The Dollar-Mark axis

The Dollar-Mark Axis. — Over the last two decades, most European currencies have tended to weaken against the mark as the latter strengthened against the dollar. Moreover, the strength of the response of European cross rates has tended to remain in the same order over time. The paper first sets out the stylised facts of this phenomenon, referred to as the dollar-mark axis, and then tries to identify its determinants. In addition to exchange rate policy, the paper examines the correlation of cyclical fluctuations and trade links and the bias of international investors in the currency composition of their portfolios.     

Inside innovation persistence: New evidence from Italian micro-data

This paper contributes the analysis of the persistence of innovation activities, as measured by different innovation indicators and explores its past and path dependent characteristics. The study provides new insights on the role of R&D investments in innovation persistence and analyses differentiated patterns of persistence across product and process innovation, by accounting for complementarity effects between the two types of innovative behaviour. The empirical analysis is based on a sample of 451 Italian manufacturing companies observed during the years 1998–2006. Results highlight the relevance of innovation persistence. The highest level of persistence is found for R&D-based innovation activities, witnessing the actual presence of significant entry and exit barriers. Moreover, we obtain more robust evidence of persistence for product innovation than for process innovation when complementarity effects between the two types of innovation are accounted for.     

Current Account Adjustment and Capital Flows*

We examine episodes of current account adjustment in industrial countries over the past 30 years. We find that they were typically associated with a sizable growth slowdown and a large exchange rate depreciation. There was no discernible change in the nature of capital flows just prior to an adjustment. Hence, adjustments may be responding to the resolution of domestic imbalances rather than being an exogenous event. We show that global developments triggered the adjustment, possibly by triggering the unwinding of the domestic imbalances. Most of the ex post adjustment of the financial account was in private sector flows, primarily by foreign investors.     

THE DISTRIBUTION OF MONEY BALANCES AND THE NONNEUTRALITY OF MONEY*

Recent monetary models with explicit microfoundations are made tractable by assuming that agents have access to centralized markets after one round of decentralized trade. Given quasi‐linear preferences, this makes the distribution of money degenerate—which keeps the models simple but precludes the discussion of distributional effects of monetary policy. We generalize these models by assuming two rounds of trade before agents can readjust their money holdings to study a range of new distributional effects analytically. We show that unexpected, symmetric lump‐sum money injections may increase short‐run output and welfare, whereas asymmetric injections may increase long‐run output and welfare.     

An Evaluation of California's Mandated Commodity Promotion Programs

This article provides an overview of mandated commodity programs in California, and summarizes and interprets existing evidence on their economic impacts. The analysis draws upon the recent book edited by the authors: The Economics of Commodity Promotion Programs: Lessons from California . New York: Peter Lang Publishing, April 2005. The book documents the institutional arrangements, summarizes the history of recent litigation, and presents the results of a number of benefit–cost studies of mandated commodity programs in California. The overwhelming conclusion from the studies reported in the article is that the programs have been very profitable for California's agricultural producers.     

Generic Advertising and Product Differentiation

This article considers whether generic advertising lowers the differentiation among competing brands of the same good. Analytical results show that if the benefits from generic advertising from increased demand are outweighed by the costs from lower product differentiation then high–quality producers will not benefit from generic promotion. Hypotheses are tested empirically under a conditional–logit approach using retail–market sales and advertising data for the U.S. prune industry. Results from this study provide evidence that generic advertising has a slight differential effect on the perceived qualities of different brands.     

The distributive and welfare effects of product and labour market deregulation

This paper studies the effects of product and labour market deregulation on wage inequality and welfare. By constructing an analytically tractable model in which the level of product market competition and the wages are endogenously distributed among sectors, I show that deregulation in goods market has mixed effects on inequality: the wage variance and the Gini index are lower, but the ratio of the highest over the lowest wage paid in the economy increases. Moreover, deregulation in labour markets raises the aggregate level of employment and the average real wage but reduces the welfare of trade unions in sectors with a low level of competition.     

Trade mechanism selection in markets with frictions

We endogenize the trade mechanism in a search economy with many homogeneous sellers and many heterogeneous buyers of unobservable type. We study how heterogeneity and the traders' continuation values—which are endogenous—influence the sellers' choice of trade mechanism. Sellers trade off the probability of an immediate sale against the surplus expected from it, choosing whether to trade with everyone and how quickly. In equilibrium sellers may simply target one buyer type via non-negotiable offers (price posting), or may price discriminate (haggling). We also study when haggling generates trading delays. A price setting externality arises because of a strategic complementarity in the sellers' pricing choices.