Is the international propagation of financial shocks non-linear?: Evidence from the ERM

This paper tests for the presence of non-linearities in the propagation of devaluation expectations among the countries that were members of the Exchange Rate Mechanism of the EMS. We show that whenever it is possible to estimate a model for financial interdependence, a full-information technique to detect such non-linearities is more efficient than the limited-information estimator proposed, in a similar context, by Rigobon (2000). This happens, in particular, when the periods of market turbulence are relatively short. Our evidence suggests that non-linearities in the propagation of devaluation expectations were a general phenomenon in the ERM. Normally the non-linearity amounts to a stronger effect in the same direction, but sometimes, as in the Dutch case, it implies a significant effect in the opposite direction: evidence of flight-to-quality.     

Economic Analysis for the UK National Ecosystem Assessment: Synthesis and Scenario Valuation of Changes in Ecosystem Services

We combine natural science modelling and valuation techniques to present economic analyses of a variety of land use change scenarios generated for the UK National Ecosystem Assessment. Specifically, the agricultural, greenhouse gas, recreational and urban greenspace impacts of the envisioned land use changes are valued. Particular attention is given to the incorporation of spatial variation in the natural environment and to addressing issues such as biodiversity impacts where reliable values are not available. Results show that the incorporation of ecosystem services and their values within analyses can substantially change decisions.     

The demand for tobacco in post-unification Italy

This paper studies the demand for tobacco products in post-unification Italy. We construct a very detailed panel data set of yearly consumption in the 69 Italian provinces from 1871 to 1913 and use it to estimate the demand for tobacco products. We find support for the Becker and Murphy (J Polit Econ 96:675–700, 1988) rational addiction model. We also find that, in the period considered, tobacco was a normal good in Italy: aggregate tobacco consumption increased with income. Subsequently, we consider separately the four types of products which aggregate tobacco comprises (fine-cut tobacco, snuff, cigars, and cigarettes), and tentatively suggest that habit formation was a stronger factor on the persistence of consumption than physical addiction. The paper ends by showing that the introduction of the Bonsack machine in the early 1890s did not coincide with changes in the structure of the demand for tobacco, suggesting cost-driven technological change.     

THE INFLUENCE OF DIFFERENT FORMS OF GOVERNMENT SPENDING ON DISTRIBUTION AND GROWTH

This paper deals with the influence of different types of government expenditure on growth in a post‐Keynesian framework. The analysis considers a government sector with a balanced budget and an autonomous and non‐linear investment function, interpreted along a Kaleckian and a Classical‐Harrodian line. It shows under which conditions different types of government expenditure are beneficial or detrimental for economic growth, comparing some results with those reached by Barro in his 1990 Journal of Political Economy article, and points out the emergence of phenomena like multiple equilibria, hysteresis and low growth traps.     

Changes in Technology and Preferences: A General Equilibrium Explanation of Rapid Growth in Trade

We use a computable general equilibrium model in an explanation of the recent rapid growth in Australia's trade, particularly intra-industry trade. Relative to previous studies of trade growth based on multiple regression analysis, our approach allows us to: (i) work at a detailed industry level; (ii) use primary variables to represent changes in technology and preferences rather than proxies; and (iii) use a framework based on explicit microeconomic foundations. We find that most of the growth in Australia's trade relative to GDP is explained by changes in technology and preferences.     

Capital–skill complementarity and the redistributive effects of Social Security Reform

This paper analyses the general equilibrium implications of reforming pay-as-you-go pension systems in an economy with heterogeneous agents, human capital investment and capital–skill complementarity. It shows that increasing funding, by raising savings, delivers in the long run higher physical and human capital and therefore higher output, but also higher across-group wage and income inequality. It also shows that the general equilibrium effects induced by this reform affect groups' sizes in a way that the higher across-group inequality generated by more funding goes with a larger share of the population against redistribution.     

Words that shake traders : The stock market's reaction to central bank communication in real time

This paper investigates the effects of Federal Reserve's decisions and statements on U.S. stock and volatility indices (Dow Jones Industrial Average, NASDAQ 100, S&P 500, and VIX) using a high-frequency event-study analysis. I find that both the surprise component of policy actions and official communication have statistically significant and economically relevant effects on equity indices, with statements having a much greater explanatory power of the reaction of stock prices to monetary policy. For instance, around 90% of the explainable variation in S&P 500 is due to the surprise component of Fed's statements. This paper also shows that equity indices tend to incorporate FOMC monetary surprises within 40 min from the announcement release. Finally, I find that these results are robust along several dimensions. In particular, I consider different estimators, such as the Generalized Empirical Likelihood, and I extend the sample to include the recent period of heightened financial stress. This sensitivity analysis corroborates that central bank communication about its future policy intentions is a key driver of stock returns.