nep-mac New Economics Papers
on Macroeconomics
Issue of 2009‒05‒16
29 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. The Role of Labor Markets for Euro Area Monetary Policy By Kai Christoffel; Keith Kuester; Tobias Linzert
  2. The Volatility of the Tradeable and Nontradeable Sectors: Theory and Evidence By Laura Povoledo
  3. Implementing inflation targeting in Brazil: an institutional analysis By Strachman, Eduardo
  4. Another look at global disinflation By Toshitaka Sekine
  5. Letting Different Views about Business Cycles Compete By Paul Beaudry; Bernd Lucke
  6. Macroeconomic Volatilities and the Labor Market: First Results from the Euro Experiment By Christian Merkl; Tom Schmitz
  7. The Money Supply in Macroeconomics By Peter Howells
  8. MEDEA: A DSGE Model for the Spanish Economy By Pablo Burriel; Jesus Fernandez-Villaverde; Juan F. Rubio-Ramirez
  9. Bank Lending Channel during the Quantitative Monetary Easing Policy Period By Hitoshi Inoue
  10. Transmission Channels Linking Real Estate Shocks with Macroeconomic Performance: Evidence from Malaysia By Hon-Chung Hui
  11. A Dynamic Correlation Approach of the Swiss Tourism Income By Leon, Costas; Eeckels, Bruno
  12. Overborrowing and Systemic Externalities in the Business Cycle By Bianchi, Javier
  13. Managing Success in Viet Nam: Macroeconomic Consequences of Large Capital Inflows with Limited Policy Tools By Menon, Jayant
  14. Financial Frictions on Capital Allocation: A Transmission Mechanism of TFP Fluctuations By Chen, Kaiji; Song, Zheng
  15. Measuring the Persistence on Consumption in Portugal By Belbute, José; Caleiro, António
  16. House prices and financial liberalisation in Australia By Williams, David M
  17. Permanent and Transitory Dynamics in House Prices and Consumption: Cross-Country Evidence By Fabio Bagliano; Claudio Morana
  18. Impact of Government Payments, Depreciation and Inflation on Investment Behavior in American Agriculture Sector Using Sample of Kansas Farms By Ariyaratne, Chatura B.; Featherstone, Allen M.
  19. Extensive and Intensive Investment over the Business Cycle By Boyan Jovanovic; Peter L. Rousseau
  20. Are the High-growth Recovery Periods Over? By Hugo Rodríguez Mendizábal; Máximo Camacho; Gabriel Pérez Quirós
  21. Dynamic effects of government expenditure in a finance constrained economy: A Note By Chen, Yan; Zhang, Yan
  22. Unstable Banking By Andrei Shleifer; Robert W. Vishny
  23. An Incentive Theory of Matching By Alessio J. G. Brown; Christian Merkl; Dennis Snower
  24. An Incentive Theory of Matching By Brown, Alessio J. G.; Merkl, Christian; Snower, Dennis J.
  25. A Note on Productivity and Per Capita GDP Growth: the Role of the Forgotten Factors By L. Marattin; S. Salotti
  26. The Price Shock Transmission during the 2007-2008 Commodity Bull Cycle: A Structural Vector Auto-Regression Approach to the "Chicken-or-Egg" Problem By Power, Gabriel J.; Vedenov, Dmitry V.
  27. Search and Offshoring in the Presence of "Animal Spirits" By Mitra, Devashish; Ranjan, Priya
  28. A Note on Mountford's manuscript "Can a Brain Drain be good for growth in the source economy?" By P. Giannoccolo
  29. Skill-Biased Technical Change and Wage Inequality: The U.S. versus Europe By Ryosuke Okazawa

  1. By: Kai Christoffel; Keith Kuester; Tobias Linzert
    Abstract: In this paper, we explore the role of labor markets for monetary policy in the euro area in a New Keynesian model in which labor markets are characterized by search and matching frictions. We first investigate to which extent a more flexible labor market would alter the business cycle behavior and the transmission of monetary policy. We find that while a lower degree of wage rigidity makes monetary policy more effective, i.e. a monetary policy shock transmits faster onto inflation, the importance of other labor market rigidities for the transmission of shocks is rather limited. Second, having estimated the model by Bayesian techniques we analyze to which extent labor market shocks, such as disturbances in the vacancy posting process, shocks to the separation rate and variations in bargaining power are important determinants of business cycle fluctuations. Our results point primarily towards disturbances in the bargaining process as a significant contributor to inflation and output fluctuations. In sum, the paper supports current central bank practice which appears to put considerable effort into monitoring euro area wage dynamics and which appears to treat some of the other labor market information as less important for monetary policy
    Keywords: Labor Market, wage rigidity, bargaining, Bayesian estimation
    JEL: E32 E52 J64 C11
    Date: 2009–04
  2. By: Laura Povoledo (UWE, Bristol)
    Abstract: This paper investigates the business cycle fluctuations of the tradeable and nontradeable sectors of the US economy. Then, it evaluates whether a “New Open Economy” model having prices sticky in the producer’s currency can reproduce the observed fluctuations qualitatively. The answer is positive: both in the model and in the data the standard deviations of tradeable inflation, output and employment are significantly higher than the standard deviations of the corresponding nontradeable sector variables. A key role in generating this result is played by the greater responsiveness of tradeable sector variables to monetary shocks.
    Keywords: New Open Economy Macroeconomics; Tradeable and Nontradeable Sectors;Business Cycles.
    JEL: F41 E32
    Date: 2009–04
  3. By: Strachman, Eduardo
    Abstract: The paper shows the advantages and handicaps of implementing an inflation target (IT) regime, from a Post-Keynesian and, thus, an institutional stance. It is Post-Keynesian as long as it does not perceive any benefit in the mainstream split between monetary and fiscal policies. And it is institutional insofar as it assumes that there are several ways of implementing a policy, such that the chosen one is determined by historical factors, as it is illustrated by the Brazilian case. One could even support IT policies if their targets were seen just as “focusing devices” guiding economic policy, notwithstanding other targets, as, in the short run, output growth and employment and, in the long run, technology and human development. Nevertheless, an IT is not necessary, although it can be admitted, mainly if the target is hidden from the public, in order to increase the flexibility of the Central Bank.
    Keywords: Brazil; Inflation; Inflation Targeting; Monetary Policy; Economic Policy; Central Bank
    JEL: E58 E42 E31 N16 E52
    Date: 2009
  4. By: Toshitaka Sekine
    Abstract: This paper highlights relative price adjustments taking place in the global economy as important sources of the lower levels of inflation rates observed in the recent decades. Using a markup model, it shows substantial effects from declines in wage costs and import prices relative to consumer prices. Out of the 5 percentage point decline in the inflation rates in eight OECD countries from 1970-1989 to 1990-2006, global shocks to two relative prices account for more than 1.5 percentage points, while a monetary policy shock accounts for another 1 percentage point.
    Keywords: markup model, open-economy New Keynesian Phillips curve, dynamic factor model, global disinflation
    Date: 2009–05
  5. By: Paul Beaudry; Bernd Lucke
    Abstract: There are several candidate explanations for macro-fluctuations. Two of the most common discussed sources are surprise changes in disembodied technology and monetary innovations. Another popular explanation is found under the heading of a preference or more generally a demand shock. More recently two other explanations have been advocated: surprise changes in investment specific technology and news about future technology growth. The aim of this paper is to provide a quantitative assessment of the relative merits of all these explanations by adopting a framework which allows them to compete. In particular, we propose a co-integrated SVAR approach that encompasses all 5 shocks and thereby offers a coherent evaluation of the dynamics they induce as well as their contribution to macro volatility. Our main finding is that surprise changes in technology, whether it be of the disembodied or embodied nature, account for very little of fluctuations. In contrast, expected changes in technology appear to be an important force, with preference/demand shocks and monetary shocks also playing non-negligible roles.
    JEL: E32
    Date: 2009–05
  6. By: Christian Merkl; Tom Schmitz
    Abstract: This paper analyzes the effects of different labor market institutions on inflation and output volatility. The eurozone offers an unprecedented experiment for this exercise: since 1999, no national monetary policies have been implemented that could account for volatility differences across member states, but labor market characteristics have remained very diverse. We use a New Keynesian model with unemployment to predict the effects of different labor market institutions on macroeconomic volatilities. In our subsequent empirical estimations, we find that higher labor turnover costs have a statistically significant negative effect on output volatility, while replacement rates have a positive effect, both of which are in line with theory. Real wage rigidities do not seem to play much of a role. This result is in line with our employed labor market model, but stands in stark contrast to the search and matching model. While labor market institutions have a large effect on output volatility, they do not seem to have much of an effect on inflation volatility. Our estimations indicate that the latter is driven instead to a certain extent by differences in government spending volatility
    Keywords: Labor market institutions, macroeconomic volatility, monetary policy, firing costs, unemployment benefits, replacement rate
    JEL: E24 E32 J64
    Date: 2009–04
  7. By: Peter Howells (UWE, Bristol)
    Abstract: The notion that the quantity of money in an economy might be endogenously determined has a long history. Even so, it has never been part of mainstream economic thinking which has remained dominated by the view that the policymaker somehow controls the stock of money and that interest rates are market-determined. However, the need to design and operate a monetary policy that works for modern economies as they are currently constructed, has led to the emergence of the so-called ‘new consensus macroeconomics’ in which it is recognised that the policymaker sets a short-term interest rate and the quantities of money and credit are demand-determined. This paper looks at the way in which this ‘new consensus’ is (at last) forcing a recognition, in the teaching of money, that the money supply is endogenously determined. It also shows how we can take this further by adding a banking sector to a model of the real economy in which the money supply is endogenously determined. The paper ends by showing how some of the issues currently emerging in the new consensus are very closely related to earlier debates amongst post Keynesian economists.
    Keywords: Money supply; macroeconomics
    JEL: E50
    Date: 2009–04
  8. By: Pablo Burriel (Monetary and Financial Studies Department, Bank of Spain); Jesus Fernandez-Villaverde (Department of Economics, University of Pennsylvania); Juan F. Rubio-Ramirez (Department of Economics, Duke University)
    Abstract: In this paper, we provide a brief introduction to a new macroeconometric model of the Spanish economy named MEDEA (Modelo de Equilibrio Dinámico de la Economía EspañolA). MEDEA is a dynamic stochastic general equilibrium (DSGE) model that aims to describe the main features of the Spanish economy for policy analysis, counterfactual exercises, and forecasting. MEDEA is built in the tradition of New Keynesian models with real and nominal rigidities, but it also incorporates aspects such as a small open economy framework, an outside monetary authority such as the ECB, and population growth, factors that are important in accounting for aggregate fluctuations in Spain. The model is estimated with Bayesian techniques and data from the last two decades. Beyond describing the properties of the model, we perform different exercises to illustrate the potential of MEDEA, including historical decompositions, long-run and short-run simulations, and counterfactual experiments.
    Keywords: DSGE Models, Likelihood Estimation, Bayesian Methods
    JEL: C11 C13 E30
    Date: 2009–05–04
  9. By: Hitoshi Inoue (Osaka School of International Public Policy (OSIPP),Osaka University)
    Abstract: This paper investigates an existence of the bank lending channel during the quantitative monetary easing policy (QMEP) period, using panel data of Japanese banks' balance sheets. We find that growth rates of lending of smaller banks and healthier banks responded well to the QMEP. We also find that the growth rate of lending of an average bank responded to the QMEP significantly. These results imply that the bank lending channel existed during the QMEP period.
    Keywords: Monetary policy, Bank of Japan, base money, system GMM
    JEL: E52 E58 G21
    Date: 2009–04
  10. By: Hon-Chung Hui (Nottingham University Business School - Malaysia Campus)
    Abstract: This paper examines the transmission channels through which property markets propagate shocks to the real economy. Using a four-equation model which portrays the theoretical inter-linkages between real estate value and other components of the economy, our findings suggest that in the short run, negative real estate shocks affect GDP by dampening construction, bank lending activities and to a certain extent, consumption. The impact of shocks on investment is harder to decipher given the complicated dynamics arising from an almost instantaneous adjustment process towards equilibrium each time the system is perturbed. In the long run, there is no evidence of positive wealth effects on consumption while sustained depressions in property markets could be harmful to future economic growth.
    Keywords: Real estate shocks; Transmission channels; Macroeconomic performance
    JEL: C32 E20
    Date: 2008–06
  11. By: Leon, Costas; Eeckels, Bruno
    Abstract: We apply cross-spectral methods, dynamic correlation index of comovements and a VAR model to study the cyclical components of GDP and tourism income of Switzerland with annual data for the period 1980 – 2007. We find evidence of 4 dominant cycles for GDP and an average duration between 9 and 11 years. Tourism income is characterized by more cycles, giving an average cycle of about 8 years. There are also common cycles both in the typical business cycle and in the longer-run frequency bands. Lead / lag analysis shows that the two cyclical components are roughly synchronized. Simulations via a VAR model show that the maximum effect of 1% GDP shock on tourism income is higher than the maximum effect of 1% tourism income shock on GDP. The effects of these shocks last for about 12-14 years, although the major part of the shocks is absorbed within 5-6 years.
    Keywords: Switzerland; Tourism Economics; Economic Fluctuations; Business Cycle; Spectral Analysis; Dynamic Correlation; VAR Models.
    JEL: C51 E32 L83
    Date: 2009–05–13
  12. By: Bianchi, Javier
    Abstract: Credit constraints that link a private agent's debt to market-determined prices embody a systemic credit externality that drives a wedge between competitive and (constrained) socially optimal equilibria, which induces private agents to ``overborrow". We quantify the effects of this externality in a two-sector DSGE model of a small open economy calibrated to emerging markets. Debt is denominated in units of tradable goods, and is constrained not to exceed a fraction of income, including nontradables income valued at the relative price of nontradables. The externality arises because agents fail to internalize the price effects of their individual borrowing, and hence the adverse debt-deflation amplification effects of negative income shocks that trigger a binding credit constraint. Quantitatively, the credit externality causes a modest increase in average debt, of about 2 percentage points of GDP, but it triples the probability of financial crises and doubles the average current account and consumption reversals caused by these crises.
    Keywords: Financial Crises, Business Cycles, Amplification Effects, Sudden Stops, Systemic Externalities
    JEL: D62 F20 E32 F32 F30 F41
    Date: 2009–04–28
  13. By: Menon, Jayant (Asian Development Bank)
    Abstract: Viet Nam has experienced spectacular economic growth over the past decade, in part the result of massive foreign direct investment (FDI) inflows. Although much has been written on the impacts of FDI in developing countries, previous studies have generally ignored macroeconomic consequences in cost-benefit assessments. These macroeconomic aspects can be particularly important in transitional economies like Viet Nam, where some of the tools for macroeconomic stabilization may be blunt or unavailable. First, capital inflow growth needs to be accommodated by real exchange rate appreciation. In dollarized economies like Viet Nam, the nominal exchange rate cannot be relied upon to deliver it, so inflation usually results. In these economies, it is also difficult for the central bank to conduct open market operations to sterilize large capital inflows or mop up excess liquidity. Again, this could feed inflation. The combination of a young and inexperienced banking system and an investment-hungry state-owned enterprises (SOE) sector only exacerbates the situation, and increases the risk of imbalances that could result in crisis.
    Keywords: capital inflow; macroeconomic adjustment; FDI; real exchange rate; Viet Nam
    JEL: F21 F32 F49
    Date: 2009–04–01
  14. By: Chen, Kaiji; Song, Zheng
    Abstract: This paper provides a theory of financial frictions as a transmission mechanism for primitive shocks to translate into aggregate TFP fluctuations. In our model, financial frictions distort existing capital allocation across different production units, rather than investment in new capital. News shocks on future technology improvement are introduced as a device to identify TFP fluctuations originating from this mechanism. Our simulation shows that variations in financial frictions in response to news shocks can generate sizable fluctuations in aggregate TFP and, thus, business cycles before the actual technology change is realized. Using a combined dataset from Compustat and IBES, we find that the empirical responses of capital acquisition to prospects about future profitability are significantly larger for firms more likely to be financially constrained, while such a pattern does not exist for new capital investment. Furthermore, capital acquisition of constrained firms is found to be more procyclical than that for unconstrained ones. Our evidence thus provides strong support for the importance of financial frictions on capital allocation as the transmission mechanism proposed by our theory.
    Keywords: Financial Friction; Capital Reallocation; TFP Fluctuation; News Shock
    JEL: E32 G34
    Date: 2009–04–14
  15. By: Belbute, José; Caleiro, António
    Abstract: The paper deals with the detection and measurement of the level of persistence on aggregate private consumption in Portugal, USA, European Union and EuroZone as well as on some categories of aggregate consumption in Portugal. By the use of a non-parametric methodology applied to monthly data (1992-2007) it is concluded that aggregate consumption in Europe (both European Union and Euro Zone) is more persistent than in the USA and in Portugal. In particular, the relatively lower degree of persistence shown by the consumption in Portugal can be beneficial for the effectiveness of the countercyclical fiscal and monetary policies that are currently being implemented to overcome the current economic crisis. Our results also suggest that consumption of durables is less persistent, also being more volatile. This result is important in the explanation of the severity of the current economic crisis in Portugal.
    Keywords: Consumption; Persistence; Portugal
    JEL: C14 C22 C21
    Date: 2009–05
  16. By: Williams, David M
    Abstract: Financial liberalisation and innovation (FLIB) in Australia over the 1980s and 1990s provided the institutional backdrop for one of the most rapid increases in household balance sheets and house prices in the world. An equilibrium correction model of quarterly Australian house prices for 1972-2006 identifies the key long run drivers as real non-property income per house, the working age population proportion, the unemployment rate, two government policy changes, real and nominal interest rates and non-price credit conditions. All else equal, easing credit supply conditions attributable to FLIB directly raised the long run level of real house prices by around 51 per cent while higher real interest rates subtracted 29 per cent from long run prices. Real interest rates are shown to have a significant impact on real house prices after financial liberalisation but play no role before. These findings suggest that FLIB fundamentally relaxed binding credit constraints on households and enhanced opportunities for intertemporal smoothing. The model also explicitly captures short run overshooting dynamics in Australian house prices. Whenever lagged real house price growth is greater than about 4 per cent, for example during booms, house prices tend to display "frenzy" behaviour measured as a cubic of lagged house price changes.
    Keywords: House prices; Mortgage markets; Financial liberalisation
    JEL: E21 G21
    Date: 2009–05–01
  17. By: Fabio Bagliano (University of Turin and CeRP-Collegio Carlo Alberto, Turin); Claudio Morana (Università del Piemonte Orientale and CeRP-Collegio Carlo Alberto, Turin)
    Abstract: In this paper a small-scale macroeconomic system is estimated in the framework of a common trends model, in order to explore the dynamic interactions between real house prices, consumption expenditure and output in the US and major European economies. The results point to important differences across countries, with long-run house price effects on consumption only for France, Germany and the US. However, some interactions between house prices and consumption are detected in all countries at shorter horizons. Evidence of international comovements in the common trend component of house price dynamics is also found.
    Date: 2009–02
  18. By: Ariyaratne, Chatura B.; Featherstone, Allen M.
    Abstract: A farmâs physical investment is affected by its fundamental q and by its financial situation, with the later comprising both the firmâs liquidity and its possibility of facing capital market imperfections. This study determines the effects of government payments, depreciation, and inflation on crop farm machinery and equipment investment behavior employing the Nonlinear Generalized Method of Moment (GMM) estimator to estimate the investment system. The magnitude of the lagged cash flows such as government payments, cash crop income, and grain income were largely responsible for determining farm investment behavior in the Kansas agriculture sector. An increase in lagged machinery and equipment depreciation and lagged farm motor vehicle and listed property depreciation increases total crop farm investment substantially for an average farm. Statistically, there is no evidence of inflation affects on crop farm machinery investment behavior.
    Keywords: Investment, Liquidity, fundamental q, government payments, depreciation, inflation, Agribusiness, Agricultural Finance, Crop Production/Industries, Farm Management, Financial Economics, Livestock Production/Industries, Production Economics,
    Date: 2009
  19. By: Boyan Jovanovic; Peter L. Rousseau
    Abstract: Investment of U.S. firms responds asymmetrically to Tobin’s Q: Investment of established firms — ‘intensive’ investment — reacts negatively to Q whereas investment of new firms — ‘extensive’ investment — responds positively and elastically to Q. This asymmetry, we argue, reflects a difference between established and new firms in the cost of adopting new technologies. A fall in the compatibility of new capital with old capital raises measured Q and reduces the incentive of established firms to invest. New firms do not face such compatibility costs and step up their investment in response to the rise in Q. A composite-capital version of the model fits the data well using aggregates since 1900 and our new database of firm-level Qs that extend back to 1920.
    JEL: E22 E32
    Date: 2009–05
  20. By: Hugo Rodríguez Mendizábal; Máximo Camacho; Gabriel Pérez Quirós
    Abstract: We present evidence about the loss of the so-called ?plucking effect?, that is, a high-growth phase of the cycle typically observed at the end of recessions. This result matches the popular belief, presented informally by different authors, that the current recession will have permanent effects, or that the current recession will have an L shape versus the old-time recessions that have always had a V shape. Furthermore, we show that the loss of the ?plucking effect? can explain part of the Great Moderation. We postulate that these two phenomena may be due to changes in inventory management brought about by improvements in information and communications technologies.
    Keywords: Business cycle characteristics, Great Moderation, High-growth recovery
    JEL: E32 F02 C22
    Date: 2009–04–20
  21. By: Chen, Yan; Zhang, Yan
    Abstract: Gokan [Dynamic effects of government expenditure in a finance constrained economy, J. Econ. Theory 127 (2006) 323-333] introduces constant government expenditure (financed by labor income taxes) in Woodford's model with capital-labor substitution and investigates how local dynamics near two steady states depend upon the elasticity of substitution between capital and labor. In this paper, we show that the local dynamics will change dramatically if the government transfers its revenue to the households (workers) in a lump sum way. In particular, we question the result that the rate of money growth has no impact on the model dynamics. In a numerical example, we illustrate that the result previously obtained is not robust to the alternative assumption.
    Keywords: a lump sum transfer; indeterminacy.
    JEL: E32 C62
    Date: 2009–05–09
  22. By: Andrei Shleifer; Robert W. Vishny
    Abstract: We propose a theory of financial intermediaries operating in markets influenced by investor sentiment. In our model, banks make loans, securitize these loans, trade in them, or hold cash. They can also borrow money, using their security holdings as collateral. We embed such banks in a stylized financial market, in which securitized loans may be mispriced, and investigate how banks allocate limited capital among the various activities, as well as how they choose their capital structure. Banks maximize profits, and there are no conflicts of interest between bank shareholders and creditors. The theory explains the cyclical behavior of credit and investment, but also accounts for the fundamental instability of banks operating in financial markets, especially when banks use leverage.
    JEL: E32 G21 G33
    Date: 2009–05
  23. By: Alessio J. G. Brown; Christian Merkl; Dennis Snower
    Abstract: This paper presents a theory explaining the labor market matching process through microeconomic incentives. There are heterogeneous variations in the characteristics of workers and jobs, and firms face adjustment costs in responding to these variations. Matches and separations are described through firms' job offer and firing decisions and workers' job acceptance and quit decisions. This approach obviates the need for a matching function. On this theoretical basis, we argue that the matching function is vulnerable to the Lucas critique. Our calibrated model for the U.S. economy can account for important empirical regularities that the conventional matching model cannot
    Keywords: Matching,incentives,adjustment costs, unemployment, employment, quits, firing, job offers, job acceptance
    JEL: E24 E32 J63 J64
    Date: 2009–04
  24. By: Brown, Alessio J. G. (Kiel Institute for the World Economy); Merkl, Christian (Kiel Institute for the World Economy); Snower, Dennis J. (Kiel Institute for the World Economy)
    Abstract: This paper presents a theory explaining the labor market matching process through microeconomic incentives. There are heterogeneous variations in the characteristics of workers and jobs, and firms face adjustment costs in responding to these variations. Matches and separations are described through firms' job offer and firing decisions and workers' job acceptance and quit decisions. This approach obviates the need for a matching function. On this theoretical basis, we argue that the matching function is vulnerable to the Lucas critique. Our calibrated model for the U.S. economy can account for important empirical regularities that the conventional matching model cannot.
    Keywords: matching, incentives, adjustment costs, unemployment, employment, quits, firing, job offers, job acceptance
    JEL: E24 E32 J63 J64
    Date: 2009–04
  25. By: L. Marattin; S. Salotti
    Date: 2009–04
  26. By: Power, Gabriel J.; Vedenov, Dmitry V.
    Abstract: Commodity and energy prices have exhibited an unprecedented increase between October 2006 and July 2008, only to fall sharply during the last months of 2008. Many explanations have been offered to this phenomenon, including steadily increasing demand from China and India, large mandated increases in ethanol production, droughts in some key agricultural producer countries, production plateaus in some major oil-producing countries, refinery capacity limits, demand pressure from the derivatives market owing to the diversification properties of commodities, etc. Clearly, agricultural input, output, and energy products are closely related economically. In addition to biofuels, the connection points include nitrogen-based solution liquid fertilizers, fossil fuels used in agricultural production, limited acreage available for field crops, etc. While all these price variables are, evidently, closely connected, it is not entirely clear how exogenous price shocks are transmitted through the system, and whether particular commodities drive up the prices of other commodities. The proposed paper attempts to address this "chicken-or-egg" problem by applying the Structural Vector Autoregression (SVAR) framework to the analysis of a wide range of commodity prices. The purpose of this paper is to model and estimate an SVAR model of multiple commodity prices in order to: (i) Investigate the transmission mechanism of the price shocks associated with the commodity boom of 2006-2008 and subsequent bust and identify changes (if any) relative to earlier time periods (e.g. 2004-2006), (ii) Evaluate the possibly asymmetrical relationship between different commodity and energy price variables and (iii) Test hypotheses of causality in a time series definition (Granger and graph-theoretic). The methodology consists of defining and estimating a structural VAR model, studying impulse response functions and the variance decomposition, and testing for the direction of causality. Given that a longstanding problem is the sensitivity of the results to identifying assumptions, graph analysis is used here as it is a promising approach to identify the structure of the variance-covariance matrix and therefore overcome the observational equivalence of various reduced-form models implied by different identification approaches. The main contribution of this paper is to provide a tentative answer to the question of how agricultural input, output and energy product prices are related and whether this relationship has changed in recent years.
    Keywords: Commodity prices, commodity bull cycle, energy prices, Granger-causality, graph theory, structural VAR., Agribusiness, Agricultural and Food Policy, Agricultural Finance, Demand and Price Analysis, Financial Economics, Research Methods/ Statistical Methods,
    Date: 2009–05–01
  27. By: Mitra, Devashish (Syracuse University); Ranjan, Priya (University of California, Irvine)
    Abstract: In this paper, we introduce two sources of unemployment in a two-factor general equilibrium model: search frictions and fairness considerations. We find that a binding fair-wage constraint increases the unskilled unemployment rate and can at the same time lead to a higher unemployment rate for skilled workers, as compared to an equilibrium where fairness considerations are absent or non-binding. Starting from a constrained equilibrium, an increase in the fairness parameter leads to increases in both skilled and unskilled unemployment. The wage of unskilled workers increases but the wage of skilled workers decreases. Next we allow for offshoring of unskilled jobs in our model, and we find that, as a result, it becomes more likely that the fair-wage constraint binds. Offshoring of unskilled jobs always leads to an increase in skilled wage, a decrease in skilled unemployment and an increase in unskilled unemployment. The presence of fairness considerations increases the adverse impact of offshoring on unskilled unemployment. The unskilled wage can increase or decrease as a result of offshoring.
    Keywords: fair wages, unemployment, strategic effect, offshoring
    JEL: E24 F16 F41
    Date: 2009–04
  28. By: P. Giannoccolo
    Date: 2008–11
  29. By: Ryosuke Okazawa (Graduate School of Economics, Kyoto University)
    Abstract: This paper analyzes the effect of the recent technical change on the labor market and explains the observed differences in wage inequality among advanced countries. In particular, we focus on the difference between the wage inequality in the U.S. and continental Europe. By introducing human capital investment into Acemoglu (1999)’s model, we show that ex ante homogeneous economies would have distinct ex post wage inequality. In addition, we show that the differences in tax or education system can explain the difference in wage inequality between the U.S. and Europe.
    Keywords: skill-biased technical change, wage inequality, human capital investment, matching
    JEL: E24 J24 J31 J64
    Date: 2009–04

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