Estimation of a German money demand system – a long-run analysis

This study presents a multivariate analysis of the stability of long-run relationships between variables that influence the conduct and transmission process of the German monetary policy. The initial VAR comprises the variables real money M3, real GNP, the inflation rate, a long-term and a weighted short-term interest rate. A multivariate approach has been chosen, as this allows for more than one cointegration relationship and to test restrictions on the cointegration space. In contrast to most other studies on German monetary policy, three stable and economically plausible cointegration relationships are obtained simultaneously within the framework of the Johansen procedure: a money demand relationship, a long-run Fisher effect and a long-run relationship between the short- and the long-term interest rate. It is apparent that the structural break of German reunification can be modelled incorporating dummy variables in the model. First version received: October 1996/final version received: July 1997     

Easter Island’s collapse: a tale of a population race

The Easter Island tragedy has become an allegory for ecological catastrophe and a warning for the future. In the economic literature the collapse is usually attributed to irrational or myopic behavior in the context of a fragile ecosystem. In this paper we propose an alternative story involving non-cooperative bargaining between clans to share the crop. Each clan’s bargaining power depends on its threat level when fighting a war. The biggest group has the highest probability of winning. A clan’s fertility is determined ex ante by each group. In the quest for greater bargaining power, each clan’s optimal size depends on that of the other clan, and a population race follows. This race may exhaust the natural resources and lead to the ultimate collapse of the society. In addition to well-known natural factors, the likelihood of a collapse turns out to be greater when the cost of war is low, the probability of succeeding in war is highly responsive to the number of fighters, and the marginal return to labor is high. We analyze whether these factors can account for the difference between Easter and Tikopia Islands. The paper also makes a methodological contribution in that it is the first fertility model to include strategic complementarities between groups’ fertility decisions.      

Can a corrupt ruling party win a re-election through vote buying?

In many developing countries, it is common for electoral candidates to use embezzled money to buy votes. We develop a dynamic model to analyse the trade-off between economic performance and free handouts resulting from corruption on an incumbent party’s chances of being re-elected. The results show, because voters anticipate handouts from the politicians, politicians engage in corrupt behaviour early in the election cycle while minimizing unemployment and maximizing vote buying at the end of the election cycle.     

Experts with a conflict of interest: a source of ambiguity?

We present an experimental design where uncertainty is generated from the advice of experts with conflicts of interest. In this experiment clients are faced with a variant of a multi-armed bandit problem with a random end-time. On the known arm (the “task screen”), clients can earn a certain payment per completion of a decoding task. However, clients may also opt for the unknown arm where they earn an uncertain amount if they end the experiment on this “expert screen”. The amount is uncertain to the clients because the value is being communicated through an “expert” with conflicted incentives. A control session provides for direct transmission of the value to the clients. Our results show that ambiguity aversion is alive-and-well in this environment. Also, when we vary the wage rate on the known arm we find that higher opportunity cost clients are less likely to heed the advice of conflicted experts.     

Is there still a productivity paradox? two methods for a transatlantic comparison

Economic activity accelerated in the United States, in the second part of the cycle, after 1995, within an environment of decreasing inflation. France has followed a qualitatively similar path since 1997, also clearly suggesting the effects of a positive supply shock. The spread of new information and communication technologies (NICT) partly explains these singular events. On one hand, a calculation of contributions to output growth suggests that they would explain about half of the increase in activity in the United States and one-fifth in France. On the other hand, a trend/cycle decomposition reveals that the structural acceleration in output and productivity gains in the United States are very much restricted to industries producing NICT and there is a rather small break in productivity gains. In France, where differences between sectors are not so clear-cut, the diffusion of NICT has been accompanied by a slowdown in trends in productivity gains. In both cases, there is little room left for the effects of the diffusion of technical progress associated with NICT.