Connecting National Safety Nets: The Dialectics of the Basel II Contracting Process

Basel II consists of supervisory guidelines negotiated by representatives of central banks and national regulatory commissions that were members of the Basel committee on Banking Supervision (BCBS). The BCBS is itself a regulatory response to globalization, which is connecting national safety nets in market-driven ways. A country’s financial safety net is a social contract established by short-lived agents for principals in long-lived economic sectors. Restraints placed on the authority of the BCBS members to contract for their principals by domestic politics explains: why Basel II authorizes individual countries to implement the agreement in markedly different ways; why US implementation of Basel II ran into so much doubt, controversy, and delay; and how the implementation debate set small and large banks and the Federal Reserve and other federal regulators against one another.

Implications of Basel II for Different Bank Ownership Patterns in Europe

This paper explains that Basel II has different implications for stakeholder-owned (mutual) and stockholder banks in the European Union. Some strategic paths for stakeholder-owned banks are proposed as a response to the Stockholder Value Maximization goals Basel II implicitly advances. Even though empirical evidence indicates that capital strength and risk-taking exposures do not differ across bank ownership structures, SME lending and other characteristic specializations of stakeholder banks promise to generate high capital charges. However, improved corporate-governance practices and cooperative securitization and risk-management activities can reduce the compliance costs and risk-taking constraints mutual banks might experience from shifting to a Stakeholder Value Maximization Model. For all EU banks irrespective of their ownership structure, the analysis stresses that establishing an incentive-compatible cross-country safety-net scheme poses a critical challenge.

Monetary and Fiscal Policy Interaction in the Euro Area with Different Assumptions on the Phillips Curve

In this paper we apply a static version of a New Keynesian macromodel to a monetary union (see Bofinger et al., J Econ Educ, 37:98–117 (2006), Walsh, J Econ Educ, 33:333–346 (2002)). We show in particular that a harmonious functioning of a monetary union critically depends on the correlation of shocks that hit the currency area. Additionally a high degree of integration in product markets is advantageous for the ECB as it prevents national interest rates from driving a wedge between macroeconomic outcomes across member states. In particular small countries are in need for fiscal policy as an independent stabilization agent with room to breath.

Realism Versus Statistical Efficiency: A Note on Contingent Valuation with Follow-up Queries

This paper shows that we can improve the statistical efficiency of dichotomous choice contingent valuation surveys by asking a second open question (anchored open-ended approach) instead of the traditional double-bounded approach. The former approach is shown to be more efficient than conventional single and double-bounded approaches using a Monte Carlo experiment, even when we allow for strategic behavior from respondents such as protest votes and yea-saying behavior.

Single Versus Multi-market Approach: An Application to the Greek Cotton Market

Estimation of the price-induced welfare effects in vertical and horizontal market settings may prove a tricky task when multiple price changes are taken into account. Whether a multi-market sequential approach or a single-market approach is used the well-established, theoretical result suggests that these two partial equilibrium methods are equivalent in terms of implied welfare changes. This paper develops the methodology to empirically compare these two methods. We estimate the welfare changes to Greek cotton–yarn producers induced by the simultaneous change in the prices of cotton–yarn and the cost of labor. Results substantiate the multi-market approach offers more accurate welfare estimates than the single-market approach, in empirical work.

Coordination Failures,Cluster Theory,and Entrepreneurship: A Critical View

In the last decades, more and more economists have advanced the idea that significant obstacles impeding economic growth (especially in less developed regions) consist in different market failures, preventing entrepreneurs from taking the necessary actions to exploit profit opportunities: coordination failure. This paper provides a refutation of the idea that coordination failures as manifested in the inability of clusters to emerge can serve as a ground for government intervention. It uses the Porter, Rodrik and Rodriguez-Clare thesis as an example of this approach and criticizes the claim that coordination externalities prevent the market process to allocate resources optimally.

Policy coordination in East Asia and across the Pacific

In this paper, we construct a macro-econometric model that describes the economic activity in the Asia-Pacific area and provide quantitative insights into the recent policy debates on monetary and currency coordination among the East Asian economies. The model includes a wide variety of monetary and currency policy rules that the East Asian economies adopt and allows for one country's policymaking to have substantial effects on foreign countries. We apply the model to three current policy issues: (1) the desirability of currency basket pegs in East Asia, (2) the anticipated effects of China's currency policy reform, and (3) the non-negativity constraint on Japanese nominal interest rates. The simulation analyses show the external economy effects of policy rules quantitatively and suggest the difficulty of monetary and currency policy coordination among the East Asian economies.

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A Short-Run Crude Oil Price Forecast Model with Ratchet Effect

From 1992 through early 2004, crude oil prices were predictable by using OECD’s relative inventories and OPEC’s excess production capacity. However, since 2004, estimated inventories and excess production capacity under-predict crude oil prices. Using 3-D graphical analyzes, three regimes are identified in crude oil markets during the period from January 1992 to December 2007, reflecting market conditions and OPEC policy changes. These graphics show the changing relationship between crude oil price, inventories and excess production capacity. To reflect this, a ratchet variable, derived from cumulative excess production capacity, is incorporated into the forecasting model to reflect the changing behavior on both demand and supply sides. This model provides improved forecasts for the post Gulf War I time period over models without the ratchet mechanism.

Cantor’s Diagonal Argument: An Extension to the Socialist Calculation Debate—A Comment

In a recent article Robert P. Murphy (2006) uses Cantor’s diagonal argument to prove that market socialism could not function, since it would be impossible for the Central Planning Board to complete a list containing all conceivable goods (or prices for them). In the present paper we argue that Murphy is not only wrong in claiming that the number of goods included in the list should be uncountable, but also that the number of equations/prices is irrelevant from the point of view of market socialism.

Trade Costs,Trade Balances and Current Accounts: An Application of Gravity to Multilateral Trade

In this paper we test the well-known hypothesis of Obstfeld and Rogoff (NBER Macroeconomics Annual 7777:339–390, 2000) that trade costs are the key to explaining the so-called Feldstein–Horioka puzzle. Our approach has a number of novel features. First, we focus on the interrelationship between trade costs, the trade account and the Feldstein–Horioka puzzle. Second, we use the gravity model to estimate the effect of trade costs on bilateral trade and, third, we show how bilateral trade can be used to draw inferences about desired trade balances and desired intertemporal trade. Our econometric results provide strong support for the Obstfeld and Rogoff hypothesis and we are also able to reconcile our results with the so-called home bias puzzle.

The Impact of the Earned Income Tax Credit on Poverty: Analyzing the Dimensions by Race and Immigration

This paper analyzes the effectiveness of the Earned Income Tax Credit (EITC) on poverty transitions, with an emphasis on native-born African–Americans and immigration. A probit model is estimated using data from the Current Population Survey (CPS), which evaluates the impact of EITC participation and immigration on transitions out of poverty. The EITC is found to be a useful tool in combating poverty and is effective for African–Americans, though only for women. More importantly, the results show that the implementation of state-level EITCs can mitigate the adverse effects of immigration for native-born African–Americans.

Wal-Mart’s Impact on Local Revenue and Expenditure Instruments in Ohio, 1988–2003

This research estimates fiscal impacts of Wal-Mart in Ohio from 1985 through 2003. Using a panel of counties, and accounting for spatial autocorrelation in an instrumental variable model I estimate impact of Wal-Mart and Super-Centers on selected revenues and transfer payments. Among the findings is that the presence of a Wal-Mart increases local commercial property tax assessments resulting in collection increases of between $350,000 and $1.3 million. There is also an 18–43% reduction in per capita EITC claims in a county. However, Medicaid expenditures experience growth which amount to roughly 16 additional cases attributable to a single Wal-Mart. The magnitude and statistical certainty of these findings, suggests that local fiscal intervention, either through incentives or a “Wal-Mart Tax” is unwarranted.

Overall trade specialization and economic development: countries diversify

This paper provides evidence for an aspect of trade often disregarded in international trade research: countries’ sectoral export diversification. The results of our semiparametric empirical analysis show that, on average, countries do not specialize; on the contrary, they diversify. Our results are robust for different statistical indices used to measure trade specialization, for the level of sectoral aggregation, and for the level of smoothing in the nonparametric term associated with per capita income. Using a generalized additive model (GAM) with country-specific fixed effects it can be shown that, controlling for countries’ heterogeneity, sectoral export diversification increases with income.

Strategic Interactions Among Central Bank and National Fiscal Authorities in a Monetary Union Subject to Asymmetric Country Shocks

In this paper we extend Nordhaus’ (Brookings Pap Econ Act (2):139–199, 1994) results to an environment which may represent the current European situation, characterised by a single monetary authority and several fiscal bodies. We show that, even assuming that the monetary and the fiscal authorities share the same ideal targets, in the presence of asymmetric shocks the “symbiosis” result found by Dixit and Lambertini (J Int Econ 60:235–247, 2003) no longer obtains. Thus, fiscal rules as those envisaged in the Maastricht Treaty and in the Stability and Growth Pact may work as monetary/fiscal coordination devices that improve welfare. The imposition of common targets, however, may work as a substitute for policy coordination only if these are made state contingent, an aspect that the recent version of the Stability and Growth Pact takes into account in a more appropriate way than its original version.

The Transfer Problem in the Euro Area

Building on the celebrated Keynes–Ohlin debate and on Lane and Milesi-Ferretti (Rev Econ Stat 86:841–857, 2004), the paper investigates the transfer problem for the Euro area vis-à-vis the rest of the world. The analysis is developed in a theoretically and statistically consistent way and is intended as a contribution to the empirical literature on EMU. The main result of the paper is that the accumulation of net foreign asset in the Euro area is consistent with real exchange appreciation, largely through the relative price of nontradables rather than through the terms of trade.

Forecasting World Trade: Direct Versus “Bottom-Up” Approaches

In a globalised world economy, global factors have become increasingly important to explain trade flows at the expense of country-specific determinants. This paper shows empirically the superiority of direct forecasting methods, in which world trade is directly forecasted at the aggregate levels, relative to “bottom-up” approaches, where world trade results from an aggregation of country-specific forecasts. Factor models in particular prove rather accurate, where the factors summarise large-scale datasets relevant in the determination of trade flows.

Motor Vehicle Output and GDP, 1968–2007

In this paper, we assess the performance of the BEA series “value of motor vehicle output” as an indicator of the business cycle over the period 1968–2007. We statistically assess the causal relationship between real motor vehicle output (RMVO) and real gross domestic product (RGDP). This is accomplished by standard estimation and statistical methods used to assess vector autoregressive models. This assessment represents the initial results of a more encompassing research project, the intent of which is to determine the dynamic interaction of the transport sector with the overall economy. It’s a start to a more comprehensive assessment of how transport and economic activity interrelate.

Broadband Internet: net neutrality versus open access

“Network neutrality” and “open access” are two policies designed to preserve openness on the Internet. Open access mandates openness of conduits (e.g. television cable and DSL) to intermediaries (e.g. America Online), while network neutrality mandates openness to advanced content (streaming video, interactive e-commerce, etc.). We develop a systems model with free entry and competition in all three industry segments (conduits, intermediaries, and content) and examine the effects of the two types of regulation. We find that open access does not necessarily result in more openness of content and is not a substitute for network neutrality.

Influence of the Number of Statewide Referenda Involving Emotionally-Charged Issues on Voter Turnout, 2006

The issue of same-sex marriage is an emotionally charged one. So is the issue of abortion. This is true to the point where it has resulted in several cases in the placement of statewide referenda on the ballot for voter approval or disapproval. This study tests the hypothesis that greater numbers of such emotionally charged referenda may increase voter turnout because they may elevate the expected gross benefits of voting by empowering “interested voters” while not significantly increasing the expected gross costs of voting. Using state-level data for all 50 states for the 2006 general election, and after allowing for a variety of economic and demographic factors, this study finds compelling evidence that the numbers of statewide referenda dealing with same-sex marriage and abortion did in fact significantly increase voter turnout.

Non-traded Goods,Technical Progress and Wages

We use a general equilibrium model of trade to show that technical improvement may indeed cause a fall in the wages of unskilled workers. Under some modest conditions, the wages of skilled workers may go down too.