Firm exit,technological progress and trade

The dynamics of export market exit and firm closure have found limited attention in the new heterogeneous-firms trade literature. In fact, several of the predictions on firm survival and exit stemming from this new class of models are at odds with the stylized facts. Empirically, higher productivity firms survive longer, most firm closures are young firms, higher productivity exporters are more likely to continue to export compared to less productive exporters and market exits as well as firm closures are typically preceded by periods of contracting market shares. The present paper shows that the simple inclusion of exogenous economy wide technological progress into the standard Melitz (2003) model generates a tractable dynamic framework that generates endogenous exit decisions of firms in line with the stylized facts. Furthermore, we derive the effects of faster technological progress and trade liberalization on export market exit and firm closure.     

Are income and consumption taxes ever really equivalent? Evidence from a real-effort experiment with real goods

The public finance literature demonstrates the equivalence between consumption and labor-income (wage) taxes. We introduce an experimental paradigm in which individuals make real labor-leisure choices and spend their earned income on real goods. We use this paradigm to test whether a labor-income tax and an equivalent consumption tax lead to identical labor-leisure allocations. Despite controlling for subjects' work ability and inherent labor-leisure preferences and disallowing saving, subjects reduce their labor supply significantly more in response to an income tax than to an equivalent consumption tax. We discuss the economic implications of a policy shift to a consumption tax.     

Has Australia's floating exchange rate regime been optimal?

This paper develops a straightforward theoretical framework for evaluating exchange rate regime choice for small economies. It proposes that a floating exchange rate minimises national income and employment variation when real macroeconomic shocks predominate, whereas a pegged exchange rate achieves this goal should monetary shocks predominate. It then shows econometrically that, in the case of Australia, a floating exchange rate best suited the economy for the period 1985 to 2010, because real shocks were more significant than monetary shocks. Moreover, consistent with the theory, further results showing that a stronger (weaker) exchange rate correlated with positive (negative) deviations from trend GDP affirm that a floating exchange rate regime was optimal for Australia over this time.     

Calibration of implied volatility for the exchange rate for the Chinese Yuan from its derivatives

Revised implied volatility curves and surfaces for the Chinese Yuan (CNY) exchange rate are obtained from market quotations for CNY non-deliverable options by solving an inverse problem of foreign exchange option pricing, which is calculated using a regularization approach in an optimal control framework. To take account of the market expectation for the CNY exchange rate, a stochastic adjusted factor is applied that follows a Vasicek model with parameters fitted from market quotations for CNY non-deliverable forwards. A well-posed numerical scheme is implemented.     

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.     

WHITHER GERMANY AND THE EMU IN A CHALLENGING ENVIRONMENT?*

While the German economy may currently be a bright spot in Europe, it has faced substantial challenges in recent years. Moreover, tensions are rising regarding Germany's responsibilities and opportunities as a member of the European Monetary Union. Other studies have documented the difficulties that Germany has encountered as a result of the unification and further integration of Europe. This paper adds to that literature by using an aggregate translog cost function approach to examine the relationships among inputs of domestic capital and labour and imports. Our findings indicate that the input pairs of capital‐labour and labour‐imports are substitutes. The substitutes relationship between labour and imports, which has become stronger over time, suggests that increasing globalisation will add to Germany's unemployment woes. Capital and imports appear to be weak complements, but that relationship is not statistically significant. The results also suggest that imports are playing an increasingly important role in Germany's aggregate production, accentuating the role of the international environment.     

SUPPLEMENTAL NUTRITION ASSISTANCE PROGRAM PARTICIPATION AND HEALTH: EVIDENCE FROM LOW‐INCOME INDIVIDUALS IN TENNESSEE

We investigate the factors that contribute to participation in the Supplemental Nutrition Assistance Program (SNAP, formerly known as the Food Stamp Program) and the effects of such participation on self‐assessed health (SAH). Our estimation approach consists of an endogenous switching ordered probability model, using the copula approach, for a sample of current and former Temporary Assistance for Needy Families (TANF) recipients in Tennessee. Results indicate that sociodemographic characteristics play a role in SNAP participation. Interestingly, we find that participation in SNAP is inversely related to SAH. (JEL I12, I38, C31)     

Public or Private Sector Wage Leadership? An International Perspective*

Whether a government acts as a wage leader, placing pressure on private‐sector wages (more open to competition), or whether it plays a passive role and merely follows wage negotiations in the private sector, there are important implications for macroeconomic development, particularly in small open economies and/or countries that are members of a monetary union, such as those of the European Monetary Union. With the notable exception of the case of Sweden, opinion on this issue is still divided. In this paper, we look at public‐ and private‐sector wage interactions from an international perspective (18 OECD countries). We focus on the causal two‐way relationship between public and private wage setting, confirming that the private sector, on the whole, appears to have a stronger influence on the public sector, rather than vice versa. However, we also find evidence of feedback effects from public wage setting, which affect private‐sector wages in a number of countries. When the private sector takes the lead on wages, there are few feedback effects from the public sector, while public wage leadership is typically accompanied by private‐sector feedback effects.     

FLOWS OF THE PACIFIC: ASIAN FOREIGN EXCHANGE MARKETS THROUGH TRANQUILITY AND TURBULENCE

Using the longest data set on foreign exchange (FX) order flow to date, along with the broadest coverage of currencies to date, we examine the effect of FX order flow on exchange rates across small and large currencies, currencies with floating or fixed regimes, and across both tranquil and turbulent periods. Over our 15 years of data for 11 Asian and Australasian currencies, we find that order flow has a potentially strong impact on all exchange rates in the sample. The effect is strongest on floating exchange rates, both economically and statistically, but is sizeable also on the other exchange rates, especially during periods of turbulence. By creating a measure of regional order flow, we show that all exchange rates depreciate as flows are moved out of Asia/Australasia and into US dollars. This is true both across regimes and if their own flow is not included in the structure of the regional flow.     

MONETARY VALUATION OF INSURANCE AGAINST FLOOD RISK UNDER CLIMATE CHANGE*

Climate change is projected to increase the risk of natural disasters, such as floods and storms, in certain regions. This is likely to raise the demand for natural disaster insurance. We present a stated preference survey using choice modeling with mixed logit estimation methods in order to examine the effects of climate change and the availability of government compensation on the demand for flood insurance by Dutch homeowners. Currently, no private insurance against flood damage is offered in the Netherlands. The results indicate that there are opportunities for the development of a flood insurance market.