An investment-function-based measure of capacity utilisation.: Potential output and utilised capacity in the Bank of Italy's quarterly model

Measures of potential output and the output gap are increasingly being developed and used to concisely quantify and monitor the risk of price accelerations stemming from rises in aggregate demand that are not met by a corresponding increase in supply. They often play a prominent role in the price determination mechanisms of macroeconometric models. In this paper we build a measure of potential private-sector value added for the Italian economy that is consistent with the capital accumulation process in the Banca d'Italia's Quarterly Model — and more generally with the rest of the supply-side block of that model. More specifically, we exploit the fact that the investment function can be thought of as a relationship transforming desired gross additions to capacity output into capital accumulation by means of a conversion factor (the optimal capital/output ratio). Thus, if one removes the component of investment decisions that stems from changes in the relative price of the production factors, (i.e. in the optimal capital/output ratio), then a measure of the desired gross addition to capacity may be constructed. The results draw a cyclical picture of the degree of capacity utilisation for the period 1970–1997 that is roughly in line with those produced by the Wharton and Hodrick–Prescott filter approaches, as well as with the pictures resulting from the ISAE, IMF, European Commission and OECD measures of the output gap. Our investment-function-based measure appears to be a promising indicator of the pressure exerted on prices by demand accelerations. Its empirical properties are, on the whole, acceptable and plausible.     

Exchange rate reform and its inflationary consequences: an empirical analysis for China

In examining China's exchange rate policy in the reforming years, the study finds empirical evidence of its long-run inflationary consequences, but the effects appear not to be sizable. In the short run, while changes in the devaluation rate are positively correlated with the increase in the growth rate of inflation, the inflation inertia is also modest. The moderate inflationary cost of devaluations provides some explanation of the smooth transition of exchange rate policy regime in China and the authorities' ability to put more weight on external competitiveness.     

Shadow rates as a measure of the monetary policy stance: Some international evidence

This paper examines the usefulness of shadow rates to measure the monetary policy stance by comparing them to the official policy rates and those implied by three types of Taylor rules in both inflation-targeting countries (the UK, Canada, Australia and New Zealand) and others that have only targeted inflation at times (the United States, Japan, the Euro Area and Switzerland) over the period from the early 1990s to December 2021. Shadow rates estimated from a dynamic factor model are shown to suggest a much looser policy stance than either the official policy rates or those implied by the Taylor rules, and generally to provide a more accurate picture of the monetary policy stance during both ZLB and non-ZLB periods, since they reflect the full range of unconventional policy measures used by central banks. Furthermore, generalised impulse response analysis based on three alternative vector autoregression (VAR) models indicates that monetary shocks based on the shadow rates are more informative than those related to the official policy rates or to two- and three-factor shadow rates, especially during the Global Financial Crisis and the recent COVID-19 pandemic, when unconventional measures have been adopted. Finally, unconventional policy shocks seem to have less persistent effects on the economy in countries, which have adopted an inflation-targeting regime.     

The clearance rate as a measure of criminal justice system effectiveness

The validity of the clearance rate as a measure of either criminal justice system (CJS) effectiveness or of the probability of punishment for crime can be questioned on the grounds that the relationship between CJS effectiveness and observed clearance rates is mediated by the choice behavior of criminals. If the clearance rate is endogenous in that sense, then recent econometric results concerning the deterrence effect of punishment are fundamentally flawed. A model of criminal adaptation to changes in CJS effectiveness illustrates the basic problem.     

Testing for profitability and contestability in banking: evidence from Austria

The paper investigates the determinants of banking profitability and banking market conditions in Austria. We conduct a panel econometric analysis which allows for testing the hypotheses which have become the most prominent in the literature on bank profitability: the structure–conduct–performance hypothesis, the efficient‐structure hypothesis and the relative market‐power hypothesis. Further, we test whether Austrian banking markets are, on average, contestable. A newly compiled dataset covering more than 700 Austrian banks ranging over the period from 1995 to 2002 is used to carry out these econometric analyses. The empirical findings support the view that the Austrian banks do exert, on average, some local market power. However, the gains in terms of excess profits are rather minor as a result of low deterrence powers of the incumbent banks.     

A comparison of the kernel and the ARIMA estimates of inflationary expectations: Some evidence from Canada

In this paper we compared the nonparametric kernel estimates and the ARIMA estimates of Canadian inflationary expectations. The kernel estimates turned out to be superior with respect to post-sample predictions irrespective of the method used for selecting the bandwidth.     

The shadow rate as a predictor of real activity and inflation: evidence from a data-rich environment

This article examines the predictive content of the shadow rates for US real activity and inflation in a data-rich environment. We find that the shadow rates contain substantial out-of-sample predictive power for inflation in nonzero lower bound and zero lower bound periods. In contrast, the shadow rates are uninformative about future real activity.     

A time preference measure of the social discount rate for the UK

In this study the social discount rate for the UK is estimated, the result compared with the Treasury approved rate and the main associated policy implications considered. A case is argued for reducing the official discount rate in appraisals involving all long-term social projects. The estimate of the elasticity of the marginal utility of consumption, an important component of the discount rate, is supported by plausible and statistically valid regression results. The need for further work relating to other major european countries is identified so that discount rate comparisons can be made on a consistent basis.     

The speed of adjustment as a measure for competitiveness

The authors are grateful to G. Lensink for research assistance. Special acknowledgement is due to Prof. Harry P. Bowen of the Graduate School of Business, New York University, who was kind enough to supply much of the data, and to Prof. L. Beinsen for his comments on an earlier version of the paper.     

A new approach to measure tactical voting: evidence from the British elections

Although tactical voting attracts a great deal of attention, it is very hard to measure as it requires knowledge of both individuals’ voting choices as well as their unobserved preferences. In this article, we present a simple empirical strategy to nonparametrically identify tactical voting patterns directly from balloting results. This approach allows us to study the magnitude and direction of strategic voting as well as to verify which information voters and parties take into account to determine marginal constituencies. We show that tactical voting played a significant role in the 2010 election, mainly for Liberal–Democratic voters supporting Labour. Moreover, our results suggest that voters seem to form their expectations based on a national swing in vote shares rather than newspaper guides published in the main media outlets or previous election outcomes. We also present some evidence that suggests that campaign spending is not driving tactical voting.     

A system of demand equations for Austria

This paper presents results of parameter estimations of a small system of demand equations for Austria. The functional form of the equations follows the log-linear specification well known as the “Rotterdam”-System. Using annual data from 1954 to 1977 we estimate the absolute price version for a rather aggregated system consisting of four sectors of consumption expenditures. Aitken estimation with and without linear restrictions is the adopted estimation method. Tests for the validity of the general linear restrictions axe performed employing the usual criteria. Relations among the test statistics are discussed. Taking into accountBeaton's [1972] argument of the appropriate use of likelihood ratio tests we present results also after iterating on the restricted error-covariance matrix. The question of negative semidefiniteness of the matrix of price coefficients is examined by inspection of its characteristic roots and the calculation of their approximated asymptotic covariance matrix. Finally, our results are confronted with such of other comparable studies.     

The export-productivity relationship: A time series representation for Austria

Zusammenfassung Der in vielen westlichen Industriel?ndern zu beobachtende positive Zusammenhang zwischen Produktivit?ts- und Exportwachstum führte zu zwei einander entgegengesetzten kausalen Hypothesen. Die erste, von Vertretern des “Export-led-growth”-Modells vorgebrachte Hypothese geht davon aus, da? das Produktivit?tswachstum im wesentlichen über das Exportwachstum bestimmt wird. Dagegen sieht die zweite, auf dem Ricardo-Modell und den Theorien des intra-industriellen Handels beruhende Hypothese das Wachstum der Exporte von der Produktivit?t bestimmt. Die Richtung in der Kausalit?t zwischen Exporten und Produktivit?t hat entsprechende Konsequenzen für die Einsch?tzung von Instrumenten der Industriepolitik. W?hrend das “Export-led-growth”-Modell und jüngere Au?enhandelstheorien Wechselkursabwertungen bzw. Exportsubventionen zur Ankurbelung der Exporte und damit der Produktivit?t nahelegen, ziehen die Theorien des intra-industriellen Handels eine Subvention von Forschung und Entwicklung und/oder des Outputs als wirkungsvollere Ma?nahmen zur Beschleunigung der Produktivit?t vor. Der Aufsatz untersucht anhand ?sterreichischen Datenmaterials, welche der beiden Kausalhypothesen mit der beobachteten Entwicklung der Exporte, der Produktivit?t und der Terms of Trade kompatibel ist. Dabei bedient sich die Arbeit des Wiener-Granger-Konzepts als statistischer Test auf Kausalit?t. Zudem werden Simulationen durchgeführt, um die dynamischen Eigenschaften der untersuchten Zeitreihen zu bestimmen.      

Overconfidence as a social bias: Experimental evidence

The overconfidence bias is discussed extensively in economic studies, yet fails to hold experimentally once monetary incentives and feedback are implemented. We consider overconfidence as a social bias. For a simple real effort task, we show that, individually, economic conditions effectively prevent overconfidence. By contrast, the introduction of a very basic, purely observational social setting fosters overconfident self-assessments. Additionally, observing others’ actions effectively eliminates underconfidence compared to the individual setting.     

Pollution havens: international empirical evidence using a shadow price measure of climate policy stringency

Given the ambiguous empirical results of previous research, this paper tests whether support for a climate policy-induced pollution haven effect and the pollution haven hypothesis can be found. Unlike the majority of previous studies, the analysis is based on international panel data and includes several methodological novelties: By arguing that trade flows of dirty goods to less dirty sectors may also be influenced by changes in policy stringency, trade information on primary, secondary, and tertiary sectors are included. In order to clearly differentiate between dirty sectors and sectors with high pollution abatement costs, separate measures for pollution intensity and policy stringency are implemented. For the former, two intensities, namely the sectors’ carbon dioxide emission intensity and the emission relevant energy intensity, are used to identify dirty sectors. For the latter, an internationally comparable, sector-specific measure of climate policy stringency is derived by applying a shadow price approach. Potential endogeneity between climate policy stringency, trade openness and the trade balance is controlled for by employing a dynamic panel generalized method of moments estimator. The results provide evidence for a pollution haven effect that is also present for non-dirty sectors, i.e., a sector’s net imports rise in general if the sector faces an increase in climate policy stringency. Moreover, a stronger pollution haven effect regarding carbon dioxide intensive and emission relevant energy-intensive sectors is revealed. However, no support for the stronger pollution haven hypothesis can be found.     

Using mean reversion as a measure of persistence

This paper suggests a new scalar measure of persistence together with a companion estimator, which has the advantage of not requiring the specification and estimation of a model for the series under investigation. The statistical properties of the companion estimator are established, which allow tests of hypotheses to be performed, under very general conditions. The use of the new measure is illustrated by re-evaluating persistence of inflation for the United States and the Euro Area. The conclusions for the United States do not differ significantly from what has been found in previous empirical studies. However, for the Euro Area we find evidence of a significant break occurring in 2001/2002, such that persistence becomes virtually nil for the period that follows the launch of the euro and the implementation of a common monetary policy by the European Central Bank.     

The critical discount factor as a measure for cartel stability?

This paper considers the stability of tacit collusion in price setting duopolies with repeated interaction. The minimum discount factor above which tacit collusion can be sustained in a subgame perfect equilibrium is called the critical discount factor δ*. In addition, δ* is often used as an intuitive measure for the stability of a tacit cartel, assuming that a collusive equilibrium is more difficult to sustain when δ* increases. However, according to standard theory the distance δ − δ* between the actual and the critical discount factor does not matter for stability as long as δ > δ*. This paper contributes experimental evidence that supports the intuitive idea that a larger critical discount factor makes collusion a less likely outcome.      

On selecting a measure of labour activity: evidence from registered nurses, 1981 and 1989

The purpose of this paper is to demonstrate the effects of the selection of measures of labour activity on the conclusions that are derived from the analysis of individual labour supply. The results of the analysis using three commonly specified single measures (Annual Hours Worked, Hours Worked per Week, and Weeks Worked per Year) as the dependent variable in TOBIT equations are compared with those obtained using a PROBIT-2SLS in which the individual labour supply is measured by Hours Worked per Week and Weeks Worked per Year. The RHS variables are those that are used in earlier individual labour supply studies and are the same in all of the models analysed. Among the findings are (1) wage rate effects that are quite strong in single equation models and disappear when a multi-equation approach is used, (2) the effects of children on labour supply is more complex than in indicated in single equation results and (3) duration dependence is much stronger than indicated results using a single measure of individual labour supply. These results suggest that using a single measure of labour supply will lead to inappropriate conclusions as to the effects of such variables as wage rates, number and ages of children, spouse's employment state, and income from other sources on individual labour supply.     

Capital mobility versus sterilization policy: A time series approach for Austria

Zusammenfassung Die vorliegende Arbeit untersucht den Kausalzusammenhang zwischen der Inlands- und der Auslandskomponente der österreichischen Geldbasis. Die beiden Komponenten schwanken gegenläufig, ein Phänomen, das in einem Regime (quasi) fixer Wechselkurse durch zwei Hypothesen erklärt werden kann: DieKapitalmobilitätshypothese wird aus dem monetaristischen Zahlungsbilanzansatz abgeleitet, der auf der Annahme vollständiger Kapitalmobilität zwischen In- und Ausland basiert. In einem solchen Modell ist die Geldmenge endogen, und jeder Steuerungsversuch der Währungsbehörden wird durch Kapitalbewegungen mit dem Ausland konterkariert. Die Kausalitätsrichtung verläuft überwiegend von der Inlands- zur Auslandskomponente. Hingegen können die Währungsbehörden nach derSterilisierungshypothese die Geldbasis zumindest kurzfristig kontrollieren, weil das zugrundeliegende (portfoliotheoretische) Modell von unvollständiger Kapitalmobilität ausgeht. Ausländische monetäre Schocks werden von der Inlandskomponente aufgefangen, um geldpolitische Zielsetzungen nicht zu gefährden: die Kausalitätsrichtung verläuft überwiegend von der Auslands- zur Inlandskomponente.Das Hauptinteresse dieses Aufsatzes gilt dem Kausalitätsverlauf und nicht primär den mittelfristigen Implikationen dieser Beziehung für die Wirtschaftspolitik. Daher wurde unter den möglichen Testmethoden einem nicht-strukturellen Zeitreihenansatz zur Untersuchung von Granger-Kausalität an Daten mit hoher Beobachtungsfrequenz der Vorzug gegeben.Vier verschiedene Verfahren (Sims-, Sargent-, Geweke- und Haugh-Test) wurden auf österreichische Monats- und Wochendaten für die beiden Geldbasiskomponenten in der Periode 1969 bis 1984 getestet. Sie zeigen übereinstimmend eine Dominanz der Sterilisierungshypothese über die Kapitalmobilitätshypothese. Abgeschwächt wird diese Aussage allerdings durch das Auftreten simultaner Kausalität. Darüber hinaus verringert sich die Evidenz zugunsten der Sterilisierungshypothese im Laufe der Schätzperiode. Dies dürfte vor allem der wachsenden Einbindung der österreichischen in die internationalen Finanzmärkte zuzuschreiben sein.

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I am grateful for thorough discussions with M. Deistler and G. Thury, as well as for helpful comments by J. Ledolter, F. Schebeck, and G. Tichy. Remaining shortcomings of this paper are, of course, solely my responsibility.