Automatic Fiscal Stabilisers in EMU: A Conflict between Efficiency and Stabilisation?

It is often claimed that tax and welfare reforms that aim atenhancing efficiency may come at the cost of cyclical stabilisation.Reducing the generosity of welfare systems and lowering taxesmay boost efficiency and output, and improve market adjustmentto shocks. But, by reducing the size of automatic stabilisers,it may also imply less cyclical smoothing. This would be unwelcomein EMU given the loss of national monetary autonomy and thewell-known pitfalls of active fiscal management. This paperargues that the alleged trade-off between efficiency/flexibilityand stabilisation may not exist. We show that, if the initiallevel of the tax burden is high, reducing it may lead to higheroutput stabilisation in the event of a supply shock and higherinflation stabilisation in the event of a demand shock. Simulationsshow that European countries - especially small ones - mighthave a tax burden close to or even higher than the thresholdlevel. (JEL E52, E61, F42)     

Unemployment,Vacancies and Conditions of Excess Demand for Labor in Canada

The explanation of state and local government expenditures has received considerable attention since Fabricant's study Trends in Government Activity Since 1900. These studies have been subject to at least two important shortcomings. One of their limitations stems from the estimation procedures used, while the other is the result of an incomplete model of the process underlying the determination of such expenditures. For the most part, past studies have used either cross-sectional data for a particular year or time series data for a single state. Consequently, the explanations resulting from these analyses either fail to capture the dynamic aspects of the problem in the first case, or remain localized to a particular state in the second. Since expenditure decisions are influenced by both historical events acting through time and economic, political, and demographic factors working at a point in time, studies which fail to integrate both types of information into the estimation process are imcomplete.

The purpose of this paper is to suggest a methodology for using both types of information. Accordingly, the resulting technique is a more efficient approach for estimating state and local government expenditure determinants. The technique is a generalized Aitken estimator for a system of unrelated regressions and was first introduced by ZELLNER (1962). The second problem with past research is the result of the inadequacy of our models for public goods and collective consumption in general, the decision process underlying public provision of goods and services has not been subjected to comprehensive modeling. ^{1 1} Some work has begun in this area. See HAEFELE (1970, 1971, 1972) as well as the references he cites. Therefore empirical analyses of expenditure patterns have been based on incompletely developed models. Our approach will be to suggest a model which is representative of the existing literature, sketch its theoretical foundation, and discuss the areas for future research. The present paper will not, however, attempt to develop a more complete model of the public decision process.

Section I of the paper briefly summarizes the primary research efforts in this area. It is followed by an explanation of the model and of the technique used for this study. Section IV presents the results for nine expenditure categories for state and local governments in the U.S. in 1957, 1962, and 1967. The last section summarizes the conclusions of the paper and discusses the scope for further research.     

Exploring the Impacts of Service Guarantee Strategy

This study examines the impacts of service guarantee in terms of consumers' perceived purchase risks, loyalty, complaint behaviors, and intent to use “word-of-mouth” within the context of the casual dining restaurant segment. The scenario method was developed and used to test the research hypotheses. The results of the study reveal that a well-executed service guarantee could reduce consumers' perceived purchase risks, and increase a positive word-of-mouth and customer loyalty. On the other hand, it also raises consumers' intent to complain upon service failure. Furthermore, the results of the study indicate that a “specific” service guarantee is much more effective in reducing consumers' perceived purchase risks, and increasing consumers' intent to claim after a service failure as opposed to an “unconditional” service guarantee. The results of the study suggest that a service guarantee offered by independent restaurants could offer a competitive advantage over brand restaurants not offering a service guarantee.     

Weather Effects on Stock Returns and Volatility in South Asian Markets

We study the effect of mood-proxy variables on index returns and volatility in six South Asian markets. Our mood-proxy variables include six weather (temperature, humidity, cloud cover, air pressure, visibility, and wind speed), three weather indicator variables (fog, thunder storm and rain or drizzle) and two biorhythmic variables (SAD and lunar phases). We adopt a robust approach and attempt to select the best parsimonious econometric model for each market. Our findings suggest that mood-proxy variables have some convincing influences in South Asian capital markets. In some instances, these variables are influencing returns while in other instances they are influencing volatility.     

A Study of Correlation Aspects in Probabilistic NPV Analysis

In probabilistic net present value (NPV) analysis, expressed in terms of benefits and costs, the expected value and variance of the net present value are determined from the expected values and variances of the benefits and costs and correlations between benefits and costs. This article outlines an empirical study and an examination of the correlation between benefits and costs. Intercomponent and intertemporal correlations are estimated. In addition, the article determines the upper and lower bounds of the variance of the net present value, when the exact intertemporal and intercomponent correlations are not known.     

ASIAN REAL EXCHANGE RATES AND OIL PRICES: A COINTEGRATION ANALYSIS UNDER STRUCTURAL BREAKS

We examine the long‐run relationship between Asian real exchange rates and oil prices in the presence of structural breaks. The relevance of considering breaks is demonstrated by utilizing the Johansen et al. procedure that allows for up to two predetermined breaks. Using conventional tests that do not consider breaks reveals no evidence of cointegration. However, the Johansen et al. procedure clearly demonstrates the importance of considering breaks and provides strong support for a stable long‐run relationship in all but Japan and the Philippines. Moreover, the results suggest evidence of bi‐directional causality in Malaysia and Thailand, uni‐directional causality from exchange rates to oil prices in Korea, the Philippines, and Singapore, uni‐directional causality from oil prices to the exchange rate in Indonesia, and no evidence of causality in Japan.     

Cyclicality of liquidity creation: Nonlinear evidence from US bank holding companies

Using a panel smooth transition regression framework on a new proxy of the business cycle (BC) index and quarterly data of US bank holding companies from 1993Q1 to 2020Q1, our results provide empirical support for the theory that the BC has a nonlinear effect on liquidity creation. We find a positive and highly significant nonlinear effect of the BC on liquidity creation, which not only supports the pro-cyclicality of liquidity creation but also improves the liquidity creation estimation compared to previous studies. The results are robust to different proxies of the BC and model specifications. We also document that US bank holding companies create liquidity more during the expansion phase (normal times) than during the recession phase (crisis times) of the BC, suggesting an asymmetrical effect of BC changes on liquidity creation. Our findings have important implications for financial market participants by suggesting that banks should keep alternative sources of funding on hand during the BC recession phase. Insights from our study also provide policy implications for central banks and prudent supervisors to consider when incentivizing banks, for instance, by lowering regulatory requirements, adjusting the policy rate, or implementing any other quantitative easing policy during the BC recession phase to keep the financial system efficient.     

Financial development and governance: A panel data analysis incorporating cross-sectional dependence

This study investigates bidirectional causality between governance and financial development using panel data of 101 countries from 1984 to 2013. The financial development–governance nexus is explored using econometric methods robust to cross-sectional dependence, and the relationship between different levels of development and openness is analyzed. Long-run equation estimates show clear evidence that financial development positively affects governance, and this positive impact is found to be robust to three different measures of governance. Further analysis shows that improving governance quality has a positive effect on financial development, while Granger causality tests demonstrate bidirectional causality between financial development and the governance measures. Finally, the impact of financial development on governance is dependent on a country’s level of development and openness. These findings underscore the crucial role of financial development in bringing about good governance reforms and economic growth that, in turn, can further develop the financial sector. As such, a symbiotic and synergistic relationship can persist between good governance, growth, and financial development. The findings provide significant motivation for policymakers to encourage openness and financial sector development to lift the standard of living, especially in emerging economies.     

Bottoms up: Delivering sustainable value in the base of the pyramid

Despite a wealth of expertise involving leading institutions over at least 15 years, a base of the pyramid (BoP) model resulting in scalability has yet to emerge. We posit that institutional gaps between BoP goals of developing human and social capital on one hand and a short‐term profit focus of business on the other contribute to the lack of scalability. We address this gap by proposing a social intermediary to link the BoP with firms involved in the BoP. The social intermediary will coordinate and interpret the informal market requirements of the BoP to the firm in a “bottoms up” approach. We illustrate the bottoms up approach through a case involving Deutsche Gesellschaft fur Internationale Zusammenarbeit, a German government agency, with the garment manufacturing industry in Pakistan. The case study involves implementation of labor standards and productivity in the Pakistan garment industry, resulting in improved productivity and labor standards enabling garment manufacturers to access global supply chains.