Equity risk premium and time horizon: What do the U.S. secular data say?

We consider a representative investor whose wealth is made up of the equity market portfolio and the riskless asset, and who maximizes the expected utility of his/her future wealth for a given horizon. The solution of this program shows that the equilibrium value of the equity risk premium – the latter being measured by the difference between the expected equity portfolio return and the risk-free interest rate – is given by the product of the price of risk by the expected variance of stock returns. When returns are predictable, these two magnitudes are both time-varying and horizon-dependent. In accordance with this theoretical framework, our paper presents an econometric model of the equity risk premia for two traditional horizons: the one-period-ahead horizon (i.e. the ‘short-term’ premium) and the infinite-time horizon (i.e. the ‘long-term’ premium). Using annual US secular data from 1871 to 2008, and representing the expected returns by mixing the three traditional adaptive, extrapolative and regressive processes, large disparities in the dynamics of the two premia are evidenced. Concerning the determination of the equilibrium values of the two premia, the expected variances depend on the past values of the centered squared returns while the prices of risk (unobservable variables) are estimated according to the Kalman filter methodology, which enables us to capture the influence of hidden variables and of non-directly measurable psychological effects. A spread of interest rates adds to this determination. Possibly due to risky arbitrage and transaction costs, the results show that observed premia gradually converge towards their equilibrium values, this process being described by an error correction model. Overall, our model provides a rather satisfactory representation of ‘short-term’ and ‘long-term’ premia.     

Trade with China: do the figures add up?

There are wide discrepancies in bilateral trade data compiled by China and by its trading partners, particularly the United States. This paper investigates the main reasons, notably the role of Hong Kong as an entrepôt, and develops a methodology to provide more accurate estimates for these trade flows. It extends the Sung—Lardy method in recent literature and achieves a reconciliation of the two data sets by China and by its major partners. The method recognizes that both the Chinese and the partners' data are likely to be distorted and demonstrates that a complete picture can he constructed by using data recorded from Hong Kong. A new estimate of the re-export margins in Hong Kong on Chinese exports is presented and used in the data reconciliation exercises, and problems of valuation and transit lag when comparing an export series with its counterpart import series are taken into account by the new method. The effects of using proved data are demonstrated in an application to examine fair market access in China—US bilateral trade undertaken by Tower (1993).     

Short- and long-term unemployment: How do temporary layoffs affect this distinction?

In this paper, we provide new evidence on how to model unemployment durations in the presence of temporary layoffs. Two different types of econometric models are used: the multiple phase duration model and the competing risks model. Special attention is paid to the possibility of time-varying or non-proportional effects of the explanatory variables on the hazard function. The results show that instead of using the multiple phase duration model as an alternative to the competing risks model, it may be more fruitful to use it to extend the specification of the competing risks model. First version received: August 2000/Final version accepted: July 2001 RID="*" ID="*"  Financial support from the Danish National Research Foundation is gratefully acknowledged. We thank Gerard van den Berg, Per-Anders Edin, Niels Haldrup, Winfred Pohlmeier and anonymous referees for useful comments. We also thank Jens Chr. Thellesen for research assistance.     

What is unemployment in Europe? Concepts and measurement in the European community household panel

The purpose in this article is to evaluate the consistency between two measures of unemployment in a cross-country context. We use the European Community Household Panel to identify unemployment at an individual level based as well on the ILO criteria for being classified as unemployed as on the individual respondent reporting to be unemployed. This opens a unique opportunity to compare unemployment measured in two different ways based on a cross European Union panel study covering the years 1994 to 2001. The two main questions addressed in this article are to which extent the two unemployment measures differ and whether transition rates out of unemployment depend on which concept we use. Both questions are answered in the affirmative. The overall conclusion is that it is important, especially in some of the EU countries, to include both measures of unemployment as guidelines and indicators for policy.     

The Netherlands and the United Kingdom: a European unemployment miracle?

Unemployment rates in both the UK and the Netherlands have declined substantially since the early 1980s. This has been a decline in equilibrium unemployment, the result of combinations of supply-oriented policies. The combinations are partly overlapping and partly differing between the two countries. The main difference is in wage negotiations: where the Dutch unions were already co-operative, British unions were made to co-operate. The main overlap is in the popularity of part-time work and the re-enforcement of financial incentives for work for unemployed workers collecting benefits.     

Causality Between Exports and Economic Growth: What do the Econometric Studies Tell Us?

This paper contains an assessment of major econometric studies that have estimated the causality between exports and economic growth. These studies have used a variety of methodological approaches, such as Granger causality, cointegration with multivariate error correction models, exogeneity and structural invariance, VAR models with variance decomposition, and impulse response functions. The assessment in this paper refers both to the methodologies employed as well as to the empirical findings. A major conclusion is that empirical support for the export‐led growth in both the developed and the developing countries is considerably weaker than was estimated on the basis of earlier correlation and production function studies.     

How do firm characteristics affect the subsidies provided by the unemployment insurance system?

The experience-rated method of financing unemployment insurance in the US is incomplete because of the imposition of both maximum and minimum tax rates. The result is a pattern of cross-subsidization to those firms that generate considerable layoffs from those firms that exhibit a stable pattern of employment. Past studies have investigated this cross-subsidization by industries, but have not examined in detail whether or not the characteristics of the firm play an important role. The research presented herein examines the relationship between particular characteristics of the firm – age, size, average wage, and seasonality of employment – and their effect on whether the firm is subsidized or not. Other than the industry classification, age appears to be the most significant determinant of subsidization. It appears that both young and old firms display a higher probability of subsidizing middle-age firms.     

Can Google data help predict French youth unemployment?

According to the growing “Google econometrics” literature, Google queries may help predict economic activity. The aim of our paper is to test whether these data can enhance predictions of youth unemployment in France.Because we have weekly series on web search queries and monthly series on unemployment for 15- to 24-year olds, we use the unobserved components approach in order to exploit all available information. Our model is estimated with a modified version of the Kalman filter, taking into account the twofold issue of non-stationarity and multiple frequencies in our data.We find that including Google data improves unemployment predictions relative to a competing model that does not employ search data queries.     

A replication note on unemployment in the OECD since the 1960s: what do we know?

Nickell et al. (Econ J 115(500):1–27, 2005) argue that unemployment rates cointegrate with labour market institutions in a panel of OECD countries. This paper replicates their Maddala–Wu panel cointegration test and shows that this test is only valid when (i) the number of countries tends to infinity and (ii) the underlying country-specific cointegration tests are independent. Their finding of cointegration does not survive when small sample properties and heterogeneous cross-sectional dependencies are taken into account. We acknowledge financial support from the Interuniversity Attraction Poles Program, Belgian Science Policy, contract no. P5/21. The usual disclaimer applies.     

Entrepreneurship and unemployment: A nonlinear bidirectional causality?

This paper tests the view that the relation between unemployment and entrepreneurship is dynamic and possibly nonlinear. It performs Granger-causality tests and STAR-EXT estimation to assess the causality direction and the nonlinear nature of the relation for a set of OECD countries. The results reveal a bidirectional and nonlinear relation between business creation and changes in unemployment.     

Clean Energy Trade Governance: Reconciling Trade Liberalism and Climate Interventionism?

Scaling-up clean energy is vital to global efforts to address climate change. Promoting international trade in clean energy products (e.g. wind turbines, solar panels) can make an important contribution to this end through business and market expansion effects. If ratified, the landmark Paris COP21 Agreement will commit states to firmer climate actions, this necessarily requiring them to strengthen their promotion of clean energy technologies. Well over a hundred countries already have active policies in this area, many including industrial policy measures that impact on the international competitiveness of their clean energy sector. At the same time, governments have gradually liberalised their clean energy trade regimes, and large producers are negotiating an Environmental Goods Agreement (EGA). Clean energy trade is expanding and disputes among nations in this sector are growing. The World Trade Organisation (WTO) still has limited ‘policy space’ for climate action. Meanwhile, the United Nations Framework Convention on Climate Change (UNFCCC) still had narrow and infrequent connections with trade matters. Moreover, WTO-UNFCCC engagement on trade-climate issues overall has been largely confined to information sharing and secretariat-level dialogue. This paper explores the extent to which clean energy trade is currently governed, where certain governance gaps and deficiencies exists, and argues why addressing them could help expand trade in clean energy products. It also contends that the most fundamental challenge for the future governance of clean energy trade concerns how to reconcile ramped-up interventionist climate action with an essentially liberal trade order.     

Trade,finance or policies: What drives the cross-border spill-over of business cycles?

In this paper we investigate how income growth rates in one country are affected by growth rates in partner countries, testing for the importance of pairwise country links as well as characteristics of the receiving country (trade and financial openness, exchange rate regime, fiscal variables). We find that trade integration fosters the spill-over of business cycles, both bilaterally and as a country characteristic (trade openness). Results for financial integration are mixed; financial links as pairwise country characteristic are either insignificant or negatively signed (indicating a dampening of cross country spill-overs), but financial openness as characteristic of the receiving country amplifies spill-overs. We find no evidence for a role of the exchange rate regime. Finally, we find that higher government spending and debt reduces countries’ vulnerability to foreign business cycles, presumably through the effect of automatic stabilizers.     

Trade in goods and services: Two sides of the same coin?

This study analyzes the interrelationship between goods and services in production and trade using the most recent input–output tables for all OECD countries. It first describes the role of services in production and trade in goods. Next, it proposes two models for analyzing the impact of services trade liberalization on industrial structure. The first captures the role of trade in tasks when countries have different technology i) in production of services; and ii) in organizing production. The latter has to the author's knowledge not been analyzed in the trade literature before. Countries with superior organizational technology (e.g. Japan) will strengthen their comparative advantage in manufacturing following trade liberalization in services. The second model explores the interrelationship between intermediate goods and services i) when they are substitutes; and ii) when they are complements. In both models the gains from trade liberalization is non-linear in trade costs. Going the last mile of liberalization has a much larger impact than taking the first steps.     

An evaluation of the relationship between minimum wage and unemployment: does the local cost-of-living matter?

This article examines the relationship between federal, state and municipal minimum wage laws, local cost-of-living (COL) and the unemployment rate. It finds a strong statistically significant positive relationship between minimum wages and unemployment once COL is taken into account. Our results suggest that federal minimum wage policy is likely to have more harmful effects in rural/low cost areas.     

Is unemployment good for the environment?

Environmental quality is a public good, potentially impacted by everybody. Individual level pro-environmental behavior affects environmental quality in the aggregate. Therefore, it is important to understand what causes individual’s pro-environmental behaviors to change. We quantify the causal effect of one determinant, unemployment, using an EU-27 population representative Eurobarometer survey. Drawing on results from the theory of the private provision of public goods, and recognizing that unemployment decreases income and the opportunity cost of time, we formulate testable predictions that unemployment will decrease the extent of pro-environmental behaviors that require monetary contributions and increase the extent of pro-environmental behaviors that mainly require time/effort. Instrumental variables regressions provide empirical evidence to support these hypotheses. Changes in the unemployment rate within a sub-national region provide the exogenous variation needed to identify the causal effect. Several supplemental questions on the survey provide evidence that environmental issues lose saliency and economic issues gain saliency when one becomes unemployed, suggesting that interested parties may wish to emphasize cost savings of pro-environmental behavior rather than environmental benefits during times of increased unemployment.     

Can Trade Agreements Curtail Trade Creation and Prevent Trade Diversion?

This paper investigates how pre‐existing preferential trade agreements (PTAs) dilute the trade creation effect and shield the trade diversion effect of new PTAs. Countries having pre‐existing PTAs enjoy smaller gains in intra‐bloc trade because of the dilution effect and experience smaller losses or even gains in extra‐bloc trade because of the shielding effect. The findings support the proposition that PTAs could be used to fend off future trade diversion.