The Cost of Coronavirus Uncertainty: The High Returns to Clear Policy Plans

Policymakers face an extremely uncertain environment during COVID-19. Using a nonlinear VAR estimate for the Euro Area, we argue that the benefit of reducing policy uncertainty at a time dominated by pessimistic expectations amounts to several points of GDP. The impact on the economy of uncertainty shocks is much larger during periods of negative outlook for the future. We estimate the impact on industrial production of the current COVID-19 induced uncertainty to peak at a year-over-year growth loss of −15.4 per cent in September 2020, and to lead to a fall in CPI inflation between 1 per cent and 1.5 per cent. Policies providing state-contingent scenarios ready to be adopted if the worst-case outcomes materialise can reduce the impact of uncertainty.     

Computerization and immigration: Theory and evidence from the United States

Recent technological changes have been characterized as “routine-substituting” because they reduce demand for routine tasks and increase demand for analytical and service tasks. Little is known about how these changes have impacted immigration, or task specialization between immigrants and native-born individuals. In this paper, we show that such technological progress has attracted immigrants who increasingly specialize in manual-service occupations. We also suggest that openness to immigration attenuated the job and wage polarization faced by native-born from technological changes. We explain these facts with a model of technological progress and endogenous immigration. Simulations show that unskilled immigration attenuates the drop in routine employment proceeding from technological change, enhances skill upgrading for native-born and raises economy-wide productivity and welfare.     

Unequal we stand: An empirical analysis of economic inequality in the United States, 1967–2006

We conduct a systematic empirical study of cross-sectional inequality in the United States, integrating data from the Current Population Survey, the Panel Study of Income Dynamics, the Consumer Expenditure Survey, and the Survey of Consumer Finances. In order to understand how different dimensions of inequality are related via choices, markets, and institutions, we follow the mapping suggested by the household budget constraint from individual wages to individual earnings, to household earnings, to disposable income, and, ultimately, to consumption and wealth. We document a continuous and sizable increase in wage inequality over the sample period. Changes in the distribution of hours worked sharpen the rise in earnings inequality before 1982, but mitigate its increase thereafter. Taxes and transfers compress the level of income inequality, especially at the bottom of the distribution, but have little effect on the overall trend. Finally, access to financial markets has limited both the level and growth of consumption inequality.     

The non‐linear dynamics of output and unemployment in the U.S.

This paper studies the joint dynamics of U.S. output and unemployment rate in a non‐linear VAR model. The non‐linearity is introduced through a feedback variable that endogenously augments the output lags of the VAR in recessionary phases. Sufficient conditions for the ergodicity of the model, potentially applying to a larger class of threshold models, are provided. The linear specification is rejected in favour of our threshold VAR. However, in the estimation the feedback is found to be statistically significant only on unemployment, while it transmits to output through its cross‐correlation. This feedback effect from recessions generates important asymmetries in the propagation of shocks, a possible key to interpret the divergence in the measures of persistence in the literature. The regime‐dependent persistence also explains the finding that the feedback from recession exerts a positive effect on the long‐run growth rate of the economy, an empirical validation of the Schumpeterian macroeconomic theories. Copyright © 2001 John Wiley & Sons, Ltd.     

A Principal Components Analysis of Common Stochastic Trends in Heterogeneous Panel Data: Some Monte Carlo Evidence

In this paper we propose a new approach based on principal components analysis to test for the number of common stochastic trends driving the non-stationary series in a panel data set. This test has the advantage that it is also consistent when there is a mixture of I (0) and I (1) series, making it unnecessary to pre-test the panel for unit root. Furthermore, the test solves the problem of dimensionality encountered in large panel data sets.     

The international effects of government spending composition

This paper incorporates a distinction between spending for government employment and spending for non-wage government consumption in a ‘new open economy macroeconomics’ model. Our results show that a permanent reduction in public employment in one country increases relative private consumption and appreciates the domestic exchange rate. We also compare announced reductions in domestic government employment and consumption, showing that these two policies have the same qualitative effects. When the reduction in public employment is used to finance increased government non-wage spending, the analytical results of the model are ambiguous, but a numerical analysis shows that relative consumption increases for a reasonable parameterization.     

Further evidence on business cycle asymmetries in G7 countries

This paper tests for business cycle symmetry in G7 countries during the post-World War II period using a number of tests, each reflecting alternative definitions of business cycle asymmetry. The tests are applied to monthly coincident economic indicators of business cycles. This found that business cycles in the US are characterized by both longitudinal (deepness) and transversal (steepness and sharpness) asymmetries: further, it is found that asymmetric transition probabilties and time irreversibility are due to nonlinearities. On the contrary, business cycles in Germany exhibits a symmetric behaviour. Between these extremes are the other countries, for which at least one of the tests here considered rejects the null of cyclical symmetry. Particularly, business cycle is characterized by deepness and sharpness in Canada, asymmetry in persistence in France and Japan, and asymmetric transition probabilities in France and United Kingdom.     

Was industrialization an escape from the commodity lottery? Evidence from Italy, 1861-1939

The specialization in exporting primary products is frequently deemed harmful for long-run development, because it increases volatility of terms of trade and thus the number and frequency of macroeconomic shocks. One would expect modern economic growth to solve the problem by changing the composition of trade. This paper tests this hypothesis with a new series of Italian terms of trade from 1861 to 1939, a period which spans the first stage of the industrialization of the country. The results do not tally with the hypothesis. The change in composition improved marginally the terms of trade, but it did not help much in terms of volatility.     

External knowledge sourcing for R&D activities: antecedents and implications of governance mode choice

This paper investigates how internal and external factors affect the choice between alliances and joint ventures (A&;JVs) and mergers and acquisitions (M&;As) for the external sourcing of research and development (R&;D) activities, and whether or not such a choice is really contingent, that is, is it the best choice in terms of its impact on firms' innovative performance under those circumstances? We build a set of hypotheses based on both the transaction-cost theory and the resource-based view, and test them through a secondary data source analysis. We found that companies adopt either R&;D M&;A or A&;JV depending on internal (e.g. resources and capabilities, innovation experience) and external (e.g. degree of industry specialisation) factors. Surprisingly, this contingent choice turns to be effective on innovative performance only for the internal factors, rather than the external. This paper contributes to inter-firm relationships literature by presenting the real advantages of using integrated and contingency theoretical models to understand contingent decisions.     

Budget Deficits and Exchange-Rate Crises

This paper investigates currency crises in an optimizing general equilibrium model with overlapping generations. It is shown that a rise in government budget deficits financed by future taxes generates a decumulation of external assets, leading up to a speculative attack and forcing the monetary authorities to abandon the peg.