Evaluating Projects and Assessing Sustainable Development in Imperfect Economies

We are interested in three related questions:(1) How should accounting prices be estimated?(2) How should we evaluate policy change in animperfect economy? (3) How can we check whetherintergenerational well-being will be sustainedalong a projected economic programme? We do notpresume that the economy is convex, nor do weassume that the government optimizes on behalfof its citizens. We show that the same set ofaccounting prices should be used both forpolicy evaluation and for assessing whether ornot intergenerational welfare along a giveneconomic path will be sustained. We also showthat a comprehensive measure of wealth,computed in terms of the accounting prices, canbe used as an index for problems (2) and (3)above. The remainder of the paper is concernedwith rules for estimating the accounting pricesof several specific environmental naturalresources, transacted in a few well knowneconomic institutions.     

Policy matters. The long run effects of aggregate demand and mark-up shocks on the Italian unemployment rate

This paper estimates a VAR including labor productivity, real wage and unemployment rate, to identify the dynamic effects of technology, demand, and mark-up shocks, respectively, on the Italian labor market. Identification is achieved by imposing recursive restrictions on the matrix of long run multipliers. Our results show that both mark up and aggregate demand shocks permanently reduce the unemployment rate. Finally, technology shocks do not significantly affect the unemployment rate in the long run. These findings convey important policy implications: expansionary aggregate demand and deregulation policies reducing the mark up permanently decrease the Italian unemployment rate.Jel classification: C32, E32, J29This paper has been produced as part of a CEPR Research Network on New Approaches to the Study of Economic Fluctuations. We would like to thank Marcello DAmato, Mario Forni, Marco Lippi and Antonio Ribba for useful comments. We are also grateful to Bernd Sussmuth for pointing out to us several significant improvements to the paper.First version received: November 2001/Final version received: October 2002     

Futures beyond dystopia

The speculative imagination is an higher-order human capacity that can productively explore the not-here and the not-yet. To some extent it is already doing so. But these explorations are limited by prevailing cultural assumptions. The purpose of this paper is to suggest that there are other arenas to explore that, were they taken seriously, could exert sufficient symbolic ‘pull' to qualify as desirable images of futures. They could then begin to act as ‘magnets' for the realisation of possibilities that are presently obscured.     

HYSTERESIS IN UNEMPLOYMENT REVISITED: EVIDENCE FROM PANEL LM UNIT ROOT TESTS WITH HETEROGENEOUS STRUCTURAL BREAKS

This paper applies the panel LM unit root tests with heterogeneous structural breaks in level by Im  et al. ( Oxford Bulletin of Economics and Statistics , 67 (2005), pp. 393–419) to re-examine the validity of hysteresis in the unemployment rates of 19 OECD countries. Our empirical findings are favourable to the stationarity of the unemployment rates, i.e., the unemployment hysteresis hypothesis is strongly rejected. Our results suggest that shocks to unemployment rates are temporary and soon converge when we control for breaks. A major policy implication of the study is that a fiscal or monetary stabilization policy would not have permanent effects on the unemployment rates of the 19 OECD countries.     

Labor‐Market Institutions and Long‐Term Effects of Youth Unemployment

Graduating from a school during a time of adverse economic conditions has a persistent, harmful effect on workers’ subsequent employment opportunities. An analysis of panel data from OECD countries during the 1960–2010 periods reveals that a worker who experiences a 1 percentage point higher unemployment rate while the worker is 16–24 years old has a 0.14 percentage point higher unemployment rate at ages 25–29 years and 0.03 percentage points higher at ages 30–34 years. The persistence of this negative effect is stronger in countries with stricter employment protection legislation. A composite index for labor‐market rigidity is constructed and the index is shown to have positive correlation with the persistence. Moderating macroeconomic fluctuations is more important in countries that have more persistent labor‐market entry effects on subsequent outcomes.     

Modelling economic hysteresis losses caused by sunk adjustment costs

Transition from one economic equilibrium to another as a consequence of shocks is often associated with sunk adjustment costs. Firm-specific sunk market entry investments (or sunk market exit costs) in case of a reaction to price shocks are an example. These adjustment costs lead to a dynamic supply pattern similar to hysteresis. In analogy to “hysteresis losses” in ferromagnetism, the authors explicitly model dynamic adjustment losses in the course of market entry and exit cycles. They start from the micro level of a single firm and use explicit aggregation tools from hysteresis theory in mathematics and physics to calculate dynamic losses. The authors show that strong market fluctuations generate disproportionately large hysteresis losses for producers. This could give a reason for the implementation of stabilizing measures and policies to prevent strong (price) variations or, alternatively, to reduce the sunk entry and exit costs.     

Testing hysteresis effect in U.S. state unemployment: new evidence using a nonlinear quantile unit root test

We revisit hysteresis effect in the unemployment rate of each of the 52 states of the United States using nonlinear quantile unit root test over the period 1976M1–2016M7. Our results indicate that unemployment rate of the U.S. economy as a whole displays hysteresis effect over recessionary periods. Nineteen out of 52 states display hysteresis behaviour over the period 1976–2016. For the remaining 33 states, we find four types of behaviours. Some states display stationarity behaviour almost in all quantiles. Some display hysteresis over recessionary periods and in contrast some display hysteresis over expansion period.     

Cyclical dynamics in a Kaleckian model with demand and distribution regimes and endogenous natural output

We analyse the interaction of demand and income distribution in a dynamic Kaleckian model with endogenous natural output. Endogenous changes of the natural output level to changes in the demand-determined actual output level have featured prominently in discussions of hysteresis after the crisis of 2008. We consider wage-led and profit-led demand (PLD) regimes and goods market-led and labour market-led income distribution regimes. The stability of the steady state is related to the endogeneity of natural output level in certain regimes. Limit cycles arise when the strong flexibility of prices or wages to the output gap is combined with moderate natural output hysteresis. A Kaleckian model with a wage-led demand regime and anticyclical profit share is less unstable and pseudo-Goodwin cycles can arise in the PLD regime with a procyclical profit share.     

Testing for hysteresis: Unemployment persistence and wage adjustment

This paper proposes a new testing strategy for unemployment hysteresis as the joint restriction of a unit-root in the unemployment rate and no feedback effect of unemployment in the Phillips wage equation. The associated test statistics are derived when this joint restriction is imposed and when a sequential two steps testing strategy is adopted. An empirical application leads to reject the null hypothesis of wage hysteresis for most of our OECD countries. Evidence against hysteresis is reinforced when accounting for wage adjustments in the bivariate approach. First version received: July 1999/Final version received: May 2002 RID="*" ID="*"  We thank R. Boyer, F. Collard, F. Karamé, F. Langot, F. Mihoubi, W. Pohlmeier and two anonymous referees for fruitful comments. This paper has also benefited from discussions at the T2M conference (Montréal, may 1999) and ESEM99 (Santiago, august 1999). The traditional disclaimer applies.