BVAR models with economic priors: An application to the propagation of U.S. regional cycles to Canada

To overcome the over-parameterization problems typically associated with the estimation of large VAR systems, Litterman (1979, 1986) and Doan, Litterman, and Sims (1984) have proposed the inclusion ofstatistical a priori information. In this paper, we investigate how economica priori information based on regional input-output tables and trade flows statistics could help estimate a large U.S.-Canadian regional model. Instead of relying on the usual Choleski factorization, we present the variance decomposition based on a national-regional unobservable variables model. Using monthly series (total employment, 1966:1-1986:12) on five Canadian regions and four U.S. ones, we are able to characterize the north-south propagation mechanism.     

Business services: Markets and transactions

Tertiary activities and among them business services represent an increasingly dominant share of GDP. The main purpose of this paper is to show that the concepts and theories which have been developed mainly with reference to industrial, essentially material, activities are not relevant for service, dominantly non-material, activities, more particularly for informational business services. These-the way they operate, the relations between the actors, the processes through which values are created and prices are determined...-are substantially different, and would thus seem to require substantially, or even radically different approaches and theories.     

Panel data estimates of the production function and product and labor market imperfections

Consistent with two models of imperfect competition in the labor market—the efficient bargaining model and the monopsony model—we provide two extensions of a microeconomic version of Hall's framework for estimating price‐cost margins. We show that both product and labor market imperfections generate a wedge between factor elasticities in the production function and their corresponding shares in revenue, which can be characterized by a ‘joint market imperfections parameter’. Using an unbalanced panel of 10,646 French firms in 38 manufacturing industries over the period 1978–2001, we can classify these industries into six different regimes depending on the type of competition in the product and the labor market. By far the most predominant regime is one of imperfect competition in the product market and efficient bargaining in the labor market (IC‐EB), followed by a regime of imperfect competition in the product market and perfect competition or right‐to‐manage bargaining in the labor market (IC‐PR), and by a regime of perfect competition in the product market and monopsony in the labor market (PC‐MO). For each of these three predominant regimes, we assess within‐regime firm differences in the estimated average price‐cost mark‐up and rent sharing or labor supply elasticity parameters, following the Swamy methodology to determine the degree of true firm dispersion. To assess the plausibility of our findings in the case of the dominant regime (IC‐EB), we also relate our industry and firm‐level estimates of price‐cost mark‐up and extent of rent sharing to industry characteristics and firm‐specific variables respectively. Copyright © 2011 John Wiley & Sons, Ltd.     

Technology adoption, convergence, and divergence

A new mechanism to explain simultaneous convergence among industrialized countries and divergence between these countries and the rest of the world is presented. Specifically, the adoption of technologies, as embodied in machines, is examined in the context of a world in which capital goods are produced in a few centers and then exported. Since the local cost of introducing machines varies from region to region, technology is not adopted everywhere, and when it is adopted, its intensity varies from place to place. Technological progress diminishes the differences within the group of countries that adopt technologies but increases the gap between those countries and the rest of the world. The model is applied to cases of investment costs generated by deficient institutions and to transport costs. Its predictions are supported by recent research.     

Collected Customs Duties: The Level of Taxation on Imports Applied by the US and the EU

Relating the collected customs duty to the value of imports enables the estimation of a rate of applied duty that takes into account all pricing components and their use. Indeed, this ad valorem equivalent integrates the complex dimensions of customs duties, the measures of exemption and suspension, and those concerning preferential regimes. Processing collected duties for all the products reveals that the 1.5 per cent rate of duty actually applied in 2003 is the same for the EU and the US. Nevertheless, it appears that the US taxes more the least developed countries (LDCs) and developing countries than does the EU. Thus, setting aside those products which enter free of duty, the rate of taxation applied by the US is 15 per cent and 6.2 per cent respectively with regards to LDCs and developing countries, whereas in the EU it is only 3.7 per cent and 4.1 per cent. In the US market the sectors that are the most highly taxed upon importation are textiles, apparel and clothing, cotton and articles of leather, whereas in the EU it is more agricultural and food products (fruits and preserves, meats, sugars and cereals).     

Methods of assessing the long-run equilibrium value of an exchange rate

The many industrial countries which have in recent years opted for a managed floating exchange rate regime are now in need of methods for assessing the appropriateness of their exchange rates and for guiding their exchange rate management policies. Three methods are considered here: the purchasing power parity (PPP) method, the underlying payments disequilibria (UPD) approach, and the asset-market disturbances (AMD) method. All three methods are found to have serious weaknesses, but, if used with care, provide rough yardsticks that would help the authorities in preventing their exchange rates from becoming widely undervalued or overvalued.