Nonlinearities in the U.S. wage Phillips curve

We examine the relationship between wage inflation and the unemployment rate in the U.S. economy for the 1964–2014 period by means of a three-regime threshold regression model. The estimated threshold parameters suggest that this relationship changes when the unemployment rate transitions between regimes defined by 5.61% and 7.63%. During mild recessions and their subsequent recoveries, the time-varying estimates of the model indicate a negative relationship between both variables, consistent with the implications of a wage Phillips curve (WPC) derived from the standard New Keynesian model with staggered wage setting in Galí (2011). However, we find that this relationship breaks down during deep recessions and their recovery periods, which explains the difference between wage inflation predicted by standard New Keynesian models and the observed low wage growth in the aftermath of the ‘Great Recession’. This finding and the fact that statistical tests strongly favor our three-regime model suggest that linear and two-regime models are insufficient to account for all the variability in the relationship between wage inflation and unemployment.     

A comparison of Logistic and Harvey models for electricity consumption in New Zealand

There have been a number of forecasting models based on various forms of the logistic growth curve. This paper investigates the effectiveness of two forms of Harvey models and a Logistic model for forecasting electricity consumption in New Zealand. The three growth curve models are applied to the Domestic and Non-Domestic sectors and Total electricity consumption in New Zealand. The developed models are compared using their goodness of fit to historical data and forecasting accuracy over a period of 19 years. The comparison revealed that the Harvey model is a very appropriate candidate for forecasting electricity consumption in New Zealand. The developed models are also compared with some available national forecasts.     

Large shareholders’ shareholding and earnings’ longitudinal persistence

This paper is the first to adopt longitudinal data analysis methods, such as the Kaplan-Meier survival analysis model, hierarchical linear model and Cox proportional hazards regression model, to investigate the relationship between large shareholders’ shareholding and earnings persistence. We find that large shareholders’ shareholding has a negative effect on corporate longitudinal persistence. The large shareholders’ shareholding will increase the risk of earnings decline and strengthen the declining trend of earnings. The effects of large shareholders’ shareholding on earnings’ longitudinal persistence for SOEs are different from those for non-SOEs, the effects in the pre-crisis period are also different from those in the post-crisis period. These findings contribute to the literature by adopting longitudinal data analysis methods and present new empirical evidence on the economic consequences of large shareholders’ shareholding.     

Great Recession and Macroeconomic Theory: A Useless Crisis?

ABSTRACT

The global financial crisis of 2007–08 and the subsequent Great Recession have pushed many economists to acknowledge a fundamental limit in the theoretical models elaborated after the monetarist counter-revolution: these models disregard the financial system. The years following the Great Recession have thus been marked by the development of what can be called the ‘Financial Frictions Approach’, a theoretical approach based on the addition of the financial system to the New Keynesian DSGE model. The results of this line of research are beginning to appear also in macroeconomics textbooks. Significant examples are the publication of the seventh edition of Blanchard’s textbook, and the publication of the third edition of the textbook co-authored by Blanchard, Amighini and Giavazzi. The objective of this work is twofold: (i) to show that the new model presented by Blanchard, Amighini and Giavazzi, which reflects the results of the ‘Financial Frictions Approach’, does not allow to elaborate a coherent explanation of the Great Recession and (ii) to present the pillars of an alternative theoretical model based on the lessons of Keynes, Schumpeter and Minsky.     

Too good to be true? The (In)credibility of the UK inflation fan charts

This paper presents some simple methods to estimate the probability that realized inflation will breach a given inflation target range over a specified period, based on the Bank of England’s RPIX inflation forecasting model and the Monetary Policy Committee’s forecasts of the parameters on which this model is built. Illustrative results for plausible target ranges over the period up to 04Q1 indicate that these probabilities are low, if not very low, and strongly suggest that the Bank’s model over-estimates inflation risk.     

Probability models and robust policy rules

We consider Sims's (2008) argument that robust policy making requires that policy models be treated as “probability models”. In a welfare-based setting, we estimate by Bayesian methods a number of variants of a New Keynesian macroeconomic model and use both the model odds and posterior densities to design robust interest rate rules consisting of an inflation-forecast-based rule and a wage-targeting one. Each are shown to have distinct robustness qualities and distinct implications for the probability-models approach. To ensure feasible policy, we further impose that rules are stable, determinate and lower-bound compatible. Our results have important implications for the design, evaluation and analysis of the probability models approach to robust monetary policy making.     

Aggregate Productivity in the Post-war British Coal Industry

An econometric model, using OLS regression, of aggregate productivity in the post-war British coal industry is given. Some of the methods used by Weisskopf et al. (1983), in their ‘social model’ of aggregate productivity in the US economy are drawn upon; however all ‘social’ variables included in this coal productivity model are found not to be significant. The results suggest that pit closures have been an important source of aggregate productivity growth throughout the period; this does not imply, however, that ‘unproductive’, or ‘uneconomic’, pits are intrinsically so, rather their status as such may be the result of a ‘political’ process. Average colliery size and the industry's capital stock were also found to be important explanatory variables. Attention was paid to the effects of the national miners' strikes during the period; these effects were found to be structurally insignificant.     

Forecasting Canadian inflation: A semi-structural NKPC approach

We examine whether alternative versions of the New Keynesian Phillips Curve equation contain useful information for forecasting the inflation process. We notably consider semi-structural specifications which combine, for closed- and open-economy versions of the model, the structural New Keynesian equation with time series features. Estimation and inference are conducted using identification-robust methods to address the concern that NKPC models are generally weakly identified. Applications using Canadian data show that all the considered versions of the NKPC have a forecasting performance that comfortably exceeds that of a random walk equation, and moreover, that some NKPC versions also significantly outperform forecasts from conventional time series models. We conclude that relying on single-equation structural models such as the NKPC is a viable option for policymakers for the purposes of both forecasting and being able to explain to the public structural factors underlying those forecasts.     

The impact and economic cost of environmental regulation on energy utilization in China

This article utilizes three data envelopment analysis-based models: a no environmental regulation model, a weak environmental regulation model and a strong environmental regulation model to reveal the impact of environmental regulation on China’s regional total-factor energy efficiency (TFEE) during the period of 2003–2010. To take a further step, these three models are adjusted for calculating the correspondingly macro-economic cost of environmental regulation. The estimation results show that at present, the level of China’s environmental regulation is relatively low, and an enhancing of environmental regulation would lead to a sufficient increase of China’s regional TFEE with an enormous economic cost as its price. That means in China, the nationwide environmental stress is high, and the regulation cost is very huge. Strengthening environmental regulation would inevitably have some negative influences on China’s economy in the short run. Based on our findings, some corresponding policies are also proposed in this article.     

Is the Fed’s news perception different from the private sector’s?

The recent literature on monetary policy has dedicated considerable attention to modelling agents’ processing of information about the future in real time. This paper contributes to this growing strand by investigating the implied differences in the so-called news shocks estimated from the standard New Keynesian dynamic stochastic general equilibrium (DSGE) model using the real-time data sets from the Survey of Professional Forecasters (SPF) and the Federal Reserve’s Greenbook (GB) forecasts. Alternative specifications with either the SPF or GB forecasts aim to delineate the differences in the private sector’s and the Fed’s expectations of future macroeconomic outcomes and identify the differences in their perception of news shocks. Our results indicate that while the demand news shocks have very similar distributions in the two datasets, the monetary and cost-push news shocks from the models estimated on the GB data tend to be larger than those from the SPF. These findings suggest that the Federal Reserve’s forecasting methods allow for more variation in future outcomes than the SPF’s. These findings mesh well with the extant literature on the superiority of the Fed’s forecasts relative to the private sector’s and provide a structural explanation for the source of this superiority.     

SOME OBSERVATIONS ON THE HIGH‐FREQUENCY VERSIONS OF A STANDARD NEW‐KEYNESIAN MODEL

In a small‐scale New‐Keynesian model with a hybrid Phillips curve and IS equation, the paper is concerned with an arbitrary frequency of the agents’ synchronized decision making. It investigates the validity of a fundamental methodological precept according to which no substantive prediction or explanation of a well‐defined macroeconomic period model should depend on the real time length of the period. While this principle is basically satisfied as the period goes to zero, the impulse – response functions of the high‐frequency versions can qualitatively as well as quantitatively be fairly dissimilar from their quarterly counterpart. The result proves to be robust under variations of the degree of price stickiness. The main conclusion is that DSGE modelling may be more sensitive to its choice of the agents’ decision interval.     

A new classical econometric model of the world economy

The widespread recognition of international interdependence and the desire for better coordination of economic policies among national entities has motivated, during the past decade, attempts to build, improve, and operate a large number of linked multicountry models. In this paper we describe the structure and properties of the Liverpool world model, a rational expectations model with endogenous capital flows and exchange rates. The key difference between the Liverpool world model and most other multicountry models currently in use is the imposition of rational expectations and the modelling of wealth effects; other changes, such as equilibrium wage/price equations and perfect capital mobility are also important and do make differences in either dynamic behaviour or impact effects, but with or without them the model exhibits behaviour that is of the ‘New Classical’ type.     

Testing Alternative Hypotheses in Economic History

This paper employs a statistical technique comparing non-nested quantitative models in order to address an important problem in economic history, namely, the appropriate role of microeconomic models in historical analysis. Discussion proceeds by example. As described in the paper, three research groups have offered explantations of the shift from corn to cotton production in the post-bellum US South but because their research methods are different, it is difficult to evaluate them effectively. This paper suggests a method for comparing them. The method is based on the Neyman–Pearson likelihood ratio and proceeds by focusing on the three groups’ models of crop choice, in turn hypothesizing each model as ‘truth’, and testing all other against it. Though restrictive in its own right, this excercise suggests one data-oriented approach to all-too-common problem of model proliferation in economic history.     

An ordered response model of test cricket performance

The paper analyses the prediction of test cricket outcomes using an ordered response model. The results, based on data over the period 1994 to 1999, suggest that the ordered categorized production outcome of test cricket (win, draw, loss) can be explained by simple measures of the batting and bowling labour inputs. For example, across all countries the model correctly predicts 71% of test cricket outcomes. Further, it is found that losses are correctly predicted most often at 81% of the sample but that the model faces its biggest challenge predicting test match draws-only getting 57% of these cases correct. Also analysed are the circumstances in which the model produces incorrect predictions and it is found that the most common events are unsuccessful last innings runs chases; successful last innings runs chases and rain-affected matches. An analysis of failed model predictions in terms of country factors suggests that (relative to all other countries) Pakistan has a higher tendency to be involved in such matches, whereas Sri Lanka has a higher tendency to be involved in matches that are ‘predictable’. A ‘style’ analysis using this model suggests that five test cricket styles are evident. Style I is that of ‘Bowling and Batting Performance’ and describes Pakistan, the West Indies and (perhaps to a lesser extent) Zimbabwe. Style II is that of ‘Batting Performance’ and describes England, New Zealand and (perhaps to a lesser extent) India. Style III is ‘Bowling Performance’ and describes Australia. Style IV is ‘Bowling Performance/Batting Strike Rate’ and describes South Africa. Finally, Style V is ‘Bowling Performance and Strike Rate’ and describes Sri Lanka. Finally, the model is used to analyse which country can claim to be the world champions of test cricket over the sample period. In an initial analysis based on average performance over this period, South Africa has the best claim. However, in a ‘heavyweight title’ contest between South Africa and Australia, Australia has the superior claim.     

A demand-driven search model with self-fulfilling expectations: the new ‘Farmerian’ framework under scrutiny

In this paper, we implement Bayesian econometric techniques to analyze a theoretical framework built along the lines of Farmer’s micro-foundation of the General Theory. Specifically, we test the ability of a demand-driven search model with self-fulfilling expectations to match the behaviour of the US economy over the last 30 years. The main findings of our empirical investigation are the following. First, all over the period, our model fits data very well. Second, demand shocks are the most relevant in explaining the variability of concerned variables. In addition, our estimates reveal that a large negative demand shock caused the Great Recession via a sudden drop of confidence. Overall, those results are consistent with the main features of the New `Farmerian’ Economics as well as to latest demand-side explanations of the finance-induced recession.     

Segregation in networks

Schelling [Schelling, T., 1969. Models of segregation. American Economic Review 59, 488–493; Schelling, T., 1971a. Dynamic models of segregation. Journal of Mathematical Sociology 1, 143–186; Schelling, T., 1971b. On the ecology of micromotives. The Public Interest 25, 61–98; Schelling, T., 1978. Micromotives and Macrobehavior. W.W. Norton and Company, New York] considered a model with individual agents who only care about the types of people living in their own local neighborhood. The spatial structure was represented by a one- or two-dimensional lattice. Schelling showed that an integrated society will generally unravel into a rather segregated one even though no individual agent strictly prefers this. We generalize this spatial proximity model to a proximity model of segregation, examining models with individual agents who interact ‘locally’ in a range of more general social network structures. The levels of segregation attained are in line with those reached in the lattice-based spatial proximity model.     

Efficiency and Equity in Funding for Government Schools in Australia

This study measures cost inefficiency for government school in New South Wales, Australia using a two‐stage data envelopment analysis (TSDEA) model and the inefficiency‐effects model (Battese & Coelli, 1995). The study found overall primary schools are 75 per cent and secondary schools are 89 per cent cost efficient. However, cost efficiency for primary schools has decreased and for secondary schools has increased marginally over the study period. The study found that social disadvantage in primary schools exerts a strong negative impact on students’ achievement scores causing inefficient use of available resources. For secondary schools no such conclusive relationship is observed.     

The Legitimation of Post-crisis Capitalism in the United Kingdom: Real Wage Decline,Finance-led Growth and the State

Since the 2008 financial crisis, capitalist development in the UK has been marked by both continuity and change. Whilst the Coalition government effectively re-established the UK's ‘finance-led’ growth model, it simultaneously broke with the legitimation strategy which New Labour had advanced in the pre-crisis conjuncture. The Coalition advanced a distinctive ‘two nations’ strategy which sought to secure a limited but durable base of support in a context of fiscal consolidation. This strategy was conditional upon the deep and unprecedented period of real wage decline which took hold in the post-crisis conjuncture. However, the Coalition successfully transformed this potential liability into a political asset, constructing a series of ‘moralised antagonisms’ between wage earners and welfare recipients, on the one hand, and private and public sector workers, on the other. Whilst this strategy secured a limited base of popular support, it also re-embedded a series of structural weaknesses within post-crisis UK capitalism. These imbalances are likely to undermine the stability of the UK’s finance-led growth model in the future and will condition British politics as the country embarks upon the process of leaving of the EU.     

Commitment or discretion? An empirical investigation of monetary policy preferences in China

This paper offers a first attempt to estimate the policy preferences of China’s central bank by confronting a small-scale microfounded New Keynesian model in which monetary policy is described by commitment or discretion with the Chinese macroeconomic data over the period from 1992Q2 to 2017Q4. Bayesian model comparison reveals that the data favor discretionary monetary policy. Estimates of the loss function weights under both cases show that the leading policy goal is price stability, followed by output stability and then interest rate smoothing. Finally, through counterfactual analyses we assess how macroeconomic outcomes might improve, had the Chinese central bank been able to commit. These findings shed new light on the opaque Chinese monetary policy, and are robust to subsample analysis.     

我国电网激励性价格监管政策研究

本文主要研究电网的价格监管政策框架。通过监管方法配合的视角，以监管内容与监管时间为标准，将世界主要国家的电网监管制度总结为四大模式，并详细对比分析了英美两国的电网监管实践。以理论与国际实践为参照，本文指出我国实行的以回报率监管为基准的模式是适合当前发展阶段的，后续需要针对回报率监管的弱激励以及事前定价的特点，引入强激励机制和不确定调整机制。特别是制定强激励方案，本文提出了两条可选择路径。