LUXURY AND WEALTH*

I develop a dynamic theory of luxury consumption, particularly emphasizing the causal effect that pursuit of luxury goods has on wealth accumulation. A quasi‐luxury is defined as a good whose marginal rate of substitution is increasing in a utility index. Under certain conditions, it is indeed a luxury good. When current wealth holding falls short of (exceeds) long‐run needs, luxury consumption is postponed more (less) easily than necessity consumption, due to a lower (higher) time preference for luxury and/or a higher intertemporal elasticity of substitution thereof. Preferences for quasi‐luxuries lead to a higher steady‐state value of wealth or capital.

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Inflation,interest and exchange rates in the transition1

Central and Eastern European economies have made extraordinary progress in their trade and exchange regimes. Surprisingly, instant convertibility was established for a great variety of exchange rate regimes. In spite of diversity, all these countries have followed a common pattern: severe initial undervaluation - the cost of speed and unrestricted trade - followed by rapid real revaluation and incipient protectionism. Since 1994 in many cases an embarrass de richesse has appeared: high capital inflows which are either inflationary or costly to sterilize. A major cause of these flows - or at any rate of the high cost of sterilization - is the presence of significant interest rate differentials higher than required to cover the risk of devaluation. These are the necessary consequence of a policy of positive real interest rates and of real revaluation from excessively undervalued exchange rates. Lower interest rates are recommended, both to stem financial capital inflows and to reduce the cost of their sterilization.     

我国城镇居民跨期消费行为实证分析

消费可以分为耐用品和非耐用品两个类别,耐用品在消费中所占的比例日益增加是转轨时期我国城镇居民消费的一个特征。通过我国城镇居民的耐用品消费分析后发现:转轨时期我国城镇居民的跨期替代弹性大约是0.75。另外,期内替代弹性和跨期替代弹性呈现同向变动的特点,而非耐用品消费支出的系数、主观折旧率和跨期替代弹性表现出反向变动的特征。     

Price convergence in the European Union – What has changed?

This paper investigates price convergence in European Union countries using disaggregated price level indices in the period 1999–2016. Our results show that prices of both tradable and nontradable goods had a significantly lower dispersion in 2016 than in 1999. The convergence was faster in the case of countries with price level below the average, which can be interpreted as catching-up. However, further analysis shows that most prices converged only up to 2008. While prices of transport equipment continue to converge across the European Union, several durable consumption categories show price divergence after 2008. We attribute this to the drop in international trade of durable products due to increasing inflation and exchange rates volatility following the global financial crisis. From the monetary policy perspective, the existing price-level gaps, shown in our study, may pose a risk of higher inflation, especially in catching-up economies.     

The Financial Crisis and the Death (or Hegemony) of Development Economics

Development economics was the study of how to create the plumbing that would allow developing economies to become developed. The financial crisis leads us to question whether industrialized countries have the plumbing problem solved and thus leads us to question whether we need a development economics that is separate from macroeconomics. Indeed, it even leads us to question whether development economics should take as its goal the creation of the institutional plumbing that industrialized countries currently have. The consequence will be a blending of concerns that have been central in developing economies with the standard macro models. The blending can be seen as either the death of development economics or the hegemony of development economics.     

Consumption,Income, and Wealth: Evidence from Age,Cohort, and Period Elasticities

This paper examines the relationship between non‐durable consumption, income, and wealth (housing and financial) allowing explicitly for generational heterogeneity. A framework is proposed to disentangle cohort, age, and period effects and the empirical analysis is based on the U.S. Consumer Expenditure Survey data. We find that there are significant generational differences and the results highlight the range of elasticities implicit in results presented, thus far, by age groups. Moreover, we find supporting evidence of humped shaped age profiles for the elasticity of consumption with respect to income and the importance of financial wealth for those aged 60+. The framework also allows us to generate cohort profiles which draw attention to the negative role of housing wealth for generation X, and period profiles which reinforce the role of financial wealth for the baby‐boom generation.     

Measuring Variety and Quality of Products with Trademarks

Abstract

The variety and quality of products has a great importance in the analysis of international trade flows. Several theoretical models show that larger and richer economies produce and export goods characterized by higher variety and quality. Accordingly, empirical studies have tried to quantify this relationship by investigating directly the composition of trade. In this paper we propose the use of trademarks to estimate the variety and quality of goods and services. We consider the Community trademark applications filed by 120 countries and distinguish the variety of the underlying products across classes (extensive margin) from the variety within classes (intensive margin). Then we estimate the quality of a country's goods and services observing how much its trademarks are extended on multiple classes (quality margin). The empirical analysis consists of simple cross-sections of the ‘applicant’ countries. The extensive margin is found to account for about 40% of the higher number of entries of larger and richer economies, while differences in quality seem to explain about 10% of national differences in trademark applications. These findings partially confirm those of previous empirical studies, although the nature of the data and the methods of classification lead to some quantitative discrepancies and to a different interpretation of the results.     

A panel cointegration approach to estimating substitution elasticities in consumption

This paper investigates the relationship between government spending and private consumption. The general framework is a cointegration approach of Ogaki (1992) used to estimate the intratemporal elasticity of substitution between government and private consumption in a panel of 15 European countries. Recently developed non-stationary panel methodologies that assume cross-section dependence are applied. Results indicate an Edgeworth substitutability between private and public spending.     

Returns to scale: concept,estimation and analysis of Japan's turbulent 1964–88 economy

Abstract There is policy interest in factoring productivity growth into technical progress and returns to scale components. Our approach uses exact index number methods to reduce the parameters that must be estimated, and allows us to exploit the cross‐sectional dimension of plant‐level panel data. We show that the same equation can also be used to estimate ‘Harberger’ scale economies and technical progress indicators that require fewer assumptions. Estimates of the elasticity of scale for Japanese establishments in three major industries over 1964–88 are presented. Our study spans the high growth era of the 1960s, two oil shocks, and other exogenous shocks.     

Analysing Potential Effects of Preferential Liberalisation in Some Asian Emerging Economies

This paper examines the ex-ante effects of possible trade liberalisation of some Asian emerging economies through forming a regional economic bloc called BIMSTEC by adopting SMART and GTAP models. Based on estimated export supply elasticity, the results of SMART simulation reveal that the highest net trade effect takes place for India, the biggest economy in the bloc, followed by Bangladesh for tariff elimination. The two countries also derive substantial welfare gains. The proportionate revenue loss is remarkably higher for smaller countries such as Nepal, Myanmar and Bangladesh. GTAP simulation suggests that Bangladesh incurs a net welfare loss by joining the FTA. The overall intra-bloc export is likely to increase. These results imply that there is a need for designing proper compensation mechanism and technical support for the smaller economies to offset the possible adverse effects.     

Intertemporal Substitution and Terms-of-Trade Shocks

The paper examines the relationship between transitory terms‐of‐trade shocks and private saving. Using a model allowing for nonseparability between the consumption of tradables and nontradables, the paper estimates the intertemporal elasticity of substitution while accounting for the intratemporal elasticity of substitution between the consumption of tradables and nontradables. Empirical analysis of data for five industrial countries indicates that in response to transitory terms‐of‐trade shocks, intertemporal substitution of consumption and intratemporal substitution of consumption between tradables and nontradables both have large effects on private saving.     

Food consumption and economic development in Turkey and European Union countries

This study investigates the relationship between food consumption and economic development in Turkey and European Union countries. Differences in food diets are analysed by using data on per capita consumption in caloric terms based on the period from 1970 to 2000. The cluster analysis is employed to derive country grouping on the basis of similarities in dietary structure in the 1970 and 2000. Existence of a trend towards a common European diet is explored with Beta convergence. The empirical results show that per capita food consumption is becoming less responsive to changes in income and appears to be reaching a ceiling in the majority of EU countries and Turkey. However, the share of animal products in food consumption diet is low and income expenditure elasticity of animal products is higher with 0.84 values in Turkey than that in European countries in 2000. There are great differences in dietary structure between Turkey and the European Union. Differences also exist between European Union countries; however, despite these differences there is a general tendency for dietary structure to become increasingly similar across the majority of European Union countries. The result also supports the absence of a convergence towards a common diet if Turkey joins the European Union.     

Global Imbalances and the Financial Crisis: Reassessing the Role of International Finance

Global current account imbalances have recently been singled out by many as a key factor contributing to the global financial crisis. Current account surpluses in several emerging market economies are said to have put significant downward pressure on world interest rates, thereby fueling a credit boom and risk taking in major advanced economies with current account deficits (the “excess saving” view). We argue that this perspective on global imbalances bears reconsideration. We highlight two conceptual problems: (i) explaining market interest rates through the saving-investment framework; and (ii) drawing inferences about a country's cross-border financing activity based on observations of net capital flows. We trace the shortcomings of this perspective to a failure to consider the distinguishing characteristics of a monetary (credit) economy. We conjecture that the main macroeconomic cause of the financial crisis was not “excess saving” but the “excess elasticity” of the international monetary and financial system.     

THE INTERNATIONAL COMPARISONS OF CONSUMPTION LEVEL CARRIED OUT BY THE POLISH CENTRAL STATISTICAL OFFICE

1. The problems presented have arisen in practice when carrying out international comparisons of national income and its elements between the CMEA countries. Some rough conclusions are drawn from the nearly completed comparison of consumption level between Poland and Austria. 2. The basic methodological principles of the comparison were similar to the methods used by the group of economists directed by Milton Gilbert and Irving Kravis in their comparison relating to Western European countries. However, a number of new problems have emerged in the course of our work which required practical and theoretical solutions. Some differences in theoretical approach between the Gilbert-Kravis study and ours are discussed. Gilbert and Kravis based their comparison as far as possible on average prices of commodity groups or quantity data, and price indexes for representative goods were applied only as a practical necessity. On the contrary in our study we based our calculation mainly on representative goods and their price relation as this method, in our opinion, takes into account quality differences, which escape from the picture in the Gilbert-Kravis method. 3. Some special theoretical and practical problems of comparisons between countries having market economies and those with planned economies are presented in terms of the example of the comparison of consumption levels between Austria and Poland. Three groups of questions are pointed out: (1) the problem of the definition and boundaries of the aggregates compared; (2) the problem of differences in pricing in the groups of products and services compared, resulting from the social policy of the government concerned; and (3) the problem of differences arising from general price policies in the countries compared. 4. At the end of the paper it is suggested that it would be useful to work out a “statistical information system”, which would make possible detailed comparisons of the volume of consumption among several countries and groups of countries without the need of conducting direct comparisons between each pair of countries.     

Private consumption,public consumption and liquidity constraints in developing countries: some empirical evidence

This paper extends the empirical work of Giovannini (1983, 1985) in seeking to identify the elasticity of substitution in consumption in developing countries using the Euler equation approach. Allowing for liquidity constraints in capital markets which force a percentage of aggregate consumption growth to track income growth to track income growth, we report static and time-varying estimates of this percentage and the elasticity of intertemporal substitution, as well as estimates of substitution between private and public consumption and implied utility function parameters. Our results suggest that liquidity constraints are a pervasive feature of developing country consumption data and that the elasticity of intertemporal substitution is near-zero for the majority of countries considered.     

Testing for convergence of the Okun’s Law coefficient in Europe

Without convergence of macroeconomic parameters representative of the nature of adjustment mechanisms, even a common shock to members of a monetary union can lead to different macroeconomic consequences across the union and, eventually, to the need for more or less co-ordinated specific policies. In this paper, we test for the presence of convergence of the Okun’s Law coefficient (OLC) among several alternative groupings of European economies. The empirical strategy adopted is based on the evaluation of the time path of rolling regression estimates of the OLC for European countries. We then use a testing procedure suggested by Evans [Evans P (1996) J Econ Dynam Control 20:1027–1049] to investigate the convergence, or non-convergence, of the OLC in several groups of European countries by examining how the cross-country variance of the OLC evolves over time in these groups. A hypothesis of medium-term convergence of the OLC is rejected for most of the European country groups examined.      

Long-run estimates of money demand: new evidence from East Asian countries and the presence of structural breaks

Conventionally, the money demand function is estimated using a linear regression of the logarithm of money demand on a number of variables. In this article, we aim to estimate the long-run properties of money demand specification for a number of East Asian economies and within a panel framework with the presence of structural breaks. Various country-specific coefficients are allowed to capture inter-country heterogeneities. Consistent with theoretical postulates, it is found that (a) the demand for money in the long-run positively responds to real income and inversely to the interest rate spread, inflation, the real effective exchange rate and the US real interest rate; (b) the long-run income elasticity is greater than unity; and (c) both the currency substitution and capital mobility hypotheses hold. The empirical findings in this article can provide useful policy guidelines to the East Asian countries’ central banks in their quest for price stability. If one of the primary objectives of these countries is to minimize price instability, they should avoid creating unnecessary disequilibrium in the money market, while the employment of cointegration with the presence of structural breaks clearly recommends to central banks to use the supply of money to attain price and macroeconomic stability.     

Government spending, capital accumulation and the optimal policy rule: The role of public service capital

In this paper, we modify the Djajić [Djajić, S., 1987. “Government Spending and the Optimal Rates of Consumption and Capital Accumulation,” Canadian Journal of Economics 20, 544–554.] model in such a way that government consumption expenditure provides utility to households via the total stock of government services rather than the government consumption flow alone. By using such a framework, we show that the optimality condition for the public service capital stock is the marginal rate of substitution between public service capital and consumption that equals the intertemporal marginal rate of transformation between the two goods. In addition, we show that the relationship between private consumption and public service capital in a household's utility plays an important role in determining the transitional behavior of relevant variables. We also examine the second-best government consumption expenditure policy. By contrast, in the standard flow specification, e.g., Turnovsky and Brock [Turnovsky, S.J. and Brock, W.A., 1980. “Time Consistency and Optimal Government Policies in Perfect Foresight Equilibrium,” Journal of Public Economics 13, 183–212.], Ihori [Ihori, T., 1990. “Government Spending and Private Consumption,” Canadian Journal of Economics 23, 60–69.], and Turnovsky and Fisher [Turnovsky, S.J. and Fisher, W.H., 1995. “The Composition of Government Expenditure and its Consequences for Macroeconomic Performance,” Journal of Economic Dynamics and Control 19, 747–786.], the second-best government consumption expenditure is decided on the basis that the marginal utility of consumption is equal to the discounted sum of the marginal utility of the government's flow spending.     

Spatial discounting of ecosystem services

The impact of conservation efforts targeted at preserving ecosystem services largely depend on the welfare implications associated with spatial variations in the provision of ecosystem services. While there is ample empirical evidence of spatial discounting or decay of the valuation of ecosystem services, there are still few underpinnings based on welfare economic theory. We establish a theory of spatial discounting that closely follows the concept of time discounting pertaining to climate change, and show spatial discount rates in the consumption, ecosystem service, and willingness to pay (WTP) numeraires. We consider the role of key parameters such as pure rate of spatial preference, consumption change, ecosystem services change, population density, and elasticity of marginal utility. We find that the spatial discount rate of WTP for ecosystem services that frequently appears in the empirical literature is the difference between the ecosystem service discount rate and consumption discount rate, where the ecosystem service discount rate includes both physical distance decay and welfare effects. Finally, we use numerical simulations to illustrate how the three different spatial discount rates vary with the spatial distance from the source of ecosystem services and with consumption patterns, implying many more possible spatial variations of WTP.     

Currency substitution and seignorage in eastern europe

Economic and political uncertainty, high inflation and liberalization of foreign exchange restrictions have encouraged substantial currency substitution in the economies in transition. This paper presents empirical evidence on currency substitution in four Eastern European countries in transition: Poland, Hungary, Romania and Bulgaria. It is shown how currency substitution affects money demand and by that seignorage revenues. The empirical estimates of the money demand functions are used to calculate the seignorage maximizing rate of inflation in the economies in transition.