The mortgage spread as a predictor of real-time economic activity

We analyse the predictive content of the mortgage spread for US economic activity. We find that the spread contains predictive power for real GDP and industrial production. Furthermore, it outperforms the term spread and Gilchrist–Zakraj?ek credit spread in a real-time forecasting exercise. However, the predictive ability of the mortgage spread varies over time.     

The predictive power of yield spread: evidence from wavelet analysis

This paper examines whether the spread between long- and short-terminterest rates contains information about future economic activity in India. Using the yields on securities with maturities ranging from three months to ten years, we construct five different yield spreads at shorter end, longer end, and policy relevant area of the yield curve. We study the predictive power of each of these spreads for output growth within aggregate and time scale framework using wavelet methodology. We find that predictive power holds only at lower frequencies for the spreads which are constructed at shorter end and policy relevant areas of yield curve. However, spreads which are constructed at the longer end of the yield curve do not seem to have predictive information for output growth.     

The exploration of economic crises: parameter uncertainty and predictive ability

Over a long horizon, this paper examines joint economic crises and determines the power of 49 variables in predicting such episodes. While incorporating dynamism in the prediction, we generate the predictive power of various specifications and model the uncertainty in the parameters of interest. The results reveal that growth of real gross domestic product per capita, regulation, bank non‐performing loans, interest rate and inflation rate are the most significant variables in predicting the joint economic crises. These variables predict economic crises with about 93% accuracy and can predict joint economic crises in developing countries and recent joint crises.     

Autocorrelation,structural breaks and the predictive ability of dividend yield

Wine consumption is modelled by focusing on three decisions. The first is whether to consume any alcoholic beverages. Setting aside the teetotalers, the second decision is whether to consume wine and the third choice is how much to consume. We model these decisions using a double-hurdle approach. Our econometric results indicate that the probability a man drinks wine increases if he is under age 65, has a high income and is a high school graduate. Heavy wine consumers are over age 65, are well educated, physically active, and have high incomes.     

The economic impact of digital technologies in Europe

This paper analyses the economic impact of digital technologies in Europe distinguishing between different stages/domains of the digitalization process. A set of composite Information and Communication Technologies (ICT) indicators is used for capturing the access to ICTs, the ability to use them and the digital empowerment of individuals in key social and economic domains. We argue that the mere accessibility to ICT facilities is only a pre-condition for moving towards a digitalized society, while the ‘level’ and the ‘quality’ in the use of these technologies, as well as the conditions facilitating or hampering digital empowerment, play a much more important role. Several transmission mechanisms from ICT access, usage and digital empowerment to key macro-economic variables (namely labour productivity, gross domestic product per capita, employment growth and the employment rate) are identified. The econometric evidence supports our hypotheses showing that the usage of ICT, and mostly digital empowerment, exert the major economic effects, especially on employment also favouring the inclusion of ‘disadvantaged’ groups in the labour market. We conclude that digitalization may drive productivity and employment growth and that inclusive policies may effectively contribute to bridge the gap between the most favoured and the disadvantaged parts of the population, thus helping in achieving the 2020 Europe targets.     

Banking as a basis for economic cooperation in less developed Europe

This article examines to what extent Russia's increasing reliance on foreign capital could potentially kick-start the economy and generate growth. The analysis highlights more fundamental issues of governance and institutional arrangements, for which the focus on foreign economic activities serves merely as an example to reflect on pathologies of the Russian economy as a whole. The article consists of a theoretical framework, discussing the change of institutional arrangements in the first section and analysing crucial issues of corporate governance and property rights in the last, while empirical information is compiled for Russia as a whole and its constituent regions in the second and third core sections. The article concludes that the Russian map of high foreign trade activities will be shaped only by patchy growth spots, located either where the domestic market is largest or opportunities for export exist, mainly in large urban agglomerations (economies of scale) and commercial hubs, resource-rich and gateway territories (gravitation to international trading blocs). Major investment disincentives will remain as long as the existing system of taxation has not been substantially changed, property rights are not protected, land and bankruptcy legislation is not properly enforced and local authorities are not prevented form rent-seeking activities.     

The rise of obesity in Europe: an economic perspective

Obesity in Europe is rising. This paper investigates the economic rationales for public intervention to control obesity. We present new empirical evidence showing that family background is related to obesity among young European adults. This evidence provides a strong basis for intervention on equity grounds, particularly targeted towards children. The case for intervention on efficiency grounds is less clear-cut and in most cases the evidence is relatively weak. We find insufficient evidence that information deficiencies are important, as the majority of Europeans appear to be aware of the bad consequences of obesity on health. We also find that the potential health insurance externality -- non-obese effectively subsidizing obese individuals -- is small. In support of policy intervention, we show that there are product and labour market imperfections. Obese employees earn less than the non-obese. We also find that there is a remarkably high proportion of individuals with self-control problems, who fail to stick to their self-declared weight-related plans. Regulations that affect fast food advertisements and the location and access to fast food vending machines and establishments may help these individuals in controlling their weight.
--- Giorgio Brunello, Pierre-Carl Michaud and Anna Sanz-de-Galdeano     

Economic activity and recession probabilities: information content and predictive power of the term spread in Italy

The aim of the present article is to examine the information content of the Italian term spread as for real economic growth rates and recession probabilities and to test its predictive power in forecasting regime probabilities. To this end the relationship between the term spread and economic growth rates is modelled as a nonlinear one and specifically the Logistic Smooth Transition model is used, while a probit model is implemented to forecast recession probabilities. Specific to this article is the use of the OECD business cycle chronology, which was never used before to this end for the Italian case. Overall evidence supports the informative content of the spread in Italy over the whole period (1984–2005) although results are more satisfactory as from 1992. In particular, recession forecasts are generally better than those obtained with other chronologies previously adopted for the Italian case (ISAE and ECRI).     

The economic performance of state-owned enterprises in Central and Eastern Europe

This article explores the economic performance of state ownership in the largest non-financial enterprises operating in 13 post-socialist Central and Eastern European (CEE) countries over the period 2007–2013. The largest state-owned enterprises (SOEs) are selected based on the ‘Coface – 500 Top Companies in CEE’ list in 2013. Of these 500 enterprises, 69 were identified as state-owned. All originated in the socialist period. The majority of them are from Poland and Ukraine. SOEs hold a dominant position in energy supply, the oil and gas sector, and transport. We find that the persistence of state ownership in post-socialist countries is caused by incomplete privatisation and the presence of SOEs within strategic sectors. The economic performance of the largest state-owned companies is, on average, comparable to their private counterparts.     

High yield spreads,real economic activity,and the financial accelerator

We study the leading properties of 30 US high yield spreads for economic growth between 1996 and 2012 and show that they disappeared in the second half of the 2000s. Our empirical findings demonstrate the unreliability of high yield spreads as leading indicators and cast doubts on the existence of a strong and functioning financial accelerator in recent years.     

The relationship between insurance and economic growth in Europe: a theoretical and empirical analysis

The role of insurance companies, although growing in importance in financial intermediation, has received less attention than bank and stock markets and if so, mainly as a provider of risk transfer in single country or very heterogeneous samples. We investigate both the impact of insurance investment and premiums on GDP growth in Europe. We conduct a cross-country panel data analysis from 1992 to 2005 for 29 European countries. We find a positive impact of life insurance on GDP growth in the EU-15 countries, Switzerland, Norway and Iceland. For the New EU Member States from Central and Eastern Europe, we find a larger impact for liability insurance. Furthermore our findings emphasise the impact of the real interest rate and the level of economic development on the insurance-growth nexus. We argue that the insurance sector needs to be paid more attention in financial sector analysis and macroeconomic policy.

Welfare implications of strategic economic policy in eastern Europe

This paper evaluates the welfare effects in a block of selected eastern European countries (Bulgaria, Romania, former Czechoslovakia, Hungary, Poland, and former Yugoslavia) emerging from the possibility to participate in the European integration process and to act as strategic players in dynamic games. The results of the cooperative and noncooperative dynamic game scenarios are compared with fixed policy solutions. The McKibbin-Sachs global model (MSG2 model), which incorporates rational expectations, is used as a framework. A global supply-side shock and a fixed exchange rate regime are considered under the alternative policy layouts. It is shown that international economic cooperation may be advantageous over noncooperation. For the anchor currency of the European Monetary Union (EMU), fixing the eastern European block currencies to the EMU may lead to significant destabilization.     

The role of the wage-productivity gap in economic activity

This paper argues that wages lagging behind productivity is a long-run structural phenomenon due to the interplay of wage dynamics and productivity growth. We call this interplay frictional growth, a term that can only be nullified in the utopian case of zero growth and/or no dynamics. In that vein, we challenge the prevailing view of the neutrality of the labour income share and investigate its impact on the evolution of employment. We thus estimate wage setting and labour demand equation systems – for France, Germany, Italy, Japan, Spain, the UK, and the US over the 1960–2008 period – and find that the labour share is negatively associated with employment even when the conventional assumption of a unitary long-run elasticity of wages with respect to productivity holds. Acknowledging the presence of the wage-productivity gap in both the short and long run, this work stands as the building block for assessing the effect of the falling labour share on economic activity. As recent work has shown that the widening wage gap is also an important factor prompting inequality, it can be argued that by supporting employment the falling labour share ‘sweetens’ the impact of rising income inequality, and, as such, deserves the attention of policy makers.     

The central bank as shaper and observer of events: The case of the yield spread

The yield spread has commonly been employed as a successful predictor of economic growth and recessions, although its marginal predictive power has decreased since the 1990s. Notably, the yield spread's declining power to predict US economic activity coincided with its growing power to predict US interest rate changes. In my view, these phenomena are inevitably linked and share one cause. The central bank intended to enhance both its transparency and credibility through greater information disclosure; this disclosure improved interest rate predictability but might also have crowded out useful private information formerly in the yield spread that helped predict economic activity.     

The effects of fiscal policy on economic activity in Finland

This study analyzes whether fiscal policy decisions have real effects on the economy of Finland, and if they do, what are the strength and durations of the effects. We utilise the Vector Stochastic Process with Dummy Variables (VSPD) method in our empirical work. This approach is a suitable tool to study event-based episodes. Fiscal policy shocks do have an effect on the economic activity of Finland when the time period 1990–2007 is investigated. A positive tax shock (or a policy that increases public sector revenues) seems to have a positive effect on Investment and GDP but the response of private consumption is mixed. Results clearly indicate that increase in Government spending crowds out private sector activity, and the effect takes place sooner than with the Revenue variable in question. This is a clear evidence for the crowding out effect.     

The role of husband's and wife's economic activity status in the demand for children

Data from Hong Kong were used to examine how the demand for children is affected by the economic returns to different types of market activities. The specific data used was a 1% sample of the 1976 "Hong Kong By-Census of Population." Only women under 50 who were currently married and living with their husbands were included. The households were restricted to land-based and non-farm families with economically active husbands. There were a total of 4128 families in the sample; in 3768 families the wife had experienced at least 1 birth. A simple 1-period model of household production and fertility demand is outlined. Emphasis was on 2 aspects of the demand for children in households who choose to work in the informal sector: children are more readily employed in a family business; and wife's work in a family business or in a wage employment at home is more compatible with childcare activities. Both effects imply that holding constant other characteristics, a higher desired stock of children will be demanded. As expected, an increase in wife's predicted log earnings in home work had a negative effect on the demand for children. The effect was almost always significant. An increase in wife's productivity in the family business, as proxied by her predicted log earnings in the family business, increased the demand for children significantly. This usually is interpreted to be a result of entering a market activity which is compatible with childcare. Another possible explanation is that the price of children is lowered because if children work in the family business then their productive contributions subsidize their parents' consumption. Yet, without direct measures or proxies for these effects, it is not possible to distinguish between them. An increase in husband's predicted log earnings in wage employment had a significant negative effect on demand for children. This can be interpreted in 2 ways: if an interior solution exists for husband's allocation of time, then a negative effect implies either that children are inferior (or are observed to be so) or husband's predicted log earnings in wage employment increases the probability of specializing in it. Thus, the role of children in the family business vanishes, and the desired number of children is reduced. Both husband's and wife's schooling reduced significantly the demand for children. In general, estimates of coefficients from families with at least 1 child were smaller in absolute magnitude and less significant statistically.