DYNAMIC STATUS EFFECTS,SAVINGS, AND INCOME INEQUALITY

This article advances the hypothesis that the intensity of status preferences depends negatively on the average wealth of society (endogenous dynamic status effect), in accordance with empirical evidence. Our theory replicates the contradictory historical facts of an increasing saving rate along with declining returns to capital over time. By affecting the dynamics of the saving rate, the dynamic status effect raises inequality, thereby providing a behavioral mechanism for the observed diverse dynamics of income inequality across countries. In countries in which the dynamic status effect is strong (weak), inequality rises (declines) over time in response to a positive productivity shock.     

2017 KLEIN LECTURE: THE SCIENCE OF USING SCIENCE: TOWARD AN UNDERSTANDING OF THE THREATS TO SCALABILITY

Policymakers are increasingly facing the challenge of scaling empirical insights. This study provides a theoretical lens into the science of how to use science. Through a simple model, we highlight three elements of the scale-up problem: (1) when does evidence become actionable; (2) properties of the population; and (3) properties of the situation. Until these three areas are fully understood, the threats to scalability will render any scaling exercise as particularly vulnerable. Accordingly, our work represents a call for more policy-based evidence, whereby the nature and extent of the various threats to scalability are explored in the original research program.     

A Different Perspective on the Evolution of UK Income Inequality

This paper scrutinizes the conventional wisdom about trends in UK income inequality and also places contemporary inequality in a much longer historical perspective. We combine household survey and income tax data to provide better coverage of all income ranges from the bottom to the very top (and make our estimates available to other researchers). We make a case for studying distributions of income between tax units (i.e. not assuming the full income sharing that goes with the use of the household as the unit of analysis) for reasons of principle as well as data harmonization. We present evidence that income inequality in the UK is as least as high today as it was just before the start of World War 2.     

Inventories,inflation dynamics and the New Keynesian Phillips curve

We introduce inventories into an otherwise standard New Keynesian model and study the implications for inflation dynamics. Inventory holdings are motivated as a means to generate sales for demand-constrained firms. We derive various representations of the New Keynesian Phillips curve with inventories and show that one of these specifications is observationally equivalent to the standard model with respect to the behavior of inflation when the model's cross-equation restrictions are imposed. However, the driving variable in the New Keynesian Phillips curve – real marginal cost – is unobservable and has to be proxied by, for instance, real unit labor cost. An alternative approach is to impute marginal cost by using the model's optimality conditions. We show that the stock–sales ratio is linked to marginal cost. We also estimate these various specifications of the New Keynesian Phillips curve using GMM. We find that the predictive power of the inventory-specification at best approaches that of the standard model, but does not improve upon it.     

Endogenous market incompleteness without market frictions: Dynamic suboptimality of competitive equilibrium in multiperiod overlapping generations economies

In this paper, we show that within the set of stochastic three-period-lived OLG economies with productive assets (such as land), markets are necessarily sequentially incomplete, and agents in the model do not share risk optimally. We start by characterizing perfect risk-sharing and find that it requires state-dependent consumption claims which depend only on the exogenous shock realizations. We show then that the recursive competitive equilibrium of any overlapping generations economy with weakly more than three generations is not strongly stationary. This then allows us to show directly that there are short-run Pareto improvements possible in terms of risk-sharing and hence, that the recursive competitive equilibrium is not Pareto optimal. We then show that a financial reform which eliminates the equity asset and replaces it with zero net supply insurance contracts (Arrow securities) will implement to Pareto optimal stochastic steady-state known to exist in the model. Finally, we also show via numerical simulations that a system of government taxes and transfers can lead to a Pareto improvement over the competitive equilibrium in the model.     

Patterns of expectations for emerging sustainable technologies

Innovation is characterized by uncertainties, high risks, large investments and late returns on investment which make it a complex process. This is particularly true for sustainable innovation where market forces alone cannot be relied upon to realize the desired transitions. Insight in the dynamics of such innovation processes is necessary in order to influence technological change toward a more sustainable direction. However, few instruments and indicators are available to assess the performance of emerging technological innovation systems. In this phase competition often takes place based on expectations rather than on technological performance. This paper therefore focuses on the expectation patterns of technological innovation systems in the exploratory phase through the analysis of the expectation dynamics of three emerging technologies in the field of sustainable mobility within the Netherlands: biofuels, hydrogen as a transport fuel and natural gas as a transport fuel. These technologies do not only compete with the current fossil-fuel based system but also with each other. We have collected over 5000 expectation events regarding these technologies for the period 2000–2008 and discuss the insights generated by the comparison of the observed expectation dynamics to theoretical patterns.     

Trends and cycles of the internet evolution and worldwide impacts

In this paper we present a quantitative analysis of the evolution of some Internet and ICT evolution indicators. It focuses on the number of Internet hosts, the Internet penetration index, the ICT development index and the software/protocols development. In addition, we analyzed the series of most impacting events building up the Internet along the last fifty years. These analyses were carried out using the multi-logistic procedure recently proposed by the authors. Our results for hosts counting, penetration index and software/protocols development are compatible with the onset of some radical changes in the Internet technology to be currently underway and we forecast new growth rate peaks to occur by 2015. The software/protocols were found to having been powered by bursts of creativity with periods of the order of the Kuznets and Kondratiev economic cycles. Similar conclusions were drawn from the series of main events building up the Internet. Despite the clear signs of worldwide improvement in the ICT infrastructure and usage between 2002 and 2007 obtained from the ICT development index, its cross-correlation with the human development index (HDI) revealed the presence of a group of countries whose improvements in the operational ICT index are disconnected from their corresponding HDI improvements.     

Firm Market Performance and Volatility in a National Real Estate Sector

We present empirical evidence using daily data for stock prices for 17 real estate companies traded in the Sao Paulo, Brazil stock exchange, from August 26, 2006 to March 31, 2010. We use the U.S. house price bubble, financial crisis and risk measures to instrument for momentums and reversals in the domestic real estate sector. We find evidence of conditional premium persistence and conditional volatility persistence in the market. We find that the conditional risk-return relationship in the sector is consistent with the prospect theory of risk attitudes in this period. Certain companies seem to be operating on a perceived potential industry return above the target, while most others are below the target, and the whole sector is below target on average.     

Social contracts,markets and efficiency: Groundwater irrigation in North India

This paper uses primary data to analyze the institutions and informal markets that govern groundwater allocation in a sugarcane-cultivating village in North India. We find that, in contrast to earlier literature, the observed water trades result in efficient water allocation across farms. We interpret this and other stylized facts in terms of a social contract using a simple bargaining model with limited inter-player transfers. Poor functioning of the power sector leads to reduced pumping and a water supply constraint. Simulations show that power supply reform can significantly increase farm yields, and be financed out of increased farm profits.     

A STATE‐LEVEL ANALYSIS OF BUSINESS CYCLE ASYMMETRY

This paper provides a comprehensive examination of asymmetry in US state‐level business cycles. We consider two different types of asymmetry in the adjustment process of a stationary time series: deepness and steepness. The data used in the study are a comparable set of state‐level coincident indexes (SCIs) developed by the Federal Reserve Bank of Philadelphia. Specifically, results from using the momentum‐threshold autoregressive model provide evidence of asymmetry in the growth rate of 23 SCIs as well as the equivalent national coincident index.