Ricardian fiscal regimes in the European Union

The prevalence of different fiscal regimes is important both for practical policy reasons and to assess fiscal sustainability, notably for European Union countries. The purpose of this article is to assess, with a panel data set, the empirical evidence concerning the existence of Ricardian fiscal regimes in EU-15 countries. The results give support to the Ricardian fiscal regime hypothesis throughout the sample period, and for sub-samples accounting for the dates of the Maastricht Treaty and for the setting-up of the Stability and Growth Pact. Furthermore, electoral budget cycles also seem to play a relevant role in fiscal behaviour.

Small firms in Portugal: a selective survey of stylized facts,economic analysis,and policy implications

I survey a number of stylized facts pertaining to the dynamics of firm entry, growth, and exit in competitive industries. I focus particularly on data for Portugal, although I also consider, for comparison purposes, data from other countries. I then present a series of theoretical models that attempt to explain the stylized facts and evaluate the welfare impact of market distortions. Finally, I derive a number of policy implications, all centered around the notion of economic mobility.

Fractional integration and business cycle features

We show in this article that fractionally integrated univariate models for GDP lead to a better replication of the main business cycle characteristics. We firstly show that the business cycle features are clearly affected by the degree of integration as well as by the other short run (AR, MA, etc.) components of the series. Then, we model the real GDP in the UK and the US by means of fractionally ARIMA (ARFIMA) model, and show that the time series can be specified in terms of this type of model with orders of integration higher than one but smaller than two. Comparing the ARFIMA specifications with those based on ARIMA models, we show via simulations that the former better describe the business cycles features of the data.Jel classification: C12, C15, C22The authors want to thank two anonymous referees for wise remarks. We have also benefited from questions and comments of the attendances at the econometric seminar of the Humboldt Universität zu Berlin and the ESEM2001 congress in Lausanne. Remaining errors and omissions are ours. All correspondence to: Luis A. Gil-Alana.First version received: February 2002/Final version received: December 2002     

Some regulatory lessons to be drawn from the financial crisis

The article briefly outlines how the two major structural causes of the financial crisis have been a massive underestimation of the negative externalities potentially arising from malfunctioning of financial markets, and the policy decision to assign the production of an eminently public good, financial stability, to private parties. Both ideas have been a tenet of the so-called Greenspan doctrine. The crisis also shows that all regulators tend to be captured in the end, and thus any new legislation should contain bright-line rules, that might look inefficient when assessed with reference to the market they regulate, but are socially efficient, because it would be politically costly to alter them. Criminal sanctions, which after all are a social form of regulation, should also be strengthened.

Monetary and real shocks in a monetary Union: The Swiss case

We analyze to what extent real and monetary shocks affect price levels and real exchange rates in seven Swiss regions. A structural time series model is set up and estimated using the Kalman filter under two assumptions on the persistence of monetary shocks. We find that the variability of changes in price levels is mainly due to real shocks. The variance of monetary shocks is small but the monetary component of inflation differences across regions differs from zero with some persistence. As the Swiss case shows this does not seem to be a major obstacle to forming a monetary union.We thank Ernst Baltensperger, Tobias Rötheli, and participants at the Econometric Society European Meeting 1994 for stimulating discussions. The paper has also benefitted from constructive comments of two anonymous referees. Both authors gratefully acknowledge financial support provided by the Swiss National Foundation through Grants no: 8210-040206 (T.J.) and 12-40498.94 (C.L.).     

Stock prices,production and interest rates: Comparison of three European countries with the USA

This paper investigates the relationships between stock returns, changes in production, and changes in interest rates in three European countries: France, Germany, and the United Kingdom. The results obtained using annual data are much more conclusive than those obtained using quarterly data. Stock returns are affected by current changes in interest rates and by future changes in production. The dependence on changes in interest rates seems to be higher than on changes in production. Furthermore, the influence of future changes in production on stock returns diminishes substantially when contemporaneous changes in interest rates are taken into account. With reference to these points, the European markets behave in a similar fashion, but are in sharp contrast with the U.S. market.I am very grateful to Kay Davidson, Patric Hendershott and two anonymous referees for useful comments and suggestions. I am solely responsible for all remaining errors.     

Sovereign-Wealth Funds: the institutional dimension

In the recent past, the operations of the capital-rich Sovereign-Wealth Funds (SWFs) went on increasing in the global capital markets. As the global economic crisis that started in 2007 deepened, SWF operations dramatically spurted, leading to further progressive increase in their significance for the global capital markets. For all appearances they are going to be important financial players in the foreseeable future. This article focuses on the basic concept of SWFs, their structure and operations. It attempts to analyze and elucidate on them. Notwithstanding the fact that SWFs are an instrument of enhancing liquidity and financial resource allocation in the international capital market, they managed to become a source of controversies. Consequently they became a source of escalation in financial protectionism in several advanced industrial economies, in particular the USA. The article concludes that this was unwarranted. Recently SWFs have attempted to device an array of best practices to improve the transparency of their global financial operations. These measures are expected to enhance the acceptance of SWFs as well as global recognition of their operations. They would also help in dispelling the negative image that SWFs have held in several advanced industrial economies.

Public capital stock and state productivity growth: Further evidence from an error components model

The contribution of different types of public infrastructure on private production is investigated using time-series of cross-section data for the 48 contiguous states over the period 1970–1986. A Cobb-Douglas production function is estimated with unobserved state-specific effects. Measurement errors in public capital stock and its components are detected and rectified.We would like to thank Baldev Raj and an anonymous referee for helpful comments. Also, Timothy J. Gronberg and Kay McAllister who thoroughly read the earlier draft and offered many constructive suggestions. We are, however, solely responsible for any remaining errors. The data set used in this research was generously provided by Alicia H. Munnell and Leah Cook of the Federal Reserve Bank of Boston. Nat Pinnoi acknowledges the research support provided by the Texas Transportation Institute.     

Trade,Job Losses and Gender: A Policy Perspective

This paper presents a gender perspective of the Trade Adjustment Assistance (TAA) program. The TAA is the primary US policy to assist the transition of workers displaced due to trade related economic restructuring. In comparison to the relatively substantial research on gendering trade policies in developing economies there is very limited focus on gendering policy responses to trade in the US. We argue that there is a specific gender trend in the trade-displacement patterns in the US which calls for a gender sensitive policy response. We examine the TAA in light of this trend and offer some suggestions for a gendered approach to providing assistance to workers negotiating an increasingly flexible global labor market.

Pricing-to-market tests in instrumental regressions: Case of the transportation equipment industry

Pricing-to-market (PTM) theory suggests that exporting monopolistic firms adjust their destination-specific mark-ups in the face of exchange rate shocks. A large proportion of the existing evidence for PTM comes from Wald tests applied to OLS- and IV-estimated parameters of single-equation models. Such tests can seriously over-reject in the presence of endogeneity and weak instruments so that some of the available results supporting PTM could be spurious. In this paper we revisit the PTM evidence for Japanese and German exporting firms in the transportation equipment industry. Using the model of Marston (1990), we apply exogeneity and LR-LIML-based tests for which the error probability is controlled irrespective of the quality of the available instruments. Our results show right-hand-side endogeneity in almost all of the examined PTM equations. In addition, we find that statistical decisions often differ depending on whether they are based on the traditional Wald test or on our proposed test.The authors would like to thank Philippe Barla, Jean-Thomas Bernard, Christos Constantatos, Larry Schembri, seminar participants at the Bank of Canada, and two anonymous referees for useful comments and suggestions. Thanks also to Richard Marston for providing data. Finally, a special thanks to Marjorie Santos for excellent research assistance. All remaining errors are our own and should not be attributed to the Bank of Canada.First version received: May 2002/Final version received: December 2002     

The impact of the Paasche-Laspeyres choice upon econometric results

Does it make any difference to econometric results whether ones uses the Laspeyres or Paasche index? In general, the divergence between these two is small, suggesting that index choice makes little difference to econometric results. We estimate 72 Malthusian models and because the Paasche and Laspeyres indices we use show below average divergence, these reslts should be conservative. We find that parameters differ substantially, that parameter signs can be reversed, thatr ²s change markedly and that hypothesis test results are reversed. These findings indicate the importance of estimating exact indices.     

Forecasting with leading indicators: Does the new index lead?

There are very few economic variables that capture as much public attention as the Composite Index of Leading Indicators (CLI). Designed as an early warning system for signaling recessions and recoveries in business cycles, CLI now has significant influence over the expectations of decision makers and market participants. Since its inception in 1938, the index has undergone many revisions, the last of which took effect in March 1989. In this study we evaluate the new index. A number of filters, including the Bayesian sequential probability recursion and the rule of three consecutive declines in CLI, are used to evaluate the information content of CLI in forecasting the turning points in the economy. We also report the result of our forecasting experiment to gauge the marginal value of the new index to improve forecasts of variables such as the unemployment rate, index of industrial production, GNP, sales, profit, consumption and housing starts.     

Measuring environmental efficiency of industry: a case study of thermal power generation in India

Technical and environmental efficiency of some coal-fired thermal power plants in India is estimated using a methodology that accounts for firm’s efforts to increase the production of good output and reduce pollution with the given resources and technology. The methodology used is directional output distance function. Estimates of firm-specific shadow prices of pollutants (bad outputs), and elasticity of substitution between good and bad outputs are also obtained. The technical and environmental inefficiency of a representative firm is estimated as 0.06 implying that the thermal power generating industry in Andhra Pradesh state of India could increase production of electricity by 6/ while decreasing generation of pollution by 6%. This result shows that there are incentives or win–win opportunities for the firms to voluntarily comply with the environmental regulation. It is found that there is a significant variation in marginal cost of pollution abatement or shadow prices of bad outputs across the firms and an increasing marginal cost of pollution abatement with respect to pollution reduction by the firms. This result calls for the use of economic instruments like pollution taxes instead of command and control regulation used currently in India to reduce air pollution.

Price determination and dynamic adjustments: An inverse demand system approach to meat products in the United States

In this study the process of retail meat price determination is depicted in the form of an inverse demand system taking into consideration the dynamic adjustments present in monthly consumption data. The general dynamic framework identifies both long run and short run effects in a systematic manner and allows direct estimation of the long run price and scale flexibilities that are consistent with theory. The empirical application based on monthly U.S. meat products data provides reasonable and promising results.The authors are senior econometrician, Department of Risk Management, TRS, American Express Co., Phoenix, and assistant professor, Department of Applied Economics, University of Minnesota, St. Paul, respectively. The work was performed when the first author was an assistant research scientist at the Center for Agricultural and Rural Development, Department of Economics, Iowa State University, Ames. Journal Paper No. J-15784 of the Iowa Agriculture and Home Economics Experiment Station, Ames, Iowa. Project No. 3109.     

Rigidities,Living Conditions,and Institutions in the Far North

The remoteness and geography of Alaska create service access rigidities that are difficult to overcome. The delivery of basic services like healthcare, police protection, and justice are often inadequate in rural places. The continued employment of neoclassical assumptions in policy making is a primary reason policies fail to overcome the barriers. A broader scope of analysis can inform the issues faced by rural residents and provide insight into alternate solutions.

On latitude and affluence: The equatorial grand canyon

Our objective is to explain per capita GDPs by the countries' latitude, using PPP-based data for 138 countries in 1985 (PPP = purchasing power parity). A simple approach is formulated which nevertheless accounts for as much as two-thirds of the variance of the per capita GDPs.Theil is the McKethan-Matherly Eminent Scholar Emeritus and Courtesy Professor of Food and Resource Economics, while Galvez is an Associate in Research of the Bureau of Economic and Business Research, both at the University of Florida (UF). We thank Sri Devi Deepak, Charles B. Moss and James L. Seale of the UF Food and Resource Economics Department for helpful discussions and Robert Summers of the University of Pennsylvania for making the data available to us.