Does the trust game measure trust?

Could altruism explain observed choices in the standard trust game? With dominant altruism, trustors would give more to poor trustees. However, we find trustors to give no more to poor than to rich trustees, confirming trust as the dominant motivation for “trust like” choices.     

Does trust promote growth?

We examine the effect of generalized trust on long-term economic growth. Unlike in previous studies, we use Bayesian model averaging to deal rigorously with model uncertainty and attendant omitted variable bias. In addition, we address endogeneity and assess whether the effect of trust on growth is causal. Examining more than forty regressors for nearly fifty countries, we show that trust exerts a positive effect on long-term growth and, based on the posterior inclusion probabilities, suggest that trust is an important driver of long-term growth. Our results also show that trust is key for growth in countries with a weak rule of law.     

Could a higher inflation target enhance macroeconomic stability?

Recent international experience with the effective lower bound on nominal interest rates has rekindled interest in the benefits of inflation targets above 2%. We evaluate whether an increase in the inflation target to 3% or 4% could improve macroeconomic stability in the Canadian economy. We find that the magnitude of the benefits hinges critically on two elements: (i) the availability and effectiveness of unconventional monetary policy (UMP) tools at the effective lower bound and (ii) the level of the real neutral interest rate. In particular, we show that when the real neutral rate is in line with the central tendency of estimates, raising the inflation target yields some improvement in macroeconomic outcomes. There are only modest gains if effective UMP tools are available. In contrast, with a deeply negative real neutral rate, a higher inflation target substantially improves macroeconomic stability regardless of UMP.     

Does financial intermediation matter for macroeconomic performance?

This paper investigates whether financial intermediary development influences macroeconomic technical efficiency on a sample of 47 countries, both developed and developing, over 1980–1995. We do so by applying Battese and Coelli (1995)'s method at the aggregate level. It is found that financial intermediary development, except financial depth, is on average associated with more efficiency. However we find strong evidence that this relationship is conditional on the level of economic development. The lower the economic development the weaker is the impact of financial development on efficiency. That impact can even become negative in the poorest countries.     

Does tourism predict macroeconomic performance in Pacific Island countries?

In this paper, we examine whether tourism predicts macroeconomic variables in Pacific Island countries (PICs), namely, Fiji, the Solomon Islands, PNG, Vanuatu, Samoa, and Tonga. We form seven panels of PICs — one full panel of six countries and six panels where, one-by-one, each country is excluded from the panel. We apply the Westerlund and Narayan (2012a) panel regression framework, where the null hypothesis is that visitor arrivals do not predict macroeconomic variables, which we proxy with 11 indicators, for panels of countries. We find that visitor arrivals consistently predict exports and money supply, and to a lesser extent, exchange rates and GDP.     

Does trust extend beyond the village? Experimental trust and social distance in Cameroon

In this paper we use experimental data from rural Cameroon to quantify the effect of social distance on trust and altruism. Our measure of social distance is relevant to everyday economic interactions: subjects in a Trust Game play with fellow villagers or with someone from a different village. We find that significantly more money is sent when the players are from the same village. Other factors that influence transfers at least as much as the same-village effect are gender, education and membership of rotating credit groups. To test whether Senders are motivated by altruism, they also play a Triple Dictator Game. Senders transfer significantly more money on average in the Trust Game than in the Triple Dictator Game. However, there is also a social distance effect in the Triple Dictator Game. Results from a Risk Game suggest that Trust Game transfers are uncorrelated with attitudes to risk.     

Does competition foster trust? The role of tournament incentives

Members of organizations are often called upon to trust others and to reciprocate trust while at the same time competing for bonuses or promotions. We suggest that competition affects trust not only within dyads including direct competitors, but also between individuals who do not compete against each other. We test this idea in a trust game where trustors and trustees are rewarded based either on their absolute performance or on how well they do relative to players from other dyads. In Experiment 1, we show that competition among trustors significantly increases trust. Competition among trustees decreases trustworthiness, but trustors do not anticipate this effect. In Experiment 2, we additionally show that the increase in trust under competition is caused by a combination of increased risk taking and lower sensitivity to non-financial concerns specific to trust interactions. Our results suggest that tournament incentives might have a “blinding effect” on considerations such as betrayal and inequality aversion.     

What is macroeconomic causality?

The paper aims to develop an adequate account of macroeconomic causality. It discusses the definition that is central to Woodward’s interventionist account and the definitions that can be extracted from Hoover’s remarks on privileged parameterization and from the potential outcome approach that Angrist and Kuersteiner have introduced into macroeconomics more recently. The definition to be defended can be regarded as the gist that is common to all three definitions when they are relieved of overly restrictive conditions. It says (roughly) that X causes Y if and only if there is a possible intervention on X that changes Y, where X and Y stand for macroeconomic aggregates, where an intervention is understood as a manipulation of an intervention variable I that satisfies conditions requiring that I be a cause of X, and that there be no confounders of X and Y, and where an intervention variable is either a variable or a parameter.     

China's macroeconomic stability – an empirical study based on survey data

A complete financial stability analysis should include investigation on macroeconomic stability since macroeconomic development and potential imbalance can increase the financial instability and trigger a financial crisis. Survey data of rating on China's macroeconomic stability is analyzed by estimating an ordered logit model with random effect. Among the candidate macroeconomic indicators, we found that inflation is the key variable that determines China's macroeconomic stability, followed by the change in budget balance and GDP growth gap.     

Does market participation promote generalized trust? Experimental evidence from Southern Africa

Does market participation promote generalized morality and trust, as postulated by some recent theories? We use experimental data from Zimbabwe and Mozambique to probe into one specific component of this question, and find evidence to the contrary. The short-term effect of market integration appears to be to lower generalized trust. However, this finding is not robust across all countries.     

The not so dark side of trust: Does trust increase the size of the shadow economy?

This paper reports a negative relationship between the size of the shadow economy and generalized trust, in a sample of countries, both developed and developing. That relationship is robust to controlling for a large set of economic, policy, and institutional variables, to changing the estimate of the shadow economy and the estimation period, and to controlling for endogeneity. It is independent from trust in institutions and from income inequality, and is mainly present in the sample of developing countries. Those findings suggest that the tax compliance effect of trust dominates its role as a substitute for the formal legal system.     

Protection and skills: Does trade policy favor low‐skill workers?

Many believe that international trade barriers in rich nations help low‐skill workers. Also, the empirical endogenous protection literature strongly implies that protection decreases with skill levels. This paper presents evidence against this conventional wisdom. Regressions based on a political economy model with search frictions and unemployment imply that protection and skill levels actually have a mound‐shaped relationship: industries with skills in the middle range get more protection than industries at either end of the distribution. Apparently, the politics of trade policy trump social concerns, rendering protection less “progressive” than is commonly believed.     

Does the monetary policy committee still care about inflation? Some evidence from a small macroeconomic model

This article derives an optimal Taylor rule for the UK economy using a simple estimated model based on data prior to the financial crisis of 2008. Optimal policy rules are calculated using simulation of the model over a long time period coupled with a search for optimal Taylor rule parameters using the Newton-Raphson loss minimization algorithm. The weights in the pre-crisis loss function are then inferred from the Taylor rule parameters estimated from the period corresponding to Bank of England independence, i.e. 1997–2008. These estimates are consistent with a low weight on inflation relative to output stabilization even before the crisis. The model is therefore consistent with the hypothesis that there has been no change in Bank of England preferences and that the Bank has responded to the crisis in a way which would have been predicted on the basis of its pre-crisis behaviour.     

“Austerian” economics: Does the Vienna school favor fiscal deficit reduction even in a subpar economy?

Does the economic analysis associated with the modern Austrian school favor a policy of restraining the government’s fiscal deficit even in a subpar economy, as suggested by those who (pejoratively) label such a policy “austerian”? Because resources are not superabundant even in a subpar economy, the answer is yes, unless (implausibly) the return on the last (lowest-payoff) dollar of government expenditure exceeds the return on private investment.     

What output-capital ratio to adopt for macroeconomic calibrations?

Regarding the output-capital ratio in heterodox macroeconomic simulation studies, a surprisingly wide range of numerical values can be found. The paper discusses quarterly US data that are publicly available where, in order to capture depreciation, the construction of the capital stock by the perpetual inventory method relies on detailed estimates of its lifetime. Subsequently the paper builds up a capital stock series by alternatively having recourse to the statistics about capital consumption and furthermore determining an initial level by an assumption about the long-term growth of capital. This procedure leads to somewhat different results. In addition, the rates of depreciation and profit are studied that are implied by the two approaches. The paper closes with two numerical proposals for the steady state values of these variables and the output-capital ratio that could be readily employed for macrodynamic modelling, and that are quite different from many of the aforementioned examples.     

The effects of macroeconomic stability on foreign trade. An analysis for Spain, 1986–2000

Two main factors underlie the rebirth of interest in the study of the influence of the real exchange rate on trade, the reduction of its volatility and the current trend towards price stability. The objective of this study is to analyse the effects of the process of nominal convergence, required of the European member states for the fulfilment of monetary integration, on foreign trade flows. The case of Spain, which is especially interesting in this context, is studied for the period 1986 to 2000. The results of estimating the aggregate functions of the export and import of goods shows how macroeconomic stability has altered the behaviour of trade with respect to the two basic determinants – income and prices – how it has caused a significant structural change in the real exchange rate and, finally, how it has laid the explanatory bases for transactions in the twenty-first century with the single currency – the euro.