The Economics of Trade Disputes, the GATT's Article XXIII, and the WTO's Dispute Settlement Understanding

Economic theory has yet to provide a convincing argument that can explain why the threat of retaliation under the GATT/WTO dispute settlement procedures is not sufficient to prevent countries from violating the agreement. We consider the question of why countries violate the agreed–upon rules in the face of explicit provisions which allow them to legally adjust their trade policy. Using the GATT/WTO institutional structure and the guiding principle of reciprocity, we provide a theory suggesting when countries will choose to implement protection in violation of GATT/WTO rules, as opposed to under the relevant safeguards provisions, when trade policy adjustments are necessary between "negotiating rounds."     

一般均衡中的利率、确定性与最优规则

利率规则理论是以短期利率作为货币政策工具而发展起来的一套新的理论,它体现了货币经济学家在货币政策领域内的新的尝试和努力。在利率规则理论中,货币经济学家试图解决两个问题:利率规则冲击对非政策经济变量的短期影响是什么,以及一个好的利率规则应当具有怎样的性质。利率规则将短期利率作为非政策经济变量的内生反应函数,使得货币经济学家可以在一般均衡模型中探讨这两个问题。然而,由于利率规则从一开始就是出于一种偏好的设定,因此,讨论的结果并不符合稳健性和科学性的要求,这就削弱了理论预言的可靠性。在某种意义上,利率规则理论若想成为一门真正的"科学的艺术",它就必须为内生利率规则寻找到一个坚固的微观基础。本文梳理评述了利率规则理论在经验上和理论上的成就和不足。     

Environmental (De-) Regulation, Competition, and Policy Rules

This article analyzes some problems regarding our knowledge of environmental policy. Sustainable development as the prospective enlargement of the political agenda has been identified as a long-term challenge for economic policy which could get trapped in a new form of interventionism. The evolutionary market approach that is presented here focuses on development risks of environmental policy that are mostly neglected in standard theory. A transfer of the Hayekian concept of negative rules to the realm of environmental policy is critically discussed. A straight-forward transfer of Hayek's theory stressing the importance of negative rules cannot be recommended, since even the negative rules carry some development risks in the realm of environmental policy. Some preliminary political consequences are drawn which are appropriate to limit the extension of environmental targets in the future.     

Policy innovation through noise in implementation: Best to be grey (or silver) on Friday,in Halifax

When the implementation of regulations requires judgement, there is bound to be noise in the application of the rules, but is there bias in the noise such that policy innovation, in effect, occurs in implementation? We use a recently available large postcode data set on the MOT road safety testing in the UK to answer this question. There is significant bias: the probability of failing varies systematically across postcodes, day of the week and vehicle colour. A national policy is undermined by this variability and we suggest how policy might be adjusted to reduce this unintended policy innovation.     

European policy and markets: Did policy initiatives stem the sovereign debt crisis in the euro area?

We investigate how European policy initiatives influenced market assessments of sovereign default risk and banking sector fragility during the sovereign debt crisis in four adversely affected countries — Portugal, Ireland, Spain and Italy. We focus on three broad groups of policies: (a) ECB policy actions (monetary and financial support), (b) EU programs (financial and fiscal rules as well as financial support in crisis countries), and (c) domestic austerity programs. We measure immediate market impact effects: what policies changed risk perceptions, using CDS spreads on sovereign bonds and banks in this assessment. We employ dynamic panel and event study methodologies in the empirical work. We find that a number of programs initially stabilized sovereign and bank bond markets (e.g. Outright Monetary Transactions program), although announcement and implementation impacts on markets differed in some cases (e.g. second Covered Market Bond Program). Actions designed to shore up sovereign markets often lowered risk assessments in bank bond markets and policies designed to ensure safety and soundness of the European banking system in some cases significantly impacted sovereign debt markets. Finally, a number of policies designed to stabilize markets had surprisingly little immediate impact on either sovereign or bank bond market risk assessments.     

Automatic stabilizers, fiscal rules and macroeconomic stability

This paper analyzes the effect of the fiscal structure upon the trade-off between inflation and output stabilization induced by technological shocks in a DGE model with nominal and real rigidities that also integrates a rich menu of fiscal variables as well as a target on the debt to output ratio. The channels through which fiscal policy affects macroeconomic stability include supply-side effects of distortionary taxes, the procyclical behavior of public spending induced by fiscal rules and the conventional effect of automatic stabilizers operating through disposable (permanent) income. The paper investigates these channels and concludes that, contrary to what has been found in RBC models, distortionary taxes tend to reduce output volatility relative to lump-sum taxes when significant rigidities are present. We also study the stabilization effect of alternative (distortionary) tax structures and find that these are only relevant if substantial rigidities are present.     

Fiscal policy rules,budget deficits,and forecasting biases

In this paper, we analyze the impact fiscal policy rules have on budget deficits and forecasting biases in official budget outlooks. Persistent budget deficits and over-optimistic budget forecasts have been observed in many countries in the past, especially in the euro area. To prevent such developments from happening in the future, fiscal rules have been revised or implemented with the aim to strengthen both preventive (ex-ante) and corrective (ex-post) elements of fiscal rules frameworks. Do such ex-ante and ex-post rules differ in their effects? In an attempt to answer this question, we build a two-period model and distinguish between ex-ante rules that apply to budget forecasts and ex-post rules that apply to realized budget deficits. Our model indicates that effectively enforced ex-post rules are more effective than ex-ante rules at reducing budget deficits. Interestingly, ex-ante rules differ from ex-post rules in their effects on forecasting biases. Only ex-post sanctions reduce forecasting biases, while ex-ante rules have no impact on such biases. In addition, we show that political stability and the size of government increase the effectiveness of fiscal rules. If, however, financial markets have a disciplining effect on governments, the effectiveness of fiscal rules is reduced. Our results imply that if fiscal policy rules cannot be effectively enforced, reforming other areas such as electoral rules or financial market regulations might be a more promising approach to ensuring sound public finances than fiscal policy rules.     

Theories of the firm, competitive advantage and government policy

To improve the effectiveness of government policy, it is necessay to develop a good picture of what a firms in a knowledge-intensive economy is and does. In this paper, we have drawn on the recent surge of books and articles on the resource- and knowledge-based theories of the firm and their implications for competitive advantage. We would like to contribute to that discussion summarizing that debate and exploring the implications for government policy. In new theories of the firm, emphasis is placed on the crucial importance of knowledge, a production factor which is not easily imitated. Exampb of government policy which are based on these new inskhts are the recognition of the importance of demanding clients, the emphasis on the unique potential of the local business environment and the stimulation of transfer of knowledge between firms and networks instead of subsidizing project for knowledge development in isolated firms. A more realistic view of business behaviour will improve the effectiveness of policy, thereby generally improving the competitive position of firms.     

Uncertainty,trust, and the regulation of the banking industry

This paper suggests that, in presence of uncertainty, individual choices are made on the basis of subjective evaluations, and the transmission of information is too expensive, so that the decision-making process must largely be based on other agents’ knowledge. Banks operate by developing a network of personal relationships, based on trust, that allows agents to make use of the subjective knowledge of others. The deregulation process of the financial industry of the 1990s was based on the principle that information disclosure would make the market for securities more efficient, increasing risk diversification, and making the financial system safer. Many innovative financial contracts, however, were not backed by trust and reputation mechanism as traditional banking activities. The shadow banking system emerging from these market-based transactions was thus much more risky and fragile than the traditional one, based on private information and unwritten rules of conduct.     

Monetary policy and stock price dynamics with limited asset market participation

We study a New-Keynesian DSGE model subject to limited asset market participation (LAMP) and assess whether monetary policy should respond to stock prices for what concerns the determinacy and the learnability (E-stability) of the Rational Expectations Equilibrium (REE). We find that interest rate rules granting a positive response to stock prices facilitate both the determinacy and the E-stability of the fundamental REE when the degree of LAMP is sufficiently large to generate an inverted aggregate demand channel of monetary policy transmission. Moreover, according to our analysis, policy rules responding to stock prices appear to perform better than more standard rules responding to output with respect to both equilibrium determinacy and aggregate welfare.     

Learning process and rational expectations: An analysis using a small macro-economic model for New Zealand

The nature of expectations matters when conducting monetary policy. Models with a learning process can exhibit very different properties from models with other types of expectation rules. This paper draws on the work of Orphanides and Williams [Orphanides, A., Williams, J.C. 2002. Imperfect knowledge, inflation expectations and monetary policy, Federal Reserve Board Finance and Economics Discussion Series, 2002-27], extending it to allow for the possibility that the learning process may not be perpetual, but rather might be converging towards a rational expectations equilibrium. By modelling expectations using a learning process, we obtain that inflation expectations in New Zealand are moving towards rational expectations. The closer expectations are to rational, the more inflation can be reduced without costs, thus arguing for a rather tough policy aimed at anchoring expectations on the target.     

Agency rulemaking, political influences, regulation, and industry compliance

This article empirically examines the impact of congressionaloversight and agency rulemaking on firm compliance behaviorin FDA-regulated industries. Congressional oversight hearingsprovide signals to firms about future changes in regulatoryenforcement strategies. Agency rulemaking influences firms'incentives to comply with regulation because firms must investsignificant resources to keep up with changing agency policy.This analysis uses three-stage least squares to simultaneouslyestimate both the numbers of FDA inspections and industry violatorsbetween 1972 and 1994. Results show that congressional oversightdeters industry noncompliance. The effect of agency rulemakingon noncompliance differs between industries. For instance, anincreasing stock of human drug rules has raised compliance amongdrug firms because newer more, cost-effective rules have replacedolder, more costly rules. In contrast, the increasing stockof medical device rules has reduced industry compliance amongdevice firms because these rules have increased the complexityand the scope of regulation.     

What does IT Take for Congress to Enact Good Policies? an Analysis of Roll Call Voting in the US Congress

We study the conditions under which members of Congress incorporate policy‐specific considerations in their decisions. To do this, we estimate a model that accounts for the influence of private information about legislation quality on voting patterns in the House and Senate. We find that minority party members are more likely to evaluate proposals on their merits than majority members, but institutional and electoral considerations significantly attenuate these partisan differences. In particular, seniority, electoral safety, and constituents' political knowledge have a balancing effect on partisan predispositions to rely on policy‐relevant information, making minority (majority) members less (more) likely to vote informatively.     

On the political economy of minority rights. Three ways to manipulate a minority: Goals,rules, and border poles

Language rights for speakers of minority languages are analyzed as well-defined policy measures that are implemented in given jurisdictions. For the implementation of such rights in some countries, certain rules concerning the number and geographical distribution of the speakers of a minority language have to be fulfilled. We discuss, how a policy maker with a given attitude towards the minority can manipulate the policy to further his or her goals. We first provide a normative background for this type of language policy, a benchmark, analyzing language policy on the basis of welfare economics, first discussing why language policy is but one type of public policy, then defining and discussing the benefit or “demand” side assuming that benefits are basically proportional to the number of beneficiaries of the planning measure. We then argue that the costs of a planning measure can be described as a function of two variables, “number of beneficiaries” and “size of area of application”. This lets us analyze planning measures in a two-dimensional model fully characterized by the number of beneficiaries and their geographical distribution in the jurisdiction under consideration. Finally, we characterize the optimal size and extension of the jurisdictions where the language rights are to be implemented. It is then shown, how the policy maker can manipulate the goals of the policy, the implementation rules, as well as the borders of the jurisdictions in order to achieve her or his political goals when they differ from the cost-benefit optimum.     

Customer ignorance, price-cap regulation, and rent-seeking in mobile roaming

Mobile phone usage when traveling abroad is expensive. Although the network connection switches frequently between available networks, the choice of network is largely independent of wholesale prices. As a consequence, we show that wholesale prices are strategic substitutes. The recent European price-cap regulation forces firms to reduce wholesale and retail roaming prices, but does not solve the underlying problem. There may thus be a permanent need for regulation analogous to what we have for domestic call termination. Furthermore, we show that there is a risk that wholesale price-cap regulation stimulates wasteful rent-seeking activity.     

Asymmetric monetary policy rules for the euro area and the US

We analyse the implications of asymmetric monetary policy rules by estimating Markov-switching DSGE models for the euro area (EA) and the US. The estimations show that until mid-2014 the ECB’s response to inflation was more forceful when inflation was above than below the central bank’s aim. Since then, the ECB’s policy can be characterised as symmetric, and we quantify the macroeconomic implications of this policy change. We uncover asymmetries also in the Fed’s policy, which has responded more strongly in times of crisis. We compute optimal simple rules for the EA and the US in an environment with the effective lower bound and a low neutral real rate, and find that it prescribes a stronger response to inflation and the output gap when inflation is below target compared to when it is above target. We document its stabilisation properties had this optimal rule been implemented over the last two decades.     

Confronting the Trilemma: Culture,Institutions, and Macroeconomic Disequilibria

Abstract

Although the fundamental trilemma of open-economy macroeconomics has been a popular framework for analyzing the effects of various policy combinations, it ignores how policy regimes change. Drawing from Post-Keynesian Institutionalist theory, this article considers this process in democracies as a type of technological change in which progress may be limited by insufficient knowledge and actions by vested interests. A case study of interwar France shows that these barriers often delay or weaken stabilization programs, which increase both political and economic uncertainty that further lowers aggregate demand and inhibits the attainment of macroeconomic equilibria. Although we should not generalize these observations, they suggest that understanding and addressing cultural and institutional factors may be necessary for successful countercyclical policymaking.     

Confident expectations, rational expectations and the optimal conduct of monetary policy

Under what conditions central banks can afford to deviate from announced targets without losing their reputation is analyzed. For this, the public must have something like ‘confident expectations' vis-a-vis monetary policy and central banks have to behave accordingly. The paper shows that it can be rational for the public and welfare-increasing for the society to retain ‘confident expectations' instead of switching to rational expectations, when central banks have gained long-run reputation. At the end of the paper, alternative optimal money supply rules are compared in a dynamic optimization framework. © 1998 Elsevier Science B.V. All rights reserved.     

A fragmented patient safety concept: the structure and culture of safety management in health care

The uniform and visible commitment to safety management is a cultural and structural change that health care organizations have not typically attempted. Committee structures are just one example of how culture drives structure in managing health care safety. The question is: "Are we interested in making nonpatient safety programs as well understood and as culturally significant as patient safety programs?" Models exist to institutionalize safety management in health care. We need only look to the JCAHO or OSHA and other high-hazard industry models for examples of safety management. Change requires a focus on safety, not occupational safety or patient safety, but just safety. In health care, safety would be a key characteristic of organizational culture. The organizational expectation is then that all employees will work safely and practice safety. Employees will apply safe practices when handling chemicals, in lifting, and when giving medications. Only when safety imbues the work and decisions of each employee in this way will the highest level of safety be attained.     

Environmental regulation,political incentives,and mortality in China

China enacted an environmental regulation policy in 1998, the “Two Control Zones” (TCZ) policy, to control air pollution in selected cities. Using a panel dataset of 208 prefectural cities for 2001–2012, this study applies a difference-in-differences approach to examine the policy's impact on mortality and identify the role of political incentives. We find the following aspects. (1) The policy significantly reduces mortality in TCZ cities relative to that in non-TCZ cities by 0.305‰ in the period when the policy is strictly enforced. On average, it translates into a 5.2% reduction in mortality. (2) The effect is particularly salient in the years when local officers are evaluated for political promotion and/or when they face stronger pressure for promotion, thus suggesting that political incentives play an important role in determining the effectiveness of environmental regulation policy. (3) The policy reduces industrial emissions of sulfur dioxide instantaneously, while the accumulation of which eventually leads to a lagged reduction in mortality in the cities. (4) The policy yields health benefits worth 1.1 trillion yuan for the treatment period in our sample (i.e., 2006–2012), which accounts for approximately 5.1% of GDP in 2006.