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This article surveys the literature on sovereign debt sustainability from its origins in the mid-1980s to the present and focuses on four debates. First, we evaluate the shift from an accounting-based view of debt sustainability using government borrowing rates to a model-based view that uses stochastic discount rates. Second, we review empirical tests, focusing on the relationship between primary balances and debt. Third, we discuss debt sustainability in the presence of rollover risk. And fourth, we evaluate whether government borrowing costs below rates of growth ( r < g) generate a free lunch, in the sense that debt sustainability does not require future primary surpluses. We argue that liquidity services provided by sovereign debt may indeed lead to a free lunch, albeit one of limited size. The value of such services depends on the credibility of the central bank, which can be accumulated via prudent policies and subsequently drawn on to allow for looser fiscal policy.

Analyzing International Monetary Fund (IMF) data, we find that overly optimistic growth expectations for a country induce economic contractions a few years later. To isolate the causal effect, we take an instrumental variable approach—exploiting randomness in the country allocation of IMF mission chiefs. We first document that IMF mission chiefs differ in their individual degrees of forecast optimism, yielding quasi-experimental variation in the degree of forecast optimism at the country level. The mechanism appears to run through excessive accumulation of debt (public and private). Our findings illustrate the potency of unjustified optimism and underline the importance of basing economic forecasts upon realistic medium-term prospects. (JEL C53, E23, E27, E32, F33, H63)

The replacement of long-chained per- and polyfluoroalkyl substances (PFAS) with their short-chained homologues may have an impact on the accumulation in plants. The extent to which PFAS are absorbed by plants may differ among species and may depend on environmental factors, including temperature. The effect of an increased temperature on root uptake and translocation of PFAS in plants has been poorly studied. In addition, very few studies have examined toxicity of environmentally realistic PFAS concentrations to plants. Here, we investigated the bioaccumulation and tissue-distribution of fifteen PFAS in Arabidopsis thaliana L. grown in vitro at two different temperatures. Additionally, we examined the combined effects of temperature and PFAS accumulation on plant growth. Short-chained PFAS mainly accumulated in the leaves. The perfluorocarboxylic acid (PFCA) concentrations in roots and leaves, and the relative contribution of PFCAs to the ΣPFAS concentrations increased with carbon chain length regardless of temperature, with the exception of perfluorobutanoic acid (PFBA). An increased uptake of PFAS in leaves and roots at higher temperatures was observed for PFAS containing either eight or nine carbon atoms and could hence potentially result in higher risks for human intake. Leaf:root ratios of PFCAs followed a U-shaped pattern with carbon chain length, which is attributed to both hydrophobicity and anion exchange. Overall, no combined effects of realistic PFAS concentrations and temperature on the growth of A. thaliana were observed. PFAS exposure positively affected early root growth rates and root hair lengths, indicating a potential effect on factors involved in root hair morphogenesis. However, this effect on root growth rate became negligible later on in the exposure, and solely a temperature effect was observed after 6 days. Temperature also affected the leaf surface area. The underlying mechanisms on how PFAS stimulates root hair growth require further examination.

As the “Volcker shock” is believed to have generated useful information on the effects of monetary policy, this paper develops a transparent procedure to identify other significant monetary contractions. The approach is applied to a panel data set spanning 162 countries (over the period 1970-2017), in which it identifies 147 large monetary contractions. The procedure selects episodes where a protracted period of loose monetary policy was suddenly followed by sizeable interest rate increases. Focusing on contractions of significant size increases the signal-to-noise ratio, while they are unlikely to be accompanied by confounding “information effects” (markets interpreting a rate hike as the Central Bank being optimistic about the real side of the economy). A subsequent panel VAR analysis suggests that, on average, a 100-basis point rate hike reduces real GDP by 0.5 percent. This reduction in output seems to be persistent, pointing to a certain degree of hysteresis. The price level falls by 1.5 percent, indicating that the medium-/long-run impact of contractionary monetary shocks is not characterized by a neo-Fisherian response. Advanced economies appear to display more price stickiness than emerging/developing countries, as the former combine a more muted price response with a larger effect on output.

In this study, we investigated factors that influence the differences in exposure of perfluoroalkyl acids (PFAAs) from eight species of Antarctic seabirds, including Pygoscelis penguins, Stercorarius maccormicki, and Macronectes giganteus. We analyzed the relationship between foraging ecology (based on δ13C, δ15N, and δ34S values) and PFAAs accumulated in eggs and breast feathers. Ten out of 15 targeted PFAAs were detected in eggs compared to eight in feathers. Mean ∑PFAA concentrations in feathers ranged from 0.47 in P. antarcticus to 17.4 ng/g dry weight (dw) in S. maccormicki. In eggs, ∑PFAA concentrations ranged from 3.51 in P. adeliae to 117 ng/g dw in S. maccormicki. The highest concentrations of most PFAAs were found in trans-equatorial migrators such as S. maccormicki, probably due their high trophic position and higher concentrations of PFAAs in the Northern Hemisphere compared to the Southern Hemisphere. Based on stable isotopes correlations, our results suggest that the trophic position (δ15N) and the foraging area (δ13C and δ34S) influence PFAAs concentrations in Antarctic seabirds. Our results point to the possibility that long-distance migratory birds may have as bio-vectors in the transport of pollutants, including PFCAs, in Antarctic environments, although this must be further confirmed in future studies using a mass balanced approach, such as extractable organofluorine (EOF).

Although long chained PFASs have been phased-out in several countries, their persistence in the environment and bioaccumulative potential cause the environmental and biotic concentrations to remain high, highlighting the need to further monitor these pollutants. Currently several methods are used for the quantification of perfluoroalkyl substances (PFASs) in biological matrices including different ways to correct for recovery losses, each with its specific pros and contras. With this paper we aim to re-evaluate current methodologies and to create an updated new analytical guideline that is applicable for both abiotic and biotic matrices. The developed LC/MS/MS method was validated and shown to be specific, selective, linear, robust and sensitive. Reliable results could still be obtained 6 days after extraction. The recoveries varied, depending on the matrix, between 1% and 100%, but nevertheless, a high accuracy was obtained even at the lowest recoveries. A reduction of sample mass could significantly increase method recoveries and therefore it is highly recommended to take less matrix. We confirmed that using the ISTD closest in terms of functional group and carbon chain length is a suitable method for the quantification of PFASs that lack a corresponding ISTD. The newly described method was, depending on the matrix, similar in terms of sensitivity and reliability compared to a frequently used method and could be used simultaneously in future monitoring studies. Therefore, we recommend to select the purification method based on the target analytes as well as the sample matrix. Capsule The newly described method was similar in terms of sensitivity and reliability compared to a frequently used method and a selection of purification methods should be based on the target analyte and sample matrix.

The bioaccumulation and toxicity of per- and polyfluoroalkyl substances (PFAS) have raised scientific and public concern in recent decades, leading to regulatory measures for some PFAS (e.g. perfluorooctane sulfonate (PFOS) and perfluorooctanoic acid (PFOA)). In addition, the discovery of new PFAS alternatives in the environment has led to growing concern about the presence of numerous other PFAS that are used unrestricted. Feathers have been successfully applied as non-destructive indicators for various contaminants, mostly metals and persistent organic pollutants (POPs), whereas their suitability as an indicator for PFAS is still discussed. Previous studies on PFAS in feathers have focused primarily on perfluoroalkyl sulfonic acids (PFSAs) and perfluoroalkyl carboxylic acids (PFCAs); analytical methods for other groups of PFAS or PFAS alternatives in feathers are still lacking. Hence, this study aimed to develop a rapid, sensitive and reliable analytical method for determining a broad range of PFAS (N = 32) in feathers, using liquid chromatography-tandem mass spectrometry (LC-MS/MS). An extraction duration of 24 h was found to be sufficient to extract the majority of PFAS from the feathers. The extraction recovery of the internal standards ranged on average from 68 % (PFBA) to 97 % (PFOS). The spike recovery was within an acceptable range of at least 70% for most of the target analytes and the precision was often > 80%. A further extract clean-up using weak anion exchange (WAX) solid phase extraction (SPE), was proven unnecessary, as it resulted in a similar or lower spike recovery, and, as a consequence, a lower precision and higher quantification limit. The analytical method allows detection of low PFAS concentrations in a low quantity of matrix (i.e. small feathers). The developed LC-MS/MS method was validated and shown to be a fast, sensitive and reliable method for determining a broad range of legacy and emerging PFAS in feathers.

We estimate that a signi…cant fraction of commuters on the London underground do not travel their optimal route. Consequently, a tube strike (which forced many commuters to experiment with new routes) taught commuters about the existence of superior journeys -bringing about lasting changes in behavior. This eect is stronger for commuters who live in areas where the tube map is more distorted, thereby pointing towards the importance of informational imperfections. We argue that the information produced by the strike improved network-e¢ ciency. Search costs are unlikely to explain the suboptimal behavior. Instead, individuals seem to under-experiment in normal times, as a result of which constraints can be welfare- improving. JEL-classi…cation: D83, L91, R41

We find that countries which are able to borrow at spreads that seem low given fundamentals (for example because investors take a bullish view on a country's future), are more likely to develop economic difficulties later on. We obtain this result through a two-stage procedure, where a first regression links sovereign spreads to fundamentals, after which residuals from this regression are deployed in a second stage to assess their impact on future outcomes (real GDP growth and the occurrence of fiscal crises). We confirm the relevance of past sovereign debt mispricing in several out-of-sample exercises, where they reduce the RMSE of real GDP growth forecasts by as much as 15 percent. This provides strong support for theories of sentiment affecting the business cycle. Our findings also suggest that countries shouldn't solely rely on spread levels when determining their fiscal strategy; underlying fundamentals should inform policy as well, since historical relationships between spreads and fundamentals often continue to apply in the medium-to-long run.

We derive analytical expressions for fiscal multipliers on output and inflation under the Fiscal Theory of the Price Level. In the associated ‘fiscal regime’, taxation multipliers turn positive, while the government spending multiplier has the same functional form as its counterpart in the ‘monetary regime’, augmented by a nominal wealth effect. As a result, fiscal multipliers tend to be larger in the fiscal regime, with the degree of price stickiness being a key determinant of their exact sizes. In particular, multipliers go to infinity as prices become fully fixed, and collapse to their equivalents in the monetary regime as prices become fully flexible. Standard calibrations suggest that the fiscal regime hosts a government spending multiplier on output that lies between 1 and 3. We also analyze the effectiveness of money-financed fiscal stimulus. In the fiscal regime, money-financed stimulus is equivalent to a particular form of debt-financed stimulus. The effectiveness of money-financed stimulus in raising output (relative to inflation) decreases as monetary policy becomes more responsive to inflation.

Microplastics (MPs) lipophilic nature and widespread distribution raises concerns due to their increasing presence in the marine environment and their ability to adsorb organic contaminants, as being potential vehicles for transport and potential source of accumulation of organic contaminants by marine organisms. The organic UV-filter, oxybenzone (BP-3) is a constituent of sunscreens and personal care products, entering the marine environment either by direct contact with swimmers or by wastewater effluents. In this study the ecotoxicological effects of exposure to low-density polyethylene (LDPE) microplastics with and without adsorbed BP-3 were investigated in the peppery furrow shell clam, Scrobicularia plana. LDPE microplastics with a size range of 11–13 μm were previously contaminated with an environmentally relevant concentration of BP-3 (82 ng g−1 ). S. plana individuals were exposed to a concentration of 1 mg L−1 of microplastics with and without BP-3 adsorbed in a water-sediment exposure system for 14 days. Clams were sampled at the beginning of the experiment and after 3, 7, and 14 days of exposure. Multiple biomarkers were analysed to investigate the effect of exposure in different clam tissues, gills, digestive gland, and haemolymph. Antioxidant (superoxide dismutase, catalase, glutathione peroxidase) and biotransformation (glutathione-S-transferases) enzyme activities, oxidative damage (lipid peroxidation), genotoxicity (single and double strand DNA breaks), and neurotoxicity (acetylcholinesterase activity) were assessed along with two biomarker indexes to assess the overall health status. Results indicate that after 7 days of exposure MPs with adsorbed BP-3 induced oxidative stress and damage, when compared to exposure to virgin MPs and control treatments. Neurotoxic effects were also noted in MPs with adsorbed BP-3 after 14 days exposure, while some evidence points to increased genotoxicity with exposure time. Overall results indicate that gills were more affected by exposure to microplastics than digestive gland and that biomarkers alterations are apparently more related to the toxicity of BP-3 adsorbed than virgin MPs alone. EPHEMARE project, (FCT JPIOCEANS/0005/2015; BELPSO), info:eu-repo/semantics/publishedVersion

Why can Japan sustain debts above 200 percent of GDP, while Ukraine defaulted on its debt when it was 30 percent of GDP? This chapter investigates what causes a country to default and hence how to assess the sustainability of sovereign debt. It begins by looking at why a sovereign my renege on its debt operations—because it makes a strategic choice (willingness-to-pay models), or because it is forced to (ability-to-pay models). The bulk of the chapter will look at the different techniques for assessing debt sustainability, highlighting the work of the IMF as well as other models.

This paper presents a model of a rational seller who is actively learning the slope of his demand curve via his pricing strategy. Consequently, this seller optimally experiments with his price. Resulting price patterns show a lot of discreteness (as observed in the data), which has proved to be a major challenge to most price setting models. This model's learning dynamics are able to reconcile individual price flexibility with aggregate price sluggishness, while the experimentation motive can explain the presence of many idiosyncratic price changes in the data as well as the observation that prices are more volatile than costs.

History offers many examples of dictators who worsened their behavior significantly over time (like Zimbabwe's Mugabe) as well as dictators who displayed remarkable improvements (like Rawlings of Ghana). The authors show that such mutations can result from rational behavior when the dictator's flow use of repression is complementary to his stock of wrongdoings: past wrongdoings then perpetuate further wrongdoings and the dictator can unintentionally get trapped in a repressive steady state where he himself suffers from ex-post regret. This then begs the question why such a dictator would ever choose to do wrong in the first place. The authors show that this can be explained from the dictator's uncertainty over his degree of impunity in relation to wrongdoing, which induces him to experiment along this dimension. This produces a setting where any individual rising to power can end up as either a moderate leader, or as a dreaded tyrant. Since derailment is accidental and accompanied by ex-post regret, increasing accountability can be in the interest of both the public and the dictator.

Is over-optimism about a country's future growth perspective good for an economy, or does over-optimism also come with costs? In this paper we document that recessions, fiscal problems, as well as Balance of Payment-difficulties are more likely to arise in countries where past growth expectations have been overly optimistic. We arrive at this conclusion by looking at the medium-run effects of instances of over-optimism or caution in IMF forecasts. To isolate the causal effect of over-optimism we take an instrumental variables approach, where we exploit variation provided by the pseudo-random allocation of IMF Mission Chiefs across countries. As a necessary first step, we document that IMF Mission Chiefs tend to systematically differ in their individual degrees of forecast-optimism or caution. The mechanism that transforms over-optimism into a later recession seems to run through higher debt accumulation, both public and private. Our findings illustrate the potency of unjustified optimism and underline the importance of basing economic forecasts upon realistic medium-term prospects.

This paper solves the two-armed bandit problem when decision makersare risk averse. It shows, counterintuitively, that a more risk-averse decisionmaker might be more willing to take risky actions. The reason relates tothe fact that pulling the risky arm in bandit models produces informationon the environment – thereby reducing the risk that a decision maker willface in the future. This finding gives reason for caution when inferring riskpreferences from observed actions: in a bandit setup, observing a greaterappetite for risky actions can actually be indicative of more risk aversion,not less. Studies which do not take this into account may produce biasedestimates.

The chemical composition of olive leaves and roots of Chemlali variety was evaluated regarding the contents of amino acids and endogenous phytohormones under foliar application of biofertilizers (F1: rich in nitrogen (N), phosphorus (P), potassium (K); F2: rich in calcium (Ca); F3: application of F1 and F2). The results of this study demonstrated significant effects of tested fertilizers on the concentrations of amino acids. Glutamic acid and asparagine had the highest concentrations in leaves and the lowest concentrations in roots under F1 and F3. Regarding the concentrations of endogenous phytohormones, high contents of indole-3-acetic acid and salicylic acid were found in leaves and roots under the application of F1 biofertilizer. Jasmonic acid (JA) was of higher concentration in root than leaves, while abscisic acid occurred in lower concentration. Moreover, the analysis of isoprenoid cytokinins by ultra-performance liquid-chromatography tandem mass spectrometry (UPLC-MS/MS) showed that these cytokinins were improved and became more abundant in roots under foliar treatments. Particularly, Zeatin-N7-glucoside and Dihydrozeatin-N9-Glucoside were enhanced under F1 and F3. The results of this study suggest that foliar application of biological fertilizers may improve physiological status of olive trees throughout the enhancement of some phytohormones and amino acids. Key words: Foliar fertilization, olive trees, amino acids, indole-3-acetic acid, isoprenoid cytokinins.

As the “Volcker shock” is believed to have generated useful information on the effects of monetary policy, this paper develops a simple procedure to identify other unanticipated monetary contractions. The approach is applied to a panel data set spanning 162 countries (over the period 1970-2017), in which it identifies 147 large monetary contractions. The procedure selects episodes where a protracted period of loose monetary policy was suddenly followed by sizeable nominal interest rate increases. Focusing on contractions of significant size increases the signal-to-noise ratio, while they are unlikely to be accompanied by confounding “information effects” (markets interpreting a rate hike as the Central Bank being optimistic about the real side of the economy). A subsequent panel VAR analysis suggests that a 100-basis point rate hike reduces real GDP by 0.5 percent. This reduction in output seems to be persistent, pointing to a certain degree of hysteresis. The price level falls by 1.5 percent, indicating that the medium-/long-run impact of contractionary monetary shocks is not characterized by a neo-Fisherian response. Advanced economies appear to display more price stickiness than emerging/developing countries, as the former combine a more muted price response with a larger effect on output.

Identifying monetary policy shocks is difficult. Therefore, instead of trying to do this perfectly, this paper exploits a natural setting that reduces the consequences of shock misidentification. It does so by basing conclusions upon the responses of variables in three dollarized countries (Ecuador, El Salvador, and Panama). They import US monetary policy just as genuine US states do, but have the advantage that non-monetary US shocks are not imported perfectly. Consequently, this setting reduces the effects of any mistakenly included non-monetary US shocks, while leaving the effects of true monetary shocks unaffected. Results suggest that prices fall after monetary contractions; output does not show a clear response.

We use the Synthetic Control Method to study the effect of IMF advice on economic growth, inflation, and investment. The analysis exploits the existence of IMF programs that do not involve any financing (Policy Support Instruments, “PSIs”). This enables us to focus on the effects of IMF monitoring, advice, and approval (as opposed to direct financial assistance). In addition, countries with non-financial programs are typically not crisis-struck – thereby mitigating the reverse causality problem and facilitating the construction of counterfactuals. Results suggest that treated countries add about 1 percentage point in annual real GDP per capita growth, with inflation being lower by some 3 percentage points per year. While we do not find evidence for an impact on total investment and the resulting capital stock, PSI-treatment does seem to stimulate foreign direct investment.

This paper first documents the increase in the time lag with which labor input reacts to output fluctuations ("the labor adjustment lag") that is visi- ble in US data since the mid-1980s. We show that a lagged labor adjustment response is optimal in a setting where there is uncertainty about the persis- tence of shocks and where labor input is costly to adjust. We then present evidence that both the nature of shocks hitting the economy as well as labor adjustment costs may have changed during the 1980s in a direction that could explain the observed increase in the lag. Finally, we argue that the increased labor adjustment lag has the potential to explain some macroeconomic puz- zles that characterize post-1984 US data, such as the reduced procyclicality of labor productivity and the reduction in output volatility (known as the Great Moderation). Key words: imperfect information, labor adjustment, jobless growth, option value of waiting, Great Moderation JEL-classifications: E24, E32, J23, J24

This paper investigates the institutional set-up of European banking supervision against the backdrop of the current structure of the European banking market. The point of departure is that, in order to avoid incentive problems and white spots, the institutional structure of supervision should reflect the structure of the market under supervision. Based on different data for the largest entities, this paper seeks to determine the prime orientation of European banks: is it national, regional, pan-European or global? It is established that European banks are still primarily nationally oriented, that the number of internationally oriented banks is small and that global activities are almost as large as European ones. Moreover, these banks' European activities are shown to be clustered, reflecting different regional orientations. In the absence of substantive pan-European banks, this differentiated market structure calls for a tailor-made approach to supervision in Europe. This suggests building on the model for consolidated supervision.

Following Kydland and Prescott’s (1977) seminal work exhorting the use of rules over discretion, many governments responded by attempting to bind policy makers who are susceptible to time-inconsistency. In subsequent decades, much of the policy discussion and analysis has been concentrated on monetary policy (cf. the extensive literature following Barro and Gordon (1983)). However, there have been other fields where governments have increased their commitment to remain time-consistent. One such area is international justice and the treatment of dictators and warlords who have committed crimes under international law. There, commitment has been increased through the establishment of a permanent International Criminal Court (ICC) in 2002. The purpose of the ICC is to hold high ranking officials (including heads of state) accountable for acts of genocide, war crimes, and crimes against humanity. Indeed, an explicit aim of the Rome Statute (the treaty that established the ICC) is to “to put an end to impunity for the perpetrators of these crimes and thus to contribute to the prevention of such crimes”.

We estimate that a significant fraction of commuters on the London underground do not travel their optimal route. Consequently, a tube strike (which forced many commuters to experiment with new routes) taught commuters about the existence of superior journeys, bringing about lasting changes in behaviour. This effect is stronger for commuters who live in areas where the tube map is more distorted, thereby pointing towards the importance of informational imperfections. We argue that the information produced by the strike improved network-efficiency. Search costs are unlikely to explain the suboptimal behaviour. Instead, individuals seem to under-experiment in normal times, as a result of which constraints can be welfare-improving

Recently, the international community has increased its commitment to prosecute malicious dictators - for example by establishing the International Criminal Court. This has raised the international community's loss associated with being time-inconsistent (i.e.: granting amnesties ex post), the idea being that a reduced prospect of amnesty deters dictators from committing atrocities ex ante. Simultaneously, however, this elects dictators of a worse type. Moreover, when the costs of being time-inconsistent are lower than those associated with keeping the dictator in place, the international community will still grant amnesty - thereby making the effective punishment function non-monotonic. Consequently, increased commitment to ex post punishment may actually induce dictators to worsen their behaviour, purely to "unlock" the amnesty option by forcing the international community into time-inconsistency.

This paper analyzes secessions through the lens of representative democratic institutions and considers the incentives of partisan political parties to support independence movements. It points out that, if anything, separatists should expect to receive support from exactly the "unlike-minded" political party - the reason being that this party might see a break-up as an opportunity to reshape the electorate towards its own preferences. By doing so, a party could increase its future probability of being elected, while it is also able to shift the entire political spectrum towards its own partisan ideal. The model is able to explain much of what is currently going on in the debate on Scottish independence, while it can also be applied to issues of political integration (the European Union) and territorial conflicts (think of Ukraine and Russia in relation to Crimea, as well as the situation in Israel).

In an environment where voters face an inference problem on the competence level of policy makers, this paper shows how subjecting these policy makers to reelection can reduce the degree of policy experimentation to the benefit of the status quo. This may be a reason why some notable policy experiments were implemented by non-accountable regimes (cf. Chile and China). Whether experimentation in representative democracies is suboptimally low, depends on society's degree of risk aversion relative to that of the decision maker. If the level of experimentation is suboptimal, taking decisions by direct democracy, or electing risk-loving politicians could improve welfare. Interestingly, risk-lovers also seem to be overrepresented among Presidents of various countries.

This paper presents a model of a rational seller who is actively learning the slope of his demand curve via his pricing strategy. Consequently, this seller optimally experiments with his price. Resulting price patterns show a lot of discreteness (as observed in the data), which has proved to be a major challenge to most price setting models. The model’s learning dynamics are able to reconcile individual price flexibility with aggregate price sluggishness, while the experimentation motive can explain the presence of many idiosyncratic price changes in the data as well as the observation that prices are more volatile than costs.

This discussion paper resulted in a publication in 'The World Bank Economic Review' . Support for economic reforms has often shown puzzling dynamics: there are many examples of reforms that started off successfully but nevertheless lost public support, and vice versa. We show that learning dynamics can rationalize this apparent paradox, the reason being that the process of revealing reform outcomes is an example of sampling without replacement: every winner revealed reduces the number of unfilled winning places left, thereby making individuals who remain uncertain on their identity (reform winner or loser?) more pessimistic about their chances of benefiting from the reform. Consequently, learning considerations challenge the conventional wisdom that sequencing should be such that favorable reform outcomes are revealed first. Finally, we provide an explanation for why the gradual reform strategy worked well for China, while this is much less so for Latin American and Central and Eastern European countries.

Climate skeptics argue that the possibility that global warming is exogenous implies that we should not take additional action towards reducing greenhouse gas emissions until we know more. However this paper shows that even climate skeptics have an incentive to reduce emissions: such a change of direction facilitates their learning process on the causes of global warming. Since the optimal policy action depends on these causes, they are valuable to know. Although an increase in emissions would also ease learning, that option is shown to be inferior because emitting greenhouse gases is irreversible. Consequently the policy implications of the different positions in the global warming debate turn out to coincide - thereby diminishing the relevance of this debate from a policy perspective. Uncertainty is no reason for inaction.

Since dollarized countries import US monetary policy, identifying US monetary shocks through sign restrictions on US variables only, does not use all available information. In this paper we therefore include dollarized countries, which enable us to restrict more variables and leave the responses of US output and prices unrestricted (to allow for the working capital view of monetary shocks). We find only little evidence for the latter in the US, as prices fall immediately after most contractionary shocks that we identify. Furthermore, monetary shocks do not seem to have a clear effect on real GDP.

Traditional ways of analyzing the effects of monetary policy shocks via structural vector autoregressions require the use of unrealistic identifying assumptions: they either do not allow for a response of output and prices on impact of the shock, or they exclude contemporaneous values of these variables from the monetary authority's information set. This paper relaxes these incredible restrictions by exploiting a convenient natural setting, namely the fact that we can use data from dollarized countries. The fact that non-monetary US shocks do not seem to be transmitted to these countries, has the additional advantage that it makes the exercise less vulnerable to potential misidentification of the US monetary policy shock. The results obtained in this way suggest that prices fall quite rapidly after a monetary contraction. Consistent with this finding, the effects of monetary policy shocks on output seem to be small.

Recent research has shown that the standard labor matching model has difficulties in reproducing the co-movement patterns observed in US data. This is due to the fact that the standard model lacks sufficient propagation of shocks. This paper shows that refining the informational structure of the model leads to improvements along this dimension: when agents cannot separately identify persistent and transitory technology shocks on impact (so that they must solve a signal extraction problem), shocks are propagated. Under this specification the standard matching model even manages to make recoveries initially jobless, as in the data.

As both the natural level of output and the New Keynesian output gap are unobserved, there is quite some debate on the question how these variables look like in practice. Rather than taking the standard approach of using a time trend or the HP-filter to obtain estimates of these two objects, this paper takes a theoretically more sound route by separating trend from cycle via Bayesian estimation of a New Keynesian model, augmented with an unobserved com- ponents model for output. This delivers us with model consistent estimates of both the natural level of output and the New Keynesian output gap. These estimates are then compared with the dominant output gap proxies used in the literature. It turns out that the benefits of using the model-based approach taken in this paper mainly emerge in real time, thereby making this method potentially useful for the conduct of monetary policy. Key words: Bayesian estimation; unobserved components model; New Key- nesian model; output gap; New Keynesian Phillips curve JEL-classifications: C53, E32, E37, E52

This discussion paper resulted in a publication in the 'Oxford Economic Papers-New Series' , 2013, 65(2), 219-239. This paper first documents the increase in the time lag with which labor input reacts to output fluctuations ("the labor adjustment lag") that is visible in US data since the mid-1980s. We show that a lagged labor adjustment response is optimal in a setting where there is uncertainty about the persistence of shocks and where labor input is costly to adjust. We then present evidence that both the nature of shocks as well as labor adjustment costs may have changed during the 1980s in a direction that could explain the observed increase in the lag. Finally, we argue that the increased labor adjustment lag has the potential to explain some macroeconomic puzzles that characterize post-1984 US data, such as the reduced procyclicality of labor productivity and the reduction in output volatility (known as the Great Moderation).

This paper investigates the institutional set-up of European banking supervision against the backdrop of the current structure of the European banking market. Point of departure is that, in order to avoid incentive problems and white spots, the institutional structure of supervision should reflect the structure of the market under supervision. Based on different data for the largest entities, the paper seeks to determine the prime orientation of European banks: is this national, regional, pan-European or global? It is established that European banks are still primarily nationally oriented, that the number of internationally oriented banks is small, and that global activities are almost as large as European ones. Moreover, these banks' European activities are shown to be clustered, reflecting different regional orientations. In the absence of substantive pan-European banks, this differentiated market structure calls for a tailor-made approach to supervision in Europe. This suggests building forth on the model for consolidated supervision.

Support for economic reforms has often shown puzzling dynamics: many reforms that began successfully lost public support. This paper shows that learning dynamics can rationalize this paradox because the process of revealing reform outcomes is an example of sampling without replacement. This concept challenges the conventional wisdom that one should begin by revealing reform winners. It may also lead to situations in which reforms that enjoy both ex ante and ex post majority support will still not come to completion. The framework can be used to explain why gradual reforms worked well in China (where successes in Special Economic Zones facilitated further reform), whereas this was much less the case for Latin American and Central and Eastern European countries.