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The Great Recession has caused unemployment in the Netherlands to rise from 3.1% in 2008 to over 7% at the beginning of 2014. Structural imbalances caused by labour mismatch could be one of the explanations underlying this high rate. The goal of this paper is to examine this hypothesis. We adopt an eclectic approach to study if mismatch has increased during the Great Recession. First, we examine the development of the Beveridge curve. We estimate so-called “steady-state†Beveridge curves based on underlying labour market flows. Outward shifts of these curves are associated with decreasing matching efficiency. Second, we construct a mismatch index which enables us to calculate the contribution of sector mismatch to the unemployment level. Our analyses show little support for the hypothesis that mismatch currently is a problem on the Dutch labour market. At the aggregate level, the Beveridge curve has not shifted outwards. Furthermore, at most one-seventh of Dutch unemployment can be attributed to sector mismatch, which is comparable to or below periods prior to the Great Recession.

In 2010, in response to an ever-worsening fiscal crisis, the ECB began purchasing sovereign debt from troubled euro-area countries through its Securities Market Programme (SMP). This program was designed to improve market functioning and restore the monetary transmission mechanism within the euro area. This paper does not test those ideals. Rather, we test whether SMP purchases systematically lowered peripheral yields and spreads. We find limited evidence of purchase effects but large announcement effects. In addition, on days in which the ECB was believed to have made large purchases, yields moved down, independent of the size of the ECB’s purchases or even if the ECB conducted any purchase at all that week. In all, we conclude that the ECB’s SMP influenced yields through a confidence channel rather than through any direct purchase effect. In the appendix to this paper we provide a detailed timeline of SMP purchases and market beliefs about purchase timing.

Large swings in aggregate household-sector spending, especially for big ticket items such as cars and housing, have been a dominant feature of the macroeconomic landscape in the past two decades. Income and wealth inequality increased over the same period, leading some to suggest the two phenomena are interconnected. Indeed, there is supporting evidence for the idea that heterogeneity in economic shocks and spending are connected, most notably in studies using local-area geography as the unit of analysis. The Survey of Consumer Finances (SCF) provides a household-level perspective on changes in wealth, income, and spending across different types of families. The SCF confirms that inequality is indeed increasing in recent decades, and the data provide support for the proposition that shocks to income and wealth are indeed related to large swings in spending across and within birth cohorts. However, the economic shocks associated with the Great Recession and changes in spending and debt to income ratios are widespread, and inconsistent with a narrow focus on the experiences and changes in behavior of particular (especially low- and modest-income) households.

Purpose – This paper aims to investigate the characteristics of house price dynamics for a sample of 16 emerging economies from Asia and Central and Eastern Europe over the period of 1995-2011. Design/methodology/approach – Linking housing valuations to a set of conventional fundamental determinants – relative to both the supply and the demand side of the market, institutional factors and other asset prices – and modelling short-term price dynamics – which reflect gradual adjustment to underlying fundamentals –conclusions about the existence and the basic nature of house price overvaluation (undervaluation) are drawn. Findings – Overall, it was found that actual house prices in the sample of emerging economies are not overly disconnected from fundamentals. Rather, they tend to reflect a somewhat slow adjustment to shocks to the latter. Moreover, the evidence that housing valuations may be driven by overly optimistic (or pessimistic) expectations is, in general, weak. Research limitations/implications – Residential property prices used in the empirical analysis have many limitations: while some series are derived using a hedonic pricing method, others are based on floor area prices collected by national authorities; while some countries publish house prices in national currency per-square metre (or per apartment or per dwelling), others calculate an index number scaled to some base year; while some countries publish statistics for the whole national territory, others produce data only for the capital city or for the largest cities in the country; data from national sources refer to different types of residential property; finally, available time series are relatively short, which may adversely affect the robustness of estimation results. Practical implications – The decomposition suggested in the paper has important implications: it would be paramount, in fact, for policymakers to implement market-specific diagnoses, and to find the right policy instruments that can ideally distinguish between the two underlying components driving house price short-run dynamics. Originality/value – There is a very small body of empirical literature on housing market developments in emerging economies, especially if focussed on the comparisons between the actual dynamics of housing valuations and the equilibrium ones.

This paper reflects on the development leading to the recent crisis and interprets this development as a series of events within a Minsky-Veblen Cycle. To illustrate this claim we introduce conspicuous consumption concerns, as described by Veblen, into a stock flow consistent Post Keynesian model and demonstrate that, under these conditions, a decrease in income equality leads to a corresponding increase in debt-financed consumption demand. Here Minskyian dynamics come into play: increased credit demand leads to a corresponding rise in credit supply, which, eventually, gives rise to a debt-financed consumption boom. As the solvency of households decreases and interest rates move up, banks reduce lending, triggering household bankruptcies and, finally, a recession. What follows is a stable period of consolidation, where past debts are repaid, financial stability is regained and conspicuous consumption motives may gradually take over again. We illustrate this approach to the current crisis and its explanatory validity by extending our stock-flow consistent model into a dynamic simulation.

This paper presents a Keynesian critique of Steve Keen's treatment of the aggregate demand–credit–endogenous money nexus. It argues his analytic intuition is correct but is developed in the wrong direction. Keen's fundamental relation describing determination of AD in an endogenous credit money economy suffers from two flaws. First, it neglects the core Keynesian problematic of leakages from and injections into the circular flow of income. Second, it falls into the theoretical morass regarding the black box of velocity of money via its adoption of a form of Fisher equation to determine AD. The paper contrasts Keen's treatment with a Keynesian structural framework.

In a quantitative model of Social Security with endogenous health, I argue that Social Security increases the aggregate health spending of the economy because it redistributes resources to the elderly whose marginal propensity to spend on health is high. I show by using computational experiments that the expansion of US Social Security can account for over a third of the dramatic rise in US health spending from 1950 to 2000. In addition, Social Security has a spill-over effect on Medicare. As Social Security increases health spending, it also increases the payments from Medicare, thus raising its financial burden.

Do fluctuations of the labor wedge, defined as the gap between the firm's marginal product of labor (MPN) and the household's marginal rate of substitution (MRS), reflect fluctuations of the gap between the MPN and the real wage or fluctuations of the gap between the real wage and the MRS? For many countries and most forcefully for the United States, fluctuations of the labor wedge predominantly reflect fluctuations of the gap between the real wage and the MRS. As a result, business cycle theories of the labor wedge should primarily focus on improving the household side of the labor market. Explanations of the labor wedge based on departures of the representative firm's MPN from the real wage are rejected by the data because the labor share of income is not strongly procyclical.

This paper investigates the impact of foreign aid, external debt and governance on the economic growth by extending the Ramsey–Cass–Koopman's growth model in an open economy framework. Steady-state and short run analysis shows that external debt and foreign aid do not affect the growth rate of consumption but have level impact on consumption. Foreign aid and governance encourage the economic growth but external debt creates a burden on the economy. Both investment and saving are independent of external debt and thus the current account surplus. Foreign aid does not affect investment directly but it has a direct positive impact on the savings in the economy. Therefore, it is argued that improvements in the quality of governance will stimulate the output and consumption rapidly and it acts like a catalyst.

This study set out to investigate whether it is possible to simultaneously achieve internal and external economic stability objectives and to examine the impact of economic stability on economic growth. A model of simultaneous relation was formulated and identified. Data covering 1970 – 2012 were collected and the technique of Indirect Least Squares (ILS) was applied to analyze the data. The study found that there is a trade-off relationship between internal stability and external balance. Achieving external balance is therefore at the expense of internal balance. There is, thus, the need for government to choose between achieving internal balance or external balance. It is therefore the recommendation of this paper that priority attention should be given to internal stability.

To put public debt on a sustainable path, many governments face the task of enacting large fiscal consolidation followed by years of sustained primary surpluses. By estimating hazard functions for the duration of consolidations, we analyse the features of past consolidation efforts across a panel of advanced economies. Our contribution is to identify the factors that help to start and sustain consolidations, separately discussing governments’ “commitment” to the cause as well as their “capacity” for action. Our analysis suggests that longer consolidations are initiated when public debt is high, fiscal deficits are large, the interest burden heavy and long-term sovereign bond yields elevated. However, we also find that a countries’ “capacity” to change course is important. Higher initial private sector savings, a stronger external balance, a competitive position and stable financial conditions appear to provide more scope for governments to sustain longer-lasting consolidations. Once we have controlled for the initial macroeconomic conditions, there is a lesser role for governments’ commitment as reflected in factors such as the composition and the pace of the fiscal adjustment or the political cycle in explaining the duration of consolidation. However, commitment to permanent, rather than temporary, fiscal adjustment is key.

We consider the effect of money illusion – defined referring to Stevens' ratio estimation function – on the long-run Phillips curve in an otherwise standard New Keynesian model of sticky wages. We show that if households under-perceive real economic variables, negative money non-superneutralities will become more severe. On the contrary, if households over-perceive real variables, positive money non-superneutralities will arise. We also provide a welfare analysis of our results and we show that they are robust to the inclusion of varying capital into the model. Firms' (over-)under-perception of the real prices of production inputs (strengthens) weakens negative money non-superneutralities. In the Appendix, we investigate how money illusion affects the short-run effects of a monetary shock.

Ten years after its introduction, the Euro is in an existential crisis. The crisis is the outcome of economic policies that have aimed at labour market flexibility and financial integration. This paper argues, firstly, that the aggregate demand regime in the Euro area is wage led. While an increase in wages (other things equal) does have a negative effect on investment and on net exports, it does have a positive effect on consumption. As the Euro area is a relatively closed economy, the consumption effect overpowers the investment effect and the export effect. Secondly, we argue that in the Euro area two growth models have emerged: a credit-led and an export-led model. These have given rise to the imbalances that are at the heart of the Euro crisis. Wage flexibility has proven insufficient to prevent these imbalances. Thirdly, we advocate a system of coordinated wage bargaining that aims at wages rising in line with productivity growth and a substantially upward-revised inflation target. If the project of European economic integration is to survive, it needs a drastic change in direction. An important building block of this redirection is a rethinking of the role of wage policy.

The Friedman rule states that steady-state welfare is maximized when there is deflation at the real rate of interest. Recent work by Khan, King, and Wolman [Review of Economic Studies10 (4), 825–860] uses a richer model but still finds deflation optimal. In an otherwise standard New Keynesian model we show that, if households have hyperbolic discounting, small positive rates of inflation can be optimal. In our baseline calibration, the optimal rate of inflation is 2.1% and remains positive across a wide range of calibrations.

This paper provides a comparative study between temporary immigration policy and product outsourcing process, from the low-income developing country's point of view, which is supply side constrained by the availability of skilled labour. A two-country general equilibrium model establishes an inverse relationship between temporary immigration quota and product outsourcing. Though temporary immigration quota enhances world welfare and the developed country welfare, its impact on welfare level of the developing country is uncertain. In the empirical part, a panel data analysis shows that real consumption level of a set of developing countries increases with an increase in product outsourcing, given an inverse relationship between product outsourcing and temporary immigration policy.Keywords: Immigration, Outsourcing, Intermediate Input, Consumption, Panel AnalysisJEL classification: C23, E20, F2, F12, F22(ProQuest: ... denotes formulae omitted.)1. INTRODUCTIONConventionally international trade between a developed and a developing country, from a theoretical perspective, is based on the difference in relative factor endowments among them. International trade helps utilise the abundant factor. Internationally trading countries gain from relative factor abundance and lower relative price of factor inputs. For instance, a relative labour abundant developing country use the abundant factor and the gains from trade follow from lower relative factor price of labour. In recent times, trade in intermediate goods and factor inputs have assumed significance along with conventional merchandise trade in final goods. For a relatively capital abundant country, with regards to trade in factors inputs, the policy options are between import of low-priced foreign labour and export of domestic capital. It has been theoretically established, a la Ramaswami (1968), that importation of low-priced foreign labour is a better option than exportation of domestic capital for capital abundant developed countnes. Now the question is, "What is the choice for a labour abundant country: exportation of domestic labour or importation of foreign capital?" This paper investigates into the relationship between exports of domestic labour, that is, temporary migration, and product outsourcing from the perspective of a developing country.Migration and outsourcing are the two manifestations of trade in factor inputs: while migration includes cross-border movement of natural persons, international outsourcing1 involves cross-border movement of capital. Both immigration and international outsourcing increase cost-efficiency of the global production system (Murat and Paba, 2003). The labour-intensive part of the production process is reallocated from the developed country to the labour abundant developing country; the developing countries, engaged in such outsourcing contract, become a part of the globally integrated production chain.2 For instance, a growing outsourcing demand is directed towards India from different capital abundant countries including the USA. There are two types of outsourcing; product outsourcing and service outsourcing. Globally while product outsourcing takes place in engineering, automobile, textile, and chemical industries (Dubey, 2003),3 service outsourcing takes place in communication, information technology and information technology enabled sectors. The developing countries, through outsourcing not only expand their market for intermediate products, but also benefit from employment generation, profit maximisation, quality up-gradation, capacity utilisation skill-improvisation and technology transfer.Immigration is another way by which the pool of high-skilled labour in developing countries is being used by developed countries. Temporary immigration refers to the temporary movement of persons from one country to another to provide on-site services, when immigrants do not get the right to dwell permanently in the host country. …

The term fiscal responsibility in financial dictionary is defined as “A balanced budget”. That is a budget wherein expenditures during a given period of time equal to revenues. The fiscal responsibility also includes a budget in which revenue is greater than the expenditures. Fiscal responsibility is achievable and most of the individuals in their private life practice fiscal responsibility. At individual level everybody knows that they have to live within the budget and usually they do not overspend. Usually overspending by individual results in bad crediting rating which one receives from their creditors due to non-payments or late payments of installments and thus denies future benefits to the person concern. Fiscal responsibility at national level implies that a government has a balanced budget and has sufficient revenue to pay for its all expenditures. There would be no overspending if government had a true balanced budget in each period. The economic future of a nation largely depends on the way fiscal responsibility is practiced. There is a direct link between budget deficit today and what nation can enjoy in future. Fiscal responsibility is crucial for a nation to remain prosperous and stronger in future. Fiscal responsibility will also determine what kind of future we are leaving to our children and grandchildren for the next 20 years and beyond. If the fiscal responsibility is not practiced the government would spend more money than its income and it borrows for the difference. If the money borrowed come from domestic savings or from domestic lenders the economy will have less money available for capital investment and future productivity growth rates and levels would be lower. If on the other hand deficit is financed by foreign organisation/country the country will be indebted with growing debt to the rest of the world, with growing interest costs which must be served every year. If we rely more on foreign sources to finance the resource gap the foreign ownership of our resources would grow and so has our dependences on the actions of foreign governments and investors.

Foreign capital and institutional quality simultaneously play an important role in the development process of low-income countries. By and large developing nations fell short of funds necessary to spur the economic growth. Along with this constraint, they are facing the down fall in the quality of governance. Low earned revenues and high government expenditure increase the reliance upon the foreign capital mostly in the form of foreign aid and external debt. Just the availability of foreign funds is not sufficient to stimulate the economic growth, there is a need of good governance along with better quality of institutions that will act as a catalyst and improves the efficiency of capital, [see for instance, Agnor and Montiel (2010)]. Good governance establishes impartial, predictable and consistently enforced rules in the form of institutions and thus crucial for the sustained growth [North (1990 and 1992)]. Those countries which have good institutions show positive growth rates whenever the stock of capital increases but the countries with bad institutions, increase in capital investment may lead to negative growth rates due to rent seeking and other unproductive activities, Hall, et al. (2010). In this context, North (1992) argues that the institutions as well as the ideology shape economic performance. While taking into account the technology used, institutions affect economic performance by determining the cost of transaction and production. Formal rules, informal constraints and characteristics of enforcing those constraints together formulate the institutions. Institutions affect economic performance and the differential in performance of economies is basically influenced by the way institutions evolve. The neoclassical economic theory is of little help in investigating the sources beneath economic performance because institutions are taken for granted in their models Agnor and Montiel (2010).

The Global Financial Crisis (GFC) of 2008 hit Denmark particularly hard. In this paper we argue that a combination of innovation in mortgage finance and the need to defend a euro-exchange rate peg was partly responsible. Sustained pressure against the Danish krone forced the central bank to increase policy interest rates consecutively in the last quarter of 2008. Monetary tightening in the midst of the GFC deepened the ongoing recession for the usual Keynesian aggregate demand reasons. Innovations in mortgage finance, which had made the economy more sensitive to changes in the policy rate, exacerbated this effect.

In a seminal paper on Marxian business cycle theory, Goodwin (1967) presented a model which assumed that a higher wage share leads to lower investment and thus a general economic slowdown. In contrast Kalecki (1971) was arguing that a higher wage share would have an expansionary effect because the consumption propensity out of wage income is higher than that out of profit income. Based on a general model that allows for wage-led as well as profit-led demand regimes, this paper estimates the effects of a change in the wage share on aggregate private domestic demand with quarterly data for 12 OECD countries. JEL classification: E11, E12, E20, E22, E25

This study aims to shed light on the Feldstein-Horioka (F-H) puzzle, making use of the potential explanations put forward in the related literature. To this end, the study takes a distinct empirical route, combining a cointegration technique and regression analysis. In the first step, we obtain three definitions for the dependent variable that represent the degree of the interaction between domestic saving and investment (S-I), employing a cointegration analysis for 86 countries in the sample. In the second step, each definition of the dependent variable is regressed on potential explanations for the co-movement of the S-I such as openness, country size, productivity shocks, and real interest rate differentials. After examining a number of potential variables for their explanatory power on this puzzle, however, none of the posited variables are found to be statistically significant determinants of the S-I interaction. The results indicate that the size of the economy, productivity shocks or interest rate differentials have almost no role in explaining the S-I behavior. Further, the findings show that openness has no influence on the S-I interaction, suggesting that it is not plausible to view the S-I correlation as an indicator of international capital mobility as F-H did.

Germany has experienced a period of extreme nominal and real wage moderation since the mid 1990s. Contrary to the expectations of liberal economists this has failed to improve Germany’s mediocre economic performance. However, Germany is now running substantial current account surpluses. One possible explanation for Germany’s disappointing performance is found in Kaleckian theory, which highlights that the domestic demand effect of a decline in the wage share will typically be contractionary, whereas net exports will increase (Blecker 1989). The size of the foreign demand effect will critically depend on the degree of openness of the economy. The paper aims at estimating the demand side of a Bhaduri-Marglin (1990) –type model empirically for Germany. The paper builds on the estimation strategy of Stockhammer, Onaran and Ederer (2007) and Hein and Vogel (2008a, 2008b). The main contribution lies in a careful analysis of the effects of globalization. Since Germany is a large open economy by now it is a particularly interesting case study.

We investigate the Hartwick rule for saving of a nation necessary to sustain a constant level of private consumption for a small open economy with an exhaustible stock of natural resources. The amount by which a country saves and invests less than the marginal resource rents equals the expected capital gains on reserves of natural resources plus the expected increase in interest income on net foreign assets plus the expected fall in the cost of resource extraction due to expected improvements in extraction technology. Effectively, depletion is then postponed until better times. This suggests that it is not necessarily sub-optimal for resource-rich countries to have negative genuine saving. However, in countries with different groups with imperfectly defined property rights on natural resources, political distortions induce faster resource depletion than suggested by the Hotelling rule. Fractionalised societies with imperfect property rights build up more foreign assets than their marginal resource rents, but in the long run accumulate less foreign assets than homogenous societies. Hence, such societies end up with lower sustainable consumption and are worse off, especially if seepage is strong, the number of rival groups is large and the country does not enjoy much monopoly power on the resource market. Genuine saving is zero in such societies. However, World Bank genuine saving figures based on market rather than accounting prices will be negative, albeit less so in more fractionalised societies with less secure property rights.

In the United States wealth is highly concentrated and very unequally distributed: the richest 1% hold one third of the total wealth in the economy. Understanding the determinants of wealth inequality is a challenge for many economic models. We summarize some key facts about the wealth distribution and what economic models have been able to explain so far.

A growing body of empirical evidence shows that there exists a long-run positive trade-off between inflation and real macroeconomic activity. Within a New Keynesian framework, we examine how increasing returns generate a positive long-run relation between inflation and output.

This paper aims at empirically estimating the demand effects of changes in functional income distribution for Austria. Based on a Post-Kaleckian macro model, this paper estimates the effects of a change in the wage share on the main demand aggregates. The results for the behavioral functions for consumption, investment, prices, exports and imports are compared with the specifications of the WIFO macro model and the IHS macro model. A reduction in the wage share has a restrictive effect on domestic demand as consumption decreases more strongly than investment increases. Because of the strong effects on net exports the overall effects of a decrease in the wage share are expansionary. However the latter effect operates only as far as the fall in the wage share increases competitiveness. As wage shares were also falling in Austria’s main trading partners, the effect seems to have been neutralized.

An increase in the wage share has contradictory effects on the subaggregates of aggregate demand. Private consumption expenditures ought to increase because wage incomes typically are associated with higher consumption propensities than capital incomes. Investment expenditures ought to be negatively affected because investment will positively depend on profits. Net exports will be negatively affected because an increase in the wage share corresponds to an increase in unit labour costs and thus a loss in competitiveness. Therefore, theoretically, aggregate demand can be either wage-led or profit-led depending on how these effects add up. The results will crucially depend on how open the economy is internationally. The paper estimates a post-Kaleckian macro model incorporating these effects for the Euro area and finds that the Euro area is presently in a wage-led demand regime. Implications for wage policies are discussed. Copyright The Author 2008. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.

Estimates of the effect of education on GDP (the social return to education) have been hard to reconcile with micro-evidence on the private return. We present a simple explanation that combines two ideas: imperfect substitution between worker types and endogenous skill-biased technological progress. When types of workers are imperfect substitutes, the supply of human capital is negatively related to its return, and a higher education level compresses wage differentials. We use cross-country panel data on income inequality to estimate the private return and GDP data to estimate the social return. The results show that the private return falls by 1.5 percentage points when the average education level increases by a year, which is consistent with Katz and Murphy's [1992] estimate of the elasticity of substitution between worker types. We find no evidence for dynamics in the private return, and certainly not for a reversal of the negative effect as described in Acemoglu [2002]. The short-run social return equals the private return, but the long-run return is two times higher, providing evidence in favour of endogenous technological progress. The rise in education is the major cause of productivity growth over the sample period 1960-90.

It is sometimes argued that news reports in the media suffer from biased reporting. Mullainathan and Shleifer (2002, 2005) argue that there are two types of media bias. One bias, called ideology, reflects a news outlet's desire to affect reader opinions in a particular direction. The second bias, referred to as 'spin' or 'slanting', reflects the outlet's attempt to simply create a memorable story. Competition between outlets can eliminate the effect of ideological bias, but increases the incentive to spin or slant stories. We examine whether we find some evidence of spin in Dutch newspaper reporting on the state of the economy. If newspapers are indeed able to create memorable stories this should, according to our hypothesis, affect the opinion of readers with respect to the state of the economy. Sentiments about the actual state of the economy could be magnified by spin. As a result, consumer confidence-a variable that routinely measures the opinion on the state of the economy-can be expected to be affected not only by economic fundamentals, but also by the way these fundamentals are reported. We construct a variable that reflects the way consumers perceive economic news reported in newspapers. We find that this variable indeed has a significant impact on consumer confidence, which is short-lived.

We propose a theory of low-frequency movements in unemployment based on asymmetric real wage rigidities. The theory generates two main predictions: long-run unemployment increases with (i) a fall in long-run productivity growth and (ii) a rise in the variance of productivity growth. Evidence based on U.S. time series and on an international panel strongly supports these predictions. The empirical specifications featuring the variance of productivity growth can account for two U.S. episodes which a linear model based only on long-run productivity growth cannot fully explain. These are the decline in long-run unemployment over the 1980s and its rise during the late 2000s.

référence interne : A2016.26; International audience; This paper quantitatively assesses the interaction between permanent immigration into France and France's macroeconomic performance as seen through its GDP per capita and its unemployment rate. It takes advantage of a new database where immigration is measured by the flow of newly-issued long-term residence permits, categorized by both the nationality of the immigrant and the reason the permit was issued. Using a VAR model estimation of monthly data over the period 1994-2008, we find that immigration flow significantly responds to France's macroeconomic performance: positively to the country's GDP per capita and negatively to its unemployment rate. At the same time, we find that immigration itself increases France's GDP per capita, particularly in the case of family immigration. This family immigration also reduces the country's unemployment rate, especially when the families come from developing countries.

This paper provides new empirical insights on the joint distribution of consumption, income, and wealth in three of the poorest countries in the world ? Malawi, Tanzania, and Uganda ? all located in Sub-Saharan Africa (SSA). The first finding is that while income inequality is similar to that of the United States (US), wealth inequality is barely one-third that of the US. Similarly, while the top of the income distribution (1 and 10 percent) earns a similar share of total income in SSA as in the US, the share of total wealth accumulated by the income-rich in SSA is one-fifth of its US counterpart. The main contributions of the paper are to document: (i) this dwarfed transmission from income to wealth, which suggests that SSA households face a larger inability to save and accumulate wealth compared with US households; and (ii) a lower transmission from income to consumption inequality, which suggests the presence of powerful institutions that favor consumption insurance to the detriment of saving. These features are more relevant for rural areas, which represent roughly four-fifths of the total population. The paper identifies the few successful pockets of the SSA population that are able to accumulate wealth by exploring sources of inequality such as age, education, migration, borrowing ability, and societal systems.

We consider an economy where individuals face uninsurable risks to their human capital accumulation and analyze the optimal level of linear taxes on capital and labor income together with the optimal path of government debt. We show that in the presence of such risks, it is beneficial to tax both labor and capital and to issue public debt. We also assess the quantitative importance of these findings, and show that the benefits of government debt and capital taxes both increase with the magnitude of idiosyncratic risks and the degree of relative risk aversion. (JEL D52, H21, H24, H25, H63, J24) Human capital is an important component of wealth both at the individual and aggregate level, and its role has been investigated in various fields in economics. In public finance, Jones, Manuelli, and Rossi (1997) show that the zero-capital-tax result of Chamley (1986) and Judd (1985) 1 can be strengthened if human capital accumulation is explicitly taken into account. Specifically, they demonstrate that, in a deterministic economy with human capital accumulation, in the long run not only capital but also labor income taxes should be zero, hence the government must accumulate wealth—that is, public debt be negative—to finance its expenditure.

Every year 400,000 entrepreneurs fail and 60,000 file for personal bankruptcy. The option to declare bankruptcy provides entrepreneurs with insurance against the financial consequences of business failures. However, it comes at the cost of worsened credit market conditions. In this paper, we construct a quantitative general equilibrium model of entrepreneurship to show that the presence of secured credit in addition to unsecured credit substantially alters the trade-off between insurance and credit conditions. A lenient bankruptcy law always worsens credit conditions, in particular for poor entrepreneurs. If secured credit is not available, their credit conditions are so bad that many prefer to become workers. In that case, we show that the optimal bankruptcy law is very harsh because the benefits from better credit conditions dominate the worsened insurance. However, if secured credit is available, entrepreneurs who might be rationed out of the unsecured credit market can still obtain secured credit. Therefore, they can run larger firms, which makes entrepreneurship more attractive. Since the presence of secured credit lowers the cost of a generous bankruptcy law, we find that the optimal law is lenient in this case; exactly the opposite result as obtained in the model version without secured credit.

This paper evaluates the short term impacts on poverty of pro-poor expenditure and total social expenditure during the 1999-2002 period of Bolivian economic recession. Observed characteristics of recession are simulated by the combined effects of negative terms of trade shock, reduction in foreign saving flows and low output growth. Evaluation is performed by simulating the impacts of shocks and social expenditures in an environment of low growth: i) on macro aggregates of consumption, income, saving and prices (based on a simple static 1-2-3 model built with 1998 data as the base year), ii) on household income and consumption levels by quintiles and areas, and iii) on consumption based poverty indicators by areas. The following were main results from experiments: The terms of trade shock had greater negative impact on household income then reduction in foreign saving flows. In contrast, reduction in foreign saving flows had greater negative impact on household consumption then the terms of trade shock. Poverty measured by the head count ratio has been greater from reduction in foreign saving flows then from the terms of trade shock. Poverty measured by the poverty gap and poverty intensity has concentrated in rural areas, being greater from reduction in foreign saving flows then from the terms of trade shock. Under macroeconomic stability (no shocks and 1998 macro conditions) social expenditure policy for poverty reduction would have had an important positive impact on household income and consumption levels (more so in income then consumption), in reducing the number of poor (more in urban then rural areas), and in reducing poverty gap and poverty intensity (more so in rural areas). However, social expenditure policy does not promote the production of tradables. The combined positive effects from observed social expenditure policy and effort in an environment of low output growth, did not compensate the combined negative impacts from the experienced terms of trade shock and reduction in foreign saving flows. These conclusions show that under macroeconomic disequilibrium poverty reduction efforts become policies of poverty containment or safety net programs. Poverty reduction is a long term objective that requires long term commitment for an environment on macroeconomic stability.

Within the EU region, the emerging policy orientation of pursuing balanced or in-surplus budgets as a means of revitalising investment has dominated economic policy. Nonetheless, the notion that saving must be boosted in order to expand investment, is a contention that has to be taken with a ‘pinch of salt’. This study, by elaborating on the causal dimension between investment and saving, provides econometric evidence on the basis of which investment is a variable of the utmost importance.

We analyze how the impact of a change in the sovereign debt-to-GDP ratio on economic growth depends on the level of debt, the stress level on the financial market and the membership in a monetary union. A dynamic growth model is put forward demonstrating that debt affects macroeconomic activity in a non-linear manner due to amplifications from the financial sector. Employing dynamic country-specific and dynamic panel threshold regression methods, we study the non-linear relation between the growth rate and the debt-to-GDP ratio using quarterly data for sixteen industrialized countries for the period 1981Q1-2013Q2. We find that the debt-to-GDP ratio has impaired economic growth primarily during times of high financial stress and only for countries of the European Monetary Union and not for the stand-alone countries in our sample. A high debt-to-GDP ratio by itself does not seem to necessarily negatively affect growth if financial markets are calm. (authors' abstract)

Firms expect certain investment expenditures. Firms realize certain investment expenditures. The difference is an investment surprise. With the help of the IFO Investment Survey for the German manufacturing sector we measure firms' (quantitative) investment expectations and firms’ (quantitative) investment realizations on a yearly basis and construct a panel of firm-level investment innovations. This paper documents its cross-sectional and time-series properties and thus provides direct, econometrics-free quantitative discipline on the idiosyncratic shock processes used in structural heterogeneous-firm models. We find: 1) there is excess kurtosis in investment innovations, but no significant skewness; 2) the cross-sectional average of investment innovations is procyclical; 3) the cross-sectional dispersion of investment innovations is countercyclical; 4) the cross-sectional skewness and kurtosis of investment innovations is largely acyclical; 5) the cross-sectional average of the firm-individual time series volatility of investment innovations is countercyclical and highly positively correlated with the cross-sectional dispersion of investment innovations; 6) measures of firm-idiosyncratic risk have sizeable fluctuations, in the range of aggregate investment fluctuations.

What shapes the optimal degree of progressivity of the tax and transfer system? On the one hand, a progressive tax system can counteract inequality in initial conditions and substitute for imperfect private insurance against idiosyncratic earnings risk. On the other hand, progressivity reduces incentives to work and to invest in skills, distortions that are especially costly when the government must finance public goods. We develop a tractable equilibrium model that features all of these trade-offs. The analytical expressions we derive for social welfare deliver a transparent understanding of how preference, technology, and market structure parameters influence the optimal degree of progressivity. A calibration for the U.S. economy indicates that endogenous skill investment, flexible labor supply, and the desire to finance government purchases play quantitatively similar roles in limiting optimal progressivity. In a version of the model where poverty constrains skill investment, optimal progressivity is close to the U.S. value. An empirical analysis on cross-country data offers support to the theory.

SBTC is a powerful mechanism in explaining the increasing gap between educated and uneducated wages. However, SBTC cannot mimic the US within-group wage inequality. This paper provides an explanation for the observed intra-college group inequality by showing that the top decile earners' significant wage growth is underpinned by the link between ex ante ability, math-heavy college majors and highly quantitative occupations. We develop a general equilibrium model with multiple education outcomes, where wages are driven by individuals' ex ante abilities and acquired math skills. A large portion of within-group and general wage inequality is explained by math-biased technical change (MBTC).

The current unsustainable growth of the world economy is largely a consequence of the crisis of social capital experienced by much of the world’s population. Declining social capital leads economies towards excessive growth, because people seek, in economic affluence, compensation for emotional distress and loss of resources caused by scarce social and affective relationships. To slow down economic growth requires an increase in social capital that is a fundamental contributor to happiness. From a wide range of possible approaches to increasing present happiness, this article suggests policies that would shift the economy to a more sustainable path. It focuses on a more politically sustainable set of proposals for a green ‘new deal’ than some of those currently under discussion.

Recent empirical research has shown that income per capita in the aftermath of natural disasters is not necessarily lower than before the event. In many cases, income is not significantly affected and surprisingly, can even respond positively to natural disasters. Here, we propose a simple theory based on the neoclassical growth model that explains these observations. Specifically, we show that GDP is driven above its pre-shock level when natural disasters destroy predominantly residential housing (or other durable goods). Disasters destroying mainly productive capital, in contrast, are predicted to reduce GDP. Insignificant responses of GDP can be expected when disasters destroy about equally residential structures and productive capital. We also show that disasters, irrespective of whether their impact on GDP is positive, negative, or insignificant, entail considerable losses of aggregate welfare.

In order to understand from where the profits or monetary profits of capitalists and firms emerge the author examined the phrase of Marx, 'Die Gesamtklasse der Kapitalisten kann nichts aus der Zirkulation herausziehen, was nicht vorher hineingeworfen war.' (The class of capitalists cannot extract from the circulation, what has not previously been thrown in.) Also Keen studied the monetary paradox and contrary to circuitists he came to the conclusion that capitalists can make monetary profit with a possibility to earn enough to repay their debt and with positive balances for all actors. The author will prove that Keen made a fundamental mistake and is using the Stock Flow Consistency Principle in an inconsistent way by combining it with behavior equations in a dynamic model. So the solution presented here is not only showing that the numbers are incorrect but the method itself. This resolves a contraction between Keen and circuitists and implies that, in a Wicksellian pure credit economy, it remains impossible to gain a monetary profit for all actors. More precisely that the total sum of monetary profit over all actors is zero.

We examine the effects of government redistribution schemes in an economy where agents are subject to uninsurable, individual specific productivity risk. In particular, we consider the trade-off between positive insurance effects and negative distortions on labor supply and saving. We parameterize the model by estimating productivity processes on Swedish and U.S. data. The estimation results show that agents in the United States are subject to more idiosyncratic risk than agents in Sweden. Although distortions are significant, the welfare benefits of government redistribution and insurance systems can be substantial. Journal of Economic Literature Classification Numbers: E20, H21.

In this paper, we show that the rate of unemployment in period t depends on GDP and inflation rate in period t-1. We then show that GDP is related to money creation, and subsequently that the rate of unemployment is a decreasing function of this creation.

Over the past three decades, a large amount of research has attempted to identify the determinants of the natural rate of unemployment. It is this body of work we assess in this paper. We reach two main conclusions. First, there has been considerable theoretical progress over the past 30 years. A framework has emerged. We present it, and show how it can be used to think for example about the relation between technological progrss and unemployment. Second, empirical knowledge lags behind. Economists do not have a good quantitative understanding of the determinants of the natural rate, either across time or across countries. We look at two issues, the relation of wages to unemployment, and the risk of European unemployment.

This paper studies the impact of social trust and formal legal institutions on capital accumulation in a panel of countries. The results not only confirm that both social trust and the quality of formal legal institutions have a positive impact on capital accumulation, but also show that they are substitutes. Specifically, the impact on capital accumulation of an upgrade of the quality of formal legal institutions is larger when social trust is low than when social trust is high, and vice versa. These findings apply both to total investment and to its foreign component, foreign direct investment., SCOPUS: ar.j, info:eu-repo/semantics/published

I. INTRODUCTION Many theoretical studies suggest that policy-makers can generate greater current spending by making people believe in higher future inflation when nominal interest rates are stuck at the zero lower bound (ZLB). Krugman (1998), using a simple two-period model and with Japan's low interest rate environment in the 1990s in mind, was the first to show that a central bank's commitment to high inflation is effective. Eggertsson and Woodford (2003) show that this proposition is relevant even in a standard dynamic stochastic general equilibrium (DSGE) model. More recently, with many central banks such as the Federal Reserve starting to face the ZLB and to cope with weak economic demand, many policy proposals have been made based on the perception that an increase in expected inflation is a good thing to stimulate economic activity. (1) The logic for these suggestions is based on the Fisher equation and the intertemporal substitution effect: if nominal interest rates are fixed, higher inflation expectations lead to lower real interest rates, creating an incentive to spend now rather than in the future. However, according to basic economic theory, lower real interest rates may suppress current spending, if adverse forces such as the income effect dominate the intertemporal substitution effect. Thus, the consequences of low real interest rates are an empirical matter. Therefore, the question arises why standard DSGE models somewhat confidently suggest that the substitution effect dominates other effects. A large number of empirical studies, which typically use vector autoregression (VAR) models, show that if central banks unexpectedly reduce nominal short-term interest rates or if a negative monetary shock occurs, spending is stimulated. Standard DSGE models are constructed to match such findings. For example, Christiano, Eichenbaum, and Evans (2005) show that their DSGE model can replicate the VAR estimates of impulse responses following a monetary policy shock. In such models, given that prices and thus expected inflation are sticky, a lower nominal interest rate leads to a lower real interest rate, which generates greater current spending based on the implicit assumption that the intertemporal substitution effect dominates other adverse effects. Several studies, including Eggertsson and Woodford (2003), incorporate the ZLB into such DSGE models and suggest that even the expectation of a modest inflationary boom in the future has a dramatic effect on current spending by lowering real interest rates. However, as mentioned above, the justification of standard DSGE models largely depends on empirical results about the effects of changes in nominal interest rates rather than changes in expected inflation, and these results are obtained using the data of major industrialized countries that did not face the ZLB constraint until very recently. In fact, there are only few studies that directly examine the effects of inflation expectations on consumer spending using data in a ZLB environment. Bachmann, Berg, and Sims (2014) examine this issue using the micro data from the Michigan Survey of Consumers conducted in the United States. The Michigan Survey collects repeated cross-sectional data on quantitative measures of expected inflation, as well as qualitative measures of "readiness to spend," namely, responses to questions about whether now is a good or bad time to buy durable goods. The data are available at a monthly frequency and cover the period from January 1984 to December 2012. Bachmann, Berg, and Sims (2014) regard the period from December 2008 onward as the ZLB period. The estimation result of their baseline ordered probit model is the opposite of the prediction of standard theoretical models: the impact of expected inflation on the readiness to spend on durables is negative and statistically significant, although small in absolute value, at the ZLB. They then consider several potential explanations underlying these results, including nominal money illusion; that is, households understand how nominal interest rates impact the intertemporal relative prices between spending now and spending in the future, but they may not understand how inflation expectations do. …

This paper examines the causality relationship between immigration, unemployment and economic growth of the host country. We employ the panel Granger causality testing approach of Kónya (2006) that is based on SUR systems and Wald tests with country specific bootstrap critical values. This approach allows to test for Granger-causality on each individual panel member separately by taking into account the contemporaneous correlation across countries. Using annual data over the 1980-2005 period for 22 OECD countries, we find that, only in Portugal, unemployment negatively causes immigration, while in any country, immigration does not cause unemployment. On the other hand, our results show that, in four countries (France, Iceland, Norway and the United Kingdom), growth positively causes immigration, whereas in any country, immigration does not cause growth., Cet article examine la relation de causalité entre l'immigration, le chômage et la croissance économique. Nous utilisons le test de causalité en panel à la Granger basé sur les estimations SUR et les valeurs critiques de Bootstrap proposé par Konya (2006). Cette approche permet d'examiner ces relations de causalité pour chaque pays d'accueil tout en tenant compte simultanément de la situation des autres pays d'accueil. A partir de données de 22 pays de l'OCDE entre 1980 et 2005, nos résultats montrent qu'il n'y a pas d'influence de l'immigration sur les conditions économiques des pays d'accueil, par contre, dans certains pays d'accueil, l'immigration peut être influencée par leurs conditions économiques. Plus précisément, nos résultats du test de causalité montrent que, uniquement au Portugal, le taux de chômage influence négativement le flux migratoire, et que dans 4 pays (France, Irlande, Norvège et Royaume Uni) le PIB par tête a une influence positive sur le flux migratoire.

A ‘sudden stop’ to (private) capital inflows is usually very disruptive to an economy because it forces an almost immediate reversal in the current account unless the country in question receives substantial balance of payments assistance. The analysis presented in this paper starts from the observation that two groups of European countries, neither of which could use the exchange rate as an adjustment instrument, experienced a sudden stop after the outbreak of the global financial crisis. The first group comprises five euro area member states under financial stress during the euro area debt crisis (“GIIPS”). The second group comprises four newer EU Member States in Central and Eastern Europe (“BELL”). We highlight the differences in the adjustment paths of these two groups and analyse the factors which can explain them. The main finding is that the adjustment was quicker outside EMU than inside. The shock absorbers provided by the financial ‘plumbing’ of the Eurosystem offset much of the reversal in private capital flows and seem to have created an environment in which the pressure for a quick adjustment was much weaker. We also find that the structure of the domestic banking industry plays a key role. Foreign ownership of banks provided a loss absorber in the BELL favouring a quick correction, while the legacy of the banking crisis in some of GIIPS, where foreign ownership of banks was limited, is likely to weight for long time on their still incomplete.

This paper presents a theoretical and empirical analysis of the role of life expectancy for optimal schooling and lifetime labor supply. The results of a simple prototype Ben-Porath model with age-specific survival rates show that an increase in lifetime labor supply is not a necessary, or a sufficient, condition for greater life expectancy to increase optimal schooling. The observed increase in survival rates during working ages that follows from the "rectangularization" of the survival function is crucial for schooling and labor supply. The empirical results suggest that the relative benefits of schooling have been increasing across cohorts of U.S. men born between 1840 and 1930. A simple quantitative analysis shows that a realistic shift in the survival function can lead to an increase in schooling and a reduction in lifetime labor hours. [PUBLICATION ABSTRACT]