High Leverage and Willingness to Pay: Evidence from the Residential Housing Market

I document a strong correlation between paying the full listing price on homes and borrowing 100% loan‐to‐value. Homebuyers who do both overpay by 2.8% to 3.9% ($4,800 to $6,700) and are 22.7% more likely to have their properties foreclosed within one year. The correlation is not mechanical: there is a discontinuity in the average leverage around the full listing price. The correlation is stronger in areas with a high fraction of financially constrained and unsophisticated residents, and in areas of high past price growth (potentially indicative of buyer optimism).     

Establishing the validity of cycle path capacity assumptions in the Highway Capacity Manual

Cycle mode share increase is widely desired, but highway design practitioners lack the numerical tools to deliver infrastructure, instead relying on design standards and intuition, with little literature basis. As a case in point, the US Highway Capacity Manual (which is well used internationally) has developed levels of service for cycle infrastructure that are, at their core, based on an assumption of noninteraction between multiple cyclists. This paper uses a modified implementation of the Social Force Model to test the validity of this assumption. Necessary changes such as the consideration of acceleration characteristics and minimum maintainable speed are included. The resulting model produces valid outcomes in keeping with established traffic flow properties, reflecting three-phase traffic flow theory and the ability for the stochastic elements in traffic flow to cause flow breakdown. The developed simulation indicates that there is a fundamental difference in outcome if cyclists are assumed to have a fixed speed versus one they can change given their surroundings. This difference in outcomes is found to exist within the range of literature design flow capacities for bicycle infrastructure and also yields emergent outcomes that align closely with those known behaviors of highway vehicles, which intuitively transfer to cyclists. These findings reinforce the standing need for large-scale empirical studies to determine the basic numerical and behavioral parameters for cyclists, upon which all design ultimately rests.     

THE DYNAMIC PROPERTIES OF ALTERNATIVE ASSUMPTIONS ON PRICE ADJUSTMENT IN NEW KEYNESIAN MODELS

This paper presents a classification of the different new Phillips curves existing in the literature as a set of choices based on three assumptions: the choice of the structure of price adjustments (Calvo or Taylor), the presence of backward indexation and the type of price contracts (fixed prices or predetermined prices). The paper suggests study of the dynamic properties of each specification, following different monetary shocks on the growth rate of the money stock. We develop the analytical form of the price dynamics, and we display graphics for the responses of prices, output and inflation. We show that the choice made for each of the three assumptions has a strong influence on the dynamic properties. Notably, the choice of the price structure, while often considered as unimportant, is indeed the most influential choice concerning the dynamic responses of output and inflation.     

The Impact of Industrial Market Access Negotiations on African Economies

This paper proposes an extensive data simulation exercise on the likely impact of non-agricultural market access liberalization. The paper analyses real options for tariff cut reduction, special and differential treatment and the treatment of unbound tariffs. This paper also gives indications concerning the likely economic impact of this trade round of industrial market access negotiations on African economies. It shows that an ambitious tariff cut reduction formula would provide greater access to developed country markets for African producers. However, this kind of formula has a major drawback for African countries in the sense that it could accelerate the de-industrialization of African countries and limit incentives to diversify their economies.     

THE AGEING POPULATION: CRUNCH TIME FOR GOVERNMENT REFORMS

Current discussions about reforms to health and long‐term care miss the most important trends that should be influencing debate. With an ageing population that includes a higher proportion of people with manageable illnesses, health and care costs will rise. Reforms must ensure that existing government spending is used more efficiently and that it harnesses – rather than works against – private financing.     

Institutional Quality and Public Debt Accumulation: An Empirical Analysis

The question of public debt management for both developed and developing economies has generated an enormous amount of political as well as academic interest. This study examines how governance affects public debt accumulation in the MENA countries during the 1996–2015 period. The six Worldwide Governance indicators (voice and accountability, political stability and the absence of violence/terrorism, government effectiveness, regulatory quality, rule of law and control of corruption) were used to measure the quality of governance in these countries. The results show that only three governance indicators support well the hypothesis that poor governance leads to higher accumulation of MENA public debt. Moreover, the estimates suggest a significant indirect impact of bad governance operating via decreased GDP growth. These findings have important implications for policy makers of these countries, which are currently facing major fiscal and external imbalances due to the high cost of war and terrorist attacks, low oil prices and a decline in trade. Sound public debt management represents an urgent task especially that public debt management problems often find their origins in the lack of attention paid by policymakers to the costs of bad governance and weak macroeconomic management.     

Market Microstructure Empirical Regularities: Behavior of the Bid-Ask Spread and Closing Prices

A substantial number of last reported transactions for stocks trading on the New York Stock Exchange occur inside the quoted closing bid-ask spread. The tendency to close inside the spread results in price change magnitudes much smaller than those predicted from binomial models. Moreover, although the change magnitude is biased by the underlying trend of the market, the distribution of next day price change relatives is largely unaffected. The result is a systematic regularity between the location of today's close and tomorrow's close relative to the bid-ask spread.     

The European economy in an expanding world

Summary Postwar economic development in Europe can be subdivided in two periods. In the first subperiod 1950–1973 growth is determined by catching up vis-d-vis the US. The second subperiod 1973–1993 is characterised by a reorientation with respect to the international division of labour. This sets the stage for future developments, which are presented in the form of three different scenarios. In the European Decline scenario Europe cannot match developments in the US and Japan. As appears from a scenario called Fortress Europe import protection provides no sensible solution. To compete on a world scale Europe needs more technological dynamics as sketched in the European Recovery scenario. Calculations of future paths are based on the WorldScan model of the Central Planning Bureau.Theo van de Klundert is Professor of Economics at Tilburg University. Ben Geurts and Hans Timmer are staff members of the Central Planning Bureau, The Hague. We are indebted to Martin Fase and Simon Kuipers for useful comments on an earlier version of the paper.     

Is the Dutch consumer a true ricardian?

Summary In this paper the intertemporal optimization approach is adopted in order to estimate an empirical version of Blanchard's (1985) overlapping generations model. The observed sluggishness in consumption is incorporated into the model by recognizing both durability and habit formation as relevant determinants of total consumption. The model is estimated using quarterly data for The Netherlands from 1969:I to 1990:IV. The empirical estimates suggest that the status of the Dutch consumer as a true Ricardian is unambiguously rejected. The results furthermore suggest that this rejection is due to the existence of both liquidity constraints and finite planning horizons.Comments by Peter Broer, Jeroen Kremers, Debora Molenaar, Rick van der Ploeg, Frans Spinnewyn, Casper de Vries, Ed Westerhout and two anonymous referees are very much appreciated. Elbert Dijkgraaf has provided invaluable research assistance. We also thank participants of the OCFEB workshop and the CES seminar at the K.U. Leuven for their comments.