Computational suite of models with heterogeneous agents: Incomplete markets and aggregate uncertainty

This paper describes the first model considered in the computational suite project that compares different numerical algorithms. It is an incomplete markets economy with a continuum of agents and an inequality (borrowing) constraint.     

Anticipated growth and business cycles in matching models

In a business cycle model that incorporates a standard matching framework, employment increases in response to news shocks, even though the wealth effect associated with the increase in expected productivity reduces labor force participation. The reason is that the matching friction induces entrepreneurs to increase investment in new projects and vacancies early. If there is underinvestment in new projects in the competitive equilibrium, then the efficiency gains associated with an increase in employment make it possible that consumption, employment, output, as well as the investment in new and existing projects jointly increase long before the actual increase in productivity materializes. If there is no underinvestment, then investment in existing projects decreases, but total investment, consumption, employment, and output still jointly increase.     

China's Outward Direct Investment in Africa

The empirical determinants of China's outward direct investment (ODI) in Africa are examined using an officially approved ODI dataset and a relatively new OECD–IMF format ODI dataset. China's ODI is found responding to the canonical economic determinants that include the market seeking motive, the risk factor, and the resources seeking motive. It is also affected by the intensity of trade ties and the presence of China's contracted projects. A host country's natural resources have an impact on China's decision on how much to invest in the country rather than on whether to invest in the country or not. China's drive for Africa's natural resources is mainly a recent phenomenon and, probably, became prominent after the “Going Global” policy adopted in 2002.     

Tax Ratios in Macroeconomics: Do Taxes Really Matter?

In various empirical studies so-called tax ratios (tax revenues expressed as a ratio of some aggregate tax base) are employed as approximations for tax burdens. The most difficult problem in calculating tax ratios is the way in which personal income tax revenues are attributed to labour and capital. We argue that the methodology of Mendoza et al. (1994) is seriously flawed in this respect. Using information from national sources, we calculate more accurate tax ratios for eight OECD countries that differ substantially from those of Mendoza et al. (1997). Still, the results of the empirical analysis of Mendoza et al. (1997) do not change significantly if we use our tax ratios instead of those of Mendoza et al.. However, the results change once country specific effects are taken up in the model. Capital taxes are, e.g., shown to reduce economic growth. We find that the results of Daveri and Tabellini (2000) are neither sensitive to the use of the tax ratios nor to the specification of the model: high labour taxes have increased unemployment in Europe.     

The impact of bank ownership concentration on impaired loans and capital adequacy

This paper examines the impact of bank ownership concentration on two indicators of bank riskiness, namely banks’ non-performing loans and capital adequacy. Using balance sheet information for around 500 commercial banks from more than 50 countries averaged over 2005–2007, we find that concentrated ownership (proxied by different levels of shareholding) significantly reduces a bank’s non-performing loans ratio, conditional on supervisory control and shareholders protection rights. Furthermore, ownership concentration affects the capital adequacy ratio positively conditional on shareholder protection. At low levels of shareholder protection rights and supervisory control, ownership concentration reduces bank riskiness.     

Regional business cycle synchronization in Europe?

We analyse regional business cycle synchronization in the Euro Area, using gross value added in 53 NUTS 1 regions for a period of 30 years (1975–2005), detrended by Hodrick–Prescott and the Christiano–Fitzgerald filters. We conclude that, on average, synchronization has increased for the period considered with exceptions during the eighties and the beginning of the nineties. Still, the correlation of the business cycle in some regions with the benchmark remained low or even decreased. Our findings also support the hypothesis of the existence of a ‘national border’ effect.     

Financial stability reviews: A first empirical analysis

Between 1996 and 2005 the number of central banks that publish a financial stability review (FSR) increased from 1 to 40. A FSR may contribute to financial stability, increase accountability of authorities responsible for financial stability, and strengthen co-operation between the various authorities. The occurrence of a banking crisis in the past, income per capita, and European Union membership increase the likelihood that a FSR is published. The content of FSRs differs widely; on average only 33% of the indicators as suggested by the IMF is actually published. The amount of information provided seems unrelated to the health of the banking system.     

Een onderzoek naar de invloed van monetaire factoren op het reële groeiproces in enkele traditionele theorieën van economische groei (III)

Summary This is the third of three successive papers on the problem of to what extent monetary phenomena influence the real variables in a process of economic growth. In the first paper the conditions under which money is neutral was examined. The second was devoted to the impact of money in a neo-classical growth model. In the present paper the real neo-keynesian growth model of Harrod is taken as a starting-point. This is a special case of the neo-classical model, for the introduction of a constant rate of interest in a neoclassical production structure yields a constant capital-labor ratio as a result. According to the Harrod model, capital scarcity or capital abundance will generally prevail. Stable growth is a mere accident. Subsequently, the assumption of a constant rate of interest is relaxed. The rate is now assumed to be dependent on the national product and the money supply. This makes the model more flexible. Control of the growth rate of the money supply is then an instrument in the hands of the monetary authorities for the purpose of preventing situations of capital scarcity or abundance. In the case of capital scarcity, the growth rate of the money supply has to be raised. Paradoxically enough, the result of this will be that the rate of interest rises. In a situation of capital abundance the opposite is true. A steady and stable growth path is possible, because the monetary authorities are in a position to let the rate of interest take a value at which full employment prevails.      

Firm Internationalization and Capital Structure in Developing Countries: The Role of Financial Development

We investigate the relationship between internationalization and the level of debt financing for more than 18,000 firm/year observations from thirty-one developing countries in the period 1991-2006. We argue that this relationship can be affected by both country-level and firm-level factors. The results show that in developing countries with relatively higher financial development, firm internationalization corresponds with a greater level of debt when firms have more growth opportunities (which also indicate a higher level of asymmetric information). This evidence suggests that relatively developed financial markets in developing countries at least partially mitigate the effect of asymmetric information and decrease the agency cost of debt for firms with higher levels of internationalization.