EURANDOM: a decade of European stochastics

Conception, founding, start-up and development of EURANDOM are described by Willem van Zwet, Frank den Hollander (former scientific directors of EURANDOM) and Wim Senden (former managing director of EURANDOM).     

Overcoming the zero bound on nominal interest rates: Gesell’s currency carry tax vs. Eisler’s parallel virtual currency

Despite the zero lower bound on the short nominal interest rate in Japan having become a binding constraint, conventional monetary policy in Japan, in the form of generalised open market purchases of government securities of all maturities, has never been pushed to the limit where all outstanding government debt and all current and anticipated future government deficits are (or are confidently expected to be) monetised. Open market purchases of private securities can create serious governance problems. Two ways of overcoming the zero lower bound constraint have been proposed. The first is Gesell’s carry tax on currency. The second is Eisler’s proposal for the unbundling of the medium of exchange/means of payment function and the numéraire function of money through the creation of a parallel virtual currency. This raises the fundamental issue of who chooses or what determines the numéraire used in private wage and price contracts—an issue that is either not addressed in the literature or addressed incorrectly. On balance, Gesell’s proposal appears to be the more robust of the two.     

Patching up the Pact

The paper considers the implications for the EU accession candidates of Central and Eastern Europe of the fiscal‐financial constraints imposed by the Stability and Growth Pact and the Maastricht Treaty. Our findings apply also to those current EU members whose initial conditions (e.g., infrastructure and progress in state pension reform) or other structural characteristics (e.g., demographic structure, growth potential, Balassa‐Samuelson equilibrium real exchange rate appreciation) differ significantly from the EU average. We find the existing criteria to be seriously flawed and propose an alternative rule, the Permanent Balance Rule, based on a strong form of tax smoothing.     

‘Crowding out’ and the effectiveness of fiscal policy

‘Crowding out’ of private economic activity by public economic activity is a multidimensional concept. A taxonomy is proposed: the degree of crowding out, the time horizon considered, direct and indirect crowding out constitute the four main categories. The latter two each have many subcategories. With direct crowding out government economic activity directly enters as an agrument into structural private behavioural relationships. Indirect crowding out refers to crowding out in the reduced form of the model without there being any direct crowding out at the level of the structural private behavioural relationships. A small full employment model is used to analyse the implications of various forms of direct crowding out for the effectiveness of fiscal policy.     

An integration of short run neokeynesian analysis and growth theory

Summary The paper provides a synthesis of short run Neo-Keynesian theory and long run growth models. The general approach is illustrated with the analysis of the short run and long run effect of changes in government spending when government budget deficits and surpluses are bond-financed. Such pure fiscal policy actions are shown to have long run effects on real variables even in a full employment model. The stability properties of the model turn out to depend crucially on the speed of adjustment of inflationary expectations.This paper is based on my Ph.D. DissertationTemporary Equilibrium and Long-Run Equilibrium. The advice and help of James Tobin, Gary Smith and Katsuhito Iwai are gratefully acknowledged. I have also benefitted from discussions with Gregory Chow. The detailed and wide-ranging comments of Dr. Th. C. M. J. van de Klundert and Dr. S. K. Kuipers on earlier drafts of this paper were most valuable, both as regards substance and form.Assistant Professor of Economics and International Affairs, Princeton University.     

Foreign direct investment and factor prices in U.S. manufacturing

Foreign Direct Investment and Factor Prices in U.S. Manufacturing. —We investigate whether inward foreign direct investment (FDI) can explain part of the increase in relative wages of skilled workers in U.S. manufacturing over the period 1977–1994 by studying the sector bias of the effects of FDI on sector prices and technology. We follow the two-stage mandated-wage approach based on the StolperSamuelson theorem. We find that inward FDI affects the sum of sector prices and productivity depending on the absorptive capacity available in the sector. We also find some evidence that inward FDI has induced a sector bias towards using skilled workers over the period 1977–1994.     

Regulating the Platform Economy: How to Protect Workers While Promoting Innovation

The rise of the platform economy has made it a topic of great interest among European policymakers, as evidenced by the European Commission’s 2016 Communication “A European agenda for the collaborative economy”. The regulatory challenges facing policymakers are manifold, ranging from taxation to competition policy to worker protection. Furthermore, many basic aspects of the platform economy are unclear, such as its size, the number of workers who take part in it and, indeed, its very definition. What types of regulation are necessary to ensure that the benefits of the platform economy are maximised for all Europeans? How can the productivity gains associated with the platform economy be distributed throughout society? Perhaps most importantly, how can policymakers support innovation while also protecting consumers, workers and communities?     

European knowledge societies (plural)

The pursuit of a thriving European “knowledge economy” is hampered by a onedimensional conception of what it is. The authors of the following article conceptualise three types of knowledge society and outline the consequences of this analysis for the leaders of the EU and the Lisbon Agenda. The authors would like to express their gratitude to Gert-Jan Hospers (University of Twente, The Netherlands) for his comments on earlier drafts of this article.