Relative-price variability and output-inflation tradeoffs in an open economy

Zusammenfassung Schwankungen der relativen Preise und Trade-Off zwischen Produktion und Inflation einer offenen Volkswirtschaft. — Der Zweck dieses Aufsatzes ist es, in einer ?konometrischen Untersuchung zu zeigen, welche Ansto\wirkung von der Inflation und den Schwankungen der relativen Preise auf das reale Produktionsniveau einer kleinen offenen Volkswirtschaft ausgeht. Betrachtet man die Erfahrung Mexikos w?hrend der Periode fester Wechselkurse (1953-1976), dann zeigt sich, da\ die Schwankungen der relativen Preise die Gesamtproduktion beeintr?chtigten. Es kann indes kein signifikanter Trade-Off zwischen Produktion und Inflation auf der Ebene der aggregierten Gr?\en festgestellt werden. Wird dagegen die Gesamtproduktion in handelbare und nichthandelbare Güter disaggregiert, dann zeigt sich, da\ das Produktionsniveau in beiden. Sektoren eine abnehmende Funktion der Variabilit?t der relativen Preise ist und in signifikanter Weise positiv auf unerwartete Ver?nderungen der Inflationsrate reagiert. Insgesamt stützen die Ergebnisse die “natural-rate” Version der Wechselbeziehung zwischen Produktion und Inflation, wenn sie um die Wirkungen relativer Preise und die Besonderheiten einer offenen Volkswirtschaft erweitert wird.

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Résumé La variabilité en prix relatifs et le ?trade-off? production-inflation d’une économie ouverte. — Le but de cet article est d’évaluer dans une étude économétrique l’effet de l’inflation et de la variabilité en prix relatifs sur le niveau de la production réelle dans une petite économie ouverte. En considérant l’expérience du Mexique pendant la période de taux de change fixe (1953–1976) les auteurs démontrent que la variabilité en prix relatifs a des effets négatifs sur la production agrégée. Cependant, un ?trade-off? production-inflation significatif ne peut pas être identifié au niveau agrégé. Si la production totale est désagrégée en biens commercés et non-commercés on trouve que le niveau de la production dans les deux secteurs est une fonction décroissante de la variabilité en prix relatifs et une fonction croissante significative des changements en inflation imprévue. En général, les résultats supportent la version de ?taux naturel? du ?trade-off? production-inflation si elle est étendue pour inclure les effets des prix relatifs aussi bien qu’une considération de l’économie ouverte.

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Resumen Variabilidad en los precios relativos y alternativas entre inflación y producto en una economia abierta. — El estudio es una evaluación econométrica del impacto de la inflación y de la variabilidad de precios relativos sobre el producto real en una peque?a economía abierta. Analizando la experiencia de Méjico en el período de tipo de cambio fijo (1953–1976), se muestra la influencia negativa sobre el producto nacional del grado de variabilidad en los precios relativos. Sin embargo, no se identifica de forma significativa un conflicto entre producto e inflación a nivel agregado. Cuando el producto nacional se divide en dos partes, según si sus correspondientes bienes y servicios se comercien o no con el exterior, el resultado es, que el nivel de producto en los dos sectores es una función decreciente de la variabilidad de precios relativos y la inflación inesperada tiene también un efecto positivo significativo sobre el nivel de producto de los dos sectores. En conjunto, los resultados son consistentes con la interpretatión del conflicto entre inflación y desempleo por medio de la teoría de la Tasa Natural de Desempleo, esta última ampliada de forma que se tengan en cuenta los posibles efectos de los precios relativos y del grado de apertura exterior de la economía.

     

Measuring international business cycles by saving for a rainy day

Macroeconomics inevitably begins with a trend‐cycle decomposition of a nation's output. We propose a decomposition in which consumption is the trend component and savings is the cycle component. Using data from the G‐7 plus Australia, we show that this decomposition identifies international business cycles that are: (i) more volatile, (ii) of longer mean duration and (iii) less correlated across countries than the cycle component from the Hodrick‐Prescott filter. We argue that this difference stems from the fact that our method imposes a basic theoretical restriction arising from the permanent income hypothesis similar to the restriction used in Cochrane's ( 1994 ) decomposition.     

Firms' Innovation,Public Financial Support,and Total Factor Productivity: The Case of Manufactures in Peru

Based upon an adjusted Crepon–Duguet–Mairesse (CDM) model, this paper analyzes the relationship between investment intensity, public financial support, innovation, and total factor productivity (TFP) for a sample of manufacturing firms of Peru with data obtained from the 2004 survey of science, technology, and innovation (STI) activities. The estimation of the model indicates that large firms are more likely to invest in STI activities and firms' size increases the probability of producing technological inovation (TI) and non‐technological innovation (NTI). STI firms' investment intensity and public financial support have also helped manufacturing firms to increase the probability of producing TI outcomes. Further, such support may have increased firms' investment on STI activities. The innovation effects on TFP, however, were statistically not clear or robust. Thus, whereas investment intensity did increase firms' TPF in low‐tech manufacturing firms, this is not the case for high‐tech firms. For this group of firms, relatively high capital–labor ratio and the availability of a high level of human capital seem to promote higher levels of TFP.     

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Optimal saving in the presence of two risks

We examine optimal saving in the presence of two small risks: income risk and a background risk. First, we compute the necessary and sufficient condition for a positive precautionary saving, showing that it depends on two terms capturing respectively the direct effect of income risk and the interaction between the two risks. Second, we examine the necessary and sufficient condition for a positive extra-saving due to the contemporaneous presence of the two risks. We show that this condition also depends on a term capturing the direct effect of background risk and that it can hold independently of the previous one.      

What factors determine innovation performance in emerging economies? Evidence from China

Although the literatures on international trade, FDI and R&D have assisted significantly in improving our understanding regarding the determinants of innovation performance, there has been little research concerning the way in which each informs the other. Integrating theoretical developments from all three literatures, we propose and test a multidimensional conceptual framework that allows us to explain more fully what determines innovation performance in emerging economies. Testing the framework against a recently constructed industry-level dataset for China, the empirical analysis indicates that it has significant power in explaining variations in innovation performance. Nevertheless, our findings also show that factors such as international trade, FDI and R&D do not always have positive consequences. Rather, they indicate that their effects are moderated by technological opportunities and the level of foreign presence, implying that previous mixed findings regarding the role of international trade, FDI and R&D may be the result of incomplete theorizing about the factors that moderate the relationship between innovation performance and these factors.     

What is the optimal rate of R&D investment to maximize productivity growth?

Governments in modern economies devote much policy attention to enhancing productivity and continue to emphasize its drivers such as investment in R&D. This paper analyzes the relationship between productivity growth and levels of R&D investments. The econometric analysis shows that more than 65 per cent of productivity growth variance is due to its dependence on gross domestic expenditure on R&D expressed as percentage of GDP (GERD). Economic analysis shows that productivity growth = f(GERD) is a concave function downwards due to diminishing returns to research investments. In addition, the research shows that the range of GERD between 2.3 per cent and 2.6 per cent maximizes the long-run impact on productivity growth and it is the key to sustained productivity and technology improvements that are becoming more and more necessary to modern economic growth.     

Tourism demand for Italy and the business cycle

This study provides a strategy for modelling the effect of the business cycle on tourism demand under the rationale that tourism cycles are heavily influenced by lagged effects of the overall business cycle. Using quarterly data on overnight stays in Italian hotels, both domestic and inbound between 1985 and 2004, we adopt a structural time series approach to evaluate two alternative models, the first with a latent cycle component (LCC) and the second based on specific economic explanatory variables (XCV). The two models are compared in terms of explanatory power, best-fit, residual diagnostics and forecasting ability. The results show similar performances. The policy implication is that the XCV model can be used for calibrating countercyclical interventions in tourism policy.