nep-mac New Economics Papers
on Macroeconomics
Issue of 2008‒05‒24
29 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Learning about the Interdependence between the Macroeconomy and the Stock Market By Fabio Milani
  2. Central bank reaction to public deficit and sound public finance: the case of the European Monetary Union By Canale, R.R.
  3. A Sectoral Model of the Australian Economy By Jeremy Lawson; Daniel Rees
  4. Improving Forecasts of Inflation using the Term Structure of Interest Rates By Alonso Gomez; John M Maheu; Alex Maynard
  5. Heterogeneous Expectations, Adaptive Learning,and Forward-Looking Monetary Policy By Martin Fukac
  6. Changes in the transmission mechanism of monetary policy in New Zealand By Özer Karagedikli; Rishab Sethi; Christie Smith; Aaron Drew
  7. Is volatility good for growth? Evidence from the G7. By Andreou Elena; Pelloni Alessandra; Sensier Marianne
  8. Risk and uncertainty in central bank signals By Sheila Dow; Matthias Klaes; Alberto Montagnoli
  9. Controllability under rational expectations. By Hughes Hallett Andrew; Di Bartolomeo Giovanni; Acocella Nicola
  10. Currency Crises and Monetary Policy in an Economy with Credit Constraints: The No Interest Parity Case By U. Michael Bergman; Shakill Hassan
  11. Nowcasting, Business Cycle Dating and the Interpretation of New Information when Real Time Data are Available By Kevin Lee; Nilss Olekalns; Kalvinder Shields
  12. Analysing shock transmission in a data-rich environment: A large BVAR for New Zealand By Chris Bloor; Troy Matheson
  13. Representations of knowledge in monetary policy processes: a discursive perspective By Dana Gabor
  14. ‘Automatic’ cycle-stabilising capital requirements: what can be achieved? By Tim Ng
  15. Dollarization, Economic Growth, and Employment By Raimundo Soto
  16. Accuracy in forecasting macroeconomic variables in Iceland By Ásgeir Daníelsson
  17. "Creating Maryland’s Paper Money Economy, 1720-1739: The Role of Power, Print, and Markets" By Farley Grubb
  18. How do Housing Wealth, Financial Wealth and Consumption Interact? Evidence from New Zealand By Emmanuel De Veirman; Ashley Dunstan
  19. "A Regime Switching Analysis of Exchange Rate Pass-through" By Kólver Hernández; Asli Leblebicioglu
  20. The tax system and housing demand in New Zealand By David Hargreaves
  21. The Proportionality Hypothesis in Capital Theory: An Assessment of the Literature By Bitros, George
  22. A model of growth and finance: FIML estimates for India By Rao, B. Bhaskara; Tamazian, Artur
  23. Optimal growth and competitive equilibrium business cycles under decreasing returns in two-country models By Alain Venditti; Kazuo Nishimura; Makoto Yano
  24. Deviant Generations, Ricardian Equivalence, and Growth Cycles By Barnett, Richard C; Bhattacharya, Joydeep; Bunzel, Helle
  25. The Nature of Boehm-Bawerk's Capital Market By Jean Magnan De Bornier
  26. State of the Bangladesh Economy and Budget Responses 2008 By Centre for Policy Dialogue (CPD)
  27. The sensitivity of nonparametric misspecification tests to disturbance autocorrelation By Andrea Vaona
  28. Why do growth rates differ? Evidence from cross-country data on private sector production By Kilponen , Juha; Viren, Matti
  29. Credit constraints and the cyclicality of R&D investment: Evidence from France By Philippe Aghion; Philippe Askenazy; Nicolas Berman; Gilbert Cette; Laurent Eymard

  1. By: Fabio Milani (Department of Economics, University of California-Irvine)
    Abstract: How strong is the interdependence between the macroeconomy and the stock market? This paper estimates a New Keynesian general equilibrium model, which includes a wealth effect from asset price fluctuations to consumption, to assess the quantitative importance of interactions among the stock market, macroeconomic variables, and monetary policy. The paper relaxes the assumption of rational expectations and assumes that economic agents learn over time and form near-rational expectations from their perceived model of the economy. The stock market, therefore, affects the economy through two channels: through a traditional ``wealth effect" and through its impact on agents' expectations. Monetary policy decisions also affect and are potentially affected by the stock market. The empirical results show that the direct wealth effect is modest, but asset price fluctuations have had important effects on output expectations. Shocks in the stock market can account for a large portion of output fluctuations. The effect on expectations, however, has declined over time.
    Keywords: Stock market; Wealth channel; Monetary policy; Constant-gain learning; Bayesian estimation; Expectations
    JEL: E32 E44 E52 E58
    Date: 2008–05
  2. By: Canale, R.R.
    Abstract: The paper aims to shed light on the relation between monetary and fiscal policy in EMU, focusing on the interest rates and deficit dynamics. We present a theoretical model in which monetary and fiscal policy independently interact in a closed economic system through their own instrument, namely, the rate of interest for the central bank and deficit spending for governments. We demonstrate that the possibility of the two policy authorities producing not conflicting results depends on the idea each has of the workings of the economic system and on the influence each variable has on inflation and equilibrium income. Furthermore the inflationary opinion of the ECB about deficit spending leads to the result that public finance becomes surely unsound, unless governments stop using expansionary instruments. We provocatively conclude that the limits set by the Maastricht Treaty are a necessary solution to avoid unsound public finance.
    Keywords: Monetary policy; Fiscal Policy; Policy coordination; EMU
    JEL: E62 E58 E52 E63 E61
    Date: 2008–05–10
  3. By: Jeremy Lawson (Reserve Bank of Australia); Daniel Rees (Reserve Bank of Australia)
    Abstract: We use a structural vector autoregression (SVAR) to examine the effect of unanticipated changes in monetary policy on the expenditure and production components of GDP over the period from 1983 to 2007. We find that dwelling investment and machinery & equipment investment are the most interest-sensitive expenditure components of activity, and that construction and retail trade are the most interest-sensitive production components of activity. We subject our model to a range of sensitivity checks and find that our results are robust to omitted variables, alternative identification schemes and the time period over which our model is estimated.
    Keywords: Australian economy; sectoral macroeconomic model; monetary policy
    JEL: E32 E52
    Date: 2008–04
  4. By: Alonso Gomez; John M Maheu; Alex Maynard
    Abstract: Many pricing models imply that nominal interest rates contain information on inflation expectations. This has lead to a large empirical literature that investigates the use of interest rates as predictors of future inflation. Most of these focus on the Fisher hypothesis in which the interest rate maturity matches the inflation horizon. In general forecast improvements have been modest and often fail to improve on autoregressive benchmarks. Rather than use only monthly interest rates that match the maturity of inflation, this paper advocates using the whole term structure of daily interest rates and their lagged values to forecast monthly inflation. Principle component methods are employed to combine information from interest rates across both the term structure and time series dimensions. We find robust forecasting improvements in general as compared to both an augmented Fisher equation and autoregressive benchmarks.
    Keywords: inflation, inflation forecast, Fisher equation, term structure, principal components
    JEL: E31 E37 C53 C32
    Date: 2008–05–16
  5. By: Martin Fukac (Reserve Bank of New Zealand)
    Abstract: In this paper, I examine the role of monetary policy in a heterogeneous expectations environment. I use a New Keynesian business cycle model as the experiment laboratory. I assume that the central bank and private economic agents (households and producing rms) have imperfect and heterogeneous information about the economy, and as a consequence, they disagree in their views on its future development. I facilitate the heterogeneous environment by assuming that all agents learn adaptively. Measured by the central bank's expected loss, the two major findings are: (i) policy that is efcient under homogeneous expectations is not effccient under heterogeneous expectations; (ii) in the short and medium run, policy that is excessively responsive to ination increases ination and output volatility, but in the long run such policy lowers economic volatility.
    JEL: E4 E52
    Date: 2008–05
  6. By: Özer Karagedikli; Rishab Sethi; Christie Smith; Aaron Drew (Reserve Bank of New Zealand)
    Abstract: Over the last few years, monetary policy in New Zealand has focused on reducing strong demand and inationary pressures. It has been commented that this task has been frustrated by a weakening of the monetary policy transmission mechanism in New Zealand. In this paper we draw upon a range of empirical models to assess whether monetary policy has lost its potency over the recent cycle, and to identify changes in the mechanism more broadly. Our main conclusion is that the overall impact of monetary policy has not obviously weakened, and in some respects has strengthened, over the past decade.
    JEL: C32 E32 E58
    Date: 2008–02
  7. By: Andreou Elena; Pelloni Alessandra; Sensier Marianne
    Abstract: We provide empirical support for a DSGE model with nominal wage stickiness where growth is driven by learning-by-doing and money shocks and their variance are allowed to impact on long-run output growth. In our theoretical model the variance of monetary shocks has a negative effect on growth, while output volatility is good for growth as a positive relationship exists. Utilising a bivariate GARCH-M model we test the empirical conditional mean and variance relationships of nominal money and production growth rates in the G7 countries. We corroborate the theoretical model predictions with evidence from Bonferroni multiple tests across the G7.
    JEL: C32 E32 O42
    Date: 2008–04
  8. By: Sheila Dow (SCEME, University of Stirling); Matthias Klaes (Keele University); Alberto Montagnoli (Department of Economics, University of Stirling)
    Abstract: This paper considers the signalling aspect of monetary policy. We introduce a heuristic framework for the study of signal uncertainty, and use this to analyses the signal uncertainty implicit in the communications of the Bank of England’s Monetary Policy Committee (MPC). Our findings suggest that frequencies of key terms expressing signal uncertainty in MPC minutes may either reflect the degree of confidence implicit in MPC deliberations, or offer evidence for the presence of an irreducible kind of signal uncertainty that shows up as white noise, casting doubt on the soundness of the various qualitative uncertainty indices found in the literature.
    Keywords: MPC, signal uncertainty, central bank uncertainty, word frequencies, uncertainty index, seasonality
    JEL: E52 E58 E12 D81
    Date: 2008–05
  9. By: Hughes Hallett Andrew; Di Bartolomeo Giovanni; Acocella Nicola
    Abstract: We show that rational expectations do not affect the controllability of an economic system, either in its static or in its dynamic version, even though their introduction in many other circumstances may make it impossible for the policymaker to affect certain variables due to policy invariance, policy neutrality or time inconsistency problems. The controllability conditions stated by Tinbergen and subsequent authors continue to hold under rational expectations; and when they are satisfied rational expectations may even enhance the power to control an economy over time. This is important because it shows that an underlying equilibrium can exist even if our conventional optimisation techniques lead to policy invariance, neutrality or time inconsistency. We provide examples of our results in the context of recent monetary policy debates.
    JEL: C61 C62 E52 E61 E62
    Date: 2008–05
  10. By: U. Michael Bergman (Department of Economics, University of Copenhagen); Shakill Hassan (University of South Africa)
    Abstract: This paper revisits the currency crises model of Aghion, Bacchetta and Banerjee (2000, 2001, 2004), who show that if there exist nominal price rigidities and private sector credit constraints, and the credit multiplier depends on real interest rates, then the optimal monetary policy response to the threat of a currency crisis is restrictive. We demonstrate that this result is primarily due to the uncovered interest parity assumption. Assuming that the exchange rate is a martingale restores the case for expansionary reaction - even with foreign-currency debt in firms' balance sheets. The effect of lower interest rates on output can help restore the value of the currency due to increased money demand.
    Keywords: currency crises; foreign–currency debt; balance sheets; interest parity; monetary policy
    JEL: E51 F30 O11
    Date: 2008–05
  11. By: Kevin Lee; Nilss Olekalns; Kalvinder Shields
    Abstract: A canonical model is described which reflects the real time informational context of decision-making. Comparisons are drawn with ‘conventional’ models that incorrectly omit market-informed insights on future macroeconomic conditions and inappropriately incorporate information that was not available at the time. It is argued that conventional models are misspecified and misinterpret news. However, neither diagnostic tests applied to the conventional models nor typical impulse response analysis will be able to expose these deficiencies clearly. This is demonstrated through an analysis of quarterly US data 1968q4-2006q1. However, estimated real time models considerably improve out-of- sample forecasting performance, provide more accurate ‘nowcasts’ of the current state of the macroeconomy and provide more timely indicators of the business cycle. The point is illustrated through an analysis of the US recessions of 1990q3—1991q2 and 2001q1— 2001q4.
    Keywords: Structural Modelling; Real Time Data; Nowcasting; Business Cycles
    JEL: E52 E58
    Date: 2008–05
  12. By: Chris Bloor; Troy Matheson (Reserve Bank of New Zealand)
    Abstract: We analyse a large Bayesian Vector Autoregression (BVAR) containing almost one hundred New Zealand macroeconomic time series. Methods for allowing multiple blocks of equations with block-specific Bayesian priors are described, and forecasting results show that our model compares favourably to a range of other time series models. Examining the impulse responses to a monetary policy shock and to two less conventional shocks – net migration and the climate – we highlight the usefulness of the large BVAR in analysing shock transmission.
    JEL: C11 C13 C33 C53
    Date: 2008–05
  13. By: Dana Gabor (SCEME, University of Stirling)
    Abstract: Exploring knowledge in monetary policy process stands to benefit by departing from conceptualizing knowledge as an objective depiction of reality, a neutral language of science underpinning technocratic policy-making. This paper proposes a postpositivist perspective, approaching knowledge production as a process of struggle over truth claims which structures policy action by establishing boundaries for policy choices. To contextualize the mechanisms of knowledge generation, it explores the adoption by the National Bank of Romania of a new policy framework, Inflation Targeting, in August 2005. This allows a mapping of the knowledge agenda, the knowing subjects allowed to participate in policy talk and avenues for contesting truth claims.
    Keywords: discourse analysis, MPC, monetary policy
    JEL: B41 Z1
    Date: 2007–11
  14. By: Tim Ng (Reserve Bank of New Zealand)
    Abstract: This paper discusses the potential for lenders’ capital requirements to be used as ‘automatic stabilisers’ of the business cycle in New Zealand. The procyclicality of lending, and its importance for cyclical developments, motivates the consideration of regulation of lending for cycle-stabilisation purposes. This application of lenders’ capital requirements is distinct from, but complements, the prudential reasons for capital adequacy requirements. I set out a putative capital requirement on housing lending intended to have cycle-stabilising properties. I explore the likely degree of cycle stabilisation that could be expected from feasible calibrations of such a requirement. I conclude that the putative cycle-stabilising capital requirement might have some impact on the cycle at the margin, and that this impact is most likely on the downside of cycles. However, the highlydeveloped and open nature of New Zealand’s housing lending markets is likely to limit the degree of cycle stabilisation that can be achieved with this approach.
    JEL: E58 E59
    Date: 2008–02
  15. By: Raimundo Soto (Instituto de Economía. Pontificia Universidad Católica de Chile.)
    Abstract: Dollarization brought economic stability to Ecuador and higher economic growth. The labor market has not reacted accordingly and unemployment rates remain stubbornly around 10%. I use a simple econometric model of the labor market to disentangle the impact on employment of GDP growth, real wages, the cost of capital, and the real exchange rate. I found two opposing effects at work. On one hand, vigorous economic growth has led to a substantial expansion of labor demand (scale effect). On the other hand, changes in relative factor prices brought about by the dollarization process have played against employment creation (substitution effects): real minimum wages have increased while at the same time the real price of imported intermediate goods and the cost of capital have declined steadily. Together, these price changes indicate that labor is becoming a more expensive factor of production and, thus, signal for substituting labor away.
    Keywords: Dollarization, employment, economic growth
    JEL: E24 E27 E65 C5
    Date: 2008
  16. By: Ásgeir Daníelsson
    Abstract: This paper discusses accuracy in forecasting of macroeconomic time series in Iceland. Until recently only the National Economic Institute (NEI) did macroeconomic forecasting in Iceland. Extensive analysis of forecasting can therefore only be done for the forecasts made by this institution during 1974-2002. The paper analysis macroeconomic forecasts published by the Central Bank of Iceland (CBI). It also analysis the accuracy of the first realeases of data from Statistics Iceland as “forecasts” of final (or the most recent) data during recent years. Forecasts made by international institutions like OECD and IMF are not included. The paper finds that errors in forecasting of GDP and private consumption have declined and that the performance of the forecasting for these variables has improved on some measures. But the volatility in the series has also decreased so when the forecast errors are compared to measures of the shocks that hit the economy the forecasting of changes in GDP do not seem to have improved. For some of the main components of GDP like export, imports and investments, the forecast errors have not decreased.
    Date: 2008–05
  17. By: Farley Grubb (Department of Economics,University of Delaware)
    Abstract: The British North American colonies were the first western economies to rely on legislature-issued fiat paper money as their principal internal medium of exchange. This system arose piecemeal across the colonies making the paper money creation story for each colony unique. It was true monetary experimentation on a grand scale. The creation story for Maryland, perhaps the most unique among the colonies, is analyzed to evaluate how market forces, media influences, and the power of various constituents combined to shape its particular paper money system.
    Keywords: Colonial Maryland; Commodity Money; Dual Currency; Economic History; Export Controls; Monetary Policy; Paper Money; Tax Policy; Tobacco Trade.
    JEL: E42 E51 H20 N11 N21 N41
  18. By: Emmanuel De Veirman; Ashley Dunstan (Reserve Bank of New Zealand)
    Abstract: This paper characterises the relationship between wealth and consumption in New Zealand. We find that there exists a long-run cointegration relation between household consumption, income, housing wealth and net financial wealth. Permanent shocks account for most of the variation in wealth. This implies that our cointegration estimates accurately capture the effect of most wealth changes, in contrast with the findings of Lettau and Ludvigson (2004) for the United States. Our estimates suggest that consumption has adjusted sluggishly to restore longrun equilibrium, but also that consumption booms have anticipated equilibrium-restoring increases in housing wealth. Furthermore, we estimate two alternative econometric models which are more robust to instability in the long-run relationship. All three of our models suggest that permanent changes in wealth have economically important effects on consumption. The dollar-for dollar-effect of financial wealth exceeds that of housing wealth.
    JEL: C22 C32 E21
    Date: 2008–02
  19. By: Kólver Hernández (Department of Economics,University of Delaware and CIDE); Asli Leblebicioglu (North Carolina State University)
    Abstract: We investigate changes in the pricing policies of exporters, including changes in the exchange rate pass-through elasticity, and changes in the elasticities of variables that affect the firm’s markup. We set up a theoretical model of optimal export pricing in order to illustrate how changes in the pass-through elasticity can emerge together with changes in other elasticities in the pricing policy. Based on our theoretical formulation, we empirically study changes in all the elasticities that define the pricing policy as opposed to focusing only on the exchange rate pass-through. In the empirical model, we assume that in every period exporters get to set prices by following either a “high pass-through” or a “low passthrough” pricing policy. The transition from one policy to the other is governed by a Markov process whose transition probabilities depend on economic fundamentals. We estimate the model using data we have collected on 35 lines of imported cars to the US, from seven exporting countries, for the 1980-2004 period. We find that the “low pass-through” regime is characterized by: a low exchange rate pass-through; a low response to misalignments in the firm’s relative price; a low volatility of technology and preference shocks; and a higher duration than the high pass-through regime. Monetary stability and the market structure are significant factors behind the switching of pricing policies. Ceteris paribus, monetary stability measured as the cross-country inflation differential explains abut 22% of the year-to-year variation in the exchange rate pass-through coefficient; when measured by the volatility of the exchange rate, it explains 37%. Market concentration measured by the Herfindahl index explains about 40%.
    Keywords: Exchange Rate Pass-through; Markov Regime Switching; Export Pricing
    JEL: E31 F31 F41
  20. By: David Hargreaves (Reserve Bank of New Zealand)
    Abstract: This paper characterises the relationship between wealth and consumption in New Zealand. We find that there exists a long-run cointegration relation between household consumption, income, housing wealth and net financial wealth. Permanent shocks account for most of the variation in wealth. This implies that our cointegration estimates accurately capture the effect of most wealth changes, in contrast with the findings of Lettau and Ludvigson (2004) for the United States. Our estimates suggest that consumption has adjusted sluggishly to restore longrun equilibrium, but also that consumption booms have anticipated equilibrium-restoring increases in housing wealth. Furthermore, we estimate two alternative econometric models which are more robust to instability in the long-run relationship. All three of our models suggest that permanent changes in wealth have economically important effects on consumption. The dollar-for dollar-effect of financial wealth exceeds that of housing wealth.
    JEL: C22 C32 E21
    Date: 2008–02
  21. By: Bitros, George
    Abstract: It is found that the hypothesis of a constant replacement investment capital stock ratio has several fundamental shortcomings. It conflicts with most of the available theoretical and empirical evidence. It is alien to researchers in other fields of economics and related areas; and, perhaps most importantly, it has restrained progress in economic theory and econometric applications based on more realistic conceptualizations of the time structure of capital. On these grounds it is concluded that its abandonment is long overdue.
    Keywords: Capital longevity; replacement; depreciation; maintenance; utilization; obso-lescence
    JEL: E2 E22
    Date: 2008
  22. By: Rao, B. Bhaskara; Tamazian, Artur
    Abstract: Many empirical works addressed the nature of the relationship between economic growth and financial developments. Although these studies concede that they are interdependent, they have used single equations methods for estimation. In particular in the country specific studies the Granger causality tests are applied to equations estimated with the single equations methods to determine whether financial developments cause growth or vice versa. This paper uses the full information maximum likelihood method to estimate a two equations model of growth and finance for India. We also argue that in virtually all these empirical works the specification of the output equation is unsatisfactory. Our results with the Indian data show that there is no evidence to support the view that finance follows where enterprise goes. Furthermore, financial developments have a small but significant permanent growth effect in India.
    Keywords: Steady State Growth Rate; Financial Development; Solow Model; Simultaneous Equation Model and FIML Estimates
    JEL: C32 O11 O16 E44
    Date: 2008–05–14
  23. By: Alain Venditti (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579); Kazuo Nishimura (Kyoto University - Kyoto University); Makoto Yano (Kyoto University - Kyoto University)
    Abstract: This paper investigates the interlinkage in the business cycles of large-country economies in a free-trade equilibrium. We consider a two-country, two-good, two-factor general equilibrium model with<br />Cobb-Douglas technologies and linear preferences. We also assume decreasing returns in both sectors. We first identify the determinants of each country's accumulation pattern in autarky equilibrium, and second we show how a country's business cycle may spread throughout the world once trade opens. We prove indeed that under free-trade, globalization and market integration may generate a contagion of the capital exporting country's business cycles and thus have destabilizing effects on the capital importing country.
    Keywords: Two-country general equilibrium model, busines cycles, capital intensities, decreasing returns
    Date: 2008–05–19
  24. By: Barnett, Richard C; Bhattacharya, Joydeep; Bunzel, Helle
    Abstract: Only one of two equilibrium possibilities arise in standard overlapping generation models with dynastic preferences: either the altruistic bequest motive is operative for every generation (in which case, Ricardian equivalence obtains) or it is not, for any generation. This paper introduces cross-generational consumption externalities into a AK model with overlapping generations. It is shown that the model economy does not support a steady-state equilibrium in which inheritances are received and bequests left at every date; hence Ricardian equivalence fails. There does exist, however, out-of-steady state equilibria in which the bequest motive is occasionally operative; i.e., there are `deviant' generations that do not leave a bequest even though they received an inheritance, and vice versa. This is in line with commonly-held beliefs in the United States that the World War II generation is `generous' while the baby boomer generation is `stingy' and out to `spend their kids' inheritance'. The cross-generational consumption externalities are also capable of generating endogenous growth cycles that did not exist otherwise.
    Keywords: Ricardian equivalence, bequests, growth cycles, overlapping generations, bequest motive
    JEL: E0
    Date: 2008–05–19
  25. By: Jean Magnan De Bornier (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579)
    Abstract: The capital market in Böhm-Bawerk's Positive Theory of Capital appears at several places. The last chapter of the book provides the complete exposition of Böhm's view of this market where present goods are exchanged for future goods. Studying this exposition leads to understand that many variables, prices as well as quantities, are determined together in this ``enormous market''. The capital market is a macroeconomic system, the nature of which we try to assess.
    Keywords: Böhm-Bawerk, capital, market, macroeconomics
    Date: 2008–05–13
  26. By: Centre for Policy Dialogue (CPD)
    Keywords: Budget, Bangladesh
    Date: 2007–09
  27. By: Andrea Vaona (Istituto Ricerche Economiche, Faculty of Economic Sciences, University of Lugano, Switzerland.)
    Abstract: We show that some nonparametric specification tests can be robust to disturbance autocorrelation. This robustness can be affected by the specification of the true model and by the sample size. Once applied to the prediction of changes in the Euro Repo rate by means of an index based on ECB wording, we find that the least sensitive nonparametric tests can have a comparable performance to a RESET test with robust standard errors.
    Keywords: nonparametric misspecification tests, serial correlation, central bank communication.
    JEL: C14 C15 E5
    Date: 2008–04–11
  28. By: Kilponen , Juha (Bank of Finland Research); Viren, Matti (Bank of Finland Research)
    Abstract: We estimate a standard production function with a new cross-country data set on business sector production, wages and R&D investment for a selection of 14 OECD countries including the United States. The data sample covers the years 1960–2004. The data suggest that growth differences can largely be explained by capital deepening and an ability to produce new technology in the form of new patents. The importance of patents is magnified by the openness of the economy. We find some evidence of increasing elasticity of substitution over time, all though the results are sensitive to assumptions on the nature of technological progress.
    Keywords: growth; R&D; production function; patents
    JEL: E10 O40 O43
    Date: 2008–05–19
  29. By: Philippe Aghion; Philippe Askenazy; Nicolas Berman; Gilbert Cette; Laurent Eymard
    Abstract: We use a French firm-level data set containing 13,000 firms over the period 1993-2004 to analyze the relationship between credit constraints and firms' R&D behavior over the business cycle. Our main results can be summarized as follows: (i) the share of R&D investment over total investment is countercyclical without credit constraints, but it becomes less countercyclical as firms face tighter credit constraints; (ii) this result is magnified for firms in sectors that depend more heavily upon external finance, or that are characterized by a low degree of asset tangibility; (iii) in more credit constrained firms, R&D investment share plummets during recessions but does not increase proportionally during upturns; (iv) average R&D investment and productivity growth are more negatively correlated with sales volatility in more credit constrained firms.
    Date: 2008

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