nep-mac New Economics Papers
on Macroeconomics
Issue of 2012‒12‒10
thirty-one papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Tails of Inflation Forecasts and Tales of Monetary Policy By Andrade, P.; Ghysels, E.; Idier, J.
  2. From a fixed exchange rate regime to inflation targeting - A documentation paper on Norges Bank and monetary policy, 1992-2001 By Christoffer Kleivset
  3. Monetary Policy Response to Capital Inflows in Form of Foreign Aid in Malawi By Manoel Bittencourt; Chance Mwabutwa; Nicola Viegi
  4. Intertwined real and monetary stochastic business cycles By Kakarot-Handtke, Egmont
  5. Fighting consumer price inflation in Africa. What do dynamics in money, credit, efficiency and size tell us? By Simplice A , Asongu
  6. The Microfoundations of the Keynesian Wage-Price Spiral By Malikane, Christopher
  7. GINI DP 30: Stylized Facts on Business Cycles and Inequality By Virginia Maestri; Roventini, A. (Andrea)
  8. Alternative Inflation Hedging Portfolio Strategies: Going Forward Under Immoderate Macroeconomics By Fulli-Lemaire, Nicolas
  9. EU Fiscal Stance Vulnerability: Are the Old Members the Gold Members? By Dybczak, Kamil; Melecky, Martin
  10. Inflation dynamics and the cost channel in emerging markets By Malikane, Christopher
  11. Deficit Financed Public Expenditure in Argentina: A Structural Vector Autoregression Analysis By Mitkov, Yuliyan; Pericon, Osvaldo
  12. Swapping Headline for Core Inflation: An Asset Liability Management Approach By Fulli-Lemaire, Nicolas; Palidda, Ernesto
  13. A Study on the Dynamics of Interest Rate By LI, Wu
  14. Fluctuaciones sectoriales y su impacto en el crecimiento económico By Valdivia, Daney
  15. Allocating Commodities in Inflation Hedging Portfolios: A Core Driven Global Macro Strategy By Fulli-Lemaire, Nicolas
  16. The ins and outs of unemployment in the long run: unemployment flows and the natural rate By Murat Tasci
  17. Public Debt and Functional Finance in an OLG Model with Imperfect Competition By Peter Skott; Soon Ryoo
  18. General formal foundations of the virtuous deficit–profit symmetry and the vicious debt deflation By Kakarot-Handtke, Egmont
  19. La coordinación de las políticas fiscales y el ciclo económico. Fiscal policies coordination and the economic cycle. By Cerón, Juan A.
  20. Désajustements de change, fédéralisme budgétaire et redistribution : comment s’ajuster en union monétaire By Duwicquet, Vincent; Mazier, Jacques; Saadaoui, Jamel
  21. Make a bubble, take a free lunch, break a bank By Kakarot-Handtke, Egmont
  22. Heterogeneous Enterprises in a Macroeconomic Agent-Based Model By Cornelia Metzig; Mirta Gordon
  23. Growth Models with Exogenous Saving Rates, Unemployment and Wage Inertia By Xavier Raurich (Universitat de Barcelona); Valeri Sorolla (Universitat Autonoma de Barcelona)
  24. Beyond Macroeconomic Stability: The Role of Selective Interventions in Guyana’s Growth By Williams, Joycelyn
  25. What Drives Tax Morale? By Christian Daude; Hamlet Gutiérrez; Ángel Melguizo
  26. Finansal Liberalizasyon ve Küresel Krizin Yapısal Nedenleri: Gelişmekte Olan Ülkeler İçin Dersler By TUNCEL, Cem Okan
  27. On Keynes's Z-function By Strati, Francesco
  28. Hooray for GDP! . By Oulton, Nicholas
  29. Public debt, economic growth and nonlinear effects: Myth or reality? By Balázs Égert
  30. The Dynamic Link between Energy Consumption, Economic Growth, Financial Development and Trade in China: Fresh Evidence from Multivariate Framework Analysis By Muhammad, Shahbaz; Saleheen , Khan; Mohammad , Iqbal Tahir
  31. Analyzing the Effects of Insuring Health Risks: On the Trade-off between Short Run Insurance Benefits vs. Long Run Incentive Costs By Harold L. Cole; Soojin Kim; Dirk Krueger

  1. By: Andrade, P.; Ghysels, E.; Idier, J.
    Abstract: We introduce a new measure called Inflation-at-Risk (I@R) associated with (left and right) tail inflation risk. We estimate I@R using survey-based density forecasts. We show that it contains information not covered by usual inflation risk indicators which focus on inflation uncertainty and do not distinguish between the risks of low or high future inflation outcomes. Not only the extent but also the asymmetry of inflation risks evolve over time. Moreover, changes in this asymmetry have an impact on future inflation realizations as well as on the current interest rate central banks target.
    Keywords: inflation expectations, risk, uncertainty, survey data, inflation dynamics, monetary policy.
    JEL: E31 E37 E43 E52
    Date: 2012
  2. By: Christoffer Kleivset (Norges Bank (Central Bank of Norway))
    Abstract: This paper documents Norges Bank’s role in the long transition period from a fixed exchange rate regime to inflation targeting in Norway. It is shown that the Bank’s leadership and influential department leaders wanted more exchange rate flexibility from early on. However, due to the division of responsibility of economic policy in Norway – where a stable exchange rate was important with regards to incomes policy – this was met with resistance.
    Keywords: Monetary policy, Inflation targeting, Regime change
    JEL: E58 F33 N14
    Date: 2012–12–05
  3. By: Manoel Bittencourt (Department of Economics, University of Pretoria); Chance Mwabutwa (Department of Economics, University of Pretoria); Nicola Viegi (Department of Economics, University of Pretoria)
    Abstract: This paper estimates the Bayesian dynamic stochastic general equilibrium (DSGE) model and uses the model to account for the short-run monetary policy response to increased aid inflows in Malawi. The estimates reveal that the monetary authorities reacted to increased foreign aid inflows the same way as was experienced in other African countries. The model also suggests that there was non-existence of the threats of the ‘Dutch Disease’ in contrast to what was found in Mozambique. The country can continue to receive aid by targeting the supply side of the economy with an aim of improving the competiveness of the export sector. Evidently, the conduct of monetary policy performs better under the assumption of full accessibility of financial assets. In addition, the impact of aid inflows on depreciation and inflation are much smaller when monetary authorities indulge in money targeting other than following the Taylor rule and incomplete sterilisation. On the small note, the study suggests that actual spending of aid should be aligned with the actual absorption of increased aid. Nevertheless, the outcome of the aid effects has been clouded out by the limitation of the exchange rate management in Malawi.
    Keywords: Taylor Rule, DSGE Model, Rule-of-Thumb, Spending, Absorption, Foreign Exchange Rate, Bayesian Methods
    JEL: C11 C13 E52 E62 F31 F35
    Date: 2012–12
  4. By: Kakarot-Handtke, Egmont
    Abstract: There is no such thing as a real economy. The task, therefore, is to consistently reconstruct the fluctuations of employment and output from the interactions of real and nominal variables. The present paper does exactly this. No nonempirical concepts like utility, equilibrium, rationality, decreasing returns or perfect competition are applied. The analysis runs rigorously in objective structural axiomatic terms. Therefrom follows that it is the factor cost ratio, i.e. the relation of the nominal variables wage rate and price and the real variable productivity that, for any given level of effective demand, drives the fluctuations of employment and output.
    Keywords: new framework of concepts; structure-centric; axiom set; profit; distributed profit; Say’s regime; supersymmetric price; Slutzky-cycle; transaction money; general multiplier
    JEL: E32 E24 E10
    Date: 2012–11–22
  5. By: Simplice A , Asongu
    Abstract: Purpose – The purpose of this paper is to examine the effects of policy options in financial dynamics (of money, credit, efficiency and size) on consumer prices. Soaring food prices have marked the geopolitical landscape of African countries in the past decade. Design/methodology/approach – We limit our sample to a panel of African countries for which inflation is non-stationary. VAR models from both error correction and Granger causality perspectives are applied. Analyses of dynamic shocks and responses are also covered. Six batteries of robustness checks are applied to ensure consistency in the results. Findings – (1) There are significant long-run equilibriums between inflation and each financial dynamic. (2) When there is a disequilibrium, while only financial depth and financial size could be significantly used to exert deflationary pressures, inflation is significant in adjusting all financial dynamics. In other words, financial depth and financial size are more significant instruments in fighting inflation than financial efficiency and activity. (3) The financial intermediary dynamic of size appears to be more instrumental in exerting a deflationary tendency than financial intermediary depth. (4) The deflationary tendency from money supply is double that based on liquid liabilities. Practical implications – Monetary policy aimed at fighting inflation only based on bank deposits may not be very effective until other informal and semi-formal financial sectors are taken into account. It could be inferred that, tight monetary policy targeting the ability of banks to grant credit (in relation to central bank credits) is more effective in tackling consumer price inflation than that, targeting the ability of banks to receive deposits. In the same vein, adjusting the lending rate could be more effective than adjusting the deposit rate. The insignificance of financial allocation efficiency and financial activity as policy tools in the battle against inflation could be explained by the (well documented) surplus liquidity issues experienced by the African banking sector. Social implications – This paper helps in providing monetary policy options in the fight against soaring consumer prices. By keeping inflationary pressures on food prices in check, sustained campaigns involving strikes, demonstrations, marches, rallies and political crises that seriously disrupt economic performance could be mitigated. Originality/value – As far as we have perused, there is yet no study that assesses monetary policy options that could be relevant in addressing the dramatic surge in the price of consumer commodities.
    Keywords: Banks; Inflation; Development; Panel; Africa
    JEL: O55 E31 O10 G20 P50
    Date: 2012–09–05
  6. By: Malikane, Christopher
    Abstract: We derive the backward-looking Keynesian wage-price spiral from micro-foundations. The optimal price Phillips curve features one lag of price inflation, the lag of the labour share, excess demand pressure, speed-limit effects and supply shocks. The wage Phillips curve features current and lagged price inflation, excess demand pressure up to the second lag, and the lag of nominal wage inflation. We estimate this model for six developed and emerging market economies and find that the model fits the data well. In general, nominal wages are more flexible than prices with respect to demand pressure. The baseline model rejects the inclusion of supply shocks and indexation of wages in developed economies and some emerging markets.
    Keywords: microfoundations; wage and price Phillips curves; forward and backward-looking behaviour
    JEL: E31
    Date: 2012–11–29
  7. By: Virginia Maestri (AIAS, Universiteit van Amsterdam); Roventini, A. (Andrea)
    Abstract: Business cycles are expected to contribute to drive the dynamics of inequality of countries. This paper provides new stylized facts about the relationship between business cycles and inequality. We study the cross-correlations of filtered series of inequality, on the one side, and macro-economic variables (e.g. GDP, unemployment, inflation, etc), on the other. In addition, the analysis explores the Granger causality of such relationships. We use the RED database that allows to study the dynamics of different sources and measures of inequality in a subset of OECD countries. We find that inequality series are non stationary. At the business cycle frequencies, income inequality is counter-cyclical, while consumption inequality is pro-cyclical. We find a stronger correlation of the business cycle with inequality in the hours of work than with inequality in hourly wages. We find a considerable evidence of a two-way causality macroeconomic variables, on one side, and inequality at the business cycle frequencies.
    Keywords: Inequality, business cycles, detrending, cross-correlations, non-stationarity, Granger causality tests. JEL Classification: C10, D3, E32.
    Date: 2012–07
  8. By: Fulli-Lemaire, Nicolas
    Abstract: Gone are the days when inflation fears had receded under years of 'Great Moderation' in macroeconomics. The US subprime financial crisis, the ensuing 'Great Recession' and the sovereign debt scares that spread throughout much of the industrialized world brought about a new order characterized by higher inflation volatility, severe commodity price shocks and uncertainty over sovereign bond creditworthiness to name just a few. All of which tend to put in jeopardy both conventional inflation protected strategies and nominal unhedged ones: from reduced issues of linkers to negative long-term real rates, they call into question the viability of current strategies. This paper investigates those game changing events and their asset liability management consequences for retail and institutional investors. Three alternative ways to achieve real value protection are proposed.
    Keywords: inflation hedging; portfolio allocation; alternative investment; commodities; real rates; core Inflation; global macro; inflation pass-through; strategic allocation; portfolio insurance; Great Recession
    JEL: G11 G2 E3
    Date: 2012–11–06
  9. By: Dybczak, Kamil; Melecky, Martin
    Abstract: This paper investigates the effect of aggregate shocks on the fiscal stance of the EU, and of its old (OMS) and new (NMS) member states over a business cycle. The fiscal stance is measured by the government deficit. To study the impact of aggregate shocks, we use impulse responses derived from a pooled structural vector autoregression model estimated on annual panel data. We find that the fiscal deficits of OMS could be vulnerable to discretionary changes in government expenditures and revenues. In contrast, the fiscal stance of NMS shows vulnerability to GDP shocks, because the increase in revenues after a positive GDP shock is often outpaced by greater expenditure increases in NMS. The estimated fiscal vulnerabilities stem from disproportionate policy responses concerning government expenditures and a lacking discipline to control pro-cyclical fiscal spending. Our findings for the EU thus support application of fiscal rules focused on government expenditure rather than other fiscal variables.
    Keywords: Macroeconomic Shocks; Fiscal Stance; European Union; Panel Data Analysis; Pooled Structural Vector Autoregression Model
    JEL: E62 H68 E37
    Date: 2012–11
  10. By: Malikane, Christopher
    Abstract: We investigate inflation dynamics and the presence of the cost channel in ten emerging markets since the 1990's from the new Keynesian and triangle Phillips curve perspectives. A negative sign on the output gap is a common finding in new Keynesian specifications. This problem may be addressed by taking into account the endogeneity of the nominal interest rate in the instrument set of GMM estimations. We confirm substantial and significant backward-looking behavior in the inflation process of emerging markets, but its size is not robust to specification in some economies. In almost all the triangle model estimations, except for Hungary, the output gap exhibits the correct sign. Except for Mexico, there is no evidence of the cost channel in emerging market economies. The cost channel is not robust to the endogeneity of the nominal interest rate and to the specification of the Phillips curve.
    Keywords: Cost channel; inflation dynamics; Phillips curve
    JEL: E31 E50
    Date: 2012–10–31
  11. By: Mitkov, Yuliyan; Pericon, Osvaldo
    Abstract: The goal of the paper is to analyze the importance of government debt in the propagation of fiscal shocks in the Argentine economy. For that reason we augment a standard fiscal policy vector Autoregression with the nominal debt to GDP ratio taken from a recently compiled IMF database. The main finding is that government debt has a crucial role for the implications of the model, and that the omission of the feedback of the debt (as a ratio of GDP) to the other variables in the system leads to very different conclusions for the effect of deficit finance government spending on the economy. Finally, we argue that not adding a measure of debt into the model is equivalent to assuming that debt as percentage of GDP is not changing following a deficit financed fiscal shock, which is in direct contraction to the implications of the optimal fiscal policy models.
    Keywords: Fiscal Policy; Vector Autoregression
    JEL: E62 E65 C15
    Date: 2012–06–01
  12. By: Fulli-Lemaire, Nicolas; Palidda, Ernesto
    Abstract: Headline inflation in most industrialized countries, the US in particular, has been shown to be mean reverting to core inflation in the medium term, whilst at the same time the pass-through of exogenous commodity price shocks from the headline to the core has dramatically gone down as a result of a major macroeconomic paradigm change. It yields lower relative volatility for the latter and creates a drive for investing in commodities as a hedge for the spread between both inflation measures. In this paper, we argue for a risk reduction in ALM strategy in the form of a shift from targeting core rather than headline inflation for long-term hedgers while proposing an overlaying core versus headline swap to hedge the potential asset-liability gap. A market curve for core inflation could be derived from the trading of these derivatives and enable easy mark-to-market valuation of any core-linked securities, thus easing the way for future primary issues. Any supply and demand market disequilibria between long-term sellers of headline inflation and short-term sellers of core inflation could be matched by the intermediation of market makers which could price the derivative based on the cross-hedging potential of commodities.
    Keywords: ALM; LDI; Long-term Investment; Inflation Hedging; Core Inflation; Commodities; Inflation Pass-through; Arbitrage Pricing; Synthetic Futures; Inflation Derivative
    JEL: G11 E31 Q0 G13
    Date: 2012–08–07
  13. By: LI, Wu
    Abstract: By integrating the fiat money into the structural growth model in [1], this paper presents a dynamic model for the simulation study of interest rate. And the model is illustrated with a numerical example. The equilibria of the numerical example are also computed by the method in [2]. The monetary policies of controlling the interest rate and controlling the money supply are simulated.
    Keywords: interest rate; money supply; general equilibrium; price
    JEL: C68 C63 D58 C67
    Date: 2012–06
  14. By: Valdivia, Daney
    Abstract: This paper analyses the dynamics and significance of supply sectors in planning the economic policy, in particular the impact (manufacturing, agriculture and services) on economic growth through 1970 – 2011 and three cohorts. In these sense, it uses the following tools: co-movements and multi sectorial DSGE model for the Bolivian economy. The results support the hypothesis that the manufacturing sector boosts economic growth more than the others. This sector shows high persistence during expansion business cycle phases than service. The last effect is also applicable to agricultural sector, explained by its small technification that supports its low contribution to economic growth previous to 2001 – 2011.
    Keywords: business cycles; growth; multi sectorial DSGE model
    JEL: E32 E20
    Date: 2012–08–25
  15. By: Fulli-Lemaire, Nicolas
    Abstract: Recent academic studies have shown that since the mid-nineties, the passthrough of exogenous oil shocks into headline inflation has been increasing while the passthrough into core inflation seems to have ceased. This paper explores the implications in term of commodity allocation for inflation hedging portfolios these recent works have paved the way for. We proceed by first evidencing a linkage between the headline to core inflation spread and tradable commodities. We subsequently envisage exploiting it threefold: Firstly by devising an efficient strategic allocation using core inflation forecasts to determine the commodities natural weight in the portfolio as dictated by our macro approach. Secondly by testing a tactical allocation strategy which would time the passthrough cycle to determine dynamically the optimal share of commodities in the allocation. And eventually by proposing a strategy to arbitrage core inflation linked derivatives by cross-replicating them with commodity portfolios.
    Keywords: Inflation Hedging; Portfolio Allocation; Commodities; Core Inflation; Global Macro; Inflation Passthrough; Arbitrage Pricing; Strategic Allocation; Tactical Allocation
    JEL: G1 Q0 C1 E3
    Date: 2012–03–26
  16. By: Murat Tasci
    Abstract: This paper proposes an empirical method for estimating a long-run trend for the unemployment rate that is grounded in the modern theory of unemployment. I write down an unobserved-components model and identify the cyclical and trend components of the underlying unemployment flows, which in turn imply a timevarying estimate of the unemployment trend, the natural rate. I identify a sharp decline in the outflow rate—the job finding rate—since 2000, which was partly offset by the secular decline in the inflow rate—the separation rate—since the 1980s, implying a relatively stable natural rate, currently at 6 percent. Numerical examples show that slower labor reallocation, along with the weak output growth, explains most of the persistence in unemployment since the Great Recession. ; Contrary to the business-cycle movements of the unemployment rate, a significant fraction of the low-frequency variation can be accounted for by changes in the trend of the inflows, especially prior to 1985. Finally, I highlight several desirable features of this natural rate concept that makes it a better measure than traditional counterparts. These include statistical precision, the significance of required revisions to past estimates with subsequent data additions, policy relevance and its tight link with the theory.
    Keywords: Unemployment ; Business cycles
    Date: 2012
  17. By: Peter Skott (University of Massachusetts, Amherst); Soon Ryoo (Adelphi University)
    Abstract: This paper examines the role of fiscal policy in the long run. We show that (i) dynamic inefficiency may be empirically relevant in a modified Diamond OLG model with imperfect competition, (ii) fiscal policy may be needed to avoid inefficiency (if investment adjusts passively to saving) and maintain full employment (if investment and saving decisions are taken separately), (iii) a simple and distributionally neutral tax scheme can maintain full employment in the face of variations in 'household confidence', and (iv) the debt ratio is inversely related to both the growth rate and government consumption. JEL Categories: E62, E22
    Keywords: Public debt, Keynesian OLG model, dynamic efficiency, confidence, sustainability
  18. By: Kakarot-Handtke, Egmont
    Abstract: A comprehensive dynamic model of the monetary economy that produces the key characteristics of a debt deflation has been presented recently by Steve Keen as an alternative to conventional approaches. His model is based on a double-entry bookkeeping methodology but lacks an acceptable profit theory. In this respect it is not different from familiar approaches. Clearly, a deficient profit theory prevents a proper understanding of how the real world economy works. The present paper takes an entirely different route and places the core of Fisher’s debt deflation theory into the context of the consistent structural axiomatic approach.
    Keywords: new framework of concepts; structure-centric; axiom set; income; profit; distributed profit; quantity of money; credit expansion; maximum debt/income ratio; annuity; positive feedback; built-in instability
    JEL: E12 E31 E50
    Date: 2012–11–29
  19. By: Cerón, Juan A.
    Abstract: La aceleración del proceso de globalización e integración económica ha modificado sustancialmente el marco de referencia de la política fiscal. La movilidad de las bases impositivas, la vinculación entre los tipos de interés y el desbordamiento de las políticas hacia otros países sitúan en un primer plano el tema de la coordinación de las políticas macroeconómicas. El objetivo de este trabajo consiste en analizar el marco y los condicionantes para una correcta coordinación de las políticas fiscales, cuyo éxito dependerá, en todo caso, de su orientación, expansiva o contractiva, de la situación previa de las finanzas públicas y de la posición cíclica de cada país. Globalization and economic integration has changed dramatically the framework of fiscal policy. Items like mobile tax bases, linkage among interest rates and the spill-over to other countries put at the forefront the issue of macroeconomic policies coordination. This work aims to analyse the frame and determinants for an efficient coordination of fiscal policies, whose success, in any case, is based on whether it is expansionary or contractionary, on previous state of public finances and, finally, on specific country cyclical position.
    Abstract: Globalization and economic integration has changed dramatically the framework of fiscal policy. Items like mobile tax bases, linkage among interest rates and the spill-over to other countries put at the forefront the issue of macroeconomic policies coordination. This work aims to analyse the frame and determinants for an efficient coordination of fiscal policies, whose success, in any case, is based on whether it is expansionary or contractionary, on previous state of public finances and, finally, on specific country cyclical position
    Keywords: Política fiscal; Coordinación; Globalización; Ajuste fiscal; Globalization; Fiscal policy; Coordination;
    JEL: E61 E62 F02 F41 H60
    Date: 2012
  20. By: Duwicquet, Vincent; Mazier, Jacques; Saadaoui, Jamel
    Abstract: The euro zone crisis illustrates the insufficiency of adjustment mechanisms in a monetary union characterized by a large heterogeneity. Firstly, the paper gives an evaluation of exchange rate misalignments inside the euro zone, using a FEER approach (Jeong, Mazier and Saadaoui, 2010). Using panel econometric techniques over the period 1994-2010, we confirm that the exchange rate misalignments in the euro zone have diverged, reflecting unsustainable evolutions. Secondly, we use a “stock-flow consistent” model of a monetary union with two countries along the lines of Godley and Lavoie (2007) and Duwicquet and Mazier (2010). A federal budget is introduced with federal expenditures and social transfers financed by federal taxes and euro-bonds issuing. The stabilizing role of such a federal budget is confirmed facing asymmetric shock or the negative impact of exchange rate misalignments inside the monetary union. Similarly, the stabilizing role of euro-bonds used to finance European investment projects is illustrated.
    Keywords: Désajustements de taux de change; ajustements; union monétaire; crise de la zone euro
    JEL: E12 F32
    Date: 2012–11–26
  21. By: Kakarot-Handtke, Egmont
    Abstract: Standard economics is known to be incapable of integrating the real and the monetary sphere. The ultimate reason is that the whole theoretical edifice is built upon a set of behavioral axioms. Therefore, the formal starting point is moved to structural axioms. This makes it possible to formally track the complete process of value creation and destruction in the asset market and its consequences for the household and business sector. From the set of structural axioms emerge the well-known phenomena of a bubble from free lunches through appreciation to defaults due to a lack of potential next buyers.
    Keywords: new framework of concepts; structure-centric; axiom set; profit; rate of interest; liquidity preference; rentier; primary market; secondary market; parrot economics; theory of value; valuation price; appreciation; depreciation; net worth; debt/income ratio
    JEL: E43 E21 E10
    Date: 2012–12–01
  22. By: Cornelia Metzig; Mirta Gordon
    Abstract: We present a macroeconomic agent-based model that combines several mechanisms operating at the same timescale, while remaining mathematically tractable. It comprises enterprises and workers who compete in a job market and a commodity goods market. The model is stock-flow consistent; a bank lends money charging interest rates, and keeps track of equities. Important features of the model are heterogeneity of enterprises, existence of bankruptcies and creation of new enterprises, as well as productivity increase. The model's evolution reproduces empirically found regularities for firm size and growth rate distributions. It combines probabilistic elements and deterministic dynamics, with relative weights that may be modified according to the considered problem or the belief of the modeler. We discuss statistical regularities on enterprises, the origin and the amplitude of endogeneous fluctuations of the system's steady state, as well as the role of the interest rate and the credit volume. We also summarize obtained results which are not discussed in detail in this paper.
    Date: 2012–11
  23. By: Xavier Raurich (Universitat de Barcelona); Valeri Sorolla (Universitat Autonoma de Barcelona) (Universitat de Barcelona)
    Abstract: The purpose of this paper is to introduce a noncompetitive labor market and unemployment into the growth models with exogenous saving rates found in economic growth textbooks (SalaiMartin, 2000; Barro and SalaiMartin, 2003; Romer, 2006). We first derive a general framework with a neoclassical production function to analyze the relationship between growth and employment. We use this framework to study the joint dynamics of growth and employment when different wage setting rules are considered
    Keywords: wage inertia., growth, unemployment
    JEL: E24 O41
    Date: 2012
  24. By: Williams, Joycelyn
    Abstract: This paper examines Guyana’s growth record 1992 to 2010, against one aspect of the World Bank’s Functional Model of Growth (1993). This model was developed by the Bank following its review of the development experience of several of the high performing Asian economies, many of which are island states. In this model, growth depends on three pillars : a) policies that promote macro-economic stability- that is low increase in price levels, stable currency exchange rates, low indebtedness, b) selective policy interventions, and c) institutional policies such as a technocratic civil service, and wealth sharing mechanisms. Since each of these three pillars can be the subject of lengthy discussion, this paper focuses on the role of Selective Interventions in Guyana’s growth record since 1992. The paper will discuss how selective interventions were the cornerstone of the Asian Islands industrial policy which allowed them to achieve sustained growth over three decades (1960’s to 1990’s), and then use that basis to discuss Guyana. According to current development thought, selective policy interventions are the cornerstone of a successful industrial policy. Such interventions includes the following: low interest rates or credit often provided by development banks, focusing credit on the high growth sectors, deliberately giving certain industries tax concessions, and supporting arrangements that will push exports of the favored industries. In keeping with structural change theory, the favored industries tend to be manufacturing and services. The paper in focusing on Guyana will therefore look at the kind of selective policy interventions that Guyana has used to stimulate growth since 1992. It looks at whether there was a policy using such special interventions, and kind of interventions used. We will also assess the extent to which these special interventions have focused on high growth industries using case studies of sugar and tourism. We offer an assessment of what factors prevented the Government from using the selective interventions to the extent they were used by the island states in Asia.
    Keywords: Guyana; Structural Adjustment; Macroeconomic Stabilization; Caribbean Economies
    JEL: O10 L50
    Date: 2012–07–30
  25. By: Christian Daude; Hamlet Gutiérrez; Ángel Melguizo
    Abstract: This paper reviews the literature and contributes with some evidence based on the World Values Survey on the drivers of tax morale around the world, with an emphasis on developing countries. It shows that socio-economic factors such as age, religion, gender, employment status and educational attainment have a significant impact on people’s levels of tax morale. In terms of institutional determinants, it finds that the satisfaction with democracy, trust in government and the satisfaction with the quality of public services plays an important role in increasing tax morale. The paper also discusses future directions for research and policy action in this area.<BR>Cet article propose une revue de la littérature existante et apporte de nouveaux éléments empiriques sur la base de données provenant de la World Values Survey, sur les déterminants de la morale fiscale dans le monde, et dans les pays en développement en particulier. Il montre que les facteurs socio-économiques tels que l’âge, la religion, le genre, la situation professionnelle et la réussite scolaire ont un effet significatif sur le degré de morale fiscale des individus. Concernant les déterminants institutionnels, l’article montre que le degré de morale fiscale des individus dépend également du niveau de satisfaction avec le système démocratique, de confiance dans le gouvernement et de satisfaction quant à la qualité des services publics. L’article conclut en proposant des pistes/orientations futures de recherche et des recommandations politiques dans ce domaine.
    Keywords: tax policy, developing countries, tax morale, politique fiscale, pays en développement, morale fiscale
    JEL: E62 I38 P16
    Date: 2012–11–23
  26. By: TUNCEL, Cem Okan
    Abstract: The main aim of this study is to analyze the connection between financial liberalization and financial crises in historical context. The global economy is experiencing crisis which has been hailed as the most devastating crisis of capitalism since the great depression of 1929. Post World War II economic history can be thought of as evolving within two distinct political-economic regimes. The high growth Golden Age or Keynesian Regime was based on socially or politically ‘embedded’ domestic markets, government responsibility for aggregate demand growth, and state control over cross-border economic activity. It lasted until the early 1970s, to be replaced, after a decade of turbulence, by the Neoliberal Regime, built on deregulation, liberalization, privatization, and ever-tighter global integration. The Neoliberal Regime took root in the 1980s and consolidated in the 1990s.Financialization which is a major phenomenon of neoliberal regime, means the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of domestic and international economies. In this period, many developed and developing countries have liberalized their financial markets. The financial liberalization opens up new opportunity for financial sectors often resulting in excessive risk taking because of lack of adequate regulation particularly emerging economies. After liberalization of period, most countries tend to go though a “boom-bust” cycle especially in the case of external liberalization. As a result, currency and banking crises (twin crises) are closely linked in aftermath of liberalization. In this paper, policy framework is also discussed from developing countries perspective.
    Keywords: Financial Liberalization; Financialization; Financial Crises; Developing Countries
    JEL: E44
    Date: 2012
  27. By: Strati, Francesco
    Abstract: This paper is intended to give a general, but rigorous view about what is the Z-function and what are the hidden relations of the Keynes’s General Theory. In Section 1 I shall depict the concept of probability and that of the weight of argument, in Section 2 I shall introduce quite an important definitions such as the Z-function is different from the Z∗-curve, and some paramount notions. The Section 4 is intended to grasp the importance of the chapters 20-21 of the General Theory, whereas in Section 5 I shall comment, very quickly, some properties of Z∗ in a topological view.
    Keywords: Keynes; Z-Function
    JEL: E12 B16
    Date: 2012–11–29
  28. By: Oulton, Nicholas
    Abstract: Should raising the growth rate of GDP per capita be a policy goal of governments in general, and of the British government in particular? Many people would say no, for the following reasons: 1) GDP is hopelessly flawed as a measure of welfare; 2) Growing GDP is pointless since most people don’t benefit; 3) Raising GDP per capita is pointless as it doesn't make people any happier; and 4) The planet is finite, so further growth of GDP (at least in rich countries) is not feasible anyway. I discuss and reject all four of these objections. I urge the LSE Growth Commission to focus its efforts on policies to increase the growth rate of GDP per capita in the medium and long run.
    Date: 2012–08
  29. By: Balázs Égert
    Abstract: The economics profession seems to increasingly endorse the existence of a strongly negative nonlinear effect of public debt on economic growth. Reinhart and Rogoff (2010) were the first to point out that a public debt-to-GDP ratio higher than 90% of GDP is associated with considerably lower economic performance in advanced and emerging economies alike. A string of recent empirical papers broadly validates this threshold value. This paper seeks to contribute to this literature by putting a variant of the Reinhart-Rogoff dataset to a formal econometric testing. Using nonlinear threshold models, there is some evidence in favour of a negative nonlinear relationship between debt and growth. But these results are very sensitive to the time dimension and country coverage considered, data frequency (annual data vs. multi-year averages) and assumptions on the minimum number of observations required in each nonlinear regime. In addition, we also show that nonlinear effects can kick in at much lower levels of public debt (between 20% and 60% of GDP). These results, based on bivariate regressions on secular time series, are largely confirmed on a shorter dataset (1960-2010) when using a multivariate growth framework that accounts for traditional drivers of long-term economic growth and model uncertainty. Nonlinear effects might be more complex and difficult to model than previously thought. Instability might be a result of nonlinear effects changing over time, across countries and economic conditions. Further research is certainly needed to fully understand the link between public debt and growth.
    Keywords: Public debt, economic growth, nonlinearity, threshold effects
    JEL: E6 F3 F4 N4
    Date: 2012
  30. By: Muhammad, Shahbaz; Saleheen , Khan; Mohammad , Iqbal Tahir
    Abstract: This study investigates the relationship between energy consumption and economic growth by incorporating financial development, international trade and capital as important factors of production function in case of China over the period of 1971-2011. The ARDL bounds testing approach to cointegration was applied to examine long run relationship among the series while stationarity properties of the variables was tested by applying structural break test. Our empirical evidence confirmed long run relationship among the variables. The results showed that energy consumption, financial development, capital, exports, imports and international trade have positive impact on economic growth. The Granger causality analysis revealed that unidirectional causal relationship running from energy consumption to economic growth. Financial development and energy consumption Granger cause each other. There is bidirectional causality between trade and energy consumption. The feedback relation exists between financial development and international trade. There is also bidirectional causality exists between capital and energy consumption, financial development and economic growth and, international trade and economic growth. This paper makes significant contribution in energy literature and opens up new direction for policy makers to explore new and alternative sources of energy to meet the rising demand of energy due to sustained rate of economic growth.
    Keywords: Growth; Energy; Financial Development; Trade
    JEL: E44 F1 Q4
    Date: 2012–11–10
  31. By: Harold L. Cole (Department of Economics, University of Pennsylvania); Soojin Kim (Department of Economics, University of Pennsylvania); Dirk Krueger (Department of Economics, University of Pennsylvania)
    Abstract: This paper constructs a dynamic model of health insurance to evaluate the short- and long run effects of policies that prevent firms from conditioning wages on health conditions of their workers, and that prevent health insurance companies from charging individuals with adverse health conditions higher insurance premia. Our study is motivated by recent US legislation that has tightened regulations on wage discrimination against workers with poorer health status (Americans with Disability Act of 2009, ADA, and ADA Amendments Act of 2008, ADAAA) and that will prohibit health insurance companies from charging different premiums for workers of different health status starting in 2014 (Patient Protection and Affordable Care Act, PPACA). In the model, a trade-off arises between the static gains from better insurance against poor health induced by these policies and their adverse dynamic incentive effects on household efforts to lead a healthy life. Using household panel data from the PSID we estimate and calibrate the model and then use it to evaluate the static and dynamic consequences of no-wage discrimination and no-prior conditions laws for the evolution of the cross-sectional health and consumption distribution of a cohort of households, as well as ex-ante lifetime utility of a typical member of this cohort. In our quantitative analysis we find that although a combination of both policies is effective in providing full consumption insurance period by period, it is suboptimal to introduce both policies jointly since such policy innovation induces a more rapid deterioration of the cohort health distribution over time. This is due to the fact that combination of both laws severely undermines the incentives to lead healthier lives. The resulting negative effects on health outcomes in society more than offset the static gains from better consumption insurance so that expected discounted lifetime utility is lower under both policies, relative to only implementing wage nondiscrimination legislation.
    Keywords: Health, Insurance, Incentive
    JEL: E61 H31 I18
    Date: 2012–11–29

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