Nominal bargaining power, selection protocol, and discounting in legislative bargaining

The comparative static predictions of the Baron and Ferejohn [Baron, D.P., and Ferejohn, J.A., (1989). Bargaining in legislatures, American Political Science Review 83 (4), 1181-1206] model better organize behavior in legislative bargaining experiments than Gamson's Law. Regressions similar to those employed in field data produce results seemingly in support of Gamson's Law (even when using data generated by simulating agents who behave according to the Baron-Ferejohn model), but this is determined by the selection protocol which recognizes voting blocks in proportion to the number of votes controlled. Proposer power is not nearly as strong as predicted in the closed rule Baron and Ferejohn model, as coalition partners refuse to take the small shares given by the continuation value of the game. Discounting pushes behavior in the direction predicted by Baron and Ferejohn but has a much smaller effect than predicted.     

Short-memory equilibrium in stochastic overlapping generations economies

In stochastic OLG exchange economies, we show that short-memory equilibria—the natural extension from deterministic economies of steady states, low-order cycles, or finite state-space stationary sunspots equilibria—fail to exist generically in utilities. As a result, even with independent and identically distributed exogenous shocks there is serial correlation in endogenous economic variables in equilibrium. This arises even if utilities are time-separable, some goods inferior, and there are no technological lags. Hence, the origins of economic fluctuations can be traced only to the demographic structure of a heterogeneous agent, multiple-good economy.     

Monetary regimes and the co-ordination of wage setting

A recent literature argues that a strict monetary regime may reduce equilibrium unemployment by disciplining wage setters, as wage setters abstain from raising wages to avoid a monetary contraction. However, in this literature the wage setters are assumed not to co-ordinate their wage setting. The present paper argues that precisely because a strict monetary regime may discipline the unco-ordinated wage setting, thus lowering unemployment in the unco-ordinated outcome, it also reduces wage setters’ incentives to co-ordinate. It is shown that an accommodating monetary regime may reduce equilibrium unemployment, via the strengthening of the wage setters’ incentives to co-ordinate.     

Competitive-search equilibrium in monetary economies

Competitive search was recently introduced in monetary economics by Rocheteau and Wright [Money in search equilibrium, in competitive equilibrium, and in competitive search equilibrium, Econometrica 73 (2005) 175-203]. We extend their work by eliminating the restriction that the fees market makers charge to enter a submarket must be either non-negative or identical for buyers and sellers. Without this restriction, buyers pay a positive fee to enter the submarket they visit and nothing else when they meet a seller. Sellers are remunerated by the market makers from the entry fees collected from the buyers. This trading arrangement allows buyers to perfectly predict their expenses, so the opportunity cost of holding idle money balances is eliminated.     

Testing for Seasonal Fractional Roots in German Real Output

Abstract. This paper examines the seasonal structure of German real GNP per capita by using a version of Robinson's (1994) tests which is suitable in the context of seasonality. This method has several advantages over alternative approaches when testing for seasonal unit roots. First, unlike standard tests, which are nested in AR alternatives, it is embedded in fractional alternatives. Second, it allows testing at the zero frequency and at each of the seasonal frequencies separately. Third, it makes it possible to test for different orders of integration at each of the frequencies simultaneously. The empirical analysis suggests that the real output series may have a unit root at the zero frequency, and fractional rather than unit roots at the seasonal ones. This is in contrast to the findings reported by Lutkepohl et al. (1999) in their study on German money demand, and shows the importance of modelling the seasonal features of the data in alternative ways.     

Financial liberalization,financial sector development and growth: Evidence from Malaysia

The objective of this paper is to examine whether financial development leads to economic growth or vice versa in the small open economy of Malaysia. Using time series data from 1960 to 2001, we conduct cointegration and causality tests to assess the finance-growth link by taking the real interest rate and financial repression into account. The empirical evidence suggests that financial liberalization, through removing the repressionist policies, has a favorable effect in stimulating financial sector development. Financial depth and economic development are positively related; but contrary to the conventional findings, our results support Robinson's view that output growth leads to higher financial depth in the long-run.     

Overbidding in fixed rate tenders—an empirical assessment of alternative explanations

This paper investigates various theories explaining banks’ overbidding in the fixed rate tenders of the European Central Bank (ECB). Using auction data from both the Bundesbank and the ECB, we show that none of the theories can on its own explain the observed overbidding. This implies that the proposed new rules by the ECB, aimed at neutralizing interest rate expectations, would not eliminate overbidding if the rationing rule in the fixed rate tenders remains unchanged.     

Total factor productivity differences: Appropriate technology vs. efficiency

Recent development and growth accounting studies have established that total factor productivity is an important source of cross-country differences in income levels and growth rates. This paper makes two contributions. First, it examines the sensitivity of the development accounting results to the Cobb-Douglas specification of the production function. Second, within the Cobb-Douglas framework, it weighs evidence of the two alternative explanations of total factor productivity differences: the inefficiency view and the appropriate technology view. To accomplish these tasks, the world production frontier is estimated using a nonparametric deterministic approach known as data envelopment analysis. I find that the fraction of income differences explained by physical and human capital increases from 32% to 55% when departing from the Cobb-Douglas assumption. There is also evidence consistent with the appropriate technology view; countries with an inadequate mix of inputs are unable to access the most productive technologies. Moreover, the world technology frontier appears to be shifting out faster at input combinations close to that of the R&D leader. However, inefficiency appears to be the main explanation for low incomes throughout the world; it explains 43% of output variation in 1995, and its importance has increased over time.     

Fiscal stabilizations: When do they work and why

This paper studies the determinants and channels through which fiscal contractions influence the dynamics of the debt-to-GDP ratio and GDP growth. Using data from a panel of OECD countries, the paper shows that the success of fiscal adjustments in decreasing the debt-to-GDP ratio depends on the size of the fiscal contraction and less on its composition. The rate of growth of output matters too, but higher GDP growth does not drive the success of a fiscal stabilization. In contrast, whether a fiscal adjustment is expansionary depends largely on the composition of the fiscal maneuvre. In particular, stabilizations implemented by cutting public spending lead to higher GDP growth rates. The effects of the composition on growth work mostly through the labor market rather than through agents’ expectations of future fiscal policy. Finally, the evidence suggests that successful and expansionary fiscal contractions are not the result of accompanying expansionary monetary policy or exchange rate devaluations.