Social security wealth and aggregate consumption: An extended life-cycle model estimated for The Netherlands

Summary In this paper a method is developed to calculate a wealth variable accounting for the existence of the basic old-age provisions in The Netherlands (AOW). In line with Feldstein's extended life-cycle model, consumption functions with (gross) social security wealth are estimated for The Netherlands for the period 1957–1986. The marginal propensity to consume social security wealth is statistically significant in the applied specifications. The data favour the use of an age- and period-dependent discount rate. The results compare relatively well with the consumption equations in the models of the Central Planning Bureau and De Nederlandsche Bank.this paper improved considerably thanks to comments of members of the Department of Macro-Economics (University of Amsterdam) and the anonymous referee(s) of this journal. Special thanks to Hans Amman for letting me write my own computer program!     

The influence of tax and expenditure policies on economic growth in The Netherlands: An empirical analysis

Summary This paper explores the influence of government policies in explaining output, emploment and investment in The Netherlands during the period 1966–1989. The paper develops an empirical macroeconomic model estimated with annual data relating to the period 1958–1989. It finds that restrictive fiscal policies in the eighties have had adverse short-term effects on output and employment. Furthermore, the drop in the rate of increase in tax and social security contribution rates in this period has boosted output, employment and investment. However, the shift in public expenditure from investment to consumption has exerted a negative impact on these variables, largely offsetting the positive impact of the tax policies.At the moment of writing, Ed W.M.T. Westerhout was a staff member of the Directorate for Economic Policy, Ministry of Economic Affairs. Currently the is affiliated to the Central Planning Bureau, P.O. Box. 80510, 2508 GM The Hague.We thank Peter van Bergeijk, Lans Bovenberg, Rob Mulder, Pieter Waasdorp and two anonymous referees for uselfut suggestions and comments.     

On the approximation of infinite horizon allocations

Summary Welfare maximizing models with infinite horizon allow us to obtain time consistent, perfect foresight allocations. However, their numerical implementation requires finite horizon models. In this paper we study the steady-state properties of such infinite horizon allocations as well as the appropriateness of specific finite horizon approximations. In particular, we compare the single agent, single capital good model by Cass (1965) which is cast in continuous time, with the multiagent discrete time formulation by Lucas and Stokey (1984) and with an overlapping generation version which follows Kehoe and Levine (1985). For a modification of the Lucas and Stokey model which has satiation in utility, a technique to derive error bounds is obtained for finite horizon approximation of a model with at most one capital good. This technique also applies to appropriate respecification of the Cass model and, if one is willing to accept some heuristics, to the cases with many capital goods and with overlapping generations.Revised version of a paper presented at the symposium on Applied General Equilibrium Models for Open Economies, organized by the Central Planning Bureau, Noordwijk, December 3–5, 1989.     

Fundamentals,regime shifts,and dollar behavior in the 1980s

I provide an economic interpretation of the long swings of the dollar in the 1980s. I use the fully modified estimator method to analyze the long-run behavior of the dollar/sterling exchange rate over the period 1979–1989, detecting a structural shift in February–March 1985. In the 1979–1985 subperiod economic agents have reacted to a reduced set of fundamentals only, a finding that might corroborate the irrational behavior interpretation of the dollar upswing. In the 1985–1989 subperiod economic agents have associated the equilibrium value of the dollar with the behavior of a more balanced set of fundamentals.     

Applications of general equilibrium models to the 1986 tax reform act in the United States

Summary This paper examines the structure and predictions of six applied general equilibrium models used to evaluate the 1986 Tax Reform Act in the United States. The models agree that the effects on national income will be fairly small. They disagree on the size of the improvement in economic efficiency from more neutral taxation of different capital assets, and on the size of the intertemporal inefficiency when capital formation is discouraged through a higher rate of taxation. This new application of general equilibrium models to an actual reform highlights the need to test predictions against empirical evidence.The views expressed are solely those of the author and do not necessarily reflect those of the Federal Reserve Bank of Boston or the Federal Reserve System. The author is grateful to J. von Sinderen, Laus Bovenberg, Lawrence Goulder, and other participants at the conference for their helpful comments, and to the authors of the studies reviewed in this paper for instructive discussions.Prepared for The Netherlands Central Planning Bureau Symposium on Applied General Equilibrium Models, Noordwijk, December 4–5, 1989.     

European integration and economic methodology and research: Questions and speculations

This paper will discuss the role of methodology in connection with different theoretical approaches. It is shown that a multitude of paradigms is appropriate when dealing with complex developments such as integration. The question is raised whether it makes sense to discuss a special European approach. Divergent views exist, but some differences between a European and an American tradition seem to exist due to a continent-wide competition among U.S. economists and a more fragmented European scene. Closer integration and academic cooperation in Europe could result in a more unified research environment resembling the U.S. picture. However, the role of language differences must not be overlooked and can contribute to a continuing diversification.Distinguished Address presented at the Forty-Seventh International Atlantic Economic Conference, Vienna, Austria, March 16–23, 1999.     

Microeconomic adjustments in Uruguay during 1973–1981: The interplay of real and financial shocks

This paper uses the financial statements of industrial firms to develop an integrated firm's eye view of the changes in the Uruguayan economy during 1973–1981. In the first of three subperiods, 1973–1975, real financial costs were very negative and tended to offset low returns on operating assets. During 1976–1978, the dismantling of interest rate controls increased real financial costs, but other factors increased the returns on operating assets more rapidly. During 1979–1981, financial costs jumped enough to more than absorb increases in gross earnings, which were probably due to Argentine demand. The rates of earning and capital formation were highest among exporters in the second subperiod, when a major export promotion program was in place. This pattern was reversed in the third subperiod, as the promotion programs were dismantled and real currency appreciation seemed to squeeze gross earnings of exportables relatively more. This unequal squeezing was probably due to redundant tariff and other protection for import-competing producers.     

Gradual Retirement: Preferences and Limitations

In the traditional retirement scenario, individuals work full-time or part-time until a given age, and then stop working abruptly. From the individual’s point of view, it seems more attractive to have a smooth transition, with gradual retirement. In Sweden and other European countries, specific gradual retirement programs have been created in the past 20 years, first in combination with early retirement programs and later to increase labour market participation of older workers. This paper surveys the existing literature on gradual retirement in the US and Europe and analyzes the relevance of gradual retirement in the Netherlands as a tool to keep people employed longer.      

International banking and transmission of the 1931 financial crisis

In May to July 1931, a series of financial panics shook central Europe before spreading to the rest of the world. This article explores the role of cross‐border banking linkages in propagating the central European crisis to Britain and the US. Using archival bank‐level data, the article documents US and British banks’ exposure to central European frozen credits in 1931. Central European lending was mostly done by large and diversified commercial banks in the US and by small and geographically specialized merchant banks/acceptance houses in Britain. Differences in the organization of international bank lending explain why the central European crisis disturbed few US banks but endangered many British financial institutions.     

German,US and Central and Eastern European Stock Market Integration

This paper examines the long-term linkages between seven Central and Eastern European (CEE) emerging stock markets and two developed stock markets, namely the German and the US markets. The stability of the long-run relationships is studied using recursive cointegration analysis. The results reveal that the financial linkages between the CEE markets and the world markets increased with the beginning of the EU accession process. Furthermore, the application of the Gonzalo and Granger (J Bus Econ Stat 13:27–35, 1995) methodology indicates that the examined stock markets are partially integrated, while there is also evidence that the emerging stock markets of Central and Eastern Europe except for Estonia together with the German and the US stock markets, have a significant common permanent component, which drives this system of stock exchanges in the long run. Finally, it is worthwhile to note that the global financial crisis of 2007–2009 caused a slowdown in the convergence process. In addition we find evidence that the Slovenian stock market exhibits a moderate increase in the transitory component and this may be attributed to the Slovenian full membership in the euro area.     

Economic crisis and economic policy in the thirties and the seventies

Summary This article studies the causes of the deterioration of the Dutch economy after 1930 and after 1973 and potential remedies. An originally Keynesian model from the Central Planning Bureau is extended with some crucial financial feedbacks. Foreign factors and restrictive policy explain the bulk of unemployment growth in the 1930's; the opposite holds for the 1970's. Optimal control suggests the feasibility of a somewhat less restrictive policy in the 1930's, at the cost of financial targets. Fiscal discipline, combined with a less restrictive monetary policy and wage restraint in the 1970's would have improved the initial conditions for the 1980's.We gratefully acknowledge the able assistance of L.H. van der Meiden and J.J. Graafland, also of Erasmus University. Professor S.K. Kuipers and two anonymous referees provided useful comments on an earlier version.     

Monetary union: A survey of the main issues

Summary Exchange-rate union in the EEC would involve member countries surrendering a key instrument of economic policy. This is unlikely to find acceptance in the foreseeable future, because of the inadequacy on the one hand of substitute instruments (control of wages and prices; mobility of factors of production; regional policy) and on the other hand of compensating benefits (elimination of intra-European exchange risk and currency speculation; reduced costs of money-changing; greater immunity to US monetary conditions). The world currency situation points the way to a looser form of monetary association, a European currency bloc not committed to exchange-rate unification internally.The author is much indebted to discussions with W. M. Corden and Fred Hirsch, as well as to their published works on this subject. — A slightly shortened version of this paper is also published in Douglas Evans Ed.,Britain in the E.E.C., London 1973.     

Is European antidumping protection against Central Europe too high?

Is European Antidumping Protection against Central Europe Too High? —In this paper, the author finds that the average level of European antidumping protection against Central Europe in 1985-1990 was by 14 to 20 percentage points too high. Her simulation results on the Central European antidumping cases show only ‘de minimis’ injury margins. Hence, the European Commission would have dismissed all European antidumping complaints against Central European imports and no antidumping measures would have been imposed. In view of these results, the author feels that European antidumping legislation and its implementation seriously undermine the credibility of the Association Agreements recently signed between the European Union and the countries of Central Europe.     

Unemployment, Well-Being, and Wage Curves in Eastern and Central Europe

The paper studies the labor markets of 23 transition countries from eastern and central Europe—Albania, Armenia, Belarus, Bulgaria, Croatia, Czech Republic, East Germany, Estonia, Georgia, Hungary, Kazakhstan, Kyrgyzstan, Latvia, Lithuania Macedonia, Moldova, Poland, Romania, Russia, Slovakia, Slovenia, Ukraine, and Yugoslavia. It uses new micro-data from a large number of surveys on over 200,000 randomly sampled individuals from these countries for the years 1990–1997. The microeconometric structure of unemployment regression equations in the nations of eastern Europe appears to be similar to the industrialised west. Estimation of east European wage curves produces a local unemployment elasticity of between –0.1 and –0.3. This is somewhat larger in absolute terms than has been found elsewhere. On a variety of attitudinal measures, eastern Europeans said they were less contented than their western European counterparts. The strongest support for the changes that have occurred in eastern Europe is to be found among men, the young, the most educated, students, and the employed and particularly the self-employed. Support for market reforms is particularly low amongst the unemployed who were found to be particularly unhappy on two well-being measures. J. Japan. Int. Econ., December 2001, 15(4), pp. 364–402. Department of Economics, Dartmouth College, New Hampshire 03755; and NBER.     

Evaluating participation in African monetary unions: A statistical analysis of the CFA Zones

Thirteen African nations are engaged in two monetary unions with France, often referred to as the CFA Zone. Despite the acknowledged benefits of Zone membership — a convertible currency, pooled resources and greater monetary and fiscal “discipline” — several observers have questioned whether particular aspects of the Zone such as the lack of autonomy of the two Central Banks and the surrender of the exchange rate as a policy instrument have impeded its members' growth. This paper addresses that question by testing whether CFA Zone countries had different GNP growth rates from selected “comparator” countries during 1960–1982. Results show that CFA countries grew significantly faster than comparator Sub-Saharan African countries but usually slower, and often significantly so, than the whole sample of developing countries. When the comparison is made by subperiod (before and after 1973), CFA countries' performance vis-à-vis that of their comparators improved during the 1973–1982 period, casting further doubt on the claim that the monetary union is not functioning adequately.     

The funding of development research

Statistical data on the funding of development research (drawn mainly from official publications and funding bodies' reports) are presented for OECD member countries, 1973–1979, and trends in financing in this area are analysed. Policies of and expenditures by government agencies, major private funding bodies and selected international organizations are examined. Development research financing is also viewed from the recipients' standpoint, and the results of a questionnaire survey of selected development research institutes in Europe, North America and Japan are analysed. The importance of public-sector finance for development research and indications of increasing dependence of European institutes on government funding in this area are emphasized.     

The International Business Cycle in a Changing World: Volatility and the Propagation of Shocks in the G-7

The changing relationships between the G-7 countries are examined through VAR models for quarterly growth, estimated over sub-periods and using a rolling data window. Trivariate models are employed, each including the US and a European (E15) aggregate. The results show that conditional volatility of growth has declined relatively more since 1980 for E15 than for the US, aggregate European shocks have increased impact on “core” European countries from around 1980, the effects of the US on Europe are largest during the 1970s and the late 1990s, and E15 has a steadily increasing impact on the US economy over time. JEL Classification Numbers: E32, F02, F43     

An experimnetal look at seasonal adjustment

Summary This paper offers an empirical appraisal of nine seasonal adjustment methods on the basis of seven criteria (percentage change, orthogonality, idempotency, two tests on residuals, stability, estimation accuracy of known seasonals).The results hardly favour any method explicitly but suggest that the user has to think about the purposes in his mind. Our tests offer the ingredients for an appropriate decision framework.If e.g. predictive power, i.e. stability, along with absence of residual seasonal and trend-cycle movement is wanted, the X-11 method of the Bureau of the Census and the Burman procedure of the Bank of England should be preferred.This paper has been presented at the meeting of the Econometric Society, Oslo, August 1973. We are indebted to Mr. N. J. A. van der Hoeven for his excellent research assistance. We gratefully acknowledge the help obtained the Dutch Central Planning Bureau, and Mr. M. Mesnage of the Statistical Office of the EEC in running our series. Dr. Burman was also kind enough to comment on an earlier draft of this paper presented to the OECD group of financial statisticians held in Paris, October 1972. Of course, the responsibility for the results is solely ours.     

European Union enlargement: An historic milestone in the process of European integration

Ten European countries with economies in transition and two market economies are negotiating full membership with the European Union. This paper considers the economic dimension of the forthcoming enlargement of the European Union, especially on the characteristics of the economies in transition and on the economic implications of the enlargement for European Union agriculture. The transition of the central and eastern European countries from a centrally planned to a market economy, although already in progress for a decade, is far from complete. Uneven macroeconomic developments in the various countries can be attributed to some extent to their individual situation at the start of the transformation. However, they also reflect the varying extent to which institutional reform programs have been implemented in these countries.Distinguished Address presented at the Fifty-First International Atlantic Economic Conference, March 13–20, 2001, Athens, Greece.     

Bilateralism and Regionalism in Japanese and U.S. Trade and Direct Foreign Investment Patterns

We apply a modified "gravity model" incorporating measures of factor endowments to analyze Japanese and U.S. bilateral trade flows and direct foreign investment positions with a sample of around 100 countries for the period 1985–1990. Country features that our analysis takes into account are population, income, the land–labor ratio, the average level of education, and region. We find that features of a country associated with more trade with either Japan or the United States also tend to be associated with more direct foreign investment (DFI) from Japan or the United States. U.S. economic relations with Japan and Western Europe provide an important exception. Despite U.S. concern about its trade deficit with Japan, we find Japan to be much more open to the United States, not only as a source of imports, but also as a destination for U.S. exports than most countries in Western Europe. Taking other factors into account, however, Western Europe is more open to U.S. direct foreign investment. We also find that a country′s level of education tends to increase significantly U.S. interaction of all types with that country, even after correcting for per capita income. Education does not play a significant role in Japanese trade patterns. As factor endowment theory would predict, the United States tends to trade more with densely populated countries, while Japan tends to import more from sparsely populated countries. Even after taking into account population, income, factor endowments, and region, there is a substantial degree of "bilateralism" in Japanese and U.S. economic relationships in that the residual correlation among exports, imports, and outward direct foreign investment is much larger than would be the case if these magnitudes were independent across countries. J. Japan. Int. Econ. December 1994, 8(4), pp. 478–510. Boston University, Boston, Massachusetts 02215; and National Bureau of Economic Research, Cambridge, Massachusetts 02138.