Increasing returns and unsynchronized wage adjustment in sunspot models of the business cycle

A challenge to models of equilibrium indeterminacy based on increasing returns is that required increasing returns for generating indeterminacy can be implausibly large and rise quickly with the relative risk aversion in labor. We show that unsynchronized wage adjustment via a relative wage effect can both lower the required degree of increasing returns for indeterminacy to a plausible level and make it invariant to the relative risk aversion in labor. Consequently, indeterminacy and sunspot-driven fluctuations can emerge for plausible increasing returns regardless of the relative risk aversion in labor. Our model generates reasonable dynamics in terms of matching the business cycle, and sunspot shocks become more important with labor market friction.     

Crisis and recovery: Role of the exchange rate regime in emerging market economies

Following the recent global financial crisis, questions about the mechanisms that can help countries cope with large shocks have resurfaced. This paper examines the role of the exchange rate regime in explaining how emerging market economies fared in the recent global financial crisis, particularly in terms of output losses and output rebound. After controlling for regime switches during the crisis, using alternative definitions for pegs, and taking account of other likely determinants, we find that the growth performance for pegs was not different from that of floats during the crisis. The picture is different for the recovery period 2010–2011, as pegs appear to be faring worse, with growth recovering more slowly than floats. These results suggest an asymmetric effect of the regime during and recovering from the crisis. We also find that proxies of the trade and financial channels are important determinants of growth performance during the crisis, while only the trade channel appears important for the recovery thus far.     

The brighter side of being socially responsible: CSR ratings and financial distress among Chinese state and non-state owned firms

We examine the effect of corporate social responsibility (CSR) quality ratings on the financial distress levels of Chinese enterprises by using the previously unexplored new China-specific Altman ‘Z_China Score’ in the context of CSR and data from 749 firms over the 2009–2014 period. First, we find that CSR quality ratings significantly reduce Chinese firms’ distress levels. Second, we find that the ability of CSR to reduce distress levels in non-state-owned Chinese firms is higher than state-owned ones. Finally, we find similar results when we divide the data into high-low CSR ratings and levels of distress. Our results are robust to potential endogeneities.     

Unemployment and labour force participation in Spain

This article examines the relationship between the unemployment rate and the labour force participation rate in Spain. Cointegration analysis is performed for aggregate, male and female time-series. Results suggest that there is no a long-run relationship between the two variables for the aggregate and male cases. However, the findings support a long-run relationship between the two variables for the female time-series. Thus, the unemployment invariance hypothesis is supported in the two former cases but not in the latter.     

The effects of risk aversion on life insurance ownership of single-parent households

This study investigates the effect of risk aversion of single-parent households with at least one child under 18 on life insurance ownership. Analysing the 1992–2013 Survey of Consumer Finances datasets, we found that the likelihood of owning term life insurance decreases as risk aversion increases, but the likelihood of owning cash-value life insurance increases as risk aversion increases. Smokers were less likely to own term life insurance but more likely to own cash-value life insurance than comparable non-smokers.     

Mega‐Regional Agreements and Their Impact on Australia

This paper estimates the effects of emerging mega‐regional agreements on the economy of Australia using a Computable General Equilibrium model. Scenarios considered include the 11‐member Comprehensive and Progressive Agreement for Trans‐Pacific Partnership (CPTPP) agreement, its possible enlargement to include five additional members (‘TPP16’) and the Regional Comprehensive Economic Partnership (RCEP) currently under negotiation. The study finds that Australia stands to enjoy real income and trade gains along both the CPTPP and RCEP paths. However, since Australia is already benefiting from its own liberal trade policies and many prior trade agreements, benefits are relatively modest, typically below one per cent of real income.     

Modelling economic hysteresis losses caused by sunk adjustment costs

Transition from one economic equilibrium to another as a consequence of shocks is often associated with sunk adjustment costs. Firm-specific sunk market entry investments (or sunk market exit costs) in case of a reaction to price shocks are an example. These adjustment costs lead to a dynamic supply pattern similar to hysteresis. In analogy to “hysteresis losses” in ferromagnetism, the authors explicitly model dynamic adjustment losses in the course of market entry and exit cycles. They start from the micro level of a single firm and use explicit aggregation tools from hysteresis theory in mathematics and physics to calculate dynamic losses. The authors show that strong market fluctuations generate disproportionately large hysteresis losses for producers. This could give a reason for the implementation of stabilizing measures and policies to prevent strong (price) variations or, alternatively, to reduce the sunk entry and exit costs.     

Is corruption a greater burden for registered MSEs? Evidence from Zambia

If corrupt bureaucrats target registered firms, then corruption may discourage registration. Using data from a survey of 4,801 micro and small enterprises (MSEs) in Zambia, this paper looks at whether corruption is a more or less serious problem for registered MSEs. Consistent with earlier studies, the results suggest registered MSEs are more concerned about corruption than unregistered firms are. The paper also proposes two reasons why corruption might affect registered MSEs differently than it affects unregistered firms. We first suggest that registered firms might meet with government officials more often than unregistered firms, giving corrupt officials more opportunities to demand bribes from them, but we also suggest that registered firms might be less vulnerable when officials demand bribes because they are more able to complain about bribe demands. This could offset registered firms' disadvantage because of more frequent meetings. The evidence supports the first, but not the second, hypothesis. Registered firms were more likely to meet with government officials but were not consistently less likely to pay bribes when they did meet with them.