Value, a Way Out of Uncertainties: A Physical Model for Ethics and Freedoms

Value analysis establishes a way to practice functional analysis which enables to think all matter as sets of functions. The study of the correlations between the phases of activation of these functions leads to consider the aggregation of correlated activation functions as an attractor in a configuration space. This point of view allows figuring out general behaviors reducing the conceptual gap between microeconomics and macroeconomics. Then, based on a characterization of complex adaptive systems in terms of functional attractors, the theory links together value and physical magnitudes, like work or energy and action. The evolution of these systems is studied from the viewpoints of learning or of voluntary and involuntary interactions with others described in the ultimate way by the strategies, or operators, of which they make use. Three kinds of uncertainties are emphasized among which the uncertainty between the structure and the business outlook of a system is recreated through an analogy between physics and economics. The rationality of the complex functional systems economics is based on value and on market or environment awareness. Equilibria establish potential of agents or players whose profiles are built through the equivalence between a time-dependent payoff at equilibrium and the regular value of the corresponding attractor. The law of supply and demand is naturally founded on unbiased profiles of agents and can be a means of uncertainty reduction and of growth. Freedoms are opportunities to grow, when they result in confidence, and to bear risks in decision-making through an innovative process.     

Migrants' Home Town Associations and Local Development in Mali

We explore the impact of migrants' Home Town Associations (HTAs) on the provision of public goods in Mali. We combine an original dataset on all the HTAs created by Malian migrants in France from 1981 with census data on public goods in all Malian villages since 1976, and we run double‐difference estimations to compare villages with and without an HTA, before and after the creation of the HTAs. We find robust evidence that the provision of schools, health centers, and, to a lesser extent, water amenities has increased significantly faster in villages targeted by an HTA between 1987 and 2009 than in control villages.     

Markov switching in disaggregate unemployment rates

We develop a dynamic factor model with Markov switching to examine secular and business cycle fluctuations in the U.S. unemployment rates. We extract the common dynamics amongst unemployment rates disaggregated for 7 age groups. The framework allows analysis of the contribution of demographic factors to secular changes in unemployment rates. In addition, it allows examination of the separate contribution of changes due to asymmetric business cycle fluctuations. We find strong evidence in favor of the common factor and of the switching between high and low unemployment rate regimes. We also find that demographic adjustments can account for a great deal of secular changes in the unemployment rates, particularly the abrupt increase in the 1970s and 1980s and the subsequent decrease in the last 18 years. First Version Received: December 2000/Final Version Received: June 2001     

International Financial Aggregation and Index Number Theory: A Chronological Half-century Empirical Overview

This paper comprises a survey of a half century of research on international monetary aggregate data. We argue that since monetary assets began yielding interest, the simple sum monetary aggregates have had no foundations in economic theory and have sequentially produced one source of misunderstanding after another. The bad data produced by simple sum aggregation have contaminated research in monetary economics, have resulted in needless “paradoxes,” and have produced decades of misunderstandings in international monetary economics research and policy. While better data, based correctly on index number theory and aggregation theory, now exist, the official central bank data most commonly used have not improved in most parts of the world. While aggregation theoretic monetary aggregates exist for internal use at the European Central Bank, the Bank of Japan, and many other central banks throughout the world, the only central banks that currently make aggregation theoretic monetary aggregates available to the public are the Bank of England and the St. Louis Federal Reserve Bank. No other area of economics has been so seriously damaged by data unrelated to valid index number and aggregation theory. In this paper we chronologically review the past research in this area and connect the data errors with the resulting policy and inference errors. Future research on monetary aggregation and policy can most advantageously focus on extensions to exchange rate risk and its implications for multilateral aggregation over monetary asset portfolios containing assets denominated in more than one currency. The relevant theory for multilateral aggregation with exchange rate risk has been derived by Barnett (J Econom 136(2):457–482, 2007) and Barnett and Wu (Ann Finance 1:35–50, 2005).

Aid, Volatility, and Growth Again: When Aid Volatility Matters and When it Does Not

In previous papers the authors have argued that aid is likely to mitigate the negative effects of external shocks on economic growth (i.e. that aid is more effective in countries which are more vulnerable to external shocks). Recently an important debate has emerged about the possible negative effects of aid volatility itself. However, the cushioning effect of aid may involve some volatility in aid flows, which then is not necessarily negative for growth. In this paper the authors examine to what extent the time profile of aid disbursements may contribute to an increase or a decrease of aid effectiveness. They first show that aid, even if volatile, is not clearly as pro-cyclical as is often argued, and, even if pro-cyclical, is not necessarily destabilizing. They measure aid volatility by several methods and assess pro-cyclicality of aid with respect to exports, thus departing from previous literature, which usually assess pro-cyclicality of aid with respect to national income or fiscal receipts. The stabilizing/destabilizing nature of aid is measured by the difference in the volatility of exports and the volatility of the aid plus export flows. Then, in order to take into account the diversity of shocks to which aid can respond, they consider the effect of aid on income volatility and again find that aid is making growth more stable, while its volatility reduces this effect. They finally show through growth regressions that the higher effectiveness of aid in vulnerable countries is to a large extent due to its stabilizing effect.     

How better monetary statistics could have signaled the financial crisis

This paper explores the disconnect of Federal Reserve data from index number theory. A consequence could have been the decreased-systemic-risk misperceptions that contributed to excess risk-taking prior to the housing bust. We find that most recessions in the past 50 years were preceded by more contractionary monetary policy than indicated by simple-sum monetary data. Divisia monetary aggregate growth rates were generally lower than simple-sum aggregate growth rates in the period preceding the Great Moderation, and higher since the mid 1980s. Monetary policy was more contractionary than likely intended before the 2001 recession and more expansionary than likely intended during the subsequent recovery.     

Elections and economic policy in developing countries

This paper explores the impact of elections on economic policies and governance in developing countries. We distinguish between a structural effect, which increases accountability, and a cyclical effect which may be disruptive. Since the effects are offsetting, neither can be analysed in isolation. We implement an econometric analysis on more than 80 developing countries using positive changes in the Country Policy and Institutional Assessment of the World Bank and the International Country Risk Guide as signalling improvements in economic policy and governance. We find that both structural and cyclical effects matter. The cyclical effect suggests that mid-term is the best moment for policy change. We investigate the structural effect by comparing different frequencies of elections. Except at the extremes, a higher frequency of elections improves both policy and governance net of any cyclical effect. The important exception to this benign net effect is if the electoral process is badly conducted. Badly conducted elections have no structural efficacy for policy improvement. A reasonable interpretation of our results is that honest elections increase accountability and thereby discipline governments to improve economic policy and governance, but that if candidates can win by fraud this chain is broken.
— Lisa Chauvet and Paul Collier     

Volatility widens inequality. Could aid and remittances help?

Review of World Economics - We analyse the relationship between income volatility and inequality and the conditional role played by aid and remittances. Using a panel of 142 countries for the...     

The end of Brazilian big inflation: lessons to monetary policy from a standard New Keynesian model

The paper analyzes economic stabilization in Brazil in the context of a New Keynesian model estimated with Bayesian techniques. Dataset covers the period 1975–2012. Our methodology is based on tests for multiple structural breaks at unknown dates and counterfactual exercises. The results show that inflation and output volatility present an inverted U-shape pattern, peaking at the 1985–1994 sample. Changes in the monetary policy stance and milder shocks accounted for the reduced inflationary volatility (about 50% each, in some specifications). However, some assumptions indicated that a sharp decline in the Phillips curve slope was also important for controlling inflation. Concerning to output, the sole explanation for its volatility fall seemed to be smaller shocks. Therefore, we conclude that a mix of the “good luck” and “good policy” hypotheses mainly originated the current period of increased stability in the country.