The Global Side of the Investment-Saving Puzzle

In this paper, we reexamine the long-standing and puzzling correlation between national saving and investment in industrial countries. We apply an econometric methodology that allows us to separate idiosyncratic correlation at the country level from correlation at the global level. In a major break with the existing literature, we find no evidence of a long-run relationship in the idiosyncratic components of saving and investment. We also find that the global components in saving and investments commove, indicating that they react to shocks of a global nature.     

HYSTERESIS AND "THE JAPANESE UNEMPLOYMENT PROBLEM": A PRELIMINARY INVESTIGATION

In future research, it would be valuable to study Japanese labor-marketinstitutions with a view to evaluating the theories of persistentunemployment put forward here There are a number of similaritiesbetween Japanese and European institutions there may howeverbe important differences as well, particularly in the attitudeof Japanese unions toward outsiders (Blanchard and Summers [1986],p 46)     

CAN UNIONS HURT WORKERS? A POSITIVE ANALYSIS OF IMMIGRATION POLICY

This paper studies the determinants of immigration policy in an economy with entrepreneurs and workers where a trade union has market power over wages. The presence of the union induces a social welfare maximizing government to implement a high level of immigration, leading to a welfare loss not only from an aggregate point of view but also from the workers' point of view. When interest group politics prevails and workers' ability to influence the policy-maker is strengthened by existence of the union, we show the conditions under which workers may benefit from the presence of the union.     

Optimal Fiscal Policy with Consumption Taxation

We characterize optimal fiscal policies in a general equilibrium model with monopolistic competition and endogenous public spending. The government can tax consumption, as alternative to labor income taxes. Consumption taxation acts as indirect taxation of profits (intratemporal gains of taxing consumption) and enables the policymaker to manage the burden of public debt more efficiently (intertemporal gains of taxing consumption). We show analytically that these two gains imply that the optimal share of government spending is higher under consumption taxation than with labor income taxation. Then, we quantify numerically each of these gains by calibrating the model on the U.S. economy.     

Expectations of Inflation: The Role of Demographic Variables,Expectation Formation,and Financial Literacy

When financial decisions have consequences beyond the immediate future, individuals' economic success may depend on their ability to forecast the rate of inflation. Higher inflation expectations have been reported by individuals who are female, poorer, single and less educated. Our results suggest that these demographic differences in inflation expectations may be partially explained by variations in expectation formation and financial literacy. Specifically, higher inflation expectations were reported by individuals who focused more on how to cover their future expenses and on prices they pay (rather than on the US inflation rate) and by individuals with lower financial literacy.     

Monetary Policy and Stock Prices in an Open Economy

This paper studies monetary policy in a two-country model where agents can invest their wealth in both stock and bond markets. In our economy the foreign country hosts the only active equity market where also residents of the home country can trade stocks of listed foreign firms. We show that, in order to achieve price stability, the Central Banks in both countries should grant a dedicated response to movements in stock prices driven by relative productivity shocks. Determinacy of rational expectations equilibria and approximation of the Wicksellian interest rate policy by simple monetary policy rules are also investigated.     

International Asset Pricing and Portfolio Diversification with Time-Varying Risk

We test the conditional capital asset pricing model (CAPM) for the world's eight largest equity markets using a parsimonious generalized autoregressive conditional heteroskedasticity (GARCH) parameterization. Our methodology can be applied simultaneously to many assets and, at the same time, accommodate general dynamics of the conditional moments. The evidence supports most of the pricing restrictions of the model, but some of the variation in risk-adjusted excess returns remains predictable during periods of high interest rates. Our estimates indicate that, although severe market declines are contagious, the expected gains from international diversification for a U.S. investor average 2.11 percent per year and have not significantly declined over the last two decades.     

Winners or Losers? The Effects of Banking Consolidation on Corporate Borrowers

We estimate the impact of bank mergers and acquisitions (M&As) on outstanding credit, credit lines, and the sensitivity of investment to cash flow using a large sample of Italian corporate borrowers. We distinguish between firms that experienced relationship termination as a consequence of bank M&As and those that did not. Our findings are consistent with bank M&As having an adverse effect on credit, particularly when the M&A is followed by relationship termination. The effect persists 3 years and then is absorbed, suggesting that firms are able to compensate for the negative shock.