Environmental–Economic Accounting: Progress and Digression in the SEEA Revisions

The 1992 Earth Summit and its message of sustainable development drove the launching of a System for integrated Environmental and Economic Accounting, the SEEA. Since then, sustainable development and the SEEA have given way to green growth and green economy indicators in the latest 2012 Summit. A lengthy revision process has now produced a curtailed “SEEA central framework.” The new framework focuses on expenditures for environmental protection and resource management, and stocks and flows of “economic” resources; both are covered by the conventional national accounts. Environmental degradation, notably from pollution, is left to “experimental” ecosystem accounts. Further revision of the SEEA should reverse this retrenchment from integrative environmental–economic accounting. A comprehensive satellite system, rather than a limited statistical standard, might put the SEEA back on the policy agenda.     

Measuring the Level and Inequality of Wealth: An Application to China

We construct and compare three distinct measures of household asset wealth that complement traditional income‐ or expenditure‐based measures of socioeconomic status. We apply these measures to longitudinal household survey data from China and demonstrate that household asset wealth has been increasing over time, a theme consistent with many previous studies on the process of development in China. Unlike other studies that have shown rising income inequality over time, however, we show that asset wealth inequality has actually been declining in recent years, indicating widespread participation in the benefits of economic reforms. Furthermore, the evolution in the cumulative distribution of household welfare is such that social welfare has been increasing with the passage of time, despite rising inequality in the early years of the survey.     

Aggregate productivity and aggregate technology

Aggregate productivity and aggregate technology are meaningful but distinct concepts. We show that a slightly modified Solow productivity residual measures changes in economic welfare, even when productivity and technology differ because of distortions such as imperfect competition. Our results imply that aggregate data can be used to measure changes in welfare, even when disaggregated data are needed to measure technical change. We then present a general accounting framework that identifies several new non-technological gaps between productivity and technology, gaps reflecting imperfections and frictions in output and factor markets. Empirically, we find that these gaps are important, even though we abstract from variations in factor utilization and estimate only small average sectoral markups. The evidence suggests that the usual focus on one-sector DSGE models misses a rich class of important propagation mechanisms that are present only in multi-sector models.     

Public or Private Sector Wage Leadership? An International Perspective*

Whether a government acts as a wage leader, placing pressure on private‐sector wages (more open to competition), or whether it plays a passive role and merely follows wage negotiations in the private sector, there are important implications for macroeconomic development, particularly in small open economies and/or countries that are members of a monetary union, such as those of the European Monetary Union. With the notable exception of the case of Sweden, opinion on this issue is still divided. In this paper, we look at public‐ and private‐sector wage interactions from an international perspective (18 OECD countries). We focus on the causal two‐way relationship between public and private wage setting, confirming that the private sector, on the whole, appears to have a stronger influence on the public sector, rather than vice versa. However, we also find evidence of feedback effects from public wage setting, which affect private‐sector wages in a number of countries. When the private sector takes the lead on wages, there are few feedback effects from the public sector, while public wage leadership is typically accompanied by private‐sector feedback effects.     

The Feldstein–Horioka Puzzle and structural breaks: Evidence from EU members

The purpose of this paper is to investigate the level of capital mobility in European Union members using the Feldstein–Horioka puzzle proposed by Feldstein and Horioka (1980) in order to investigate relations between saving and investment flows. In this paper, data for 23 European countries were used over the period of 1995–2009 on the quarterly basis. Two different tests were used to estimate the stationarity of the model variables, which are the Ng and Perron (2001) unit root test procedure and approach proposed by Zivot and Andrews (1992) for unit root test allowing for a structural shift. Then the Kejriwal and Perron (2008, 2010) structural break test was applied to determine the presence of structural breaks in series. In most countries except Belgium and Finland UDmax and WDmax tests rejected the hypothesis of no breaks. To test the cointegration relationships between investment and saving flows of European Union members three different cointegration techniques were applied to the data. Firstly, the Johansen (1988) cointegration approach was used for the case of no cointegration shifts, then the Gregory and Hansen (1996) cointegration test was applied, which allows for one structural shift. Finally, again the Johansen' cointegration approach was used; however, this time with the inclusion of dummy variables related to earlier selected structural break locations. The empirical results provided stronger evidence of cointegration between investment and saving variables in the case of structural break accommodation compared to the case where the presence of structural breaks was ignored. The estimated saving retention coefficient in the presence of structural breaks using the Kejriwal and Perron (2008, 2010) approach appeared relatively low in many cases, illustrating by this the openness of estimated countries. In general, world and European countries with time have a tendency to a higher level of their capital market openness. Estimations of a saving retention coefficient in the presence of structural changes do not support the existence of the Feldstein–Horioka Puzzle in the considered EU countries, except Belgium.     

Investment-specific shocks and real business cycles in emerging economies: Evidence from Brazil

This paper investigates the role of the RBC (Real Business Cycle) model with investment-specific technology shocks in explaining business cycle fluctuations in Brazil. I consider the role of transitory and permanent components of neutral and investment-specific technology shocks. I fit the model to the data using Bayesian techniques to show that the investment-specific shocks are important sources of fluctuations in the estimated model. In fact, in the context of the model, investment-specific shocks can account for remarkable percentages of fluctuations in consumption growth, GDP growth, investment growth and trade balance to GDP ratio. Furthermore, I present simulation evidence showing that the RBC model cannot account for some important features of the data.     

Illustrating extraordinary shocks causing trend breaks

Structural breaks in a trending variable have been specified as changes in the drift parameter in the trend component, but extraordinary shocks causing these breaks have not been explicitly formulated. In this paper, the Hodrick–Prescott filter is extended by assuming two kinds of variance for the system noise driving the trend component: the larger one adopted in a point of time causing a trend break, and the smaller one adopted for remaining sequences. The number and location of structural breaks are determined by information criteria. In the proposed method, extraordinary shocks themselves can be illustrated. A Monte Carlo study shows the efficacy of the proposed model. Empirical results suggest that except for the UK, extraordinary shocks in quarterly time series of industrial production are detected for remaining six developed countries. Finally, it is shown that the proposed method considerably outperforms the other competing methods in correctly detecting business cycles.     

Estimation of consistent multi-country FEERs

Most studies on equilibrium exchange rates focus on a limited number of G7 countries. But in a situation of world imbalances, emerging countries can no longer be excluded. The study of all equilibrium exchange rates is delicate. First, the trade model has to be balanced at the aggregate level. This paper suggests a method to achieve world balance both in volume and in value. Second, the N − 1 bilateral exchange rates cannot ensure that the N areas will reach their macroeconomic equilibrium simultaneously. This paper examines the existing solutions to solve the N − 1 problem and proposes an alternative which minimizes the distance to the current-account targets. Finally, in order to compare the relevance of the different methodologies, FEERs are calculated for 19 industrialized and developing countries. The results, which are taking into account the modification on output gap assessment induced by the 2008–2009 crisis, lead for the year 2010 to a USD closed to its equilibrium, a RMB undervalued by around 35% in real effective terms and to a EUR/USD parity equals to 1.47.     

The animal spirits hypothesis and the Benhabib–Farmer condition for indeterminacy

This paper provides a self-contained review of the introduction of the animal spirits hypothesis into the infinite horizon optimal‐growth model. The analysis begins with an economic discussion of Pontryagin's maximum principles. Thereafter, I develop a version of the increasing-returns Benhabib–Farmer model by showing the possible sub-optimality of the central planner solution and deriving the bifurcation condition for indeterminacy. Moreover, I give some insights on how to model intrinsic and extrinsic uncertainty. Finally, analyzing the equilibrium condition of the labor market, I provide an intuitive rationale for the mechanism that in this model might lead prophecies to be self-fulfilling.