Anglo-German industrial productivity puzzle”. To understand the origins of this term, it is necessary to describe some recent developments in comparisons of industrial labour productivity between Britain and Germany. The Anglo-German industrial productivity puzzle really arose as the result of a new industrial production index produced by Ritschl (2004), which differed very substantially from the widely used index of Hoffmann (1965). Broadberry and Burhop (2007) pointed out that if the Ritschl (2004) index is combined with an index of German employment from Hoffmann (1965) and time series of UK output and employment from Feinstein (1972), it implies an implausibly high German labour productivity lead over Britain in 1907, when projected back from a widely accepted Germany/UK labour productivity benchmark for 1935/36.
    Date: 2008
  23. By: Irina Peaucelle
    Abstract: Despite the multiplicity of research on the surge of the financial industry the world over, little is done to understand the national context shaping the objectives and designs of this economic sector. The overall image that emerges from the literature is that globalisation and liberalisation of economies make the expansion of this sector indispensable for further development. This paper stresses the heterogeneity of the socio-psychological origins of the need for saving and contribution management, as well as the heterogeneity of the sources of savings and loan funding. In particular this paper discusses the following national characteristics: 1) the social belief in trust that smoothes the progress of insurance and pension fund business in the USA, 2) the traditional preference for saving and lending in France that explains the advance of banks and credit institutions for analysis of financial risks, and 3) the natural resources ground rent of Russian State provides the formation of sovereign-wealth funds, which require an up to date knowledge based investment management. This paper serves as a road sign indicating that the path of uniform financial industry formation is a waste of time and may bring about social and economic troubles.
    Date: 2008
  24. By: Caglayan, Mustafa (University of Sheffield); Muñoz Torres, Rebeca I. (Department of Economics, University of Warwick)
    Abstract: This paper, considering revenue and cost exposure channels, investigates the effects of exchange rate behaviour on fixed capital investment in Mexican manufacturing sector over 1994-2002. We find that i) currency depreciation has a positive (negative) effect on fixed investment through the export (import) channel; ii) exchange rate volatility impacts mostly export oriented sectors ; iii) the sensitivity of investment to exchange rate movements is stronger in non-durable goods sectors and industries with low mark-up ratios.
    Keywords: Exchange rate volatility ; investment ; external exposure ; market structure
    JEL: E22
    Date: 2008
  25. By: Fabio Maccheroni; Massimo Marinacci; Aldo Rustichini
    Abstract: We introduce a theoretical framework in which to study interdependent preferences, where the outcome of others affects the preferences of the decision maker. The dependence may take place in two conceptually different ways, depending on how the decision maker evaluates what the others have. In the first he values his outcome and that of others on the basis of his own utility. In the second, he ranks outcomes according to a social value function. These two different views of the interdependence have separate axiomatic foundations. We then characterize preferences according to the relative importance assigned to social gains and losses, or in other words to pride and envy. Finally, we study a two period economy in which agents have our social preferences. We show how envy leads to conformism in consumption behavior and pride to diversity.
    Keywords: Social preferences, social economics.
    JEL: D81 E21
    Date: 2008
  26. By: Koskela, Erkki (University of Helsinki); König, Jan (Free University of Berlin)
    Abstract: We analyze the following questions associated with outsourcing and profit sharing under imperfect labour markets. How does strategic outsourcing influence wage formation, profit sharing and employee effort when firms commit to optimal profit sharing before wage formation or decide for profit sharing after wage formation? What is the relationship between outsourcing, profit sharing, and equilibrium unemployment when profit sharing is also a part of a compensation scheme in all industries? We find that if firms will decide on profit sharing before the wage formation, higher outsourcing decreases wage whereas profit sharing has an ambiguous effect. Under flexible profit sharing wage is smaller than in the case of committed profit sharing. For equilibrium unemployment, we find that if there is also profit sharing in other industries, the effects of outsourcing and profit sharing on the unemployment rate is ambiguous both in the committed and flexible case.
    Keywords: outsourcing, profit sharing, labour market imperfection, employee effort, equilibrium unemployment
    JEL: E23 E24 J23 J33 J82
    Date: 2008–03
  27. By: Donatella Gatti
    Abstract: The paper investigates the impact of ownership concentration on GDP growth, for a sample of 18 OECD countries over the period 1980 to 2004. The econometric analysis shows that more concentrated ownership can speed up growth, for countries approaching the technological frontier, provided that labour market regulation is sufficiently tight. In the absence of employment regulation, the logic of financial markets discipline applies and dispersed ownership appears as more favorable for growth. Based on econometric results, impact coefficients are calculated allowing to evaluate the growth points gained/lost following a given change in ownership concentration. This exercise reveals that a reform in the domain of ownership structure can yield sizeable effects in terms of growth. Importantly, these effects are unequally distributed across countries: Anglo-Saxon countries would take more advantage of deregulation (i.e. increased dispersion of ownership in a context of deregulated labour markets) while continental European countries would benefit more from increased concentration of ownership in a context of reinforced labour regulation.
    Date: 2008
  28. By: Gatti, Donatella (University of Paris 13)
    Abstract: The paper investigates the impact of ownership concentration on GDP growth, for a sample of 18 OECD countries over the period 1980 to 2004. The econometric analysis shows that more concentrated ownership can speed up growth, for countries approaching the technological frontier, provided that labour market regulation is sufficiently tight. In the absence of employment regulation, the logic of financial markets discipline applies and dispersed ownership appears as more favorable for growth. Based on econometric results, impact coefficients are calculated allowing to evaluate the growth points gained/lost following a given change in ownership concentration. This exercise reveals that a reform in the domain of ownership structure can yield sizeable effects in terms of growth. Importantly, these effects are unequally distributed across countries: Anglo-Saxon countries would take more advantage of deregulation (i.e. increased dispersion of ownership in a context of deregulated labour markets) while continental European countries would benefit more from increased concentration of ownership in a context of reinforced labour regulation.
    Keywords: ownership concentration, labour market regulation, growth, developed countries
    JEL: O43 O57 G32 K31
    Date: 2008–03
    Abstract: Over the last decades, venture capital investment management has considerably become interested in high-tech investing. Despite this higher interest, no clear analysis exists of who these high-tech VCs are, and how they differ from traditional VCs. Studying selection behaviour of VCs using a conjoint methodology, we identified 28 high-tech investors in a unique sample of 68 European early stage investors. These VCs emphasize high-tech related criteria during the selection process. A further analysis of this group of high-tech investors compared to traditional investors showed that high-tech VCs are to a larger extent publicly funded than traditional VCs. Besides, they tend to be more prominent in biotech investing. We found no indication that specific or general human capital with respect to high-tech investing affects selection behaviour. This research has important implications for public policy, aiming at resolving the market failure for high-tech investments, high-tech entrepreneurs looking for VC funding, and VC funds.
    Date: 2008–02
  30. By: Eichberger, Jürgen (Sonderforschungsbereich 504); Spanjers, Willy (Department of Economics, Kingston University)
    Abstract: We study the impact of ambiguity on two alternative institutions of financial intermediation in an economy where consumers face uncertain liquidity needs. The ambiguity the consumers experience is modeled by the degree of confidence in their additive beliefs. We analyze the optimal liquidity allocation and two institutional settings for implementing this allocation: a secondary asset market and a bank deposit contract. For full confidence we obtain the well-known result that consumers prefer the bank deposit contract over the asset market, since the former can provide the optimal cross subsidy for consumers with high liquidity needs. With increasing ambiguity this preference will be reversed: the asset market is preferred, since it avoids inecient liquidation if the bank reserve holdings turn out to be suboptimal.
    Date: 2007–06–22
  31. By: Nicolas Trotignon (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Kristina Vuskovic (University of Leeds - School of Computing)
    Abstract: We give a structural description of the class C of graphs that do not contain a cycle with a unique chord as an induced subgraph. Our main theorem states that any connected graph in C is a either in some simple basic class or has a decomposition. Basic classes are cliques, bipartite graphs with one side containing only nodes of degree two and induced subgraph of the famous Heawood or Petersen graph. Decompositions are node cutsets consisting of one or two nodes and edge cutsets called 1-joins. Our decomposition theorem actually gives a complete structure theorem for C, i.e. every graph in C can be built from basic graphs that can be explicitly constructed, and gluing them together by prescribed composition operations ; and all graphs built this way are in C. This has several consequences : an O(nm)-time algorithm to decide whether a graph is in C, an O(n+m)-time algorithm that finds a maximum clique of any graph in C and an O(nm)-time coloring algorithm for graphs in C. We prove that every graph in C is either 3-colorable or has a coloring with ω colors where ω is the size of a largest clique. The problem of finding a maximum stable set for a graph in C is known to be NP-hard.
    Keywords: Cycle with a unique chord, decomposition, structure, detection, recognition, Heawood graph, Petersen graph, coloring.
    Date: 2008–03
  32. By: Quamrul Ashraf; Ashley Lester; David Weil
    Abstract: We assess quantitatively the effect of exogenous health improvements on output, through demographic channels and changes in worker productivity. We consider both changes in general health, proxied by changes in life expectancy, and changes in the prevalence of two particular diseases: malaria and tuberculosis. In general, we find that the effects of health improvements on income are substantially lower than those that are often quoted by policy-makers, and may not emerge at all for a third of a century or more after the initial improvement in health.
    Date: 2008

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