Explaining the Delayed Effect of Monetary Policy: The Role of Inventories and Factor-hoarding

This paper proposes a new model accounting for the delayed effect of monetary policy shocks on output. The key feature of the model is to distinguish a variety of margins (i.e., inventory adjustments, hours per worker, efforts and employments) on which firms adjust output in response to macroeconomic shock. When these multiple margins are properly introduced to an otherwise standard modern monetary business cycles model, the interplay between inventory adjustments and the one-period lag in adjusting employment can produce the hump-shaped response of output to monetary shock. Given the weak evidence on habit formation at household level found in Dynan (2000) Dynan, K. (2000). Habit formation in consumer preferences: evidence from panel data. American Economic Review, 90 (3), 391–406. doi: 10.1257/aer.90.3.391[Crossref], [Web of Science ®] , [Google Scholar] and Flavin and Nakagawa (2008) Flavin, M., &; Nakagawa, S. (2008). A model of housing in the presence of adjustment costs: a structural interpretation of habit persistence. American Economic Review, 98, 474–495. doi: 10.1257/aer.98.1.474[Crossref], [Web of Science ®] , [Google Scholar], therefore, this paper provides an alternative explanation for the delayed effect of monetary policy without relying on the habit formation.     

Salaried employment and earnings in Indonesia: new evidence on the selection bias

This article uses household survey data to estimate the determinants of earnings in Indonesia, a country where nonsalaried work is widespread and earnings data are available for salaried employees only. We deal with the selection bias by estimating a Full-Information Maximum Likelihood (FIML) system of equations, where selection into the labour market is modelled in a multinomial setting. We find that some estimated parameters of the earnings equation differ from a binomial selection procedure by Heckman (1979 Heckman, J. 1979. Sample selection bias as a specification error. Econometrica, 47: 153–61. [Crossref], [Web of Science ®] , [Google Scholar]), in particular for those variables with the strongest impact on the selection into the different labour-market statuses. However, the estimated returns to education are unaffected, even when we deal with the endogeneity of educational attainment following Duflo (2001 Duflo, E. 2001. Schooling and labour market consequences of school construction in Indonesia: evidence from an unusual policy experiment. American Economic Review, 91: 795–813. [Crossref], [Web of Science ®] , [Google Scholar]). Overall, our findings show that the choice of the selection rule affects the estimates of the earnings determinants in the Indonesian labour market.     

Within-groups wage inequality and schooling: further evidence for Portugal

This article provides further evidence on the positive impact of schooling on within-groups wage dispersion in Portugal, using data on male workers from the 2001 wave of the European Community Household Panel. The issue of schooling endogeneity is taken into account by using the latest available instrumental-variable technique for quantile regression, i.e. the control-function estimator due to Lee (2007 Lee, S. 2007. Endogeneity in quantile regresssion models: a control function approach. Journal of Econometrics, 141: 1131–58. [Crossref], [Web of Science ®] , [Google Scholar]). The findings are compared with earlier results based on different techniques, i.e. the instrumental-variable estimator due to Arias et al. (2001 Arias, O, Hallock, KF and Sosa-Escudero, W. 2001. Individual heterogeneity in the returns to schooling: instrumental variables quantile regression using twins data. Empirical Economics, 26: 7–40. [Crossref] , [Google Scholar]) and the standard exogeneity-based estimator due to Koenker and Bassett (1978 Koenker, R and Bassett, G. 1978. Regression quantiles. Econometrica, 46: 33–50. [Crossref], [Web of Science ®] , [Google Scholar]).     

Economic class and the distribution of income: a time-series analysis of the UK economy, 1955–2010

This paper contributes to our understanding of the determinants and dynamics of surplus-value using quarterly UK data, 1955–2010, and the Johansen (1988 Johansen, S. 1988. Statistical analysis of cointegrated vectors. Journal of Economic Dynamic and Control, 12: 231–54. [Crossref], [Web of Science ®] , [Google Scholar], 1991 Johansen, S. 1991. Estimation and hypothesis of cointegration vectors in Gaussian vector autoregressive models. Econometrica, 59: 1551–80. [Crossref], [Web of Science ®] , [Google Scholar]) cointegration and vector error correction model (VECM). A model is introduced to define this Marxian concept, before we explain distribution, paying attention to three forces that are traditionally seen as drivers of power in this struggle: (i) working class militancy; (ii) the size of the ‘reserve army’ of the unemployed; and (iii) political party. Our results demonstrate the ongoing relevance of Marxian economics in providing an alternative, robust and significant explanation of distribution in the post-war UK economy.     

Linear and nonlinear Granger-causality between short-term and long-term interest rates during business cycles

This paper is about the causal relationship between short-term and long-term interest rates in the US and Canada. To that end, we apply a linear Granger causality test introduced by Toda and Yamamoto (1995 Toda, H. Y., and T. Yamamoto. 1995. “Statistical Inference in Vector Autoregressions with Possibly Integrated Processes.” Journal of Econometrics 66 (1–2): 225–250. doi:10.1016/0304-4076(94)01616-8.[Crossref], [Web of Science ®] , [Google Scholar]) and the nonlinear Granger causality test of Diks and Panchenko (2006 Diks, C., and V. Panchenko. 2006. “A New Statistic and Practical Guidelines for Nonparametric Granger Causality Testing.” Journal of Economic Dynamics and Control 30 (9–10): 1647–1669. doi:10.1016/j.jedc.2005.08.008.[Crossref], [Web of Science ®] , [Google Scholar]). By combining linear causality effects with the nonlinear ones, it is seen that the most common Granger causality direction between short-term and long-term interest rates is a bidirectional one. We also find that nonlinear Granger causality can be found where no linear causality had been uncovered. Moreover, our findings show that during recent business cycles, the federal funds rate (in the US) and the overnight rate (in Canada) still Granger-cause long-term interest rates significantly.     

Comparisons of robust tests for shifts in trend with an application to trend deviations of real exchange rates in the long run

We study the finite sample properties of tests for structural changes in the trend function of a time series that do not require knowledge of the degree of persistence in the noise component. The tests of interest are the quasi-Feasible Generalized Least Squares (FGLS) procedure by Perron and Yabu (2009b Perron, P and Yabu, T. 2009b. Testing for shifts in trend with an integrated or stationary noise component. Journal of Business and Economic Statistics, 27: 369–96. [Taylor &; Francis Online], [Web of Science ®] , [Google Scholar]) and the weighted average of the regression t-statistics by Harvey et al. (2009 Harvey, DI, Leybourne, SJ and Taylor, AMR. 2009. Simple, robust, and powerful tests of the breaking trend hypothesis. Econometric Theory, 25: 995–1029. [Crossref], [Web of Science ®] , [Google Scholar]), both of which have the same limit distribution whether the noise component is stationary or has a unit-root. We analyse the finite sample size and power properties of these tests under a variety of Data-Generating Processes (DGPs). The results show that the Perron–Yabu test has greater power overall. With respect to the size, the Harvey–Leybourne–Taylor test exhibits larger size distortions unless a moving-average component is present. Using the Perron and Yabu procedure to test for structural changes in the trend function of long-run real exchange rates with respect to the US dollar indicates that for 17 out of 19 countries, the series have experienced a shift in trend since the late nineteenth century.     

Further investigation of the uncertain trend in US GDP

The presence of deterministic or stochastic trend in US GDP has been a continuing debate in the literature of macroeconomics. Ben-David and Papell (1995 Ben-David, D and Papell, DH. 1995. The great wars, the great crash, and steady growth: some new evidence about an old stylized. Journal of Monetary Economics, 36: 453–75. [Crossref], [Web of Science ®] , [Google Scholar]) found evidence in favour of trend stationarity using the secular sample of Maddison (1991 Maddison, A. 1991. Dynamics Forces in Capitalist Development: A Long-Run Comparative View, Oxford: Oxford University Press.  [Google Scholar]). More recently, Murray and Nelson (2000 Murray, CJ and Nelson, CR. 2000. The uncertain trend in U.S. GDP. Journal of Monetary Economics, 46: 79–95. [Crossref], [Web of Science ®] , [Google Scholar]) correctly criticized this finding arguing that the Maddision data are plagued with additive outliers (AO), which bias inference towards stationarity. Hence, they propose to set the secular sample aside and conduct inference using a more homogeneous but shorter time-span post-WWII sample. In this article we re-visit the Maddison data by employing a test that is robust against AO's. Our results suggest the US GDP can be modelled as trend stationary process     

The Interest Rate Brake on Maturity Transformation

Must banks match asset and liability maturities, as William Barnett and Walter E. Block (2009 Barnett, William and Walter E. Block. “Time Deposits, Dimensions and Fraud.” Journal of Business Ethics 88, 4 (2009): 711–716.[Crossref], [Web of Science ®] , [Google Scholar], 2011 Barnett, William and Walter E. Block. “Rejoinder to Bagus and Howden on Borrowing Short and Lending Long.” Journal of Business Ethics 100, 2 (2011): 229–238.[Crossref], [Web of Science ®] , [Google Scholar]), as well as Ivan Jankovic (2011) Jankovic, Ivan. “Economic Calculation, Maturity Mismatching and the Credit Cycle.” New Perspectives on Political Economy 7, 1 (2011): 105–124. [Google Scholar], surmise? While we agree with these authors that issuances of fiduciary media breed financial instability, we disagree that maturity transformation represents such a case. Maturity transformation — otherwise known as borrowing short-term and lending long-term — guided by several base legal principles, does not result in the issuance of fiduciary media. Most notable among these principles is that any credit issued must be funded by borrowing of a positive duration, i.e., not via a demand deposit. We demonstrate that two factors instigate larger degrees of maturity transformation than would otherwise be the case, breeding potential instability: a continual increase in the credit supply and the provision of a lender of last resort. We also show that the interest rate is a natural stabilizing brake on the over-issuance of longer-dated credit against short-term financing.     

Institutions and growth: evidence from estimation methods robust to weak instruments

This article focuses on the empirical approach proposed by Hall and Jones (1999 Hall, RE and Jones, CI(HJ99). 1999. Why do some countries produce so much more output per worker than others?. The Quarterly Journal of Economics, 114: 83–116. [Crossref], [Web of Science ®] , [Google Scholar]) to estimate the effect of what they call ‘social infrastructure’ on productivity across countries. We consider the issue of weak identification in their linear instrumental variables model. The evidence obtained from partially robust estimators, such as the k-class and jackknife estimators, is interpreted on the basis of Monte Carlo studies. Our findings suggest that using certain k-class estimators allows exclusive reliance on the linguistic variables to instrument for institutional quality despite their low correlation with the endogenous regressor in question.     

Insurance and rural welfare: what can panel data tell us?

Assessing the scope for insurance in rural communities usually requires a structural model of household behaviour under risk. One of the few empirical applications of such models is the study by Rosenzweig and Wolpin (1993 Rosenzweig, MR and Wolpin, K. 1993. Credit market constraints, consumption smoothing, and the accumulation of durable production assets in low-income countries: investment in bullocks in India. Journal of Political Economy, 101: 223–44. [Crossref], [Web of Science ®] , [Google Scholar]) who conclude that Indian farmers in the ICRISAT villages would not benefit from the introduction of formal weather insurance. In this article we investigate how models such as theirs can be estimated from panel data on production and assets. We show that if assets can take only a limited number of values the coefficients of the model cannot be estimated with reasonable precision. We also show that this can affect the conclusion that insurance would not be welfare improving.     

Return to tourist destination. Is it reputation,after all?

In this paper the hypothesis that repeated purchases in the tourism markets could be considered as a consequence of asymmetrical information problems is studied. This hypothesis is analysed with the case study of the island of Tenerife using the estimation of a count data model. It was found that the length of the stay and the information obtained from previous visits and/or relatives and friends might increase the return to a destination suggesting the presence of a reputation mechanism as proposed by Shapiro (1983 Shapiro, C. 1983. Premiums for high quality products as returns to reputations. Quaterly Journal of Economics, 98: 659–79. [Crossref], [Web of Science ®] , [Google Scholar]). The determinants of the willingness to return were also estimated, confirming the main results.     

Towards credibility from inflation targeting: the Brazilian experience

This article analyses the use of the basic interest rate after the adoption of inflation targeting in Brazil and the credibility of this monetary regime through two indices that consider the Cukierman and Meltzer (1986 Cukierman, A and Meltzer, AH. 1986. A theory of ambiguity, credibility and inflation under discretion and asymmetric information. Econometrica, 54: 1099–128. [Crossref], [Web of Science ®] , [Google Scholar]) definition for credibility. It also shows the main theoretical and practical motives for changes in the conduction of the monetary policy in the 1970s; the way that inflation targeting strategy is inserted in rules vs. discretion analysis; and the main points that characterize the literature concerning inflation targeting. The findings denote that the strategy implemented in Brazil is not a good mechanism to develop credibility.     

Estimating persistence in Canadian unemployment: evidence from a Bayesian ARFIMA

The degree of persistence in aggregate Canadian unemployment is estimated within a Bayesian ARFIMA class of models. The results conclude that unemployment exhibits persistence in the short and intermediate run. The evidence of persistence is stronger than previously reported by Koustas and Veloce (1996 Koustas, Z and Veloce, W. 1996. Unemployment hysteresis in Canada: an approach based on long-memory time series models. Applied Economics, 28: 823–31. [Taylor &; Francis Online], [Web of Science ®] , [Google Scholar]). This persistence cast a vital implication regarding disinflation policies, Based on the unemployment rate, these policies will prove very costly in terms of lost output and – if implemented – they considerably lengthen recessions.     

Export-led growth: are the results robust across methodologies and/or data sets? A case study of Latin America

We examine the export-led growth (ELG) hypothesis from a different perspective asking if the choice of data and/or methodology drives the results. We apply the Granger causality test modified by the corresponding error correction model using real export data from two common sources: the International Monetary Fund and the United Nations Commodity Trade Statistics. Additionally, to determine if the level of deflation could be a factor, we deflate the data at a disaggregated level and by a single export unit price index. Outcomes are compared to those obtained through the Granger causality procedure developed by Toda and Yamamoto (1995 Toda, H and Yamamoto, T. 1995. Statistical inference in vector autoregressions with possibly integrated process. Journal of Econometrics, 66: 225–50. [Crossref], [Web of Science ®] , [Google Scholar]) and Dolado and Lütkepohl (1996 Dolado, JJ and Lütkepohl, H. 1996. Making wald tests work for cointegrated VAR systems. Econometric Reviews, 15: 369–86. [Taylor &; Francis Online] , [Google Scholar]). We use sixteen Latin American countries to test our hypotheses. The analysis reveals inconsistencies in the results both by selection of data and methodology suggesting much of the debate regarding ELG, at least for Latin America, is fuelled by data and/or methodology choice, putting into question previous studies.     

The Kyoto Protocol,market power,and enforcement

The Kyoto Protocol aims to limit aggregate carbon emissions by participating countries to 1990 emissions levels in aggregate. It also allows for the creation of a permit market in which countries will be able to buy and sell the right to emit carbon dioxide. This paper investigates how market power, held by the countries of the former Soviet Union, and enforcement of the carbon emission limits might affect the abatement and the cost of compliance with the Kyoto Protocol. To do so, it uses a modified version of the van Egteren–Weber (1996 Van Egteren, H and Weber, M. 1996. Marketable permits, market power, and cheating. Journal of Environmental Economics and Management, 30: 161–74. [Crossref], [Web of Science ®] , [Google Scholar]) model to investigate a permit market in the presence of both market power and enforcement difficulties. It then simulates the model, finding that if meeting abatement targets is the goal, regulating the supply side of the market and convex fine schedules are the most effective tools.     

The persistence of Taiwan's output fluctuations: an empirical study using innovation regime-switching model

In this article we examine the persistence nature of Taiwan's aggregate output fluctuations by using the ‘innovation regime-switching’ (IRS) model in which the effect of an innovation may be permanent or transitory, depending on an unobservable state variable that follows a first order Markov chain. By applying the IRS model to Taiwan's real GDP data, we find that during the 1961 to 2000 period 61% (39%) of the real output shocks are likely to have permanent (transitory) effects. Moreover, the innovations in the officially identified expansion (contraction) are more likely to have a permanent (transitory) effect. These results are similar to those found in many studies of US real output fluctuations, e.g. Beaudry and Koop (1993 Beaudry, P and Koop, G. 1993. Do recessions permanently change output?. Journal of Monetary Economics, 31: 149–63. [Crossref], [Web of Science ®] , [Google Scholar]), Kim and Nelson (1999 Kim, C-J and Nelson, CR. 1999. Friedman's plucking model of business fluctuations: tests and estimates of permanent and transitory components. Journal of Money, Credit and Banking, 31: 317–34.  [Google Scholar]) and Kuan et al. (2005 Kuan, C-M, Huang, Y-L and Tsay, RS. 2005. An unobserved component model with switching permanent and transitory innovations. Journal of Business and Economic Statistics, 23: 443–54. [Taylor &; Francis Online], [Web of Science ®] , [Google Scholar]). However, we also find that Taiwan's output dynamics have changed drastically ever since year 2000. In particular, the shocks to real GDP have become more likely to have only transitory effect, even during the period of post-2001:IV expansion.     

Productive physical investment and growth: testing the validity of the AK model from a panel perspective

In this article, we analyse the relationship between productive physical investment and economic growth from a panel perspective for a sample of 61 countries spanning the period 1950 to 1992. The analysis can be thought of as two-fold. First, we test the empirical validity of AK models following the logic by Jones (1995 Jones, CI. 1995. Time series properties of endogenous growth models. Quarterly Journal of Economics, 110: 495–525. [Crossref], [Web of Science ®] , [Google Scholar]). For that purpose, we determine the degree of persistence of physical investment rates and growth by employing recently developed panel unit-root tests that enable us to make more reliable inferences about the existence of stochastic trends in the series. Second, we estimate the long-run effect of physical investment on growth by using panel data techniques rather than cross-section regressions. Overall, our findings cast doubts on the rejection of the empirical validity of the AK model, as suggested by Jones’ analysis.     

The strength of R&D network ties in high-tech sectors – a multi-dimensional analysis of the effects of tie strength on innovation performance

We study the effect of the tie strength of inter-firm R&;D partnerships on the innovation performance of companies in four high-tech sectors (pharmaceuticals, computers, semi-conductors and telecom). Returning to Granovetter's (1973 Granovetter, M. S. 1973. The strength of weak ties. American Journal of Sociology, 78: 1360–80. [Crossref], [Web of Science ®] , [Google Scholar]) seminal contribution, tie strength is analysed through a broad multi-dimensional perspective. We find that inter-firm R&;D network ties that are stronger in terms of their extent (measured by the length and multitude of R&;D partnerships) and weaker in terms of their depth (the degree of cooperation and the similarity of ties of companies) improve the innovation performance of companies. Interestingly, we find strong support for the role of these R&;D ties in the context of the run-of-the-mill innovation performance of companies. However, there is no support for this effect on significant innovations of companies.     

Sustainability of external debt: further evidence from non-linear framework

This study investigates sustainability of external debt under a two-step non-linear framework. The first step uses a general linearity test proposed by Harvey and Leybourne (2007 Harvey, David I. and Leybourne, Stephen J. 2007. Testing for time series linearity. Econometric Journal, 10: 149–165. [Crossref], [Web of Science ®] , [Google Scholar]) to determine the linearity property of external debt. The second step applies a non-linear ADF unit root test proposed by Kapetanios, Shin, and Snell (2003 Kapetanios, G., Y. Shin, and A. Snell. 2003. Testing for a unit root in the nonlinear STAR. Journal of Econometrics 112: 359–79.  [Google Scholar]) on the non-liner processes and the linear ADF test on the linear processes to examine the sustainability of external debt. The analysis of 36 debt and 55 current account ratios identifies strong evidence of non-linearity and sustainability. The results indicate superior performance of the non-linear unit root test over the ADF test in determining the stationary property of the data.     

Interrelationships among banks,stock markets and economic growth: an empirical investigation

This article utilizes a simultaneous equations model to study the relationships among economic growth, banking and stock market development. In contrast to conventional instrumental variable approach, we implement the analysis via the methodology of identification through heteroscedasticity. Using Beck and Levine (2004 Beck, T. and Levine, R. (2004) Stock markets, banks and growth:panel evidence, Journal of Banking and Finance, 28, 423–42.[Crossref], [Web of Science ®] , [Google Scholar]) dataset, we find that each of the three variables interacts in important ways. While both are conducive to economic growth, banking development matters more for growth in low-income countries and stock market development is more favourable to growth in high-income or low-inflation ones. The data also reveal coexistence of a positive effect of banking development on stock market development and a negative effect of stock market development on banking development. Besides, the feedback effects of growth on both banking and stock market development are found.