How Will EMU Affect Inflation and Unemployment in Europe?

This paper explores how European Monetary Union will change the wage setting behavior of national labor unions. We derive the impact of national inflation aversion and labor militancy on the performance of national labor markets under different monetary arrangements. A common central bank raises inflation and unemployment if it acts as conservatively as national central banks. However, unemployment falls in countries that previously tied their monetary policy to the Bundesbank. We also examine the composition of EMU and the influence of national labor market legislation.
JEL Classification : E 24; F 02; F 33     

How and Why Has Teacher Quality Changed in Australia?

International research suggests that differences in teacher performance can explain a large portion of student achievement. Yet little is known about how the quality of the Australian teaching profession has changed over time. Using consistent data on the academic aptitude of new teachers, we compare those who have entered the teaching profession in Australia over the past two decades. We find that the aptitude of new teachers has fallen considerably. Between 1983 and 2003, the average percentile rank of those entering teacher education fell from 74 to 61, while the average rank of new teachers fell from 70 to 62. We find that two factors account for much of the decline: a fall in average teacher pay (relative to other occupations) and a rise in pay differentials in non‐teaching occupations.     

Has the EMU reduced wage growth and unemployment? Testing a model of trade union behavior

Grüner (2010) argues that the introduction of the European Monetary Union (EMU) led to lower wage growth and lower unemployment in participating countries. According to Grüner, monetary centralization increases the amplitude of national business cycles, which leads to higher unemployment risk. In order to counter-balance this effect, trade unions lower their claims for wage mark-ups, resulting in lower wage growth and lower unemployment. This paper uses macroeconomic data on OECD countries and a difference-in-differences approach to empirically test the implications of this model. Although we come up with some weak evidence for increased business cycle amplitudes within the EMU, we neither find a significant general effect of the EMU on wage growth nor on unemployment.     

Has Anything Changed in the Past Century? Revisiting Graue's The Social Cost of Bad Debt

In a seminal paper, Erwin Graue (1939) provides an institutional analysis of the causes and consequences of personal bankruptcy protection in the United States during the period 1900-1937 when bankruptcy procedures were guided by the Federal Bankruptcy Act of 1898 (the Law was revised in 1938). This paper revisits the Graue study in the context of the current recession using a simple institutional economic framework. Consistent with Graue, we begin shortly after the implementation of the Bankruptcy Abuse Protection and Consumer Protection Act of 2005 (BAPCPA) and follow its evolution to the present time. Our analysis suggests that, since passage of BAPCPA, both total filings and Chapter 7 filings decreased significantly, however temporarily. Moreover, Chapter 7 filings as a percentage of Chapter 13 filings also temporarily decreased. These results are not only consistent with Graue's analysis, but also demonstrate that the institutional characteristics of bankruptcy law have a profound impact on the decision to file for bankruptcy and the chapter under which a petitioner files.     

Has Abe's Womanomics Worked?

The present paper estimates the effect of the Abe Cabinet's Womanomics policies that aimed to increase female labor supply and keep women on a career path. The policies are surveyed, and the effects are estimated using microdata from the Labor Force Survey combined with data at the prefectural level on day care provision. A difference‐in‐difference (DD) method is applied to uncover the impacts of the Abe Cabinet's policies. The rapid increase in the provision of infant care, especially in the urban area, has contributed to a strong increase in the labor participation of mothers with young children. In addition, DD method estimates show a strong increase in mothers with infants staying in permanent‐contract regular employment. A significant shortening of work hours of workers, especially of parents with infants, is observed, which enabled working mothers to maintain their employment status. A change in the gender wage gap in the Japanese labor market is observed, but much progress is still required to close the large wage gap.     

Optimal Inflation Contracts and Inflation Targets with Uncertain Central Bank Preferences: Accountability Through Independence?

This paper examines some problems which arise when monetary policy is delegated to an independent central bank and where the central bank's preferences are unknown. Two key conclusions emerge from the paper. First, even with optimal targets or contracts, central bank independence may not always be desirable because central banks may have distorted preferences relative to society. Second, if the delegation solution is preferable, and the independent central bank responds to information about supply shocks, the central bank may be made more accountable by allowing it to set its own inflation targets, i.e. by making it goal-independent     

How anchored are inflation expectations in EMU countries?

Anchored inflation expectations help stabilize inflation. Previous results indicate that monetary policy has been effective in breaking the link between actual and expected inflation at the euro area level. In this paper we examine whether this is also true at the national level. We define the ‘disconnect’ between inflation and inflation expectations and then proceed to examine the extent to which this disconnect exists for a number of euro area countries. Our findings suggest that for some countries, their own inflation experiences still affect national inflation expectations, and certainly more by comparison to how they affect the aggregate euro area level.     

Does Inflation Influence Fiscal Policies? Effects of Inflation Targeting on Public Expenditure in the Euro Area

International Advances in Economic Research -     

How Should the Graduate Economics Core be Changed?

The authors present suggestions by graduate students from a range of economics departments for improving the first-year core sequence in economics. The students identified a number of elements that should be added to the core: more training in building microeconomic models, a discussion of the methodological foundations of model-building, more emphasis on institutions to motivate and contextualize macroeconomic models, and greater focus on econometric practice rather than theory. The authors hope that these suggestions will encourage departments to take a fresh look at the content of the first-year core.     

Price convergence in the EMU? Evidence from micro data

The establishment of the European Monetary Union (EMU) was widely expected to cause price convergence among member states. In an investigation of this claim, the present study avoids problems of comparability and representativeness by using an extremely detailed and comprehensive scanner database on washing machine prices and sales volumes for 17 European countries. A hedonic regression yields country-specific time series for quality-adjusted price differentials. Statistically and economically significant deviations from the Law of One Price emerge. Log t tests firmly reject price convergence among EMU countries. Small convergence clusters can be identified but they are unrelated to EMU membership.     

In or out? The welfare costs of EMU membership

Sweden and the UK have repeatedly refused to join the European and Monetary Union (EMU). Surprisingly, there is very little work on the welfare consequences of the loss of monetary policy flexibility for these countries. This paper fills this void by providing a framework to evaluate quantitatively the economic costs of joining the EMU. Using a two-country dynamic general equilibrium model with sticky prices we investigate the economic implications of the loss of monetary policy flexibility associated with the EMU for each country. The main contribution of our general equilibrium approach is that we can evaluate the effects of monetary policy in terms of welfare. Our findings suggest that these economies may experience sizable welfare losses as a result of joining the EMU. Results show that the cost associated with the loss of the monetary policy flexibility is higher in the presence of persistent government consumption shocks and small trade shares with the EMU.     

Inflation Targeting - the Holy Grail of Monetary Policy?

Inflation targeting is a statement about the objective of central bank policy and not about operating procedures. Its success depends not only on the actions of the central bank, but requires a broad consensus concerning the proper role of monetary policy in the economy. It also requires the backing of a sound fiscal policy. As countries differ both in economic structure and monetary transmission mechanism, the implementation of inflation targeting must be country specific. Instability over time in the transmission mechanism also implies that inflation targeting strategies must evolve to avoid the fate of previous monetary policy targeting practices.     

Why Has the Workplace Become Safer?

This paper asks whether the fall over 1983–1993 in the aggregate injury-to-workforce ratio (the injury rate) that occurred in Queensland was due to improvements in industrial safety or due to shifts in employment away from 'unsafe' industries. The conclusion, based on data from the Queensland Employee Injury Data Base, is that improvements in industrial safety were the main reason for the State's workplace becoming safer. The paper then conducts an econometric investigation in to why industrial injury rates in Queensland fell over 1983–1993. The evidence is that in Mining, Manufacturing and Construction, there was a significant autonomous decrease in the injury rate. The problem is that since the data available were only for those injuries against which compensation was claimed, it is difficult to say—except as a matter of judgement—whether improvements in injury rates in these sectors were due to genuine improvements in safety or caused by a fall in the propensity to claim compensation. Changes in general economic conditions—particularly, rising unemployment—have also contributed to falling injury rates.     

Is the Relationship between Inflation and Its Uncertainty Linear?

Abstract. We use parametric power ARCH models of the conditional variance of inflation to model the relationship between inflation and its uncertainty using monthly data for Germany, the Netherlands and Sweden over a period ranging from 1962 to 2004. For all three countries inflation significantly raises inflation uncertainty as predicted by Friedman. Increased uncertainty affects inflation in all countries but not in the same manner. For Sweden we find a negative impact in accordance with the Holland hypothesis, whereas for Germany and the Netherlands we find the opposite in support of the Cukierman–Meltzer hypothesis. In a sensitivity analysis we show that an arbitrary choice of the heteroscedasticity parameter influences this relationship significantly.     

When Does an Inflation Target Yield the Second Best?

It is shown that an inflation target does not establish the second best if the central bank is independent and the government collects seigniorage revenues. To eliminate excessive inflation and ensure that stabilization is efficient, society should combine an optimal inflation target with a central bank that attaches less weight to inflation stabilization than the public does.