Is British output growth related to its uncertainty? Evidence using eight centuries of data

We examine the empirical relationship between output variability and output growth for Britain using data for eight centuries covering the 1270 to 2014 period. Drawing on the economic history literature, we split the full sample period into four subperiods and use GARCH models to measure output growth uncertainty and estimate its effect on average growth. Within each sub-sample, we allow output growth to depend on the state of the system, for example 2-regime switching model would switch between high-growth and low-growth regimes. We find that the effect of uncertainty on growth differs depending on the existing growth regime. Low-growth regimes are associated with a negative effect of uncertainty on growth, and medium or high-growth regimes are associated with a positive effect. These findings are consistent across the four states of economic development. Our results indicate why the empirical literature to date has found mixed results when examining the effect of uncertainty on growth.     

Income Inequality and Economic Growth: Evidence from American Data

While most cross-country studies find a negative relationship between income inequality and economic growth, studies that use panel data suggest the presence of a positive relationship between inequality and growth. This paper uses a cross-state panel for the United States to assess the relationship between inequality and growth. Using both standard fixed effects and GMM estimations, this paper does not find evidence of a positive relationship between inequality and growth but finds some evidence in support of a negative relationship between inequality and growth. The paper, however, shows that the relationship between inequality and growth is not robust and that small differences in the method used to measure inequality can result in large differences in the estimated relationship between inequality and growth.     

Is the Relationship between Inflation and Its Uncertainty Linear?

Abstract. We use parametric power ARCH models of the conditional variance of inflation to model the relationship between inflation and its uncertainty using monthly data for Germany, the Netherlands and Sweden over a period ranging from 1962 to 2004. For all three countries inflation significantly raises inflation uncertainty as predicted by Friedman. Increased uncertainty affects inflation in all countries but not in the same manner. For Sweden we find a negative impact in accordance with the Holland hypothesis, whereas for Germany and the Netherlands we find the opposite in support of the Cukierman–Meltzer hypothesis. In a sensitivity analysis we show that an arbitrary choice of the heteroscedasticity parameter influences this relationship significantly.     

Did the German Minimum Wage Reform Influence (Un)employment Growth in 2015? Evidence from Regional Data

Using the variation across space, age and sex and the variation across space and sectors, we analyse the relationship between the minimum wage and (un)employment growth in 2015. We use difference‐in‐differences specifications and instrument the bite of the minimum wage by the lagged bite. The results provide stable evidence that a higher minimum wage bite is related to a higher growth rate of regular employment. We also find stable evidence that a higher minimum wage bite is related to a lower growth rate of marginal employment. These results are consistent with a transformation of marginal to regular jobs. The relationship to total employment is slightly positive in our preferred specification but insignificant or negative in others. For unemployment, we find a positive relationship between the bite of the minimum wage and unemployment growth in our preferred specification but insignificant or negative results in others.     

Uncertainty and Investment: Some Evidence from the Panel Data of Japanese Manufacturing Firms

We analyse empirically the effect of uncertainty on fixed investment based on a panel data set of Japanese manufacturing firms. The uncertainty measure, represented by the conditional standard deviation of the sales growth rate, is constructed by employing three different statistical models. We also decompose the demand uncertainty into aggregate, industry-wide, and firm-specific forms of uncertainty. We find that uncertainty, in particular aggregate and industry-wide uncertainty, exerts a significantly negative effect on investment irrespective of the statistical methods chosen. We also find that this negative relationship between investment and uncertainty is closely related to the degree of irreversibility of capital.
JEL Classification Number: D92.     

Effects of longevity and dependency rates on saving and growth: Evidence from a panel of cross countries

While earlier empirical studies found a negative saving effect of old-age dependency rates without considering longevity, recent studies have found that longevity has a positive effect on growth without considering old-age dependency rates. In this paper, we first justify the related yet independent roles of longevity and old-age dependency rates in determining saving and growth by using a growth model that encompasses both neoclassical and endogenous growth models as special cases. Using panel data from a recent World Bank data set, we then find that the longevity effect is positive and the dependency effect is negative in savings and investment regressions. The estimates indicate that the differences in the demographic variables across countries or over time can well explain the differences in aggregate savings rates. We also find that both population age structure and life expectancy are important contributing factors to growth.     

Individual preferences and the effect of uncertainty on irreversible investment

This paper considers a relationship between investment behavior and an agent’s preferences in a stochastic one-sector growth model with irreversible investment. Further, it explores the effect of uncertainty in investment policies by using a non-expected utility function. Since uncertainty has an impact on investment policies not only through an option value but also through a risk-adjusted time preference rate in a general equilibrium framework, it is significant to distinguish the two preference parameters of the agent. While the previous partial equilibrium models with irreversible investment have exhibited a negative relationship between the desired capital stock and uncertainty, this paper implies that it is possible to generate a positive relationship for the appropriate parameters. This shows that the results of Hartman and Abel have been robust even in a general equilibrium model.     

On Endogenous Growth Under Uncertainty

This paper incorporates uncertainty in two distinct models of endogenous growth. In both models the representative agent is uncertain about the productivity of knowledge creation, as represented by a probability measure over the relevant parameter. The main purpose of this paper is to analyze the effects of risk or volatility in productivity of knowledge creation on the decision variables and the expected long-run growth rate. Both the first and the second models may explain part of the observed negative link between volatility and growth.     

Small,young, and exporters: New evidence on the determinants of firm growth

This work investigates how the export status of the firm influences the patterns of employment growth at different age classes. We address this research question resorting to a novel set of data that links together the universe of Italian firms and detailed data on export transactions. We find that the positive relationship between export status and growth declines with firm age. Further, we also find that, even when accounting for the role of age, the negative size-growth relationship does not disappear, contrary to some recent evidence. These results suggest a positive signaling role of the export status that is stronger for young exporters or born globals. Exploiting the product-country level dimension of the customs data, we also provide, for the first time, evidence on differences in exchange rates pass-through between young and experienced exporters. In particular, we find that early exporters appear to be better equipped than established firms to face exchange rates variations as their exports decrease less following a currency appreciation.     

Macroeconomic uncertainty,growth and inflation in the Eurozone: a causal approach

In this article, we evaluate the causal relationship between macroeconomic uncertainty indices, inflation and growth rate for 17 Eurozone countries on a county-level examination. In performing a series of linear and nonlinear causality tests, we find little evidence of a causal relationship between uncertainty and macroeconomic variables. Thus, macroeconomic analysis based on uncertainty indices should be treated with caution.     

Stock market uncertainty and interest rate behaviour: a panel GARCH approach

Using a dynamic panel GARCH model for Asian countries, we find that interest rates are significantly lower when stock market uncertainty is high. Evidence of a positive relationship between stock market uncertainty and interest rate volatility is also provided.     

Macroeconomic uncertainty,inflation and growth: Regime-dependent effects in the G7

We analyze the causal effects of real and nominal macroeconomic uncertainty on inflation and output growth by considering whether these effects are cycle phase specific. Employing a bivariate Smooth Transition EGARCH-M model for the G7 countries during 1957–2009, we find strong nonlinearities. First, uncertainty regarding the output growth rate is related with a higher average growth rate mostly in a low-growth regime, supporting the theory of “creative destruction”. Second, higher inflation uncertainty diminishes growth rates, mainly at a high-inflation regime. Finally, real uncertainty has mixed effects on average inflation, while the effect of nominal uncertainty is typically positive, especially so during inflationary periods. Our findings suggest that these relationships are sufficiently complex to require treatment with nonlinear models.     

The trade-off between risk and incentives in fiscal federalism: Evidence from China

A central argument of the second-generation fiscal federalism literature is that allocating a considerable share of tax revenue to local governments can provide fiscal incentives for local officials to promote economic growth. However, increasing incentives will increase the costs of uncertainty if local government officials are risk averse. Building on the insights of the classic principal-agent models, we predict that the optimal share of tax revenues retained by local government will decrease as the uncertainty of total tax revenues increases. Using Chinese provincial data, we find a robust negative relationship between volatility and the tax-sharing ratio at the sub-provincial level. Our results indicate that optimal decentralization in developing countries balances the trade-off between risk and incentives.     

The effect of economic policy uncertainty on bank valuations

This article examines how economic policy uncertainty (EPU) affects bank valuations. Using a large sample of banks over a long period, we find that EPU has a negative effect on bank valuations. One explanation for this result is that EPU reduces bank loan growth, and lower loan growth then leads to lower bank valuations. Consistent with this explanation, we find that the negative effect of EPU is more pronounced for banks with a higher ratio of loans to total assets.     

Endogenous growth and intellectual property rights: A north–south modeling proposal

In this paper, we develop a general equilibrium endogenous growth model that emphasizes the IPR enforcement effects on growth, in a scenario of north–south technological knowledge diffusion. The economy consists of three sectors, and firms are engaged in step-by-step innovation. In line with the literature, we introduce an IPR parameter that makes imitation more difficult. We find that, in steady state, the increases in IPR protection result in decreases in the growth rate. This result is in line with the literature, which argues that the enforcement of IPR does not always have a positive effect on economic growth. To sum up, we present some suggestions for future research which can help to clarify the relationship between IPR and endogenous growth.     

Income inequality and education revisited: persistence,endogeneity and heterogeneity

This article presents new results on the relationship between income inequality and education expansion – that is, increasing average years of schooling and reducing inequality of schooling. When dynamic panel estimation techniques are used to address issues of persistence and endogeneity, we find a large, positive, statistically significant and stable relationship between inequality of schooling and income inequality, especially in emerging and developing economies and among older-age cohorts. The relationship between income inequality and average years of schooling is positive, consistent with constant or increasing returns to additional years of schooling. While this positive relationship is small and not always statistically significant, we find a statistically significant negative relationship with years of schooling of younger cohorts. Statistical tests indicate that our dynamic estimators are consistent and that our identifying instruments are valid. Policy simulations suggest that education expansion will continue to be inequality reducing. This role will diminish as countries develop, but it could be enhanced through a stronger focus on reducing inequality in the quality of education.     

Nonlinearities in the U.S. wage Phillips curve

We examine the relationship between wage inflation and the unemployment rate in the U.S. economy for the 1964–2014 period by means of a three-regime threshold regression model. The estimated threshold parameters suggest that this relationship changes when the unemployment rate transitions between regimes defined by 5.61% and 7.63%. During mild recessions and their subsequent recoveries, the time-varying estimates of the model indicate a negative relationship between both variables, consistent with the implications of a wage Phillips curve (WPC) derived from the standard New Keynesian model with staggered wage setting in Galí (2011). However, we find that this relationship breaks down during deep recessions and their recovery periods, which explains the difference between wage inflation predicted by standard New Keynesian models and the observed low wage growth in the aftermath of the ‘Great Recession’. This finding and the fact that statistical tests strongly favor our three-regime model suggest that linear and two-regime models are insufficient to account for all the variability in the relationship between wage inflation and unemployment.     

政府生产性支出对产出-资本比的影响——基于中国经验的研究

在国际学术界,尽管有许多经济学家在宏观经济模型框架下研究政府支出对经济增长的影响,但是很少有人从理论和实证角度研究政府支出对产出-资本比的影响,而产出-资本比的提高对发展中国家经济增长至关重要。本文利用政府提供公共物品生产函数,分析政府生产性支出的增加对税前和税后产出-资本比的影响,认为存在着一个能使产出-资本比最大化的最优政府生产性支出规模。在此基础上,本文进行的实证研究结果表明:(1)在我国国家财政生产性支出中,财政基本建设支出与产出-资本比弱正相关,而教育支出和科学研究支出与产出-资本比强正相关;(2)在我国地方财政生产性支出中,财政基本建设支出和产出-资本比弱负相关,财政教育支出和产出-资本比强正相关,而财政科学研究支出与税后产出-资本比强负相关。     

Growth in a time of external imbalances

Globalization and financial integration have increased in the last three decades giving rise to cumulated large external imbalances. The question we address in this paper is whether economic growth can be affected by these external imbalances. We estimate an augmented growth equation with the external stock position of the countries measured by the net foreign asset position. Unlike previous literature, we use non-parametric methods that capture non-linearities and heterogeneity, and apply them to a sample that includes 106 developed and developing countries for the period 1983-2011. Contrary to the neoclassical theory, we find that improvements in the external position foster growth. Our results are in line with current theoretical contributions explaining the Lucas Paradox where financial frictions are present. Within this framework, the general outcome should be a positive sign and the “neoclassical” negative relationship between net foreign assets and growth would be just a particular case, with no universal explanatory mechanism. Accordingly, we find that the effect of the net foreign asset position on growth is heterogeneous, the impact depending on the characteristics of the countries such as institutional quality, openness and financial development.     

Variability in the effects of uncertainty shocks: New stylized facts from OECD countries

This study examines variability in the effects of uncertainty shocks using a panel of international data. It first evaluates variability in the effects of uncertainty shocks by applying rolling sample and time-varying parameter Vector Autoregression models to US data covering the past 70 years. The results reveal that the effects of uncertainty shocks on the US economy have changed substantially over time. First, the negative effect of uncertainty shocks on the output decreased until the recent period, in which monetary policy rules are constrained by the zero lower bound. Second, contrary to the negative aggregate demand interpretation in the recent literature, uncertainty shocks acted as a negative aggregate supply shock in the earlier periods. From the past 50 years’ data for 12 small open economies, I find that the negative effect of uncertainty shocks on output has increased, contrary to the US case. Additionally, the exchange rate and inflation responses are heterogeneous across countries, and the country’s commodity exporter or safe haven status is critical in determining the sign of these responses. Finally, the increased vulnerability of small open economies to uncertainty shocks is associated with an increase in international trade.