Asymmetric Effects of Exchange Rate Changes and the J‐curve: New Evidence from 61 Malaysia–Thailand Industries

Research on the impact of currency depreciation on the trade balance is now moving in a new direction by incorporating nonlinear dynamic adjustment of the exchange rate and by using a nonlinear approach to error‐correction modeling and cointegration. Using these advances, researchers find not only more evidence of the J‐curve effect, but also new evidence of asymmetric effects of exchange rate changes on the trade balance. We contribute to this line of research by using monthly trade flow data from 61 two‐digit industries that trade between Malaysia and Thailand, and show that not only does currency depreciation have favorable effects on the trade balance of more industries, but the long‐run effects are asymmetric in 26 out of 61 cases. In line with current literature, our nonlinear model performs much better than the linear model when industry level data are used.     

When a Door Closes,a Window Opens? Long‐Term Labor Market Effects of Involuntary Separations

This study estimates the earning losses of workers experiencing an involuntary job separation. We employ, for the first time in the earning losses literature, a Poisson pseudo‐maximum‐likelihood estimator with fixed effects that has several advantages with respect to conventional fixed effects models. The Poisson estimator allows considering the full set of involuntary separations, including those with zero labor market earnings because of unemployment. By including individuals with zero earnings and by using our new method, the loss in the year of separation becomes larger than in previous studies. The loss starts with roughly 30% and, although it quickly shrinks, it remains at around 15% in the following years. In addition, we find that compared to other reasons for separation, the earning loss pattern is unique for involuntary separations, because no other type of separation implies such permanent scarring. This latter finding makes us confident that the self‐reported involuntariness of a separation is a reliable source of information.     

Casino regulations and economic welfare

Abstract This paper studies the entry and tax regulation of oligopolistically competitive privately run casinos and government‐run casinos in a jurisdiction. We highlight three important external effects from casino‐style gambling: non‐casino income creation, social disorder costs, and cross‐border gambling. The laissez‐faire equilibrium need not be overcrowding compared with regulated or government‐run regimes. Entry regulation may lead to higher jurisdiction welfare than tax regulation. Government‐run casinos always operate on a larger scale and achieve higher welfare than other regimes, given the same number of casinos. With an endogenous fraction of external gamblers, a dispersed casino configuration yields higher welfare than a centralized one.     

THE PRICE OF SILENCE: MARKETS FOR NOISE LICENSES AND AIRPORTS*

This article presents a market design for the management of noise pollution created by aircraft traffic around airports. A local market for noise licenses allows noise generators to compensate noise victims and to meet social acceptability. We show that the market allows the market designer to implement the social planner's optimal allocation of flights as long as the latter does not put too high a weight in his/her objective function on firms' profits compared to the disutility of noise pollution. The fact that local representatives of noise victims may be strategic players does not fundamentally alter this finding. Because of the market auctioneer's information constraints, noise licenses are likely to distribute windfall gains to residents, which alters the urban structure in the long run.     

FINANCIAL DEVELOPMENT ON GROWTH CONVERGENCE

This paper investigates whether the impacts of financial development on growth convergence vary with the stage of real development. We implement this analysis through the instrumental variable threshold regression approach proposed by Caner and Hansen. Our empirical evidence shows that financial intermediary development leads to long‐run convergence in growth of both economic activity and productivity. Moreover, such convergence‐enhancing effects of financial intermediation are stronger for less‐developed countries than for the more industrialized. In addition, the data reveal that stock market development assists growth convergence only in low‐income countries.     

Meeting Maastricht: Nominal convergence of the new member states toward EMU

This paper estimates whether the new member states (NMS) that joined the EU in 2004 have achieved a form of inflation and long-term interest rate convergence. Using quarterly data from the mid-1990s, convergence is evaluated through a series of unit root and cointegration tests. Both univariate and panel tests are performed, including tests for a large number of combinations of inflation and interest rates satisfying the Maastricht inflation and long-term interest rate criteria. It is generally found that nominal convergence in inflation has been attained among the NMS. There is, however, less evidence of convergence in long-term interest rates. Possible exceptions include Estonia and the Czech Republic and, to a lesser extent, Slovakia which has since joined the euro area. There is also a large degree of consistency between the various unit root and cointegration tests in both the univariate and panel variations.     

Existence of a Condorcet Winner When Voters Have Other‐Regarding Preferences

In standard political economy models, voters are “self‐interested” that is, care only about “own” utility. However, the emerging evidence indicates that voters often have “other‐regarding preferences” (ORP), that is, in deciding among alternative policies voters care about their payoffs relative to others. We extend a widely used general equilibrium framework in political economy to allow for voters with ORP, as in Fehr and Schmidt (1999) . In line with the evidence, these preferences allow voters to exhibit “envy” and “altruism,” in addition to the standard concern for “own utility.” We give sufficient conditions for the existence of a Condorcet winner when voters have ORP. This could open the way for an incorporation of ORP in a variety of political economy models. Furthermore, as a corollary, we give more general conditions for the existence of a Condorcet winner when voters have purely selfish preferences.     

Debt Stabilizing Fiscal Rules

Unstable government debt dynamics can typically be stabilized around a certain target level of debt by adjustments in various fiscal instruments, like government spending, transfers, or taxes. This paper investigates properties of debt stabilizing rules which link the needed budgetary adjustments to the state of the economy. The paper establishes that the magnitude of the target level of long‐run debt is a key determinant of whether it is possible to find a rule of this type that can be implemented under all available fiscal instruments. Specifically, considering linear feedback rules, the paper demonstrates that there may well exist a critical target level of debt beyond which this is no longer possible. From an applied perspective, this finding is of particular relevance in the context of a monetary union with decentralized fiscal policies. Depending on the target level of debt, there might be a conflict between a common fiscal framework that tracks deficit developments as a function of the state of the economy and the unrestricted choice of fiscal policy instruments at the national level.     

The pros and cons of rewarding social responsibility at the top

Overemphasis on financial performance criteria to award incentives for CEOs has often been mentioned as one of the main culprits behind recent corporate scandals. In response, there is a growing chorus for inclusion of social performance criteria in the design of executive compensation schemes. To date, however, very little is known about the true benefits of this practice. This article critically discusses the potential advantages and pitfalls of this recommendation. © 2009 Wiley Periodicals, Inc.