Employment responses to aggregate and sectoral technology shocks

This paper investigates the responses of sectoral employment in US manufacturing to a technology shock by its type: aggregate or sectoral. In order to distinguish between aggregate and sectoral shocks, we construct independent VAR models for identifying each shock separately: a factor-augmented vector autoregression (FAVAR) for aggregate shocks and a sectoral SVAR for sectoral shocks. Our aggregate model in particular extends the conventional small-scale VAR to the FAVAR framework of Bernanke et al. (2005) so that it can address the potential bias from omitted variables. The main findings are as follows: most industries exhibit negative employment responses to an aggregate technology shock while exhibiting positive responses to a sectoral technology shock. By comparing our FAVAR framework with Chang and Hong’s (2006) small-scale VAR, we show that applying the FAVAR results in significant differences in the estimated responses to an aggregate technology shock. Real rigidities (such as slow diffusion of new technology or frictional labor reallocation), rather than nominal rigidities (such as sticky prices), are crucial in accounting for the cross-industry difference in employment responses. In particular, the slow diffusion of new technology is closely related to the sluggish response of sectoral employment.     

A structural VAR analysis of the impact of macroeconomic shocks on Pakistan's textile exports

This paper creates a structural vector autoregression (SVAR) model which looks at the macroeconomic factors that impact the export of both finished and unfinished Pakistani textiles between 1980 and 2011. The analysis is unique in two ways: first, it separates unfinished (low value-added) textile exports from finished (high value-added) textile exports; second, it separates out the impact of aggregate exchange rate changes with respect to trading ‘partners’ from aggregate exchange rate changes with respect to trading ‘competitors’. We find that unfinished, or low value-added, Pakistani textile exports were positively impacted by the aggregate consumption of trading partners while finished, or high value-added, textile exports were negatively affected by these shocks. Also, a real depreciation of the Pakistani exchange rate leads to temporary increases in unfinished textile exports but sustained increases in the level of finished textile exports. Finally, positive shocks in the textile exports of competitor countries lead to temporary decreases in both unfinished and finished Pakistani textile exports, but these falls were followed by eventual increases in the exports of both.     

Political economy, sectoral shocks, and border enforcement

In this paper, we examine the correlation between sectoral shocks and border enforcement in the United States, the U.S. government's main policy instrument for combating illegal immigration. We see whether border enforcement falls following positive shocks to sectors that are intensive in the use of undocumented labour, as would be consistent with political economy models of illegal immigration. We find that border enforcement is negatively correlated with lagged relative price changes in the apparel, fruits and vegetables, and livestock industries and with housing starts in western United States, suggesting that authorities relax border enforcement when demand forundocumented labour is high.
Economie politique, chocs sectoriels et vigilance aux frontières. Dans ce mémoire, les auteurs examinent la corrélation entre les chocs sectoriels et la vigilance aux frontières aux Etats-Unis. La vigilance aux frontières est le principal instrument de politique publique utilisé par le gouvernement américain pour combattre l'immigration illégale. On se demande si la vigilance aux frontières se relâche à la suite de chocs positifs dans des secteurs qui utilisent relativement plus de travailleurs illégaux, ainsi que le suggèrent les modèles d'économie politique de l'immigration illégale. Les principaux résultats indiquent que la vigilance aux frontières est co-reliée négativement (avec un délai) avec les changements de prix relatifs dans les secteurs du vêtement, des fruits et légumes, et du bétail, ainsi qu'avec le nombre de mises en chantier dans la construction domiciliaire dans l'ouest des Etats-Unis. Voilà qui suggère que les autorités relâchent la vigilance aux frontières quand la demande de travailleurs illégaux augmente.     

Oil income shocks and economic growth in Iran

The aim of this paper is to study the relationship between oil revenue shocks and output growth in Iran by Adopting an SVAR model over the period 1959–2008. The results indicate that positive and negative oil revenue shocks significantly affect output growth positively and negatively respectively and these effects are asymmetric. While negative oil revenue shocks adversely affect the economic growth, the resource curse impedes the expected positive effects of positive oil shocks. In order to overcome the harmful effects of oil booms and busts, the establishment of oil stabilization and saving funds, diversifying economy, delinking government expenditure from oil revenues and introducing fiscal rules into the budget seems crucial for Iran economy.     

A PANIC analysis on regional and sectoral inflation: the Spanish case

This article studies the stochastic properties of several inflation rates for the Spanish economy using the consumer price index (CPI) for the 17 regions and 12 groups of goods and services, and the producer price index (PPI) for 26 industrial sectors. To this end, we employ the panel analysis of nonstationarity in idiosyncratic and common components (PANIC) approach proposed by Bai and Ng (2004, 2010). This methodology enables us to decompose the observed inflation rate series into a common and an idiosyncratic component, thus allowing us to identify the exact source of nonstationarity. Our analysis provides strong evidence of the presence of a common stochastic trend driving the observed series forming the panel of CPI-based inflation rates for the regions. This, coupled with the presence of a jointly stationary idiosyncratic component, implies the existence of pairwise cointegration across the regional CPI-based inflation rates, which show a clear pattern of convergence over time. This gives an indication of increased geographical homogeneity in consumption patterns. The evidence for the panels of CPI-based inflation of groups of goods and services and PPI-based inflation of industrial sectors indicates the existence of four independent common stochastic trends. This, combined with jointly stationary idiosyncratic series, provides much weaker evidence of cross-cointegration for these two panels.     

Aggregate fluctuations from independent sectoral shocks: self-organized criticality in a model of production and inventory dynamics

This paper illustrates how fluctuations in aggregate economic activity can result from many small, independent shocks to individual sectors. The effects of the small independent shocks fail to cancel in the aggregate due to the presence of two non-standard assumptions: local interaction between productive units (linked by supply relationships), and non-convex technology. We also argue that neither feature on its own would suffice. In the case of a simple model, we explicitly calculate the distribution of aggregate activity in the limit of an infinite number of independently disturbed sectors.     

Causality between exports,world income and economic growth in Pakistan

This paper investigates the direction of causation between GDP representing economic growth, exports and its different categories, imports and world income. After experiencing vigorous import-substitution in the past decades, Pakistan adopted an outward-looking strategy in the late 1980s with an emphasis on export promotion. A strong and stable relationship between GDP and exports and bi-directional causality between manufactured exports and GDP has been found. Export promotion policy is pursued consistently with an emphasis on manufactured exports and this is most likely to contribute adequately to economic growth in the long run.     

Persistency of Turkish export shocks: a quantile autoregression (QAR) approach

This study analyzes the persistency of total and disaggregated Turkish exports for different shock magnitudes using the quantile autoregression (QAR) method in line with Koenker and Xiao (J Am Stat Assoc 99:775–787, 2004). The results suggest that the persistence of shocks are not similar across different quantiles of Total Exports and disaggregated export sectors, indicating an asymmetry in the case of negative and positive shocks across different export sectors. The persistency behavior of Total Exports as well as Food and Beverages, Chemicals, Basic Metals, Raw Materials, Motor Vehicles and Radio & TV exports are asymmetric to negative versus positive shocks, which cannot be captured by traditional unit root tests. Thus, sound interpretation of QAR results is necessary for policy makers to identify shock characteristics and thereby pursue appropriate policies for overcoming adverse impacts on the economy.     

The response of household debt to income inequality shocks: a heterogeneous approach

This article explores the impact of changes in income inequality on household indebtedness using Pedroni's heterogeneous panel VAR. As a result, we find evidence in support of large cross-country heterogeneity in the responses of household leverage to income inequality shocks. We also find that such heterogeneity stems from differences in the strength of financial regulations and supervision.     

External monetary shocks and monetary integration: Evidence from the Bulgarian currency board

Starting July the 1st 1997, Bulgaria adopted a Currency Board (CB) monetary system. This paper aims at investigating if the adoption of the CB monetary system, which involves the cost of losing monetary autonomy, has provided a relatively better (with respect to other CEEC) monetary integration of Bulgaria with the European Monetary Union (EMU). Since Bulgarian monetary variables are endogenous under a CB, we focus on the ECB and FED interest rates as the main sources on monetary volatility. First, we find that ECB shocks are more rapidly absorbed and have less significant impact of domestic variables, with respect to other external monetary shocks (FED rate changes). Second, the responses of Bulgarian variables following changes in the ECB interest rate present lower persistence and significance, with respect to what the previous literature emphasized for other CEEC with monetary autonomy. This latter result still holds when accounting for different sources of cross-country heterogeneity outlined in the literature, thus supporting that the adoption of the CB may have worked as a rather good device in terms of integration of Bulgaria into the EMU.     

Long-run income and price elasticities of demand for Colombian nontraditional exports: a multivariate cointegration framework

A long run income and price elasticities of demand is estimated for Colombian nontraditional exports through a multivariate cointegration analysis. Based on the combination of cointegration and exogeneity concepts and the inclusion of the complete dynamic system, the paper shows the existence of a long-run relationship among nontraditional exports, relative price and foreign demand, and higher long-run elasticities than those provided by the long-run cointegration vector coefficients that are usually reported in the trade literature.     

The behaviour of relative prices in the European Union: A sectoral analysis

Using multivariate unit root test methods, this paper investigates the Purchasing Power Parity (PPP) hypothesis at the sectoral level across six European countries over the last 17 years. Evidence of mean reversion towards PPP is found for the relative prices of some sectors and countries. Mean reversion in relative prices is explained by cross-country and cross-sectoral characteristics such as the distance between countries, nominal exchange rate volatility, differences in GDP per capita, non-tariff barriers, research and development, advertising, industrial concentration and tradeability of the products.     

Exchange rate bands of inaction and play-hysteresis in Greek exports to the Euro Area,the US and Turkey: sectoral evidence

In this paper a non-linear model is applied, where suddenly strong spurts of exports occur when changes of the exchange rate go beyond a zone of inaction, which we call “play” area—analogous to mechanical play. We implement an algorithm describing path-dependent play-hysteresis into a regression framework. The hysteretic impact of real exchange rates on Greek exports is estimated based on the period from 1995Q1 to 2014Q4. Looking at some of the main export partners of Greece, the euro area, Turkey and the US, and some of its most important tradeable sectors we identify significant hysteretic effects for a part of the Greek exports. We find that Greek export activity is characterized by “bands of inaction” with respect to changes in the real exchange rate and calculate the further real depreciation needed to trigger a spurt in Greek exports. To check for robustness we (a) estimate Greek export equations for a limited sample excluding the recent financial crisis, (b) use export weight instead of deflated nominal exports as the dependent variable, (c) employ a political uncertainty variable as a determinant of the width of the area of weak reaction. Overall, we find that those specifications which take uncertainty into account display the best goodness of fit. In other words: the option value of waiting dominates the real exchange rate effect on Greek exports.     

Effects of Islamic religiosity on bilateral trust in trade: The case of Turkish exports

Using a rich firm level data set for Turkish manufacturing, we test whether sharing similar religious beliefs with potential contracting parties drives a firm’s first time entry into export markets. We exploit variation in the practice of Islam across Turkish NUTS3 regions and we find that firms located in regions characterised by stronger religiousness are more likely to enter export destinations with a higher share of Muslims among their population. This result is robust to the control for past trade, common language, cultural and migration ties as well as for selective trade policy in favour of politically connected religious business groups. In particular, religious proximity eases export entry for producers of “trust intensive” goods, it favours subsequent foreign market entries and reduces the export exit probability. All in all, our evidence supports an export enhancing effect of religious proximity working through export sunk costs reduction rather than through similarity in preferences.     

Exchange rate volatility and exports: a firm-level analysis

The relationship between real exports and exchange rate volatility is investigated using panel data analysis at the firm level. Results indicate that there is no negative or positive relationship between volatility and real exports. In addition, firm size and level of international activity do not influence the size and significance of the volatility effect on exports. However, there is some evidence that firms use import revenue to lower their exchange rate exposure.     

Coordination and price shocks: an empirical analysis

This paper outlines a new technique, which makes optimal control in a stochastic minimum variance framework computationally feasible. The new approach is then used to evaluate gains to policy coordination in the context of a macroeconometric model for the G-3. More specifically, we consider policy responses to a temporary price shock in a single country and in multi-country cases. The results show that coordination brings about a striking improvement in the overall control of inflation and a reduction in output costs.     

The optimal linear income tax: A diagrammatic analysis

This paper clarifies the role of the tax possibility frontier and the social indifference curve in the comparative statics analysis of the optimal linear income tax. By a mostly diagrammatic derivation of the results we confirm the conventional conjecture that the optimal marginal tax rate increases with the government's inequality aversion. On the other hand, we cannot always confirm analytically the conventional conjecture that the optimal marginal tax rate increases with the government's budgetary needs.     

Declining output growth volatility: A sectoral decomposition

A decomposition of the U.S. aggregate output growth volatility using two-digit industry-level data shows that more than 60% of the post-1983 reduction in aggregate output growth volatility is attributed to the lowered comovement in total factor productivity (TFP) growth between industries. In contrast, stabilized input and TFP growths within an industry contribute little.     

Consumer durables and the marginal propensity to consume out of permanent income shocks

This paper derives and estimates a model in which the utility of durable and non-durable consumption is allowed to be non-separable and individuals face a convex adjustment cost for the purchase of a new durable good. Panel data on subjective expectations allow us to identify income shocks and estimate the marginal propensity to consume out of permanent income shocks.