Heterogeneous effects of competitiveness shocks on macroeconomic performance across euro area countries

This paper considers how competitiveness impacts macroeconomic performance in 11 euro area countries. VAR models are estimated for the individual countries using quarterly data from 1995Q4 to 2013Q4. Besides unit labour costs as a competitiveness measure, the models include GDP, the current account balance and domestic credit. The empirical analyses show that changes in unit labour costs help explain GDP dynamics in the short and medium term in most countries, whereas they have little explanatory power for the current account balance or domestic credit for most countries. Overall, the effects of the unit labour costs vary substantially across the countries in the euro area. The heterogeneity suggests that policy measures aiming to improve economic growth, correct current account imbalances and ensure financial stability need to take country‐specific features into account.     

Transmission of the financial and sovereign debt crises to the EMU: Stock prices,CDS spreads and exchange rates

This paper tests for the transmission of the 2007–2010 financial and sovereign debt crises to fifteen EMU countries. We use daily data from 2003 to 2010 on country financial and non-financial stock market indexes to analyze the stock market returns for three country groups within EMU: North, South and Small. The following results hold for both the North and South European countries, while the smallest countries seem to be relatively isolated from international events. First, we find strong evidence of crisis transmission to European non-financials from US non-financials, but not for financials. Second, in order to test how the sovereign debt crisis affects stock market developments we split the crisis in pre- and post-Lehman sub periods. Results show that financials become significantly more dependent on changes in the difference between the Greek and German CDS spreads after Lehman’s collapse, compared to the pre-Lehman sub period. However, this increase is much smaller for non-financials. Third, before the crisis euro appreciations coincide with European stock market decreases, whereas this relationship reverses during the crisis. Finally, this reversal seems to be triggered by Lehman’s collapse.     

Inefficiency of equilibria in digital mechanisms with continuous valuations

A digital mechanism is defined as an iterative procedure in which bidders select an action, from a finite set, in each iteration. When bidders have continuous valuations and make strategic reports, we show that any ex post implementation of the Vickrey choice rule via such a mechanism needs infinitely many iterations for almost all realizations of the bidders’ valuations. Thus, when valuations are drawn from a continuous probability distribution, the Vickrey choice rule can only be used at the expense of a running time that is infinite with probability one. This infeasibility result even holds in the case of two bidders and the Vickrey choice rule only being required to be established with probability one. Establishing the efficient allocation when the $n$ bidders’ report truthfully contrasts starkly to the previous setting: a bisection procedure has a finite running time almost always, and an expected number of reports are equal to $2n$. Using a Groves payment scheme rather than Vickrey’s second price payment scheme somewhat mitigates the problem. We provide an example mechanism with a Groves payment scheme, in which the running time of the mechanism in equilibrium is finite with probability $\frac{1}{2}$.     

The Impact of an Increase in the Legal Retirement Age on the Effective Retirement Age

We analyze the impact of an increase in the legal retirement age on the effective retirement age in the Netherlands. We do this by means of a dynamic programming model for the retirement behavior of singles. The model is applied to new administrative data that contain very accurate and detailed information on individual incomes and occupational pension entitlements. Our model is able to capture the main patterns observed in the data. We observe that as individuals get older their labor supply declines considerably and this varies by age and gender. We simulate the current pension reform which aims at gradually increasing the legal retirement age from 65 to 67 and a hypothetical reform that immediately increases the retirement age to 67. The simulation results show a small impact on the effective retirement age for the first reform and a bigger impact for the second reform. Respectively, individuals postpone their retirement by \(<\) 1 month and 7 months on average; while differences across individuals mainly depend on their gender and health status.     

A response surface approach to tolerance design

In spite of Taguchi's robust parameter design (Introduction to quality engineering: designing quality into products and processes, 1986, Asian Productivity Organization, Tokiyo), tolerance design is still important at the design stage of products and processes. Taguchi's proposal and related methods for tolerance design, however, do not efficiently use the information that can be obtained from the parameter design experiment. In this paper, we introduce a new method for tolerance design based on the response surface approach to parameter design. It is a flexible method because non-normal distributions of the noise factors and the quality characteristic are allowed. Moreover, it is unnecessary to perform a new physical experiment. Essentially, tolerances of noise factors are maximized, subject to constraints to ensure that the mean value of the quality characteristic remains on target and the fraction nonconforming is below a pre-specified maximum. Some aspects of model uncertainty are discussed and the method is illustrated by means of an example.     

International investment positions revisited: Investor heterogeneity and individual security characteristics

This paper contributes to the literature by empirically documenting the importance of investor heterogeneity and security level characteristics for international investment positions. We estimate a standard gravity model to explain holdings in individual bonds and stocks for euro area investors covering 2013Q4–2018Q4. First, our results confirm the importance of market size and distance, but there are significant differences between banks, insurance companies and pension funds, investment funds, households and other investors. Second, we show the statistical significance and economic relevance of security characteristics such as currency, bond maturity and dividend yield. Third, the results are robust to including domestic holdings.     

Equilibrium Selection and Consistency

In this paper we show that, for two important classes of strategic games, namely the class of mixed extensions of finite games and the class of games with compact and convex strategy spaces and continuous-concave payoff functions, equilibrium selection is incompatible with One Person Rationality, Consistency and (restricted) Non-Emptiness.