Dynamic analysis of trade balance behavior in a small open economy: the J-curve phenomenon and the Czech economy

This paper focuses on empirical investigation of the J-curve phenomenon in the Czech economy. There are emphasized some problem areas of past research and     

Exchange rate pass-through in a small open economy: the Anglo-Irish case

Bilateral import unit values are constructed to investigate the extent and speed of exchange rate and production cost pass-through into the unit values of Irish imports (total and sectoral) from the UK using Menon's (1996 Menon, J. 1996. The degree and determinants of exchange rate pass-through: market structure, non-tariff barriers and multinational corporations. Economic Journal, 106(435): 434–44.  ) mark-up model. The approach used to measure exchange rate pass-through is based on cointegration and error-correction modelling and the period of analysis is from 1979 to 1995. Full pass-through from the bilateral Irish pound–Sterling exchange rate and from UK producer costs could not be rejected for total and sectoral import unit values for the sample period 1979q1–1995q4. This implies no role for domestic competing prices in explaining the long-run relationship determining unit values of Irish imports from the UK. The results indicate that for aggregate and sectoral unit values of Irish imports from the UK pass-through is incomplete in the short-run.     

Price-cost margins and manufacturing industry structure: The case of a small economy with bilateral trade in manufactured goods

The majority of empirical tests of the structure-performance model have examined the relationship between performance and domestic industry structure, although in recent work aspects of foreign competition have been included. In the context of a Republic of Ireland study, this paper attempts to extend the model by redefining the demand growth and import share variables and by including a measure of the relative competitiveness of foreign suppliers vis-á-vis domestic firms.The empirical results lend support to the proposed extension and suggest that in a small economy foreign competition has a more important impact on industry performance than competition among domestic firms.     

Impact of economic uncertainty in a small open economy: the case of Chile

We construct the first news-based economic uncertainty index for Chile, which allowed us to rebuild 23 years of the history of economic uncertainty in the country and quantify its impact on the economy. We find that an increase in economic uncertainty conveys a fall in GDP, investment, and employment, even after accounting for the small open economy nature of Chile. In contrast to previous studies for big and developed economies, we do not find evidence of an overshooting effect when uncertainty dissipates; therefore, increases in economic uncertainty have negative effects on the economy, even in the long-run. Our estimates suggest that these impacts range from 10% to 20% for aggregate investment, 2.5% to 5% for GDP, and 1.3% to 4.2% for employment. Extensions suggest that economic uncertainty affects both mining and non-mining investment, with the former showing a more pronounced decline. We also find that the bulk of effect of economic uncertainty on aggregate investment is via private investment, with some short-run impacts on public investment. Moreover, compared to the GDP response, aggregate consumption responds in almost the same way to an economic uncertainty shock.     

Budget consolidation in a small open economy: a case study for Slovenia

In this article, we use the macroeconometric model SLOPOL10 to calculate simulations of the development of the Slovenian economy until 2030. Starting from the present favourable prospects of the European economies, the forecast is very optimistic but it can nevertheless be improved by optimal fiscal policies as calculated using the OPTCON2 algorithm. If a negative shock to world trade of a size comparable to the Great Recession occurs, it will entail a decline in GDP and a slow recovery. In this case, optimal fiscal policies should not act in an expansionary way as the effectiveness of fiscal policy with respect to output and employment is rather limited in a small open economy like Slovenia. Instead, the goal of budget consolidation will call for a more restrictive fiscal policy, at least if the shock is temporary.     

Labor productivity of small and large manufacturing firms: the case of Taiwan

This work studies the factors influencing the labor productivity of small and medium-sized enterprises (SMEs) and large firms using Taiwan as a case study. A special emphasis is placed on two possible international channels: exports and foreign direct investment (FDI). Different from conventional studies, we employ the two-stage switching regressions to correct the firm-size effect on labor productivity and estimate labor productivity for SMEs and large firms. The main findings are as follows. First, the estimates of the selectivity variable are statistically significant for both SMEs and large firms, supporting the hypothesis of correcting the effect of firm-size truncation. Second, while a larger trade intensity significantly increases the labor productivity of SMEs, it deteriorates significantly that of large firms. Third, FDI enhances the labor productivity of SMEs internally, whereas it has a negative spillover on that of other small and large firms in the industry. While the first outcome lends supports to the role of self-selection, the remaining stands in sharp contrast to conventional wisdom.     

Implementation of computer-integrated manufacturing in small manufacturing firms

Even though small firms are the most fertile institutions in terms of job creation and also comprise the larger part of the manufacturing base of most countries, small firms have been generally quite slow in adapting computer-integrated manufacturing (CIM) technology. This is especially problematic in taday's consumer-oriented market-place, where global competitive pressures are forcing firms to develop highly integrated information systems. In this paper, we will discuss the main reasons for this state of affairs and the steps needed for the implementation of such new methodology. In addition, we explore the advantages of establishing a CIM system as it relates primarily to two areas of operation; logistics planning, and human competence engineering.     

A middle income trap in a small open economy: Modeling the Argentinean case

This paper presents a model of the conditions that may lead a small open economy towards a middle income trap. This situation has shown to be pervasive in Latin America. As Argentina is a salient instance of this phenomenon, we develop a stylized model of its economy at the first decades of the XXth century. It consists of a general equilibrium model of an open emerging economy, which is a price-taking primary goods exporter. A growth process is triggered by an increase of commodity prices, due to an upward jump of the world demand of these goods. The economy goes through several phases of growth, starting from a subsistence stage. Once decreasing returns set in, the economy reaches a steady state. Only a sustained high demand of its export products allows the economy to thrive. Otherwise, the economy gets entrapped in a middle income level.     

Implementation of computer-integrated manufacturing in small manufacturing firms

Even though small firms are the most fertile institutions in terms of job creation and also comprise the larger part of the manufacturing base of most countries, small firms have been generally quite slow in adapting computer-integrated manufacturing (CIM) technology. This is especially problematic in taday's consumer-oriented market-place, where global competitive pressures are forcing firms to develop highly integrated information systems. In this paper, we will discuss the main reasons for this state of affairs and the steps needed for the implementation of such new methodology. In addition, we explore the advantages of establishing a CIM system as it relates primarily to two areas of operation; logistics planning, and human competence engineering.     

The effects of monetary policy in a small open economy: the case of Portugal

In this article, I analyse the macroeconomic effects of monetary policy on the Portuguese economy. I show that a positive interest rate shock leads to: (i) a contraction of real GDP and a substantial increase of the unemployment rate; (ii) a quick fall in the commodity price and a gradual decrease of the price level and (iii) a downward correction of the stock price index. It also produces a ‘short-lived liquidity effect’ and helps explain the negative comovement between bonds and stocks. In addition, I find evidence suggesting the existence of a money demand function characterized by small output and interest rate elasticities. By its turn, the central bank’s policy rule follows closely the dynamics of the money markets. Finally, both the real GDP and the price level in Portugal would have been higher during almost the entire sample period if there were no monetary policy surprises.     

Fiscal policy,macroeconomic performance and industry structure in a small open economy

We analyse how fiscal policy affects both the macroeconomy and the industry structure, using a multi-sector macroeconomic model of the Norwegian economy with an inflation targeting monetary policy. Our simulations show that the magnitude of the government spending and labour tax cut multipliers, whether monetary policy is active or passive, is comparable to what is found in the literature. A novel finding from our simulations is that the industry structure is substantially affected by an expansionary fiscal policy, as value added in the non-traded goods sector increases at the expense of value added in the traded goods sector. Moreover, expansionary fiscal policy reduces the mark-ups in the traded goods sector, while the mark-ups are roughly unchanged in the non-traded goods sector. The contraction of activity in the traded goods sector increases when monetary tightening accompanies the fiscal stimulus. Hence, we find that such a policy mix is likely to produce significant de-industrialization in a small open economy with inflation targeting.     

Technical change in a bubble economy: Japanese manufacturing firms in the 1990s

An important economic policy issue is to ascertain when and if technical change (TC) is driving measured growth in productivity. Was this the case for Japan during the late 1980s when a massive financial bubble was being formed? This paper addresses this question, after first further developing methods needed for this purpose. The movement of firms’ TC is of particular policy interest to Japan whose economy has been suffering from a prolonged recession for more than a decade since the burst of the bubble in 1990. In the period of time immediately prior to the burst of the bubble, our estimation results show a significant drop in technical progress. What we believe these results reflect is that Japanese manufacturing firms made excessive investments in production inputs in the years when the bubble was being formed. This excessive investment in inputs did not contribute positively to TC and hence the measured productivity and economic growth of the bubble period in the late 1980s was unsustainable.     

Innovation in the medical device sector: an open business model approach for high-tech small firms

Innovation in the medical device industry is progressing rapidly with many technologies heralded as major breakthroughs. The public are often well informed about these matters, which results in a patient pull for innovations that are years from market. HTSFs operating in this environment face huge challenges in terms of realising the latent economic potential from new innovations. Open innovation offers the prospect of lower costs for innovation, faster times to market, and the chance to share risks. By developing open business models medical device companies can capture the multifaceted ideas of scientists, engineers, clinicians and indeed patients; thus allowing beneficial technologies to reach the market more quickly in a way that is evidence focused. This study uses a qualitative approach to investigate the explicit and implicit business models within HTSFs in the health care sector and provides a useful contribution to understand the challenges and identify solutions in this multi-stakeholder environment.     

Testing for short-run money neutrality in a small open economy: The case of Canada

This paper adopts an econometric methodology which is based on standard nested-hypotheses testing in order to test the policy ineffectiveness proposition in the context of the Canadian economy. It thus avoids some problems associated with the non-nested hypotheses framework used by Barro and numerous other writers. The substantial openness of the Canadian economy is taken into account through the use of a Mundell-Flemming aggregate demand side. The supply response of the economy is carefully modelled, in the same context, and the familiar Sargent-Wallace aggregate supply function is derived as a special case of a more general Keynesian function — by assuming instantaneous adjustment of prices to costs. Empirical tests based on a data sample spanning the period of Canada's recent experience with flexible exchange rates are unfavorable to the policy ineffectiveness proposition.     

Bayesian estimation of the output gap for a small open economy: The case of Canada

We introduce a novel approach for estimating output gaps for small open economies. Identification is based on a multivariate trend-cycle decomposition in which transitory exchange rate movements are linked to the output gap and inflation. The model is then applied to Canadian data.     

Price behaviour in the Italian manufacturing industry

This paper sets out to test the hypothesis that the price-cost margins of Italian manufacturing industries are influenced by excess domestic demand and by international prices of manufactured products. Using annual data (1956–1982) a mark-up equation is estimated for each of the twelve industries in which the manufacturing sector has been disaggregated. The ratio of industry price to average total cost is functionally related to the ratio of international price to domestic cost and a measure of excess demand. On the basis of the estimates, which are obtained by Maximum Likelihood techniques, and some specification tests, it is concluded that both factors influence pricing behaviour although their effect is not uniformly significant in every sector.     

The determinants of international reserves in the small open economy: The case of Honduras

The strong monetary approach to the balance of payments suggests that for a small open economy with a fixed exchange rate, international-reserve losses are due to money-supply growth in excess of growth in money demand, where money demand is assumed to be a stable function of exogenously given income and world prices. This paper tests the applicability of the strong monetary approach to Honduras during the period 1960–1983. Although the strong monetary approach provides a statistical explanation of reserve movements during this period, insights into the underlying causes of reserve changes can be obtained through recognition of the importance of the income terms of trade in determining both real income and domestic-credit growth in the small open economy.     

Wage-setting coordination in a small open economy*

This paper studies wage-setting coordination in a two-sector, open economy dynamic stochastic general equilibrium model. Two large sectoral unions anticipate the effects of their wage demands on aggregate variables. In an open economy, there are externalities that the unions can take into account to increase aggregate welfare, but the strategic interaction between the sectoral unions tends to erode this gain. When wage coordination takes place through a wage norm set by either of the sectors, this minimizes the strategic interaction. However, wage norms create welfare losses as sector-specific wage adjustment is required to make an efficient adjustment to shocks.     

The energy problem in a small open economy

The paper deals with the economic consequences of an oil price shock in a small open economy. The analysis along neoclassical lines is based upon a three-factor nested CES production function. The model takes account of capital accumulation. Analytical solutions for the short- and long-run are presented for a linearized version of the original model, which makes existing results more tractable.