Output decline and the demise of the CMEA and the USSR: The case of Hungary

The direct effect of market losses in CMEA on Hungarian output was 4%, out of the 18% decline registered in gross output in 1988–1992. Total (direct and indirect) effects amounted to 8%. In the same period Hungary's export expansion in western markets led to direct and total effects equivalent to 2.9% and 5.6% of the 1988 output, respectively. The share of reorientation within this switch from east to west was not negligible, it amounted to 19% of respective trade volumes. The 1991 price explosion of imported inputs inhibited the activity of Hungarian firms only moderately, due to earlier realistic domestic prices. In 1991 Hungary suffered a 26% terms of trade loss, and could have experienced an income terms of trade loss of USD 1400 to 1600 million, had the trade volume of 1990 been repeated. Since adjustments in 1991, much smaller income losses accrued. Due to earlier special tax arrangements, much of the burden of terms of trade losses had to be born by the budget.     

On wage- and profit-led demand regimes: learning from the evidence

Abstract

This paper contributes to the empirical research around the “wage-led” or “profit-led” demand regimes. It first reviews how Kalecki, and then Steindl, approached the relationship between economic growth and income distribution. Then, empirical analysis carried out under the probabilistic approach to econometric modeling shows statistical evidence, estimated through cointegration analysis, that in the long run, in three very open economies—Mexico, France, and Korea—the wage share is positively associated with demand and output. It finally discusses the macroeconomic dilemma that almost all countries have to face, i.e., a positive effect of a high-wage policy on demand and employment may diverge from a negative effect on output compatible with external equilibrium.     

New European Banking Governance and Crisis of Democracy: Bank Restructuring and Privatization in Slovenia

ABSTRACT

The paper makes three contributions to the understanding of the post-crisis European banking governance. First, it offers a more comprehensive approach to banking governance, beyond the Banking Union, through its concept of ‘New European Banking Governance’ (NEBG) that incorporates EU state aid rules and fiscal regulations. Second, it considers the impact of NEBG on democratic institutions and processes in EU member states, an under-researched topic in the literature on European banking governance. Finally, through its in-depth case study of Slovenia it considers the NEBG in relation to peripheral Eurozone states. It argues that the post-crisis banking governance framework of the EU not only severely constrained the Slovenian state in its policy choices but rearranged its policy-making institutions in a way that restricted and continues to restrict democratic banking policy formation.     

Arbitrage opportunities and immunization

It is often argued that an immunization strategy violates arbitrage-free equilibrium. Because immunization is a static concept, we contend that this argument is not valid. This paper examines the immunization strategy in a dynamic setting, and shows that global immunization is feasible for any arbitrage-free affine term structure model, including the parallel shift model. Further, we show that immunization does not violate arbitrage-free pricing because the cost of immunization over time is positive. Consequently, immunization strategies based upon commonly used duration, measures are not theoretically unsound.     

Union games: technological unemployment

Summary. Given a production economy, we define union games by considering strategic behavior of the suppliers of factors. We refer to the Nash equilibria of this game as union equilibria. We analyze situations where the unemployment of factors is supported as a union equilibrium. The degree of unemployment depends on technological conditions. This allows us to model a source of unemployment which differs from the usual sources provided in the literature. We state a limit result that demonstrates that, as the market power of unions decreases, the corresponding sequence of union equilibria converges to the Walrasian equilibrium, that is, to full employment of factors. We also provide some examples that illustrate the main results.Received: 21 October 2004, Revised: 14 December 2004, JEL Classification Numbers: D51, C72. Correspondence to: Emma Moreno-GarcíaE. Moreno acknowledges financial support from the Research Grant BEC2000-1388-C04-01 (Ministerio de Ciencia y Tecnología and FEDER). G. Fernández de Córdoba and E. Moreno acknowledge financial support from the Research Grant SA091/02 from Junta de Castilla y León. We are indebted to C. Alós-Ferrer, C. Pita, D. Anisi, J. A. Ortega, F. Jimeno, J. P. Torres-Martínez, M. Steinert and C. Hervés for helpful comments and insights. We are particularly grateful to T. Kehoe and an anonymous referee for suggestions that improved this paper.     

Recursive utility with unbounded aggregators

A new framework is presented for the study of the existence and uniqueness of solutions to the Koopmans’ equation in the unbounded case, that is based on the contraction mapping approach. In the bounded below case with bounded consumption streams, uniqueness of the solution in the whole class of weak-star continuous utility functions is obtained. When the aggregator is unbounded below and/or consumption streams are unbounded, existence of a weak-star continuous solution is shown, and a simple criterium to check the sufficient conditions for existence is provided. Juan Pablo Rincón-Zapatero and Carlos Rodríguez-Palmero gratefully acknowledge financial support by the Ministerio de Educación y Ciencia and FEDER funds under Research Projects MTM2005-06534 and SEJ2005-08709/ECON, respectively, and by Consejería de Educación de la Junta de Castilla y León under Research Projects VA99/04 and VA017B05, respectively. This paper has substantially benefited from the comments of an anonymous referee. Particular and special thanks are due to Robert Becker for his very helpful comments and valuable suggestions.     

The interactions between natural and physical capitals in the tourist lifecycle model

This paper presents a model of the interactions between natural resources and physical capital in the evolution of a tourist destination. The projected trajectory of the number of tourists approaches the classical lifecycle pattern. The post-stagnation phase is analyzed within the model, obtaining different patterns which depend on the impacts of physical capital on both demand and environmental degradation. The magnitudes of these impacts are determined by the type of tourism. An empirical application to the case of the tourist industry in the Canary Islands (Spain) is presented, showing that the model can represent the general characteristics of the post-stagnation phase of a tourist destination.     

On the impact of leverage constraints on asset prices and trading volume

Abstract. Researchers have used stylized facts on asset prices and trading volume in stock markets (in particular, the mean reversion of asset returns and the correlations between trading volume, price changes and price levels) to support theories where agents are not rational expected utility maximizers. This paper shows that this empirical evidence is in fact consistent with a standard infinite horizon – perfect information – expected utility economy where some agents face leverage constraints similar to those found in todays financial markets. In addition, and in sharp contrast to the theories above, we explain some qualitative differences that are observed in the price-volume relation on stock and on futures markets. We consider a continuous-time economy where agents maximize the integral of their discounted utility from consumption under both budget and leverage constraints. Building on the work by Vila and Zariphopoulou (1997), we find a closed form solution, up to a negative constant, for the equilibrium prices and demands in the region of the state space where the constraint is non-binding. We show that, at the equilibrium, stock holdings volatility as well as its ratio to stock price volatility are increasing functions of the stock price and interpret this finding in terms of the price-volume relation. We would like to thank the editor and two anonimous referees for valuable substantive comments. Our gratitude also to Franklin Allen, Kerry Back, Domenico Cuoco, Xavier Freixas, Sanford Grossman, Michel Habib, Lutz Hendricks, Richard Kihlstrom, Fernando Restoy, Mary Thomson, Jean-Luc Vila, participants to seminars at Birkbeck College, Carnegie-Mellon, Columbia, ESSEC, HEC, IAE, INSEAD, London Business School, London School of Economics, McGill, Michigan, National University of Singapore, Pompeu Fabra, North Carolina, Washington-St-Louis, Wharton, the Jornadas de Economía Financiera BBV, and the Meetings of the Society for Economic Dynamics and Control and the American Finance Association. Special thanks are due to Süleyman Basak for his enthusiastic support and many helpful suggestions. The usual disclaimer applies. We gratefully acknowledge the support of the BBV and Caja de Madrid Foundations and CREF (both authors) and of the Spanish Ministry of Education under DGICYT grant no. PB93-0388 (first author).     

Behavior in one-shot traveler’s dilemma games: model and experiments with advice

We report results of one-shot traveler’s dilemma game experiments to test the predictions of a model of introspection. The model describes a noisy out-of-equilibrium process by which players reach a decision of what to do in one-shot games. To test the robustness of the model and to compare it to other models of introspection without noise, we introduce non-binding advice. Advice has the effect of coordinating all players’ beliefs onto a common strategy. Experimentally, advice is implemented by asking subjects who participated in a repeated traveler’s dilemma game to recommend an action to subjects playing one-shot games with identical parameters. In contrast to observations, models based on best-response dynamics would predict lower claims than the advised. We show that our model’s predictions with and without advice are consistent with the data.      

The Legislator as Political Entrepreneur: Investment in Political Capital

This paper applies the standard Austrian theory of capital investment to the standard interest group model of legislator behavior. Distinguishing between reputational capital and representative capital as interdependent forms of political capital, I argue that legislator behavior (specifically roll call voting) can be explained as entrepreneurial investment in political capital under uncertainty. I discuss several examples in which this approach can potentially add predictive power regarding legislative voting.