Forward exchange,short term capital flows and monetary policy

Summary This paper re-examines the relationships between short term capital flows and monetary policy, in the light of a new theoretical approach of the forward exchange market. They contend that the traditional forward exchange market theory is a misleading one as it fails to give all the importance it deserves to the distinction between covered and uncovered exchange transactions and to the actual role of the arbitrageurs. As a consequence of this analysis, they demonstrate that the problem of monetary management in an open economy must be dealt with in a way different from what has been usual, and they conclude that monetary policy, central banks' intervention on the foreign exchange market and direct controls on capital movements can still have some efficiency in the struggle against inflation, either of the domestic or the imported type.     

Tax Level and Tax Internalization Effects on Union Wage Bargaining

High taxes and generous social benefits are often blamed for causing unemployment. The conventional view is that if taxes on labour are (too) high, jobs will be lost and that generous social benefits will exert an upward pressure on unions' wage claims. In the case where unions co-ordinate their wage bargaining strategy, this need not be the case. A simple model is used to illustrate the effects of the tax rate level and tax internalization on unions' wage bargaining strategy. A high marginal tax rate along with endogeneity of the average tax rate shifts the union's trade-off between wages and employment in favour of the latter. These shifts may have contributed to the success of the so-called polder model or tulip model of the Netherlands.     

Rational spirits and the post Keynesian macrotheory of microeconomics

Summary The argument that post Keynesian theory rejects rationality and maximization as a basis of agent behaviour and is thus non-rational and lacking micro-foundations is contrasted by reference to Keynes' use of his early work on probability in the General Theory. Instead of presuming rational choice over perfectly known events, post Keynesian theory builds on Keynes' explanation of agents' rational beliefs in uncertain propositions about their knowledge of the world. These rational spirits lead to the recognition of the macro constraints to individual action or a macrofoundations of microeconomics linked to the role of money and to the role of liquidity preference as both a measure of rational belief and a determinant of money prices which equate the rates of return on all existing and newly produced goods. In this equilibrium prices will generally diverge from costs of production, in contrast to perfect competition but in concordance with the post Keynesian microeconomic theories of mark-up pricing.Comments by L. Hoogduin are gratefully acknowledged. He is relieved from any responsibility for my impressionistic presentation of Keynes' views on probability.     

Toegepaste welvaartseconomie en de marginale kostenregel

Enkele opmerkingen naar aanleiding van F. Hartog, Toegepaste welvaartseconomie, Stenfert Kroese N.V., Leiden 1964 216 blz     

The golden rule of accumulation and the open economy

Summary This paper examines the factors which determine the volume of consumption per capita in a small open economy in the long run. The analysis is based on a neoclassical model. It is proved that-in general — Phelps' golden rule of accumulation does not hold for an open economy. This conclusion follows from the decline in the terms of trade, which is generated in an open economy by an increase in the share of investment. The influence of labour supply and world expenditure on the consumption per capita also depend heavily on the induced change in the terms of trade. The analytical results of the model are illustrated by means of a few numerical examples.This paper is written within the framework of the research program Possibilities and Limitations of National and International Economic Policy, code K.H.T. XIII-85-44.     

Exchange rate theories

Summary A four-period classification is used to categorise recent exchange-rate theories or models. In the very short period, only capital flows are relevant. In the short period, both capital flows and payments on the current account play a role. In the long period, the capital account and the current account are individually in equilibrium. In the very long period, purchasing power parity holds. Cash-in-advance models are dealt with separately. Many models that purport to explain exchange rates do in fact not provide for the exchange of currencies. No model stands up satisfactorily to econometric testing. Speculative bubbles, the peso problem and news play havoc with tests of the uncovered interest parity theorem, the core of the monetary models. This aside, the fundamental assumption of rational expectations itself is suspect. There does not seem to be such a thing as a true model.I am indebted to Dr. W.J.B. Smits and Professor J.W. Gunning for helpful discussions on a number of issues pertinent to this article.     

Public pensions and political decision-making

Summary A simple decision-making model regarding the financing method and benefit level of a public old age pension is developed. In line with existing literature, the decision-making process is supposed to be in the form of direct democracy, initially, In order to apply the model to a situation of a representative democracy, to wit the Netherlands, five social groups are considered which may be assumed to influence the decisions taken by the government organization. The empirical results show unanimous support for the PAYG system actually chosen at the start of the pension scheme in 1956. The results are highly suggestive, furthermore, as regards the fact that the financing method of the pension scheme has recently become a parliamentary issue. If one endorses the view that long-term considerations should be given a more preeminent place in this context, which would demand a change of the decision-making structure in favour of the young, then the political support for such a change would seem to be present at the moment.The research reported in this paper is part of the project Economic Policy and Conflicts of Interests of the University of Amsterdam (PEPCI paper 85.03). Helpful comments by Professor P. Hennipman and by participants in the workshop on The Origin and Future of Social Security Schemes at the Wissenschaftszentrum Berlin, December 13–14, 1984, in particular by Professor Charles Blankart, are gratefully acknowledged.     

Game equilibrium modelling

Summary Non-cooperative game theory has in recent years become one of the main tools in the social sciences and economics. It deals with decision problems of more than one (rational) player. The actions of those players result in outcomes that are the best that may have happened to a player, given the actions of the other players. This is precisely the content of the 'Nash equilibrium' concept. It would be nice when each game had a unique Nash equilibrium. Unfortunately, both non-existence and multiple equilibria occur. An important role in game theory is played by the information available to the players. Among the economic applications are: the Theory of Industrial Organisation, Bargaining and the Economic Theory of Information.Comments by Eric van Damme and Casper de Vries on an earlier draft of this paper have greatly improved the presentation. I have benefited from the comments of the editor and an anonymous referee ofDe Economist. For all omissions, all possible errors and the revealed views in this paper, I alone am responsible.     

Substitution assumptions versus empirical evidence in manpower planning

Summary There exist basically two manpower planning methodologies. Firstly, the manpower requirements approach which stipulates that there are needs in the economy for given numbers of qualified persons in the labour force. Secondly, the rate of return approach which focuses on the costs and benefits of producing one extra qualified person at the margin.This paper contrasts the theoretical foundations of the two approaches with particular emphasis on the degree of substitution between different types of educated labour. The empirical evidence on elasticities of substitution is reviewed and it is concluded that the cost-benefit model fits better the real world.I am indebted to Dr. Christopher Dougherty for reading a draft of this paper and making many important corrections.     

Testing Korteweg's rational expectations model for a small open economy

Summary Korteweg extended the Barro, Lucas, Sargent, Wallace type of rational expectations model to a small open economy. This paper tests Korteweg's model with Dutch data. A major error in the specification and estimation is pointed out and corrected: the differenced expected variables are not defined consistently. This error implies that Korteweg's and Bomhoff's previous empirical results on the model are invalid. The test results for the corrected model indicate that this model has to be rejected for The Netherlands. The restrictions implied by an extremely simple empirical alternative are, however, not rejected.I would like to thank Dr. Th.E. Nijman, Professors F. van der Ploeg, W.H. Buiter and J.J.M. Theeuwes and Dr. A. J. de Zeeuw for their stimulus and helpful comments on previous versions of this paper, and Professor P. Korteweg for his open-minded attitude towards this research. Responsibility for the contents remains, of course, with the author. Financial help, from the Stichting Bekker-La Bastide-Fonds and the Stichting A.A. van Beek-Fonds is gratefully acknowledged.     

Interdisciplinary economics

Summary Starting from Robbins and Hennipman and with the help of Becker and Lindenberg a theoretical framework has been constructed within which the strong points of economics and sociology are combined,viz,. the formal but relatively bare-bones modelling of economics and the often so much richer, in terms of social content, analysis of sociology. This theoretical framework also appears to enable more balanced analyses of the effectiveness and efficiency of legislation and regulation than the kind of law and economics so much in fashion at the moment, which is often not devoid of economism and in whichhomo econornicus still all too often figures as the prototype of man.(Economic Institute/Centre for Interdisciplinary Research on Labour Market and Distribution Issues (CIAV)); Associate of The Netherlands Interdisciplinary Demographic Institute (NIDI) in The Hague and the Interuniversity Center for Social Science Theory and Methodology (ICS). This article is an adapted version of my inaugural lecture.     

Post- war European economic development as an out of equilibrium growth path. The case of the Netherlands

The paper examines a number of aspects of post-war economic development of the Netherlands in the light of recent out of equilibrium growth theory. It contains a comparison of the stylized facts of the long run performance of the economies of the United States and the Netherlands which suggests that the US has been on an equilibrium growth path for more than a century, but that the Netherlands followed a radically different growth path, especially after 1945. It is attempted to explain this erratic behaviour of the investment ratio and the wage share after 1945 by examining two aspects more in detail: the financing of the acceleration of growth after 1945 and the phase of too rapid growth during the 1950s and 1960s, when the growth of the demand for labour tended to be higher than the increase in its supply.     

Financial instability and the real economy

Summary The paper deals with three different areas of the financial sphere: national moneys, exchange rates and financial claims, markets and institutions. For each of them, it tries to identify the main forms of instability which may occur, their causes and consequences for the real economy. Depending on the area concerned, the forms of instability include inflation, fluctuations and misalignments in interest rates, exchange rates and asset prices and finally solvency and liquidity crises of institutions. It is concluded that, over the last fifteen years, significant progress has been made in the policy framework to counteract instabilities in the national and monetary spheres. The conclusion is more mixed with regard to the structure of financial markets.[/p]We are grateful to Julian Alworth, Svein Andresen, Gavin Bingham, Joe Bisignano, Michael Hutchison and Paul van den Bergh for useful comments.     

Money creation and economic activity

Summary In the Netherlands not much attention is paid to money supply figures as an indicator of actual monetary conditions. This can be partly explained by the publication lag and the continuous revisions of seasonally adjusted data. However, the information that can be derived from money supply figures is limited because of temporary disturbances originating from the foreign exchange market. In this paper a correction method for these temporary disturbances is proposed. Money supply figures show a much closer link to real economic activity when corrected in this way.A different version of this essay with less emphasis on Holland but more information about other West-European countries has been published as chapter II Watching the money supply in: Eduard J. Bomhoff,Monetary Uncertainty, Amsterdam and New York, 1983. We gratefully acknowledge the able research assistance of Isolde B. Woittiez and Geert Rouwenhorst; Kempen and Co. kindly provided the two figures.     

Betting on the EMS

Two speculative strategies within the European Monetary System are empirically evaluated. The potential profitability of speculating on a currency's devaluation at a realignment crucially depends on being able to predict timing and magnitude of the parity change. Such opportunity has been eliminated from the system since 1983. For the reverse strategy of borrowing low, investing high, the evidence since 1983 suggests significant profitable opportunities for the weaker EMS countries — Belgium, Denmark, France and Italy — unconditional on knowledge of the timing of realignments. We conclude that this is due to a peso problem type of premium.     

Economische orde,economische politiek en sociale politiek

Naar aanleiding van een bundel opstellen van dr J. Zijlstra, Economische Orde en Economische Politiek, H. E. Stenfert Kroese N.V., Leiden 1956, 143 blz. en een bundel opstellen van dr G. M. J. Veldkamp, Economische Orde en Sociale Politiek, H. E. Stenfert Kroese N.V., Leiden 1957, 156 blz.     

International mass migration: A threat to Europe's borders and stability?

Summary Western Europe has become an epicentre of international migration. Theoretical considerations about the onset and persistence of international migration flows suggest that major inflows over extended periods would result if the migration process would be allowed to unfold in a natural fashion. However, massive migratory inflows would put severe strains on the receiving countries and, consequently, the governments will resist them. A systematic examination of current entry gates shows that these gates have already narrowed down considerably. From that perspective mass migration does not, at the moment, seem to offer a serious threat to Western Europe's borders or stability. Nevertheless, for the longer term a largely administrative response to the phenomenon of increased migration pressure is likely to be inadequate. Those politically responsible should re-establish their primacy in this area of policymaking, and should insist on a Western European approach which is neither altruistic nor harsh, but seeks to combine humanitarian and socio-economic considerations in a way acceptable to both the major sending and receiving countries. Setting quota would have to be an essential element of that new approach.     

Bijdrage tot de theorie van de commerciele prijspolitiek

Tweede lezing voor de Economische Faculteitsvereniging te Groningen, gehouden op 21 februari 1958. Zie voor de eerste lezing, Variaties op een thema van Böhm-Bawerk, De Economist, April 1957, blz. 292 e.v.     

Charles Kindleberger: An Impressionist in a Minimalist World

Minimalist economists stubbornly resist Charles Kindlebergers characterization of investor expectations in a financial bubble as irrational. This paper seeks to resolve the controversy by imbedding Kindlebergers well-researched, impressionistic theory of financial crises into an expanded, but still-minimalist model of rational expectations. Introducing the concepts of malicious disinformation and rational overpromotion creates an informational environment in which it is time-consuming and costly to distinguish fact from fiction. Rationality still requires that expectations and market fundamentals move together over long periods of time, but dishonorable overpromoters can earn substantial profits in the interim.     

Interpretation of error covariances with nonrandom data: An empirical illustration of returns to college education

Conclusion This paper reviews two models of selectivity and gives an interpretation of the covariance terms that are particular to self-selectivity models. While the second model examined in this paper has been discussed elsewhere, the estimates presented for the first model have not been discussed in previous papers. More importantly though, the paper proposes an hypothesis about the expected relationship between error covariances. According to this hypothesis, if all individuals who are faced with the choice between two regimes (1 and 2) choose the regime which yields a maximum value, then the expected relationship between covariances is ₁ < ₂ . If all individuals choose that regime which yields a minimum value, then the expected relationship between covariances is ₁ > ₂ . This relationship holds for a very general class of selectivity models, so long as individuals are choosing between regimes by comparing the expected value (to them) of each regime.This paper was written while I was working under the professional development program at CNA.