The ECB's New Multi-Country Model for the euro area: NMCM — Simulated with rational expectations

The model presented here is an estimated medium-scale New Multi-Country Model (NMCM) which covers the five largest euro area countries and is used for forecasting and scenario analysis at the European Central Bank. The model has a tight theoretical structure which allows for non-unitary elasticity of substitution, non-constant augmenting technical progress and heterogeneous sectors with differentiated price and income elasticities of demand across sectors. Furthermore, it has the explicit inclusion of expectations on the basis of three optimising private sector decision making units: i.e. firms, trade unions and households, where output is in the short run demand-determined and monopolistically competing firms set prices and factor demands. Labour is indivisible and monopoly-unions set wages and households make consumption/saving decisions.We assume that agents optimise under limited information where each agent knows only the parameters related to his/her optimisation problem. Therefore we estimate with GMM, which implicitly assumes limited information boundedly rational expectations. In this paper we provide some simulation results under the assumption of model-consistent rational expectations, we show that there is some heterogeneity across countries and that the reactions of the economies to shocks depend strongly on whether the shocks are pre-announced, announced and credible or unannounced and uncredible.     

Institutional design and governance of airport regulators: The case of Latin America

This paper offers a cross-country assessment of the governance of airport regulators in Latin America. The analysis links the institutional design of airport regulators, whether in the form of independent regulatory agencies or government departments, to their overall governance. It examines four dimensions of regulatory governance: autonomy, transparency, accountability, and bureaucratic quality. Independent regulatory agencies in the Latin American airport sector seem to provide a better framework for transparency and bureaucratic quality than government departments. It is not conclusively found, however, that independent regulatory agencies contribute to a more autonomous decision-making or to an enhanced accountability of regulators to other branches of government and airport users. Overall, governance indicators of airport regulators in Latin America are well below the threshold that defines good governance.     

THE TIME‐SERIES PROPERTIES OF UK INFLATION: EVIDENCE FROM AGGREGATE AND DISAGGREGATE DATA

This paper contrasts the time‐series properties of aggregate and disaggregate UK inflation. While aggregate inflation is found to be non‐stationary, unit root rejection frequencies are increasing when we use more disaggregate data. Structural break analysis suggests that structural shifts in monetary policy could alter inflation persistence. Additionally, panel evidence indicates that the unit root hypothesis can be rejected for sectoral inflation rates. Finally, we compare the persistence properties of UK inflation, finding statistically significant differences between aggregate and disaggregate series. Our analysis suggests that aggregation matters, which has important implications for econometric analysis and the conduct of monetary policy.     

Microfinance and gender inequality: cross-country evidence

Microfinance enables poor women to engage in income-generating activities, which helps them become financially independent, strengthening their decision-making power within the household and society. Consequently, microfinance has the potential to reduce gender inequality (GI). Case-study evidence from across the developing world both supports and contradicts this hypothesis. We therefore revisit this issue using macroeconomic cross-country panel data for 64 developing economies over the period 2003–2014. We find that women’s participation in microfinance is associated with a reduction in GI. However, regional interactions reveal that cultural factors are likely to influence the GI–microfinance nexus.     

Hispanic Ethnicity,English‐Skill Investments,and Earnings

Analyzing synthetic cohorts in the 1980 and 1990 Public Use Microdata Samples, we find that Mexican‐Americans and other Hispanics acquired English fluency at a faster pace than Puerto Ricans and Cuban‐Americans during the 1980s. Additional results indicate that English‐skill investments differently influenced the earnings distributions of these ethnic groups.     

Will elders provide for their grandchildren? Unconditional cash transfers and educational expenditures in Bolivia

We take advantage of repeated cross‐sectional household surveys and a sharp discontinuity created by the introduction of an unconditional cash transfer to elders in Bolivia, to evaluate its impact on educational expenditures on children within a household. We find positive and significant impacts of the program at the aggregate level. We also find that the program has stronger effects on indigenous populations as well as on female and rural populations. Our results are robust to a series of falsification tests, survey structure, model specification, and estimation methods.     

Inflation and capital accumulation in an OLG model with money in the production function

This article analyses the consequences of the money supply growth rate on capital intensity and economic growth in an overlapping-generations model with real balances entering the production function. Within this theoretical framework, anticipated inflation generates an ambiguous effect on capital–labour ratio, because two forces work simultaneously in opposite directions: one driving towards a pure Tobin effect (due to the OLG demographic structure of the economy) and the other pushing down the capital stock (due to the productive role of real balances). Despite the unclear effects exerted on capital intensity, higher monetary growth rates unambiguously reduce real money demand, consumption, total wealth and welfare.     

Why do European consumers smoke? Responses from the rational addiction model

In this paper, we test whether European consumers are addictive smokers and, if this is the case, then whether such addictions can be explained by the rational addiction theory. To this end, we start from a non‐separable intertemporal utility function, which allows us to derive a demand function that is estimated using tobacco time‐series. The results are in accordance with the model of rational addiction for all European smokers. Thus, we observe the addictive character of tobacco consumption and, secondly, we note that the addiction is not the result of myopic consumer behaviour, but rather of the maximization of total utility, implying that consumers consider the future effects of their current decisions.     

Counter-intuitive effects of domestic law enforcement policies in the United States

In spite of the increase in domestic law enforcement policies in the U.S. drug related crime has followed a non-monotonic trend and cocaine and heroin prices, instead of increasing, have been dropping or remained stable over time. All this in a context of an increase in these drugs’ consumption during the 1980s and a small decrease during the 1990s. This paper provides an explanation to these counter-intuitive effects of domestic law enforcement policies. We model how drug lords respond to this type of policy within a conflict framework over the control of distribution activities for illegal drugs, which is novel. The model predicts drug distribution activities, drug prices and drug consumption. These predictions appear to be consistent with the empirical evidence in the United States.