Testing the Empirical Relevance of the ‘Saving for a Rainy Day’ Hypothesis in US Metro Areas

The joint implication of the consumption Euler equation and cointegration between income and consumption is that savings predict future income declines, the ‘saving for a rainy day’ hypothesis. The empirical relevance of this hypothesis plays a key role in discussions of fiscal policy multipliers, and it holds under the null that the permanent income hypothesis is true. We find little support for this hypothesis using time series data for the 100 largest US Metropolitan Statistical Areas for the period 1980q1–2015q4. Our approach is to test for cointegration and weak exogeneity between income and consumption, and by exploring the direction of Granger causality between the two time series. We find that income more often predicts consumption and saving than the converse. We also give evidence that house price changes played a role in US income and consumption dynamics, before, during and after the Great Recession.     

The Global Competition for Wild Fish Resources between Livestock and Aquaculture

Aquaculture satisfies a growing global demand for fish but also consumes an increasing share of the world’s wild fish resources. This has led to a concern that increased aquaculture production poses a threat to the sustainability of capture fisheries. We use a shrinkage estimator to estimate fishmeal demand from countries with different make‐up of meat and farmed salmon production. Although we are not able to identify structural differences between these sectors, the empirical results show that fishmeal demand is price inelastic. Technological change, however, is reducing fishmeal usage in feeds, suggesting that strong demand pressure on pelagic fish resources targeted for fishmeal is a temporary phenomenon.     

“I don’t Care that People don’t Like What I Do” – Business Codes Viewed as Invisible or Visible Restrictions

Research about codes of corporate ethics has hitherto taken a hypothetical, correct meaning of codes for granted. The article problematises the dichotomous categories intrinsic and subjective meanings of codes. I address the question if professionals in finance accept codes of business. The particular mentality of stockbrokers and traders constructs the way they judge restrictions such as company codes of ethics. While neglecting dimensions of ethics beyond known rules, brokers and traders distrust good ethics as a possible end in itself. Many professionals in the financial market perceive efforts to integrate ethical reasoning in work as only means for maximising business opportunities.     

Exchange rate versus inflation targeting: a theory of output fluctuations in traded and non-traded sectors

This paper develops a basic model for output fluctuations in traded and non-traded sectors under two alternative monetary policy regimes; exchange rate targeting (or monetary union) and inflation targeting. The conventional wisdom from one-sector models says that inflation targeting gives better output stabilization than exchange rate targeting when demand shocks occur, but the opposite when supply shocks occur. In a model with a traded and a non-traded sector, we show that the conventional wisdom holds for the non-traded sector. However, for the traded sector, we show that inflation targeting destabilizes output compared with exchange rate targeting when both supply and demand shocks occur. The only shocks where inflation targeting provides the better output stability for the traded sector are shocks to world market prices. The two-sector structure introduces new mechanisms that may turn around earlier results for aggregate production. For instance, a demand shock may induce higher aggregate output fluctuations with inflation targeting than with exchange rate targeting. Furthermore, a positive demand shock may prove to be contractionary under inflation targeting.     

Equilibrium-correction vs. differencing in macroeconometric forecasting

Recent work by Clements and Hendry elucidate why forecasting systems that are in terms of differences, dVARs, can be more accurate than econometric models that include levels variables, EqCMs. For example, dVAR forecasts are in some cases insulated from parameter non-constancies in the long run mean of the cointegration relationships. In this paper, the practical relevance of these issues are investigated for RIMINI, the quarterly macroeconometric model used in Norges Bank (Central Bank of Norway), an example of an EqCM forecasting model. We develop two dVAR versions of the full RIMINI model and compare EqCM and dVAR forecasts for the period 1992.1–1994.4. We also include forecasts from univariate dVAR type models. The results seem to confirm the relevance of the theoretical results. First, dVAR forecasts appear to provide some immunity against parameter non-constancies that could seriously bias the EqCM forecasts. Second, the misspecification resulting from omitting levels information generates substantial biases in the dVAR forecasts 8 and 12 quarters ahead.     

Models in action: how management models are interpreted in new product development

This paper studies the use of product development management models. Through an interpretive research approach based on in-depth interviews with 22 middle managers in two product development organizations, five ways of conceiving projects, project management and the role of models are identified – administrative, organizing, sense giving, team building and engineering – all representing different perspectives on – and ways of using models. The findings question essentialist views of models, common in the literature, as either normative guides for action or symbolic tools decoupled from action. Instead, the study indicates a large variety in the use of models mediated by the user's conception of the situation and the model. The study highlights the communicative role of models as boundary objects, enabling coordination of and communication about different conceptions of the development task. Rather than contributing to behavioral standardization (an implicit assumption that underlies most formal models), this study suggests that models support cognitive standardization by providing a common set of concepts and a framework that may be drawn upon in making sense of complex product development projects.     

Optimum Currency Areas Under Inflation Targeting

Several countries face the choice between targeting inflation independently and entering a monetary union that targets inflation. The present paper extends the theory of optimum currency areas to deal with this choice. In contrast to the conventional theory, countries might form more of an optimum currency area the more asymmetric supply shocks are.     

Risk Preferences,Production Risk and Firm Heterogeneity*

A new technique is proposed for deriving the risk preference function under production risk and expected utility of profit maximization. The derivation depends on neither a specific parametric form of the utility function nor any distribution of the error term representing production risk. The proposed risk preference function is flexible enough to test different types of risk behavior and symmetry of the output distribution. Furthermore, our production risk specification allows for inputs with positive and negative marginal risk. The econometric model accommodates production risk, risk preferences and firm heterogeneity simultaneously. Norwegian salmon farming data are used as an application.