nep-mac New Economics Papers
on Macroeconomics
Issue of 2012‒11‒24
25 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Open-economy Inflation Targeting Policies and Forecast Accuracy By Alessandro Flamini
  2. Monetary policy in a model with misspecified, heterogeneous and ever-changing expectations By Alberto Locarno
  3. Optimal Monetary Policy in an Open Economy under Asset Market Segmentation By Singh, Rajesh; Lahiri, Amartya; Vegh, Carlos A
  4. Can We Explain Unexpected Fluctuation of Long-Term Real Interest Rate? By Barbora Volna
  5. Income inequality and macroeconomic stability in a New Keynesian model with limited asset market participation By Giorgio Motta; Patrizio Tirelli
  6. Oil Price Shocks and Macroeconomy: The Role for Precautionary Demand and Storage By Rizvanoghlu, Islam
  7. Monetary policy in a downturn: Are financial crises special? By Morten Bech; Leonardo Gambacorta
  8. La respuesta de la política fiscal a la actividad económica en los países desarrollados. By Cerón, Juan A.
  9. A structural model for the housing and credit markets in Italy By Andrea Nobili; Francesco Zollino
  10. Fiscal Stimulus and Labor Market Dynamics in Japan By Ryuta Ray Kato; Hiroaki Miyamoto
  11. Labor Hiring, Investment, and Stock Return Predictability in the Cross Section By Belo, Frederico; Lin, Xiaoji; Bazdresch, Santiago
  12. E-stability in the Stochastic Ramsey Model By George W. Evans; Kaushik Mitra
  13. Fiscal illusion and the shadow economy: Two sides of the same coin? By Buehn , Andreas; Dell'Anno, Roberto; Schneider, Friedrich
  14. Determinants of TARGET2 imbalances By Martina Cecioni; Giuseppe Ferrero
  15. Macroeconomic Impact of Population Aging in Japan: A Perspective from an Overlapping Generations Model By Muto, Ichiro; Oda, Takemasa; Sudo, Nao
  16. Individual and Aggregate Labor Supply in a Heterogeneous Agent Economy with Intensive and Extensive Margins By Yonsung Chang; Sun-Bin Kim; Kyooho Kwon
  17. The world's dream: economic growth [:]the balance sheet approach By DE KONING, Kees
  18. Asset pricing with uncertain betas: A long-term perspective By Gollier, Christian
  19. The Role of Institutions and Firm Heterogeneity for Labour Market Adjustment: Cross-Country Firm-Level Evidence By Peter Gal; Alex Hijzen; Zoltan Wolf
  20. Revenue and expenditure nexus: A case study of ECOWAS By Magazzino, Cosimo
  21. Uncertainty, Electoral Incentives and Political Myopia By Alessandra Bonfiglioli; Gino Gancia
  22. Output per head in pre-independence Africa : quantitative conjectures By Leandro Prados de la Escosura
  23. Did the crisis induce credit rationing for French SMEs? By Kremp, E.; Sevestre, P.
  24. On the New Methodology of Cost‐Benefit Analysis of ALMP – The Case of Serbia By Zubović, Jovan; Simeunović, Ivana
  25. Keynes’s probability: An introduction to the theory of logical groups By Strati, Francesco

  1. By: Alessandro Flamini (Department of Economics and Management, University of Pavia)
    Abstract: Forecast accuracy in macroeconomics is based on statistical techniques for extrapolating time series. This paper takes a new theoretical route studying the relation between forecast accuracy of macroeconomic variables and alternative monetary policies. Considering optimal policy with model-parameter uncertainty in a small open-economy, the paper shows that Domestic Inflation Targeting (DIT) leads to more forecast accuracy than Consumer Price index Inflation Targeting (CPIIT). Furthermore, forecast accuracy and policy aggressiveness turn out to be inversely related, and the trade-o¤ is more severe under CPIIT. These results are obtained in a New-Keynesian model measuring forecast accuracy by the volatility of simulated fan-charts.
    Keywords: Multiplicative uncertainty; Markov jump linear quadratic systems; small open-economy; optimal monetary policy; inflation index.
    JEL: E52 E58 F41
    Date: 2012–11
  2. By: Alberto Locarno (Bank of Italy)
    Abstract: The applied literature on adaptive learning has mostly focused on small, linear models, with homogenous expectations. In non-linear models heterogeneous expectations prevail and the process through which agents select (and change) a forecasting model becomes a necessary ingredient of the analysis; moreover, the temporary equilibrium of the learning process approaches an asymptotic limit that may be affected by the communication strategies of the monetary policymaker. The objective of this paper is to assess whether in such a model economy the optimal monetary policy exhibits properties that are similar to those found in the literature for small, linear models. The main results are the following: (1) expectations heterogeneity is an intrinsic feature of the economy: no PLM succeeds in ruling out all the other forecasting models; (2) contrary to previous findings, the monetary policymaker has no incentive to adopt highly inflation-averse policies: too strong a reaction to price shocks increases both inflation and output volatility; (3) partial transparency seems to enhance somewhat welfare (but fully transparent policies do not); (4) a higher degree of transparency calls for stronger inflation aversion.
    Keywords: Bounded rationality, generalised stochastic gradient learning, transparency.
    JEL: E52 E31 D84
    Date: 2012–10
  3. By: Singh, Rajesh; Lahiri, Amartya; Vegh, Carlos A
    Abstract: This paper studies optimal monetary policy in a small open economy under flexible prices. The paper's key innovation is to analyze this question in the context of environments where only a fraction of agents participate in asset market transactions (i.e., asset markets are segmented).  In this environment, we study three rules: the optimal state contingent monetary policy; the optimal non-state contingent money growth rule; and the optimal non-state contingent devaluation rate rule.  We compare welfare and the volatility of macro aggegates like consumption, exchange rate, and money under the different rules.  One of our key findings is that amongst non-state contingent rules, policies targeting the exchange rate are, in general, welfare dominated by policies which target monetary aggregates.  Crucially, we find that fixed exchange rates are almost never optimal.  On the other hand, under some conditions, a non-state contingent rule like a fixed money rule can even implement the first-best allocation.
    Keywords: Optimal Monetary Policy; Asset Market Segmentation
    JEL: E42 E60 F F30
    Date: 2012–11–13
  4. By: Barbora Volna
    Abstract: In this paper, we create a model of unexpected fluctuation of the long-term real interest rate. This model is based on our new version of IS-LM model. The new IS-LM model eliminates two main deficiencies of the original model: assumptions of constant price level and of strictly exogenous money supply. The unexpected fluctuations of the long-term real interest rate can be explained by existence of special type of cycle called relaxation oscillation on money (or financial assets) market. Relaxation oscillations include some short parts looking like "jumps". These "jumps" can be interpreted like unexpected. In other words, we try to explain these "unexpected" fluctuations of long-term real interest rate and show that these fluctuations can be only seemingly unexpected. Last but not least, we show some impacts of the government intervention by fiscal or monetary policy on economics using this models. Then we suggest possible interaction between fiscal and monetary policy.
    Date: 2012–11
  5. By: Giorgio Motta; Patrizio Tirelli
    Abstract: We reconsider the issue of equilibrium determinacy under the limited asset market participation hypothesis in a medium-scale model which accounts for external consumption habits. This allows to characterize concern for relative consumption in the preferences of agents which are heterogeneous in their wealth holdings. We find that external habits and consumption inequality have mutually reinforcing adverse e¤ects on determinacy. We therefore uncover a causality link between long-run inequality and macroeconomic volatility in a New-Keynesian DSGE model. In our framework, redistributive polices targeting consumption inequality have beneficial implications for macroeconomic stability..
    Keywords: Limited Asset Market Participation, DSGE, Determinacy, Consumption Habits
    JEL: E52 E63
    Date: 2012–01
  6. By: Rizvanoghlu, Islam
    Abstract: Traditional literature on energy economics gives a central role to exogenous political events (supply shocks) or to global economic growth (aggregate demand shock) in modeling the oil market. However, more recent literature claims that the increased precautionary demand for oil triggered by increased uncertainty about a future oil supply shortfall is also driving the price of oil. The intuition behind the precautionary demand is that since firms, using oil as an input in their production process, are concerned about the future oil prices, it is reasonable to think that in the case of uncertainty about future oil supply (such as a highly expected war in the Middle East), they will buy futures and/or forward contracts to guarantee a future price and quantity. We find that under baseline Taylor-type interest rate rule, real oil price, inflation and output loss overshoot and go down below steady state at the next period if uncertainties are not realized. However, if the shock is realized, i.e. followed by an actual supply shock, the effect on inflation and output loss is high and persistent.
    Keywords: oil price shocks; precautionary demand; storage
    JEL: E32 E52 Q43
    Date: 2011–12–01
  7. By: Morten Bech; Leonardo Gambacorta
    Abstract: Accommodative monetary policy during the financial crisis was instrumental in preventing a deeper recession. Views differ, however, on how long such measures should be kept in place. At the heart of this debate is the notion that a protracted period of policy accommodation could create distortions. Some would argue that any distortions will be limited in extent and that further monetary stimuli should bolster the recovery. Others fear that prolonged easing may delay much-needed balance sheet adjustments, thus entrenching weak economic performance. Our analysis, based on a sample of 24 developed countries, indicates that monetary policy is less effective in a financial crisis, when impairments in the monetary transmission mechanism may occur. In particular, the results show that the benefits of accommodative monetary policy during a downturn for the subsequent recovery are more elusive when the downturn is associated with a financial crisis. In addition, we find that private sector deleveraging during a downturn helps to induce a stronger recovery. Both results hold even after controlling for the fiscal policy stance, real exchange rate movements and developments in the international environment. That said, the evidence is tentative owing to the restricted size and other limitations of our sample.
    Keywords: monetary policy, financial crisis, recession, deleveraging
    Date: 2012–09
  8. By: Cerón, Juan A.
    Abstract: Este trabajo examina cómo ha respondido la política fiscal discrecional a las oscilaciones económicas en un conjunto de países de la OCDE a lo largo de las últimas cuatro décadas. En línea con la reciente literatura, utilizamos el Saldo Estructural Primario como indicador para caracterizar la actividad fiscal de los Gobiernos. Los resultados muestran el escaso uso de la política fiscal en coyunturas de expansión o recesión así como un marcado activismo en situaciones de estabilidad económica. Se analizan las razones para este comportamiento escasamente convencional, se incide en el distinto comportamiento de impuestos y gastos, se valora la importancia que tiene la posición fiscal de partida y se examina el grado de acomodo de la política monetaria
    Abstract: This paper studies how discretional fiscal policy has reacted to economic fluctuations in a group of OCDE countries during the last four decades. Following the recent literature, we use the cyclically adjusted primary balance as a tool to identify government fiscal activity. The results suggest a limited use of fiscal policy in expansion or recession circumstances just as a marked activity in economic stability situations. The reasons behind this performance barely conventional will be examined; we analyze the different responses of taxes and expenditures, pay attention to the importance of fiscal policy at the beginning and evaluate the monetary policy accommodation
    Keywords: Política fiscal; Ciclos económicos; Globalización; Estabilización económica; Fiscal Policy; Output Stability; Cycles; Globalization;
    JEL: E62 E65
    Date: 2012
  9. By: Andrea Nobili (Bank of Italy); Francesco Zollino (Bank of Italy)
    Abstract: We estimate a fully-fledged structural system for the housing market in Italy, taking into account the multi-fold link with bank lending to both households and construction firms. The model allows the house supply to vary in the short run and the banking sector to affect the equilibrium in the housing market, through its effect on housing supply and demand. We show that house prices react mostly to standard drivers such as disposable income, expected inflation and demographic pressures. Lending conditions also have a significant impact, especially through their effects on mortgage loans, and consequently on housing demand. Allowing short-run adjustment in house supply implies a weaker response of house prices to a change in the monetary stance or in banks’ deleveraging process. Finally, we find that since the mid-eighties house price developments in Italy have been broadly in line with the fundamentals; during the recent financial crisis, the worsening in credit supply conditions dampened house price dynamics, partly offsetting the positive stimulus provided by the easing of the monetary policy stance.
    Keywords: house prices, credit, system of simultaneous equations
    JEL: E51 E52 G21
    Date: 2012–10
  10. By: Ryuta Ray Kato (International University of Japan); Hiroaki Miyamoto (International University of Japan)
    Abstract: The paper studies effects of fiscal expansion on the Japanese labor market. First, using a structural VAR model, we find that the unemployment rate falls and employment rises following an increase in government spending. We also find that fiscal expansion affects flows in and out of unemployment. While an increase in government spending increases the job-finding rate, it reduces the separation rate. We then incorporate search and matching frictions into a standard dynamic general equilibrium model, and study whether the model can explain what we observed in data. While the model fails to predict the exact size of the impact of the government spending shock on the Japanese labor market variables, it can consistently capture the empirical pattern of responses of labor market variables to the shock.
    Keywords: Policy, Unemployment, Labor market, Search and matching
    JEL: E24 E62 J64
    Date: 2012–11
  11. By: Belo, Frederico (University of MN); Lin, Xiaoji (OH State University); Bazdresch, Santiago (University of MN)
    Abstract: We study the impact of labor market frictions on asset prices in the cross section of US publicly traded firms. On average, firms with low hiring rates have higher future stock returns than firms with high hiring rates, a difference of 5.2% per annum. Interpreting a hiring decision as analogous to an investment decision, we propose a dynamic neoclassical investment-based model with labor and capital adjustment costs to explain this hiring return spread. Firms that are hiring relatively more have lower macroeconomic risk which explains why high hiring rates predicts low stock returns. The model matches the observed levels of the hiring return spread, key properties of the firm-level hiring and investment rates, and other empirical regularities. Our analysis suggest that labor market frictions can have a significant impact on asset prices in financial markets.
    JEL: E22 E23 E44 G12
    Date: 2012–09
  12. By: George W. Evans; Kaushik Mitra
    Abstract: Analytical expectational stability results are obtained for both Euler-equation and infinitehorizon adaptive learning in a simple stochastic growth model. The rational expectations equilibrium is stable under both types of learning, though there are differences in the learning dynamics.
    Keywords: Euler-equation learning, Infinite-horizon learning, expectational stability.
    JEL: E62 D84 E21 E43
    Date: 2012–09–20
  13. By: Buehn , Andreas; Dell'Anno, Roberto; Schneider, Friedrich
    Abstract: This paper presents an empirical analysis of the relationship between fiscal illusion and the shadow economy for 104 countries over the period 1989–2009. We argue that both unobservable phenomena are closely linked to each other, as the creation of a fiscal illusion may be helpful if governments want to control shadow economic activities. Using a MIMIC model with two latent variables we confirm previous findings on the driving forces of the shadow economy and identify the main determinants and indicators of fiscal illusion. Most importantly, we find that fiscal illusion negatively affects the shadow economy: Concealing the real tax burden through fiscal illusion potentially contributes to the government’s efforts to repress shadow economic activities.
    Keywords: Fiscal illusion; shadow economy; MIMIC model; latent variables; tax burden; tax complexity
    JEL: E62 O17 K42
    Date: 2012–11–09
  14. By: Martina Cecioni (Banca d'Italia); Giuseppe Ferrero (Banca d'Italia)
    Abstract: The paper analyzes developments in TARGET2 imbalances within the euro area since 2007, from two perspectives: national central banks’ balance sheets and countries’ balance of payments (BoP). We examine the relationship between TARGET2 balances and the Eurosystem liquidity provision, analyzing how the circulation of the latter has changed during the crisis. We then study BoP developments in Greece, Portugal, Italy and Spain, investigating which of the following explanations accounts for the growing TARGET2 imbalances: (i) current account deficit, (ii) decrease of net inflows of private capital from securities and interbank markets and (iii) run on deposits. The results of our analysis suggest that while the increase in TARGET2 liabilities is related to the current account deficit in Greece, there is no evidence of this in Italy, Spain and Portugal. In all countries the increase is mostly driven by private capital outflows in securities and interbank markets; deposit runs are apparent only in Greece. In Italy, the reduction of capital inflows consisted entirely in a decrease in the interbank market cross-border activity and in portfolio investments by non-residents.
    Keywords: payment system, financial crisis, monetary policy
    JEL: E42 E52
    Date: 2012–09
  15. By: Muto, Ichiro; Oda, Takemasa; Sudo, Nao
    Abstract: Due to a sharp decline in the fertility rate and a rapid increase in longevity, Japan's population aging is the furthest advanced in the world. In this study we explore the macroeconomic impact of population aging using a full-fledged overlapping generations model. Our model replicates well the time paths of Japan’s macroeconomic variables from the 1980s to the 2000s and yields future paths for these variables over a long horizon. We find that Japan’s population aging as a whole adversely affects GNP growth by dampening factor inputs. It also negatively impacts on GNP per capita, especially in the future, mainly due to the decline in the fraction of the population of working-age. For these findings, fertility rate decline plays a dominant role as it reduces both labor force and saver populations. The effects of increased longevity are expansionary, but relatively minor. Our simulations predict that the adverse effects will expand during the next few decades. In addition to closed economy simulations, we examine the consequences of population aging in a small open economy setting. In this case a decline in the domestic capital return encourages investment in foreign capital, mitigating the adverse effects of population aging on GNP.
    Keywords: Population Aging; Overlapping Generations Model; Capital Flow
    JEL: E20 J11
    Date: 2012–11
  16. By: Yonsung Chang (University of Rochester, Yonsei University); Sun-Bin Kim (Yonsei University); Kyooho Kwon (University of Rochester)
    Abstract: We develop a heterogeneous-agent general equilibrium model that incorporates both intensive and extensive margins of labor supply. A nonconvexity in the mapping between time devoted to work and labor services distinguishes between extensive and intensive margins. We consider calibrated versions of this model that dier in the value of a key preference parameter for labor supply and the extent of heterogeneity. The model is able to capture the key features of the empirical hours worked distribution, including how individuals transit within this distribution. We then study how the various specications in uence labor supply responses to temporary shocks and permanent tax changes, with a particular focus on the intensive and extensive margin elasticities in response to these changes. We nd important interactions between heterogeneity and the extent of curvature in preferences.
    Keywords: Hours, Employment, Cross-section, Business Cycles
    Date: 2012–09–13
  17. By: DE KONING, Kees
    Abstract: Economists may need to change their tools of analysis from analysing income and expenditure contributors (GDP) to asset value contributors -the net worth levels of individual households-. Assessment of the latter requires a balance sheet analysis. Why; because the level of individual households’ savings in the U.S currently stands at $62.7 trillion, GDP at $15.1 trillion and tax revenues at $2.4 trillion. Such U.S. analysis has to be made through the study of time series, not just for a single year. For instance the cause of the current crisis was the banker’s shift in action from recovering doubtful mortgage debts out of incomes to recovering them out of selling of home assets. This caused an extra supply of 880 000 second hand homes to come on the market every year from 2008. In stead of only affecting the 4.4 million doubtful debtors, it affected all 78.6 million home owners. Their loss was nearly equal to three years of U.S. Federal Government revenues. To counteract such savings losses requires adjustments in the U.S economic set up - the econsystem changes-. It also requires turning some assets -pension savings assets- temporarily into cash in order to support the income base of society in times of slow growth. Keeping unemployed people on the sideline of an economy is not the best way of earning one’s way out of income troubles.
    Keywords: balance sheet of households; net worth; financial crisis; economic growth; income to assets switch; economic easing; quantitative easing; Fannie Mae and Freddy Mac; bank restructuring; home mortgage process; fiscal cliff; econsystem
    JEL: E44 E21 G01 D53 G2 E58 E61 G21
    Date: 2012–11–12
  18. By: Gollier, Christian
    Abstract: How should one evaluate investment projects whose CCAPM betas are uncertain? This question is particularly crucial for projects yielding long-lasting impacts on the economy, as is the case for example for many green investment projects. We defined the notion of a certainty equivalent beta. We characterize it as a function of the characteristics of the uncertainties affecting the asset’s beta and the economy as a whole. We show that its term structure is not constant and that, for short maturities, it equals the expected beta. If the expected beta is larger than a threshold (which is negative and large in absolute value in all realistic calibrations), the term structure of the certainty equivalent beta is increasing and tends to its largest plausible value. In the benchmark case in which the asset’s beta is normally distributed, the certainty equivalent beta becomes infinite for finite maturities.
    Keywords: asset prices, term structure, risk premium, certainty equivalent beta.
    JEL: E43 E44 G11 G12
    Date: 2012–11
  19. By: Peter Gal; Alex Hijzen; Zoltan Wolf
    Abstract: This paper investigates the role of policies and institutions for aggregate labour market dynamics during the global financial crisis using firm-level data. The use of firm-level data is important if firms are heterogeneous in their labour input adjustment technologies. In this case, cross-country differences in aggregate labour market dynamics may not just stem from cross-country differences in average labour input technologies - here assumed to be largely due to differences in institutional settings -, but also from differences in the distribution of shocks across firms within countries and the composition of firms across countries. The contribution of this paper is threefold. First, the paper provides comparable estimates of the labour input adjustment behaviour of firms in response to output shocks across countries, industries and firm-size groups. Second, it makes use of decomposition methods to get a first indication of the importance of cross-country differences in adjustment technologies, the distribution of shocks across firms and the composition of firms across countries. We find that differences in the adjustment behaviour of firms account for about 40% of the cross-country variation in aggregate employment growth during the global financial crisis. We interpret this as prima facie evidence that differences in institutional settings accounted for a substantial part of the variation in aggregate employment growth during the crisis. Third, we find that employment-protection provisions with respect to regular workers reduce the output elasticity of employment, but increase the output elasticity of earnings per worker. Thus, employment protection tends to shift the burden of adjustment from the extensive to the intensive margin. However, the quantitative impact of employment protection for explaining the variation in aggregate labour dynamics during the global financial crisis is relatively small.<BR>Cet article étudie le rôle des politiques et des institutions sur la dynamique générale du marché du travail au cours de la crise financière mondiale au moyen de données au niveau des entreprises. Le recours aux données au niveau des entreprises devient nécessaire si les entreprises sont hétérogènes en termes de techniques d’ajustement du facteur travail. Dans ce cas, les différences entre pays en matière de dynamique générale du marché du travail peuvent non seulement provenir de différences des techniques de l’ajustement moyen du facteur travail entre pays - supposées ici être dues en grande partie à des différences d’environnement institutionnel -, mais également d’écarts au niveau de la répartition des chocs entre les entreprises au sein des pays et de la composition des entreprises entre pays. La contribution de cet article est triple. Tout d'abord, cet article fournit des estimations comparables du comportement d'ajustement du facteur travail des entreprises en réponse à des chocs de production entre pays, branches d’activité et taille d'entreprise. Deuxièmement, il fait appel à des méthodes de décomposition pour obtenir une première indication de l'importance des différences entre pays en matière d’ajustement, de répartition des chocs entre les entreprises et de composition des entreprises entre pays. Nous constatons que les différences dans le comportement d'ajustement des entreprises représentent environ 40% de la variation entre pays de la croissance globale de l'emploi pendant la crise financière mondiale. Nous interprétons cela comme une preuve prima facie que les différences d’environnement institutionnel représentent une part substantielle de la variation de la croissance globale de l'emploi pendant la crise. Troisièmement, nous constatons que les dispositions en matière de protection de l’emploi des travailleurs réguliers réduisent l’élasticité de l’emploi à la production, mais augmentent l'élasticité des gains par travailleurs à la production. La protection d’emploi incite les entreprises à ajuster moins à la marge extensive mais davantage à la marge intensive. Pourtant l'impact quantitatif de la protection de l'emploi est limité pour expliquer la variation globale de la dynamique du travail au cours de la crise financière mondiale.
    Keywords: employment protection, global financial crisis
    JEL: E24 J23
    Date: 2012–10–25
  20. By: Magazzino, Cosimo
    Abstract: This paper aims to assess the relationship among fiscal variables (net lending, government expenditure and revenue) and economic growth in Sub-Saharan African countries. Using yearly data for the period between 1980 and 2011 in 15 ECOWAS countries, a weak long-run relationship between government expenditure and revenue emerge, but only in the case of WAMZ countries. Granger causality analysis showed mixed results for WAEMU countries, while for four out of six WAMZ countries (Gambia, Liberia, Nigeria, and Sierra Leone) the tax-and-spend hypothesis holds, since government revenue would drive the expenditure. Finally, in the last three decades, cyclical component of economic growth has reduced its fluctuations, both for WAEMU and WAMZ member States. --
    Keywords: ECOWAS,Sub-Saharan Africa,economic growth,government expenditure,government revenue,panel
    JEL: E62 F33 B22 C33
    Date: 2012
  21. By: Alessandra Bonfiglioli; Gino Gancia
    Abstract: We study the determinants of political myopia in a rational model of electoral accountability where political ability is ex-ante unknown and policy choices are not perfectly observable. On the one hand, elections improve accountability and allow to keep well-performing incumbents. On the other, politicians invest too little in costly policies with future returns in an attempt to signal high ability and increase their reelection probability. Contrary to the conventional wisdom, uncertainty reduces political myopia and may, under some conditions, increase social welfare. We use the model to study how political rewards can be set so as to maximize social welfare and the desirability of imposing a one-term limit to governments. The predictions of our theory are consistent with a number of stylized facts and with a new empirical observation documented in this paper: aggregate uncertainty, measured by economic volatility, is associated to better fiscal discipline in a panel of 20 OECD countries.
    Keywords: elections, political myopia, asymmetric information, uncertainty
    JEL: E6 H3
    Date: 2012–10
  22. By: Leandro Prados de la Escosura
    Abstract: GDP figures for Africa are unreliable. More dependable information can be found in government expenditure and international trade records. These records, though, provide little insight into non-market output. In this paper an attempt is made to draw explicit conjectures on real output per head in preindependence Africa on the basis of trade data so that conjectures can be established about Africa’s long-run growth. Two alternative approaches are considered. One estimates per capita GDP by assuming no increase in output per head outside the tradable sector, for which the purchasing power of per capita exports is accepted as a proxy. Another approach establishes an econometric association between real per capita GDP and the income terms of trade per head for 1950-1990 and, on the basis of the prediction equation’s parameters and the values of the RHS variables, infers real output per head for 1870-1938. Trends in real output per head are then drawn for Africa (and its main regions). By comparing these trends with those from other developing regions, some conjectures about Africa’s relative position over time are put forward. It emerges that economic growth started earlier than usually assumed and there is continuity in growth before and after colonial independence. Sub- Saharan Africa’s retardation is a gradual process, as growing and falling behind took place simultaneously. But it is in the period 1975-1995 when the worst setback in modern Africa’s history took place
    Keywords: GDP, Long-run growth, Pre-independence Africa, Sub-Saharan Africa
    JEL: E01 N17 O47 O55
    Date: 2012–11
  23. By: Kremp, E.; Sevestre, P.
    Abstract: This paper focuses on the access of independent French SMEs to bank lending and analyzes whether the observed evolution of credit to SMEs over the recent period was "demand driven" as a result of the decrease in firms' activity and investment projects or was "supply driven" with an increase in credit "rationing" stemming from a more cautious behavior of banks. Based on a sample of around 60,000 SMEs, we come to the conclusion that, despite the stronger standards used by banks when granting credit, French SMEs do not appear to have been strongly affected by credit rationing since 2008. This result goes against the common view that SMEs suffered from a strong credit restriction during the crisis but is perfectly in line with the results of several surveys about the access to finance of SMEs recently conducted in France.
    Keywords: Credit rationing, disequilibrium model, SME.
    JEL: E51 G21
    Date: 2012
  24. By: Zubović, Jovan; Simeunović, Ivana
    Abstract: Active labour market policies are commonly used tool to fight unemployment. In the late 1970s in most developed countries of OECD government expenditures on those policies reached up to 1.5% of GDP. This created a need to evaluate the impact of such measures and perform cost‐benefit analyses. Evaluations have in the previous 30 years been undertaken by using several methods: experimental and quasi‐experimental, measurements and evaluations of processes performance, micro and macro analyses. In this paper we have presented and tested a modified approach of cost‐benefit analysis of ALMP viewed as an investment made by a government. The goal was to determine whether by using such an approach it is possible to provide new information to policy makers and to deepen research and further develop a methodology which will be robust enough to serve as a proof of ALMP effectiveness. Initial results of the empirical research in Serbia show very positive results, indicating that especially in the period of recessions, active measures can significantly improve labour market conditions, thus create high levels of return to investments (taking ALMP as an investment). Using aggregate data on all persons being registered as unemployed at the beginning of 2008 and 2009, we have tested how the ALMP impact the potential growth of tax returns. Our findings say that in 2008 there has been a net gain of € 269 million and in 2009 € 166 million in tax returns collected.
    Keywords: Active policies; evaluation; unemployment
    JEL: E24 J68
    Date: 2012–03–15
  25. By: Strati, Francesco
    Abstract: The present work is intended to be an informal introduction to the theory of abstract logi- cal groups. This particular formalization stems from some concepts of abstract algebra and the Johnson-Keynes’s theory of groups. Therefore the aim of this paper is that of provide the readers with the logical reasoning behind this brand new theory. I shall depict the philosophical notions as bases of the Keynes’s probability and then I shall explain it in terms of group. Furthermore we shall see, albeit roughly, a first definition of abstract groups.
    Keywords: Abstract algebraic logic; Keynes’s probability
    JEL: E12 B16 D80
    Date: 2012–08–14

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