‘Talking down monetary policy’ – a note

There is a recent debate about whether ultra-expansionary monetary policy is no longer effective in stimulating demand, a concern often voiced in the euro area in light of persistently low and even negative inflation. As a response, the European Central Bank (ECB) warns against ‘talking down monetary policy’ (ECB Vice-President Vítor Constâncio, 2016). This note uses a textbook model of optimal monetary policy to study a situation in which the public misperceives the interest rate elasticity of aggregate demand, which reflects policy effectiveness. We show that as a result of underestimating policy effectiveness demand shocks can no longer be stabilized perfectly, thus resulting in inefficient inflation and output dynamics. In the presence of misperceptions, a negative demand shock leads to a prolonged period of negative inflation rates.     

Rational vs historical reconstruction – a counter-note on Signorino's note on Blaug

Heckscher's 1919 article originated the Heckscher-Ohlin theory of international trade. In 1987 Carl Uhr pointed out that Heckscher in 1928 made another major contribution to economics in a German-language article on ‘intermittently free goods’, presenting ‘a theory of imperfect competition nine years ahead of that by Joan Robinson and Edward Chamberlin, and a discussion of collective goods not priced by the market’. This paper summarizes the salient ideas of Heckscher's article. It evaluates its merits, originality and significance for the history of economic thought, and how it fits into the ‘revolutionary’ developments of the theory of imperfect competition in the 1930s.     

Paradoxes of Modernist Consumption – Reading Fashions

Fashion is the quintessential post-modernist consumer practice, or so many hold. In this contribution, I argue that, on the contrary, fashion should be understood as a means of communicating one's commitment to modernist values. I introduce the framework of the Social Value Network, to relate such values to institutionalized consumption behavior, allowing one to signal to others. Modernist values are not homogenous, and are in important ways contradictory, giving rise to the dynamics of fashion that can be observed.     

Removing an ‘insuperable obstacle’ in the way of an objectivist analysis: Sraffa's attempts at fixed capital *

Abstract

The paper discusses Sraffa's consecutive attempts in the late 1920s and early 1940s to tackle a problem which endangered his objectivist, surplus-based approach to the theory of value and distribution aimed at reviving the standpoint of the classical economists. Whilst with circulating capital the value transfer to the product and the physical ‘destruction’ of the input are one and the same thing, with fixed capital this is not so. Sraffa eventually overcame the difficulty in terms of the joint products-method. This allowed him to explain relative prices and the rate of profits strictly in ‘material terms’.     

Innovation,imitation and multinationalisation in a North–South model: a theoretical note

We consider a dynamic general equilibrium product variety model of international product cycle with endogenous rate of imitation in the South; and find that a policy of strengthening intellectual property rights (IPR) protection in the South lowers the rate of product innovation, rate of multinationalisation and South–North relative wage if multinationalisation [or, foreign direct investment (FDI)] is the channel of production transfer. These results are significantly different from those obtained in the exogenous imitation model of Lai (J Dev Econ 55(1): 133–153, 1998). So a stronger IPR protection policy adopted by the South may not be interpreted as an incentive to encourage Northern FDI in the South and to raise the rate of innovation in the North.      

Editors’ note

Portuguese Economic Journal -     

Editors’ note

Portuguese Economic Journal -     

The sources of innovations – looking beyond technological opportunities*

The concept ‘technological opportunity’ has been coined to capture the vitality of the underlying sciences and technologies as the sources of technical progress that firms draw upon during innovation. Nonetheless, less attention has been paid to the fact that the commercialisation of technical progress through innovations also depends on the ability to assimilate a range of other sources of innovations, related less to the sciences and technologies and more to characteristics of the market and broader environment in which firms innovate. This paper focuses on the sectoral diversity in such sources, and on the ways in which they are assimilated and turned into commercialised innovations. The paper contributes to the extant literature by drawing on a unique survey data on Finnish innovations. The results both confirm and also challenge, and further elaborate on certain ‘stylised facts’ on the relationships between technological opportunities and the sources of innovation across sectors.     

Estimation of a German money demand system – a long-run analysis

This study presents a multivariate analysis of the stability of long-run relationships between variables that influence the conduct and transmission process of the German monetary policy. The initial VAR comprises the variables real money M3, real GNP, the inflation rate, a long-term and a weighted short-term interest rate. A multivariate approach has been chosen, as this allows for more than one cointegration relationship and to test restrictions on the cointegration space. In contrast to most other studies on German monetary policy, three stable and economically plausible cointegration relationships are obtained simultaneously within the framework of the Johansen procedure: a money demand relationship, a long-run Fisher effect and a long-run relationship between the short- and the long-term interest rate. It is apparent that the structural break of German reunification can be modelled incorporating dummy variables in the model. First version received: October 1996/final version received: July 1997     

Are real exchange rates nonlinear with a unit root? Evidence on PPP for Italy: a note

In this article, we apply the recently developed threshold autoregression model to examine both linearity and stationarity of Italy's real exchange rate vis-à-vis her six trading partner (G6) countries. Our main finding is that Italy's real exchange rate is a nonlinear process that is not characterized by a unit root process for five of six trading partner countries. This provides strong support for purchasing power parity.     

A note on model selection in (time series) regression models – general-to-specific or specific-to-general?

This article provides Monte Carlo evidence on the performance of general-to-specific and specific-to-general selection of explanatory variables in linear (auto)regressions. In small samples the former is markedly inefficient in terms of ex-ante forecasting performance.     

Pay-what-you-want in groups – evidence from a field experiment

Pay-what-you-want (PWYW) mechanisms are a specific form of voluntary market payment. While a large number of recent studies have considered their design options, the aspect of group behaviour in PWYW situations has not been investigated, although a substantial part of payment decisions occur in group constellations. We provide initial evidence by running a field experiment implementing a PWYW mechanism in a cinema characterized by group attendance, finding that groups chose to pay similar amounts as individuals. Group payments can be increased by a prosocial framing of the decision, while an increase in group size and repeated participation reduce voluntary payments. We thus show that group payment decisions in PWYW situations are characterized by altruism concerns rather than in-group egoism.     

The future of food production – a text-mining approach

ABSTRACT

The system of food production is facing grand challenges, such as a rising population, climate change, degrading bio-productivity of agricultural land and over-fishing. Agriculture and food production are becoming more innovative and implement new infrastructure, IT-platforms or biotechnologies, like gene editing or synthetic food production. A more advanced knowledge base about food innovations helps customers to build informed opinions of new technologies and provides policy makers and industry actors with better information for strategic decision-making. As the amount of available information exceeds expert knowledge or manual filtering of data outputs, this paper presents a text mining study on science and technology in food production based on more than 30 million documents. The proposed methodology which we demonstrate on the example of the future of food production can be applied each time new data becomes available and can serve as an early warning system for a changing technology landscape.     

Fiscal policy simulations – a comparison of UK models

The problem of endowing large applied general equilibrium models with numerical values for parameters is formidable. For example, a complete set of own- and cross-price elasticities of demands for the MONASH model of the Australianeconomy involves in excess of 50000 items. Invoking the minimal assumptions that demand is generated by utility maximization reduces the load to about 26000 - obviously still a number much too large for unrestrained econometric estimation. To obtain demand systems estimates for a dozen or so generic commodities at a top level of aggregation (categories like ‘food’, ‘clothing and footwear’, etc.), typically Johansen's lead has been followed, and directly additive preferences imposed upon the underlying utility function. With the move beyond one-step linearized solutions of applied general equilibrium models, the functional form of the demand system adopted becomes an issue. The most celebrated of the additive-preference demand systems, the linear expenditure system (LES), has one drawback for empirical work; namely, the constancy of marginal budget shares (MBSs) - a liability shared with the Rotterdam system. To get around this, Theil and Clements used Holbrook Working's Engel specification in conjunction with additive preferences; unfortunately both Working's formulation and Deaton and Muellbauer's AIDS have the problem that, under large changes in real incomes, budget shares can stray outside the [0, 1] interval. It was such behaviour that led Cooper and McLaren to devise systems with better regularity properties. These systems, however, are not globally compatible with any additive preference system. In this paper we specify, and estimate, at the six-commodity level, an implicitly directly additive-preference demand system which allows MBSs to vary as a function of total real expenditure and which is globally regular throughout that part of the the price-expenditure space in which the consumer is at least affluent enough to meet subsistence requirements.     

A comment on ‘the small country assumption: a note on Canadian export’

Some simple statistical tests of efficiency are applied to limited diversification portfolios that are optimal in terms of minimizing risk measured by variances. These tests are intended to detect in some sense robustness, near-singularity and improvement of a portfolio by revision. The illustrative application considers eleven securities selected randomly from Moody's Handbook over the years 1970–81     

Positional goods and social welfare: a note on George Pendleton Watkins’ neglected contribution

Watkins's analysis of adventitious utility contains many aspects that are connected to the contemporary debate on positional goods. First, Watkins adventitious utility emerges from a process of social exclusion and can create negative externalities, in the sense that positive consumption of one individual implies negative consumption by another individual. Not only it creates negative externalities on other individuals, but it can initiate a race-to-the-bottom, where individuals waste an increasing amount of money on goods which do not possess any real utility.     

Host-country policy – commitment or no-commitment: a theoretical analysis

This paper develops a model of foreign entry strategy and examines welfare of the host-country under two situations - (i) where host-country government commits to the tax policy, (ii) where host-country government does not commit to the tax policy. It turns out that under the non-committed government policy the foreign firm does not prefer to hold equity share in the domestic project. The host-country welfare, however, is more under the committed government policy than the non-committed government policy when the foreign firm has sufficiently higher bargaining power. The possibility of technology choice by the foreign firm reduces the range of bargaining power of the foreign firm over which the host-country welfare is more under the committed policy compared to the non-committed policy.