What topic modeling could reveal about the evolution of economics*

ABSTRACT

The paper presents the topic modeling technique known as Latent Dirichlet Allocation (LDA), a form of text-mining aiming at discovering the hidden (latent) thematic structure in large archives of documents. By applying LDA to the full text of the economics articles stored in the JSTOR database, we show how to construct a map of the discipline over time, and illustrate the potentialities of the technique for the study of the shifting structure of economics in a time of (possible) fragmentation.     

Ethics and the economist: What climate change demands of us

Climate change is changing not only our physical world, but also our intellectual, social, and moral worlds. We are realizing that our situation is profoundly unsafe, interdependent, and uncertain. What, then, does climate change demand of economists, as human beings and as professionals? A discipline of economics based on Enlightenment notions of mechanism and disembodied rationality is not suited to present problems. This essay suggests three major requirements: first, that we take action; second, that we work together; and third, that we focus on avoiding the worst, rather than obtaining the optimal. The essay concludes with suggestions of specific steps that economists should take as researchers, teachers, and in our other roles.     

What does the experience of German monetary union tell us about the theory of monetary union?

This paper summarizes the modern theory of monetary unions to identify in what circumstances such unions are supposed to impose low costs on, and give substantial benefits to, their members and then considers the case of the effect on Eastern Germany of German monetary and economic union. This union satisfied most of the conditions for low cost and high benefit, yet the initial impact of union was a severe fall in economic activity in Eastern Germany. The paper concludes that the conventional theory is deficient in ignoring the effects on the poorer member countries of a union of the expectations engendered by the creation of the union, and argues that an explicit regional policy is required in a union of members of widely different income levels.     

The monetary autonomy of Finland: What can the time series analysis tell us?

The effectiveness of domestic monetary policy under fixed exchange rates is highly dependent on the response of the foreign exchange reserves to a monetary expansion or contraction. Domestic monetary conditions, in turn, can be expected to be subject to shocks emerging from changes in reserves. These shocks can badly harm stabilization objectives if they are not neutralized. This paper analyzes the monetary autonomy of the Finnish economy during the 1970's and early 1980's using a data-oriented approach suggested byGeweke. A purely empiristic interpretation of the results would indicate that the degree of monetary autonomy is high and increasing over time. However, incorporating theoretical considerations turns this conclusion upside down. The Finnish financial system has in all likelihood experienced structural changes that have reduced the potential for effective monetary policies. On the other hand, we do not find any evidence of strong effects of reserve shocks on the domestic money and credit markets, though the importance of such shocks may have increased slightly. Methodologically, the analysis highlights that economic theory is needed in organizing empirical observations even when the point of departure is data-oriented.     

International crises,instability periods and contagion: the case of the ERM

In this article we propose a two step procedure for modeling the propagation of financial shocks. The first step consists in the estimation, by means of SWARCH models, of the conditional probability of being in a period of high volatility, while in the second step such indicators are included in a structural simultaneous equations models for interdependences among different countries. The results show that episodes of financial crisis effectively happened during periods of high volatility and that such measures of instability are important in explaining the propagation of devaluation expectations between six European Countries during the ERM period.

Financial illness and political virus: the case of contagious crises in the Eurozone

Abstract

This paper investigates the volatility spillover effects from the southern to northern part of the Eurozone during the sovereign debt crisis. Focusing on different phases of the crises, we propose using the dynamic conditional correlation model and the BEKK model to identify possible linkages during the period of 2005–2015. The findings showed that both models behave satisfactorily and are flexible in presenting spillover effects. However, regarding conditional correlations, the asymmetric dynamic conditional correlation model seems to fit better. Additionally, Spain and Italy can significantly damage all strong northern economies, while Greece’s negative shocks are capable of co-moving the French index. Finally, France is the most correlated country within the southern Eurozone.     

Wealth effects on consumption in financial crises: the case of Norway

A dynamic consumption function, where consumption in the long run is determined by households’ disposable income and wealth, has been superior to the Euler equation in explaining the development of Norwegian aggregate consumption over several decades. This period covers the years of financial deregulation in the mid 1980s, the banking crisis around 1990 following the deregulation and the current international financial crisis. In the current version, long run consumption is homogeneous in income and wealth and there is also a significant effect from after-tax real interest rates. A change in the correlation pattern between real interest rates and wealth, which is related to a change in the monetary policy regime, is the reason why both variables need to be included in the long run relationship in order to explain the development over the period 2005q1–2008q4.     

How corporate cultures coevolve with the business environment: The case of firm growth crises and industry evolution

This paper shows how cognitive human dispositions that take effect at the level of an individual firm's corporate culture have repercussions on an industry's evolution. In our theory, the latter is attributable to evolving corporate cultures coupled with changes in a firm's business environment. With the help of a formal model of evolving corporate cultures, we demonstrate how firms can establish a cooperative cultural regime that yields competitive advantages in an innovative, fast changing environment. Depending on within-firm social learning processes and cognitive constraints of human agents, organizations then reach a critical cognitive firm size in their development beyond which the level of cooperation deteriorates rapidly—they systematically face a growth crisis. Organizations successful in such an environment and reaching a critical technological size may, however, reap economies of scale in a later, mature and stable business environment with altered corporate culture. Furthermore, we relate these findings to empirical evidence on firm survival and performance in different industries, the evolution of organizational structures, and technological advancements in production technologies, and we identify some determinants of market structures.     

Reciprocity and Social Order: What Do Experiments Tell us About the Failure of Economic Growth?

This paper makes three observations for policy-makers, interested in promoting economic growth, based on the experimental work done at the Interdisciplinary Center for Economic Science. First, safeguards must be put into place to protect impersonal exchange from our innate desire for personal exchange. Second, policy must take into account the heterogeneity of individual cognitive strategies that are observed in economics laboratories. Third, policy must be test-bedded in economic experiments where the status quo is modeled as an ecologically rational response to the economic environment and the proposed policy change occurs in an environment where individuals have access to a full repertoire of personal exchange behaviors.JEL classification: C93     

Can neoclassical economics handle complexity? The fallacy of the oil spot dynamic

This paper is essentially a rebuttal of the view that neoclassical economics can handle complexity. I have coined the locution ‘oil spot dynamic’ to denote the neoclassical ability to subsume each and every new perspective. The main part of the paper is devoted to showing why the oil spot dynamic cannot work with the complexity approach, which is seen as a coherent stand-alone research program that stems from the SFI Economics Program and manifests itself with different nuances.The fallacy of the oil spot dynamic is relevant in this period, in which economists are beginning to realize that the Neoclassical Samuelsonian Paradigm no longer represents the common language of their profession. The spread of the complexity approach and the dissolving notion of ‘mainstream’ are here interpreted as indicative of a changing economics. A short foray into the features of the process of change completes my arguments by showing that the shift from one paradigm to another has many interrelated dimensions, and that there may be rigidities internalizing changes.     

Currency crises and the real economy: The role of banks

This paper attempts to explain the divergent output effects of currency crises through a very simple and intuitive model that relates the effects of a devaluation not only to the financial fragility of banks, but also to the degree of financial market imperfection. The model shows that countries with higher degrees of financial market imperfection and/or a banking sector whose balance sheets are weak, in terms of having low net worth and high foreign currency exposure, are much more likely to suffer a contraction in the wake of a currency crisis.     

Econometric study on the technology gap between Korea and Japan: The case of the general machinery and electrical and electronic industries

This article presents an econometric model relating to the technological development problem of a technologically less developed country when there is a technology transfer from the leader (Japan) to the follower (Korea) nation. By developing a sensitivity analysis of the follower's development speed, the article seeks to determine the most effective means of improving the technological level of the follower nation. The alternatives of independent technological development and the importation of advanced technology from the leader nation are considered. The results of the study indicate that it is more effective for the follower to assimilate, modify, and localize the leader's technologies. The general machinery industry and the electrical and electronic industry are examined.     

Defense conversion into a global system of proprietary technologies: The case of Taiwan''s aircraft industry

To further industrial development, Taiwan's government has officially targeted the aircraft industry, specifically the Aero Industry Development Center (AIDC)—producer of Taiwan's combat aircraft with a two-and-a-half-decade history. However, despite AIDC's experience in aerodynamics, structure, and engines, redirecting its engineering and production capabilities for commercial jets poses many difficulties. Because military and civilian needs of aircraft design are very different, the commercial benefits of military work on airframes are minimal. In contract manufacturing, one critical factor is efficiency, but AIDC is still relatively weak in scale economies, scope economies, and experience curve. Another critical factor is technology, but most functional and design specifications and standards are imposed by the upper-tier buyers and the integrators. Moreover, neither spin-off nor dual-use strategy can apply effectively, leaving AIDC an enclave isolated from local industry. Overall, the prospect of AIDC's defense conversion is dismal. The military does not have the capability to endorse the transformation; the civilian government is not familiar with the commercial practices; the local firms are not interested in entering this industry; the commercial businesses are largely controlled by the world leading integrators; and, most important, AIDC's core competence is fairly weak. The case typifies a government's futile efforts in a global industry of complex proprietary technological systems.     

The case of Japan: Price bargaining and controls on oil products

This paper shows how the Japanese variant of indicative planning has dealt with the oil crisis. Goals for leading export industries and for income distribution have been promoted through “administered competition” (a key policy in the strong economic growth of the 1960s) and pricing policies (including selective controls). The “price-bargaining” mechanism (aided by sociopolitical forces) has proved effective in oil products, even under floating exchange rates. One noteworthy policy alteration is the encouragement of sales in Japan by large foreign oil companies but under constraints that tie their interests more closely to those of Japan.     

What remains of the popularity function? The case of Austria

In this paper, the effects of changes in economic conditions on the popularity of political parties in Austria are investigated. According to the traditional theory of the popularity function, economic variables such as the rate of unemployment, the rate of inflation, and the growth rate of real disposable income exert direct influence upon voters' evaluations of political parties. Estimations of such popularity functions for Austria show that some effects of this kind can be found, but they seem to be unstable over time. On the other hand, models of political popularity based on the assumption of voters' rational expectations predict that only unexpected changes in economic conditions affect political popularity. One of these models seems to have favorable predictive properties for Austria.The authors are grateful to A. Kirschhofer-Bozenhardt (IMAS Linz) for providing the Austrian popularity data and to G. Kirchgässner for valuable comments on an earlier version of this paper. Financial support from the Ludwig Boltzmann-Institut zur Analyse wirtschaftspolitischer Aktivitäten is gratefully acknowledge. Sohbet Karbuz acknowledges support from the Institute for Advanced Studies, Vienna.     

Macroeconomic narratives in a world of crises: An analysis of stories about solving the system crisis

Since the financial crisis in 2008, a series of publications on macroeconomic responses to the compound crises of the economy and the environment have emerged. Under labels such as green new deal, green growth and the great transition, attempts at offering coherent responses to the crises have been made. These responses have in common that they all present a large number of policy proposals for ways in which to solve the current crises and achieve a sustainable economy. This article provides a mapping of a selection of such responses and an analysis of their content. The analysis combines discourse theory and narrative analysis and investigates discourses by studying the narratives they produce. The study thus contributes to the long line of analyses on discourses on sustainable economy: empirically, by investigating and analysing a number of macroeconomic proposals for solving the system crisis, and theoretically, by elaborating on the concept of narrative dynamics in relation to persuasive strength in political decision-making.