Announcements and credibility under inflation targeting

We inspect how inflation target announcements are instrumental in building central bank credibility and shaping inflation expectations. Investigating the role of announcements by using a time varying credibility measure, we find that both the accuracy and the frequency of inflation announcements have a positive impact on how much attention the public pays to target announcements.     

Inflation targeting: An indirect approach to assess the direct impact

It is quite difficult to assess the benefits of inflation targeting (IT) since its immediate effect will be on inflation expectations, an unobserved variable. Due to lack of comprehensive data on inflation expectations, most studies so far concentrated on the impact of IT either on observable variables like output, unemployment, and inflation or compared post-IT surveys of IT countries with non-IT countries. In our study, we focus on a yet unanswered question, i.e., how the expectations change with the adoption of IT. We suggest that heterogeneous inflation expectations lead to long memory in actual inflation, and IT, if successful, should decrease this persistence by concentrating the public’s expectations toward the announced target. Empirical results confirm our hypothesis with a reduction in inflation memory after the adoption of IT in almost all eight developed countries in our sample.     

Testing the human capital development model: the case of apprenticeships in Turkey

Human capital theory was developed to study how individual agents make rational choices or how they invest in human capital to maximize their welfare. One of the leading founders of this perspective, Becker, argues that schooling, on‐the‐job training, medical care, migration and searching for information about prices and incomes are different types of human capital as all these investments improve skills, knowledge or health, thereby increasing individual welfare. He states that education and training are the most important investments in human capital. Apprenticeship training is, thus, identified and treated as a type of investment in human capital. At first glance, it seems that apprentices who are being trained are acquiring skills in a specific vocation. One would suppose that the trainees are getting knowledge and skills and that they would become masters in their profession after a long training process. However, further enquiry is needed to see if this is the case in reality. The present small‐scale, exploratory study, based on 20 interviews – 10 with apprentices and 10 with their employers – aims to investigate the apprenticeship training system in Turkey. In doing so, it seeks to test the basic tenets of human capital theory against the facts discovered. The findings, if they could be generalized, suggest that the Turkish apprenticeship system is a form of child labour rather than a training process. Contrary to apprentice training being a human capital investment, the study finds that trainees do not rationally decide to enter an apprenticeship nor are they selected by a meritocratic system. All of them come from poor peasant families or low‐wage working families where the most pressing need is for the child to earn money.     

European integration, productivity growth and real convergence

This paper derives a stochastic endogenous growth model to investigate the impact of European Union (EU) integration on convergence and productivity growth. The theoretical model implies both temporary and permanent positive effects of the integration process. The empirical part of the analysis uses structural break tests and data envelopment analysis to examine the accession process of five recent members to the EU15. The results show (i) endogenously identified accession dates as structural breaks, (ii) improved rates of productivity growth after accession over and above the Union benchmark level, and (iii) increased pace of overall growth due to capital accumulation as a result of institutional features of the Union such as Structural and Cohesion Funds. These findings support the theoretical model, implying that economic integration is beneficial for member countries, especially from a long-run perspective, and Cohesion and Structural funds help the new members catch up with the core-EU members’ standard of living.     

With a little help from our friends: The effect of USAID assistance on SME growth in a transition economy

Using survey data on Macedonian firms that participated in USAID programs providing technical and financial assistance for small and medium-sized enterprises (SMEs) and on firms that did not, we estimate the effectiveness of such assistance in increasing the growth of employment in the assisted firms. We control for selection bias in program participation and use both kernel and caliper propensity score matching to estimate the excess growth of employment in assisted firms. We find that assistance programs raised employment growth by 16-20 percentage points in the first year after assistance and by 26-30 points by the third year.     

Do macroeconomic and financial governance matter? Evidence from Germany, 1950–2019

This study hypothesises that economic governance matters for economic performance; neglecting its role in creating positive synergies between macro- and microeconomic institutions has underlain significant coordination failures and costs. This study examines economic governance in the context of mutual feedback between macro-financial governance (FGV), macro-non-financial governance (NFGV), and micro-financial development (FND) in Germany in the period 1950–2019. The study uses an institutionalist approach, introducing two modes of economic governance based on institutional complementarities and tests its hypotheses using both an exhaustive structuralist analysis and a time-series quantitative technique based on the Autoregressive Distributed Lag cointegration model and the Vector Error Correction Mechanism. The study concludes that (i) the German model of economic governance based on the positive complementarities between FGV, NFGV and FND in the period 1950–1982 significantly enhanced real economic performance, that (ii) the fragmentation of the model became a key determinant of the country’s weak economic performance in the periods 1983–2019 and 1990–2019, and that (iii) the path-dependence of coordinational mechanisms and underlying institutional dynamics, though fragmented, prevented the genesis and embedding of an irrational exuberance in the country.

     

Correction to: Do macroeconomic and financial governance matter? Evidence from Germany, 1950–2019

Journal of Economic Interaction and Coordination - A Correction to this paper has been published: 10.1007/s11403-022-00356-7