Optimal Investment Strategy in Safe-region on Consumption and Portfolio Problem

This paper investigates an optimal investment strategy on consumption and portfolio problem, in which the investor must withdraw funds continuously at a given rate. By analyzing the evolving process of wealth, we give the definition of safe-region for investment. Moreover, in order to obtain the target wealth as quickly as possible, using Bellman dynamic programming principle, we get the optimal investment strategy and corresponding necessary expected time. At last we give some numerical computations for a set of different parameters.     

Asymmetries in the revenue–expenditure nexus: A tale of three countries

The objective of this paper is to examine the government revenue and expenditure relationship in the context of what is known as the soft and hard budget constraint strategy. We adopt a nonlinear framework with structural breaks and focus our empirical analysis in three countries. Two of them represent the two extremes of polities in the EU: Sweden and Greece and the third, Germany is used for comparison purposes. Our results indicate absence of any asymmetries, TAR or MTAR, for Sweden and Germany. The symmetric ECM provides support for the fiscal synchronization hypothesis of revenues and expenditures in both countries. For Greece, however, we find evidence for asymmetries of the MTAR form, which in turn support the spend-and-tax hypothesis with asymmetric adjustment towards the long-run equilibrium. This indicates that the Greek fiscal authorities would cut deficits only if they exceeded a high “trigger” threshold, which gives support to the soft budget constraint strategy to gain political support. The fiscal adjustment takes place by cutting government expenditure. The out-of-sample forecast results suggest that a shift from a univariate model specification to a multivariate model improves marginally the forecast performance.     

Structural transformation and productivity growth in India during 1960–2010

In this paper, we examine the role of structural change and sectoral productivity growth in explaining the aggregate productivity of India relative to the United Sates during 1960–2010. We set up a simple two sector general equilibrium model and calibrate it to fit the structural transformation of United States. Our calibrated model for India highlights the relative importance of agricultural productivity growth in explaining its slow process of catching up in terms of aggregate productivity. We show that India could have progressed at a much faster rate and closed a substantial part of its aggregate productivity gap if its agricultural sector had grown at a rate at par with the United States. It is India's relative productivity growth in the non-agricultural sector that explains all the recent success in its closing the aggregate productivity gap with the United States. We also found that an elimination of relative distortion in agriculture in India could result into a modest improvement in the aggregate labour productivity.     

The Impact of Treasury Yields on US Presidential Approval, 1960–2010

ABSTRACT

The ‘power of bond markets’ is a widely assumed and poorly understood feature of the global economy. We demonstrate that even in a bond market as stable as the United States this influence is considerable. In this article, we scrutinise a particularly direct influence, the impact of US Treasury yields on presidential approval rates. Our empirical analysis from 1961 to 2010 demonstrates that rising/falling bond yields lead to a decline/increase in approval rates. We show that this impact is mediated via the US mortgage market. The stronger the rise in mortgage rates, the stronger the influence of Treasury yields on presidential approval. We then outline the broader possible political impacts of this, particularly given foreign and domestic central bank ownership of US Treasuries.     

The impact of pharmaceutical innovation on longevity and medical expenditure in Sweden, 1997–2010: evidence from longitudinal,disease-level data

We use longitudinal, disease-level data to analyze the impact of pharmaceutical innovation on longevity and medical expenditure in Sweden, where mean age at death increased by 1.88 years during the period 1997–2010. Pharmaceutical innovation is estimated to have increased mean age at death by 0.60 years during the period. The estimates indicate that longevity depends on the number of drugs to treat a disease, not the number of drug classes. Pharmaceutical innovation also reduced hospital utilization; the estimates indicate that an increase in the number of drugs commercialized for a disease reduces the number of hospital days due to the disease 8 years later, primarily due to its effect on the number of hospital discharges. The cost per life-year gained from the introduction of new drugs is estimated to be a small fraction of leading economists’ estimates of the value of a 1-year increase in life expectancy.     

Out-of-pocket health care expenditure in Turkey: Analysis of the 2003–2008 Household Budget Surveys

This paper analyses the prevalence of ‘catastrophic’ out-of-pocket health expenditure in Turkey and identifies the factors which are associated with its risk using the Turkish Household Budget Surveys from 2003 to 2008. A sample selection approach based on Sartori (2003) is adopted to allow for the potential selection problem which may arise if poor households choose not to seek health care due to concerns regarding its affordability. The results suggest that poor households are less likely to seek health care as compared to non-poor households and that a negative relationship between poverty and experiencing catastrophic health expenditure remains even after allowing for such selection bias. Our findings, which may assist policy-makers concerned with health care system reforms, also highlight factors such as insurance coverage, which may protect households from the risk of incurring catastrophic health expenditure.     

Comparison of cross-country measures of sigma-convergence in per-capita income, 1960–2010

The evidence on sigma-convergence in income indicated by (a) coefficient of variation (CV) and (b) SD of logarithms (SDLOG) is considered for a large cross-country sample covering the period 1960–2010. Three main points are noted. First, the two measures yield qualitatively similar scenarios, and both indicate sigma-divergence in income over the period. Second, however, they do show large differences in the rate of change in income inequality, and SDLOG indicates divergence at a much higher rate than CV. It seems likely that SDLOG would indicate greater divergence, or weaker convergence, than CV in many cases. Third, therefore, researchers are urged not to rely too heavily on one or the other measure for an inference on sigma-convergence, and it seems appropriate to consider both for drawing reasonable conclusions on convergence in income and many other variables studied by scholars.     

Comments on “Consumption Values of Trade Unions”

The credit default swap (CDS) is implicated in the global financial crises because a vast market for securities collateralized by subprime mortgages and consumer debt could not have materialized if hedge funds and other holders of these instruments lacked a means of hedging default "risk." The argument is made that the CDS is an inherently defective concept because it is based on the assumption that future states of the economy are subject to probabilistic risk as opposed to uncertainty in the Keynes-Knight-Shackle-Davidson sense. The CDS also manifests the paradox of derivatives. By enabling individual money managers to safely increase leverage, it causes a system-wide buildup of leverage and financial fragility.     

Real wages,productivity and economic growth in the G7, 1960–2002

Abstract

This paper investigates empirical real wage and productivity dynamics in the G7 countries using annual data for 1960–2002. The findings suggest that the level of labor productivity is positively related to GDP growth in all countries, and real wages are positively related to growth in some of them. The results tend to confirm the ‘profit paradox’. This postulates a positive relationship between economic growth and the aggregate profit share, and suggests that the frequent support of business interests for deflationary economic policies is a puzzle.     

How to tame two Leviathans? Revisiting the effect of direct democracy on local public expenditure in a federation

We explore how the presence of direct democracy across hierarchical levels of government in a federation affects the level of public expenditure. In so doing we revisit the effect of direct democratic institutions on public policies. Particularly, we are interested whether the effect of upper-level (state) direct democratic institutions on lower-level expenditure varies with lower-level direct democracy. Empirically, we exploit the large institutional variation in the degree of direct democracy both for state (cantons) and local governments (municipalities) in Switzerland. Considering 119 municipalities belonging to 22 cantons for the period 1993–2007, we find that the cantonal fiscal referendum increases local spending for those municipalities without fiscal referenda, while this effect is significantly reduced for municipalities that also avail of referenda. This suggests that upper-level fiscal restraint can be undone by lower-level profligacy if direct-democratic control is limited to the upper level.     

Is social expenditure responsible for recent rise in public debt in OECD countries?

In developed economies, social expenditure is alleged to cause the rise in public debt over the last three decades. With dynamic panel data of 34 OECD countries from 1980 to 2014, we find robust evidence that the rise in public debt is not attributable to social expenditure.     

Fiscal consolidation by intergovernmental transfers cuts? The unpleasant effect on expenditure arrears

For the period 2003–2014, we investigate unexplored effects of fiscal consolidation in decentralized public finance on a large dataset of Italian municipalities. Based on a simple, realistic theoretical model, we show that municipalities increase arrears on committed investment expenditure as a response to intergovernmental transfer cuts. Then, we test our predictions controlling for potential sources of endogeneity, and find that a reduction in intergovernmental transfers causes a significant increase in arrears, in addition to other common adjustments to local fiscal policies (e.g., tax revenues). Our results highlight a perverse effect of fiscal consolidation packages implemented by centrally imposed fiscal restraints.     

The government expenditure–economic growth relation in Japan: an analysis by using the ADL test for threshold cointegration

Based on annual data from Japan for the period 1960 to 2010, we investigate the government expenditure–economic growth relation in Japan by using the autoregressive distributed lag test for threshold cointegration developed by Li and Lee (2010). In particular, we evaluate the validity of Wagner’s view and the Keynesian view in the case of Japan. The empirical results presented herein indicate that of these two classical economics perspectives, only Wagner’s view holds for Japan. The findings also demonstrate that the adjustment process towards its long-run equilibrium is asymmetric.     

Evidence on inflation–output trade-off in developing and industrial countries

This paper subjects Lucas's output–inflation trade-off study to further empirical investigation. The cross-country study divides the 111 countries covered into 90 developing countries and 21 advanced countries. Lucas's proposition is that volatility of aggregate demand growth should reduce the impact of aggregate demand growth on the cyclical output and the implication of this is that there is no output–inflation trade-off in line with the natural rate theory. We employ annual data over periods that fall between 1958 and 1985 in order to conduct the test. Our findings suggest that Lucas's proposition is valid for developed economies but not for developing economies.     

An empirical investigation of interregional production relations and comparative advantage in US manufacturing, 1960–70

Hypothesized differences in mean changes in shares of European Community (EC) import markets over the period 1976-84 are tested for each of 36 less-developed countries. Means are calculated for cases in which MFN tariffs are re-established and for cases in which duty-free treatment is restored under the EC generalized system of preferences. They are compared with means for cases in which tariffs remained constant. We attempt to control for both product-specific and cyclical influences on imports. In contrast to some previous results, our findings suggest that denial (restoration) of preferential treatment, i.e. a tariff increase (decrease), has its expected negative (positive) effect.     

Business cycles and economic crisis in Greece (1960–2011): A long run equilibrium analysis in the Eurozone

Empirical studies find that fluctuations in output and other macroeconomic aggregates are positively related across countries. Economic theory focuses on two main explanations: common shocks and common transmission mechanisms. In this paper, we conduct an empirical analysis of the international influences, specifically from the U.S. and E.U. on the Greek business-cycle. First, we provide an in-depth analysis of the Greek economy, summarizing crucial aspects and trends by means of relevant econometric techniques such as business cycles extraction and periodization based on filtering, spectral analysis and causality tests. Next, we assess the long-run equilibriums of the Greek economy with the rest of the E.U. countries and the U.S. economy by means of a Vector Error Correction model. Our results imply a significant shift in the long-run equilibriums of the Greek economy towards increasing convergence rates with the U.S. economy after the implementation of the common monetary policy and increasing convergence rates towards the peripheral countries of the E.M.U. Also, the Greek GDP fluctuations are found to be caused, to a certain extent, by the EMU and US fluctuations, implying a transmission mechanism of business cycles from the EMU and the US to the Greek economy.     

Are there asymmetries in UK Consumption? A time series analysis

In this paper we use time series techniques in order to test for asymmetric dynamics in UK consumption. The notion that fluctuation over the business cycle are asymmetric has been put forward at various times in the last century. Nevertheless, the most common representations of aggregate time series in macroeconomies are usually smooth and sluggish. The use of time series methods should be considered as only the first stage of an empirical investigation of asymmetries. It is also essential to develop economic models of asymmetric behaviour and to employ tests of asymmetric adjustment at the level structural realtionship.     

A replication note on unemployment in the OECD since the 1960s: what do we know?

Nickell et al. (Econ J 115(500):1–27, 2005) argue that unemployment rates cointegrate with labour market institutions in a panel of OECD countries. This paper replicates their Maddala–Wu panel cointegration test and shows that this test is only valid when (i) the number of countries tends to infinity and (ii) the underlying country-specific cointegration tests are independent. Their finding of cointegration does not survive when small sample properties and heterogeneous cross-sectional dependencies are taken into account. We acknowledge financial support from the Interuniversity Attraction Poles Program, Belgian Science Policy, contract no. P5/21. The usual disclaimer applies.     

The Impact of Deregulation during 1990–1997 on Banking in Austria

The operating environment for banking in Austriachanged substantially during 1990–1997. The changes during the periodcan be seen as a gradualadjustment towards adherence to European banking standards, which becamea legal requirement on Austria's entry, in 1995, into the European Union. Inthis paper, we investigate the relative performance of Austrian banksduring this period and thereby test the hypothesis of increasedcompetition. The study reveals that Aktiengesellschaften hadconsistent productivity improvement over the period, Sparkassen,and Volksbanken exhibited a turnaround in productivity in 1997,and Raiffeisenbanken experienced consistent productivity decline.Overall, Austrian banks experienced a decline in average efficiencyand productivity until 1996 with slight improvements in 1997. Thestudy reveals evidence of product diversification rather thanincreased price competition; a decrease in the spread of prices paidfor inputs indicates increased competitiveness over the period, whichcan be attributed to deregulation brought about by EU-membership.     

Distant but Close in Sight: Firm-level Evidence on French–German Productivity Gaps in Manufacturing

We study productivity-level distributions of manufacturing firms in France and Germany, and how these distributions evolved across the Great Recession. We show the presence of a systematic productivity advantage of German firms over French ones in the decade 2003–2013, but the gap has narrowed down after the Great Recession. Convergence is explained by the better growth performance of French firms in the post-recession period, especially of those located in the top percentiles of the productivity distribution. We also highlight the role of sectoral growth, firm size, and export intensity in explaining the above convergence. In contrast, the contribution of allocative efficiency was small.