Monetary policy analysis and inflation targeting in a small open economy: a VAR approach*

Empirical monetary policy research has increased in the last decade, possibly because deregulation and explicit monetary targets have made monetary policy issues more interesting. In particular, within the inflation targeting framework it has been argued that inflation forecasts can be used as optimal intermediate targets for monetary policy, and the development of empirical models that have good forecasting properties is therefore important. This paper shows that a VAR model with long‐run restrictions, justified by economic theory, is useful for both forecasting inflation and for analysing other issues that are central to the conduct of monetary policy. Copyright © 2001 John Wiley & Sons, Ltd.     

Independent by necessity? The life satisfaction of necessity and opportunity entrepreneurs in 70 countries

Small Business Economics - The relationship between self-employment and subjective well-being (SWB) is contingent on the heterogeneity observed among entrepreneurs. We argue that independence and...     

Addiction – and rational choice theory

Becker and Murphy's theory is a well‐known contribution to economists on the discussion of addiction. This class of rational choice theory is still the most important reference for economists studying addiction. In this paper, the model and the economist's rational choice theory were challenged by modern neurobiological theory. The paper suggested reconstruction work of the standard inter‐temporal choice model along four lines to reduce the gap between the theory and the clinical definition of addiction: (1) a discount rate that varies; (2) revision of the concept consumption capital; (3) the possibility for genetic predisposition to addiction (even if the research up to now has not identified such a gene); and (4) social mechanisms that influence our behaviour.     

Conspicuous Leisure: Optimal Income Taxation When Both Relative Consumption and Relative Leisure Matter*

In previous studies on public policy under relative‐consumption concerns, leisure comparisons have been ignored. In this paper, we consider a two‐type optimal non‐linear income tax model, in which people care about both their relative consumption and their relative leisure. Increased consumption positionality typically implies higher marginal income tax rates for both ability types, whereas leisure positionality has an offsetting role. However, this offsetting role is not symmetric; concern about relative leisure implies a progressive income tax component (i.e., a component that is larger for the high‐ability type than for the low‐ability type). Leisure positionality does not modify the policy rule for public‐good provision.     

Endogenous Pollution Havens: Does FDI Influence Environmental Regulations?*

We suggest a novel perspective on the relationship between the stringency of environmental policies and foreign direct investment (FDI). We develop a political economy model with imperfect product market competition where local and foreign firms jointly lobby the local government for a favorable pollution tax. FDI is found to affect environmental policy, and the effect is conditional on the local government's degree of corruptibility. If the degree of corruptibility is sufficiently high (low), FDI leads to less (more) stringent environmental policy, and FDI thus contributes to (mitigates) the creation of a pollution haven. Our empirical results using panel data from 33 countries support the predictions of the model.     

EXPLAINING THE UTILIZATION OF RELATIVE PERFORMANCE EVALUATION IN LOCAL GOVERNMENT: A MULTI-THEORETICAL STUDY USING DATA FROM SWEDEN

One of the more lasting imprints that New Public Management (NPM) has made in the public sector is an increase in the popularity of performance measurement. In Sweden, performance measurement has gained popularity in the public sector, not least at the local government level with the use of relative performance evaluation (RPE). Because utilization of RPE is a decentralized and optional mode of governance, a somewhat heterogeneous practice has evolved. The aim of this paper is to examine the causes of this differentiated practice. We jointly examine economic, political and institutional/cultural explanations in order to account for the utilization of RPE. The empirical material consists of archival data and a questionnaire sent to all Swedish municipalities in late 2005. We show that RPE adoption and use partly has different antecedents and that the institutional/cultural perspective appears to have greater explanatory power than economic and political, not least as a consequence of the potential to explain decoupling and the importance of change facilitating capabilities. The investigation contributes specifically to the literature on the utilization of RPE in local governments and more generally to the literature on why and to what extent management accounting practices are utilized.     

New evidence on cross-country differences in job satisfaction using anchoring vignettes

This paper presents results on cross-country comparison of job satisfaction across seven EU countries taking into account that people in different countries may perceive subjective questions differently. We apply a chopit model approach where the threshold parameters in an ordered probit model are re-scaled through anchoring vignettes. Compared to a traditional ordered probit model, which yields the familiar result that Denmark and Finland are ranked in the very top, the country ranking is altered when the chopit model is applied. In this case, the Scandinavian countries are ranked somewhat lower while workers from the Netherlands are found to have the highest level of job satisfaction. These results suggest that cultural differences in the way people perceive subjective questions about satisfaction make simple cross-country comparison misleading.     

Asian sovereign debt and country risk

This paper analyzes systematic risk of sovereign bonds in four East Asian countries: China, Malaysia, Philippines, and Thailand. A bivariate stochastic volatility model that allows for time-varying correlation is estimated with Markov Chain Monte Carlo simulation. The volatilities and correlation are then used to calculate the time-varying betas. The results show that country-specific systematic risk in Asian sovereign bonds varies over time. When adjusting for inherent exchange rate risk, the pattern of systematic risk is similar, even though the level is generally lower. The findings have important implications for international portfolio managers that invest in emerging sovereign bonds and those who need benchmark instruments to analyze risk in assets such as corporate bonds in the emerging Asian financial markets.