Are US macroeconomic series difference stationary or trend-break stationary?

This article tests for the presence of a unit-root in all time series included in the extended Nelson–Plosser data set using the statistics devised by Zivot and Andrews, Perron and Murray and Zivot. It specifies the mixed model characterization of the trend-break stationary alternative that allows for a simultaneous break in both the intercept and slope of the trend-function. It rejects the unit-root null hypothesis for real GNP, nominal GNP, real per capita GNP, industrial production, employment, GNP deflator, nominal wages, interest rate and common stock prices. Use of appropriate critical values to assess the significance of the trend-function coefficients reveals that the slope-break should be included in real GNP, nominal GNP, real per capita GNP, nominal wages, interest rate and common stock prices. The results indicate that there is less evidence against the unit-root hypothesis with the extended Nelson–Plosser data compared to the original Nelson–Plosser data.     

Forecasting federal budget deficits: how reliable are US Congressional budget office projections?

US Congressional Budget Office (CBO) forecasts of nominal government expenditure, revenue, and deficits as well as nominal gross national product are examined for their reliablity. Critics contend that the CBO is too optimistic. Eyeball examination of the data lends credence to this view. But, careful consideration suggests a more complex story. In sum,the CBO could have improved, ex ante, the efficiency of its deficit forecasts. And, improvements appear to be available in the forecasting of both federal government reveneue and expenditure. The compartmentalization of these forecasts into different CBO Divisions may have led to the reduced effciency.     

Key drivers of EU budget allocation: Does power matter?

We examine the determinants of the EU budget allocation among Member States. In line with the analysis by Kauppi and Widgrén (2004) we test two alternative explanations: political power vs. “needs view” . To do so, we extend the original data set (1976–2001) up to 2012 and introduce alternative econometric specifications. We also put forward the nucleolus as a measure of political power in the distributive context. Our results demonstrate that both power and “needs” are important factors in explaining EU budget allocation. Political power matters, but not as much as previous studies have shown. We also conclude that the nucleolus is a good alternative to the Shapley–Shubik index which was used previously. Power is more balanced with needs under the specifications based on the nucleolus.     

EU Widening and Deepening – Are these goals reconcilable?

The paper examines the compatibility between widening the EU and deepening its integration endeavors, with special emphasis on eastward enlargement. After clarifying the broad nature of the accession negotiations under way, it sketches the most critical obstacles encountered in forging ahead with EU deepening, the problems posed by the ongoing restructuring of the accession candidates, and how deepening and widening necessarily interact. Before concluding with an aside on the relationship between the accession process and the EU's designs on assisting southeastern Europe, the paper briefly reviews where the negotiations stand in mid-2001 and elaborates on what may be in store for the enlargement process in the near term.The opinions expressed here are mine and do not necessarily reflect my employer's.     

Have budget deficits and money growth caused changes in interest rates and exchange rates in Canada?

This paper examines empirically the causal impact of monetary and fiscal policy on exchange rates and interest rates in Canada using a six-by-six vector autoregressive (VAR) model with variable lag structure. The results suggest that changes in the base money and budget deficits have no direct causal effects on exchange rates, a finding consistent with the monetary explanation that exchange rates follow a random walk. Also consistent with the Ricardian equivalence hypothesis, the results reveal no direct effect of budget deficits on interest rates, casting doubts on the crowding-out phenomenon for Canada. In contrast, changes in the base money unidirectionally cause changes in interest rates, implying some support for using interest rates as a key intermediate policy target for the Canadian monetary authorities.     

EU fiscal stance vulnerability: Are the old members the gold members?

This paper investigates the effect of aggregate shocks on the fiscal stance of the EU, and of its old (OMS) and new (NMS) member states over a business cycle. The fiscal stance is measured by the government deficit. To study the impact of aggregate shocks, we use impulse responses derived from a pooled structural vector autoregression model estimated on annual panel data. We find that the fiscal deficits of OMS could be vulnerable to discretionary changes in government expenditures and revenues. In contrast, the fiscal stance of NMS shows vulnerability to GDP shocks, because the increase in revenues after a positive GDP shock is often outpaced by greater expenditure increases in NMS. The estimated fiscal vulnerabilities stem from disproportionate policy responses concerning government expenditures and a lacking discipline to control pro-cyclical fiscal spending. Our findings for the EU thus support application of fiscal rules focused on government expenditure rather than other fiscal variables.     

Are business cycles stationary fluctuations around a deterministic trend? Empirical evidence from 79 developing countries

There is a large literature that tests the univariate time series properties of the real output series following the seminal work of Nelson and Plosser (1982). Whether or not real output is characterized by a unit root process has important implications. A unit root in real output, for instance, is inconsistent with the notion that business cycles are stationary fluctuations around a deterministic trend. In this paper, we investigate the univariate time series properties of real output for 79 developing countries using the conventional augmented Dickey and Fuller (1979) unit root test, the Zivot and Andrews’ (1992) one structural break unit root test, and the Lumsdaine and Papell (1997) two structural breaks unit root test. Our main finding is that, for 40 countries, real output is stationary around a trend. This indicates that business cycles are stationary fluctuations around a deterministic trend for only 51% of the developing countries in our sample.     

Inflation Dynamics in the New EU Member States: How Relevant Are External Factors?

In this paper we evaluate the relative influence of external versus domestic inflation drivers in the 12 new European Union (EU) member countries. Our empirical analysis is based on the New Keynesian Phillips Curve (NKPC) derived in Galí and Monacelli (2005 ) for small open economies (SOE). Employing the generalized method of moments (GMM), we find that the SOE NKPC is well supported in the new EU member states. We also find that the inflation process is dominated by domestic variables in the larger countries of our sample, whereas external variables are mostly relevant in the smaller countries.     

Can money buy EU love?

We explore the role played by Cohesion Policy in the Brexit referendum and the subsequent 2017 general election. Although the UK has been a net contributor to the EU, some regions receive significant amounts of regional aid funds. We find that while Cohesion Policy is positively correlated with the remain vote, this relationship is weak. Most of the variation in the remain vote is explained by economic factors. In contrast, there is a robust negative correlation between Cohesion Policy and voter turnout. We estimate that had there not been this negative relationship, some 2 million more voters would have participated in the referendum, which is more than the winning margin between the remain and leave votes. Our analysis of the 2017 election suggests that Conservatives lost and Labour gained votes in the regions that benefited from Cohesion Policy, while remain-supporting regions showed gains for the Liberal Democrats.     

Is Asian per capita GDP panel stationary?

The goal of this paper is to examine whether per capita GDP for 15 Asian countries is panel stationary. We apply a panel test for stationarity that allows for multiple structural breaks developed by Carrion-i-Silvestre et al. (Econ J 8: 159–179, 2005). Our main findings are: (1) when we apply conventional tests, such as the ADF and KPSS univariate tests without structural breaks, we find little evidence for stationarity; (2) when we apply the KPSS univariate test with multiple structural breaks, we find evidence of stationarity for 10 out of 15 countries; and (3) when we apply the KPSS panel test with multiple structural breaks, we find overwhelming evidence of panel stationarity of per capita real GDP for different panels of Asian countries.      

Do democracies have higher current account deficits?

In this paper we argue that democracies tend to run (larger) current account deficits than autocracies. Our argument is based on the different incentives faced by democratic and autocratic leaders. The main theoretical hypothesis is tested on a dataset of 121 countries over the period 1980–2012, using 5 year averages and a fixed effects panel data model. Special focus is given on the issue of endogeneity by estimating an IV Fixed Effects model. Relying on the idea of the regional waves of democratization and the special role of the Christian Church on the third wave of democratization, we use as instruments of Democracy the level of democracy in neighboring countries and also the share of Christian adherents in each country. Both instruments turn out to be valid determinants of democracy. The empirical findings suggest that autocracies run lower current account deficits than democracies. These results are found to be robust across alternative empirical specifications.     

Does budget deficit lower equity prices in USA?

This paper investigates the relationship between budget deficits and stock prices, incorporating the effects of inflation and the demographic structure. The results show that while the proportion of population in their prime earning age has a positive effect, both budget deficits and inflation have a negative impact on stock prices.     

Are EU trade preferences really effective? An impact evaluation assessment of the Southern Mediterranean Countries’ case

This work assesses the causal impact of the EU trade preferences granted to the Southern Mediterranean Countries (SMCs) in agriculture and fishery products over the period 2004–2014. It overcomes some of the weaknesses of previous assessments and presents several methodological improvements. Firstly, it relies on a continuous treatment – i.e. preferential margins – to capture the ‘average treatment effect’ of trade preferences, rather than on a binary treatment based on dummy variables. Secondly, it uses highly disaggregated data at sectoral level in order to evaluate properly the preferential treatment. Thirdly, it applies a non-parametric matching technique for continuous treatment – specifically, a generalized propensity score matching. The results show, on the one hand, that the impact of the EU preferences is positive and significant on SMCs trade and is better evaluated using impact evaluation techniques. On the other hand, they demonstrate that the relationship between preferences and trade flows is asymmetric and warn against the risk of providing too much of a good thing. These results raise important issues for policy-making. First, they demonstrate that raising the level of preferences is not the solution to foster the SMCs trade towards EU. Second, that the policy-makers should put more emphasis on complementary factors other than trade barriers.     

Culture matters: what cultural values influence budget transparency?

This article empirically examines whether cultural values significantly influence budget transparency. We employ data for budget transparency from the Open Budget Index, and data for national culture from Hofstede’s cultural dimensions, the Global Leadership and Behavioral Effectiveness Research Project and the World Values Survey to explore this question. We find evidence that individualism positively influences budget transparency. We also find that stronger preferences for institutional collectivism, masculinity and authoritarian rule lower budget transparency. These results suggest that national culture shapes preferences for budget transparency and influences the possibility of success for attempts to improve budget transparency across countries.     

Are conservatives overconfident?

Recent studies suggest psychological differences between conservatives and liberals, including that conservatives are more overconfident. We use a behavioral political economy model to show that while this is undoubtedly true for election years in the current era, there is no reason to believe that conservative ideologies are intrinsically linked to overconfidence. Indeed, it appears that in 1980 and before, conservatives and liberals were equally overconfident.     

Are Democracies Cleaner?

We inquire whether democracies enjoy lower pollution levels than autocracies by investigating the ‘clean democracy hypothesis’, which posits that democracies have a more demand-determined policy formation leading to more stringent environmental policies. We test this hypothesis with a large data set covering 137 countries and the period 1970–2012 using eleven different air pollutants as endogenous variables and a wide range of control variables measuring democracy, development stage, globalization, and factor endowments. We find no consistent evidence that democracies are cleaner, not even the richer ones, which casts doubt on the validity of single pollutants studies. Numerous checks show the robustness of our results.     

Are voters rational?

We test whether a voter's decision to cast a vote depends on its probability of affecting the election outcome. Using exogenous variation arising at population cutoffs determining council sizes in Finnish municipal elections, we show that larger council size increases both pivotal probabilities and turnout. These effects are statistically significant, fairly large and robust. Finally, we use a novel instrumental variables design to show that the jumps in the pivotal probabilities are the likely candidate for explaining the increase in turnout, rather than the other observed simultaneous jumps at the council size cutoffs. Moreover, our results indicate that turnout responds only to within-party pivotal probabilities, perhaps because they are more salient to the voters than the between-party ones.     

Is centralization a solution to the soft budget constraint problem?

This paper focuses on the centralization program implemented in Israel in 2004 to analyze whether the administrative subordination of municipalities is an effective policy to deal with problems related to soft-budget constraint of lower level governments. The results consistently show, for different specifications and samples of municipalities, that this program brought a substantial decrease of municipalities’ expenditures (mostly because of decreases in salary payments), and an increase of local property tax collection. Our analysis shows that all of the fiscal impact of the program is due to the appointment of an accountant that reports directly to the central government, a relatively mild form of administrative subordination. In contrast, more intrusive forms of subordination, like the central imposition of a recovery program, do not result in any substantial improvement of municipalities’ fiscal situation. This leads us to conclude that a mild form of administrative subordination is an effective tool to cope with problems related to soft-budget constraints, whereas political subordination is not an effective tool to reach that goal.     

Are Standards Always Protectionist?

We analyze the effect of heterogeneity of foreign and domestic producers on product standard and investigate whether the standard chosen by the welfare-maximizing policymaker is protectionist. In a partial-equilibrium set-up, both domestic and foreign producers compete in selling a product in the domestic market, in the presence of consumption externalities. The policymaker chooses a minimum domestic standard that has to be met by both domestic and foreign producers. Protectionism occurs when the welfare-maximizing domestic standard is higher than the international standard maximizing welfare inclusive of foreign profits. We show that the standard is anti-protectionist when foreign producers are much more efficient at addressing the externality than are domestic producers. Possible exclusion of domestic or foreign producers arises with large standards, which may alter the classification of a standard as protectionist or non-protectionist. The paper identifies multiple caveats for the estimation of tariff equivalents of nontariff barriers.