A politically feasible social security reform with a two-tier structure

This paper investigates the welfare implications and political feasibility of social security reforms with a two-tier structure in Japan. We evaluate social security reforms from two points of view: (i) the ex-ante expected value of future generations, and (ii) whether current generations prefer reform to the status-quo system, which we call political feasibility. To evaluate the reforms, we use a large-scale overlapping generations model with idiosyncratic income risk and a two-tier structure. The first tier guarantees a basic pension and the second tier consists of the earnings-related part. Calibrating the parameters of the model to the Japanese economy, we compute the transition path and the two welfare criteria. We find that, given the two-tier structure in Japan, an increase in the basic pension and the abolition of the earnings-related part of the social security system improve the welfare of future generations, and ensures political feasibility when a consumption tax is the source of revenue.     

Fiscal policy switching in Japan, the US, and the UK

This paper estimates fiscal policy feedback rules in Japan, the United States, and the United Kingdom for more than a century, allowing for stochastic regime changes. Estimating a Markov-switching model by the Bayesian method, we find the following: First, the Japanese data clearly reject the view that the fiscal policy regime is fixed, i.e., that the Japanese government adopted a Ricardian or a non-Ricardian regime throughout the entire period. Instead, our results indicate a stochastic switch of the debt-GDP ratio between stationary and nonstationary processes, and thus a stochastic switch between Ricardian and non-Ricardian regimes. Second, our simulation exercises using the estimated parameters and transition probabilities do not necessarily reject the possibility that the debt-GDP ratio may be nonstationary even in the long run (i.e., globally nonstationary). Third, the Japanese result is in sharp contrast with the results for the US and the UK which indicate that in these countries the government’s fiscal behavior is consistently characterized by Ricardian policy.     

Fiscal sustainability in Japan

This paper investigates fiscal sustainability of Japan by providing a dynamic stochastic general equilibrium (DSGE) model that features the low interest rate of the government bond relative to the economic growth rate to mimic the actual data. We evaluate fiscal sustainability by investigating whether the expected path of the debt-to-GDP ratio stabilizes or increases without bound. The debt-to-GDP ratio depends crucially on the projected growth rate and the fiscal policy rule. If the government does not react to the current fiscal crisis, the debt-to-GDP ratio will increase without bound, and then the fiscal policy is not sustainable. If the fiscal rule uses Bohn’s (1998) idea that involves the response of the primary surplus to the debt, sustainability improves. This rule provides a useful and realistic reform plan in the short and long runs.     

Forecasting U.S. car sales and car registrations in Japan: Rationality, accuracy and herding

We analyze forecasts of car sales in the U.S. and forecasts of car registrations in Japan. We document a substantial heterogeneity of forecasts, and we show that, based on traditional criteria, forecasts are neither rational nor unbiased. We also report that forecasters anti-herd, that is, forecasters seem to intentionally scatter their forecasts around a consensus forecast. We further show that cross-sectional heterogeneity of forecasts with regard to anti-herding transmits onto cross-sectional heterogeneity of forecast accuracy. Specifically, we document that forecasters who herd provide more accurate forecasts than their colleagues who anti-herd.     

Money demand in China and time-varying cointegration

Many studies analyze the money demand using a (fixed coefficient) cointegrating regression model, which may not be appropriate to deal with the money demand of a transition economy like China. This paper investigates this issue using a time-varying cointegration approach based on the quarterly data from 1996 to 2009. We find some interesting results: (i) the estimates of the income elasticities are between 0.60 and 0.75, which are comparable with the previous studies; (ii) the estimated interest rate elasticity supports the argument that the overall effect of the interest rate on the money holding is weak although there are some mild evidences that it has been strengthened in recent years; (iii) the substitution effect of equity asset dominates the wealth effect, especially, during the bullish market period. Our result is robust to the alternative choices of the scale or opportunity cost variables and shows that omission of the stock prices in the money demand function would possibly yield a misspecification problem.     

The human cost of China's industrial growth

This paper examines whether industrial growth during economic development is associated with a high workplace fatality rate by using panel data from China. Controlling for provincial and year fixed effects, our estimations show that provincial industrial growth has a positive impact on the workplace fatality rate. We also find that both the growth of industrial labor productivity and the growth of industrial employment have an impact on workplace fatalities. Our instrumental variable fixed effects estimations, which control for simultaneity, show an even greater effect of industrial growth on the fatality rate. Our empirical findings suggest that the Chinese government ought to reconsider its growth-centered policies to save lives.     

Business cycle transmission and interdependence between Japan and Australia

This paper investigates business cycle transmission and interdependence between Australia and Japan over the period 1961.1–1994.4. Vector autoregression (VAR) and vector error correction (VEC) models were constructed utilizing GDP/GNPs, producer prices, interest rates and money supplies. The model is tested for cointegration. Two cointegrating vectors are found, and a vector error correction (VEC) model is estimated. The coefficients and the F-tests of the VEC are used to measure the effect of one economy upon the other. Impulse responses from a VAR are examined for evidence of business cycle transmission, and recursive least squares estimates are used to check for structural change in the relationship. Figures are used to graphically demonstrate these relationships and have been collected in an appendix, which can be found at the end of the text.While the two countries engage in a close trading relationship, the two economies are found to be only somewhat interdependent in macroeconometric terms. Japan is found to transmit some of its business cycle fluctuations to Australia, but there is little reverse transmission.     

Understanding openness and productivity growth in China: An empirical study of the Chinese provinces

This paper investigates the effects of openness on China's regional productivity growth. We build a model of technology diffusion in which follower economies achieve productivity growth by taking advantage of technology spillovers from the world technology frontier. We hypothesize that China's regional productivity growth is a positive function of regional openness and a negative function of the current level of regional productivity. Empirical analysis in this paper focuses on how openness affects productivity growth in the Chinese provinces. We examine two effects of openness on regional productivity growth in China: the direct growth effect and the convergence effect. By using a variety of panel data regression techniques, we show that the direct growth effect of openness is the main effect while the convergence effect is insignificant. The findings of this paper lend strong support to the claim that the opening-up of China promotes the country's economic growth.     

Monetary policy rules for a developing country: Evidence from Pakistan

This paper estimates forward-looking monetary policy rules to examine the interest rate setting behavior of the State Bank of Pakistan. Considering the external constraints on monetary policy, core inflation and a country-specific measure of the output gap, we demonstrate that the State Bank of Pakistan reacts to changes in inflation, the output gap and the federal funds rate.     

A political economy analysis of the Korean economic crisis

This paper analyzes the causes of the Korean economic crisis from a political-economic perspective. The author points out that the economic causes which had been mentioned often such as overvalued won exchange rate and moral hazard of financial sector and corporate sector, have political origins. If the Korean economic crisis was caused by political economic factors, structural reform of the economy alone is not sufficient for economic recovery. Therefore, this paper argues, the behaviors of politicians, bureaucrats, and interest groups had been influential for resource allocation in the Korean economy. It concludes that the self-interest seeking activities of various interest groups should be properly controlled.     

An alternative method of measuring economic efficiency: The case of grain production in China

The objective of this paper is to suggest a simple method to gauge the economic efficiency of firms, when there are no reliable price data. Applying the suggested method on the recent Chinese farm-household survey data collected during 1993 and 1994, this study shows that majority of grain farmers in China are not producing at the optimum levels which yield maximum profits. The analysis also indicates that output can be increased by consolidating rather than further segmenting the operational area of grains.     

A multidimensional analysis of poverty in China from 1991 to 2006

Most studies have reported non negligible improvements for China in terms of poverty during the last three decades. However, this result is potentially hampered by two limitations. First, it may be contingent to the specific choices made regarding the poverty line and the poverty indices used for the analysis. As a consequence, it may collapse if one uses alternative poverty lines or poverty measures. Second, it results from a focus on the sole monetary aspects of poverty. As income does not cover all facets of well-being and since the relationship between these two concepts are quite fuzzy, it may be worth using a broader view of well-being, hence opting for a multidimensional approach of poverty analysis. In the present paper, these two issues are addressed using multidimensional stochastic dominance procedures on the joint distribution of income, education and health in seven Chinese provinces.     

Labor supply response and preferences specification: Estimates for prime-age males in Japan

In this paper, we estimate labor responses of Japanese prime-age males by taking into consideration the Japanese income tax system and utilizing a large micro-data set. We employ three maximum likelihood methods: (i) a modified version of [Hausman, 1979] and [Hausman, 1981] , which assumes a linear labor supply function; (ii) that given by Zabalza (1983), which assumes CES preferences; and (iii) that given by Van Soest (1995), which employs the translog utility function and assumes discrete labor hour choice. While the estimates based on the Hausman and Zabalza methods fare poorly, those based on the Van Soest method result in more plausible labor responses. However, these responses are larger than those of the North American and European counterparts.     

Transactional activities and total factor productivity growth in Taiwan

Total factor productivity (TFP) growth shows how rapidly an economy is enhancing technology and the efficiency with which it allocates resources. It has been argued that “miraculous” growth in East Asian economies may not be sustainable, due to relatively low rates of TFP growth. Among these economies, it appears that Taiwan has indeed exhibited substantial technological progress. Failure to control for transactional activities, however, can distort the impression of TFP growth. This study recalculates Taiwan's TFP growth for the 1957–1993 sample period, adjusting for transaction costs in the government and private sectors. For the early years of the sample, 1957–1973, the economy's technological progress is better than GDP-based calculations suggest. In recent years, 1983–1993, productivity improvement has been overstated, but the economy has still exhibited relatively fast TFP growth.     

Bayesian analysis of time-varying parameter vector autoregressive model for the Japanese economy and monetary policy

This paper analyzes the time-varying parameter vector autoregressive (TVP–VAR) model for the Japanese economy and monetary policy. The parameters are allowed to follow a random walk process and estimated using the Markov chain Monte Carlo method. The empirical result reveals the time-varying structure of the Japanese economy and monetary policy during the period from 1981 to 2008. The marginal likelihoods of the TVP–VAR model and other fixed parameter VAR models are estimated for model comparison. The estimated marginal likelihoods indicate that the TVP–VAR model best fits the Japanese economic data.     

Commercialization as exogenous shocks: The effect of the soybean trade and migration in Manchurian villages, 1895–1934

The effects of commercialization and migration in traditional agrarian economies such as China's during the nineteenth and twentieth centuries have been a subject of ferocious debate. Using data from Manchuria on soybean cultivation and exports, we employ difference-in-differences and instrumental variable approaches to demonstrate a significantly positive relationship between growing soybeans for export and the returns to migration. Those who migrated to Manchuria in response to high market prices, and to villages more suitable for cultivating soy prospered most; they owned approximately two-thirds more of the arable land and one-third more of houses than those who failed to do so. Evidence suggests that the positive welfare effect of commercialization-cum-migration was confined not only to the rich, who seek to relieve the “land constraint” at home, but possibly also to the poor.