Consumption,wealth and business cycles in Germany

This paper studies the long-run relationship between consumption, asset wealth and income—the consumption–wealth ratio—based on German data from 1980 to 2003. We find that departures from this long-run relationship mainly predict adjustments in income. The German consumption–wealth ratio also contains considerable forecasting power for a range of business cycle indicators, including the unemployment rate. This finding is in contrast to earlier studies for some of the Anglo-Saxon economies that have shown that the consumption–wealth ratio reverts to its long-run mean mainly through subsequent adjustments in asset prices. While the German consumption wealth ratio contains little information about future changes in German asset prices, we report that the U.S. consumption–wealth ratio has considerable forecasting power for the German stock market. One explanation of these findings is that in Germany—due to structural differences in the financial and pension systems—the share of publicly traded equity in aggregate household wealth is much smaller than in the Anglo-Saxon countries. We discuss the implications of our results for the measurement of a potential wealth effect on consumption. The views expressed in this paper are those of the authors and do not reflect the position of the Deutsche Bundesbank. We gratefully acknowledge comments and suggestions from an anonymous referee as well as from Heinz Herrmann, Helmut Lütkepohl, the editor, Baldev Raj, Burkhard Raunig, Monika Schnitzer, Harald Uhlig and Christian Upper. We also benefitted from comments by seminar participants at the ECB, the Deutsche Bundesbank, the CESifo Macro, Money and International Finance Area Conference 2005, the EEA 2005 annual congress and at the 2005 IAEA Meetings. Last but not least, we would like to thank Mark Weth for very useful information concerning the construction of the financial wealth data. Hoffmann’s work on this paper is also part of the project The International Allocation of Risk funded by Deutsche Forschungsgemeinschaft in the framework of SFB 475. Responsibility for any remaining errors and shortcomings is entirely our own.     

Growth and the current account: Malaysia and Singapore

A foreign trade model is estimated for two South East Asian countries, selected because they represent two extremes as far as the current account balance is concerned—Malaysia, deficit, Singapore, surplus. The specification highlights, (a) the simultaneous interdependence of exports and import flows—a result of what Krugman [1995] denotes as the slicing up of the production process—and, (b) the impact of investment on imports as a result of productivity shocks on the current account. The estimation results point to the instability of the market for foreign exchange. Using an intertemporal framework, a methodology to derive the external long run equilibrium is applied to the estimated model. The implied constraint on domestic growth turns out to be mild. This research has been financed by the Dgicyt under grant PB94-1502, and the Junta de C. y L. under grant SA 35/97. The comments and suggestions of the editor of the journal and an anonymous referee are gratefully acknowledged. The paper has also benefited from the comments of the participants at the Fifty-First International Atlantic Economic Conference, March 13–20, 2001, Athens, Greece, and at the AEA conference on New Financial Instruments and Emerging Markets, Paris, 1998. Any possible remaining errors are the authors.     

Sensitivity analysis of job-training effects on reemployment for Korean women

The main difficulty in treatment effect analysis with matching is accounting for unobserved differences (i.e., selection problem) between the treatment and control groups, because matching assumes no such differences. The traditional way to tackle the difficulty has been “control function” approaches with selection correction terms. This paper examines relatively new approaches: sensitivity analyses—sensitivity to unobservables—in Rosenbaum (Biometrika 74:13–26, 1987), Gastwirth et al. (Biometrika 85:907–920, 1998) and Lee (J Appl Econ 19:323–337, 2004). These sensitivity analyses are applied to the data used in Lee and Lee (J Appl Econ 20:549–562, 2005) to see how the assumption of no unobserved difference in matching affects the findings in Lee and Lee, to compare how the different sensitivity analyses perform, and to relate the “sensitivity parameters” in the different sensitivity analyses to one another. We find (i) the conclusions in Lee and Lee are weakened in the sense that only the “strong” ones survive, (ii) the sensitivity analysis in Rosenbaum (Biometrika 74:13–26, 1987) is too conservative (and inferior to Gastwirth et al.’s), and (iii) Gastwirth et al.’s and Lee’s approaches agree on some findings to be insensitive, but the two approaches also disagree on some other findings. The authors are grateful to the Editor and anonymous reviewers for their constructive and helpful comments.     

Growth,Convergence, and Social Cohesion in the European Union

The aim of this paper is to analyze the economic and social cohesion in the European Union. There are different factors to explain the convergence process and besides, empirical findings are not conclusive. To the European Union, GDP per head interregional differences have decreased for certain periods but it has remained unchanged or even increased for others periods. The second report on the economic and social cohesion indicates that some decades are necessary to eliminate regional differences. These differences in regional GDP are mainly explained by differences in their productive structures, degree of innovate activity, communications structures, which depend on the relative level of transport infrastructures, and manpower qualifications. This analysis allows us to obtain some conclusions to the economic policies and the social cohesion. A preliminary version of this paper was presented in the 57th International Atlantic Conference, held in Lisbon, Portugal, March 10–14, 2004.     

Human capital and economic growth revisited: A dynamic panel data study

This paper examines the role of human capital on economic growth by using a large panel of data including 93 countries. Given the cross-sectional character in most of the relevant studies, there is a possibility that when the long-run dynamics are considered, education might not be a significant determinant of growth. Following a dynamic panel data approach, the analysis indicates that education has, indeed, a significant and positive long-run effect on economic growth. Moreover, the size of this effect is stronger as the level of education (primary, secondary, and tertiary) increases. This has a straightforward policy implication that governments taking actions towards an expansion of their higher education may well expect larger gains in terms of higher economic growth in their countries. This is a revised version of a paper presented at the Fifty-first International Atlantic Economic Conference, Athens, Greece, March 13–20, 2001, and also at the conference on Post-Euro Era at the University of Ioannina, Greece, January 27–28, 2000. The authors would like to thank participants in both conferences and, in particular, Nick Apergis for his comments and useful suggestions on earlier drafts. The authors remain responsible for any shortcomings of the paper.     

Competitive equilibrium when preferences change over time

Summary. We show the existence of a competitive equilibrium in an economy with many consumers whose preferences may change over time. The demand correspondence of an individual consumer is determined by the set of subgame-perfect equilibrium outcomes in his intrapersonal game. For additively separable preferences with concave period utility functions that are unbounded above, this demand correspondence will satisfy the usual boundary conditions. Whenever consumers can recall their own mixed actions, this correspondence is convex-valued. This ensures the existence of a symmetric competitive equilibrium.Received: 29 July 2004, Revised: 17 November 2004, JEL Classification Numbers: D51, D91, C73. Correspondence to: Thomas MariottiWe thank Michele Piccione for useful comments and suggestions. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.     

Balanced cycles in an OLG model with a continuum of finitely-lived individuals

This paper studies the intertemporal equilibrium of a barter economy populated with a continuum of finitely-lived overlapping generations. Assuming isoelastic preferences and zero endowments at the beginning and the end of the individuals’ life-span, it proves the existence of an Hopf bifurcation and provides sufficient conditions on parameters for its occurrenceThe authors would like to thank an anonymous referee, Alain Venditti and Francesco Ricci for helpful comments and suggestions     

Exchange Rate Unification Under Non-Credibility: The Haïtian Economy

This paper builds on three strands of literature—Early Warning Systems (EWS), parallel exchange rates, and collapsing exchange rate regimes—by addressing the issue of credibility in the context of unification of the exchange rate in the Haïtian economy. It takes the view that when policymakers are perceived as non-credible, economic agents resort to observation of the economy's performance to assess the imminence of reforms. They then readjust their own behavior, particularly in the area of asset holdings. This paper models the adjustment process using the EWS ratios. Data supports the idea that credibility of the reform mounts over time reaching 85 percent on the eve of the reform.Winston-Salem State University—U.S.A. I would like to thank Mina Baliamoune and an anonymous referee of this journal for helpful comments and suggestions. All remaining errors are my responsibility.     

Potential output growth in several industrialised countries a comparison

In this paper, we present international comparisons of potential output growth among several economies—Canada, the euro area, France, Germany, Italy, Japan, the Netherlands, the United Kingdom, and the United States—for the period 1991–2004, for which we construct consistent and homogenous capital stock series. The main estimates rely on a structural approach where output of the whole economy is described by a Cobb–Douglas function and Total Factor Productivity (TFP) is estimated allowing for possible breaks in the deterministic trend. The results confirm that over the considered period the potential gross domestic product growth has been faster in the United States than in other studied countries, reflecting a combination of higher labour contribution and faster TFP growth. Overall, this paper might help to shed some light on cross-country differences in economic performance over the recent period.     

Modeling the European cycle with factor structure and regime switching

This paper compares the stylized facts of the European growth cycle stemming from the Gross Domestic Product (GDP) of the European Monetary Union with an unobserved common factor derived from a dynamic factor model with regime switching. The aim of this paper is to provide empirical evidence about the most adequate indicator for short-term monitoring of the cyclical state of the European economy. Previous versions of this article have been presented at the 55th International Atlantic Economic Conference (Vienna, Austria, March 12–16, 2003) and at the VI Encuentro de Economía Aplicada (Granada, Spain, June 5–7, 2003). The author would like to thank the conference participants and an anonymous referee for their comments and suggestions.     

The Bank Lending Channel and Monetary Policy Rules: Evidence from European Banks

There exist two main channels of the monetary transmission mechanism: the interest rate and the bank lending channel. This paper focuses on the latter, which is based on the central bank’s actions that affect loan supply and real spending. The supply of loans depends on the monetary policy indicator, which, in most studies, is the real short-term interest rate. The question investigated in this paper is how the operation of the bank lending channel changes when this short-term indicator is allowed to be endogenously determined by the target rate the central bank sets through a monetary rule. We examine the effect that a rule has on the bank lending channel in European banking institutions spanning the period 1999–2009. The expectations concerning inflation and output affect the decision of the central bank for the target rate, which, in turn, affect private sector’s expectations —commercial banks— by altering their loan supply.     

Potentializability and consistency for multi-choice solutions

The paper introduces and discusses several characterizations of the multi-choice Shapley value (introduced by Nouweland et al. in ZOR-Math Methods Oper Res 41:289–311, 1995), on the domain of multi-choice games. These characterizations generalize the potential approach and results of Calvo and Santos (Math Soc Sci 34:175–190, 1997) into this domain, and the relations are treated with the axiomatic approach in Calvo and Santos (Math Soc Sci 40:341–354, 2000). Also, based on the axioms of two-person standardness and consistency, we offer an axiomatization of the multi-choice Shapley value. The authors are grateful to Professor Sjaak Hurkens and the anonymous referees for very helpful suggestions and comments.     

The absolute health income hypothesis revisited: a semiparametric quantile regression approach

This paper uses the 1998–1999 Canadian National Population Health Survey data to examine the health–income relationship that underlies the absolute income hypothesis. To allow for nonlinearity and data heterogeneity, we use a partially linear semiparametric quantile regression model. The “absolute income hypothesis” is partially true; the negative aging effects appear more pronounced for the ill-healthy population than for the healthy population and when annual income is below 40,000 Canadian dollars. We would like to thank two anonymous referees and Baldev Raj, the editor, for useful and constructive comments and suggestions. The views expressed in this article are those of the authors and do not necessarily reflect the views of Statistics Canada. Both authors would also like to acknowledge financial support from SSHRC of Canada.     

Harvesting in an integrated general equilibrium model

Harvesting of prey biomass is analyzed in an integrated ecological-economic system whose submodels, a predator–prey ecosystem and a simple economy, are microfounded dynamic general equilibrium models. These submodels are interdependent because the ecosystem responds to harvesting—through the reactions of optimizing individual organisms—by changing the provision of public ecosystem services to consumers. General analytical results are derived regarding the impact of harvesting policies on short-run equilibria of both submodels, on population dynamics, and on stationary states of the integrated model. A key insight is that prey biomass carries a positive ecosystem price which needs to be added as a tax mark-up to the economic price of harvested biomass to attain allocative efficiency. Further information on the dynamics is gained by resorting to numerical analysis of the policy regimes of zero harvesting, laissez-faire harvesting and efficient harvesting.

It “... is a matter of weighing costs and benefits of taking action, whether the action is the “inert” one of leaving resources alone in order to conserve them, or whether it involves exploiting a resource ... for so-called material ends”. Pearce (1976, p. 320)

Helpful comments from an anonymous referee are gratefully acknowledged. Remaining errors are the authors’ sole responsibility.     

Nonlinearities and the Business Cycle in Spanish Imports: A Smooth Transition Regression Approach

Traditional specifications about imports have their foundations on the symmetry of the cycle. However, the wide debate about the asymmetric character of the cycle has aroused much interest in nonlinear dynamics due to the cyclical state of the economy. Economic theory maintains a linear long-run relationship linking imports, GDP and relative prices. This paper analyzes whether short-run deviations from this equilibrium display any kind of nonlinear behavior related to the state of the cycle. Nonlinearities will be captured by an error correction smooth transition regression (STR). Empirical evidence, focused on Spanish imports of goods, supports that short-run deviations of this variable from its linear equilibrium state display a nonlinear behavior. As it is demonstrated, this evolution is caused by the cyclical state of the economy. A previous version of this article has been presented at the 65th International Atlantic Economic Conference (Warsaw, Poland, April 9–12, 2008). The authors would like to thank the conference participants and an anonymous referee for their comments.     

On the optimality and sustainability of Turkey’s current account

We analyze Turkey’s current account optimality and sustainability between 1992 and 2004. Using the intertemporal benchmark model for Turkey’s current account we test for its intertemporal solvency. Based on traditional and alternative tests (which account for persistence in the current account), we conclude that Turkey breached the intertemporal solvency condition in the sample period. In addition, stationarity tests of the deviation between actual and optimal net external liabilities series confirm that Turkey’s current account deficit was unsustainable for that period. However, further econometric investigation and analysis of reforms causes us to question our conclusions of non-optimality and unsustainability of the Turkish current account for the latter part of the period. We are indebted to two anonymous referees for insightful comments and suggestions. We would also like to thank seminar participants at Middle Eastern Technical University, Ankara, Turkey, for comments on an earlier version of this paper. Responsibility for all errors remains with the authors.     

von Neumann–Morgenstern stable sets of income tax rates in public good economies

This paper studies the von Neumann–Morgenstern stable sets in a public good economy, where any allocation is achieved through a proportional income tax system. The outcome of the economy is defined to be a set of tax rates. We show that whenever the core as the set of tax rates is nonempty, it is a unique stable set. When the core is empty, the set of tax rates is a stable set if and only if the set is a singleton consisting of a tax rate satisfying a certain condition. We show the existence of such stable sets. The author is grateful to Mikio Nakayama, Jun Wako and an anonymous referee for their helpful comments and suggestions. He is also grateful to Youngsub Chun, Takuya Masuzawa and Shigeo Muto for their helpful comments.     

Quasi-fundamental exchange rate variation

Summary. This paper uses a general equilibrium model to study the determination of the exchange rate in an economy with fundamental uncertainty. The model has steady state equilibria in which the exchange rate is constant. These equilibria may coexist with “quasi-fundamental” equilibria – nonstationary equilibria in which the exchange rate displays stochastic fluctuations that are correlated with the fluctuations in fundamental random variables. The quasi-fundamental equilibria are Pareto dominated by the corresponding constant-exchange-rate steady states. They also converge to these steady states, inevitably or with positive probability. Received: October 2, 1999; revised version: March 26, 2002 RID="*" ID="*" This paper began as a joint project with Alex Mourmouras, who has made many helpful comments and suggestions but is not responsible for any errors or deficiencies. In addition, I thank an anonymous referee for helpful comments.     

One-sided provision of a public good through bargaining under representative democracy

We examine a trade-off between strategic delegation and the internalization of interregional externalities through bargaining in the context of political economy. We show that in the case of one-sided provision of a public good, if the public good produced by one region generates a sufficiently significant spillover to another region, then interregional negotiation increases the total surplus of the entire economy.     

Food security implications of global marine catch losses due to overfishing

Excess fishing capacity and the growth in global demand for fishery products have made overfishing ubiquitous in the world’s oceans. Here we describe the potential catch losses due to unsustainable fishing in all countries’ exclusive economic zones (EEZs) and on the high seas over 1950–2004. To do so, we relied upon catch and price statistics from the Sea Around Us Project as well as an empirical relationship we derived from species stock assessments by the U.S. National Oceanic and Atmospheric Administration. In 2000 alone, estimated global catch losses amounted to 7–36% of the actual tonnage landed that year, resulting in a landed value loss of between 6.4 and 36 billion (in 2004 constant US6.4 and 36 billion (in 2004 constant US). From 1950–2004, 36–53% of commercial species in 55–66% of EEZs may have been overfished. Referring to a species-level database of intrinsic vulnerability (V) based on life-history traits, it appears that susceptible species were depleted quickly and serially, with the average V of potential catch losses declining at a similar rate to that of actual landings. The three continental regions to incur greatest losses by mass were Europe, North America, and Asia—forming a geographic progression in time. But low-income and small island nations, heavily dependent on marine resources for protein, were impacted most profoundly. Our analysis shows that without the inexorable march of overfishing, ~20 million people worldwide could have averted undernourishment in 2000. For the same year, total catch in the waters of low-income food deficit nations might have been up to 17% greater than the tonnage actually landed there. The situation may be worst for Africa, which in our analysis registered losses of about 9–49% of its actual catches by mass in year 2000, thus seriously threatening progress towards the UN Millennium Development Goals.