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Robert Sproule
Abstract:
In the study of Giffen behavior or “Giffenity”, there remains a paradox. On the one hand, the Wold-Juréen (1953) utility function has been touted as the progenitor of a multi-decade search for those two-good, particular utility functions, which exhibit Giffenity. On the other hand, there is no evidence that the Wold-Juréen (1953) utility function has ever been fully evaluated for Giffenity, with perhaps one minor exception, Weber (, 1997). But there, Weber showed that the Giffenity of Good 1 depends upon the relative magnitude of income vis-à-vis the price of Good 2. Weber’s precondition is so vague that it lacks broad appeal. This paper offers a new and a clear cut precondition for Giffen behavior under the Wold-Juréen (1953) utility function. That is, we show that if the price of Good 1 is greater than or equal to the price of Good 2, then Good 1 is a Giffen good.
Teresa María García Muñoz, Juliette Milgram Baleix, Omar Odeh Odeh
Abstract:
This paper investigates the relationship between trade openness and income inequality in 11 Latin American countries over the period 1989–2015. The authors use a panel dynamic approach to take into account the high persistence of income inequality. The analysis classifies trade flows, exports and imports according to trading partner’s income level. Then, the authors split trade flows according to different stages of production. The results show that overall trade flows do not statistically affect income inequality in Latin America. However, trade has divergent effects depending on the trade partners: trade with similar- and lower-income countries exacerbates inequality, while trade with higherincome countries reduces income dispersion. The results also emphasise the role of the export channel (in particular in primary commodities) in explaining income inequality in Latin American countries and imports of consumption goods seem to matter more than imports of intermediate and capital goods.
Sergio Nisticò
Abstract:
In contrast with the ‘missing micro-foundations’ argument against Keynes’s macroeconomics, the paper argues that it is the present state of microeconomics that needs more solid ‘Keynesian foundations’. It is in particular Keynes’s understanding of investors’ behaviour that can be fruitfully extended to consumption theory, in a context in which consumers are considered as entrepreneurs, buying goods and services to engage in timeconsuming activities. The paper emphasizes that the outcome in terms of enjoyment is particularly uncertain for those innovative and path-breaking activities, which Keynes discussed in his 1930 prophetic essay about us, the grandchildren of his contemporaries. Moreover, the Keynes-inspired microeconomics suggested in the paper provides an explanation of why Keynes’s prophecy about his grandchildren possibly expanding leisure did not materialize yet. The paper finally points at the need for appropriate economic policies supporting consumers’ propensity to enforce innovative forms of time use.
Santiago Budría, Juliette Milgram Baleix
Abstract:
This paper investigates the effects of offshoring on individual job satisfaction and perceived risk of job loss. The authors merge microdata from the German Socio-economic Panel dataset (SOEP) with indicators of insertion in global value chains at the industry level for the period 2000–2013. They test two hypotheses. First, the authors investigate whether workers in industries with higher offshoring intensity report lower job satisfaction and/or are more prone to be unsecure at their jobs. Second, they test whether these effects differ among four categories of collars. Their findings indicate that offshoring is associated with lower job satisfaction. The results are also indicative of some heterogeneity in the offshoring effect, with high skilled white-collar workers being mostly unaffected by offshoring and low skilled blue-collar workers showing the largest negative effects. Discriminating between manufacturing and services activities, the authors find that the extent of heterogeneity and the offshoring effect is relatively larger in manufacturing industries. They also find that the effect of offshoring intensity upon job satisfaction is more negative and significant in periods of economic decline. Finally, the results show that offshoring is not significantly related with job insecurity, a result that applies to all workers’ categories. Still, in a period of economic decline job insecurity may increase when the offshoring intensity rises.
, Kiumars Shahbazi
Abstract:
In this paper, a conceptual theoretical model is developed to better integrate various dimensions of the firms’ decision to export. The model sheds light on the affirmations of the founding models of the ‘new theory of international trade’, in particular the role of productivity and sunk costs of exporting in the firms’ export decision. It also takes into account two stylized facts that seem difficult to be reconciled with the implications of the founding models: 1) many domestic firms, regardless of their productivity level, enter foreign markets every year with little sales and cease all exporting activities in less than a year; 2) several of high-productivity firms choose to only serve their domestic market.
Jianhua Duan, Xuefeng Qian, Kuntal K. Das, Laura Meriluoto, W. Robert Reed
Abstract:
This study replicates Ahn, Khandelwal, and Wei’s (2011) model of intermediary trade. The study produces two main results. First, the authors are able to reproduce empirical evidence for AKW’s three main predictions for Chinese exports. This is impressive because much of the data for their replication are independently sourced. However, when the authors subject their model to additional tests, they find that the evidence is not robust. Using more recently available data to test AKW′s first prediction, the authors estimate coefficients that are wrong-signed and significant. When they re-analyze the evidence supporting the second and third predictions, they find that the full sample results mask significant heterogeneity across Chinese regions. In many cases, key coefficients are insignificant. In a few cases, they are wrong-signed and significant. Finally, using multiple versions of a key variable measuring the number of required import documents by country, the authors discover that the results are not robust across versions.
Didier Sornette, Sandra Andraszewicz, Ke Wu, Ryan O. Murphy, Philipp Rindler, Dorsa Sanadgol
Abstract:
To study coordination in complex social systems such as financial markets, the authors introduce a new prediction market set-up that accounts for fundamental uncertainty. Nonetheless, the market is designed so that its total value is known, and thus its rationality can be evaluated. In two experiments, the authors observe that quick consensus emerges early yielding pronounced mispricing, which however does not show the standard “bubble-and-crash”. The set-up is implemented within the xYotta collaborative platform (https://xyotta.com). xYotta’s functionality offers a large number of extensions of various complexity such as running several parallel markets with the same or different users, as well as collaborative project development in which projects undergo the equivalent of an IPO (initial public offering) and whose subsequent trading matches the role of financial markets in determining value. xYotta is thus offered to researchers as an open source software for the broad investigation of complex systems with human participants.
Louisiana Cavalcanti Teixeira
Abstract:
The creation of the Manaus Free Trade Zone had a development purpose in the Brazilian political, economic and social scenario between 1960 and 1970. This industrial pole was an important device in achieving the desired development, populating a region considered deserted and exposed to external threats at that time. It has guaranteed the improvement on labor standards and social conditions in the Manaus’ district and has become the main driving force behind regional employment, higher salaries and growth over the past decades. Using the residuals and the stochastic frontier techniques to estimate the labor and social performances of the Manaus Free Trade Zone, the analysis confirms that the implementation of the special economic zone collaborated to labor and social efficiency in the area – compared to other important industrial Brazilian municipalities – due to the rigid checks conducted by SUFRAMA and the strict respect of labor standards applied in the MFTZ. Nevertheless, economic linkages in the region are still weak and positive spillovers from Manaus to its surroundings were probably inexistent.
Abstract:
This paper investigates how firm size and global sourcing affect the export surviving probabilities. By using data on export and import transactions disaggregated by destination/origin for the entire Danish manufacturing firms between the period 1995–2006, the author is able to classify the firms into different size categories and to observe whether they continue or cease to export. Moreover, he is able to define whether the firms source intermediate inputs from high- or low-wage counties. The results, after controlling for the endogeneity of the international sourcing decision by using instrument variable and propensity score matching, indicate that firm size is positively correlated with the likelihood of continuing to export. Moreover, for small and medium size firms, global sourcing seems also to increase the probability of staying in the export market but only if they source from high-wage countries. However, sourcing inputs from abroad, no matter if it is from high- or low-wage countries, do not seem to significantly affect the export surviving probabilities for larger firms.
, Beatriz Sandoval
Abstract:
This paper analyzes the relationship between stock market capitalization to GDP and real GDP in 10 Central and Eastern European countries (CEECs) that joined the European Union in 2004 and 2007, with the objective of determining whether the financial markets played a role as drivers of economic development in these countries or vice versa. The methodology, using a cointegrated Vector Autoregressive (VAR) model, is based on the application of three different measures of causality: Granger causality test, Toda-Yamamoto approach and Frequency Domain approach. The results obtained suggest evidence of a causal relationship in both directions between the variables in a significant number of countries, and especially in those where the variables show to be clearly cointegrated (Bulgaria, Hungary, Latvia, Romania, Slovakia and Slovenia).
Felix Mauersberger, Rosemarie Nagel, Christoph Bühren
Abstract:
The great recession (2008) triggered an apparent discrepancy between empirical findings and macroeconomic models based on rational expectations alone. This gap led to a series of recent developments of a behavioral microfoundation of macroeconomics combined with the underlying experimental and behavioral Beauty Contest (BC) literature, which the authors review in this paper. They introduce the reader to variations of the Keynesian Beauty Contest (Keynes, The general theory of employment, interest, and money, 1936), theoretically and experimentally, demonstrating systematic patterns of out-of-equilibrium behavior. This divergence of (benchmark) solutions and bounded rationality observed in human behavior has been resolved through stepwise reasoning, the so-called level k, or cognitive hierarchy models. Furthermore, the authors show how the generalized BC function with limited parameter specifications encompasses relevant micro and macro models. Therefore, the stepwise reasoning models emerge naturally as building blocks for new behavioral macroeconomic theories to understand puzzles like the lacking rise of inflation after the financial crisis, the efficacy of quantitative easing, the forward guidance puzzle, and the effectiveness of temporary fiscal expansion.
Geiguen Shin
Abstract:
Many studies have suggested that stringent labor protections and higher labor costs can limit foreign direct investment (FDI) in host countries. This would imply that the decisions of foreign firms are sensitive to the degree of flexibility in the labor market in the U.S. The U.S. has a steady stream of immigration, which has preserved the stability of the labor supply for the U.S. market. This makes the U.S. a good test case for the relationship between immigration and FDI because it is not only the largest host for FDI but also has the largest immigrant population in the world in absolute terms and is experiencing a significant reduction in labor supply and an increase in the minimum cost of labor. Utilizing a timeseries analysis of data from 1970 to 2016, this study suggests that expansive immigration policies directly increase FDI inflows in the U.S. and indirectly increase FDI inflows by lowering labor costs and securing a stable supply of labor.
Riccardo Lucchetti, Ioannis A. Venetis
Abstract:
The authors replicate and extend the Monte Carlo experiment presented in Doz, Giannone and Reichlin (A Quasi-Maximum Likelihood Approach For Large, Approximate Dynamic Factor Models, Review of Economics and Statistics, 2012) on alternative (time-domain based) methods for extracting dynamic factors from large datasets; they employ open source software and consider a larger number of replications and a wider set of scenarios. Their narrow sense replication exercise fully confirms the results in the original article. As for their extended replication experiment, the authors examine the relative performance of competing estimators under a wider array of cases, including richer dynamics, and find that maximum likelihood (ML) is often the dominant method; moreover, the persistence characteristics of the observable series play a crucial role and correct specification of the underlying dynamics is of paramount importance.
Duong Ngotran
Abstract:
The author develops a dynamic model with two types of electronic money: reserves for transactions between bankers and zero-maturity deposits for transactions in the non-bank private sector. Using this model, he assesses the efficacy of unconventional monetary policy since the Great Recession. After quantitative easing, keeping the interest on reserves near zero too long might create deflation. The central bank can safely get out of the “low rate-cum-deflation” trap by “raising rate and raising money supply”.
Tam Nguyen Huu, Deniz Dilan Karaman Örsal
Abstract:
The authors investigate how the Global South’s gross domestic product (GDP) is impacted by trade with China. While the current literature on the growth impacts of trade (by leading partner countries) often neglects the properties of macro panel data, such as cross-sectional dependence, heterogeneity and structural breaks, their models take these features into account. Their empirical results based on 22 major developing countries from 2000Q1 to 2016Q4 identify positive contributions ofimports from China to GDP in the studied sample, although these effects are smaller compared to imports from other emerging and developing economies (excluding China) (EME) and advanced economies (AdE). The authors also show that, in contrast with considerable impacts of exports to EME and AdE, exports to China have limited effects on the growth of its partners. However, the global financial crisis marks a turning point of China’s role as a major driver of growth in the South. Namely, while the positive growth effects of trade with China after the global crisis are on the rise, the opposite is true for EME and AdE. Examining the effects by individual countries, the authors present that the distance between China and its partners, economic and institutional development levels of its partners are almost irrelevant to the contributions of imports from China to its partners’ growth. Based on these findings they provide some important policy recommendations for the economies of the Global South.
Botao Qin
Abstract:
This paper explores whether a truth-telling promise can work to reduce the hypothetical bias in preference elicitation. Using an induced value experiment in China with a random nth-price auction, the author finds: 1) Hypothetical bias exists in a random nth-price auction with induced values and making a truth-telling promise can reduce the hypothetical bias. 2) All treatments are demand-revealing except for the hypothetical baseline.
Pascal Aßmuth
Abstract:
The total output of an economy usually follows cyclical movements which are accompanied by similar movements in stock prices. The common explanation relies on the demand side. It points out that stock market wealth drives consumption which triggers production afterwards. This paper focuses on influences via the supply side of the economy. The aim of the paper is to explore channels where stock price patterns influence the amount of credit taken by firms. The author examines trend and volatility cycles on the stock market. There are three channels addressed: the stock market valuation as piece of information for the assessment of a firm’s creditworthiness, the influence on restructuring prospects in times of financial distress and the stock market related remuneration of the top management affecting capital demand. The author ask to which extent a channel may contribute to the stock price - output relation when there is mutual feedback. A model à la Delli Gatti et al. (A new approach to business fluctuations: heterogeneous interacting agents, scaling laws and financial fragility, 2005) drives the results. Firms take credit to finance their production which determines their financial fragility. If their stochastic revenue is too low, they are bankrupt and leave the economy. The capital loss hurts the bank’s equity base and future credit supply is diminished. This causes business cycles. Results show that if the bank assesses creditworthiness according to the stock price then idiosyncratic stock price fluctuations have only a slight effect as they disturb selection and hinder growth. If stock market optimism matters for bankruptcy ruling the level of stock owners’ influence does not matter. If optimism is wide spread among stock investors however, investment behaviour is also correlated through the stock prices and this results in huge real economy cycles without any long-term growth. If volatility is considered in the decision of managers they act more prudently and this fosters growth.
Siyan Chen, Saul Desiderio
Abstract:
As suggested by recent empirical evidence, one of the causes behind the widespread rise of inequality experienced by OECD countries in the last few decades may have been the increased flexibility of labor markets. The authors explore this hypothesis through the analysis of a stock-flow consistent agent-based macroeconomic model able to reproduce with good statistical precision several empirical regularities. They employ three different sensitivity analysis techniques, which indicate that increasing job contract duration (i.e. decreasing flexibility) has the effect of reducing income and wealth inequality. However, the authors also find that this effect is diminished by tight monetary policy and low credit supply. The last result suggests that the final outcome of structural reforms aimed at changing labor flexibility can depend on the macroeconomic environment in which these are implemented.
Santos M. Ruesga, María Isabel Heredero de Pablos, Julimar Da Silva Bichara, , Ana Viñas Apaolaza, Sandro Eduardo Monsueto
Abstract:
The paper’s main objective is to analyze the collective bargaining response in terms of internal flexibility during the Great Recession (GR) in five EU countries (Spain, Germany, France, Italy, United Kingdom), and three economic sectors (industry, commerce and hospitality, and financial services and real estate), at the establishment level (ECS2013 database). The theoretical framework used is linked to the varieties of unionism and to the debate on the tendency towards the international homogenization or heterogenization of collective bargaining between the European Union countries. Using a descriptive statistical analysis and a probit model, this paper presents new evidences. However, the responses were heterogeneous between countries and sectors, the use of internal functional flexibility has been more intense than the numerical and salary internal flexibility. Moreover, it is related to the intensity of GR. These results, in general, while requiring a more detailed analysis of the effects of the GR on internal flexibility in the EU countries, contribute to introducing a new perspective in the socioeconomic literature about the collective bargaining and internal flexibility.
Norbert Hirschauer, Sven Grüner, Oliver Mußhoff, Claudia Becker
Abstract:
Replication crisis and debates about p-values have raised doubts about what we can statistically infer from research findings, both in experimental and observational studies. With a view to the ongoing debate on inferential errors, this paper systematizes and discusses experimental designs with regard to the inferences that can and – perhaps more important – that cannot be made from particular designs.
Felipe De Jesús Fonseca, Manuel Gómez-Zaldívar, Daniel Ventosa-Santaulària
Abstract:
The authors construct a historical database of public investment (both total and broken down into its main components) for the period 1925 to 1981 in order to measure its impact on economic activity. Given the possible presence of crowding-out effects between public investment and private investment, in their analysis they control for the latter. The results suggest that: i) public investment had a significant impact on output, one which varies depending on the category of public investment considered, and; ii) private and public investment are positively related, i.e., public investment has a crowding-in effect on private investment, and both have a positive and significant impact on GDP. The results contrast with those of previous studies that have analyzed this relationship, though using a different time period, one that includes the economic liberalization era. Nevertheless, these differences can be rationalized by the findings of Ilzetzki et al. (How Big (Small?) are Fiscal Multipliers? 2013), who point out that key country-specific characteristics such as trade openness and the exchange rate regime are determinant in the relationship between public investment and output.
, Burcu Berke, David McMillan
Abstract:
The current economic crisis has witnessed a strong deceleration in the growth of international trade. This has been even greater in the cases of the European Unionand the eurozone, where the rates of export growth have even reached negative figures. In this paper, the authors examine to which extent exchange rate volatility might account for the drop in the rate of growth of exports in the eurozone since the start of the crisis. To that end, they estimate export functions, augmented to include several measures of exchange rate volatility, for the four largest economies of the eurozone, i.e., France, Germany, Italy and Spain, for the period 1994:1–2014:4. In the empirical application, the authors make use of two alternative measures for exchange rate volatility, i.e., (i) the Standard deviation and (ii) the conditional variance from the GARCH methodology, of the change in the logarithm of the exchange rate, for both nominal and real exchange rates, and in the latter case computed using as deflators both Export prices and unit labour costs. The empirical results show no clear-cut evidence on the impact of exchange rate volatility on the exports of the countries analysed, suggesting that financial markets were developed enough so that exchange rate volatility does not hinder the evolution of exports.
Mantobaye Moundigbaye, Clarisse Messemer, Richard W. Parks, W. Robert Reed
Abstract:
This paper shows how to bootstrap hypothesis tests in the context of the Parks’s (1967) Feasible Generalized Least Squares estimator. It then demonstrates that the bootstrap outperforms FGLS(Parks)’s top competitor. The FGLS(Parks) estimator has been a workhorse for the analysis of panel data and seemingly unrelated regression equation systems because it allows the incorporation of cross-sectional correlation together with heteroskedasticity and serial correlation. Unfortunately, the associated, asymptotic standard error estimates are biased downward, often severely. To address this problem, Beck and Katz (1995) developed an approach that uses the Prais-Winsten estimator together with “panel corrected standard errors” (PCSE). While PCSE produces standard error estimates that are less biased than FGLS(Parks), it forces the user to sacrifice efficiency for accuracy in hypothesis testing. The PCSE approach has been, and continues to be, widely used. This paper develops an alternative: a nonparametric bootstrapping procedure to be used in conjunction with the FGLS(Parks) estimator. We demonstrate its effectiveness using an experimental approach that creates artificial panel datasets modelled after actual panel datasets. Our approach provides a superior alternative to existing estimation options by allowing researchers to retain the efficiency of the FGLS(Parks) estimator while producing more accurate hypothesis test results than the PCSE.
Alexey A. Ponomarenko
Abstract:
The author set up a simplistic agent-based model where agents learn with reinforcement observing an incomplete set of variables. The model is employed to generate an artificial dataset that is used to estimate standard macro econometric models. The author shows that the results are qualitatively indistinguishable (in terms of the signs and significances of the coefficients and impulse-responses) from the results obtained with a dataset that emerges in a genuinely rational system.
Henry Brighton
Abstract:
If we reassess the rationality question under the assumption that the uncertainty of the natural world is largely unquantifiable, where do we end up? In this article the author argues that we arrive at a statistical, normative, and cognitive theory of ecological rationality. The main casualty of this rebuilding process is optimality. Once we view optimality as a formal implication of quantified uncertainty rather than an ecologically meaningful objective, the rationality question shifts from being axiomatic/probabilistic in nature to being algorithmic/predictive in nature. These distinct views on rationality mirror fundamental and longstanding divisions in statistics
Atanu Ghoshray, Mercedes Monfort, Javier Ordóñez
Abstract:
Although it is not a new phenomenon, in recent years inequality has moved to the top of the political agenda given the concern that will result in political instability and social resentment. Persistence in inequality can further undermine economic growth and development by hindering educational opportunities, human capital formation, and intergenerational mobility. The persistent nature of inequality stands as one of the most serious challenges for the global economy. This paper analyses inequality persistence for a sample of 60 countries from 1984 to 2015. The authors conclude that inequality is persistent and government redistribution polices through taxes and transfers did not significantly reduce inequality persistence.
Lionel Roger
Abstract:
Macroeconomic data have been shown to vary substantially between sources, especially so for low-income countries. While the impact of data revisions on inference is well documented for cross-country studies, there is no systematic analysis of the robustness of results obtained from time series analysis. This is despite the fact that time series analysis is an integral part of the econometric toolkit of government analysts, and informs policy decisions in many areas of macroeconomics. This study fills this gap for the notoriously controversial aid-effectiveness debate using the statistical framework by Juselius et al. (2014, Oxf Bull Econ Stat): by adopting alternative sources of GDP data in 36 sub-Saharan African countries the author finds that results remain robust across datasets in two thirds of the countries, but sometimes drastically change in others. These findings suggest that robustness checks such as those carried out here should become standard procedure for macroeconomic analysis using single-country time series.
Helena Marques
Abstract:
This paper studies the role of personal characteristics, perceptual variables and country- level conditioning (financial environment, government quality and support, education quality and entrepreneurship know-how, innovation environment and support, business infrastructure, entrepreneurial culture and society, and gender roles) in explaining the export propensity and intensity of nascent entrepreneurs in four Southern European countries (Portugal, Spain, Italy and Greece), using Total Early-stage Entrepreneurial Activity (TEA) data from the Global Entrepreneurship Monitor (GEM) dataset in 2003–2010. Due to the nascent nature of the business, export activity is starting or about to start at the time of the survey and, for that reason, it cannot be studied using theoretical frameworks based on productivity heterogeneity, which has not yet been measured. In this sample of nascent businesses, there is no evidence of a selection effect into exporting and the individual-level factors influencing export propensity and intensity are identical. The most relevant individual-level variables facilitating export activity are new products, new technology, graduate education, and entrepreneurship networks. The most relevant country-level factors facilitating export activity are the availability of funding, the national government’s macroeconomic support, and the support for new technology.
Samuel G.B. Johnson
Abstract:
Behavioral economics aspires to replace the agents of neoclassical economics with living, breathing human beings. Here, the author argues that behavioral economics, like its neoclassical counterpart, often neglects the role of active sense-making that motivates and guides much human behavior. The author reviews what is known about the cognitive science of sense-making, describing three kinds of cognitive tools—hypothesis-inference heuristics, stories, and intuitive theories—that people use to structure and understand information. He illustrates how these ideas from cognitive science can illuminate puzzles in economics, such as decision under Knightian uncertainty, the dynamics of economic (in)stability, and the voters’ preferences over economic policies. He concludes that cognitive science more broadly can enhance the explanatory and predictive quality of behavioral economic theories.
Iñaki Aguirre
Abstract:
This paper extends the traditional analysis of the output effect under monopoly (third-degree) price discrimination to a multimarket oligopoly. The author shows that under oligopoly price discrimination, differences in competitive pressure, measured by the number of firms, across markets are more important than the relative demand curvature when determining the effect on total output.
Nils Van Damme,
Abstract:
The authors investigate whether the home advantage in soccer differs by various dimensions of distance between the (regions of the) home and away teams: geographical distance, climatic differences, cultural distance, and disparities in economic prosperity. To this end, the authors analyse 2,012 recent matches played in the UEFA Champions League and UEFA Europa League by means of several regression models. They find that when the home team plays at a higher altitude, they benefit substantially more from their home advantage. Every 100 meters of altitude difference is associated with an increase in expected probability to win the match, as the home team, by 1.1 percentage points. The other dimensions of distance are not significantly associated with a higher or lower home advantage. By contrast, the authors find that the home advantage in soccer is more outspoken when the number of spectators is higher and when the home team is substantially stronger than the away team.
Rainer Quitzow, Sonja Thielges, Andreas Goldthau, Sebastian Helgenberger, Grace Mbungu
Abstract:
International cooperation in support of a global energy transition is on the rise, and official development assistance (ODA) in the energy sector is increasingly being directed to renewable energy sources. Nevertheless, it is widely acknowledged that investment towards achieving the SDG 7 on clean and affordable energy is insufficient. Moreover, investment in clean energy remains heavily concentrated in a small number of frontrunner countries and overwhelmingly targets grid-connected electricity generation. Worryingly, significant share of international public sector financeing, most notably by export-credit agencies, is still allocated to coal and other fossil-based technologies. Against this background, this paper makes three recommendations for strengthening international cooperation in support of a global energy transition. (1) Promote investment in clean energy and end support for coal-based energy infrastructure. OECD and G20 countries should lead the way by discontinuing all public investment support for new coal-based energy infrastructure and establish guidelines for support to other fossil-based investments. (2) Promote evidence-policy dialogue on the socio-economic dimension of the global energy transition. International cooperation should play an active role in mobilising socio-economic benefits and address potential risks by supporting evidencebased policy dialogue based on robust assessments at both the country and global levels. (3) Provide early market support to promote challenge-based energy innovation. SE4ALL or Mission Innovation should create multi-stakeholder, challenge-based initiatives to promote clean energy innovation in developing and emerging economies and foster early market demand for related products or services.
Abstract:
Unrealistic assumptions underlying neo-classical economic theory have been challenged by both behavioral economics and studies of moral economy. But both challengers share certain features with neo-classical theory. Complementing them, recent work in the anthropology of ethics shows that economic behavior is not reducible to either individual psychology or collective norms. This approach is illustrated with studies of transactions taking place at the borders between market rationality and ethically fraught relationships among persons—organ donation and sex work. The paper argues that the inherent value accorded to social relations tends to resist instrumentalization and that the biases that dealing with other people introduce into reasoning are not flaws but part of the core functions of rationality.
, Daniel Traian Pele, Hanaan Yaseen
Abstract:
Dividend policy is still a largely discussed issue in corporate finance literature. One of the main indicators used in analysing the dividend policy is the dividend payout ratio. Using a database consisting of 12,085 companies operating in 73 countries, for the period 2008–2014, the authors found that the dividend payout ratio follows a Tweedie distribution, and not a normal one. This distribution is stable over time for the entire analysed period. In addition, it describes the case of almost all the countries included in the sample. Thus, a better estimation of the probability that dividend payout ratio is lower or higher than a benchmark can be provided. Also, an analysis of dividend policy, distinctly considering payer versus non-payer companies, can offer additional important information for both practitioners and academics.
Michael Heinrich Baumann, Michaela Baumann, Alexander Erler
Abstract:
The authors analyze financial interactions between chartists with bounded leverage and fundamentalists within a heterogeneous agent model, focusing on the role of fundamentalists to stabilize prices. While many related studies are solely based on simulations, the authors analytically prove that the existence of fundamentalists is insufficient to avoid asset price bubbles for a certain setup of a feedback trader model. Moreover, similar studies very often face the criticism that chartists might run out of money before the emergence of bubbles, as these studies typically analyze the role of chartists with unbounded leverage. In the work at hand, however, the authors prove that even in an environment where chartists have limited access to finance, their investment behavior can lead to exploding prices. The chartists under study are so-called positive feedback traders, whose leverage is bounded. Additionally, the authors derive upper boundaries for positive feedback traders’ initial investment necessary to avoid exploding prices. In order to stabilize stock/asset markets, intervention measures might be helpful.
Pierre-André Guy Maugis
Abstract:
The author studies the evolution of the number of coexisting beliefs in a financial market. Crucially, he undertakes to do so in a framework where the paradigms, beliefs, and models driving agents behavior are left totally unspecified; i.e., the author does not make any parametric or non-parametric model assumptions. The overreaching aim of this exercise is to characterise the dynamic of the variety of beliefs in an auction-based financial market independently of any assumptions on agents behaviors. The resulting framework may be seen as an abstract agent-based model. In a computer experiment the authors exhibits a cycle between two states, so that either all agents act according to the same belief, or there is no leading belief; i.e., there is one dominating belief, or none. Further, the author finds that the frequency of this cycle is positively linked to the quality of the information available to the agents.
Santiago Lago-Peñas, , Patricio Sanchez-Fernandez, Beatriz Lopez-Bermudez
Abstract:
This article brings empirical evidence on the effect of fiscal consolidation in decentralized countries. The focus on Spain is justified by three reasons. First, it is one of the OECD countries most affected by the Great recession in terms of both GDP and public deficit. Second, Spain is one of the most decentralized countries in the world. Third, compliance with fiscal consolidation targets has been very diverse across regions. Using both time series econometrics and the Synthetic Control Method approach (SCM), we show that compliance with fiscal targets at the regional level has not involved lower GDP growth rates in the short-run. Openness and economic integration of regional economies involve that fiscal multipliers tend to fade. Hence, while a fiscal stimulus would not work on this scale, the opposite is also true: the potentially negative demand effects of a stronger regional fiscal consolidation strategy would be exported to other regions.
Jorge Onrubia, Fidel Picos, María Del Carmen Rodado
Abstract:
The authors analyze to what extent and how the tax burden should be shifted towards top income earners in order to reduce income inequality. Starting from Lambert and Aronson (Inequality decomposition analysis and the Gini coefficient revisited 1993) and Alvaredo (A note on the relationship between top income shares and the Gini coefficient 2011) decomposition by income groups, they prove that for three types of revenue-neutral linear personal income tax reforms (PIT) based on Pfähler (1984) the redistributive effect is always higher than before the reform; and when the size of the rich group is sufficiently small (e.g. 1%), the best option is allocating tax changes proportionally to net income, and the worst doing it proportionally to tax liabilities. An empirical illustration of the theoretical results is provided using micro data from the Spanish PIT.
Erica L. Thompson, Leonard A. Smith
Abstract:
Both mathematical modelling and simulation methods in general have contributed greatly to understanding, insight and forecasting in many fields including macroeconomics. Nevertheless, we must remain careful to distinguish model-land and model-land quantities from the real world. Decisions taken in the real world are more robust when informed by estimation of real-world quantities with transparent uncertainty quantification, than when based on “optimal” model-land quantities obtained from simulations of imperfect models optimized, perhaps optimal, in model-land. The authors present a short guide to some of the temptations and pitfalls of model-land, some directions towards the exit, and two ways to escape. Their aim is to improve decision support by providing relevant, adequate information regarding the real-world target of interest, or making it clear why today’s model models are not up to that task for the particular target of interest.
Edmund T. Rolls
Abstract:
Two systems in the brain that are involved in emotional and economic decision-making are described. The first is an evolutionarily old emotion-based system that operates on rewards defined by the genes such as food, warmth, social reputation, and having children. Such decisions are often based on heuristics, such as being highly sensitive to losses, because a single loss might influence one's reproductive success. This is a multidimensional system with many rewards and punishers, all of which cannot be simultaneously optimized. The second route to decision-making involves reasoning, in which it is assumed that utility can be accurately assessed and logical reason can be applied, though the human brain is not naturally computationally good at logical assessment. When decisions are taken, all those factors apply, and in addition there is noise introduced into the system by the random firing times of neurons for a given mean firing rate. The implications for economic decision-making are described. In macroeconomics, it is assumed that the economy behaves like one “representative” agent who can take rational and logical decisions, and who can maximize utility over a constraint. Given the neuroscience of decision-making, the situation is more complex. The utility function may be multidimensional, the reward value along each dimension may fluctuate, the reasoning may be imperfect, and the decision-making process is subject to noise in the brain, making it somewhat random from occasion to occasion. Moreover, each individual has a different set of value functions along each dimension, with different sensitivities to different rewards and punishers, which are expressed in the different personalities of different individuals. These factors underlying the neuroscience of human decision-making need to be taken into account in building and utilizing macroeconomic theories.
Jeremy Clark, Ana Ferrer
Abstract:
Persistent house price increases are a likely candidate for consideration in fertility decisions. Theoretically, higher housing prices will cause renters to desire fewer additional children, but home owners to desire more children if they already have sufficient housing and low substitution between children and other “goods”, and fewer children otherwise. In this paper, the authors combine longitudinal data from the Canadian Survey of Labour Income and Dynamics (SLID) and averaged housing price data from the Canadian Real Estate Association to estimate the effect of housing prices on fertility in a housing market that has historically been less volatile and more conservative than its American counterpart has. They ask whether changes in lagged housing price affect the marginal fertility of homeowner and renter women aged 18–45. They present results both excluding and including those who move outside their initial real estate board area, using initial area housing prices as an instrument in the latter case. For homeowners, but not renters, the authors predominantly find evidence that lagged housing prices have a positive effect on marginal fertility and possibly on completed fertility. These pro-natal effects are confined to non-movers.
Dennis J. Snower
Abstract:
This paper argues that the traditional social contract that underlies the free market economy has run its course and needs to be replaced by a new contract, based on a new conception of the “empowering economy.” Whereas different social contracts are relevant to different societies, all these contracts have some features in common, addressing some basic human needs that are common to all. These are needs that every thriving society must satisfy. In the presence of current global problems – such as climate change and financial crises – satisfying these needs can also generate the popular approval for multilateral agreements to tackle these problems. The paper identifies three inconvenient truths for the existing social contract: (i) economic performance involves more than material prosperity, (ii) free markets naturally generate inequality, and (iii) human progress rests primarily on cooperation. In response, the paper proposes a new social contract that can be promoted through three policy approaches: (1) policy that focuses not just on material prosperity, but also on personal empowerment and social solidarity, (2) automatic stabilizers that reduce inequalities of economic power and (3) policy that develops the human capabilities of cooperation.
Dan Cui, Xiang Wei, Dianting Wu, Nana Cui,
Abstract:
Most economists measure labor productivity based on activities conducted at places of work and do not consider leisure time in their calculations. In contrast, psychologists and sociologists argue that leisure has a positive role in the production process: leisure can improve individuals’ labor productivity by affecting their self-development. Using empirical data from 21 OECD countries, this study finds that leisure time has a dual effect on labor productivity in terms of per capita per hour GDP. Moreover, leisure time is nonlinearly associated with labor productivity (inverted U-shaped). When leisure time reaches the optimal level (5,813 hours), leisure has a compensatory effect on work and can positively influence labor productivity, but when leisure time exceeds the optimal value, leisure has a substitution effect on work and can negatively influence labor productivity.
Salomon Fiedler, Klaus-Jürgen Gern, Nils Jannsen, Maik Wolters
Abstract:
The recovery from the Global Financial Crisis was characterized by sluggish output growth and by inflation remaining persistently below the inflation targets of central banks in many advanced economies despite an unprecedented monetary expansion. Ten years after the Global Financial Crisis, GDP remains below its pre-crisis trend in many economies and interest rates continue to be very low. This raises the question of whether low GDP growth and low interest rates are a temporary phenomenon or are due to a decline in long-run growth prospects (potential output growth) and equilibrium real interest rates (natural interest rate). Addressing this question is important for central banks for conducting monetary policy and adjusting their strategy. In this paper, the authors address this question based on a review of the literature and an evaluation of the most recent data and discuss implications for monetary policy.
Mickael Melki,
Abstract:
The authors use US data on media coverage of politics and individual survey data to document that citizens exposed to more politicized newspapers have more extreme political preferences. This polarization effect of media is mainly driven by individuals who harbor liberal opinions reading more newspapers, as opposed to individuals endorsing rather conservative positions. More politicized media also reinforce other aspects of citizens’ political sophistication such as political knowledge. This enhanced political sophistication materializes in observable involvement in politics, measured by campaign contributions.
Biagio Bossone
Abstract:
The analysis of open macroeconomies typically assumes (implicitly or explicitly) that resource allocation decisions are taken by domestic agents. The Portfolio Theory of Inflation (PTI) developed in this study assumes that some critical allocation decisions are taken by global investors and investigates how such decisions affect the effectiveness of macroeconomic policy in open and highly financially integrated economies. The PTI adopts a modified version of the portfolio balance approach to exchange rate determination and incorporates optimal intertemporal choices from global investors who allocate resources internationally based, inter alia, on the perceived policy credibility of the national authorities and their policies. The PTI shows that when a country has low credibility and is heavily indebted, investors hold its economy to a tighter intertemporal budget constraint and policies aimed to stimulate output growth do in fact dissipate into currency depreciation and higher inflation, with limited or no impact on output. On the other hand, high credibility creates space for effective and non-inflationary macro policies with limited impact on nominal variables.
Abstract:
The authors investigate the desirability of income taxes when the objective is to mitigate wasteful conspicuous consumption generated by people's status-seeking behavior. They consider the joint role of pre-tax wage inequality and of social norms determining how social status is assigned. They find that when social status is ordinal (i.e., only one's rank in the income distribution matters) inequality and taxation are substitutes. Instead, when status is cardinal (i.e., also the shape of the income distribution matters) inequality and taxation can be complements, although the relationship is in general non-monotonic. This is because the value of social status is endogenous, potentially giving rise to a perverse selfreinforcing mechanism where more waste in conspicuous consumption induces a greater competition for status and vice versa.
Abstract:
This work examines in depth the hypotheses explaining the tax capacity of regional governments, also determining their tax effort and explanatory factors. The study is done for the Spanish regions, using different techniques which have rarely been applied in this area. The results show that these jurisdictions have exercised their tax autonomy responsibly, in response to different budget and demographic factors and to the economic cycle. Also, an asymmetrical tax behaviour linked to income is observed: some regions have practically exhausted the possibilities of current sub-central taxes, while others still have ample fiscal space.
Leonid Eksler, Roei Aviram, Amir Elalouf,
Abstract:
In this paper, the authors present an EOQ model with substitutions between products and a dynamic inventory replenishment policy. Their key assumption is that many products in the market are substitutable at different levels, and that, in most cases, a customer who discovers that a desired product is unavailable will choose to consume a product with similar attributes or functionality, rather than not purchase at all. Therefore, given a firm that stocks multiple substitutable products, the authors assume that a stock out of one product has a direct impact on other products’ demand. The main purpose of our model is to enable inventory managers to develop ordering policies that ensures that, in the event that a specific product runs out and cannot be replenished due to unforeseen circumstances, the consequent increase in demand for related products will not cause further stock out incidents. To this end, the authors introduce a dependency factor, a variable that indicates the level of dependency, or correlation, between one product and another. The dependencies among the various products offered by the firm are embedded into the EOQ formula and assumptions, enabling managers to update their ordering schedules as needed. This approach has the potential to generate more practical and realistic purchasing and inventory optimization policies.
, Miruna Mazurencu-Marinescu-Pele
Abstract:
In this paper the authors investigate the statistical properties of some cryptocurrencies by using three layers of analysis: alpha-stable distributions, Metcalfe’s law and the bubble behaviour through the LPPL modelling. The results show, in the medium to long-run, the validity of Metcalfe's law (the value of a network is proportional to the square of the number of connected users of the system) for the evaluation of cryptocurrencies; however, in the short-run, the validity of Metcalfe’s law for Bitcoin is questionable. According to the bidirectional causality between the price and the network size, the expected price increase is a driver for more investors to join the Bitcoin network, which may lead in the end to a super-exponential price growth, possibly due to a herding behaviour of investors. The authors then used LPPL models to capture the behaviour of cryptocurrencies exchange rates during an endogenous bubble and to predict the most probable time of the regime switching. The main conclusion of this paper is that Metcalfe’s law may be valid in the long-run, however in the short-run, on various data regimes, its validity is highly debatable.
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