The Lack of International Consumption Risk Sharing: Can Inflation Differentials and Trading Costs Help Explain the Puzzle?

The bulk of evidence on the lack of international risk sharing is based on regressions of idiosyncratic consumption growth on idiosyncratic output growth. This paper argues that the results from such regressions obtained from international data are, however, not directly comparable to those based on regional data: the standard practice of running such regressions on international data fails to account for persistent international differentials in consumer prices, whereas—implicitly—most of the literature based on regional data has accounted for these differences. When risk sharing regressions are set up in conceptually the same way in international and regional data sets, the estimated coefficients are also very similar. To explore this result further, we adapt the variance decomposition of Asdrubali et al. (Q J Econ 111:1081–1110, 1996) to allow for deviations from purchasing power parity across countries. While quantity (income and credit) flows are the dominant channel of risk sharing among regions, relative consumption and output price (internal terms of trade) fluctuations account for the bulk of the deviation from the complete markets outcome in international data. To the extent that persistent differences in consumer prices are an indication of goods market segmentation, our findings provide empirical evidence for the proposition by Obstfeld and Rogoff (NBER Macroeconomics Annual 2000, 2000) that segmented international goods markets rather than asset market incompleteness may account for the (apparent) lack of risk sharing between countries.

Multinationals: Too Many or Too Few?— The Proximity–concentration Trade-off

The paper builds an analytically tractable model that illustrates the “proximity–concentration trade-off” involved in horizontal multinationals. For low trade costs, firms are single-plant firms, for intermediate costs, some are single-plant firms whereas others are multinationals, for large trade costs, firms are multinationals. Because of the modeling strategy, the model is suited for a welfare analysis of multinationals. It shows that too many firms choose to concentrate their production in only one location. Also, for some transport costs, a reduction in transport costs worsens welfare.

“Thirlwall’s Law” reconsidered

Thirlwall’s Law is found to be the necessary but not sufficient condition for balanced long-run growth. A simple equation is considered whose empirical analysis could confirm—or reject—the validity of the Law. The analysis, conducted by means of econometric co-integration using the Dynamic Ordinary Least Squares method applied to data for 59 countries covering the years 1960–2012, suggests that Thirlwall’s Law may not hold for the decisive majority of countries.     

Combining “real effort” with induced effort costs: the ball-catching task

We introduce the “ball-catching task”, a novel computerized task, which combines a tangible action (“catching balls”) with induced material cost of effort. The central feature of the ball-catching task is that it allows researchers to manipulate the cost of effort function as well as the production function, which permits quantitative predictions on effort provision. In an experiment with piece-rate incentives we find that the comparative static and the point predictions on effort provision are remarkably accurate. We also present experimental findings from three classic experiments, namely, team production, gift exchange and tournament, using the task. All of the results are closely in line with the stylized facts from experiments using purely induced values. We conclude that the ball-catching task combines the advantages of real effort tasks with the use of induced values, which is useful for theory-testing purposes as well as for applications.     

Competitive search markets for durable goods

Summary. This paper considers a dynamic version of Akerlof's (1970) lemons problem where buyers and sellers must engage in search to find a trading partner. We show that if goods are durable, the market itself may provide a natural sorting mechanism. In equilibrium, high-quality goods sell at a higher price than low-quality goods but also circulate longer. This accords with the common wisdom that sellers who want to sell fast may have to accept a lower price. We then compare the equilibrium outcomes under private information with those under complete information. Surprisingly, we find that for a large range of parameter values the quilibrium outcomes under the two information regimes coincide, despite the fact that circulation time is used to achieve separation. Received: August 24, 2000; revised version: October 24, 2000     

Illustrating the importance of Austrian business cycle theory: A reply to Murphy,Barnett, and Block; A call for quantitative study

Murphy et al. (2009) criticize Young’s (2005) test of Austrian business cycle theory (ABCT) using US industry-level quarterly job reallocation data and the federal funds rate as a monetary policy indicator. I argue that not only are Murphy et al.’s specific criticisms misguided; more importantly, they all but completely rule out the type of empirical study that Young (2005) advocates: specifically, one that (1) is quantitative and distinguishes between statistical and economic significance and (2) attempts to exploit a hypothesis that is both a prediction of ABCT and not a prediction of competing monetary theories of the cycle. I argue that empirical studies embodying (1) and (2) are critical to ABCT as a research program. Furthermore, I review the existing econometric studies of ABCT from the last 10 years and conclude that there is much room for improvement along these lines.     

A quantitative explanation of the low productivity in South–Eastern European economies: the role of misallocations

It is well known that southeast Europe is the least developed area in Europe. Using a methodology based on the idea of heterogeneous firms, this paper studies the degree to which firm heterogeneity and resource misallocation can explain the lower TFP in southeast Europe. The results show a significant degree of heterogeneity and resource misallocation, although the results are sensitive to the calibration used. There is evidence that firm-level productivity depends on firm size, while taxation negatively influences it. There is also some evidence that foreign-owned firms are more competitive, as are exporting firms. Results are generally robust across the various specifications used, but less so relative to the measure of productivity used. Additional evidence suggests that infrastructure-related obstacles as well as institutional instability drive the output distortion, while no factor is underlined as a significant driver of capital distortions, suggesting the need for better data sources for the latter.