Do School Principals Respond to Increased Public Scrutiny? New Survey Evidence from Australia

We explore responses of Australian school principals to the introduction of test score reporting via the My School website in 2010. Theory suggests that heightened public scrutiny should motivate principals to adopt best practices for improving their schools' test results. We use responses from both public and private schools to a custom‐built questionnaire administered to principals before (2009) and after (2012) the My School website launch. We find scarce evidence of meaningful adjustments over time, but we do find evidence of significantly different policies and practices across school groups.     

Does exchange rate pegging enhance credibility? Evidence from the European Monetary System

The European Monetary System (EMS) has been credited with immediately enhancing the credibility of onetary policy among its member countries. However, there is little empirical evidence to support this view. This study provides evidence from exchange rate data that political actions taken to support the EMS enhanced rate arangement. Further, empirical results were sensitive to the specification of the estimating equations, and varied dramatically if risk premia (discounts) were absent from estimating equations.     

Does decentralization contribute to efficiency? Evidence from OECD countries

This article provides evidence on the relationship between fiscal decentralization and technical efficiency. We begin the first stage of this study with a data envelopment analysis to obtain technical efficiency estimates for a sample of 23 OECD countries over the period 1992–2009. In a second stage, we explore the effects of fiscal decentralization and other control variables on technical efficiency. The results including all the control variables reveal a statistically significant negative relationship between fiscal decentralization of public expenditure and technical efficiency.     

Does Foreign Environmental Policy Influence Domestic Innovation? Evidence from the Wind Industry

This paper analyses the relative influence of domestic and foreign demand-pull policies in wind power across OECD countries on the rate of innovation in this technology. We use annual wind power generation to capture the stringency of the portfolio of demand-pull policies in place (e.g., guaranteed tariffs, investment and production tax credits), and patent data as an indicator of innovation activity. We find that wind technology improvements respond positively to policies both home and abroad, but the marginal effect of domestic policies is 12 times greater. The influence of foreign polices is reduced by barriers to technology diffusion, in particular lax intellectual property rights. Reducing such barriers therefore constitutes a powerful policy leverage for boosting environmental innovation globally.     

Does money have a role in the inflation process? Evidence from Australia

Inflation, defined as a sustained increase in the price level, is considered a monetary phenomenon, as it can be explained within the framework of money‐demand and money‐supply relationships. In the extant literature, money growth is shown to remain causally related to inflation across countries and over time, irrespective of the exchange rate regime and stability of the money‐demand function. Nevertheless, emerging literature suggests a diminishing role of money in the conduct of monetary policy for price stability, especially under inflation targeting. Monetary policy in Australia under inflation targeting since 1993 is an example of policy that denies a relationship between money growth and inflation. The proposition that money does not matter insofar as inflation is concerned seems odd in both theory and the best‐practice monetary policy for price stability. This paper uses annual data for the period 1970–2017 and quarterly data for the period 1970Q1–2015Q1. It deploys both the Johansen cointegration approach and the autoregressive distributed lag (ARDL) cointegration approach to investigate for Australia whether money, real output, prices and the exchange rate (non‐stationary variables) maintain the long‐run price‐level relationship that the classical monetary theory suggests in the presence of such stationary variables as the domestic and foreign interest rates. As expected, the empirical findings for Australia are consistent with the classical long‐run price‐level relationship between money, real output, prices and the exchange rate. The error‐correction model of inflation confirms the presence of a cointegral relationship among these variables; it also provides strong evidence of a short‐run causal relationship between money supply growth and inflation. On the basis of a priori theoretical predictions and empirical findings, the paper draws the conclusion that the monetary aggregate and its growth rate matter insofar as inflation is concerned, irrespective of the strategy of monetary policy for price stability.     

Does oligopolistic banking friction amplify small open economy's business cycles? Evidence from Australia

This paper studies financial friction arising from oligopolistic bank competition and its impacts on a small open economy's business cycles by applying imperfect competition and endogenous firm entry theory. Using Australian data, the estimated model implies a countercyclical mark up in lending rate that varies inversely with number of banks. Such bank sector has a distinct shock propagation mechanism that often amplifies business cycles, depending on the type of shock. Balance sheet effects appear different compared to competitive banks, due to strategic bank behaviour. Unlike previous estimated small open economy general equilibrium studies, the model can capture substantial international transmissions.     

The Euro Area,a Stressful Monetary Union? Learning from Newspapers’ Monetary Policy Coverage

Through a textual analysis of national newspaper articles covering European central bankers’ statements and policy decisions from 1999 to 2011, I derive the concerns expressed by national media in the Economic and Monetary Union (EMU). I consider these concerns as a benchmark for national preferences, and thus for the preferences of national central bankers in the EMU. I also test the existence of groups of national media (i.e., national publics) according to their shared expressed concerns. The results show that in the euro zone, similar concerns are shared by different country groups, corresponding to a group of countries from Northern Europe (Belgium, Finland, and the Netherlands), Southern Europe (Spain and Portugal), and the Periphery (Italy, Greece, and Ireland), but that there are two isolated countries (France and Germany), whose newspapers do not share the issues raised by the rest of the European newspapers. This approach provides further insights into the potential heterogeneity of the European central bankers inside the Governing Council of the ECB in terms of policy preferences.     

What Monetary Policy after the Crisis?

The objective of this paper is to reflect on some of the implications that recent economic experience has for monetary and financial stability policies. We contend that the financial crisis and the upsurge in inflation 2007–08 have shown that the policy model based on the new consensus in macroeconomics, which largely held sway over the past decade or more, is broken. It is argued that inflation targeting cannot deliver low inflation. We argue that fine-tuning through interest rates should not be attempted, but rather a constant real interest rate target based on the output growth rate should be adopted. The key objective of monetary policy should be shifted to financial stability, the independence of central banks should be brought to an end, and their decision making should be coordinated with other macroeconomic policy initiatives.     

Does offshoring contribute to reducing domestic air emissions? Evidence from Belgian manufacturing

Since the mid-90s, production-related air emissions in Belgian manufacturing have fallen substantially and it can be shown that the pace of the fall has been fastest for domestic intermediates. It is widely debated whether offshoring has played a role in this fall by replacing domestic intermediates by imported intermediates. This paper develops a decomposition analysis to measure the contribution of offshoring – the share of imported intermediates in total intermediates – to the fall in air emissions for domestic intermediates. Based on the results from this decomposition analysis, it was possible to calculate that 17% of the fall in greenhouse gas emissions, 6% of the fall in acidifying emissions and 7% of the fall in tropospheric precursor emissions in Belgian manufacturing between 1995 and 2007 can be attributed to offshoring.     

Does corruption hinder investment? Evidence from Russian regions

This paper investigates the relationship between corruption and fixed capital investment in the setting of a corrupt country. Using different measures of corruption – registered cases of bribe taking and incidents of experienced corruption by the population – we find a negative relationship between investment and corruption. We then address the problem of endogeneity of corruption using an instrumental variables approach: when corruption is instrumented with freedom of the press and violations of journalists' rights, we find an even bigger negative effect. Disaggregating investment by ownership-type shows that only private investment is affected by corruption, but not investment made by state-owned companies. The negative effect is larger for companies with full or partial foreign ownership. Additionally, we look at the relationship between corruption and foreign direct investment (FDI): similar to the investment in fixed capital, we find a negative relationship; however, its statistical significance varies across specifications with different data sources for FDI and different corruption measures.     

Does urbanization reduce rural poverty? Evidence from Vietnam

This paper uses data from household surveys to contribute to the urbanization-poverty nexus literature by assessing the effect of urbanization on income, expenditure, and poverty in rural households in Vietnam. We find that the urbanization process stimulates the transition from farm to non-farm activities in rural areas. More specifically, urbanization tends to reduce farm income and increase wages and non-farm income in rural households. This suggests that total income and consumption expenditure of rural households are more likely to increase with urbanization. Finally, we find also that urbanization helps decrease the expenditure poverty rate of rural households, albeit by a small magnitude.     

Analyzing the Interaction of Monetary and Fiscal Policy: Does Fiscal Policy Play a Valuable Role in Stabilisation?

This paper provides an overview of recent papers which use estimatedNew Keynesian models to study the extent to which fiscal policycan be used to stabilize the economy. We use a variety of differentNew Keynesian models, estimated on data for both the US andfor the Euro area, and highlight the diverse transmission channelsthrough which fiscal policy acts in these models. Although wefind that fiscal policy can provide a useful complement to monetarypolicy, especially in models where consumers have finite horizons,there are important limitations to the value added of fiscalpolicy. (JEL E58, E62, E63)     

Does increased credibility of elections lead to higher political competition? Evidence from India

A large amount of administrative effort is directed towards making elections credible and reducing electoral fraud in large democracies. However, it is not clear if such policy efforts have a feedback effect on political competition. In this paper, we exploit plausibly exogenous variation in perceptions of electoral credibility following the introduction of a technology-induced voting reform in India and find significant impacts on political competition. Electronic voting machines in India were mandated to include an additional layer of transparency by the introduction of a Voter-Verified Paper Audit Trail (VVPAT). We find that with the introduction of VVPAT, the winning margins and vote share of winners decline whereas the number of candidates in the average race increases. The results are robust to econometric concerns arising out of staggered implementation of the program providing support to our identification design. Our results also point to heterogeneous effects of the VVPAT roll-out in constituencies that received it only once relative to those that got the VVPAT in two successive elections. Interestingly, we note that much of the welfare improvement through increased political competition is reversed with more experience, suggesting the presence of important learning effects.     

Does connectedness improve SMEs’ access to formal finance? Evidence from post-communist economies

Evidence suggests that a disproportionately greater share of formal finance is channelled to large enterprises in emerging economies, limiting the flow of appropriately-financed small and medium enterprises (SMEs). Market and information imperfections are conventionally seen as major causes of this misallocation. However, the role of political factors in affecting the distribution of formal finance has become more widely acknowledged in recent times. Our analyses of SMEs in post-communist economies also show that measures of political connectedness improve the chances of receiving bank credit and that the benefits of these links are stronger for well-established and larger SMEs.     

Does greater central bank independence really lead to lower inflation? Evidence from panel data

It has long been held that central bank independence (CBI) from political control is a necessary requirement to curb inflation. In recent times, however, this long held belief has been challenged. Using a recently compiled panel data set on central bank independence measures, the proposition that greater CBI leads to lower inflation is tested, using latent variable analysis. The use of this alternative econometric technique, along with two additional indicators that capture more appropriately the degree of de facto independence, leads to empirical results that are highly supportive of the negative relationship between CBI and inflation, thereby restoring faith in the conventionally held wisdom, that greater CBI is needed to lower inflation.     

Does bank shareholding impact corporate innovation? Evidence from China

Corporate innovation is an engine of economic development, while bank shareholding is the phenomenon of having a bank as a shareholder. Their relationship, however, has been underexamined. We provide the first study on the direct impact of bank shareholding on corporate innovation. Using patents granted to Chinese firms from 1999 to 2013, our findings suggest that bank shareholding significantly contributes to corporate innovation. Additional analysis suggests that easing financial constraints can facilitate the positive impacts of bank shareholding on corporate innovation. We also find that bank shareholding works better when firms have effective external monitoring and when they are nonstate-owned firms with nonstate-owned banks as shareholders. We contribute to the literature by showing that (1) despite the restrictions some countries impose on bank shareholding, allowing it could be a good economic policy for promoting corporate innovation, and (2) successful corporate innovation requires proper monitoring and incentives.     

How do mega-bank merger policy and regulations contribute to financial stability? Evidence from Australia and Canada

Although the role of financial regulatory failures in the global financial crisis (GFC) has been explored extensively in the post-GFC literature, our knowledge of the role of bank merger and takeover policy and regulation in reinforcing financial stability is limited. Based on an exploratory case study of Australia, which is examined in comparison to Canada, this article argues that competition policy and regulation contributed to financial stability by insulating the largest Australian and Canadian banks from domestic or foreign hostile takeover threats, and by limiting their asset size, and thus their internationalization and interconnections with the global banking community.     

Does unconventional monetary policy affect inequality? Evidence from Japan

Inequality has been largely ignored in the literature and practice of monetary policy, but is gaining more attention recently. Here, we exclusively focus on the impact of unconventional monetary policy (UMP) on inequality. We look at how the recent UMP in Japan affected inequality, using household survey data. Our vector auto regression (VAR) results show that UMP widened income inequality after 2008Q3 as the Bank of Japan (BoJ) resumed its zero-interest rate policy and reinstated UMP. This is largely due to the portfolio channel. To the best of our knowledge, this is the first study to empirically analyse the distributional impact of UMP. Japan’s extensive experience with UMP may hold important policy implications for other countries.     

Does consumption buy happiness? Evidence from the United States

We examine the association between various components of consumption expenditure and happiness in the Health and Retirement Study (HRS), a nationally representative sample of older Americans. We find that only one component of consumption is positively related to happiness—leisure consumption. In contrast, consumption of durables, charity, personal care, food, health care, vehicles, and housing are not significantly associated with happiness. Second, we find that leisure consumption is associated with higher levels of happiness partially through its effect on social connectedness, as indexed by measures of loneliness and embeddedness in social networks. On one hand, these results counter the conventional wisdom that “material goods can’t buy happiness.” One the other hand, they underscore the importance of social goods and social connectedness in the production of happiness.