Real Exchange Rate Misalignments in the Euro Area

Open Economies Review - Building upon a Behavioural Equilibrium Exchange Rate model, estimated at a quarterly frequency since 1999 on a broad sample of 57 countries, this paper assesses both the...     

The Elasticity of Marginal Utility of Consumption: Estimates for 20 OECD Countries*

In social project appraisal, the policy profile of both distributional welfare weights and the social discount rate has risen considerably in recent years. This fact has important implications for the allocation of funds to social projects and policies in countries, and in unions of countries such as the EU. A key component in the formulae for both welfare weights and the social discount rate is the elasticity of marginal utility of consumption, e. A critical review of existing evidence on e suggests that the UK Treasury's preferred value of unity is too low. New evidence presented in this paper, based on the structure of personal income tax rates, suggests that, on average, for developed countries e is close to 1.4. This particular approach to the estimation of e has previously been under‐utilised by researchers.     

Generalised estimates of diffusion rates for the oxygen blown steel process: An international comparison

The purpose of this study is to build on the results recently obtained by Poznanski (1990). First, the estimation technique is generalised by removing both the symmetric restrictions and the effects of autocorrelated errors that are present in simple logistic functions. Secondly, attention is drawn to the existence and consequences of multicollinearity when non linear techniques are applied to a general exponential. Thirdly, an attempt is made to quantify the importance of market structure and time lags in adoption as determinants of diffusion speed. Finally, a comparison between these generalised results and Poznanski's is made.The study concludes that, by generalising the estimation technique, some significant changes take place. Changes occur in the ordering and magnitude of diffusion speeds, especially amongst the developing and centrally planned economies. Changes also occur in the nature of the diffusion process, and in the importance attributed to market structure and diffusion lags in determining the rate of diffusion. It is also shown that, for some countries, multicollinearity imposes constraints on the type of generality that can be obtained.     

Innovating SMEs and Regions: The Need for Policy Intelligence and Interactive Policies

Based on the empirical findings achieved through comparative research involving 40 innovation policy instruments from 11 European regions, this paper proposes a shift in rationale and in the broad orientations of innovation policy to focus on addressing SMEs in their regional context. The main role for innovation policy, which aims to increase the capacity of a region and the capabilities of its SMEs to innovate, is to foster interactive learning within the firms and within the region. This calls for an interactive mode of policy intervention. The paper deals also with the question of how to build a coherent portfolio of policy instruments, taking into account both regional situations and specific SMEs needs in terms of innovation. The key message is that there is no 'one-size-fits-all' policy portfolio. Regional differences in innovation capabilities call for a tailored mix of policy instruments. One salient element of the conclusion is the need for more 'policy intelligence' in this complex field.     

Are hyperinflation paths learnable?

Earlier studies of the seigniorage inflation model have found that the high-inflation steady state is not stable under learning. We reconsider this issue and analyze the full set of solutions for the linearized model. Our main focus is on stationary hyperinflationary paths near the high-inflation steady state. These paths are shown to be stable under least-squares learning if agents can utilize contemporaneous data. In an economy with a mixture of agents, some of whom only have access to lagged data, stable hyperinflationary paths emerge only if the proportion of agents with access to contemporaneous data is sufficiently high.     

Using technology to improve the management of development impacts on biodiversity

The mitigation hierarchy (MH) is a prominent tool to help businesses achieve no net loss or net gain outcomes for biodiversity. Technological innovations offer benefits for business biodiversity management, yet the range and continued evolution of technologies creates a complex landscape that can be difficult to navigate. Using literature review, online surveys, and semi-structured interviews, we assess technologies that can improve application of the MH. We identify six categories (mobile survey, fixed survey, remote sensing, blockchain, data analysis, and enabling technologies) with high feasibility and/or relevance to (i) aid direct implementation of mitigation measures and (ii) enhance biodiversity surveys and monitoring, which feed into the design of interventions including avoidance and minimization measures. At the interface between development and biodiversity impacts, opportunities lie in businesses investing in technologies, capitalizing on synergies between technology groups, collaborating with conservation organizations to enhance institutional capacity, and developing practical solutions suited for widespread use.     

A note on the ecological-economic modelling of marine reserves in fisheries

This paper gives an overview of the bioeconomic modelling of marine reserves, and illustrates how economists have responded to the modelling results found in the ecological literature. The economic analysis is shown to be far more pessimistic with regards to the potential of marine reserves as a fisheries management tool, than what one finds in the purely ecological analysis, the reason being the latter's neglect of issues such as discounting and economic incentive behaviour. However, economic analysis, despite some of it being relatively advanced with regards to spatiality, is still simplistic with regards to for instance ecosystem and habitat content. A simple expansion of the existing bioeconomic models with regards to positive habitat effects of area closures is presented and analysed, showing room for improved results from marine reserve implementation as compared to the existing analysis.     

Incentive Regulation of Prices When Costs are Sunk

We present a model featuring irreversible investment, economies of scale, uncertain future demand and capital prices, and a regulator who sets the firm’s output price according to the cost structure of a hypothetical replacement firm. We show that a replacement firm has a fundamental cost advantage over the regulated firm: it can better exploit the economies of scale because it has not had to confront the historical uncertainties faced by the regulated firm. We show that setting prices so low that a replacement firm is just willing to participate is insufficient to allow the regulated firm to expect to break even whenever it has to invest. Thus, unless the regulator is willing to incur costly monitoring to ensure the firm invests, revenue must be allowed in excess of that required for a replacement firm to participate. This contrasts with much of the existing literature, which argues that the market value of a regulated firm should equal the cost of replacing its existing assets. We also obtain a closed-form solution for the regulated firm’s output price when this price is set at discrete intervals. In contrast to rate of return regulation, we find that resetting the regulated price more frequently can increase the risk faced by the firm’s owners, and that this is reflected in a higher output price and a higher weighted-average cost of capital.     

Border effects and the availability of domestic products abroad

Abstract.  Trade between countries could fall short of trade within a country because (1) the volume of international trade is less than the volume of domestic trade for a given product (the intensive margin); or (2) some goods that are sold domestically are simply not exported (the extensive margin). My theoretical model illustrates that either of these two factors could explain a given aggregate 'border effect.' I examine the empirical relevance of this distinction by isolating the fraction of total domestic production attributable only to exporters, finding that around one‐half of the border effect may be attributed to each explanation. JEL classification: F1