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Fixed versus flexible exchange rate dilemma has become a subject of rigorous academic discussions for decades. Advantages of exchange rates flexibility contrasted benefits of exchange rate stability though a phenomenon known as the fear of floating favoured exchange rate variability and its positive effects on economies. Relative diversity in the exchange rate regimes in EU11 countries motivated many authors to investigate the sources of their real exchange rate volatility provided that even fixed exchange rates may fluctuate via adjustments in prices and wages. However, fixed exchange rate perspective associated with Eurozone membership may induce changed patterns in the real exchange rate determination in countries that benefit from nominal exchange rate flexibility prior to euro adoption. In the paper we analyse sources of real exchange rates fluctuations in EU11 countries. SVAR methodology and impulse-response functions will be employed to examine the responsiveness of real exchange rates to the underlying structural shocks by employing SVAR methodology. Our results indicate an increased responsiveness of real exchange rates in EMU non-member countries to demand and supply shocks, particularly due to the effects of the crisis period. At the same time, real exchange rates in EMU member countries became more responsive to nominal shocks.

The incentives of politicians to provide broad public goods and reduce poverty vary across countries. Even in democracies, politicians often have incentives to divert resources to political rents and private transfers that benefit a few citizens at the expense of many. These distortions can be traced to imperfections in political markets that are greater in some countries than in others. This article reviews the theory and evidence on the impact on political incentives of incomplete information for voters, the lack of credibility of political promises, and social polarization. The analysis has implications for policy and for reforms to improve public goods provision and reduce poverty.

Empirical work in labor economics has focused on rent sharing as an explanation for the observed correlation between wages and profitability. The alternative explanation of risk sharing between workers and employers has not been tested. Using a unique panel data set for four African countries, Authors find strong evidence of risk sharing. Workers in effect offer insurance to employers: when firms are hit by temporary shocks, the effect on profits is cushioned by risk sharing with workers. Rent sharing is a symptom of an inefficient labor market. Risk sharing; by contrast, can be seen as an efficient response to missing markets. Authors evidence suggests that risk sharing accounts for a substantial part of the observed effect of shocks on wages.

Tese de doutoramento em Ciências Empresariais, A presente tese de doutoramento visa analisar o desempenho dos mercados financeiros e dos níveis de atividade económica na Zona Euro, nos EUA e no bloco NAFTA. Deste modo, no primeiro capítulo, fazendo uso de uma especificação de um modelo SVAR, com restrições contemporâneas, analisam-se os efeitos dos choques petrolíferos sobre os mercados bolsistas dos EUA, Alemanha, França, Portugal e Grécia. Através de uma análise dinâmica, revela-se que os choques petrolíferos não afetam significativamente os mercados bolsistas, realçando-se, todavia, o papel preponderante e determinante do índice dos EUA sobre o desempenho dos índices europeus. Porém, no contexto europeu, apenas se verifica uma relação significativa e unidirecional entre o índice bolsista francês e o índice bolsista português, que pode justificar-se pelo facto de ambos os índices integrarem o Euronext Stock Exchange. No segundo capítulo, recorrendo ao uso de uma especificação de um modelo SVAR, com restrições de longo-prazo, e usando a decomposição de Blanchard & Quah (1989), procede-se à análise dos efeitos dos choques fiscais e petrolíferos sobre países integrantes da Zona Euro e dos EUA, constatando-se que, os choques fiscais apresentam uma menor preponderância que o choque petrolífero. Porém, o efeito dos choques petrolíferos, no cômputo geral, é positivo sobre a atividade económica e o mercado de acções, ao invés do impulso sobre o mercado de obrigações de dívida soberana que se revela negativo. No que concerne à reduzida significância dos choques fiscais, esta associa-se à importância da política monetária. Relativamente ao choque petrolífero, constata-se a importância da valorização da taxa de câmbio bem como a enorme contribuição das empresas petrolíferas para a determinação do desempenho dos mercados de ações e a uma redução de produção petrolífera (oferta) ou de um comportamento especulativo resultante da crise financeira. No terceiro capítulo, ao usar-se um modelo SVEC na análise do choque fiscal por via das receitas fiscais entre países integrantes de Zona Euro, constata-se que os choques por via dos impostos indiretos é o choque mais significativo, denotando-se, todavia, um efeito negativo sobre a globalidade dos mercados de ações em estudo. Sublinha-se que, o mercado italiano responde de forma negativa e significativa a ambos os choques fiscais, o que pode ser justificado pelo facto de os mercados anteciparem um possível bailout à economia italiana. Por conseguinte, as previsões para fora da amostra, ao mostrarem uma tendência de queda acentuada do desempenho dos mercados de ações, em termos gerais, acompanhada de um aumento acentuado de carga fiscal no caso espanhol, podem sinalizar um hipotético término da moeda única europeia. No quarto capítulo, com o objetivo de indagar sobre o desempenho dos mercados de ações ao longo da sua distribuição de desempenho, perante as dinâmicas de IDE, preços de petróleo e atividade económica em países integrantes da Zona Euro. Revela-se ainda que o IDE surte um efeito negativo e significativo, em níveis inferiores de desempenho dos mercados, ao passo que os preços de petróleo surtem um efeito negativo e significativo, ao longo da totalidade da distribuição de desempenho dos mercados de ações. No que concerne à atividade económica, verifica-se que esta não tem qualquer efeito significativo sobre o desempenho dos mercados. No quinto capítulo, procede-se à análise dos choques de oferta para avaliar a hipotética existência de relações económicas de longo-prazo, através de evidências empíricas sobre uma zona monetária ótima, tanto no bloco NAFTA como no bloco europeu, o qual se divide em dois grupos (PIIGS e Bloco Europeu dos Países Ricos). Por intermédio de um modelo SVAR, conforme proposto por Blanchard & Quah (1989), verifica-se que tanto o bloco NAFTA, como o grupo de países ricos da Zona Euro e da União Europeia (UE) se verifica a admissibilidade de formação de zonas monetárias ótimas, na medida em que a rapidez de ajustamento a estes choques num contexto regional, é superior à verificada para os choques de oferta num contexto global e doméstico. No entanto, a rapidez de ajustamento na região NAFTA é superior à do grupo Bloco Europeu dos Países Ricos., This doctoral thesis aims to analyse the behaviour of financial markets and levels of economic activity in the Eurozone, the U.S. and the NAFTA block. Thus, in the first chapter, using a specification of a SVAR model with contemporaneous restrictions, the effects of oil shocks on the U.S. stock markets, Germany, France, Portugal and Greece, are analysed. Through a dynamic analysis, we reveal that oil price shocks do not significantly affect stock markets, by stressing the predominant and determinant role of the US stock market on the performance of European stock markets. However, in the European context, we only identified a significant and unidirectional relationship between the French and Portuguese stock markets, which can be justified by the fact that both indices integrate the Euronext Stock Exchange. In the second chapter, by making use of an SVAR model specification, with long-term restrictions, and taking into consideration the Blanchard and Quah (1989)’s decomposition, the effects of fiscal shocks and oil shocks on countries of the Eurozone and US are analysed. Overall, the results obtained reveal that the fiscal shocks have a minor effect on stock markets, in comparison with oil shock. In regarding to oil shock, empirical evidences now obtained reveal a positive effect on a larger set of countries, concerning stock markets and economic activity, unlike to the stated on sovereign bonds market, for which a negative effect is verified. According to the evidences from fiscal shocks, an explanation for the low significance of fiscal shocks, it may be associated with a larger position of monetary policy. Before reaching positive outcomes from oil shock, it may be presumed that exchange rate valuation and the high weight of great oil corporations on economic activity and stocks are the main determinant factors for the occurrence of this positive signal. Therefore, the negative impulses from oil prices on bonds market take into account the expected reduction in production (supply) speculation, mainly because of the financial crisis together with Arab conflicts. In the third chapter, when using an SVEC model for analysing the effects of fiscal shock through tax revenues among Eurozone stock markets, it appears that the shock towards indirect taxes is the most significant, when comparing with shock through direct taxes, by denoting a negative effect on the totality of the stock markets under study. It stresses that the Italian stock market is the one that responding significantly and negatively by either indirect taxes or direct taxes. This result may be justified by the fact that stock markets investors anticipate a potential bailout for Italian state. Therefore, the evidences from out-of-sample forecasting reveal a bearish trend market in global stock markets, accompanied by a heightened trend in the fiscal burden, namely, in the context of Spain that may signal a possible end of the euro currency. In the fourth chapter, in order to investigate how the stock markets behave along the performance distribution, given the dynamics of FDI, oil prices and economic activity in the context of Eurozone countries, it is revealed that the FDI has a negative and significant effect, at lower levels of market performance, while the oil prices have a negative and significant effect throughout the whole distribution of stock market performance. Regarding to the economic activity, we reveal there is no significant effect on the stock markets’ behaviour. In the fifth chapter, an analysis on supply shocks is performed, in order to assess the hypothetical existence of long-term economic relations that support the existence of an optimal currency area (OCA), both on the NAFTA and European block, which is subdivided into two groups (PIIGS and Rich Countries). Through a SVAR model, as previously proposed by Blanchard and Quah (1989), we find for the NAFTA block, the group of rich countries of the Eurozone and the Europe block, empirical evidences on the existence of OCAs, in so far as that the speed of adjustment to these shocks in a regional context, is higher than supply shocks in a global and domestic contexts. However, the speed of the adjustment region is higher for the NAFTA, comparing with the set of Rich Countries.

This paper investigates the transmission of foreign shocks to economic activity and macroeconomic policies in the South Eastern European (SEE) economies with fixed exchange rate regimes: Croatia, Macedonia and Bulgaria. Specifically, we provide empirical evidence on the influence of the EMU policy and non-policy shocks (the output gap, the money market rate and the inflation rate in the euro-zone) on monetary and fiscal policies and economic activity in the analysed countries. The main motivation behind our empirical investigation is the fact that all of these economies are small open economies with rigid exchange rate regimes, with different degree of integration within the EU. As for the methodological issues, we employ recursive Vector Auto regressions to identify the exogenous shocks in the euro-area. Generally, the estimated results imply that euro-zone economic activity has significant and relatively strong influence on SEE economies and these external shocks are transmitted relativity quickly. Moreover, the results also suggest that the effects of exogenous shocks are more persistent if the domestic economy is more integrated with the EU. An additional finding is that shocks in the foreign reference rate are relatively quickly transmitted to domestic money market rates. We can explain these effects by several factors, such as: the fixed exchange rates, the relatively high integration of SEE financial markets to EMU financial markets as well as the dependence of banks on foreign financing. Finally, euro-zone inflation does not have a significant influence on domestic inflation, which might indicate that inflaction in SEE economies is mostly driven by idiosyncratic shocks.

This paper examines the welfare loss of import restrictions on bananas in Australia and whether the import restrictions have turned into a particular form of export promotion. We set up a model in which there is free domestic entry, with banana producers accepting losses in normal years, off-set by large profits in years when cyclones destroy a large proportion of the banana plants because of sufficiently low elasticity of demand. Using the cyclones of 2006 and 2011 as exogenous events, we identify the elasticity of demand for bananas in Australia to be around -0.5. We indeed find limited evidence for an ‘over-shooting’ in terms of the supply response after these cyclones, leading to positive exports years after cyclones have hit and re-planted banana plants have become productive. Combining the elasticity estimates with information on turnover, we get an estimated welfare loss of 600 million dollars per year due to banana import restrictions.

We are the first to examine whether exogenous shocks cause personal bankruptcy through the balance sheet channel and/or the income statement channel. For identification, we examine the effect of exogenous, politically motivated government payments on 200,000 Canadian bankruptcy filings. We find support for the balance sheet channel, in that receipt of the exogenous cash increases the net balance sheet benefits of bankruptcy (unsecured debt discharged minus liquidated assets forgone) required by filers. We also find limited support for the income statement channel, in that exogenous payments reduce bankruptcy filings from individuals whose current expenses exceed their current income.

En este artículo se utiliza un modelo de equilibrio general dinámico estocástico (DSGE) para evaluar el impacto de choques de oferta (productividad) y demanda (comercio externo) sobre el desempeño económico. En particular, este trabajo analiza el impacto de las políticas fiscales, específicamente el efecto del gasto público en determinados entornos económicos, como el colombiano. Los ejercicios realizados muestran que en un modelo de economía abierta, una política expansiva de gasto público incrementa en el corto plazo el empleo y el producto, pero se incurre en un costo futuro, que parece sugerir un impacto superior al beneficio alcanzado en el corto plazo.

This report has been prepared by the World Bank for the Government of Romania as an output of the World Bank advisory services program on climate change and low-carbon green growth in Romania. In response to the request, the World Bank quickly mobilized a team of sectoral and climate change (CC) specialists and conducted rapid assessments in six sectors - energy, transport, urban, water, agriculture, and forestry, which were pre-identified by both the Government of Romania and the World Bank as areas significant to emission mitigation and or adaptation to CC. The objective of rapid assessments was to quickly evaluate climate risks and identify CC-related investment priorities and necessary implementation support for the 2014-2020 operational programs. This document is the stocktaking report of component A1. It provides an introductory cover to the literature on CC, baseline for Romania, institutional review of Romania and key European Union (EU) requirements, as well as available data sets that were identified in the given short-time span. Its purpose is to support the government as a first stock of key climate and green growth issues for Romania and summarize the current situation. The report is structured as follows: section one gives introduction, section two provides the sectoral summary on the country background and characteristics. Section three provides the baseline for the CC and green growth challenges in Romania. Relevant climate dimensions of Europe 2020 and existing EU regulations and policies related to climate change are summarized in section four. Section five provides an overview of national strategies, regulatory framework, and organizational setup for addressing CC in Romania. Background information on the Romania 2014-2020 European structural and investment funds (ESIF) programming and CC related aspects in the forthcoming ESIF programming report are covered in section six. Finally, section seven provides a CC relevant bibliography for Romania that may serve as a tool for referring to key literature in the field.

Tanzania continues to stand out as a model of sound economic performance in the African continent, with a growth rate of over six per cent in 2011 and 2012, surpassing other regional economies and demonstrating impressive resilience to the global economic crisis. This is the second issue of the Tanzania economic update series. The series aim to engage a broad audience in a discussion of the state of the economy in general, as well as in specific debates of topical importance in Tanzania. The current issue seeks to get the discussion going on how to achieve the structural transformation of the rural economy so that rural households can also benefit from the country's remarkable growth performance.

The paper examines the impact of four exogenous shocks – exchange rate appreciation, feed price escalation, mandatory country of origin labeling, and economic recession – on the Canadian and U.S. beef cattle industries using a multi-market partial equilibrium model. Impacts on the U.S. industry are found to be relatively small compared to those on the Canadian industry. Country of origin labeling, and feed price escalation account for the largest decline in the welfare of Canadian cattle producers.

In this paper, decisions regarding production in oil exporting countries are studied by means of theoretical analysis and empirical investigation. Under the assumptions of exogenous oil prices and world oil demand, we are able to describe the relationship between oil production levels and changes in the conditions in world oil markets. Intertemporal production decisions by a representative oil producer are modelled by means of a partial equilibrium model. In this theoretical model, oil producers are subject to exogenous shocks in world oil demand and prices. Oil companies can change output levels only by incurring a fixed cost. Results from the simulation of this model show a strong relationship between oil production and changes in world oil consumption. On the contrary, the effects of changes in real oil prices on oil production decisions seem to be much lower. Results from the simulation of the theoretical model are then empirically investigated using time-series econometric techniques. The empirical evidence supports the hypothesis that several oil producing countries are characterized by different responses to changes in world oil demand and in real oil prices. For many countries production rapidly adjusts to changes in consumption whereas responses of oil production to innovations in real oil prices are found to be not statistically significant. In addition, when non-linearities in the relationship between exogenous variables and output levels are allowed for, evidence of asymmetric effects of output levels to shocks in demand levels and oil prices is found.

This paper analyzes the economic effects of agricultural price and merchandise trade policies around the world as of 2004 on global markets, net farm incomes, and national and regional economic welfare and poverty, using the global economy wide Linkage model, new estimates of agricultural price distortions for developing countries, and poverty elasticity's approach. It addresses two questions: to what extent are policies as of 2004 still reducing rewards from farming in developing countries and thereby adding to inequality across countries in farm household incomes? Are they depressing value added more in primary agriculture than in the rest of the economy of developing countries, and earnings of unskilled workers more than of owners of other factors of production, thereby potentially contributing to inequality and poverty within developing countries (given that farm incomes are well below non-farm incomes in most developing countries and that agriculture there is intensive in the use of unskilled labor)? Results are presented for the key countries and regions of the world and for the world as a whole. They reveal that, by moving to free markets, income inequality between countries will be reduced at least slightly, all but one-sixth of the gains to developing countries will come from agricultural policy reform, unskilled workers in developing countries the majority of whom work on farms will benefit most from reform, net farm incomes in developing countries will rise by 6 percent compared with 2 percent for non-agricultural value added, and the number of people surviving on less than US$1 a day will drop 3 percent globally.

This paper analyzes the poverty and inequality implications of removing agricultural and non-agricultural price distortions in the domestic market of the Philippines and abroad. Liberalization in the rest of the world is poverty and inequality reducing, whereas full domestic liberalization increases national poverty and inequality. Poverty declines while inequality increases marginally in the combined scenario of both global and domestic agriculture reform. Although the reduction in the national poverty headcount is small in the latter scenario, the poorest of the poor, particularly those living in the rural areas, emerge as 'winners', given their strong reliance on agricultural production and unskilled labor wages.

The view that policies directed at the real exchange rate can have an important effect on economic growth has been gaining adherents in recent years. Unlike the traditional 'misalignment' view that temporary departures of the real exchange rate from its equilibrium level harm growth by distorting a key relative price in the economy, the recent literature stresses the growth effects of the equilibrium real exchange rate itself, with the claim being that a depreciated equilibrium real exchange rate promotes economic growth. While there is no consensus on the precise channels through which this effect is generated, an increasingly common view in policy circles points to saving as the channel of transmission, with the claim that a depreciated real exchange rate raises the domestic saving rate which in turn stimulates growth by increasing the rate of capital accumulation. This paper offers a preliminary exploration of this claim. Drawing from standard analytical models, stylized facts on saving and real exchange rates, and existing empirical research on saving determinants, the paper assesses the link between the real exchange rate and saving. Overall, the conclusion is that saving is unlikely to provide the mechanism through which the real exchange rate affects growth.

Following several years of disappointing economic performance, Senegal has made an important turnaround, with real Gross Domestic Product (GDP) growth averaging over 5 percent annually during 1995-2005. This paper shows that macroeconomic and structural reforms are key factors explaining this recovery. Drivers of sound economic policy decisions in Senegal have included enhanced democratic processes, political commitment to the West African Economic and Monetary Union (WAEMU), and donor community conditionalities.

The sources of economic growth and development have been puzzling economists from the modern dawn of the profession. While the Solow-Swan neo-classical model dominated research on growth in the 1960s and 1970s, the 1980s saw the emergence of growth theories that disputed, largely on theoretical grounds, the Solow-Swan assumptions and conclusions. In this paper, we do not examine the determinants of the level of per capita income as an indication that a certain theory has better explanatory power. Rather, we focus on the dynamics of growth following external exogenous shocks (natural disasters). We argue that the data analysis we present suggests that the neoclassical model does not accord very well with the growth experience of developing countries.

The paper discusses questions resulting from a study of the interaction of exogenous shocks and environmental policy. In a model with pollution as a side effect of consumption environmental policy is introduced in the form of a consumption tax with or without a subsidy on eco-friendly investments. In simulations we observe the dynamic behavior of models before and after sudden changes of exogenous variables. These shocks are jumps in productivity or a sudden depreciation of capital. Additionally we examine the effect of a simultaneous appearance of both types of shocks. Furthermore we investigate the consequences of a lagged reaction of the policy agents.

This paper investigates the relative importance of shocks to total factor productivity (TFP) versus the marginal efficiency of investment (MEI) in explaining cyclical variations. The literature offers contrasting results: TFP shocks are important in neoclassical environments, while relatively unimportant in neo-Keynesian environments. A model with endogenous capital utilization captures both results depending upon the degree of nominal rigidity. In the model, MEI shocks create a wedge between the nominal returns on bonds and capital. Nominal rigidities activate this wedge and place the relative importance on MEI shocks, while TFP shocks dominate when prices are perfectly flexible.

The sources of economic growth and development have been puzzling economists from the modern dawn of the profession. While the Solow-Swan neo-classical model dominated research on growth in the 1960s and 1970s, the 1980s saw the emergence of growth theories that disputed, largely on theoretical grounds, the Solow-Swan assumptions and conclusions. In this paper, we do not examine the determinants of the level of per capita income as an indication that a certain theory has better explanatory power. Rather, we focus on the dynamics of growth following external exogenous shocks (natural disasters). We argue that the data analysis we present suggests that the neoclassical model does not accord very well with the growth experience of developing countries.

Most researchers examining poverty and multilateral trade liberalization have had to examine average, or per capita effects, suggesting that if per capita real income rises, poverty will fall. This inference can be misleading. Combining results from a new international cross-section consumption analysis with earnings data from household surveys, this article analyzes the implications of multilateral trade liberalization for poverty in Indonesia. It finds that the aggregate reduction in Indonesia's national poverty headcount following global trade liberalization masks a more complex set of impacts across groups. In the short run the poverty headcount rises slightly for self-employed agricultural households, as agricultural profits fail to keep up with increases in consumer prices. In the long run the poverty headcount falls for all earnings strata, as increased demand for unskilled workers lifts incomes for the formerly self-employed, some of whom move into the wage labor market. A decomposition of the poverty changes in Indonesia associated with different countries' trade policies finds that reform in other countries leads to a reduction in poverty in Indonesia but that liberalization of Indonesia's trade policies leads to an increase. The method used here can be readily extended to any of the other 13 countries in the sample.

International audience; We combine two data sets to study price rigidity. The first consists of weekly time series of retail, wholesale, and spot prices for twelve products. These time series contain two exogenous cost shocks. We find that prices exhibit more rigidity in response to the second shock than the first. The second data set consists of all publicly available information about the shocks. Content analysis of these information reveals that the first shock is larger and more persistent, and the market has more information on it than the second. We conclude, therefore, that prices are more flexible in response to cost shocks that are larger, that are more persistent, and on which market participants have more information.

We combine two data sets to study price rigidity. The first consists of weekly time series of retail, wholesale, and spot prices for twelve products. These time series contain two exogenous cost shocks. We find that prices exhibit more rigidity in response to the second shock than the first. The second data set consists of all publicly available information about the shocks. Content analysis of these information reveals that the first shock is larger and more persistent, and the market has more information on it than the second. We conclude, therefore, that prices are more flexible in response to cost shocks that are larger, that are more persistent, and on which market participants have more information.