Explaining the Delayed Effect of Monetary Policy: The Role of Inventories and Factor-hoarding

This paper proposes a new model accounting for the delayed effect of monetary policy shocks on output. The key feature of the model is to distinguish a variety of margins (i.e., inventory adjustments, hours per worker, efforts and employments) on which firms adjust output in response to macroeconomic shock. When these multiple margins are properly introduced to an otherwise standard modern monetary business cycles model, the interplay between inventory adjustments and the one-period lag in adjusting employment can produce the hump-shaped response of output to monetary shock. Given the weak evidence on habit formation at household level found in Dynan (2000) Dynan, K. (2000). Habit formation in consumer preferences: evidence from panel data. American Economic Review, 90 (3), 391–406. doi: 10.1257/aer.90.3.391[Crossref], [Web of Science ®] , [Google Scholar] and Flavin and Nakagawa (2008) Flavin, M., &; Nakagawa, S. (2008). A model of housing in the presence of adjustment costs: a structural interpretation of habit persistence. American Economic Review, 98, 474–495. doi: 10.1257/aer.98.1.474[Crossref], [Web of Science ®] , [Google Scholar], therefore, this paper provides an alternative explanation for the delayed effect of monetary policy without relying on the habit formation.     

The Interest Rate Brake on Maturity Transformation

Must banks match asset and liability maturities, as William Barnett and Walter E. Block (2009 Barnett, William and Walter E. Block. “Time Deposits, Dimensions and Fraud.” Journal of Business Ethics 88, 4 (2009): 711–716.[Crossref], [Web of Science ®] , [Google Scholar], 2011 Barnett, William and Walter E. Block. “Rejoinder to Bagus and Howden on Borrowing Short and Lending Long.” Journal of Business Ethics 100, 2 (2011): 229–238.[Crossref], [Web of Science ®] , [Google Scholar]), as well as Ivan Jankovic (2011) Jankovic, Ivan. “Economic Calculation, Maturity Mismatching and the Credit Cycle.” New Perspectives on Political Economy 7, 1 (2011): 105–124. [Google Scholar], surmise? While we agree with these authors that issuances of fiduciary media breed financial instability, we disagree that maturity transformation represents such a case. Maturity transformation — otherwise known as borrowing short-term and lending long-term — guided by several base legal principles, does not result in the issuance of fiduciary media. Most notable among these principles is that any credit issued must be funded by borrowing of a positive duration, i.e., not via a demand deposit. We demonstrate that two factors instigate larger degrees of maturity transformation than would otherwise be the case, breeding potential instability: a continual increase in the credit supply and the provision of a lender of last resort. We also show that the interest rate is a natural stabilizing brake on the over-issuance of longer-dated credit against short-term financing.     

Salaried employment and earnings in Indonesia: new evidence on the selection bias

This article uses household survey data to estimate the determinants of earnings in Indonesia, a country where nonsalaried work is widespread and earnings data are available for salaried employees only. We deal with the selection bias by estimating a Full-Information Maximum Likelihood (FIML) system of equations, where selection into the labour market is modelled in a multinomial setting. We find that some estimated parameters of the earnings equation differ from a binomial selection procedure by Heckman (1979 Heckman, J. 1979. Sample selection bias as a specification error. Econometrica, 47: 153–61. [Crossref], [Web of Science ®] , [Google Scholar]), in particular for those variables with the strongest impact on the selection into the different labour-market statuses. However, the estimated returns to education are unaffected, even when we deal with the endogeneity of educational attainment following Duflo (2001 Duflo, E. 2001. Schooling and labour market consequences of school construction in Indonesia: evidence from an unusual policy experiment. American Economic Review, 91: 795–813. [Crossref], [Web of Science ®] , [Google Scholar]). Overall, our findings show that the choice of the selection rule affects the estimates of the earnings determinants in the Indonesian labour market.     

Within-groups wage inequality and schooling: further evidence for Portugal

This article provides further evidence on the positive impact of schooling on within-groups wage dispersion in Portugal, using data on male workers from the 2001 wave of the European Community Household Panel. The issue of schooling endogeneity is taken into account by using the latest available instrumental-variable technique for quantile regression, i.e. the control-function estimator due to Lee (2007 Lee, S. 2007. Endogeneity in quantile regresssion models: a control function approach. Journal of Econometrics, 141: 1131–58. [Crossref], [Web of Science ®] , [Google Scholar]). The findings are compared with earlier results based on different techniques, i.e. the instrumental-variable estimator due to Arias et al. (2001 Arias, O, Hallock, KF and Sosa-Escudero, W. 2001. Individual heterogeneity in the returns to schooling: instrumental variables quantile regression using twins data. Empirical Economics, 26: 7–40. [Crossref] , [Google Scholar]) and the standard exogeneity-based estimator due to Koenker and Bassett (1978 Koenker, R and Bassett, G. 1978. Regression quantiles. Econometrica, 46: 33–50. [Crossref], [Web of Science ®] , [Google Scholar]).     

Trend stationary of inflation rates: evidence from LM unit root testing with a long span of historical data

The article applies the LM univariate unit root test recently developed by Lee and Strazicich (2003 Lee, J and Strazicich, MC. 2003. Minimum Lagrange multiplier unit root test with two structural breaks. The Review of Economics and Statistics, 85: 1082–9. [Crossref], [Web of Science ®] , [Google Scholar], 2004 Lee, J and Strazicich, MC. 2004. Minimum LM unit root test with one structural break, Department of Economics, University of Central Florida. Working Paper Series [Google Scholar]) to re-examine the validity of trend stationary in the inflation rates of 11 OECD and Asian countries using a longer span of historical data. Our empirical findings are favourable to the trend stationary of the inflation rates when we control the structural breaks in series, and therefore they point to the absence of hyperinflation in the majority of the countries. The results indicate that shocks to inflation rates are temporary and soon converge, with the inflation rates being trend stationary. Hence, most structural breaks in the inflation rate occur around the Great Depression, World War I, World War II, and energy shock periods. For the convergence effect, we repeat the unit root tests utilized above for smaller sub-samples so as to provide a robust analysis. The outcomes show that by selecting a longer data span, we can catch more powerful convergent evidence. Overall, some policy implications are obtained in this article.     

The equilibrium relationship among money,income, prices,and interest rates: evidence from a threshold cointegration test

The long-run equilibrium relationship among money, income, prices, and interest rates in Japan is investigated by the threshold cointegration test, which allows for asymmetric adjustment, introduced by Enders and Siklos (2001 Enders, W and Siklos, PL. 2001. Cointegration and threshold adjustment. Journal of Business and Economic Statistics, 19: 166–76. [Taylor &; Francis Online], [Web of Science ®] , [Google Scholar]). The threshold cointegration approach provides clear evidence of the cointegration relationship characterized by asymmetric adjustment. By allowing for asymmetric adjustment, results are obtained showing the stability of the money demand function, similar to Lucas (1988 Lucas, RW Jr. 1988. Money demand in the United States: a quantitative review. Carnegie-Rochester Conference Series on Public Policy, 29: 137–68.  [Google Scholar]), who pointed out that the money demand function is stable if unit income elasticity is imposed. In particular, the estimated results show that the adjustment process toward equilibrium is highly persistent above an appropriately estimated threshold, whereas the adjustment process toward equilibrium quickly converges below it. This finding indicates that deviations from equilibrium resulting from increases in money or decreases in income and prices are highly persistent.     

Economic class and the distribution of income: a time-series analysis of the UK economy, 1955–2010

This paper contributes to our understanding of the determinants and dynamics of surplus-value using quarterly UK data, 1955–2010, and the Johansen (1988 Johansen, S. 1988. Statistical analysis of cointegrated vectors. Journal of Economic Dynamic and Control, 12: 231–54. [Crossref], [Web of Science ®] , [Google Scholar], 1991 Johansen, S. 1991. Estimation and hypothesis of cointegration vectors in Gaussian vector autoregressive models. Econometrica, 59: 1551–80. [Crossref], [Web of Science ®] , [Google Scholar]) cointegration and vector error correction model (VECM). A model is introduced to define this Marxian concept, before we explain distribution, paying attention to three forces that are traditionally seen as drivers of power in this struggle: (i) working class militancy; (ii) the size of the ‘reserve army’ of the unemployed; and (iii) political party. Our results demonstrate the ongoing relevance of Marxian economics in providing an alternative, robust and significant explanation of distribution in the post-war UK economy.     

Will the skill-premium in the Netherlands rise in the next decades?

While the skill-premium has been rising sharply in the US and the UK for 20 years, the Dutch skill-premium decreased for much of that period and only started to rise in the early 90s. In this article, we investigate whether the Dutch skill-premium will rise in the next decades. To answer this question, we forecast the skill-premium using the Katz and Murphy (1992 Katz, L and Murphy, K. 1992. Changes in relative wages, 1963–1987: supply and demand factors. Quarterly Journal of Economics, 107: 35–78. [Crossref], [Web of Science ®] , [Google Scholar]) and the Krusell et al. (2000 Krusell, P, Ohanian, L, Ríos-Rull, J-V and Violante, G. 2000. Capital-skill complementarity and inequality: a macroeconomic analysis. Econometrica, 68: 1029–53. [Crossref], [Web of Science ®] , [Google Scholar]) models. The Katz and Murphy model (KM) explains demand shifts by skill-biased technological change in unobservable variables captured by a time trend. In contrast, the Krusell et al. model (KORV) explains demand shifts by (observable) changes in the capital stock under a capital-skill complementarity technology. The results show that while the KM model predicts that the skill-premium will have increased by 30% in 2020, based on realistic predictions of the stock of capital, the KORV model predicts that the skill-premium will remain between ?5 and +5% of its 1996 level.     

Exchange Rate Regimes and Inflation: Evidence from India

Abstract

Exchange rate stability is crucial for inflation management as a stable rate is expected to reduce domestic inflation pressures through a ‘policy discipline effect’ – restricting money supply growth, and a ‘credibility effect’ – inducing higher money demand and reduced velocity of money. Alternatively, the ‘impossibility trillema’ of Mundell (1961a Mundell, R. A. (1961a). Capital mobility and stabilization policy under fixed and flexible exchange rates. Canadian Journal of Economics and Political Science, 29, 475–485. doi: 10.2307/139336[Crossref], [Web of Science ®] , [Google Scholar], 1961b Mundell, R. A. (1961b). Flexible exchange rates and employment policy. Canadian Journal of Economics and Political Science, 27, 509–517. doi: 10.2307/139437[Crossref], [Web of Science ®] , [Google Scholar]) predicts that in the presence of an open capital account, a stable exchange rate may lead to lack of control on monetary policy and, hence, higher inflation. Using a monetary model of Inflation, this paper investigates the impact of the ‘empirically-claimed’ de facto stable exchange rate regime on inflation in India during different sub-periods of exchange rate stability. The results show that the impact of exchange rate regime on inflation is not visible in the Indian case, which could be because of the offsetting sterilization policy undertaken by the Reserve Bank of India (RBI) during expansionary money supply growth resulting from its large-scale intervention to even out exchange rate volatility.     

The Role of Monetary Policy in the New Keynesian Model: Evidence from Vietnam

This paper re-designs the New Keynesian model developed by Ireland (2004 Ireland, P. N. (2004). Technology shocks in the New Keynesian model. The Review of Economics and Statistics, 86(4), 923–936. doi: 10.1162/0034653043125158[Crossref], [Web of Science ®] , [Google Scholar]) and then uses the Vietnamese data from January 1995 to December 2012 to estimate the model's parameters. The empirical results show that the State Bank of Vietnam had been more aggressive as well as more responsive to aggregate fluctuations in the period before August 2000 than in the latter period. Thus, this change in the policy stance could be a potential reason for the declining importance of monetary policy in generating movements in output growth, inflation, interest rate, and the output gap across the subsamples. Another notable finding is the dominant role of the cost-push shock in explaining fluctuations in inflation, interest rate, and the output gap, leading to a policy implication that more attention should be devoted to developing substitute and complement industries so as to mitigate negative effects of the cost-push shocks by reducing the degree of dependence on imports.     

Rethinking liquidity creation: Banks,shadow banks and the elasticity of finance

In this article, the authors use the concept of the hierarchy of money found in the works of Minsky (2008 Minsky, H. [1986]2008. Stabilizing an Unstable Economy. New Haven, CT: Yale University Press. [Google Scholar][1986]), Foley (1987 Foley, D. 1987. “Money in Economic Activity.” In The New Palgrave: Money, edited by J. Eatwell, M. Milgate, and P. Newman, 519–525. New York, NY: W.W. Norton.[Crossref] , [Google Scholar]), Wray (1990 Wray, L. R. 1990. Money and Credit in Capitalist Economies: The Endogenous Money Approach. Aldershot, UK: Edward Elgar. [Google Scholar]), and Bell (2001 Bell, S. 2001. “The Role of the State and the Hierarchy of Money.” Cambridge Journal of Economics 25 (2):149–63.[Crossref], [Web of Science ®] , [Google Scholar]) to analyze the process of liquidity creation in modern capitalist economies where shadow banks play an active role. They abandon the narrow focus on banks as the creators of money as well as the idea that nonbank financial institutions are mere intermediaries between savers and borrowers. Instead, the authors demonstrate that, similar to banks, nonbank financial institutions and foreign banks (through their cross-border activities) create liquidity endogenously by leveraging over the liabilities of entities hierarchically above them. The authors further elucidate Kregel’s concept of “fictitious” liquidity in the context of the hierarchy of financial liabilities, distinguishing it from “true” liquidity. By bringing shadow banks and the euro-currency markets into to the pyramid of financial liabilities, they develop a more complete framework of liquidity creation in modern capitalist economies. Their “extended” pyramid is useful for analyzing not only the fragility that may arise from the interactions between firms, households and banks, but also that which may originate through the interactions between banks, shadow banks and foreign banks.     

Institutions and growth: evidence from estimation methods robust to weak instruments

This article focuses on the empirical approach proposed by Hall and Jones (1999 Hall, RE and Jones, CI(HJ99). 1999. Why do some countries produce so much more output per worker than others?. The Quarterly Journal of Economics, 114: 83–116. [Crossref], [Web of Science ®] , [Google Scholar]) to estimate the effect of what they call ‘social infrastructure’ on productivity across countries. We consider the issue of weak identification in their linear instrumental variables model. The evidence obtained from partially robust estimators, such as the k-class and jackknife estimators, is interpreted on the basis of Monte Carlo studies. Our findings suggest that using certain k-class estimators allows exclusive reliance on the linguistic variables to instrument for institutional quality despite their low correlation with the endogenous regressor in question.     

Insurance and rural welfare: what can panel data tell us?

Assessing the scope for insurance in rural communities usually requires a structural model of household behaviour under risk. One of the few empirical applications of such models is the study by Rosenzweig and Wolpin (1993 Rosenzweig, MR and Wolpin, K. 1993. Credit market constraints, consumption smoothing, and the accumulation of durable production assets in low-income countries: investment in bullocks in India. Journal of Political Economy, 101: 223–44. [Crossref], [Web of Science ®] , [Google Scholar]) who conclude that Indian farmers in the ICRISAT villages would not benefit from the introduction of formal weather insurance. In this article we investigate how models such as theirs can be estimated from panel data on production and assets. We show that if assets can take only a limited number of values the coefficients of the model cannot be estimated with reasonable precision. We also show that this can affect the conclusion that insurance would not be welfare improving.     

Consumer decision making,E-commerce and perceived risks

This article studies how adoption and usage behaviour of the Internet and online shopping, respectively influence the preference to use electronic commerce to purchase different types of products. We empirically model the preference for electronic commerce when consumers have to buy different types of products and thus face different types of risks (Cox and Rich, 1964 Cox, D and Rich, S. 1964. Perceived risk and consumer decision making-the case of telephone survey. Journal of Marketing Research, 1: 32–9. [Crossref], [Web of Science ®] , [Google Scholar]). Unlike previous research, we find that consumers who have previously shopped online, display stronger preferences to buy products on the Internet irrespective of the perceived level of product-specific risks of online shopping. This article provides an interesting and novel insight into how both adoption and usage of electronic commerce impact on the attitude and risk perception of buying less predictable (more risky) products on the Internet.     

Return to tourist destination. Is it reputation,after all?

In this paper the hypothesis that repeated purchases in the tourism markets could be considered as a consequence of asymmetrical information problems is studied. This hypothesis is analysed with the case study of the island of Tenerife using the estimation of a count data model. It was found that the length of the stay and the information obtained from previous visits and/or relatives and friends might increase the return to a destination suggesting the presence of a reputation mechanism as proposed by Shapiro (1983 Shapiro, C. 1983. Premiums for high quality products as returns to reputations. Quaterly Journal of Economics, 98: 659–79. [Crossref], [Web of Science ®] , [Google Scholar]). The determinants of the willingness to return were also estimated, confirming the main results.     

The role of permanent and transitory components in the fluctuations of Latin–American real exchange rates

Following the approach suggested by Engel and Kim (1999 Engel, C. 1999. Accounting for U.S. real exchange rates changes. Journal of Political Economy, 107: 507–38. [Crossref], [Web of Science ®] , [Google Scholar]), we estimate the permanent and transitory components of the real exchange rates in four Latin–American countries for the period 1957:01 to 2002:04. Results suggest that transitory component is the driving force of the real exchange rates in Argentina and Mexico. A principal role of the permanent component is observed in the real exchange rates of Brazil and Chile. Estimates probabilities of the high-variance regime allow to identify the principal events happened in these countries. This information is closely related to nominal shocks and therefore, it explains the significant role of this component in these countries.     

Export-led growth: are the results robust across methodologies and/or data sets? A case study of Latin America

We examine the export-led growth (ELG) hypothesis from a different perspective asking if the choice of data and/or methodology drives the results. We apply the Granger causality test modified by the corresponding error correction model using real export data from two common sources: the International Monetary Fund and the United Nations Commodity Trade Statistics. Additionally, to determine if the level of deflation could be a factor, we deflate the data at a disaggregated level and by a single export unit price index. Outcomes are compared to those obtained through the Granger causality procedure developed by Toda and Yamamoto (1995 Toda, H and Yamamoto, T. 1995. Statistical inference in vector autoregressions with possibly integrated process. Journal of Econometrics, 66: 225–50. [Crossref], [Web of Science ®] , [Google Scholar]) and Dolado and Lütkepohl (1996 Dolado, JJ and Lütkepohl, H. 1996. Making wald tests work for cointegrated VAR systems. Econometric Reviews, 15: 369–86. [Taylor &; Francis Online] , [Google Scholar]). We use sixteen Latin American countries to test our hypotheses. The analysis reveals inconsistencies in the results both by selection of data and methodology suggesting much of the debate regarding ELG, at least for Latin America, is fuelled by data and/or methodology choice, putting into question previous studies.     

Estimating persistence in Canadian unemployment: evidence from a Bayesian ARFIMA

The degree of persistence in aggregate Canadian unemployment is estimated within a Bayesian ARFIMA class of models. The results conclude that unemployment exhibits persistence in the short and intermediate run. The evidence of persistence is stronger than previously reported by Koustas and Veloce (1996 Koustas, Z and Veloce, W. 1996. Unemployment hysteresis in Canada: an approach based on long-memory time series models. Applied Economics, 28: 823–31. [Taylor &; Francis Online], [Web of Science ®] , [Google Scholar]). This persistence cast a vital implication regarding disinflation policies, Based on the unemployment rate, these policies will prove very costly in terms of lost output and – if implemented – they considerably lengthen recessions.     

Dynamic capabilities and radical innovation performance in established firms: a structural model

The paper extends Teece’s model of dynamic capabilities (2007 Teece, D. 2007. “Explicating Dynamic Capabilities: The Nature and Microfoundations of (Sustainable) Enterprise Performance.” Strategic Management Journal 28 (13): 1319–1350. doi: 10.1002/smj.640[Crossref], [Web of Science ®] , [Google Scholar]) into four types of capabilities: sensing, coordination, autonomy and reconfiguration capabilities. We further develop a structural model between four types of dynamic capabilities and radical innovation performance (RIP) in established firms. Based on a dataset of top 500 manufacturing established firms in Taiwan, the proposed hypotheses are tested using the structural equation models. The results reveal that four types of dynamic capabilities and RIP are positively correlated in a sequential and structural manner. This paper concludes the systemic development of dynamic capabilities can improve RIP in established firms. Finally, we point out some managerial implications for improving RIP in established firms.     

The persistence of Taiwan's output fluctuations: an empirical study using innovation regime-switching model

In this article we examine the persistence nature of Taiwan's aggregate output fluctuations by using the ‘innovation regime-switching’ (IRS) model in which the effect of an innovation may be permanent or transitory, depending on an unobservable state variable that follows a first order Markov chain. By applying the IRS model to Taiwan's real GDP data, we find that during the 1961 to 2000 period 61% (39%) of the real output shocks are likely to have permanent (transitory) effects. Moreover, the innovations in the officially identified expansion (contraction) are more likely to have a permanent (transitory) effect. These results are similar to those found in many studies of US real output fluctuations, e.g. Beaudry and Koop (1993 Beaudry, P and Koop, G. 1993. Do recessions permanently change output?. Journal of Monetary Economics, 31: 149–63. [Crossref], [Web of Science ®] , [Google Scholar]), Kim and Nelson (1999 Kim, C-J and Nelson, CR. 1999. Friedman's plucking model of business fluctuations: tests and estimates of permanent and transitory components. Journal of Money, Credit and Banking, 31: 317–34.  [Google Scholar]) and Kuan et al. (2005 Kuan, C-M, Huang, Y-L and Tsay, RS. 2005. An unobserved component model with switching permanent and transitory innovations. Journal of Business and Economic Statistics, 23: 443–54. [Taylor &; Francis Online], [Web of Science ®] , [Google Scholar]). However, we also find that Taiwan's output dynamics have changed drastically ever since year 2000. In particular, the shocks to real GDP have become more likely to have only transitory effect, even during the period of post-2001:IV expansion.