Why do growth rates differ? Evidence from cross-country data on private sector production

We estimate standard production functions with a new cross-country data set on business sector production, wages and R&D investment for a selection of 14 OECD countries including the US. The data sample covers years the 1960–2004. The data suggest that growth differences can largely be explained by capital deepening and the ability to produce new technology in the form of new patents. We also find strong evidence of complementarity between patents and openness of the economy, but little evidence of increasing elasticity of substitution over time.     

Sensitivity of fiscal-policy effects to policy coordination and business cycle conditions

This paper deals with the problems of assessing the effects of fiscal policy in the European Monetary Union. Here, we face wide cross-country differences in key fiscal parameters, some of which may also be vary over time (business cycle). Moreover, these effects may also depend on trade spillover effects and thus on the extent of policy coordination. Our empirical analyses make use of data for 15 EU countries, mainly for the period 1970–2011. The results clearly indicate that fiscal multipliers are not constant across countries and time, being much larger during economic recessions. By contrast, the policy coordination-effects appear to be more homogenous, although it turns out that small countries may benefit more from coordination.     

New international evidence on output-inflation tradeoffs: A note

This note presents some new international evidence for the variance hypothesis by Lucas according to which the output-inflation tradeoff varies inversely with the variance of nominal aggregate demand. The annual cross-country data on 18 countries are used. Over the period 1952–1967 the variance hypothesis gets support, and allowing for serial and contemporaneous correlation of error terms leaves the results practically unaffected. Over the period 1952–1977, however, the variance hypothesis gets stronger support, which is even reinforced by allowing for serial and contemporaneous correlation of error terms between the OLS residuals.     

Asymmetry and the Problem of Aggregation in the Euro Area

This paper highlights the implications for a single monetary policy when key economic relationships are nonlinear or asymmetric at a disaggregate level. Using data for the EU and OECD countries we show that there are considerable non-linearities and asymmetries in the Phillips and Okun curves. High unemployment has relatively limited effect in pulling inflation down while low unemployment can be much more effective in driving it up. Downturns in the economy are both more rapid and sustained in driving unemployment up than recoveries are in bringing it down. There is considerable variety in these relationships and IS curves across not just countries but also sectors and regions.     

Is the housing allowance shifted to rental prices?

This paper deals with the incidence of housing subsidies, which we analyze using Finnish panel data. The main data set includes 50,000 households that received housing allowances during the period 2000–2008. In addition, we utilize repeated cross-sections of all Finnish households for 1989–2008, the annual sample exceeding 10,000. Estimation results suggest that a part of the subsidies will indeed go into rental prices. A conservative estimate of the size of the shift is one-third, but it is certainly possible that the number is as high as 50 %. On the other hand, the subsidy seems to have increased housing demand more than the subsidy-induced income effect would have implied, which is in accordance with the goals of the subsidy program. Our results seem to be consistent with other studies, which have also indicated relatively large rent effects. If this is indeed the case, we are advised to reconsider the need for reforming the system of housing subsidies, at least with respect to the share of costs that remains on households’ own accounts and the implicit indexation of the system.     

Inflation and output growth uncertainty in individual survey expectations

This paper studies uncertainty using the ECB Survey of Professional Forecasters’ data. Both inflation and real GDP growth forecasts at the micro level are considered. Our analysis indicates that individual inflation uncertainty is closely related to output growth uncertainty. Individual forecasters seem to behave according to an uncertainty-augmented hybrid specification of the New Keynesian Phillips curve. We also find evidence that inflation uncertainty has a negative impact on economic activity by lowering output growth, boosting inflation and reducing the price-sensitiveness of aggregate supply.