How large is liquidity risk in an automated auction market?

We introduce a new empirical methodology that models liquidity risk over short time periods for impatient traders who submit market orders. Using Value-at-Risk type measures, we quantify the liquidity risk premia for portfolios and individual stocks traded on the automated auction market Xetra. The specificity of our approach relies on the adequate econometric modelling of the potential price impact incurred by the liquidation of a portfolio. We study the sensitivity of liquidity risk towards portfolio size and traders' time horizon, and interpret its diurnal variation in the light of market microstructure theory.

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Re-employment probabilities over the business cycle

Using a Cox proportional hazard model that allows for a flexible time dependence in order to incorporate business cycle effects, we analyze the determinants of re-employment probabilities of young workers in the USA from 1978–1989. We find considerable changes in the chances of young workers finding jobs over the business cycle despite the fact that personal characteristics of those starting jobless spells do not vary much over time. Therefore, government programs that target specific demographic groups may change individuals’ positions within the queue of job seekers, but may only have a more limited impact on average re-employment probabilities. Living in an area with high local unemployment reduces re-employment chances as does being in a long spell of non-employment. However, the damage associated with being in a long spell seems to be reduced somewhat if a worker is unemployed in an area with high overall unemployment.

The Effects of Immigration on Regional Unemployment Rates in The Netherlands

The impact of immigration on the change in the unemployment rate in the Netherlands is analyzed using panel data from 26 labor market regions from 1996 through 2003. This study measures immigration through the year-to-year change in the foreign population, paying particular attention to immigrants of non-Western origin. Other variables controlling the composition of the local labor market include: occupation shares, the fractions of workers employed in high- and low-skilled jobs, the fractions of female workers, part-time employees, labor force participants over the age of 55, educational attainment shares, and population density. The ordinary least squares (OLS) results indicate a change in the foreign population in the labor force led to a statistically significant increase in the upward volatility of Dutch unemployment rates while the change in the non-Western share had no significant effect.

Transaction tax and stock market behavior: evidence from an emerging market

This study examines the impact of a stamp tax rate increase on market behavior, using data from two stock exchanges in China. We find that when the tax rate increases from 0.3 to 0.5% (which implies that the transaction cost increases by about 1/3) trading volume decreases by 1/3. This implies an elasticity of turnover with respect to a stamp tax of −50% and an elasticity of turnover with respect to transaction cost of −100%. The markets’ volatility significantly increases after the increase in the tax rate. Furthermore, the change in the volatility structure indicates that the markets become less efficient in the sense that shocks are less quickly assimilated in the markets.

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Can labour market institutions explain high unemployment rates in the new EU member states?

This article studies the question whether labour market institutions can explain the large differences in unemployment rates in the new member states. It investigates several labour market institutions and concludes that they are on average no more rigid in the new member states than in the old ones. However, there is a lot of heterogeneity both in terms of institutions and unemployment rates. The impact of labour market institutions on performance is empirically examined for a panel of European countries. These results are used to assess to what extent labour market institutions are responsible for the diverse unemployment experiences in the new member states. Labour market institutions can explain only a small part of these differences. Other causes of unemployment seem to be more important.

Unemployment disparities and regional wage flexibility: comparing EU members and EU-accession countries

This paper provides empirical evidence on regional labor market flexibility in Europe and, in particular, in the EU-accession countries in Central and Eastern Europe. Whereas substantial regional disparities in unemployment are found for pre-accession EU member countries as well as for accession countries, an empirical analysis taking account of spatial effects shows that regional wage flexibility is significantly higher for accession countries. Moreover, unemployment disparities are found to be less persistent in the accession countries.

The Eisner Puzzle,the Unemployment Threshold and the Range of Equilibria

Using a two-regime model of the inflation-unemployment process for US data 1960:2 to 2000:2, this paper finds strong evidence to support the Eisner puzzle, which occurs when the short-run Phillips curve (SRPC) is flatter at low rates of unemployment than at higher rates. The puzzling aspect of this pattern is the expectation of excess demand to become apparent at very low rates of unemployment causing the SRPC to be steep rather than fairly flat. We show the puzzle can be resolved by estimating a three-regime model which reveals a steep SRPC at very low rates of unemployment. The estimates of the three regime model also reveal a horizontal SRPC at intermediate rates of unemployment, implying the existence of a range of equilibrium rates of unemployment at those intermediate rates.

The organizational goal and work effort: an efficiency wage model

This paper sets up an efficiency wage model which combines goal-attainment theory and the expectancy-valence approach. Taking account of the psychological work motivation, we find that the aspiration for goal attainment may be a substitute for unemployment as an instigator of work motivation in full employment. In addition, since raising the firm’s goal has a diverse impact on the high and low need-for-achievement workers, a higher goal-setting does not appear capable of increasing worker effort within firms. This finding reconciles the conflicting experimental results in industrial psychology literature.

Sources of German unemployment: a structural vector error correction analysis

In this paper we analyze the sources of German unemployment within a structural vector error correction model (SVECM) framework. For this purpose we estimate a VECM model using data for unified Germany. The cointegration analysis reveals a long-run relationship between real wages, productivity and unemployment which is interpreted as a wage setting relation. Based on a reduced form subset VECM we identify structural shocks and assess their importance for unemployment by impulse response analysis, forecast error variance and historical decompositions. In contrast to previous studies for West Germany, we find that productivity, labor supply and labor demand shocks are important sources of unemployment in the long-run.

Evaluation of the Effects of Education on Job Satisfaction: Independent Single-Equation vs. Structural Equation Models

Independent single-equation models and structural equation models are used to analyze both direct and indirect impacts of education length, and of the match between education and employment, on job satisfaction after controlling for individual-specific and job-specific attributes, including health status and wages. The main results show that: (1) education/job mismatches, both in level and domain, reduce utility from work irrespective of schooling years and other individual/job characteristics; (2) the effects of education on job satisfaction are mainly indirect effects transmitted though the influence of schooling on workers’ health status, wages and other observable job characteristics; and (3) neglecting the structure of covariance among the determinants of job satisfaction results in upward bias in the estimation of the direct effect of schooling length, and in downward bias in the estimates for the effects of other personal circumstances.

Financial intermediation and growth: causality and causes without outliers

In a seminal paper, Levine et al. (J Monet Econ 46:31–77, 2000) provide cross-sectional evidence showing that financial development has positive average impact on long-run growth, using a sample of 71 countries. We argue that the evidence is sensitive to the presence of outliers.

Does population density matter in the process of matching heterogeneous job seekers and vacancies?

This paper studies the matching of job seekers and vacant jobs using data on local labour markets. We estimate differences in the ability of the local markets to form new matches and trace whether these differences can be explained by the differing population densities across markets or by the heterogeneity of job seekers measured by the distribution of their education level. We find that high-density areas are more efficient in forming matches than other areas despite frictions caused by the wider heterogeneity of job seekers in those areas than elsewhere.

Testing the permanent-income hypothesis: new evidence from West-German states (Länder)

This paper investigates whether time-series data from 11 West-German states (L?nder) provide evidence in accord with the implication of the permanent-income hypothesis (PIH) for the stochastic relationship between consumption and income innovations. The empirical results do not support this hypothesis, in the sense that the response of consumption to income innovations is found to be much weaker than is predicted by the PIH. Moreover, for each individual state as well as for Germany as a whole, the response was found to be asymmetric, being stronger for negative than positive income innovations. This evidence of asymmetry is consistent with a model in which consumers are liquidity constrained.

How does monetary policy transmission mechanism work in Fiji?

The study aims to examine the impact of changes in policy variables namely, monetary aggregate (M1), exchange rate and interest rate on two monetary goal variables, namely output and price level in Fiji from 1970 to 2006 by applying the procedures of variance decomposition and impulse response functions. We conclude that the money channel is the most effective channel of transmission mechanism among the three channels.

Fertility,income and welfare in an OLG model with regulated wages

We analyse the effects of the regulation of wages in a standard one-sector OLG model of neoclassical growth extended to account for endogenous fertility decisions of households and unemployment benefit policies financed at balanced budget. In contrast with the prevailing literature, which has failed to pay due attention to inter-temporal contexts, our conclusion is that minimum wages may be introduced not only for equity reasons, that is, to increase the income of low-paid workers, but under suitable conditions—i.e., if production is sufficiently capital oriented and the unemployment benefits are high enough—minimum wage legislation might be considered as a source of increased economic performance despite unemployment, i.e. a regulated-wage economy performs better than a market-wage economy. As a consequence, since higher minimum wages raise per capita income together with increasing unemployment, our results imply that a positive correlation between unemployment and long-run income per-capita may exist. Further, the lifetime welfare of the representative generation may be increased as well. Finally, the wage rate may also be treated as a policy instrument for the control of population growth.

The sector bias of skill-biased technical change and the rising skill premium in transition economies

We test the hypothesis that the sector bias of skill biased technical change is important in explaining the rising relative wage of skilled workers in the manufacturing sector in three Central and Eastern European transition countries. The econometric results broadly confirm that the concentration of skill biased technical change in the skill intensive sectors had a significant effect on the skill premium in these transition countries.

On good government

Besley’s treatment of principled agents is a major contribution to public choice and political economy. By focusing on politics as an agency problem, he has shown the way to a new generation of research on the interface of politics and economics.

The joint dynamics of inflation, unemployment and interest rate in the United States since 1980

In this paper, by using a combination of long-run and short-run restrictions, we identify a small structural VECM which includes inflation, unemployment and the federal funds rate and study the dynamic interactions at different frequencies among these variables. Our results show that: (a) in accordance with the traditional view of economic fluctuations, aggregate demand shocks and monetary policy shocks push inflation and unemployment in opposite directions in the short run; (b) the permanent supply shock explains the long-run movement of inflation and unemployment. These conclusions are at odds with the prediction of “natural-rate” models but are consistent with the idea of a propagation mechanism which links productivity shocks to inflation and unemployment at medium and low frequencies. Thus, with respect to some recent studies (e.g. Beyer and Farmer, ECB Working Paper 121, 2002, and Ireland, J Monet Econ 44:279–291, 1999), we offer a different interpretation of the low-frequency comovements between inflation and unemployment characterizing the US economy in the last decades.

On local indeterminacy and endogenous cycles in Ramsey models with heterogeneous households

It is well-known that endogenous cycles can occur in Ramsey models with heterogeneous households and borrowing constraints. In this note, we address the issue of robustness in the more general case of endogenous labor supply and we explain the occurrence of local indeterminacy under progressive taxation.

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.