Long-run impact of increased wage pressure

An unanticipated permanent increase in wage pressure is analyzed in a dynamic general-equilibrium model combining standard theory of capital accumulation and monopolistic wage setting. The long-run (steady-state) implications are identical percentage reduction in employment, consumption, and capital stock whereas wages and the real interest rate are unchanged. The reduction in employment on impact is larger than the steady-state reduction whereas wages rise and the real interest rate declines on impact.     

Labour market effects of public capital stock: evidence for the Spanish private sector

This paper provides a new rationale for the positive effect of public capital stock on employment and wages. We show that higher levels of public capital reduce wages along the wage equation and enhance employment due to the resulting larger elasticity of labour demand with respect to wages. The estimation of a structural model for the Spanish private sector reveals that this wage channel is empirically relevant. We use the estimated parameters to simulate the recent incidence of the ratio of public to private capital stock on the private sector economic performance. We find (i) sizeable effects on employment, capital stock and gross domestic product, and (ii) that the wage channel is particularly important for employment.     

Money, capital, and real liquidity effects with habit formation

Abstract.  The money in utility model is reconsidered in the presence of endogenous labour and habits. With standard assumptions about preferences and a policy rule that sets the nominal interest rate by adjusting the growth rate of money, the model exhibits superneutrality in the steady state. Nevertheless, habits give rise to real liquidity effects in the short run. After an increase in the nominal interest rate, employment falls, resulting in a fall in capital accumulation and in the short‐ and long‐term real interest rates. The adjustment of the capital stock is non‐monotonic. Employment and the short‐ and long‐term real interest rates may also adjust non‐monotonically. JEL classification: E22, E52, E58     

Capital Accumulation and Unemployment: A Tale of Two "Continents"

In contrast to much recent work regarding the causes of European unemployment, in this paper we emphasize the importance of capital accumulation. But unlike the few previous studies which have examined the relationship between capital accumulation and unemployment, we argue that what matters for the evolution of employment (and the unemployment rate) is not the absolute growth rate of a country's capital stock, but its evolution relative to other countries' capital stock. The empirical validity of the above statement is demonstrated for almost all OECD countries using quarterly time-series data for the period 1961–1995. More detailed evidence is also presented for Germany, Japan and the United Kingdom.     

STOCKS AND DEPRECIATION OF HUMAN CAPITAL: NEW EVIDENCE FROM A PRESENT-VALUE PERSPECTIVE

Responding to a perceived growing interest in human wealth estimates, this paper offers a framework for measuring the aggregate stock of human capital and then implements the procedure for the United States male population age 14 to 75. Unlike previous estimates of human wealth that are based upon historical or resource costs, these estimates measure the capital stock as the discounted resent-value of expected lifetime returns. In the estimation, returns are equated with earnings data from the 1970 U.S. Census 15 percent Public Use Sample for out-of-school males, adjusted for employment and survival probabilities, adjusted for an assumed exogenous growth in future earnings, and discounted at 7.5 percent.
We provide cross-sectional estimates of individual stocks of human capital by age and educational attainment, as well as expected lifetime wealth profiles for individuals by level of education. These individual profiles can be used to obtain direct estimates of age-specific depreciation which suggest human capital is subject to significant and prolonged appreciation before nearly straight-line depreciation begins around middle age. This finding is all the more significant since resource-cost estimates of human capital which must assume a depreciation pattern to obtain stocks have always imposed a much faster rate much sooner.
Finally, an aggregate estimate of the stock of human capital for all males is supplied and its sensitivity to the choice of the discount rate, tax laws, and expected exogenous growth is analyzed. This seemingly-conservative stock estimate is then compared to a much lower resource-cost estimate offered recently by John Kendrick. A discount rate over 20 percent would be needed to equate the two measures. In trying to reconcile the two figures, we raise some new questions about the validity of both approaches for human capital accounting.     

Regional productivity variation and the impact of public capital stock: an analysis with spatial interaction,with reference to Spain

In this article, we examine whether variations in the level of public capital across Spain's Provinces affected productivity levels over the period 1996 to 2005. The analysis is motivated by contemporary urban economics theory, involving a production function for the competitive sector of the economy (‘industry’) which includes the level of composite services derived from ‘service’ firms under monopolistic competition. The outcome is potentially increasing returns to scale resulting from pecuniary externalities deriving from internal increasing returns in the monopolistic competition sector. We extend the production function by also making (log) labour efficiency a function of (log) total public capital stock and (log) human capital stock, leading to a simple and empirically tractable reduced form linking productivity level to density of employment, human capital and public capital stock. The model is further extended to include technological externalities or spillovers across provinces. Using panel data methodology, we find significant elasticities for total capital stock and for human capital stock, and a significant impact for employment density. The finding that the effect of public capital is significantly different from zero, indicating that it has a direct effect even after controlling for employment density, is contrary to some of the earlier research findings which leave the question of the impact of public capital unresolved.     

Discrimination among alternative models of international capital markets

Most empirical capital flow studies have estimated individual models, many by assuming exogenous interest rates. None of these studies has examined interest rate interdependence from the perspective of the models. In this study, a simultaneous equation model of capital flows containing previous models as special cases is estimated using the cross spectral technique of model discrimination. Based on examination of both the flow-differential link and interest rate interdependence resulting from capital flows, the evidence 1) supports a simultaneous equation stock adjustment model, and 2) suggests that interest rate endogeneity may not imply serious simultaneous equation bias for those previous studies which assume exogenous interest rates.     

LABOR MARKET DISCRIMINATION AND CAPITAL: THE EFFECTS OF FAN DISCRIMINATION ON STADIUM AND ARENA CONSTRUCTION

We investigate the possibility that labor market discrimination affects capital. Previous research indicates that discrimination affects wages and employment in labor markets. However, the effects of discrimination on other inputs to production are not known. We develop a model of the optimal capital stock in the presence of customer discrimination and test this model using data on sports facility construction. The empirical evidence suggests that teams in cities with a larger white population and more racial segregation put less capital in place, confirming the predictions of the model about the effect of customer discrimination on capital inputs. (JEL J7, D24, L83)     

OPTIMAL TRANSITION DYNAMICS IN THE LEONTIEF TWO‐SECTOR GROWTH MODEL WITH DURABLE CAPITAL: THE CASE OF CAPITAL INTENSIVE CONSUMPTION GOODS*

We present results on undiscounted optimal policies in the Leontief two‐sector growth model with durable capital. Unlike the results with a labour intensive consumption goods sector, we show that a monotonic optimal programme is only one special case out of many richer possibilities of transition dynamics. Depending on the initial capital stock, and a key parameter ζ that could be interpreted as a marginal rate of transformation of capital between today and tomorrow, an optimal programme may converge to a period‐two cycle; and even when it converges to the golden rule stock, it can do so (damped) cyclically or with a “jump”.     

MONEY, CREDIT, AND BUSINESS CYCLE COMOVEMENT

Abstract.  We developed a two-sector general equilibrium model with money and credit to study cross-sector comovement over the business cycle. Through a working capital channel, both money and productivity shocks can generate procyclicality of sectoral activities and positive cross-sector correlations of output, employment and investment. In our model, firms in each sector borrow in the credit market to finance their purchase of labour inputs, part of which are used in the adjustment process of capital stock. The shocks affect sectoral employment and investment through their impacts on interest rates and external finance premia.     

The choice of technology in economic development

The impact of capital accumulation on job creation is an important and interesting issue in economic development. This model provides a general-equilibrium framework for studying technology choice with unemployment in a developing economy based on micro-foundations. Unemployment in the urban sector results from the existence of efficiency wages. Manufacturing firms engage in oligopolistic competition and choose technologies to maximise profits. A more advanced technology uses more capital and less labour. In the steady state, an increase in the amount of capital induces firms to choose more advanced technologies and the wage rate increases. While a higher capital stock always induces firms to choose more advanced technologies, urban unemployment rate may decrease and agricultural sector employment may increase.     

On model ambiguity and money neutrality

We solve for the equilibrium of a stochastic neo-classical continuous time model without and with money under model ambiguity. We show that: (i) the correction for ambiguity stemming from the money supply is nil at equilibrium; (ii) money is neutral with respect to the stock market equilibrium (the equity risk premium); (iii) money is not neutral with respect to consumption and capital accumulation, and its effect may be quantitatively substantial; (iv) the preference for model robustness affects all the real economic variables as well as the expected inflation rate and the nominal interest rate.     

中国不同时期短期国际资本流动影响因素比较

将2003—2012年细分为8个时间段,具体分析8个时间段内中国短期国际资本流动的情况及其影响因素。结果显示:正的国内外利差对短期国际资本流入的吸引力较小;2003—2012年期间的2个短期国际资本流入高峰是由人民币快速升值引致的;高股价收益率的持续时间较短,其对短期国际资本流入的总体影响较小;正的房价收益率能够引致稳定的短期国际资本净流入。     

Effect of World Fertility Scenarios on International Living Standards

This paper applies a two good, multi‐region Ramsey‐Solow model of the world economy to determine the impact that alternative world fertility rates would have on international capital markets and living standards. Notable features of the model include: relative consumption demands and relative employment efficiencies that vary by age, traded and non‐traded goods, vintage technology, outward‐looking reference consumption, a proportion of non‐optimising rule‐of‐thumb consumers and imperfect capital mobility due to asymmetric information. The model suggests that projected demographic change will imply a flow of international capital from the ageing regions to the younger regions; and that the world interest rate will fall. The lower world interest rate will cause a loss in living standards for ageing regions, the lenders, and a gain for the younger regions, who are borrowers.     

EXCHANGE RATE,EXPECTED PROFIT AND CAPITAL STOCK ADJUSTMENT: JAPANESE EXPERIENCE

This paper empirically investigates the impact of exchange rate shocks on capital stock adjustment in the Japanese industry. An intertemporal optimization model is developed, in which an individual corporation in an open economy adjusts its capital stock according to Tobin's q. By explicitly considering the marginal q, the transmission mechanism from real exchange rate shocks to investment dynamics is examined based on the Vector Autoregressive model. Empirical evidence suggests that the depreciation of the Japanese yen increases the expected profitability of the firm and stimulates investment, especially in the machinery sector.     

International Trade and Growth Miracles: the Implications of Nonhomothetic Preferences

If the rate of saving increases with income then a low per capita level of the capital stock may be self‐sustaining. In these circumstances international trade may allow an economy to quickly increase its per capita capital stock in a self‐reinforcing “growth miracle” process. A labor‐abundant economy trading with a capital‐abundant economy will see its wage rate rise relative to autarky. This rise in the wage rate also increases the savings rate and so raises the following period’s per capita capital stock. In this way a low‐income economy may exhibit large and permanent increases in its level of GDP per capita after opening its markets to international trade.     

Falling Labor Share and Rising Unemployment: Long–Run Consequences of Institutional Shocks?

The literature on unemployment has mostly focused on labor market issues while the impact of capital formation is largely neglected. Job creation is often thought to be a matter of encouraging more employment on a given capital stock. In contrast, this paper explicitly deals with the long–run consequences of institutional shocks on capital formation and employment. It is shown that the usual tradeoff between employment and wages disappears in the long run. In line with an appropriation model, the estimated values for the long–run elasticities of substitution between capital and labor for Germany and France are substantially greater than one.     

Capital Tax Competition and Cooperation with Endogenous Capital Formation

Incorporating consumption–savings choices under a general concave utility function and hence an endogenous capital supply into a model of capital tax competition, we re‐investigate Nash equilibrium and compare it with the optimum under cooperative tax policy. In contrast to the case of fixed capital supply, it is shown that if savings sufficiently increase with the interest rate, a Nash equilibrium may be more efficient than a cooperative tax policy. Therefore, the distortionary effects of capital supply are important to issues of tax policy coordination.     

Individual Stock Returns and Monetary Policy: Evidence from Japanese Data

The present paper uses Japanese firm‐level data to investigate the effects of monetary policy on stock. The main purpose of this paper is to examine whether monetary policy has heterogeneous effects on stock returns and whether such heterogeneity can be explained by existing theories of monetary transmission mechanisms. We find little evidence that the demand sides of the interest rate and balance sheet channels explain the heterogeneous effects of monetary policy. However, there is evidence that the supply sides of the interest rate and balance sheet channels, when measured by capital intensity, financial leverage and interest payment burden, can explain its heterogeneous effects.     

Expected Future Budget Deficits,the Real Exchange Rate and Current Account Dynamics in a Finite Horizon Model

This paper uses an optimizing open economy general-equilibrium model to investigate the macroeconomic effects of current and expected future budget deficits. It is shown that current and expected future budget deficits are positively correlated with the current account deficit, the capital stock and the real exchange rate, but negatively correlated with the domestic real interest rate and consumption, along the stable path approaching the steady state. The paper also demonstrates that the world real interest rate is positively correlated with consumption, foreign assets and the domestic real interest rate, but negatively correlated with the capital stock and the real exchange rate. Received April 11, 2001; revised version received October 25, 2001