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 The Impact of the Internet on Inflation: Evidence Using GMM Estimation Ferhat Oztutus Oktay Kizilkaya This study contributes to understanding the role of internet usage on inflation theoretically and empirically. In the theoretical part of the paper, we show that there are three key ways in general, in which internet usage may bring prices down. In the empirical part, the long-run relationship is estimated for a panel of 108 countries over the period 1995–2016 by means of the Generalized Method of Moments (GMM). The results of the study show that internet usage has negative and statistically significant effects on inflation; increasing the ratio of the Internet users to total population by one point decreases inflation rate by 0.29 points. As a policy implication, we recommend that policy makers place special emphasis on implementing policies fostering the dissemination of the internet which gives people the opportunity to use the internet more frequently, and in turn, leading to lower prices in an economy. Thus, by promoting the increased usage of the internet throughout the country, inflation, ceteris paribus, will be reduced in the long-run. Submission Date: 30-08-2018 07:39 Is political rivalry detrimental to school enrolment in Sub-Saharan Africa? Idrissa Ouedraogo Issa Dianda Idrissa Mohammed Ouedraogo This study investigates the effects of political rivalries on access to education in sub-Saharan Africa. In this perspective, the data used are from the World Bank and cover a panel of 35 countries over the period 1996-2018. Empirical analysis using different levels of education and different estimation techniques reveals that increased political rivalries are detrimental to access to education in the region. Therefore, improving the quality of governance and promoting policies to limit rent-seeking are likely to reduce political rivalries and thus increase access to education in the region. Submission Date: 08-07-2020 04:22 the implications and signs of the multipliers of external factors on the Saudi economy using ARDL Monaem Tarchoun Ikram Ghraieb This paper investigates the effects of external factors on economic growth in Saudi Arabia. Using data over the period 1980-2017, we study the relationship between these factors namely imports, foreign direct investment and remittances on economic growth. We use ARDL (autoregressive distributed lag model) method in which we address the endogeneity of economic growth. Our results reveal a differentiation of relationship between those variables. From the point of view of analysis and economic growth, external factors are indeed important. Remittances have been found to have an adverse effect on long- and short-term economic expansion. In addition, imports and foreign direct investment have had a positive influence on economic growth both in the long run and in the short run. The study proposes recommendations that the government should pursue: the appropriate policy actions to reduce imports of consumer products and to put barriers against outflows of remittances for migrants. Also, it is recommended not to limit the creation of companies to the saudien but for any resident. Submission Date: 18-10-2019 17:50 The Forecasting Accuracy of Cocoa Futures Prices Williams Ohemeng An option-based convenience yield based on the cost of carry model was employed to evaluate the robustness of the futures price forecast ability of the subsequent cash price. The time series properties of the variables in the model using various criteria, (including Fligner-Policello test, Miller Jackknife test, Zivot-Andrews test, Augmented Dickey-Fuller, and KPSS tests) were ascertained. Total opening interest, cash price return variance, cash price return first order auto-correlation and interest rates were used to proxy carrying costs in a test of the ability of commodity futures prices to predict cash prices. Fully modified ordinary least square and Brenner and Kroner (B&K) forecasting error correction models were applied. The model prescribed the existence of quad-variate long run relationship among the futures price, cash price, interest rate and convenience yield. The mean square error suggests that B&K’s presents the robust forecastability among the alternatives models. The findings provide convincing evidence in support of a model that includes carrying cost in estimating the cash prices. Submission Date: 05-09-2017 12:38 What Information is Contained in the Revisions of the JOLTS Data? Julie Smith Amy Guisinger This paper examines the revisions to the major categories (openings, hires, and separations) of the Job Openings and Labor Turnover Survey (JOLTS) and the Current Employment Statistics (CES) payroll employment data. Unlike employment, we find that the revisions to the JOLTS data are large, variable, and cannot be easily classified as news or noise with the exception of openings which can be classified as news. We also have evidence that the JOLTS revisions are forecastable. Finally, we compare measures of labor market health (vacancy rate, tightness and churn) that use the JOLTS data in their construction. We find that the final release is statistically different from the first and second releases for all measures. These finding are problematic for policy makers making decisions in real time. They also provide a caution to researchers evaluating policy or calibrating models when using a particular data vintage. Submission Date: 27-07-2020 16:17 COVID Incidences and Stock Market Movements: Long run relationships and short run dynamic analysis for world highly affected countries Ramesh Das Kinkini Bhattacharjee Novel Coronavirus, COVID 19, has been a panic for last eight to nine months to world people and economies of all status. It affected crores of people, claimed lacs of lives and devasted economic positions. Having a short span in terms of economic enquiry, no studies till date has been able to capture its true impacts. The present study has aimed at examining the linkages between number of COVID incidences and stock prices for world highly affected seven countries covering phase-wise period of February 01 to August 16, 2020. The results show that there have been significant increases in the number of COVID incidences for all the first three phases across all the countries. With respect to stock indices, the mean values have gone down significantly in Phase 2 and then it increases almost for all the countries. The correlation coefficients between the two for all the phases are significant in most of the countries except China. Further, there are long run associations between COVID incidences and stock indices of all the countries except China and India in all the first three phases. The results of short run analysis reveal some signs of causal interplays between the two in Phase 1 and Phase 2 but the results are not so significant for Phase 3 and Phase 4. In Phase 1, there are results of bi-directional causality for Italy, France and India. Thus, the study has tried to unveil the impact of the pandemic upon the stock prices of the countries concerned. The policy makers and world leaders and common people should take care of this issue seriously and should put all sorts of efforts and co-operations to combat the virus. Submission Date: 21-10-2020 09:06 Blessing or Curse: The stabilizing role of remittances compared with other financial flows Junaid Ahmed Inmaculada Martinez-Zarzoso Flows of remittances to Pakistan are being increasingly viewed as a relatively attractive source of external finance, one that can help to foster development and manage economic shocks. Remittances have become a major source of revenue, surpassing the volume of foreign direct investment (FDI) and official development assistance (ODA) that the country receives. This study focuses primarily on the stability, cyclicality and stabilization impacts of remittances to Pakistan. It is evident that foreign flows exhibit different types of volatility; remittances are found to be a less volatile source of external finance than FDI and ODA that are counter-cyclical and stabilizing, thus serving to steady the recipient economy in times of economic downturns. ODA appears to be acyclical and stabilizing, whereas FDI emerges as pro-cyclical and destabilizing. Furthermore, remittances are insensitive to cyclical fluctuation in source countries. SVAR-based identification confirms the counter-cyclical mechanism of remittances involved with Pakistani output. Remittances to Pakistan mainly appear to flow due to the economic conditions in the receiving economy. Submission Date: 30-09-2014 07:09 A Comparative Perspective on Russia Integration into Refining Industry Global Value Chains Olga Klochko Anastasia Tsareva Although not all major changes in global value chains that have occurred in recent decades have been positive, economies that do participate in GVCs indisputably reap significant rewards and opportunities. Extensive study has been made of Russia’s oil-refining industry in terms of gross values, but the country’s integration into the oil refining industry from a GVC perspective has received little attention. Therefore, this paper compares Russia with the 14 other largest exporters of refined products using the TiVA database and by applying case studies to identify current trends. The result provides evidence that some indicators of Russia’s participation in oil-refining GVCs fall behind those demonstrated by non-oil producing or exporting countries. Submission Date: 11-08-2020 10:32 Forward guidance policy announcements: how effective are they? Nicola Acocella Andrew Hughes Hallett We show that forward guidance adds information to the private sector that can enhance effectiveness of policy, in a way and to an extent that depends on each specific type of announcement. This can go as far as to ensure dynamic or even static controllability in a dynamic context. Calibrated simulations show that the information supplied by forward guidance can lead to significant improvements in performance and stability. Submission Date: 03-08-2020 17:24 Teaching strategy specialization and effects on student achievement Jose M. Cordero-Ferrera Maria Gil-Izquierdo Victor Cristobal One of the most relevant topics in the field of educational research is the debate about the use of innovative teaching methodologies focused on promoting student skills. In the classroom, these methodologies frequently coexist with more traditional teaching methods, although the potential differences in the impact of the teaching methods on student academic achievement is still unclear. This paper aims to report results about the effect of focusing on some of those teaching strategies by comparing the performance of a sample of Spanish high school students. For this purpose, we rely on propensity score matching (PSM), which allows us to reduce potential bias related to the different characteristics of the evaluated schools. The results suggest that specialization in the use of innovative teaching practices does not lead to better academic performance and may even be harmful for some competences. Submission Date: 20-07-2020 19:24 Modelling Interaction of Monetary and Fiscal policies in India-An Application of Sign restricted Bayesian Vector Autoregressive Models Harinder Kaur Gill Nitin Arora This study endeavours to examine the interaction of monetary and fiscal policies in India from 2001:M4 to 2018:M7. Using a Game of two players (i.e., monetary and fiscal authorities) and two strategies (i.e., contractionary and expansionary policies), the impacts of four different combinations of monetary and fiscal shocks on the output gap, inflation rate and exchange rate, have been analysed using sign restricted Bayesian VAR. The study reveals that people respond prudently to those combinations of policies when monetary and fiscal authorities act together in the same direction. Besides, there is crystal clear evidence of fiscal dominance in India as the response of target variables is noticed in the direction of fiscal objectives when both authorities proceed in opposite directions. Submission Date: 20-04-2020 12:19 Macroeconomic Policies, Transmission Dynamics and Monetary Policy Rules: Evidence from an Emerging Economy Muneesh Kapur Against the backdrop of the move to an inflation targeting monetary policy framework in India beginning 2014 with consumer price index (CPI) inflation as the nominal anchor, this paper assesses monetary and macroeconomic transmission dynamics. The dynamics are assessed using the structural econometric modelling approach, while incorporating external sector, fiscal policy, banking sector and financial market variables, to capture adequately the interactions among key macroeconomic policies and macroeconomic aggregates. The empirical analysis confirms the role of monetary policy in containing demand and inflationary pressures. The exchange rate responds both to interest rate and inflation differentials. The exchange rate pass-through to inflation is modest and has a role in external sector adjustment. A comparative analysis of alternative monetary policy rules highlights the trade-offs between less- and more-inertial rules. Submission Date: 06-11-2018 11:51 Economic Globalization and Growth: Which Countries Actually Benefit from Economic Globalization? Taner Guney This study aims to analyse the impact of economic globalization and its sub-indicators on economic growth. Ninety of the countries are developing, 39 are developed and 31 are the least developed countries. When GDP per capita is used as an indicator of economic growth, economic globalization only increases economic growth in developing countries. Economic globalization in developed and least developed countries does not have a statistically significant effect on GDP per capita. When GDP per capita based on purchasing power parity is used as an indicator of economic growth, economic globalization affects growth positively in developed and developing countries. In the least developed countries, economic globalization is not effective on growth, even when GDP per capita based on purchasing power parity is used as an indicator of economic growth. Policymakers should rethink the economic structures of these countries comprehensively. As a result, according to the two different indicators of economic growth, developing countries are the countries that benefit the most from economic globalization. The factors that the developing countries use the most from economic globalization are the removal of the barriers to trade in goods and services. These factors should always be the most important element of economic policy in developing countries. The level of benefit developed countries receive from economic globalization is not clear. Submission Date: 26-09-2019 10:19 Simulation of Macroeconomic Effects of Population Aging in Iran Zahra Kashanian Hossein Raghfar Mir Hossein Mousavi To investigate the effects of demographic changes on some macroeconomic variables, a two-stage overlapping generation model (OLG model) was designed. In this model, we considered an economy inhabited by two-period lived overlapping generations, the length of each period of which is regarded as thirty years. Through the life cycle perspective, the first period represents the working period and the second is considered the retirement period. This model consists of three sections: households, government, and the production which operate in a competitive market. Data have been imported since 1940 and simulated by 2100. Simulation indicates that due to population aging, the share of social security budget is going to increase and the share of public investment is going to decrease. In other words, public investment will crowd out due to population aging while annual per-capita output growth rate will fall causing economic growth to slow down. To deal with population aging and productive labour supply shortage, the government will increase taxes and the retirement age. These policies will soften public investment crowd-out. Submission Date: 15-03-2020 16:08 The Long-Run and Short-Run Impact of Environmental Expenditures and Environmental Policy Stringency on Pollution-Adjusted GDP Growth and Productivity Hassan Gholipour Fereidouni Amir Arjomandi Charles Harvie This study examines the long-run and short-run impact of government expenditures on environmental protection as well as the effect of environmental policies on pollution-adjusted GDP growth and productivity for a set of OECD countries. By applying panel Pooled Mean Group Autoregressive Distributed Lag (ARDL/PMG), our results show that government expenditures and tighter environmental policies reduce pollution-free GDP growth and productivity in the long-run. We also find that government expenditures on environmental protection can significantly stimulate national output in the short-run. Submission Date: 19-07-2020 15:38 International Macroeconomic-Financial Linkages and Policy Interactions in Time-Varying Multicountry Panel Setups: An Application to Emerging Economies Antonio Pacifico This paper provides new empirical insights in order to give a relevant contribution to the more recent literature on international macroeconomic-financial linkages when evaluating idiosyncratic shock transmission and investigating policy interactions in multicountry dynamic panel setups. Interdependence, commonality and heterogeneity are also identified in order to account for policy implications and suggestions for decision makers. An extension of a time-varying Structural Panel Bayesian Vector Autoregressive model is developed to jointly deal with model misspecification and unobserved heterogeneity problems. An empirical application among a pool of emerging market economies is conducted to describe the functioning and the performance of the methodology, with particular attention to the most recent recession and post-crisis consolidation. My evidence shows that, when formulating policies or forecasting, additional transmission channels and economic--institutional issues through which fiscal contractions and monetary policy regimes influence the dynamics of the GDP growth need to be accounted for in multicountry setups. Submission Date: 18-06-2020 01:03 Remittances, ICT and economic growth in transitional countries of Southeast Asia: An empirical analysis by linear and nonlinear modeling Keshmeer Makun TK Jayaraman The World Bank has forecast that the economic impact of the Covid-19 recession would result in the decline of worldwide remittances (REM) by 20 percent in 2020. Economic growth in three transitional countries namely Cambodia, Laos, and Vietnam, which are among the top ten recipient countries in East Asia and the Pacific, would be adversely affected by the fall in remittances (REM). Being in foreign exchange, REM has been a support for reducing rising current account deficits besides alleviating poverty. The results of a panel analysis, with the benchmark linear ARDL procedure, confirm a positive impact of remittances and ICT. A non-linear ARDL procedure reveals REM has an asymmetric effect on per capita GDP. The impact of negative partial sum decomposition is greater than the positive partial sum decomposition of remittances. This paper makes policy recommendations to meet the adverse consequences of falling inflows of remittances. Submission Date: 13-07-2020 02:36 Monetary Policy Rate: An Effective Instrument in Controlling Inflation in Nigeria Emmanuel Akande Jeremiah D. Joshua This paper uses two scenarios of Factor Augment Vector Autoregression (FAVAR) to trace the impact of Monetary Policy Rate (MPR), a notable monetary policy instrument, on inflation in Nigeria and as well determine the monetary channel effective to achieve the macroeconomic objective of the Central Bank of Nigeria. The baseline scenario uses the traditional Factor Augment VAR method after eliminating variables with lower weight while the second scenario was implemented by obtaining variables communality. Our results show no evidence of price puzzle in both scenarios but we find evidence of more measurement error in our baseline scenario than in second scenario therefore, the estimated factors using the second scenario improves the inflation forecast. In addition, our results show that second scenario indicates a high impact of monetary policy rate on Inflation than the baseline scenario and the persistent increase in the unobserved information of short-term interest rates and monetary aggregates serves as an effective monetary channel or transmission mechanism of Nigerian monetary system. Moreover, we find that inflation is mostly driven by food consumer price indices and a good FAVAR estimation should not only involve increasing the selected factors but also eliminate variables whose variance contributes least to the variances shared by the common factor. Therefore, for MPR to be an effective policy instrument, it needs to be anchored on efficient operating and monetary targets. Submission Date: 28-05-2020 18:30 An empirical test of Wagner’s Law with disaggregated data for Spain Manuel Jaen-Garcia Although Wagner’s Law has been empirically tested many times, very few studies have utilized disaggregated data, and none, to our knowledge, have considered public spending according to functional classification. Our hypothesis is that the expenditures attributable to the welfare state (education, healthcare and social expenditures) increase at a higher rate than gross domestic product (GDP) and public spending in its totality. That is, these expenditures behave like luxury goods and, consequently, fulfill the law in question. At the same time, we analyze the influence of public spending on the growth of GDP following the Keynesian hypothesis. Submission Date: 18-04-2017 10:24 Effectiveness of Antidrug Policies in Reducing Coca Production and Cocaine Trafficking Marco Palma Luis Ribera David Bessler We analyze the effectiveness of antidrug policies in reducing coca production and cocaine trafficking. Significant lagged effects were found linking agricultural production and coca production, providing some evidence of at least some partial substitution of coca production for alternative agricultural products. We find evidence that as the volume of coca production increases, it causes an increase in drug related arrests in the US. Seizures and arrests have a lagged deterrent effect on coca production. Seizures and arrests have lagged effects in explaining the variance of each other. It is likely that arrests increase intelligence information, resulting in more seizures and eventually more arrests. These results provide evidence of the effectiveness of interdiction policies in reducing coca production and cocaine trafficking. However, these effects are lagged which means it takes some time before seizures and arrests impact coca production and associated cocaine trafficking. Submission Date: 22-11-2017 10:06 Employment Modeling in India Arup Mitra After working out the long term series on employment based on forecast methods using the cross sectional estimates of elasticity of unorganized/informal sector employment with respect to organized/formal sector employment this paper argues that the long term employment growth in India has been sluggish. In the time series framework it is also noted that employment has a greater impact on GDP rather than the vice-versa. This is quite consistent with the literature that employment contracts can be long term in nature, and they are usually not flexible in the short run. Hence, fluctuations in the commodity market do not affect employment immediately. The open unemployment rate (defined as those not working but seeking or available for work on UPSS basis, as a percentage of labour force) has neither been generally high nor has it increased considerably over the years. The informal sector employment has been rather on the high side as people cannot afford to remain unemployed for long. Poverty-induced participation is evident and women are largely seen to be engaged in the agriculture sector. The effect of physical infrastructure on women work participation is positive. Large household size and child-women ratio affect women work participation adversely. On the whole, the positive effect of health and education and a strong impact of physical infrastructure on labour market participation of rural women are evident. Submission Date: 27-12-2019 11:56 EFFECTS OF TRADE BARRIERS ON BRAZILIAN SOYBEAN AND MEAT Adriano Marcos Rodrigues Figueiredo Mayra Batista Bitencourt Leonardo Francisco Figueiredo Neto Brazilian trade flows have increased in recent years, even with high tariffs and non-tariff trade barriers. We evaluated possible embargoes imposed on Brazilian meat and cereals. A computable general equilibrium analysis is used with disaggregated Brazilian regions and the GTAP 9.0 database. The Chinese embargo on Brazilian grains would decrease their consumption in China, decrease exports in Brazilian Central West, and increase Southeast exports of manufactured products and clothing. Embargoes of the European Union and the USA on Brazilian meat would have lower impacts compared to the Chinese scenario. The USA embargo would damage more than the European one. Submission Date: 19-05-2018 15:52 An Analysis of Bi-Polar Private Consumption Behaviour: The Case of Fiji Islands and the United States Devendra Kumar Jain Nikeel Kumar Rup Singh Neelesh Gounder Arvind Patel This study estimates time series models of private consumption for Fiji and the United States using the ARDL-Bounds methodology, with structural breaks. The results confirm an equilibrium relationship between real consumption, income and narrow money, accounting for breaks, for both countries. The income elasticity, implied marginal propensity to consume and therefore policy multiplier is higher in Fiji. The wealth effects are significant, income elasticity is lower and therefore the multiplier is relatively smaller in the USA. The elasticity of M1 is low for Fiji but negative for the US, implying that the impact of an increase in liquidity is stronger than the expected inflation effect for Fiji and vice-versa for the USA. The results also imply that Government policy to promote consumption and welfare in each country must vary in light of the differences in expenditure multipliers and that developing countries, such as Fiji, may not replicate policy frameworks of advanced economies like the USA. Submission Date: 24-05-2020 23:32 Conflict, Growth and Human Development An Empirical Analysis of Pakistan Marie-Ange Veganzones-Varoudakis Syed Muhammad All-e-Raza Rizvi Marie-Ange Veganzones-Varoudakis In this paper, we use the Autoregressive Distributed Lag (ARDL) Bound Testing cointegration approach to study the long-term relationship between internal conflict, economic growth, and human development in Pakistan. We show that, by offering better opportunities and reducing radicalization, education could help reduce conflict in Pakistan. The government's spending on its defense budget, however, is high, and results in low social spending. We also show a positive contribution to conflict reduction by public order which justifies the government’s anti-terrorist policy. It also appears that economic reforms and wealth do not help to reduce internal conflicts in Pakistan. This result is an illustration of a situation in which globalization is perceived as a threat, and economic growth fuels political and social unrest. Political rights and civil liberties do not seem to reduce conflict either, because periods of democracy have experienced a resurgence of violence. This finding suggests that, in a fragile country like Pakistan, respect for public order is a priority before restoring democracy. Pakistan seems to be caught in a low development trap in which conflict is the main variable to consider before seeing the benefits of reforming the economy. Submission Date: 09-01-2020 15:52 The Modernization Hypothesis Revisited for the Southern African Development Community Oluyele Akinkugbe Sandotin Coulibaly Eugene Kouassi This paper re-examines the relationship between democracy and income growth, in the framework of the modernization hypothesis. The democratic capital stock—procedural conceptualization of democracy—that captures the process of nurturing and entrenchment of private property rights, strengthened policy and decision-making institutions, is used as proxy for democracy. The results of our analyses reveal that democracy is positively related to its past value and income growth. And the results are significant and robust across the different sub-samples considered. The results are also valid for alternative definitions of democracy used in the sensitivity analyses. Further, the other variables that could be associated with modernization—education, urban population, natural resource exploitation —are also significant. Submission Date: 02-06-2020 16:20 Monetary Policy with Dual Mandate: An Optimization Problem (A Study Case) Alfredo Coutino The dual monetary mandate—fostering growth as well as a stable rate of inflation—has always faced resistance from some governments and economists, particularly in emerging markets with inflation-targeting central banks. In several countries there is a strong resistance to implement a dual mandate but also to open a debate on the topic. The main argument against adopting a double mandate is an apparent inconsistency between objectives and instruments and also about a potential risk for monetary independence. Mexico is taken as a study case since the nation is already embarked on a reform process; however, if the country really wants to modernize, then reforms should be implemented at all levels, including economic policy and institutions. For economic policy to better respond to the new challenge of growth with stability, a dual monetary mandate should be adopted and a structural fiscal rule should become a mandate for the country. This paper illustrates that, far from being a threat to monetary independence, the dual mandate is more effective for improving social well-being since it represents the maximization of growth with the minimum of inflation: An optimization problem to be resolved by the central bank. Submission Date: 27-08-2020 14:54 Egypt's Rising Inflation: Where the Blame Lies Heba Ezzeldin Helmy This paper aims to identify the sources of inflation in Egypt by employing an ARDL cointegration analysis on monthly time series variables which extend from 1998M6 till 2015M10. Using Egypt’s wholesale price index to account for inflation and several control variables - including a variety of exchange rate indicators - the paper concludes that in the long run successive governments’ expansion of money supply remains the dominant factor affecting the rise in prices, followed in significance by rising world prices. In the short run, inflation rises due to the exchange rate depreciation and interest rate appreciation. The paper is integral to policy makers in Egypt for rectifying their current monetary policy. Submission Date: 08-01-2020 05:49 25 Years of Austria’s EU membership: Quantifying the economic benefits with a DSGE model Fritz Breuss Austria’s EU accession 25 years ago, alongside Finland and Sweden, was preceded by an extended period of convergence toward the EU: via the free trade agreement concluded with the EC in 1973, and the participation in the European Economic Area (EEA) in 1994. Although the Corona crisis in 2020 seems to overshadow the overall positive balance of 25 years EU membership, on average the real GDP growth dividend amounted to 0.8 percentage points (pp) per year since 1995. To check the robustness of this result, obtained with an integration macro model, a DSGE model for Austria is used here. Usually other methods are applied to estimate integration effects: trade gravity models, CGE models, macro models. Following in’t Veld’s (2019) approach with a DSGE model for the EU, we adapt an earlier version of the two-country DSGE model for Austria and the Euro area (Breuss and Rabitsch, 2009) to evaluate the benefits of Austria’s EU membership. It turns out that grosso modo the macro results can be confirmed with the DSGE model. Submission Date: 30-06-2020 15:12 Monetary facts or Monetarist facts? A re-examination Muhammad Azam Khan The Quantity Theory of Money claims to provide one of the few long-run guides to economic policy by providing specific numbers to characterise the correlation between money growth and inflation. Acceptance of the Quantity Theory has been greatly helped by the claim, propounded most effectively by Robert Lucas, that the evidence for the central claims of the Quantity Theory can be corroborated by ‘atheoretical’ examination of the data. We re-examine this empirical claim in two ways. First, we show how, for both theoretical and statistical reasons, the facts accepted by Lucas lack the force he attributes to them. Secondly, we then examine the data from 102 countries in three parts; first, as an aggregate, then again across five regions, and finally in a sample of specific countries. There is a positive relationship between money supply growth and inflation but the correlation is not the proportional one predicted by the Quantity Theory ---either for the full sample or any of the subsamples. These results are inconsistent with the primary empirical claims made for the general applicability of the Quantity Theory. Submission Date: 17-12-2018 08:32 Liberalization Policy, Agricultural trade, and Agricultural Growth: An empirical analysis of the Libyan experience Youssef Khurmani This study investigates the impact of agricultural exports and imports on agricultural growth under the application of trade liberalization policies after the suspension of international sanctions in 1999. This paper had not only adopted the ARDL bounds testing approach to test for cointegration, but had also conducted a further investigation on the direction of causality by incorporating dummy liberalization as an exogenous variable in the VECM framework. The results had confirmed the existence of a long-run relationship among the series. The respective agricultural exports and imports were projected to have a modest positive and a negative impact on agricultural production. Agricultural labor and area under cultivation were also proven to be the most significant determinants. The results had supported a unidirectional relationship running from agri-production to agricultural exports and from agricultural imports to agri-production Submission Date: 22-07-2020 12:53 Assessing the dynamics of human capital-economic growth relationship: A medium sized macroeconomic model for Pakistan Faisal Qadri The study develops a medium sized macroeconomic model for Pakistan focusing the role of human capital in economic growth. The model divides supply side of economy into agriculture, industrial and services sector which is modelled as per neo-classical theory of production whereas the demand side is modelled as per Keynesian lines. The model is consisted of 43 equations including 23 behavioral equations estimated through fully modified ordinary least square (FMOLS). The forecasting horizon of this model is set to six years from 2015 to 2020 and the time paths of aggregate and sector wise variables are analyzed under 03 scenarios associated with government spending on education including the one stated in VISION 2025 of planning commission. The study found strong linkage between government spending on education and the production of agricultural and industrial sector. The production and employment of services sector is found to be least affected by government spending on education which reflects lack of synchronizing between the types of skills demanded by and supplied to the services sector. It is recommended therefore to increase the government spending on education along with aligning the skills produced in accordance to the demand of services sector. Submission Date: 17-11-2016 23:21 Asymmetry in Inflation and Output Gap interactions -Evidence of a Nonlinear Phillips Curve for India Honey Karun Most empirical studies on the Phillips curve are confined to ‘linear’ model specifications. Using quarterly data for the period 1996-2014, the study finds evidence for a convex shaped Phillips curve when the economy is overheated, i.e., when the economy is above its potential output. The results imply that the cost of deliberating disinflation policy by the central bank is higher than the policy of pre-empting inflation. Since there is no evidence for a Phillips curve when the economy is operating below its potential output, inflation targeting through interest rate channels may not be able to stabilize inflation to its previous levels. Submission Date: 18-01-2017 08:46 Productivity, Network Effects and Telecommunications Capital: Evidence from the US and Europe Peter Goodridge Jonathan Haskel Harald Edquist Did the huge investment in telecommunications networks in the 1990s affect subsequent total factor productivity? Using data from 13 European countries and the US, 1995-2013, we document the substantial growth and then slowdown in telecommunications capital and ask if this is related to the growth and slowdown in TFP. We explore this by disaggregating ICT equipment investment into IT and CT equipment investment. We test for distinct effects from each using a simple framework where CT capital has network externalities and so potentially impacts TFP, with the marginal impact of CT capital growth being higher in countries spending more on renting CT capital. We find: a) evidence of a robust correlation between (lagged) growth in (rental share-weighted) CT capital services and TFP growth; b) the estimated externality from CT capital potentially explains around 30-40% of TFP growth in North European countries, 60% in Scandinavia and around 90% in the US; c) CT capital has a social return around five times its private return; and d) a slowdown in the accumulation of CT capital accounts for just over half of the post-2003 TFP slowdown in the US but only one-tenth of the TFP slowdown in the EU. Submission Date: 19-08-2019 14:15 TOURISM GROWTH AND ECONOMIC DEVELOPMENT AN EMPIRICAL ANALYSIS FOR SPAIN Antonios Adamopoulos This study investigates a simulation model of economic growth for Spain for the period 1995-2017. The purpose of this study is to examine the main determinants of economic growth examining a structural system equation model. Two-stage least squares method is used in order to examine the direct and indirect relationships between the dependent variables of the model. Finally, a Monte Carlo simulation method is applied in order to define the sensitivity analysis and predictive ability of the estimated system equation model. Submission Date: 08-05-2019 07:39 Revisiting the Structure-Conduct-Performance Relationship: Evidence from Banking Sector in ASEAN Habib Khan The study revisits the relationship between market structure, conduct, and performance to address some methodological issues highlighted by anonymous referees in Khan, Ahmad, and Chan (2018). We re-analyze the data from the original article by applying the Panel Vector Autoregressive (PVAR) model to take care of the lead-lag relationships and endogeneity concerns in the SCP relationship. Additionally, we extend the sampling period to include the latest available data and compare the findings with original ones. We find sufficient evidence of the lagged relationships among structure, conduct, and performance. We reaffirm the findings of the original article even after considering the endogeneity issues, the autoregressive effects, and the role of distributive lags in the mediation process. Submission Date: 25-02-2020 16:13 Trade Openness - Inflation Nexus: New Evidence from a Panel Threshold Regression Approach Thouraya Boujelbene Khoutem Ben Jedidia Kamel Helali The Consumer Price Index (CPI) inflation-trade openness puzzle is a controversial issue in both theoretical and empirical research for most countries. Nonetheless, the effect of openness on CPI inflation volatility is stronger among developing and emerging market economies. Therefore, this work contributed to the existent literature by examining the relationship between CPI inflation and trade openness in North African countries over the period 1980 to 2016 using a Panel Threshold Regression. Our empirical investigation revealed a statistically significant negative link, as trade openness does not exceed the threshold. Contrariwise, foreign trade is noted to positively affect inflation. This finding attenuates the argument for trade openness, and hence has significant implications in the considered countries trade policy. Consequently, foreign trade integration might be used to monitor inflation. Ideally, therefore, our findings recommend that North African countries should have an openness that does not exceed a certain threshold. Submission Date: 26-01-2019 15:14 Examining the time-variation of inflation persistence in ten Euro Area countries Nektarios Michail Inflation persistence in ten Euro Area economies is examined, using a long series of monthly data. Full sample estimates find persistence to be close to unity and tests for structural breaks show that while these exist, they are rare. Rolling estimates of persistence, based on a mean reversion measure, suggest that even though persistence has been volatile, it has not reached values below 0.8. The findings lend support to the view that the introduction of the common currency has reduced inflation persistence in many countries. In contrast, the global financial crisis appears to have had a positive impact on persistence. Submission Date: 27-06-2016 02:02 The Effects of Fiscal Policy in Bangladesh: Results from an Agnostic Identification Procedure Ataur Rahaman Ataur Rahaman Roberto Leon-Gonzalez This paper analyzes the effects of fiscal shocks in Bangladesh using the sign restriction approach in BVAR framework. Both the unanticipated and anticipated fiscal shocks along with a generic business cycle and a monetary policy shocks are identified. The results are consistent with the neo-Keynesian prediction that private investment and consumption, and wage increase due to the expansionary government expenditure shock. Output and private consumption decrease due to tax hike, although investment does not. The authority might use fiscal policy, especially tax policy, rather than monetary policy to stabilize output. Moreover, fiscal authority could increase government expenditure without hurting private investment. Submission Date: 06-11-2019 11:50 Tax Reforms, Civil Conflicts and Tax Revenue Performance in Burundi Arcade Ndoricimpa The study examines the effects of tax reforms and civil conflicts on the tax performance in Burundi using various methods including a regression approach and estimation of tax buoyancy and elasticity. The results indicate that civil conflicts did not significantly affect total tax revenue, international trade taxes as well as income taxes. However, civil conflicts have had significant negative effects on goods and services tax revenue. On the effect of the tax reforms, the results suggest that tax reforms do not have a significant effect on the total tax revenue or on the individual tax categories. The results indicate further that international trade tax is the strong spot of the tax system in short run, while tax on goods and services is the strong spot in the long run. In addition, a high tax effort is estimated. The study suggests that the tax system in Burundi should be revamped to cut collection costs and minimize tax-induced economic distortions and hurdle to investment. Most importantly, reforms should focus on improving the quality of governance. Submission Date: 04-06-2019 14:45 THE MYTH OF THE EXPANSIONARY FISCAL CONTRACTION George Demopoulos Nicholas Yannacopoulos The expectation view of the expansionary austerity hypothesis predicts that fiscal consolidation, implemented by a tax increase, may signal that tax cuts have to be expected in the future. Consumers respond to the tax cut increase by raising their estimates of their lifetime resources; as a result, they may raise consumption with positive effects on aggregate demand. In this paper, we show that the expectations view of fiscal austerity rests on two fundamental assumptions: The first requires that the horizon index of the consumer has to be infinite (necessary assumption), and the second that his tax expectations have to be elastic in the Hicksian sense (sufficient assumption). Since these assumptions are not satisfied in a world characterized by uncertainty and liquidity constraints, the expansionary effects of fiscal austerity policies (through the expectations channel) fail. Austerity policies are contractionary. The contractionary effects of austerity policies may be offset either by a sharp decline in the interest rates or by a move to a surplus in the balance of payments. We argue that these offsetting factors are of questionable validity in a monetary union. Submission Date: 04-06-2018 05:43 Policy failure and educational attainment in Indonesia Blane Lewis We examine the causal impact of two classic education policies on secondary school participation in Indonesia: compulsory schooling and spending mandates. We find that the country’s 1994 nine-year compulsory schooling initiative had no impact on child educational attainment. We also determine that Indonesia’s 2002 constitutionally imposed education spending mandate has been ineffective in influencing school enrollments. Both policies suffer from weak enforcement. Improved compulsory education enforcement may prove beneficial. However, enforcing spending mandates more rigorously, as coverage expands to additional sectors, would constrain the efficient delivery of education and other local public services. Submission Date: 22-02-2019 01:31 Foreign Policy Uncertainty Originating from China and the US: Does it Matters for An Emerging Economy? Ahmad Zubaidi Baharumshah Ahmad Zubaidi Baharumshah Said Zamin Shah Stilianos Fountas Nor Aishah Hamzah This study examines the response of inflation and output growth from economic policy uncertainty (EPU) in Malaysia. We account for the spillover effects of EPU from two leading economies—US and China. The conclusions from the asymmetric multivariate GARCH process are the following. (a) Our findings provides further support to the negative relation between policy uncertainty and CPI inflation. (b) Uncertainty affects economic growth negatively or positively depending on the choice of the leading economy. (c) The effects of foreign EPU as stress transmitter on inflation are uniformly negative, whereas the response of output growth is sensitive to the choice of the foreign economy. Foreign uncertainty plays an important role in tracing and shaping domestic macroeconomic conditions and cannot be ignored from policy perspective. Submission Date: 23-06-2019 18:31 Dynamic effects of health status’ drivers: Evidence from Burkina Faso Ousmane Traore The study analyses the dynamic relationships of life expectancy and under-five infant mortality to their determinants in Burkina Faso, from the 1971-2009. Shock on physicians and nurses produces a decrease in life expectancy, statistically significant in the long run for nurses. Shock on income and carbon dioxide emission produces an increase of life expectancy. Infant mortality decreases after the same shocks and shock on it does not affect life expectancy in the short run, but a significant high increase since the medium run. The results indicate that social responsibility values, life expectancy and infant mortality policies must be simultaneously reinforced. Submission Date: 28-01-2020 09:43 The Role of Productivity, Transportation Costs, and Barriers to Intersectoral Mobility in Structural Transformation Mihaela Pintea Cem Karayalcin The process of economic development is characterized by substantial reallocations of resources across sectors. In this paper, we construct a multi-sector model in which there are barriers to the movement of labor from low-productivity traditional agriculture to modern sectors. With the barrier in place, we show that improvements in productivity in modern sectors (including agriculture) or reductions in transportation costs may lead to a rise in agricultural employment and through terms-of-trade effects may harm traditional farmers if this sector is larger than a critical level. This suggests that policy advice based on the earlier literature needs to be revised. Reducing barriers to mobility (through reductions in the cost of skill acquisition and institutional changes) and improving the productivity of traditional farmers needs to precede policies designed to increase the productivity of modern sectors or decrease transportation costs. Submission Date: 16-05-2019 16:54 Inflation Threshold and the Finance–Growth nexus in sub-Saharan Africa Muazu Ibrahim Olufemi Adewale Aluko The relationship between finance and economic growth has received much attention in the literature. However, whether the level of inflation moderates the link between finance and growth is yet to be extensively explored particularly in countries with under-developed financial sector and low growth rates coupled with high inflation. In this study, we investigate whether inflation mediates the finance–growth nexus relying on data from 33 countries in sub-Saharan Africa. Results from our sample splitting threshold approach estimates an inflation threshold of 7.65% and 6.76% when financial development is respectively proxied by financial development index and private credit. We further find that, irrespective of the indicator of finance, finance positively and significantly influence economic growth when inflation is below the thresholds. However, above the estimated thresholds, the effect of finance on growth is imaginary suggesting that higher levels of inflation weakens the finance–growth link. At the policy level, it is imperative for countries to institute prudent macroeconomic monetary and fiscal measures that reduces the inflation rates in the sub-region while boosting domestic level of financial development. Submission Date: 17-07-2019 13:15 Money and Financial Organisation Romar Correa Our context is lacklustre output and employment growth anywhere in the world. Scripts are being written giving equal billing to the Central Bank and the Treasury. One lesson from history is that the two organs of the government coordinated on financial instruments. The other lesson is that the Central Bank acted as ‘leader of the club of banks’. We work through a micro-macro blueprint which provides the incentives underlying endogenous money. Secondly, we devise a government bond whose issue is complementary to the programme of the monetary authority. We make the case for choosing money and bonds. Submission Date: 11-02-2020 16:13 Understanding the time-frequency dynamics of money demand, oil prices, and macroeconomic variables: The case of India Rabeh Khalfaoui Hemachandra Padhan Aviral Kumar Tiwari Shawkat Hammoudeh This study investigates the multi-scale lead-lag nexuses between money demand and real GDP, interest rate, exchange rate, oil prices, inflation-defining CPI for the third global oil consumer, India, using the monthly data ranging from 1994 M1 to 2017 M11. A special focus is placed on the effect of changes in oil prices and inflation-defining CPI on money demand. The paper uses the wavelet coherency and the partial wavelet coherency techniques to achieve the goals. The univariate empirical analysis reveals that during the whole sample period, the underlining variables show the same pattern in terms of wavelet power spectra, suggesting weak volatility levels across the time-frequency plane. The bivariate analysis indicates that the partial wavelet coherent empirical results underscore the presence of either a unidirectional or a bidirectional causal relationship between money demand and the underlining oil and macroeconomic variables. In particular, in terms of the wavelet coherency results, money demand exhibits the greatest interdependency with real GDP across the time-frequency domain, while it has a much lower interdependency with interest rate, exchange rate and oil prices. Submission Date: 25-09-2019 19:56 Is there a link between income inequality and the natural interest rate? Angelo Rondina Neto Edinaldo Tebaldi Maria Helena Ambrosio Dias There is evidence of a decline in the natural interest rate (NIR) in major economies, especially after the 2008 crisis. This pattern seems to be associated with persistent factors including productivity slowdowns and demographic changes. This study contributes to this debate by analyzing if income inequality is one of the persistent factors also influencing the NIR. We extend a standard New Keynesian model to identify the relationship between income inequality and the NIR and show that there are theoretical reasons to conclude that there is a negative relationship between these variables in standard cases. However, under particular conditions, there seems to be a reverse causal relationship between income inequality and NIR. This study utilizes Brazil as a case study due to the high levels and major recent changes in income inequality in the country. Two models were estimated: a Vector Autoregressive (VAR) and a state-space models. The results show a somewhat weak relationship between Brazil’s income inequality and its NIR levels. We conclude that changes in income inequality may, therefore, be one of the factors affecting the NIR in Brazil. Submission Date: 08-02-2019 14:55 Inflation dynamics and Globalization: Evidence from India Syed Kanwar Abbas The foreign resource capacity (globalization) affects inflation and real economic activity. This paper shows that for a fast growing economy of India, the foreign resource capacity has reduced inflation rate and changed the process of inflation dynamics when globalization increased, as related to trade liberalization policy in 1991. These results yield important policy implications for the conduct of monetary policy. Submission Date: 24-10-2019 06:08 Can a reduction in credit card processing fees offset the effect of a hike in the minimum wage? Jung Joo La The objective of this study is to assess whether a reduction in credit card processing fees can offset the effect of a hike in the minimum wage by examining the unique case of South Korea. To do so, this study introduces a theoretical model with money and credit as the explicit means of payment. In particular, it develops a general equilibrium model with micro-foundations for dealing with the relationship between minimum wage increases and job automation, and takes a long-run approach in the quantitative analysis. Contrary to the existing literature, the study shows that a minimum wage hike negatively and significantly affects overall employment. The calibrated results show that a 13.6% hike in the minimum wage causes a 16.46% reduction in the demand for simple labor earning the minimum wage, and also decreases the demand for non-simple labor by 0.157%. In contrast, if a policy of reducing credit card processing fees is adopted to ease the negative effect of a hike in minimum wage on employment, a 0.65% reduction in these fees (derived by shifting the burden of interest on credit card debt from seller to buyer) results in a 0.09% decrease in the labor demand. Submission Date: 19-06-2019 06:22 Dynamics between Financial Development, Energy consumption and Economic growth in Sub-Saharan African Countries:Evidence from an asymmetrical and nonlinear analysis Diby Francois Kassi Gang Sun Yobouet Thierry Gnangoin Akadje Jean Roland Edjoukou Guy Roland Assamoi This paper analyzes the asymmetrical relationship between financial development, energy consumption and economic growth in twenty-one (21) sub-Saharan African (SSA) countries from 1990Q1 to 2014Q4. We used the nonlinear autoregressive distributed lag (NARDL) framework and asymmetrical causality tests to examine the relationship between the variables. First, the country-level analysis reveals that there is asymmetrical cointegration between the variables in some countries and mixed results of the causal effects of financial development and energy consumption on economic growth across countries. Second, the results of the panel data analysis confirm the asymmetrical cointegration in the SSA region, especially in lower-middle-income countries than in upper-middle-income countries. We find that positive changes in energy consumption significantly reduce economic growth, contrary to the negative changes in the long-term. Besides, positive shocks to financial development favor more economic growth than the adverse shocks in the long-term in the SSA region. However, financial development hurts economic growth, contrary to energy consumption in the short-term. Finally, the results show bidirectional causality between positive changes in energy consumption and economic growth, but unidirectional causality running from negative changes in energy consumption to economic growth in the SSA region. There is also bidirectional causality between positive and negative shocks to financial development and economic growth in SSA region, but mixed results across lower-income countries and upper-middle-income countries. Therefore, our study suggests that energy-saving policies such as renewable energies can be implemented in the SSA region to promote sustainable development. In addition, policy-makers should adopt an efficient allocation of the credits to the private sector supporting productive investments. They should also pay attention to the asymmetrical relationship between financial development, energy consumption and economic growth in most SSA countries in the conduct of economic policies. Submission Date: 05-05-2019 15:24 Point versus Band Targets for Inflation Par Osterholm Meredith Beechey Inflation targets come in different shapes and sizes. We explore the choice of a point or band target for inflation in a stylised economy in which agents learn about the inflation-generating process. We simulate under two conditions, namely i) a point inflation target and ii) a band inflation target from within which the central bank chooses its current specific target. In many parameterizations of the model, the preferred target type rests on the inflation-output stabilization preferences of the central bank. A band target tends to be associated with higher volatility of inflation and lower volatility of the output gap than a point target. As such, a very strong preference for output stabilisation speaks in favour of a band inflation target. With preferences for inflation stabilisation closer to those thought to prevail in practice, a point target almost always outperforms a band target. Submission Date: 23-08-2018 15:35 Three panel data methods that prove the debt–growth–investment nexus: Evidence for upper middle-income countries Jorge Guadalupe-Lanas This study analyzes the essential aspects of the three-way debt–growth–investment nexus. In order to raise the essential aspects of this relationship in both the short and long-term, we estimate three panel data models: a Dumitrescu–Hurlin non-causality test, an autoregressive distributed lag model, and fixed and random effects models. The major conclusions are related to the fact that we have identified statistically significant relationships between growth and debt as well as growth and investment in the three estimation models. In the long-term, all estimates converge to the results predicted by literature related to debt-growth nexus In the short-term, the autoregressive distributed lag model model yields results different than the theory anticipated, which can be explained by the fact that, in the long-term, countries need to ensure a constant cash flow to sustain their growth; due to the difficulties these countries must face to generate income, debt becomes a variable that supports growth. Moreover, when we assume unobserved factors are constant over time, the model fits more closely than when we assume unobserved effects are uncorrelated with each explanatory variable, meaning countries’ particular characteristics are insignificant predictors of the three-way growth–external debt–investment nexus. Submission Date: 01-10-2019 17:00 Interest rate pass-through in the euro area: Are policy measures efficient in crisis periods? Evidence from a multi state Markov model on a panel dataset. Vasileios Siakoulis Anastasios Petropoulos Panagiotis Lazaris Georgia Lialiouti Interest rates pass through mechanism is an important element of the monetary policy of a central bank. In this paper we explore the dynamics of interest rate pass through in the euro area employing a novel multi state Markov model on a panel dataset, in order to determine the mechanics of the transmission of policy measures under both crisis and non-crisis periods. Empirical results, based on monthly data for the period 2003–2017, show that during periods of financial distress bank lending rates to non -financial corporations show a reduction of their degree of pass-through from the money market rate. Submission Date: 17-04-2018 01:34 Optimal taxation of substitute goods - the case of e-cigarettes Cornelis Kim E-cigarettes have become a substitute for tobacco cigarettes. This brings about the question of how to best levy excise duties on them. By assuming partial equilibrium conditions and tobacco excise rates as exogenous, we de- rive a set of expressions for the ad-valorem excise rates which maximise tax revenues or social welfare. Using own price and cross-price demand elastici- ties for vape and tobacco; public data on the costs of tobacco externalities; and recent estimations of the relative harmfulness of vape, the expression are applied to EU countries and US states. Using Monte Carlo uncertainty analysis, some tentative recommendations are made for vape market shares at which imposition of excise duties would increase social welfare. The de- veloped framework can be applied to other substitute goods with di erent externalities. Keywords: Tax policy, Excise, Externalities, E-cigarettes Submission Date: 21-08-2019 17:16 Military expenditure and economic growth: a revisit using bootstrap causality test for 19 African countries Yemane Wolde-Rufael Samuel Idowu The paper revisits the causal relationship between military expenditure and economic growth for 19 African countries for the period 1988 to 2014 by applying a bootstrap panel causality analysis that accounts for both cross-sectional dependence and for heterogeneity across these countries. Our empirical evidence finds a unidirectional causality running from military expenditure to economic growth only in Ethiopia and Mozambique where military expenditure negatively affects economic growth. The opposite causality running from economic growth to military expenditure was detected in Botswana, Ghana and Madagascar, bidirectional causality for Cameroon only, and no causality in any direction for the remaining 13 countries. These results do not provide consistent results regarding the causal relationship between military expenditure and economic growth; they, at best indicate that military expenditure exhibits negative impact and at worst military expenditure and economic growth are not causally related. Submission Date: 31-07-2016 06:46 Budget Deficit, Current Account Deficit and Macro variable Shocks in the China Umer Jeelanie Banday Ranjan Aneja The present paper analyzes the causal relationship between budget deficit and current account deficit of Chinese economy using time series data for the period of 1985-2016. We initially analyzed the theoretical framework obtained from Keynesian spending equation and then empirically testified the hypothesis by using bound testing approach and Zivot and Andrew structural break for testing twin deficit hypothesis. The results of ARDL bound testing approach finds an evidence of strong long run relationship among the variables. The bound testing approach invalidates the Ricardian Equivalence hypothesis and validates Keynesian hypothesis for Chinese economy. We applied Granger causality and structural equation model between the budget deficits and the current account deficit. The results found both the variables are positively associated with each other. Interest rate and inflation stability should be the target variable for the policy makers. Submission Date: 08-11-2017 00:54 Calibration of thermodynamically-feasible production functions using bottom-up energy models Walid Matar Top-down analyses of energy-dependent economic sectors use production functions to represent the sectors’ outputs. Meran (2019) showed that production functions can violate the physical laws that govern the sectors’ energy use. This issue becomes pertinent when using such methods for devising policy recommendations. He also cited the difficulty in setting the physical restrictions at the aggregate level. With that in mind, we present the use a bottom-up model, which contains technology-specific characteristics, like thermal efficiencies, to calibrate a constant elasticity of substitution (CES) production function. The bottom-up model used for our example is already calibrated for the Saudi cement sector and has been peer-reviewed. We derive the appropriate CES production function conditions that would be in line with the physical constraints of the bottom-up formulation. Submission Date: 16-04-2019 08:09 The role of unofficial farmer’s cooperatives on rule public goods provision Sheng Li Public goods provisions are of extreme disparity between the urban and rural areas in China. Preferential policies lead public goods shrinking in a rural area. Some farmer cooperatives and collective behaviors at village level can effectively overcome the "free rider” problem and enhance the rural public goods provision. This study investigated the rural provision using survey data from in six provinces in China. These results suggest that villages with farmer cooperatives are likely to provide more public goods related to agricultural production, about 20%-30% on average more than villages without these cooperatives. While those positive impacts on public goods related to daily life and environmental improvement are relatively weak. Heterogeneities are found both on types of public goods and regions Submission Date: 20-03-2019 19:00 On Rusting' Money. Silvio Gesell's "Schwundgeld" Reconsidered Gunther Rehme Silvio Gesell hypothesized that money depreciation is economically and socially beneficial, ideas that have often been contended. Here I analyze that in a Sidrauski model in which households additionally have a love of wealth'-motive. It is shown Gesell's claims may be valid in a demand-determined, short-run equilibrium and why money depreciation overcomes the zero lower bound on nominal interest rates. These results are checked against the recent demonetization episode in India. However, for a typical long-run equilibrium introducing money depreciation in isolation may be bad. But money depreciation, when coupled with expansionary monetary policy, is a necessary condition for a positive {\em Mundell-Tobin} effect on long-run real variables and so creates wealth in the model. It is found that this also holds in the transition to the long-run equilibrium. Hence, the spirit of Gesell's hypotheses can be verified for a plausible, long-run environment. Submission Date: 06-05-2019 18:25 U.K. Monetary Policy under Inflation Targeting Anh Dinh-Minh Nguyen This paper considers a variety of reaction functions in the context of real time data to analyse U.K. monetary policy under inflation targeting adopted in 1992. In order to deal with lack of current and future data in real time, we construct the forecasts of expected variables in the first step and use the constructed data for the estimations of contemporaneous- and forward-looking rules. Moreover, we employ the impulse-indicator saturation method to deal with the issue of outliers and therefore obtain robust estimates of policy parameters. Our results show that the robust characteristics of monetary policy during the inflation targeting regime are forward-looking and raising the interest rate by more than one-to-one to movements in inflation. Submission Date: 07-06-2017 06:23 Is foreign direct investment export-oriented? Evidence from sectoral data Faruk Balli Export-oriented foreign direct investment (FDI) is, ceteris paribus, generally considered better than non-export-oriented FDI. In this paper, we address the question, whether the ability of a country to export has positive and significant impact on FDI inflows when studied on a sectoral basis. To answer this, we collect data on FDI inflows and exports on sectoral basis and use a dynamic panel data model called the Generalized Method of Moments (GMM). We believe that our paper reveals the existence of export-oriented FDI in some sectors that are often missed by aggregate-level studies. Furthermore, our sector-based study on FDI and exports fills a gap in the literature where aggregate level studies have not being able to reach a consensus. Our study shows that FDI in technology-intensive sectors is export-oriented while FDI inflows to natural resource-intensive sectors mainly serve domestic demand. Our study draws some policy implications that advocate measures to maintain competitive tax rates and sound exchange rate management, and steps that channel FDI inflows into technology-intensive sectors. Submission Date: 27-06-2016 12:50 Towards Adopting Inflation Targeting: The Credibility and Limitations of Monetary Policy Under The Fixed Exchange System: The Case of Jordan Juan Carlos Cuestas Nora Abu Asab In this paper the interest rate pass through is examined within its intermediate lag of action to shed light on the credibility of monetary policy in Jordan, where the reputation of low inflation is imported through a fixed exchange rate system to the U.S dollar. The Johansen approach is performed to estimate the long-run degree of pass-through along with the speed of adjustment to disequilibrium. A parsimonious conditional dynamic model is employed to connect the short-run and long-run effect, and to estimate the mean lag of adjustment under (a)symmetric market response. The results are compared to that of two inflation targeting countries at time proceeding building the credibility of price stability domestically: New Zealand and the UK. The empirical findings suggest that the interest rate pass-through in Jordan is weak and slow and the symmetric mean lags in the loan and deposit market are highly sticky. In addition, a deviation from symmetry is found in the loan market, where the mean lag is sticker to decreasing, which indicates the existence of non-competitive pricing behaviour in the market. Comparing the results to the two inflation targeters, the study suggests that Jordan needs to move to a more resilient exchange rate arrangement. Submission Date: 25-01-2017 00:13 Natural Resources Effect on Economic Growth: The role of institutional quality Youmanli Ouoba Relwendé SAWADOGO The objective of this study is to analyze the effect of natural resource rents on economic growth in 19 African countries with institutional quality as a conditioning variable. Using Panel Smooth Transition Regression Model (PSTR) under the period 1985-2014, the results confirm the curse in African countries but this no longer exists beyond a certain threshold of government stability (index> 5.59) and corruption (index> 1.3). The robustness of these results is confirmed using Panel Transition Regression Model (PTR). The findings suggest that African countries lack good and strong institutions to manage efficiently their resources. Therefore, these countries may reduce their dependence through economic diversification and improvement of the quality of their institutions. Submission Date: 05-05-2018 07:56 The impact of avian influenza outbreaks on the Philippine chicken meat market Lary Nel Abao Lorraine Torreverde A highly-pathogenic avian influenza H5N6 virus hit the Philippines of the first time in 2017. Affected provinces were Pampanga and Nueva Ecija which are located in the island of Luzon. The vector autoregression model was employed to estimate the effect of the first ever HPAI avian influenza outbreaks in the Philippines on chicken meat price transmission among the farm, wholesale, and retail levels. Our findings suggest that commercial and backyard farmers were more affected compared to wholesale traders and retailers. Thus, the Philippine Department of Agriculture should seriously compensate commercial and backyard farmers in cases of animal disease crises. Submission Date: 11-12-2018 03:08 A New Index for Identifying Technology Development and a Model for Examination of the Convergence of Actual Amount of Capital to its Optimal Level in OECD Countries Sharon Garyn-Tal Nissim Ben David We developed Solow's model for open to trade economies and extracted the golden rule for optimal amount of capital. In the empirical part we calculated the optimal amount of capital for OECD countries. We find that in seventeen OECD countries actual amount of capital converge to its theoretical optimal level while in other eleven OECD countries actual amount of capital is smaller or higher than optimal. We suggested a technique for extracting a technology index and calculated the index for 26 OECD countries. According to our findings, the largest advance in technology occurred in Estonia, Slovenia, Poland, and Ireland. Submission Date: 06-05-2019 19:05 The Impact of terrorism on Turkey's economic performance (1990-2016) Mario Arturo Ruiz Estrada Donghyun Park Alam Khan This research work applies the terrorist attack vulnerability evaluation model (TAVE-Model) to evaluate the effect of terrorism on the economic performance of Turkey. We examine both the short run and long run economic impact of terrorist attacks in Turkey. The TAVE-Model applies a number of indicators to evaluate the economic impact. The indicators are economic desgrowth (-δ), intensity of terrorist activities (αi), terrorist attack losses (-π), economic wear (Π), level of terrorist attack tension (ζ), level of terrorist attacks monitoring (η), and total economic leaking (Ωt) under a terrorist attack. The idea of TAVE- Model is that the economic impact of a terrorist attack depends on a country’s vulnerability to attacks from domestic and international terrorist groups. The application of model to Turkey is highly topical in light of the spate of terrorist attacks the country suffered recently. The results of TAVE- Model confirms that economic leaking, economic desgrowth, and economic wear has increased from 1990s to 2016. The issue of terrorism in Turkey is a multidimensional, which requires an effective social assistance programs as well as a stronger and impartial justice system that will render poorer Turks and will increase the opportunity cost of terrorism. Submission Date: 16-10-2016 22:23 Stability and Asymmetry in Okun’s Law in Spain: Evidence from Regional Data. Antonio Cutanda In this paper the Okun’s Law for the Spanish economy is estimated with a regional database. We obtain an Okun’s coefficient relatively high at country level in international standards, and we confirm an important degree of regional heterogeneity in this respect. On the other hand, we find an outstanding stability in the estimated coefficient when panel data techniques are used. Finally, we obtain mixed results about cyclical asymmetry in the Law, confirming it with panel data techniques, but rejecting it for some particular regions. Submission Date: 28-06-2018 03:02 Human capital and CO2 emissions: A panel investigation of China Samuel Adams Ethan Yao Ruhul Salim The study examined how human capital can mitigate CO2 emissions: in China using provincial panel over the 1990–2012 period, and the results show a significantly negative association between human capital and carbon emissions. This result controls for cross sectional dependence and structural breaks and is robust to alternative measures of human capital. Our finding suggests that human capital could complement the existing abatement toolkits to curtail carbon emissions. Moreover, since informal human capital is shown to be as effective in reducing CO2 emissions as their formal counterparts like average schooling years, activities such as training and learning-by-doing on energy saving and environmental conservation should be actively promoted. Submission Date: 20-10-2018 14:04 Forecasting government expenditures in South Africa with a dynamic artificial neural networks: Does population aging play a role? Beatrice Desiree Simo-Kengne Manoochehr Ghiassi Beatrice D. Simo-Kengne The government of South Africa spends a significant portion of its GDP in support of its public policy including heath care (8.79% in 2014) and social grants (3% in 2013/2014 of which 41% accounts for old age grants). Public policy strategies over a 5-year period from 2010/2011 to 2014/2015 has increased by 39%, moving from ZAR 33764billion ($2597 billion) to ZAR 50336billion ($3872 billion). The growth of the old age grants is expected to continue. Accurate forecasting of such expenditures enables policy makers and government planners for better assessment, planning, and the ultimate allocation of funds in support of their decisions. We address this specific objective by developing a set of time series forecasting models which consider governmental expenditure over time and accounts for the aging population in this process. We offer two models: the first one based on ARIMAX and we introduce a second model that uses a Dynamic Architecture for Artificial Neural Network (DAN2). We assess the performance of these models by using RSME, MAPE and MAD statistics. The DAN2 model, using actual data, for quarterly public expenditure ratio of GDP from 1960-Q1 to 2016-Q4 along with the corresponding demographic values, resulted in 97% forecasting accuracy. Furthermore, the relatively high forecast precisions obtained across the two models, suggest that demographic changes is an important predictor of government expenditure in South Africa; implying that demographic monitoring is indispensable for efficient fiscal planning and management. Submission Date: 14-02-2019 19:12 From ESM to a European Monetary Fund? Nikolaos Stoupos Apostolos Kiohos The EU integration has decelerated after the sovereign debt crisis in the Euro Area. The confront of this crisis raised the necessity of a European institution which will be responsible to refinance directly the EU member-states. This paper attempts to provide evidence regarding the establishment of a European Monetary Fund (EMF). The results highly support that a EMF will be in favor of the EU cohesion, stability and integration. Submission Date: 20-10-2017 09:44 Financial education and student financial literacy: A cross-country analysis using PISA 2012 data Jose M. Cordero-Ferrera MARÍA GIL-IZQUIERDO FRANCISCO PEDRAJA-CHAPARRO The aim of this research is to explore whether the availability of training on basic financial concepts at schools contributes to improve the abilities of students to apply the knowledge and skills that they learn to real-life situations involving financial issues and decision making. To do this, we exploit the rich set of comparative data about the countries participating in the PISA 2012 financial literacy assessment. Our empirical analysis is based on multilevel (hierarchical) regression modeling including country fixed-effects. Our results suggest that the availability of specific financial training is positively and significantly related with students´ financial literacy, regardless of the strategy applied to teach financial concepts, although its influence appears to be relatively small when we account for the potential presence of significant differences among countries. In addition, we find that students receiving courses taught by specialists from private institutions and non-governmental organizations obtain better results than students who receive financial education training from their teachers. Submission Date: 02-06-2018 03:27 Risk Taking and Fiscal Smoothing with Sovereign Wealth Funds in Advanced Economies Knut Anton Mork Snorre Lindset We analyse the interaction between fiscal policy and portfolio management for the government of an advanced economy with a sovereign-wealth fund (SWF). We consider risk taking simultaneously with the use of SWF draws in fiscal policy. Assuming non-expected utility preferences allows us to distinguish between policy makers’ tolerance of intended versus stochastic variations in SWF draws. The desire for smoothness in taxes and public services translates into forward as well as backward smoothing of SWF draws. Backward smoothing translates into risk aversion and may even call for pro-cyclical rebalancing. Future interest rates are associated with interest-rate risk. We show that this risk may lead to higher optimal risk taking. We further show that policy makers can use the draw rates from the SWF to smooth over time variation in risk-free rates. Submission Date: 13-12-2017 03:59 External debt and economic growth in Tunisia. Does the external debt composition matter? Samir Abdelhafidh This paper investigates the long-term impact of external debt components on economic growth in Tunisia during the period 1970-2014. The econometric methodology is based on the ARDL approach and the results show that total external debt negatively affected economic growth. They also highlight the relevance of a distinction between external debt components. Indeed, a negative and significant impact was found only for the non-concessional external debt of and guaranteed by the public sector and mobilized through multilateral cooperation. These results have some policy implications both on the use of external debt as well as on its reduction perspectives in Tunisia. Submission Date: 06-07-2017 05:44 Credit Terms and Conditions and the Business Cycle: Evidence from the Euro-area Dimitris Anastasiou Konstantinos Drakos We explore the trajectory of bank loan Terms and Conditions over the business cycle, where the latter is decomposed into its long-run (trend) and short-run (cyclical) components. We find that deterioration of each business cycle component leads to a significant tightening of credit terms and conditions. We found mixed results concerning the symmetry of impacts of the short and long run components. Symmetry was found between the terms and conditions on loans for small vs. large enterprises. Submission Date: 07-03-2017 13:26 Is value added tax progressive?Evidence from Egypt using a CGE model Abeer Elshennawy Abstract: Using a static general equilibrium model, this paper seeks to examine the impact of a value added tax on income distribution for Egypt and assess the effectiveness of this tax in raising revenue for the government compared to other types of taxes like production and income taxes. The paper also investigates the extent to which trade liberalization can reduce the burden of the tax on poor households. Unlike the experience of many countries, the value added tax was found to be marginally progressive. Trade liberalization was found to significantly reduce the burden of the tax on poor households. Submission Date: 24-01-2016 09:03 Intellectual Property Rights and Global Imitation Chains: The North-South-East Model Caner Demir Aykut Lenger This study investigates the effects of intellectual property protection on economies by proposing a three-pole global economy model. The main proposition of the study is that the classical two-pole approach (North-South) does not reflect the technological heterogeneity and conflicts within the developing world. Therefore, a three-pole world economy model which consists of the following regions has been designed; an innovator, an imitator and an innovator-imitator. The simulation results reveal firstly, northern region benefits from tighter IPR in any case; secondly, stronger protection of IPR certainly exerts negative effects in the South while it brings benefits eastern region in some aspects. Submission Date: 03-03-2017 11:09 Impacts of Promising Crop Technologies on Economic Growth and Food Security: A CGE Analysis for India Amarendra Sahoo Joydeep Ghosh Bekele Shiferaw Sika Gbegbelegbe A recursive dynamic computable general equilibrium (CGE) is used to evaluate the economy-wide impacts of new crop technologies in India by incorporating productivity differentials of promising cultivars for irrigated and rainfed maize and wheat. Our analysis shows that there is considerable scope for increasing the production of both crops and enhancing future economic growth as well as food security through the introduction of new promising crop varieties. The projected gains are relatively higher for the rainfed output. Lower prices of maize and wheat stimulate higher consumption of staples and also other food commodities. Rural households benefit more than their urban counterparts in food consumption. The positive impacts of maize technologies on food security and national income are higher than the impacts of wheat. Policy insights drawn from the analysis suggest that in view of the resource constraints in Indian agriculture, maize which is predominantly rainfed and widely adapted could be a viable alternative for the future; however, a joint change in maize and wheat productivity would further enhance the food security in the economy. Submission Date: 05-06-2017 09:59 Determinants of stock returns in Pakistan: Evidence from linear and non-linear models Khalid Ahmed Using the quarterly data for an extended period of 1991Q1 to 2015Q4 of Pakistan Stock Exchange (PSX), we have applied linear and non-linear (threshold) estimation techniques followed by Error-correction Model (ECM) and Vector Auto-Regression (VAR) estimation techniques, to empirically investigate that what determines the stock returns in Pakistan. The findings suggest that GDP is insignificant determinant of stock returns in Pakistan. Furthermore, results show that depreciation in local currency impacts the stock returns negatively and it could be an outcome of fix exchange rate policy that Pakistan is adopting since long. The results of ECM model suggest that deviation in stock returns is corrected by itself irrespective whether, the stock is in high or low volatile regime. VAR results indicate that the stock returns tend to create a temporary bubble only for one year towards economic growth. From the policy perspective, the study concludes that the use of appropriate monetary policy tools to reduce makers volatility may lead the market to gain peoples’ confidence for long term investment. Submission Date: 14-02-2018 04:21 Causality among PPI-CPI-Exchange Rates in Romania: A Frequency Domain Approach Mihai Mutascu Aviral Kumar Tiwari Faridul Islam This paper applies the frequency domain approach to monthly Romanian data to examine the direction of causality among Consumer Price Index (CPI), Producer Price Index (PPI) and exchange rate. Theoretically, exchange rate can be an important determinant of domestic inflation in a globalized world. And yet, the topic has not received much academic scrutiny. The methodology used here is more general and can capture nonlinear effect and cyclical nature in the cause and effect relationship. We find that the recent information on CPI contains useful information in improving forecasts performance of PPI in short-, medium-and long-run cycles. This reconfirms that PPI is not a useful predictor of CPI movements. However, we observe a very close peak in the business cycles in CPI and PPI. Medium run business cycles emanate from nominal effective exchange rate (NEER); and short-medium and long-run cycle from CPI. Evidence shows bi-directional long-run causality between CPI and NEER; and uni-directional short- and medium run causality from CPI and PPI to NEER. The peak of business cycles is observed in both cases at the same frequencies. Submission Date: 03-02-2014 02:11 Fighting terrorism in Africa when existing terrorism levels matter Simplice A. Asongu Vanessa Tchamyou Nina Tchamyou This study examines policy tools in the fight against terrorism when existing levels of terrorism matter in 53 African countries for the period 1998-2012. The empirical evidence is based on contemporary, non-contemporary and Instrumental Variable Quantile regressions (QR) which enable the investigation throughout the conditional distribution of domestic, transnational and total terrorism dyanmics. The following findings are established. First, counterterrorism policy instruments of inclusive human development and military expenditure further fuel terrorim. Second, political stability negatively affects terrorism with a negative threshold effect. Political stability estimates are consistently significant with increasing negative magnitudes throughout the conditional distributions of domestic and total terrorism. In other words the negative responsiveness of terrorism to political stability is a decreasing function of terrorism. Unexpected signs are elucidated and policy implications discussed. Submission Date: 13-02-2017 15:11 The Great Irish (De)Leveraging 2005-14 Tara McIndoe-Calder Reamonn Lydon Drawing on the 2013 Household Finance and Consumption Survey (HFCS) and complementary administrative data sources, we simulate household balance sheets at the micro level for the 2005-14 period. We use this dataset to tell the story of household leveraging and deleveraging over a tumultuous period for the Irish economy. We show that deleveraging has proceeded at a significantly faster pace for older households, when compared with younger age groups. In contrast, we find that a higher-incidence of tracker mortgages amongst younger borrowers Submission Date: 26-01-2018 09:46 Competitiveness and inequality in CEFTA and selected EU countries Danijela Despotovic The paper studies the interdependence of the phenomena of country\\\'s competitiveness and inequality in income distribution in respect of the countries of the European continent, divided in two groups: a) the present (Albania, Montenegro, Bosnia and Herzegovina, Macedonia, Moldova, and Serbia) and former members (Bulgaria, Croatia Hungary, Poland, Slovakia, Slovenia, Romania, and the Czech Republic) of the Central European Free Trade Agreement - CEFTA, and b) EU15 countries. The study relates to the period from 2006 to 2013. The first group of countries represents less competitive countries, while the second includes highly competitive European economies. The achieved level of competitiveness is expressed by the values of the Global Competitiveness Index of the World Economic Forum, decomposed into Basic & Efficiency factors based competitiveness and Innovation & Sophistication factors based competitiveness. Inequality in income distribution is expressed by the Gini coefficient. Based on the created model of dependence of the Gini coefficient on the aforementioned components of competitiveness, using simple and multiple linear regression analysis, it has been concluded that the achieved level of competitiveness of some countries has a statistically significant influence on the value of the Gini coefficient. The results of multiple linear regression analysis show that, in the group of CEFTA countries, the influence coefficient of Basic & Efficiency factors based competitiveness is around -3.8, while for the EU15 group, it is about 2.4. Furthermore, research has confirmed a statistically significant influence of Innovation & Sophistication Factors based competitiveness on the decrease in the value of the Gini coefficient in both observed groups of countries; in CEFTA group, influence coefficient is about -8.4, and, in the EU15, the influence is somewhat weaker, and amounts to -5.8. This means that the former and present countries of CEFTA could use appropriate innovation policies to significantly improve their competitiveness, which would, among other things, certainly contribute to a reduction of inequality in the distribution of income in them. Submission Date: 02-03-2016 05:46 The effect of monetary policy inertia on the optimal monetary policy: a note Osama Sweidan This paper theoretically investigates the influence of monetary policy inertia on the optimal policy under both certainty equivalence and uncertainty. Moreover, it highlights the consequences of this effect. We utilize Williams’ (2013) simple static macroeconomic model, and modify it to match the goal of the present paper. We conclude that the effect of monetary policy inertia under certainty equivalence or uncertainty are identical. Its effect on the economy depends on the degree of the inertia. If the economy is close to the full inertia, then the economy has fewer fluctuations. Moreover, monetary policy inertia will be optimal if the inertia is full. Submission Date: 15-04-2015 13:49 A Phase Transactions of the USD/JPY Exchange Rate Masaaki Yoshimori In this paper, the USD/JPY exchange rate is modeled by a non-linear differential equation model, which consists of a trend noise only. The most significant finding is that, based on this model, conflicts of currency policies between the US and Japan occurs whenever big errors between the model and a real exchange rate emerges. The latest error is caused by the BoJ’s ultra-losing monetary policy, which leads to strong depreciation of the USD/JPY. Additionally, I discuss why the real exchange rate is staying difficult on the around equilibrium exchange rate, caused by even a simple noise. Submission Date: 20-11-2017 14:49 BILATERAL FINANCIAL OPENNESS AND BUSINESS CYCLE CONVERGENCE: EVIDENCE FROM THE ASIA-PACIFIC Tony Cavoli An important and emerging issue in the economics of international financial integration relates to the varying impacts of bilateral financial openness on income growth differences. This paper examines this issue for a selection of Asia-Pacific Economies. We find that an increase in bilateral FDI shares results in income growth convergence, but that the effect is small in magnitude. We also emphatically find that a wealth versus balance sheet effect prevails where greater integration in equity (debt) results in greater divergence (convergence, albeit weak) in income growth and that a u-shaped relationship exists with FDI and equity. Results such as these have powerful implications in the design of financial policy, particularly in emerging and open economies. Submission Date: 24-01-2017 06:18 The double dividend of a new environmental tax reform with promotion of resource substitution Oscar Afonso Susana Silva Isabel Soares We examine the existence or not of a double dividend for a new type of environmental tax reform (ETR) were tax revenues are used to finance a renewables subsidy to extraction/production. In our model, production uses non-polluting renewable and polluting non-renewable resources. Initially, resource extraction costs are constant and in a model extension, renewables producers can invest in knowledge to reduce costs and knowledge becomes complementary to the subsidy. We show that the choice of indicators for the first and second dividends is critical to the conclusions. Focusing on emissions per output as the indicator for the first dividend and utility as the indicator for the second dividend, we show that environmental policy is desirable when compared to the “laisser-faire” situation. Additionally, for the same tax levels, it is preferable to implement the ETR when compared to the tax used alone. Once the government chooses to implement the ETR, the higher the policy levels, the higher the dividends. These effects are achieved through a transition to a more renewables intensive production. Submission Date: 06-05-2016 02:51 The Invisible and Asymmetric Tax Policy in Gasoline Prices: The Case of Turkey Ozgur Bor Mustafa Ismihan This study analyzes the role of tax policy in gasoline prices in Turkey by utilizing time series techniques. It provides and compares empirical results by using daily gasoline prices between January 2005 and December 2013, with and without the effect of taxation. Our results, based on the threshold cointegration analysis, indicate asymmetric adjustment between retail and crude oil prices over the long-run. These results are in line with the “rockets and feathers” phenomenon; that is, retail prices tend to rise faster than they fall in response to crude oil price changes. Additionally, our results, with retail prices including taxes, indicate a negative threshold value, which implies that the Turkish governments follow asymmetric taxation of gasoline prices through adjusting excise taxes. Nevertheless, one can miss the big picture in gasoline pricing by concentrating only on the adjustment dynamics. Therefore, we also analyzed and compared the long-run relationships between crude oil and gasoline prices with and without taxes. The results indicate that Turkish governments succeeded at implicitly imposing an exceptionally high tax burden on gasoline (about 62%) over the longer term by adjusting non-salient excise tax amounts on gasoline and benefited from the resultant tax revenues as means of public finance. Submission Date: 08-08-2016 08:20 The Reaction of Emergent Market Asset Prices on ECB Interest Rate Policy: Ukraine Example Olha Klishchuk The Euro area has been challenged by numerous range of threats such as deflation pressure, zero output growth rate and lack of liquidity for banking institutions. These problems have more deepen through the modest strengthening in the US economy, the slump in China and the oil price decline. The answer of ECB consists of unconventional Quantitative Easing program and key rate cut. Although such measures provide unpredictable outcomes on asset markets in countries with emerging economies such as Ukraine and provide new causes for volatility risks at financial markets. Capital spillover effect between emergent and wealth markets provokes capital shifts in direction of first ones. Such fact as a positive balance of the financial account in emerging open economy can not only contribute to economic growth, but also make additional pressure on national currency worth. This sequence will be considered in the article in the example of Ukraine and further suggestions will be given on direction of providing sustainable monetary policy model by European and Ukrainian regulators. Submission Date: 06-05-2017 05:10 The effect of maturity on academic achievement Oscar Marcenaro Gutierrez LUIS ALEJANDRO LOPEZ AGUDO The present work proposes to measure students’ maturity by three different proxies: the ages when children began to read and write, the bimester of birth and grade repetition. The unsuitability of the bimester of birth and the two ages as instruments for repetition was found, what supports that they measure different dimensions of students’ maturity. Results show that being born in an early bimester of the year and also an early beginning in reading and writing increase students’ academic achievement. This highlights the need to implement programs aimed at involving parents and schools into the development of these skills. Submission Date: 22-02-2016 12:30 The burden of public debt in neoclassical growth models: Do we have to worry about it? Ákos Dombi István Dedák This paper investigates the crowding-out effect of public debt and the related loss in the long-run output in the framework of neoclassical growth models. To accomplish this task, we incorporate the government sector into three basic neoclassical models, which differ only in their assumptions about the consumption behavior of households. First, we consider the crowding-out effect of public debt in the Ramsey-Cass-Koopmans (RCK) model with dynamic optimization and the altruistic intergenerational links of households. Then, we drop the assumption of intergenerational links in the Blanchard (1985) model and later the assumption of dynamic optimization as well in the Solow model. Our results show that, contrary to the RCK model, public debt reduces long-run output in the Blanchard model and the Solow model, although to a different extent: the crowding-out effect is marginal in the former, whereas it can be very large in the latter depending on the households’ saving rate and the population growth rate. However, we demonstrate that under the conditions of developed countries, even the upper limit of the output loss triggered by public debt is moderate at best. This conclusion holds even if the output loss resulting from distortionary taxes is taken into account. Our main policy contribution is that according to the neoclassical growth models, the long-run burden of public debt around the current 90 percent average debt-to-GDP ratio seems to be of minor importance in the Eurozone. Submission Date: 09-03-2016 12:32 NOMINAL EXCHANGE RATES IN KENYA. ARE SHOCKS TRANSITORY OR PERMANENT? AN EMPIRICAL INVESTIGATION BASED ON FRACTIONAL INTEGRATION Luis Gil-Alana Robert Mudida This article deals with the analysis of exchange rates in Kenya, examining if shocks are transitory or permanent. The results indicate that they are nonstationary and non-mean-reverting. This result proves to be critical in the case of the Kenya shilling US dollar rate which is found to be non-mean-reverting and so provides important insights into the 2011 exchange rate crisis in Kenya. Evidence of mean reversion is also obtained for Canada and India, and to a lesser extent for Sweden and Uganda. Thus, shocks affecting the rates against these currencies are expected to be transitory, disappearing in the long run. Submission Date: 10-02-2015 17:53 Reexamining financial integration and macroeconomic volatility nexus: evidence from DSGE modeling Jamel Boukhatem Jamel Boukhatem Tarek GHAZOUANI Ramzi DRISSI The main goal of the paper is to study how the degree of financial integration affects macroeconomic volatility. Using a two-country DSGE model, we show that: (i) higher degree of financial integration tends to decrease short-run volatility, (ii) following monetary policy shocks, financial integration increases nominal exchange rate and output volatilities, and reduces both nominal and real interest rates and consumption volatilities; and (iii) in response to fiscal shocks, financial integration stabilizes all variables under the assumption of perfect capital mobility. Submission Date: 21-01-2016 14:15 The Credibility of Preferential Trade Agreements: A Quantitative Assessment Abeer Elshennawy Preferential trade liberalization is often perceived as credible compared to unilateral trade liberalization. In contrast to the net effect of trade creation and trade diversion on welfare, The welfare effect of credibility has not be assessed quantitatively. This paper attempts to assess quantitatively the impact of credibility of preferential trade agreements on welfare. The paper also shows that the adjustment costs to an incredible trade reform are higher than that of credible one which serves to increases that attractiveness of preferential trade reform since they are percieved as credible Submission Date: 07-04-2014 12:17 Transboundary Pollution, Land Use and Abatement Policy Saibal Kar Devleena Majumdar Transboundary pollution affects various natural resources in downstream countries, but the impact on land use and productivity has not been studied sufficiently. In addition the impact on factor prices, namely, labor income and rental rate on land, are largely neglected. This paper fills these gaps by developing a model of transboundary pollution and trade in intermediate goods. An intermediate exportable commodity using land as a crucial input is necessary for the production of the final good. We show that pollution abatement policies such as cost subsidy retained by the downstream country or transferred to the source for gaining trade-related advantages may conditionally raise wages in both. The overall welfare impact in the downstream country is however, ambiguous. We also study the possible impact of pollution quota enforced in the upstream country on wage and welfare in the downstream country. Submission Date: 15-02-2016 04:09 The Internet, English Proficiency and Economic Growth Tamat Sarmidi Tamat Sarmidi Sulhi Ridzuan Abu Hassan Shaari Md Nor The emergence of the Internet has revolutionised economic activity in terms of time and cost efficiency. The Internet has also assisted in the dissemination of knowledge essential for the factors of productivity and economic growth. However, in this article, we conjecture that the efficient use of the Internet is conditional on the proficiency of the main language of the Internet, which, for the time being, is English. Consequently, this paper investigates the relationship between the Internet and economic growth under different levels of English proficiency. By employing dynamic panel regressions to the Internet-growth model, our empirical findings illustrate that the effectiveness of the Internet in accelerating economic growth is contingent upon the level of English proficiency. Without a good command of English, the advantages of having Internet access to speed-up economic growth may be questionable. Interestingly, the finding, to some extent, may also indicate an evidence to supports the language convergence hypothesis. Submission Date: 12-05-2015 19:44 Trade Liberalization and the Costs and Benefits of Informality; An Intertemporal General Equilibrium Model for Egypt Abeer Elshennawy Utilizing an Intertemporal General Equilibrium model for Egypt, this paper seeks to analyse the interaction between informality of labour and trade liberalization. Although it is documented in the literature that trade liberalization can be associated with short run transitional unemployment, we find that in the presence of informal labour markets this seizes to occur. Informality thus reduces the adjustment costs to trade liberalization. Policy makers are thus encouraged to exploit the benefits of informality. Issues related to the sequencing of formalization and trade liberalization were also explored. In this regard, we find that it is not advisable that formalization precedes trade liberalization as the gains foregone by delaying trade policy reform are likely to dominate the outcome. Submission Date: 12-01-2017 08:30 Unveiling long run carbon-income relationships through intervention analysis: the role of structural breaks Massimiliano Mazzanti Antonio Musolesi The paper assesses the effect of the 1992 United Nations Rio Convention on environment and development and other unknown structural time breaks on the long-run carbon dioxide-economic development relationship for different groups of advanced countries. Using an interrupted time series approach, three patterns of the dynamics of carbon dioxide are obtained: one is market-led, one is market- and policy-led, and one is more development oriented. Submission Date: 14-03-2016 04:26 What Italian economic growth mean in a global new knowledge era rita lima This paper studied the concept of knowledge within theories concerning regional economic growth and economic development. According to the suggested growth model at subnational and national level, I estimated that while traditional education is important in Italy, large innovation capacities are more important for lagging area of the country, i.e. Sicily. Thus, a greater part of Italy\\\\\\\'s technology deployment would be strongly influenced by regional governments, regional industry, and regional policy in developing innovations and learning capabilities. In policy terms, it may be increasingly forged networks for sharing knowledge and accessing complementary expertise with other truly located –independent global centres of activity. Submission Date: 17-06-2016 01:54 Is Fiscal Policy Supportive for Non-oil Sector Development: The Case of Azerbaijan Fakhri Hasanov This paper examines the impact of the fiscal policy on the non-oil sector development in Azerbaijan, an oil-exporting country. We applied three alternative cointegration approaches with small sample bias correction and a recently developed method, namely automatic model selection. We find that the fiscal policy has a significant positive impact on the non-oil GDP. Policy implication of our findings is that the fiscal policymakers should increase or keep the existing pace of spending in order to achieve more development in the non-oil sector. However, we also conclude that further detailed research is needed to suggest sector specific policy recommendations. Submission Date: 30-10-2014 04:09 Exchange rate movements, stock prices and volatility in the Caribbean and Latin America Emma Iglesias Andre Haughton We analyse the interrelationship between stock prices and exchange rates in the only two Caribbean countries with stock market and floating exchange rates: Jamaica and Trinidad and Tobago in the period 2002-2012. We also study the same four Latin American countries as in Diamandis and Drakos (2011): Argentina, Brazil, Chile and Mexico. Following Lin (2012), who examined the same issue in six Asian emerging markets and also employed the Autoregressive Distributed Lag (ARDL) model bounds test approach proposed by Pesaran et al (2001), we also include interest rates and net international reserves variables in our analysis to avoid any omitted variable bias. We extend Diamandis and Drakos (2011) and Lin (2012) by expanding the ADRL model including a GARCH component to examine the impact of volatility. First, we use the structural break unit root tests of Zivot and Andrews (1992) and Clemente, Montanes and Reyes (1998) to show a significant structural break in the exchange rate, stock prices and our other control variables around the time of the 2008 crisis in all analysed countries, leading us to check our results in three periods: the full sample and in two subsamples before and after 2008. Our results from the bounds test showed a very mild relationship between both variables in Jamaica, Argentina and Brazil, but we cannot find any relationship in the other countries as in Diamantis and Drakos (2011). However, when we include the GARCH component in the ADRL framework our results changed drastically: stock prices significantly impacted the exchange rate in the tranquil sub-period and the full period for Jamaica, over all three periods for Trinidad and Tobago and in the tranquil period for Argentina, Mexico and Chile. This shows the importance of incorporating volatility explicitly in the model. Our results have the policy implications that governments in the previous countries should try to prevent a currency crisis by stimulating economic growth and the expansion of the stock market to attract capital inflow as in Lin (2012). Submission Date: 19-04-2013 10:13 Does electricity production cause economic growth? An analysis of the Spanish case during the period 1958-2011 Jaime Sanaú Energy plays an important role in economic growth. Hence, many studies have attempted to test for causality between energy and economic growth. However, no consensus has emerged. This paper tests for causality between Spanish electricity production and GDP growth using a consistent data set and methodology for 1958-2011 period. Empirical evidence allows us to conclude that electricity production boosted economic growth in Spain after the late 1950s. Submission Date: 24-03-2015 03:58 GDP, Electric Generation, Exports and Prices relationship in six Latin American Economies: An ARDL and TYDL approach. Werner Kristjanpoller In this study, the relationship between economic growth and electric generation in 6 Latin American countries is analyzed by ARDL and TYDL. These two methods are applied because the classic cointegration tests are inefficient to reach conclusions regarding the errors of the causality when some series are integrated variables of zero order. Among the results, it is indicated that both in the long and short term, 4 countries show Granger causality from economic growth towards electric generation, while only one country shows Granger causality from electric generation towards economic growth. Submission Date: 16-04-2015 08:30 Tackling undeclared work Francesco Giuli Giuseppe Ciccarone Enrico Marchetti The paper evaluates the relative effect of deterrence, prevention, curative and commitment policy measures on the size of undeclared work in a real business cycle model with moonlighting production, tax evasion and search frictions in the labor market. A numerical application of the model to the European economy shows that all these approaches reduce the undeclared share of output, but that deterrence and commitment policies also produce a negative effect on stationary employment. The curative approach produces the sharper fall in undeclared work while stimulating stationary output and employment. Submission Date: 06-09-2012 09:03 Consequences of the Insurance Intermediary Commission\\\\\\\'s Smoothing Gábor Regős The paper investigates the consequences of a regulation prescribing that commission of insurance intermediaries should be paid smoothly, as a function of the arriving insurance premiums instead of paying a high acquisition commission at the beginning of the contract and only smaller commissions later. The regulation’s effects are investigated with a model and its simulation. As a result we obtain that after the intervention income of the decreasing number of intermediaries staying on the market will increase, number of intermediaries leaving the market decreases, and the ones staying on the market will have a better ability to gain consumers compared to the original case. Submission Date: 08-03-2013 06:22 Stochastic Regional Convergence in China: A Non-Linear Perspective (1952-2007) Javier Ordóñez This paper investigates the notion of stochastic convergence behaviour across the Chinese provinces. Unlike previous research, this paper highlights the relevance of the level of technology in each province and takes into account the economic geography by examining the regional clusters. However, the novel aspect of this research lies in the introduction of structural breaks and non-linearities in the model to take into account the significant transformation of the Chinese economy. The results indicate that the regional clusters are relevant to the convergence behaviour across China, when both the Administrative division and the regional clusters are considered. However, the number of provinces that are converging is higher in the latter case. When non-linearities were considered across the regional clusters, we found that 18 provinces have already converged with their cluster, 3 provinces are catching up, and 10 regions show divergence. These findings are of great interest for the design and development of national and regional economic policies in the Chinese economy. Submission Date: 30-06-2011 05:44 Government size and economic growth in Greece: A smooth transition approach Firouz Fallahi Jalal Montazeri Shoorkchali This paper tries to verify the existence of the Armey curve, which states that there is an inverted U-shaped relationship between the government size and the economic growth. To that end, we use annual data over 1961-2008 to examine the existence of Armey curve in Greece. Instead of relying on a binomial model, which is very popular in the literature, we use a smooth transition regression (STR). STR models are very flexible and binomial models are considered as a special case of the STR models. The results show that there is a nonlinear connection, i.e., a threshold effect, between the government spending and the growth rate in the Greek economy. However, since the relationship is positive in both regimes, i.e., before and after the threshold, we cannot confirm the existence of Armey curve in the Greek economy. Submission Date: 03-09-2012 07:02 Agriculture in Portugal: linkages with industry and services Marta Simões João Gaspar Gilson Pina We estimate a trivariate VAR model for the period 1970-2006 to investigate the existence of long-run relationships and causality among the three main sectors in Portugal in terms of value added and productivity. Agricultural value added is found to be both weakly and strongly exogenous so it exerted no influence in the other sectors expansion nor was it influenced by their growth. The results with labour productivity show that productivity gains in services and industry feedback into productivity growth in agriculture, although the link is weaker in the industry case. The definition of balanced policy strategies across sectors in Portugal should take these results into consideration. Submission Date: 03-11-2012 17:00 The relationship between energy consumption and economic activity in EU-27 countries: testing the neutrality hypothesis Vladimir Hajko The aim of the article is to test the \\\'neutrality hypothesis\\\' between the energy consumption and the economic activity in the EU-27 countries. The evidence speaks for the rejection of the \\\'neutrality hypothesis\\\' in favor of the \\\'growth hypothesis\\\'. The results differ between the original and the new EU member countries. The original member countries exhibit tendency to increase their economic growth with energy savings. However, in case of the new member countries there seems to be a negative impact of energy savings on the economic growth. For sectoral energy consumption, the main drivers of the causality in the relationship are the residential sector, industry and services. The residential energy consumption savings appear to increase the economic growth in both original and new member countries. The role of the energy consumption savings in the industrial and services\\\' sector differ. For the industrial sector, in the original member countries the energy consumption savings increase economic growth, while in the new member they may hinder the economic growth. In services, the energy consumption does not seem to have an impact in the original member countries, while in the new member countries the savings in energy consumption seem to degrade the economic growth. Submission Date: 28-06-2012 01:50 Public policies simulation on speed of economic convergence DELGADO RODRÍGUEZ MARÍA JESÚS María Jesús Delgado Rodríguez Sonia De Lucas Santos Inmaculada Alvarez Ayuso We present an empirical proposal, within a neoclassical growth framework, to use the speed of convergence as a criterion for the evaluation of public policies. The proposal makes it possible to compare, in terms of convergence speed, the results obtained in the economies with the policies implemented during a certain period to the results that could have been obtained under alternative policies. We illustrate our approach generating simulated public policies in infrastructure and in human capital endowments in the EU countries during the 1980-2010 period. Results provide support for the coordination of these policies between the EU member states. Submission Date: 04-02-2013 10:02 Cyclical components and dual long memory in the foreign exchange rate dynamics: the Tunisian case rania jammazi Aloui chaker The purpose of this paper is to question the traditional conventional view on the exchange rate targeting that real shocks have permanent effect on exchange rates (FX) however nominal shocks are not. Thus, an empirical approach is proposed in order to analyze the transitory component dynamics of some major Tunisian interbank FX rates for the period 1999-2005. Our results reveal that the use of the Guy and Amant’s (2005) method allows us to select the Hodrick Prescott with two powers as an optimal filter for extracting the daily interbank FX rates’ cyclical components. More importantly, the joint estimations of an ARFIMA model in the mean equation and various long-memory GARCH-type models in the variance equations reveal that cyclical components seem to be well described by dual long memory models. On the practical side, our findings provide important evidence that transitory trend fluctuations are not quickly trend–reverting but they are rather dominated by permanent deviations from the equilibrium values. Accordingly, contrary to policy makers’ ambitions for the Tunisian dinar, our study appears to confirm the view that monetary shocks may also (as for real shocks) be a difficult task of stabilization policy. This result may have several important implications for monetary policy in most developing countries. Keywords: exchange rates; time series decomposition; HML test; dual long memory Submission Date: 07-12-2012 11:52 TOTAL FACTOR PRODUCTIVITY AND CROSS-BORDER FDI FLOWS IN OECD COUNTRIES - A PANEL DATA ECONOMETRIC ANALYSIS Neil Karunaratne Neil Karunaratne The role of FDI inflows and outflows to host countries and from the source countries emerged in the 1980s as the major vehicle technology transfer that accelerated the globalization or international integration of 25 leading OECD economies over a period of 25 years (1983-2007). Although neoclassical and endogenous growth theories provide unequivocal support for FDI flows because they generate positive externalities or spillover effects through channels of GDP growth, capital formation and R&D, the empirical evidence in support of these claims are mixed. The panel data econometrics performed using a new multiplicatively complete index of total factor productivity provide fresh insights on the cross-border FDI generated through technology transfer and other channels. The empirical findings for the OECD countries are markedly different from the spillover effects on developing countries that are plagued by technology absorptive capacity effects due to the operation of threshold effects of underdeveloped human capital resources. The empirics on cross-border FDI flows and the spillover effects that they generate in OECD countries will provide much needed information to design and implement policies to harness the net benefits from cross-border FDI flows and shed light on the design of policies to reconcile the conflicting policies of austerity and growth that are required to prevent the sovereign debt racked euro-zone countries from imploding the single currency union based on the euro. Submission Date: 02-12-2012 00:13 Does Central Bank Independence Affect Public Debt? Stephanos Papadamou Moïse Sidiropoulos Eleftherios Spyromitros There is an ongoing debate on the role of central bank independence in a crisis period, where national economies are preoccupied with their escalating sovereign debt. Inspired from a simple theoretical macroeconomic model, proposed by Ozkan et al. (2010), which shows a positive link between public debt issues and central bank independence, we empirically investigate if central bank independence has an impact on the net stock of government securities and public debt. Our research has been focused on various levels of independence of the central bank of 22 countries from 1992 to 2000. By applying dynamic panel data analysis, we show that central bank independence has a significant impact on the effects of deficit, GDP growth and government bonds yield on government bond issues and public debt. The latter result implies that higher level of central bank independence makes countries more affected by market conditions. Submission Date: 04-07-2012 06:46 The Interaction between the Macroeconomy and House Price Returns Bruce Morley Qijia Wei This study aims to assess the relationship between house price return and the main macroeconomic variables using recent US data. A Vector Autoregression (VAR) approach is employed and the results suggest strong correlations can be found between the house price return and nominal interest rate. However the lagged effect of the interest rate cannot explain the movement in house price returns, although the shock to the nominal interest rate has a contemporaneous effect on the house price return and this confirms the theoretical predictions that monetary policy affects the housing market. This indicates that monetary policy is an efficient tool to manage the housing market in the US. Submission Date: 22-01-2013 07:21 Dynamic relationship between electricity consumption and economic growth in a small open economy: the case of Bahrain Helmi HAMDI Rashid SBIA The aim of this paper is to investigate the causal relationship between electricity consumption and GDP growth for the kingdom of Bahrain during the period 1980 Submission Date: 11-04-2012 06:07 MODELLING RENEWABLE ENERGY MANAGEMENT INEFFICIENCY IN EUROPE WITH PANEL DATA STOCHASTIC FRONTIER MODELS ANGELIKI MENEGAKI The paper employs three stochastic frontier inefficiency configurations to categorize European countries according to their inefficiency in renewable energy management. The results come from an empirical application of a panel with 32 European countries over a 14 year old period using a translog type production function. In particular the paper focuses on results from the Alvarez et al. (2006) fixed management model and compares results with the conventional stochastic frontier model and the random coefficients model with inputs such as renewable energy, fossil fuel energy, employment, capital and carbon emissions. The results suggest that renewable energy deployment does not significantly affect growth in Europe, wherein management inefficiency becomes eloquent with the aid of the management adapted frontier model. Submission Date: 30-08-2012 01:44 Nexus of Economic Growth, Energy Consumption and CO2 Emission in Sri Lanka: A Bound Test Approach Sujith Jayasooriya Economic growth, energy consumption, and CO2 emission are vital determinants in sustainable energy policies for energy resource planning. The paper explores a long run nexus of these instruments by ARDL approach establishing energy consumption challenges and economic growth, and pricing policies to change the energy mix in Sri Lanka. The ARDL approach revealed an existence of long run relationship among these variables, when energy consumption is an endogenous. The results indicate that CO2 emission and growth are positively related with energy consumption in long run, a contradictory causal linkage with the theories. However, the short run nexus also advocated long run evidences that the growth and emission causes energy consumption. The results leads to amend the policy on energy use pattern with the appropriate pricing while enhancing the energy source mix need for sustainable energy consumption plan for economic growth. Submission Date: 15-10-2011 09:38 Crop Returns, Prices, Credit and Poverty in Lao-PDR Samuel Annim Raghav Gaiha With Lao PDR’s macroeconomic performance currently booming, we investigate the country’s poverty situation by examining the drivers of household poverty. This paper tests four major hypotheses; (1) whether higher returns on all crops harvested per capita reduces consumption expenditure, food expenditure and World Bank’s US$1.25/day (PPP, 2005) poverty cut-offs? (2) whether higher returns on glutinous rice harvested per capita also reduces poverty? (3) whether higher crop prices lower poverty? and (4) whether easier access to credit contributes to poverty reduction? Data on 5,031 households from the fourth round of the Laos Expenditure and Consumption Survey (LECS IV) is used to estimate Probit and instrumental variable Probit equations. Potential endogeneity of some of these variables (e.g. returns to crops harvested) is addressed through appropriate instrument variables. Briefly, returns on crops harvested reduce different measures of poverty (e.g. food poverty, dollar poverty), as also higher producer prices and easier access to credit. An important policy conclusion in light of MDG 1 is the imperative of higher returns on rice and glutinous rice, more remunerative prices for farmers and easier access to credit. These areas of policy concern assume greater importance as Laos prepares for its accession to WTO. An accelerated market-orientation of agriculture may induce not just greater efficiency but also more equitable outcomes. Submission Date: 25-02-2012 11:38 Dynamic Interaction between House Prices and Stock Prices in Malaysia Hooi Hooi Lean Russell Smyth This paper examines the dynamic linkages between house price indices, interest rates and stock prices in Malaysia using cointegration and Granger causality testing. For Malaysia as a whole, we find that house prices, stock prices and interest rates are not cointegrated. For Kuala Lumpur, Penang and Selangor we find that house prices, stock prices and interest rates are cointegrated for 40 per cent of the house price indices. When there is evidence of cointegration in these regions, we find that stock prices lead house prices. While there are alternative potential reasons for this finding, such as slow adjustment of house prices in response to a shock in the fundamentals, it is consistent with a wealth effect. A likely explanation for this result is that in these states, compared with the Malaysian average, housing is expensive, income is high and real estate is used much more as an investment vehicle by both wealthy Malaysians and foreigners leveraging of the share market. Submission Date: 15-04-2012 19:00 Re-examining foreign direct investment and growth nexus in Nigeria Enisan Anthony Akinlo The paper investigates the FDI-growth nexus in Nigeria during the period 1970-2009 using a multivariate VAR model. The results of the estimation show that real gross domestic product, oil FDI and non oil FDI are cointegrated and that there is only unidirectional causality running from real GDP to non oil FDI in the short run. Non oil FDI has larger significant positive impact on economic growth than oil FDI. Thus, government should develop a set of policies that are not only focused on inwards FDI promotion in the non oil sector but also on implementation of policies to integrate the oil sector into the national economy to enhance oil FDI spillover. Submission Date: 16-01-2012 06:28 Modeling Viable Business Process for ICT Policy Management Reza Alinaghian This paper demonstrates the abstract of Information and Communication Technology (ICT) policy significances in order to reflect the importance of the study. In addition, brief of issues, challenges and shortcomings that ICT policy analysis is currently facing are highlighted. In other words, the background of ICT policy problem is illustrated. The paper then discusses strengths and weaknesses of Business Process Modeling (BPM), the suitable technique for ICT policy analysis proposed by scholars. Subsequently, a business process model for ICT policy management is proposed. The weaknesses of BPM are significantly tackled with the application of Viable System Model (VSM). In fact, there are various considerations taken into account while formulating the proposed solution. Considerations such as: a- current ICT policy management issues and challenges of the case study organization and b- viable requirements, including the systemic structure of VSM. However, the case study organization is the second biggest Malaysian Public Institution of Higher Education. It currently has 14 faculties, 14 residential colleges and 6 schools. There are more than 20,000 students enrolled in the university. The university has about 2000 lecturers. This paper reflects part of a PhD project. Submission Date: 13-04-2012 04:18 Government policy and the minimization of the social loss function Nissim Ben David The social loss function used in the paper is quadratic in deviations of actual from optimal values of the objectives. In order to activate an optimal policy suggested in this paper, the planner should estimate an econometric system of equations that relate between the values of exogenous policy variables and targeted endogenous variables. Minimizing social loss, subject to estimated equations constraints, the policy planner can determine the optimal level of policy exogenous variables. Assuming a policy planner in the U.S. is trying to minimize social damage, I estimated the optimal policy of relevant exogenous variables, according to the suggested model. Submission Date: 25-05-2011 14:53 Who Has to Pay for Their Education? : Evidence from European Tertiary Education Gieyoung Lim Chong-Uk Kim This paper investigates a positive tertiary education externality in 18 European countries. Using a simple Cobb-Douglas-type production function with constant returns to scale (CRS), we find that there are positive spillover effects from tertiary education in European countries. According to our model prediction, on average, 72,000 new employed persons with a tertiary education increase GDP per employed person without a tertiary education by US$412 in 2005. From the policy perspective, the existence of positive tertiary education externalities implies that the benefits of tertiary education are diffused through not only education beneficiaries but also the other members of society. Submission Date: 18-04-2012 06:11 The Role of Taxes as an Automatic Stabilizer: Evidence from Turkey Huseyin Sen This study tries to empirically investigate the interactions between various taxes and GDP and to detect whether taxes function as an automatic stabilizer in Turkey. First of all, using time series unit-root test proposed by Dickey-Fuller (1979), econometric findings reveal that the variables of taxes and GDP in level are not stationary. Secondly, employing co-integration tests designed by Johansen (1988), it is found that GDP and taxes are co-integrated. Thirdly, the Engle-Granger (1987) causality test is employed, which shows that unidirectional causality exists among taxes, that is running from GDP to SCT & PIT and it is from VAT & CIT to GDP. Findings show that personal income tax is the most effective tax in stabilizing business cycle fluctuations, and the second is corporate income tax. Keywords: Automatic Stabilizers, Fiscal Policy, Unit-Root Test, Co-integration Analyse, Engle-Granger Causality Test, Personal Income Tax, Corporate Income Tax, Turkey. Submission Date: 09-02-2012 04:02 The stability of money demand: Evidence from Turkey Chaido Dritsaki Melina Dritsaki Demand for money is an important macroeconomic relationship. Its stability has implications for the choice of monetary policy targets. The current study examines the stability of money demand function in Turkey from January 1989 to May 2010. In other words, it estimates the demand for narrow money in Turkey and evaluates its robustness and stability. Considering the economic reforms and financial crises in Turkey, it is found that there exists a well-determined instability for money demand and its dynamics are adequately captured by cointegration and error correction models. Finally, the conclusions from the estimation of the impulse response functions show that interest rate causes the largest shift in money demand as well as in the industrial production. Submission Date: 09-02-2012 11:04 Impact of oil price shocks on macro-economy: evidence from an oil importing developing country Sajal Ghosh Kakali Kanjilal The study investigates the dynamic impact of linear and various non-linear specifications of oil price shocks on some macroeconomic variables for an oil importing developing country Submission Date: 16-04-2012 06:22 Impact of oil price shocks on macro-economy: evidence from an oil importing developing country Kakali Kanjilal The study investigates the dynamic impact of linear and various non-linear specifications of oil price shocks on some macroeconomic variables for an oil importing developing country Submission Date: 16-04-2012 03:23 Home Country Macroeconomic Influences on Outward Cross-border Mergers and Acquisitions: Evidence from the UK Agyenim Boateng Xiuping Hua Moshfique Uddin Min Du Prior studies examining the trends of mergers and acquisitions (M&As) have concentrated on host country macroeconomic influences with relatively little attention on home country. In this paper, we use a non-linear modelling approach, the Exponential GARCH (EGARCH) model, to investigate dynamic effects of macroeconomic shocks on the UK outward M&As over the period 1987Q1 to 2008Q1. Our results indicate that a number of home country macroeconomic variables, including economic output, producer price, broad money supply and real effective exchange rate play an important role in explaining the trends of cross-border mergers and acquisitions outflows by the UK firms. The findings support the notion that home country macroeconomic factors can create the advantages to improve the outward Cross-border M&A activities. Submission Date: 21-07-2012 16:04 Real convergence and its illusions Marcin Kolasa This paper uses a multi-country dynamic general equilibrium model to illustrate dynamic adjustments in a small open economy undergoing real convergence. Our results indicate that even if catching-up is driven by gradual processes, the dynamic responses of key macrovariables can be far from smooth. We also find that overly optimistic expectations about current or future productivity shifts can generate sizable boom-bust cycles. A comparison across alternative monetary regimes reveals that a flexible exchange rate helps to smooth real convergence processes and misperceptions associated with tradable sector productivity, while it generates more volatility in scenarios based on nontradable sector productivity developments. Submission Date: 11-04-2011 02:25 IS THERE A TRIPLE DIVIDEND EFFECT FROM A TAX ON FERTILIZER USE? A COMPUTABLE GENERAL EQUILIBRIUM APPROACH Abeer Elshennawy ABSTRACT: Although the existence of an environmental dividend to green taxes is beyond dispute, the same is not true for the efficiency or double dividend. Given the wide spread excess fertilizer use by farmers in Egypt with serious repercussions for water pollution and contamination of agriculture goods, using a static CGE model, this research attempts at assessing the magnitude of the double dividend from the imposition of a tax on fertilizer use. The paper further assess whether there is a triple dividend effect from improved market access to agricultural goods following the reduction in fertilizer use. Submission Date: 13-02-2012 05:47 Capital Flows and Current Account Dynamics in Turkey: A Nonlinear Time Series Analysis Aydin Cecen Linlan Xiao The paper offers an analysis of current account dynamics and its sustainability in Turkey using quarterly data. The focus is on the nonlinear characterization of the long – run intertemporal budget constraint and the stationarity tests. Several well-known tests are applied to identify nonlinearity in the current account time series. The analysis reveals that while the classical unit root tests based on linear specification give rise to conflicting results as to the nonstationarity of the current account deficit series, a threshold unit root test due to Caner and Hansen (2001) fails to reject the null of nonstationarity, implying that the intertemporal budget constraint would not be satisfied in the long run. Submission Date: 12-04-2012 12:12 THE IMPACT OF LATER RETIREMENT AGES ON AGGREGATE HOUSEHOLD SAVINGS AND SAVING RATES: AN ANALYSIS OF OECD COUNTRIES Aylit Romm Martha Wolny As a result of population aging, governments of many OECD countries have begun to implement policies to increase average retirement ages in an attempt to alleviate some of the financial strain in supporting retirees. This paper explores the effect that later retirement ages have on aggregate household saving rates, both on a theoretical and empirical level. Using a two-wave panel of OECD countries, the results show that later retirement ages have the effect of decreasing aggregate household saving rates. We show that it is likely that this corresponds to a decrease in household saving. In addition, it appears that it is increases in female retirement ages that is driving this result. Submission Date: 27-06-2012 03:56 Empirical Findings on Triplet Deficits Hypothesis The Case of Turkey Mehmet SENTURK Ali SEN Canan SANCAR Mehmet SENTURK Yusuf Ekrem AKBAS 1980 - 2010 covering the period of this study, triplet deficits clear whether the concept applies in Turkey were investigated. In this respect, the first of the series stagnation order to unit root tests are completed. Then, in order to determine the direction of the relationship between variables “Dolodo-Lütkepohl Granger Causality Analysis” was. In addition, the VAR analysis and the variables interact with each other in order to determine the degree of the variance decomposition and Impulse - Response analysis was applied. As a result, the current account deficit and budget deficit are cousality to savings deficit. Submission Date: 31-01-2012 04:22 Current account sustainability in advanced economies Matteo Lanzafame This paper investigates the sustainability of current accounts in advanced economies, using a panel of 27 countries and annual data over the 1980-2008 period. We find strong evidence in favour of nonlinear but stationary current-account trajectories for 14 countries, while the remaining 13 appear to be nonstationary and, thus, unsustainable. Our analysis indicates that careful empirical modeling of current-account dynamics, particularly in relation to crosssection dependence and nonlinear behaviour, is crucial for appropriate economic policymaking. Submission Date: 28-05-2012 11:38 Information and Capital Flows Revisited: the Internet as a determinant of transactions in financial assee@kiep.go.kr CoAuthor(s): First Name : Last Name : Email Address: First Name 2: Last Name 2: Email Address 2: First Name 3: Last Name 3: Email Address 3: First Name 4: Last Name 4: Email Address 4: Paper Details: Title of the Article:* Information and Capital Flows Revisited: the Internet as a determinant of transactions in financial assets Hard Copy Submitted: Hard Copy # of Pages: Excluding graphs and tables Hard Copy # of Graphs: ets Dong-Eun Rhee Changkyu Choi Yonghyup Oh This paper investigates the determinants of international transactions in financial assets empirically. We extend the gravity model in Portes et al. (2000) by introducing an internet variable. Using cross-country panel data on the portfolio flows between the US and other countries from 1990 to 2008, we found that the Internet turns out to mitigate the information asymmetries and thus increases the cross-border portfolio flows between countries. Submission Date: 02-05-2012 08:37 Wink face model: Reflecting all aspects of emergency management in South Korea Kyoo-Man Ha This article aims to help ordinary Koreans to distinguish the entire scope of emergency management by initially providing the wink face mode as a model. Literature review has been heavily used with the support of interviews, as a methodology. The key finding is that the wink face model can bounce all components of emergency management by classifying four factors as a human wink face: main belief ( , a mouth), risk-oriented management with cutting-edge technology (+, an open eye), limited rationality (-, a closed eye), and contingency ( , a face line). The value of the article is that suggesting the wink face model will be a starting point for emergency management in Korea, because the model is convenient to remember as well as simple to grasp as it utilizes both four mathematical signs and their locations. Submission Date: 17-02-2012 05:54 Human Capital, Innovation, and Climate Policy: An Integrated Assessment Enrica De Cian Carlo Carraro Massimo Tavoni This paper looks at the interplay between human capital and innovation in the presence of climate and educational policies. Using recent empirical estimates, human capital and general purpose R&D are introduced in an integrated assessment model that has been extensively applied to study climate change mitigation. Our results suggest that climate policy stimulates general purpose as well as clean energy R&D but reduces the incentive to invest in human capital formation. Human capital increases the productivity of labour and the complementarity between labour and energy drives its pollution-using effect (direct effect). When human capital is an essential input in the production of generic and energy dedicated knowledge, the crowding out induced by climate policy is mitigated, thought not completely offset (indirect effect). The pollution-using implications of the direct effect prevail over the indirect contribution of human capital to the creation of new and cleaner knowledge. A policy mix that combines educational as well as climate objectives offsets the human capital crowding-out with a moderate, short-term consumption loss. Human capital is complement to all forms of innovation and an educational policy stimulates both energy and general purpose innovation. This result has important policy implications considering the growing concern that effective climate policy is conditional on solid economic development and therefore it needs to be supplemented by other policy targets. Submission Date: 16-03-2012 16:36 Interest rates close to zero, post-crisis restructuring and natural interest rate Piotr Cizkowicz Andrzej Rzonca Central banks seem not to account for the influence of interest rates close to zero on the natural interest rate after the bursting of the asset bubble which triggered financial crisis. We claim that this omission may have deleterious consequences. Should interest rates close to zero persistently decrease natural interest rates, that would mean fall in TFP growth and more limited central bank Submission Date: 26-02-2012 05:15 Health Expenditures and Externalities: Their Contribution to Economic Growth for publication in the Journal of Policy Modeling Suzanne Wisniewski Terry Roe This paper develops a dynamic, endogenous growth model that reveals the various pathways through which health expenditures, in the presence of an externality, augment labor effectiveness causing capital deepening and growth. In an inter-temporal environment, competitive firms employ capital and labor services, the latter is endogenously determined by households\\\' inter-temporal choice to allocate some forgone consumption to health expenditures to augment own effective labor. These expenditures in turn lower harmful health externalities on other workers due to a lessening of the communicable nature of disease. The growth-health path ways suggest various potential points for policy interventions to ameliorate productivity, avoid a poverty-like trap and to enhance economic growth. Submission Date: 23-11-2011 15:11 Testing the Validity of Wagner’s Law in Bolivia: A Cointegration and Causality Analysis with Disaggregated Data Antonio Bojanic Nine versions of Wagner’s law are examined employing annual time-series data on Bolivia for the period 1940-2010. The analysis is an advance over previous work in several ways. First, the hypothesis of a long-run relationship between different types of government expenditures and income is tested via cointegration analysis. Second, Error Correction Models are utilized to determine the direction of causality between the variables of interest. Lastly, the study comprises a period of seventy years, the longest of its kind for Bolivia. Consistent with Wagner’s proposition, bidirectional Granger causality is found between income and government expenditures in six of the nine versions of the law. The findings also suggest that government expenditures do not exert a positive influence on growth, hence the need to rethink how public funds are spent on a variety of public services. Submission Date: 25-05-2011 07:06 Kaleidoscopic Damping: Optimal Labor Adjustment for International Trade Induced Sectoral Shifts with Applications to Brazil David Hudgins Jill Bourgeois This analysis develops a framework to optimally mitigate the transitional unemployment that results from the sectoral shift induced by temporary losses in international competitiveness. Since globalized trading allows for kaleidoscopic comparative advantage that alternates back and forth between industries and countries, this induces volatility in employment that creates losses when workers are displaced. A stabilization policy could be used to dampen this kaleidoscopic effect so that the sector does not overly downsize in response to the temporary portion of the shifts. We simulate the Brazilian manufacturing sector in order to demonstrate the welfare benefit of a pragmatic kaleidoscopic damping policy. Submission Date: 15-02-2012 11:40 On National Fiscal Policy and Growth: Searching for Optimality under Externality Christos Stournaras In this paper, we examine the view of capital fundamentalism claiming that national fiscal policies, with public investment being subject to adjustment costs, can be considered as the primary determinant of economic growth. According to our analysis, a country that experiences a low rate of growth with a relatively low public to private capital ratio can generate and attain a higher long-run rate of economic growth, equivalent to the growth rate of public capital. It is revealed that the after-tax marginal product of capital, hence the rate of return, depends positively on the ratio of private to public capital, something that sharply contradicts the results obtained in the rather traditional strand of research where the rate of return was invariant with that particular ratio. We also reconsider some properties of optimal fiscal policy and conclude that, in accordance to conventional priors, maximisation of the private-sector utility function corresponds to maximisation of the growth rate of the economy Submission Date: 18-09-2011 10:19 Macro Determinants of Total Factor Productivity Growth of Agriculture in Pakistan khalid mushtaq asghar ali Muhammad Ashfaq Abedullah Abedullah Phil Dawson The role of productivity in accelerating the pace of economic growth is well recognized in the literature. With continual population growth, a diminishing supply of per capita arable land, limits to further expansion of cultivated land and slowing returns to further input intensification, there is growing need for food supply increases that could only originate from productivity growth rather than increase in inputs The present study investigated the impact of different macro variables on Total Factor Productivity (TFP) of agriculture in Pakistan by employing cointegration analysis analysis for the period from 1971 to 2006. The results indicated that human capital, infrastructure development and credit resources were positively associated with TFP of agriculture. Openness of agricultural economy observed a significant positive impact on productivity. Macroeconomic stability influenced TFP growth negatively and significantly. Real per capita income indicated positive but insignificant relationship with productivity growth. The strong two way Granger-causality was observed between productivity and human capital development; and infrastructural development. Overall the results explained that policies which promote human capital, increase credit resources in agriculture, improve infrastructure development, facilitate openness of agricultural economy, ensure macroeconomic stability and rise in real per capita income; will improve productivity and competitiveness of Pakistan agriculture. Submission Date: 11-12-2011 23:05 Nominal Rigidities, Government Spending, and Long-Run Policy Trade-Off Eiji Tsuzuki Tomohiro Inoue We introduce a simple government that consumes the income taxes collected from households into a model with sticky prices and nominal wages proposed by Tsuzuki and Inoue (2010), which introduces a constant rate of technological change and a constant rate of money growth. Government consumption spending provides households with utility. Tsuzuki and Inoue (2010) examined whether a monetary policy trade-off exists between stabilizing the welfare-relevant employment gap and curbing inflation in the steady state when the rate of technological change decreases. They showed that if only prices are sticky, there is no monetary policy trade-off. However, if both prices and nominal wages are sticky, a monetary policy trade-off exists. We consider whether a monetary policy trade-off exists between stabilizing the welfare gap and curbing inflation when the government sets the income tax rate optimally (so that it maximizes household utility). If only prices are sticky, no trade-off exists; however, if both prices and nominal wages are sticky, a trade-off exists. We also examine the dynamic property (determinacy of equilibrium) of the model. The equilibrium is indeterminate under the rule of a constant rate of money growth; however, the equilibrium is determinate when a simple Taylor rule is introduced. Submission Date: 29-12-2011 02:24 SHOULD THE SOUTH AFRICAN RESERVE BANK RESPOND TO EXCHANGE RATE FLUCTUATIONS? EVIDENCE FROM THE COSINE-SQUARED CEPSTRUM Rangan Gupta Empirical evidence on the whether the inflation-targeting South African Reserve Bank (SARB) should also consider responding to exchange rate fluctuations, are contradictory. Against this backdrop of contradictory evidence, we revisit the issue by questioning if the inflation rate is more volatile than it would have been had South Africa not moved to a flexible exchange rate regime in 1995, using the cosine-squared cepstrum. We find that the CPI inflation in South Africa has become more volatile since the second quarter of 1995, post a flexible exchange rate regime, than it would have been had the country continued to pursue a fixed exchange rate policy. Based on this result, we can conclude that the SARB should perhaps respond to exchange rate fluctuations, however, we also warn against the cost of increased volatility in output that is likely to result from targeting exchange rate variability. Submission Date: 05-01-2012 07:02 A Small Macroeconometric Model of the Bangladesh Economy Mohammad Rahman Rabeya Khatoon This paper describes a macroeconometric model of the Bangladesh econ- omy using annual time series data from FY-1980 to FY-2006. The model is constructed with seven macroeconomic blocks, consumption, investment, pro- duction, government, trade, money, and price, capturing transmission among blocks. Structural equations under each block are estimated using short-run error correction model, where long-run equations into error correction terms represent economic theory. Hendry\\\\\\\'s general to a speci c procedure is followed to get nal short-run error correction equations. Validity of the model is checked both within the sample and out of sample cases. Results from validity study mark that the model is reasonably useful for forecasting and policy analysis. Submission Date: 25-10-2011 16:33 Modeling of Financial Embargo on South Africa: Theory and Application Manuchehr Irandoust Ghada Gomaa A. Mohamed The paper examines the effectiveness of the financial embargo on South Africa, which was imposed in 1985 and lifted in 1993. The theoretical framework is a simple small open economy version of Ramsey’s growth model calibrated to South African conditions. The South African embargo event is modelled by limiting the country’s ability to borrow through imposing a proportional tax on foreign borrowings to capture the disinvestment during the embargo period, and by assuming apartheid as a constant tax on foreign borrowings to South Africa we incorporate the effect of the embargo on South African apartheid. Using quarterly data from 1960 to 2008, our empirical findings, based on the logit and intervention methods, indicate that (i) there is a negative relationship between financial isolation and foreign investment and (ii) there is a negative link between the embargo and the degree of apartheid. The policy implication of our results is that the financial embargo was effective in dismantling South African apartheid. Submission Date: 17-02-2012 22:16 Economic Growth and Government Debt: Evidence from the Young Democracies of South America Manoel Bittencourt We investigate in this paper what are the main determinants of government and external debt in South America. Our sample purposely includes nine South American countries that redemocratised in the last thirty years or so, and the data cover the period between 1970 and 2007. The results, based on principal component and dynamic panel data analyses (we use the Pooled OLS, Fixed Effects, Fixed Effects with Instrumental Variables, DIF-GMM and SYS-GMM estimators), suggest that economic growth, predictably via the automatic stabilisers, has had the ability of significantly reduce debt in the region. Other important candidates suggested by the literature, such as inflation, inequality and constraints on the executive (variables that some would deem important within the rather turbulent South American context), do not present the expected or clear-cut estimates on debt. Essentially, the former suggests that the (neoclassical) tax-smoothing model holds in South America, which---in times of a severe debt crisis in Europe---is very suggestive of the importance of public policies designed towards generating fast economic activity and prosperity in keeping debt, at least, under control. Keywords: Growth, debt, South America. JEL Classification: H60, N16, O11, O54. Submission Date: 06-05-2012 09:05 Stock Prices and Inflation: Relationship Revisited ARUP MITRA SANGEETA CHAKRAVARTY This study examines the nature of relationship between inflation and stock price movement. The analytical literature mentions the possibility of a negative and a positive relationship both. Using the VAR framework based on monthly data for wholesale price index, index of industrial production, exchange rate, stock prices and foreign institutional investment we note that stock prices have an impact on inflation whereas the causality in the reverse direction is not prominent. The results from the impulse response function tend to suggest that the nature of relationship is rather negative. When stock prices are low the firms are reluctant to tap the capital market. Unless bank finance can substitute adequately for the capital market firm’s investment plans would be hit and production would decline. This may result in a price rise as the market demand may exceed the supply. An important policy implication is augmentation of production by encouraging investment through inexpensive bank finance. However in the very long run as we observe from the co-integrating equation, inflation influences stock prices and that too in a positive direction. Unexpected inflation raises the firm’s equity value if they are net debtor. Similarly tightening of monetary policy can reduce inflation and stock prices both as individuals will be left with less money to buy goods or buy stocks. Submission Date: 18-04-2012 06:53 FISCAL FEDERALISM AND REGIONAL INEQUALITY: THE SPANISH CASE (1986-2007) Roberto Montero-Granados Juan de Dios Jiménez-Aguilera Pedro Barrilao-González Villar-Rubio Elena From the perspective of fiscal decentralisation, the decentralization of public services must be accompanied by the decentralisation of taxation because, otherwise, the amounts offered by the sub-central units may be inefficient. So if there are regional inequity in tax revenue (i.e. in per capita terms) and the decentralization level is high, horizontal transfers may be needed. If we assume that horizontal transfers are very difficult then we have a limit for fiscal decentralization. Moreover, horizontal transfers have two faces: a equality face, very known, but a significant efficiency face too. As some regions can collect more taxes than would correspond to them in terms of their actual economic situation, then the difference between real revenue (what is actually collected in the territory) and potential revenue (the taxable transactions taking place in the territory) will place limits on the capacity of economic decentralisation in terms of efficiency. We draw up an index to measure the intensity of this taxation shift from the perspective of both direct and indirect taxes and illustrate the problem within the framework of the Spanish case. Submission Date: 13-05-2011 11:22 The International Transmission of Price Levels during the Classical Gold Standard Period: Evidence from the UK and the US Tomoko Kinugasa Fukumoto / Yukio Fukumoto Recent studies have been interested in the economic situation during the classical gold standard period, which can be considered the first era of globalization. We examine the causal relationship regarding the establishment of the price levels of the UK and the US, which shared close economic ties and had notable presences in the world economy of the time, based on the causality test of the lag augmented vector autoregression (LA-VAR) model. We find that UK price level caused US price level whereas the reverse was not the case regardless of a variety of the specifications of the LA-VAR model. Submission Date: 29-01-2008 00:00 Shifting the focus. New insights in the External sector-Led-Growth Behaviour for Argentina, Brazil, Chile and Mexico Guadalupe FUGAROLAS Alvarez-ude David Matesanz Gomez This study re-examines the external sector and growth relationship for four Latin American countries firstly in the spirit of the trade framework built into the Thirlwall and Hussain model. We use the Toda and Yamamoto (1995) and Dolado and Lütkepohl (1996) methodologies for testing Granger non-causality in vector autoregressive models that involve variables that are integrated of an arbitrary order and that are possibly cointegrated. We find evidence of an export-led growth causality model for Argentina, Brazil and Chile while Mexico shows an import-led export phenomenon. In addition, net capital flows are found to be essential explanations in the long run growth path for Argentina. This demand approach complements and shows different evidence in the spirit of the traditional Export-Led-Growth hypothesis. Submission Date: 18-07-2011 15:40 Effects of Regulating Household loan on Korean Household Delinquency Ratios Dong Jin Shin Ehung Gi Baek This paper uses Korean data to analyze whether regulations and monetary policy have contributed to controlling the financial fragility of household debt. The analysis shows that LTV and DTI regulations and a low interest rate policy lowered household delinquency ratios. We suggest that the government should lower household financial fragility and thus enhance the macroeconomic environment by appropriately applying the policy mix of the Bank of Korea’s monetary policy and the Financial Supervisory Service’s regulation policies. We also propose that the government establishes a board to coordinate the policy instruments of these two independent authorities. Submission Date: 23-10-2011 19:00 The optimum share of government consumption expenditures in low and low-middle income countries: A threshold panel approach Mehdi Hajamini Mohammad Ali Falahi This paper investigates the impact of government consumption spending as a share of GDP on economic growth in low and low-middle income countries. The impact of size of government on economic growth is similar to a hump-shaped curve which can be used to determine the optimum government size (see Barro, 1990; and Armey, 1995). In this study, 32 countries with low and low-middle income levels (according to the World Bank ranking in 2008) were selected during 1981-2007. Using threshold panel approach, the optimum share of government consumption expenditures for low and low-middle income countries was estimated to be 16.2% and 16.9%, respectively. Submission Date: 21-06-2011 14:01 Some Aspects of the Chinese Industrialization MURAT Ungor I study the industrialization of China documenting some facts and developing a sectoral growth accounting exercise that links changes in sectoral productivity to the institutional reforms since 1978. I also examine the liberalization process of the Chinese foreign trade focusing on the changes in dynamic comparative advantage using both aggregated and disaggregated data. Submission Date: 19-01-2012 07:21 Carbon tax or cap-and-trade: a computable general equilibrium analysis of Chinese economy Yan Xu This study analysed two hypothetical carbon dioxide (CO2) controlling measures in China: carbon tax and cap-and-trade, using a recursive dynamic computable general equilibrium (CGE) model. The simulation period is from 2002 to 2020. The main conclusions are: there is slight increase of Gross Domestic Product (GDP) under CAP scenarios, but over 3% GDP decrease in 2020 compared with baseline under TAX; carbon tax cases bring about smaller reduction in carbon emissions in 2020, but greater accumulated reductions for the total simulation years; ancillary co-benefit of carbon reduction actions on local environmental pollution can be observed. Submission Date: 31-01-2012 04:22 Semi-endogenous growth theory versus fully-endogenous growth theory: a sectoral approach Sara Barcenilla Carmen López-Pueyo Jaime Sanau In the last two decades, endogenous growth theory has generated a second generation of models to solve the empirical paradoxes that arose from the first generation. These models are based on two theoretical approaches: semi-endogenous growth theory and fully-endogenous growth theory, each with different assumptions about technical progress, the main driver of economic growth. This paper offers, for the first time, an analysis of the validity of the aforementioned theories in a sectoral context, applying the most modern tests and estimation procedures for the treatment of panel data. Submission Date: 28-10-2011 07:00 Finance-growth nexus in presence of banking crises: Evidence in high income and MENA countries Houssem Rachdi The important role of financial development in the process of economic growth has been subject to numerous debates in the economics literature. Results of empirical studies for single-country and cross-nations are often inconclusive. One neglected area in this topic of research is the presence of crises because any countries were devastated by financial and banking crises the two last decencies. The main contribution of this paper is the analysis of the correlation between financial development and economic growth in the presence of banking crises. We explore this relationship by using the GMM system approach. Our study examines twenty nine high income (OECD and non-OECD) and seven Middle East and North Africa (MENA) countries for the years 1980-2009. Our econometric results show a negative coefficient between banking crises and economic growth. Also, we also find a negative coefficient of different measures of financial development. In periods of crises, the effectiveness of financial system is reduced leading to less growth. Submission Date: 13-11-2011 14:14 Model Equations Complement to the Article submitted to the Journal of Policy Modeling Titled The Euro-Mediterranean Free Trade Agreement An Inquiry into the Cost of Adjustment to Tariff Liberalization for the Egyptian Economy An Intertemporal General Equilibrium Analysis Abeer Elshennawy Abeer Elshennawy :Interteporal General Equilibrium Model for Egypt:Model Equations Submission Date: 28-11-2011 13:58 MULTIVARIATE GRANGER CAUSALITY BETWEEN ELECTRICITY CONSUMPTION, ECONOMIC GROWTH, FINANCIAL DEVELOPMENT, POPULATION, AND FOREIGN TRADE IN PORTUGAL Chor Foon Tang Muhammad Shahbaz The present paper attempts to re-assess the nexus between electricity consumption, economic growth, financial development, population and foreign trade in Portugal with the cointegration test proposed by Pesaran et al. (2001). The Granger causality test was implemented to ascertain the direction of causality between the variables. This study used the annual sample from 1970 to 2009. Our empirical results show that the variables are cointegrated in Portugal. Moreover, the overall Granger causality results exhibit that electricity consumption, economic growth, and population are Granger-causes each other while financial development Granger-cause electricity consumption in Portugal. With these findings, we affirm that energy is an important source for Portugal; hence energy conservation policy may deteriorate economic growth in Portugal. Submission Date: 10-11-2011 19:21 The Environmental Effects of Human Capital Investment in Rural-Urban Migration by the Chinese Government and Producer Services Sector Xiaochun Li In this paper, we conduct a simple comparative static analysis of environmental and economic effects of the government and producer services sector training of rural-urban migrants. We mainly focus our attention on the environmental issues and get the following conclusions: When the government lowers the interest rate of the training loan, environmental conditions will worsen. However, when the producer services sector increases the unit cost of training of rural laborer, the opposite occurs, and environmental conditions improve. In addition, we discuss the conditions under which the government lowering the interest rate of the training loan will lead to the decrease of the social utility level and the reduction of pollution damages to the agricultural production. Submission Date: 02-11-2011 00:51 THE YIELD CURVE AND MACROECONOMIC VARIABLES IN THE PRESENCE OF POLICY CHANGE: EVIDENCE FROM TURKEY Huseyin Kaya This paper contributes to the literature on the relationship between the yield curve and macroeconomic variables by focusing on an emerging market case: Turkey. The most important result of the paper is that the relationship between the yield curve and the macroeconomic variables is seriously affected by the change in monetary policy which is associated with the implementation of inflation targeting (IT) regime. While before IT regime, yield curve is affected to some extend by macroeconomic variables after IT regime, it is mainly driven by the macroeconomic variables. We also find that central bank has gained ability to affect entire yield curve with IT regime. The other important result is that in addition to inflation and real activities, exchange rate is also play an important role in the yield curve dynamics. Submission Date: 06-10-2011 06:31 Monetary Policy in a Dual Currency Environment Vicente Tuesta We develop a small open economy general equilibrium model with sticky prices and partial dollarization - a situation where both domestic and foreign currencies coexist-. We derive a tractable representation of the model in terms of domestic inflation and the output gap in which a trade-off, which depends on the degree of dollarization, arises endogenously due to the presence of foreign interest rate shocks. We use this framework to show analytically how higher degrees of dollarization induce larger volatilities of the output gap and inflation, thus hampering a central bank Submission Date: 02-09-2011 10:35 Enforcement Leverage with Fixed Inspection Capacity Lirong Liu Williams Neilson We expand the optimal targeting enforcement literature to allow regulator inspection capacity constraints. A fixed number of firms are selected for inspection and those with the highest emissions are targeted with higher inspection probability. This structure induces dynamic rank-order tournaments among inspected firms, and pollution abatement incentives from the leverage effect are enhanced by a competition effect. Simulations suggest that targeted firms should be inspected with high probability and that about 2/3 of inspections should be allocated to targeted firms. However, even suboptimal allocations of inspections and firms to the targeted and untargeted groups can outperform static enforcement schemes. Submission Date: 20-12-2011 11:07 Using the Cointegrated VAR to Model and Commparatively Assess the Empirical Effects of Commodity and Financially Focused Policy Alternatives for U.S. Pork-Related Markets Ronald Babula Ronald A. Babula John Paul Rothenberg Abstract: This paper provides an application of cointegration VAR modeling to estimate a monthly system of U.S. upstream/downstream U.S. pork-related markets that includes a policy transmission mechanism through price to the U.S. pork futures market. The paper then demonstrates that financially focused policies/events working through futures price are equally as effective as commodity-focused policies/events working through U.S. pork price in influencing the modeled markets, and in turn in addressing and managing inter-market patterns of pork product food costs and food inflation. The policy-analytic usefulness of the cointegrated VAR model is then demonstrated through the use of the estimated cointegrating parameters to examine two specific past policies/events relevant to U.S. pork markets. Submission Date: 20-01-2012 11:52 Interaction between Monetary policy and stock prices: A comparison between the Caribbean and the US Emma Iglesias Andre Haughton We analyze the interaction between monetary policy and stock prices in Barbados, Jamaica and Trinidad and Tobago (T&T), both individually and jointly as the Caribbean countries using structural VARs as proposed in Bjornland and Leitemo (2009). Annual and monthly frequencies are used for Barbados while, due to data availability constraints, only annual data is employed for Jamaica and T&T. First, our results show that in Barbados with monthly (and annual) data, a monetary policy shock that increases the Treasury bill rate by 100 basis points causes stock prices to increase by 0.038 (and fall by 0.06) %; while a stock price shock that increases stock prices by 1% results in an increase in the Treasury bill rate of 30 (and 190) basis points respectively. For Jamaica, a monetary policy shock causes stock prices to fall by 0.3%; while a stock price shock that increases stock prices by 1% results in an increase in the Treasury bill rate of 400 basis points. Likewise for T&T; a shock to monetary policy causes stock prices to fall by 0.1% and a shock leading to a 1% increase in real stock prices causes the Treasury bill to increase by 330 basis points. When we analyse the three Caribbean countries jointly; a positive 1% stock price shock causes the Treasure bill rate to increase by 700 basis points and a positive monetary policy shock cause stock price to fall by 0.027%. Therefore, our results in relation to the signs of the relationships with annual data are similar to those of the USA in Bjornland and Leitemo (2009), however the magnitudes are substantially different. The effect of a monetary policy shock is greater in the US; while the effect of a stock price shock is smaller in the US than in our Caribbean We argue that this reflects clear differences between the USA and Caribbean economies. Caribbean countries have slower information channels for example by targeting the thirty day certificate of deposit (COD) rate instead of the overnight Treasury bill rate as in the US. This supports our results that only with annual data we find similar relationships as in the US with monthly data. Moreover, the higher economic instability in the Caribbean is clearly observed in the larger effect that a stock price increase has on interest rates versus the USA. Submission Date: 21-10-2011 14:25 Effect of FDI on Economic Growth in Bangladesh and India: An Empirical Investigation Narayan Sethi Sanhita Sucharita The present study examines the effect of FDI on economic growth in Bangladesh and India respectively by using the data for the period 1974-2009. The regression result indicates that FDI is positively correlated to the economic growth of Bangladesh but it has not yet been established as a significant determining factor for the economic growth. On the other hand, the result indicates that FDI is negatively correlated to the economic growth in India and it has not yet been established as a significant determining factor for the economic growth. We conclude that the effect of FDI on economic growth is ambiguous for both India and Bangladesh. Submission Date: 05-10-2011 00:14 Comparing Monetary Policy Rules in CEE Economies: A Bayesian Approach Petre Caraiani Using the Bayesian approach, a small open economy DSGE model was estimated for three economies from Central and Eastern Europe, Czech Republic, Hungary and Poland on a sample of quarterly data starting with 1995. The hypothesis of whether the central banks reacted to the exchange rate movements was tested using posterior odds ratio. Evidence was found that suggests that central banks reacted to the exchange rate changes. We also found evidence of similar monetary policy in the selected countries, characterized by moderate or low gradualism, as well as an active and conservative monetary policy. Submission Date: 31-05-2011 10:46 CGE Projection of Economic and Potential Environmental Effects of the Principal Trade Items between Thailand and Its FTA Partners Sompote Kunnoot The economic gain and shadow environmental costs of Thailand’s free trade agreements (FTAs) were projected to measure true economic gain, based on Pigou’s (1960) social welfare principle, across 180 sectors using a general equilibrium model simulation. The projection covered 50 principal export and 50 principal import items in five effective FTAs and four FTA negotiations in progress. FTAs, as a whole, were found to yield a net economic gain because true economic gain outweighed true economic loss. The results call attention to policy curbing the import of selected items from Australia, China, and the EU and to diversifying domestic production to improve economic gain from the export of selected items. Submission Date: 04-10-2011 04:43 Optimal Concentration and R&D Policies under Dual Government Goals Daw Ma Jiunn-Rong Chiou Chiou The present study examines the optimal concentration and R&D subsidy/taxation policies under the dual government goals of maximizing current welfare and achieving technological superiority internationally (national champions) in an oligopolistic trading market. We find that, in order to maximize the domestic welfare, the optimal number of firms in the industry should increase in accordance with the increases in the R&D subsidies. If there are multiple firms in the domestic market, the optimal R&D policy should involve the imposition of an R&D tax and such taxation should increase as the number of firms increases. For the government to achieve its goal of seeking technological superiority, the optimal policy mix will be to increase the domestic concentration and reduce the R&D tax. When the importance of being technological superior to the government exceeds a certain level, the optimal R&D strategy will be to shift from an R&D tax to an R&D subsidy. Submission Date: 21-09-2011 04:28 Modeling the employment quality. The case of Spain ANGEL DIAZ-CHAO JOSE LUIS MONTES JOAN TORRENT-SELLENS This paper proposes a method for the construction of an objective index of job quality based on structural equation systems. The index is applied to the 17 Spanish regions. The variables were obtained from the Spanish National Institute of Statistics (INE) and their selection is based on the European Union recommendations. Results show that the fundamental variables that positively affect the quality of employment are wages, employment rate -both of the Spanish and of the EU foreigners, extra hours worked and the percentage of employed persons with higher education. While rates of temporary employment for the whole population and women, and the actual hours performed by workers in construction and services- affects negatively the quality of employment in each region. Practically all statistically significant variables have weights whose absolute standardized values range from 0.5 to 0.9, being the one with the greater influence the rate of temporality (-0.880), on the negative side, and the real wage cost (0.759) on the positive. The index results for the 17 regions shows that the region with the highest quality of employment is Madrid, followed by the Basque Country, Navarra, Catalonia and Aragon. Submission Date: 06-07-2011 05:40 On the Relationship Between Fertility and Public National Debt Luca Spataro Luciano Fanti Public debt and fertility are two issues of major concern in the current debate about economic policy, especially in countries with below-replacement-fertility and large debt (which appears further enlarged as a consequence of the recent world financial distress 2008-2009). In this paper we show that public debt is in general harmful for fertility, in that debt issuing almost ever crowds out fertility. The relationship is reversed only if debt is sufficiently low and the share of capital (labor) in the economy is sufficiently low (high). Hence, our analysis would recommend that developed, capital intensive economies (such as OECD countries) aiming at a fertility recovery should reduce national debt, while developing, labor intensive economies, aiming at reducing fertility, should increase (reduce) national debt only if they are debt virtuous (vicious). Submission Date: 19-10-2011 03:38 Economic Growth and Health in India: A Panel Cointegration Assessment Rudra P Pradhan The paper examines the effect of health expenditure on economic growth in India at the state level during the period 1980-2010. Any such dependency would have policy implications, hence probing it could yield much value. Using cointegration technique, this study finds that health expenditure and economic growth are cointegrated in all the states of India, indicating the presence of long run equilibrium relationship between them. The Granger panel causality studied here further confirms the existence of bidirectional causality between health expenditure and economic growth, indicating existence of feedback between these two variables, both in the short run and long run. However, at the individual state level analyses, we find some diverging results and that include bidirectional, unidirectional and also no causality between health expenditure and economic growth. In conclusion, this study suggests that health expenditure should be regarded as a critical factor to help sustain economic growth in the Indian economy. Submission Date: 15-06-2011 22:39 Public Investment in Agricultural and GDP Growth: Another look at the Inter-Sectoral Linkages and Policy Implications Harish Mani Gopalakrishnan Bhalachandran Vishwanath Pandit Despite its reduced share in India’s GDP, agriculture continues to have a strategic importance in ensuring its overall growth and prosperity. As part of the new economic policy package introduced in the early nineties, there has been a reduction in the rate of public investment. While this may not be bad for the industrial sector, the impact of this policy on agriculture is a matter of concern, in so far as it not only affects steady growth of agriculture but also influences the overall performance of the economy. This is more so because the agricultural sector public investment has also promoted private investment by way of what is termed as the crowding-in phenomenon. This phenomenon together with inter-sectoral linkages is used in this paper to examine the effect of higher public investment for agriculture on the stable growth of this sector as well as of the entire economy. Policy implications of this exercise are important for obvious reasons. Submission Date: 22-07-2011 02:22 The Natural Disaster Vulnerability Evaluation Model (NDVE-Model): An Application to the Northeast Japan Earthquake and Tsunami of March 2011 Mario Arturo Ruiz Estrada Mario Arturo Ruiz Estrada Donghyun Park The natural disasters have a potentially large impact on economic growth but measuring their economic impact is subject to a great deal of uncertainty. The central objective of our paper is to set forth a model – the natural disasters vulnerability evaluation (NDVE) model – to evaluate the impact of natural disasters on GDP growth. The model is based on three basic indicators - (i) the natural disasters vulnerability propensity rate (Ω); (ii) the natural disaster devastation magnitude rate (Π); and (iii) economic desgrowth rate (δ). In addition, this model is based on chaos theory and risk complexity analysis framework. We apply the NDVE-Model to the Northeast Japan earthquake and tsunami of March 2011 to evaluate its impact on the Japanese economy. Submission Date: 28-08-2011 21:58 Using Prediction Markets to Guide Global Warming Policy Aaron Jackson Scott Sumner There is currently great uncertainty about both the likely severity of global warming, and the most cost effective policies for dealing with the problem. We argue that suitably designed prediction markets can reduce some of the uncertainties surrounding this difficult issue, and thus assist in the policymaking process. Because future policymakers will be better placed to see the scale of the problem and feasibility of proposed solutions, policymakers today could benefit from current market forecasts of future global temperatures and atmospheric greenhouse gas levels. This would better allow policymakers to direct resources more effectively in the near term and the long term to address the global warming problem. Submission Date: 28-12-2010 10:06 Multi-project discount rates for energy technology policies: A formal example on Combined Heat and Power Jacopo Torriti This paper introduces multi-project discount rates with a view to include multiple project performances in energy technology policies. The case of Combined Heat and Power (CHP) is presented to formally demonstrate that multi-project weights could be applied when setting discount rates for energy policies. It is concluded that while uncertainty around the performance of both CHP and other energy technologies might affect measurements of risk and estimated available budget for future re-investment, it is possible to determine multi-project weighted discount rates by following a reversed intertemporal approach of applied general equilibrium. Submission Date: 02-06-2011 04:47 Determinants and projections of demand for higher education in Portugal Isabel Vieira Carlos Vieira This paper formulates a model of demand for higher education in Portugal considering a wide range of demographic, economic, social and institutional explanatory variables. The estimation results suggest that the number of applicants reacts positively to demographic trends, graduation rates at secondary education, female participation, compulsory schooling and the recent Bologna process. Demand reacts negatively to the existence of tuition fees and to unemployment rates. Within an adverse demographic and economic context, forecasts of demand for the next two decades suggest the need to increase participation rates, to avoid funding problems in the higher education system and increase long-term economic development prospects. Submission Date: 08-06-2011 10:11 INTEREST RATE LIBERALISATION AND ECONOMIC GROWTH IN NIGERIA: EVIDENCE BASED ON ARDL-BOUNDS TESTING APPROACH Erasmus Owusu Nicholas Odhiambo The paper examines the relationship between interest rate liberalisation policies and sustainable economic growth in Nigeria. Employing autoregressive distributed lag (ARDL) - bounds testing approach and using GDP per capita as growth indicator, the paper establishes a long run relationship between economic growth and interest rate liberalisation which is represented by an index calculated using principal component analysis (PCA). The paper finds that in the long run, interest rate liberalisation policies have positive effect on economic growth in Nigeria. This supports the numerous past studies which have reported positive results regarding the effects of interest rate liberalisation on economic growth. The paper concludes that interest rate liberalisation polices together with increase in the productivity of labour, increase in capital stock and increase in foreign direct investments determine economic growth in Nigeria. Submission Date: 03-08-2011 09:42 HOW DOES A FISCAL REFORM AFFECT ELASTICITIES OF INCOME TAX REVENUES? THE CASE OF SPAIN, 2003-2008 Diego Martinez-Lopez This paper estimates the extent to which an exogenous change in income affects income tax revenues. We focus on the case of Spain over the period 2003-2008, as income tax there underwent a substantial reform in 2007. Using both an analytical method and a numerical simulation, we find a significant increase in aggregate income tax elasticities from 1.4 for 2003-2003 to around 1.8 for 2007-2008. The sensitivity of results to the presence of housing tax credits, non-equiproportional variations in income, changes in income inequality and fiscal drag is also considered. Submission Date: 22-03-2011 04:52 Does International Trade Induce or Deter Debt Repayment Capacity of Developing Countries? : Looking through the Lens of the US Subprime Crisis INDRANARAIN RAMLALL This paper develops a credit risk model that focuses on the repayment capacity of developing countries in the world with specific focus given to international trade. The research is not only innovative but also timely in terms of policy implications chiefly following the adverse effects of the US subprime crisis on the debt states of countries in the world. Should international trade be wealth-promoting for developing countries, then, there will be added incentives for them to foster trade. Otherwise, this would be symptomatic to international trade being mere resource misallocations with poor sustainable policies in the long-term. A pooled estimation approach is employed to disentangle the adverse effects of the world’s worst financial/economic/debt crisis on the repayment capacity of the developing countries. Results show that international trade has been particularly stimulating during the pre crisis periods with a positive effect noted on their debt repayment capacity. However, post the crisis, no such effects prevail. Such a finding adds significant momentum to the fact that the crisis may already be curbing growth prospects via the trade channel for the developing countries with potential rekindling effects on protectionism. Above all, the impotency of international trade metrics on repayment capacity coupled with a highly negative pronounced effect of external debt on the same repayment capacity, both during the crisis period, add up strong evidence of a crisis-induced external debt overhang. Submission Date: 28-12-2011 09:02 A characterization of the environmental Kuznets curve: The role of the elasticity of substitution Roberto Pasten Eugenio Figueroa This paper analyzes social preferences consistent with an environmental Kuznets curve (EKC), presenting a closed form of a social welfare function of market and non-market goods and services whose maximization outcome is an optimal income-pollution path exhibiting the characteristic shape of an EKC. The turning point predicted by the model depends on the elasticity of substitution between consumption and environmental quality determined by preferences; the harmfulness of pollution; the degree of substitution between capital and pollution in production; and the fact that preferences are properly and adequately translated into explicit market prices and implicit shadow prices by the social decision-making process. We show that this preference characterization of the EKC is a general case encompassing certain special cases described in earlier characterizations of the EKC, and analyze how the elasticity of substitution between consumption and environmental quality determined by preferences plays a key role Submission Date: 03-03-2011 06:03 Structural Fiscal Rule: A Proposal for Mexico Alfredo Coutino Due to the absence of a fiscal reform that increases tax revenues significantly in the near future, Mexico needs to adopt a structural correction in its public finance through the implementation of a rule. This correction will eliminate budget volatility and will give fiscal policy more countercyclical power. Since the structural rule will promote fiscal certainty, the country will reinforce investors\\\' confidence and will strengthen public finances. The rule does not substitute the fiscal reform needed, but it makes the reform less urgent since it introduces a structural discipline in the government expenditure, which also makes the budgeting process more efficient. This paper proposes and evaluates the implementation of such a fiscal rule to the case of Mexico. Submission Date: 14-10-2011 11:28 Non-scale endogenous growth effects of environmental policies Oscar Afonso We build a general equilibrium endogenous growth model in which final goods are produced either in the skilled-labour intensive Clean sector or in the unskilled-labour intensive Unclean sector. In particular, by solving transitional dynamics numerically towards the unique and stable steady state, environmental policies encourage scale-invariant technological-knowledge bias. This, in turn, promotes environmental quality, the skill premium and economic growth. Submission Date: 20-05-2011 07:44 Industry Characteristics and FDI Induced Technology Spillovers Akinori Tomohara While the literature has explored the relationship between FDI and productivity, a consensus has yet to be reached regarding FDI’s impacts on the productivity of local companies, specifically with respect to vertical spillovers. Motivated by various results in the literature, this paper specifies the conditions under which industries enjoy horizontal, backward, or forward technology spillovers. Our analysis extends upon previous works and sheds light on the necessity of distinguishing industry characteristics when discussing potential benefits from FDI. The results of the analysis show that export-oriented sectors enjoy a higher degree of technology spillover than domestic-market oriented sectors do. Taken together with historical evidence, the results imply that a host government might benefit by attracting FDI into export-oriented industries to attain the goal of long-run economic growth. Submission Date: 24-04-2011 20:35 Rule of law and policy-induced environmental technology adoption Davide Infante Janna Smirnova The implementation of environmental technologies almost always complies with regulation that is interdependent with the strength of the rule of law. We develop a model demonstrating that when the rule of law is reinforced, pollution abatement standard is more efficiently established and leads to the more successful adoption of environmentally friendly technologies. We show that a more stringent rule of law contributes to the achievement of second best allocation with less resource drainage caused by rent-seeking and with lower costs of regulatory intervention. The model sheds new light on implementation of environmental policies in a reinforcing institutional context of developing economies. Submission Date: 11-03-2011 02:08 CGE Accounting of Economic and Potential Environmental Effects of the Principal Trade Items between Thailand and Its FTA Partners Sompote Kunnoot Economic gain and shadow environmental costs of Thailand’s FTA were projected to measure true economic gain based on Pigou’s social welfare principle through 180 sectors general equilibrium model simulation. The projection covered 50 principal export and 50 import items in five effective FTAs and four FTAs negotiation in-progress. FTAs as a whole was found to yield net economic gain, as true economic gain outweighed true economic loss. Results raised policy attention to curb import of selected items from Australia, China, and EU, and to develop diversification of domestic production to improve economic gain from export of selected items. Submission Date: 07-06-2011 05:18 Finance and growth: Schumpeter might be wrong in our era. New evidence from Meta-analysis Simplice A. Asongu This paper seeks to bridge the gap between Schumpeterian authors and sympathizers of Andersen and Tarp (2003). As far as we have perused, the absence of a meta-study in the finance-growth nexus literature is an important missing link. Methodically narrowing down from 186 papers to a summary of 20 studies with 197 outcomes, we use 20 comparison criteria to evaluate which factors have influenced the phenomenon over the past decades. Using dynamics of financial depth and financial activity, our meta-findings provide support for Andersen and Tarp (2003) in concluding that contrary to Schumpeterian authors, the positive link between finance and growth has not been sufficiently sustained by recent empirical works. The frequency of financial crisis that inhibit the finance-led-growth nexus is more preponderant in our era than it was in the days of Schumpeter. The study also accounts for the presence of publication bias in the literature which further vindicates an anti-Schumpeterian thesis. Submission Date: 23-08-2011 15:53 THE ROLE OF EDUCATION IN ECONOMIC GROWTH Arusha Cooray This study examines the effect of the quantity and quality of education on economic growth. Using a number of proxy variables for the quantity and quality of education in a cross section of low and medium income countries, this study finds that education quantity when measured by enrolment ratios, unambiguously influences economic growth. The effect of government expenditure on economic growth is largely indirect through its impact on improved education quality. Submission Date: 18-04-2011 23:42 Taiwan’s trading arrangements and industrial location I-JU TSAI Kenneth S. Lin A New Economic Geography model is used to assess the impacts of trading arrangements on industrial development in Taiwan, a small economy. Addressing a trading system with three regions—the small economy, the large economy (referring to mainland China), and the global market—the simulation results show that, without reducing the trade costs between the small economy and the global market and if the small and the large economy are integrated, the small economy will become a deindustrialized periphery. In contrast, if the trade costs between the small economy and the global market are reduced low enough—either by the small economy\\\'s adopting a global-market priority trading arrangement or by its serving as a hub—agglomeration of industry takes place in the small economy. Submission Date: 20-05-2011 21:27 ECONOMIC GROWTH AND FOREIGN DIRECT INVESTMENT IN MALAYSIA: EVIDENCE FROM EMPIRICAL TESTING Mori Kogid Jaratin Lily Rozilee Asid Dullah Mulok Nanthakumar Loganathan This study attempts to investigate the crucial relationship between FDI and economic growth in Malaysia for the period of 1971 to 2009 by considering the FDI net flows as an indicator for FDI growth. Using the Johansen and VECM approach in analyzing this relationship, the empirical results showed the existence of a long-run cointegration relationship between the FDI and the RGDP. In addition, a causal effect exists running from the FDI to the RGDP implying that FDI does influence economic growth. Therefore this study proposes the importance of inward FDI as a paramount factor to accelerate the economic development of a country, especially Malaysia, and could be taken as one of the key factors to stimulate the economy and for future economic development policy. Submission Date: 24-05-2011 19:14 Does Armey Curve Exist in OECD Economies? A Panel Threshold Approach younes nademi Esmaiel Abounoori Haniye Sedaghat Kalmarzi We apply modified Ram (1986) model by Chen and Lee(2005) to estimate the threshold regression model for OECD countries, concerning the effect of government size on economic growth. The results show a non-linear relationship of the Armey curve in OECD countries, in which the threshold effect corresponding to final government expenditure share in GDP of about 20%. Submission Date: 20-08-2011 07:19 TOP Tax system - A new taxation system VIJAYA VARMA I am suggesting new methods, models, and innovative and alternative policies in the areas of public finance, optimal taxation, tax collection, budget preparation, subsidies, money supply, and banking financial system to help remove corruption, tax evasion, economic recession, black money, fake currency and societal inequalities. In my opinion, the proposed TOP Tax system may usher in good governance, 100% tax compliance and corruption free environment. It suggests a single tax called Submission Date: 18-02-2011 22:08 Exchange Rate Sensitivity of Mexican Maize Imports from the United States: A Cointegration Analysis Rakhal Sarker Jose Luis Jaramillo-Villanueva Since the implementation of the NAFTA in 1994, agri-food trade between Mexico and the United States grew substantially. While some analysts argue that NAFTA has contributed the most to the dramatic expansion of this trade, others emphasized the role played by exchange rate in this process. An attempt is made in this paper to address this issue by determining the extent to which NAFTA, expansion of the livestock sector, changes in exchange rate and exchange rate variability have contributed to the expansion of Mexican maize imports from the United States from January 1989 to December 2004. The results from cointegration analysis demonstrate that changes in exchange rate, per capita income in Mexico and livestock inventory all have significant positive effects on Mexican maize imports from the United States in the long-run. In the short-run, however, NAFTA has been the most important driver of maize imports by Mexico from the United States. Submission Date: 10-05-2011 12:48 Financial Market Liberalization, Monetary Policy, and Housing Sector Dynamics Rangan Gupta Marius Jurgilas Stephen Miller Dylan van Wyk This paper considers how monetary policy, a Federal funds rate shock, affects the dynamics of the US housing sector and whether the financial market liberalization of the early 1980’s influenced those dynamics. The analysis uses impulse response functions obtained from a large-scale Bayesian vector autoregressive model at the national and four census regions. Overall, the 100 basis point Federal funds rate shock produces larger effects on the real house prices, both at the regional level and the national level, in the post-liberalization period when compared to the pre-liberalization era. While the precision of the estimates do not imply significant differences, the finding does offer a caution. That is, the housing market appears more sensitive to monetary policy shocks in the post-liberalization period. Thus, the monetary authorities may need to exercise more care in implementing Federal funds rate adjustments going forward. Finally, we find that the reaction of housing sector proves heterogeneous across regions. Submission Date: 19-05-2011 02:51 Long-Run Determinants of Housing Price in India Mantu Kumar Mahalik The study empirically examines key determinants of housing price in the Indian dwellings market. Employing cointegration and VAR models, estimates from the former show that in long-run, it is the real per capita income which is a potential source of demand has the most dominant positive influence on housing prices while real BSE index, real effective exchange rate and real non-food bank credit surprisingly have adverse influences. The variance decomposition results of VAR suggest that besides its own disturbance explaining significant proportion of variation in housing prices, supply side factor (bank-credit) accounts for major variation while demand factors contribute marginally. Submission Date: 10-08-2011 11:17 Monetary Policy and Credit Demand in India and Some EMEs Bansi Lal Pandit Pankaj Vashisht Impact of changes in policy rate of interest on demand for bank credit is examined for seven emerging market economies including India for the period 2002 to 2010.Panel data techniques are used after ruling out the presence of unit roots. The results show that when other determinants, like domestic demand pressure, export demand and impact of stock market signals are controlled for, change in policy rate of interest is an important determinant of firms’ demand for bank credit. The results confirm that monetary policy is an important countercyclical tool for setting the pace of economic activity. Submission Date: 10-05-2011 04:51 An Estimated Dynamic Stochastic General Equilibrium Model for Estonia Paolo Gelain Dmitry Kulikov This paper reports an estimated open economy dynamic stochastic general equilibrium model for Estonia. The model is designed to highlight the main driving forces behind the Estonian business cycle and to understand how the euro area economic shocks and its monetary policy affect the small open economy of Estonia. It is a two-area DSGE model incorporating New Keynesian features such as nominal price and wage rigidity, variable capital utilization, investment adjustment costs, as well as other “typical” features — both for the domestic and euro area part of the model. It is rich in structural shocks such as technology, consumption preference, mark-up, etc. The model is estimated by Bayesian techniques using a quarterly data sample that covers main macroeconomic aggregates of Estonia and the euro area Submission Date: 18-05-2011 03:37 Penalty mechanism design Pu-yan NIE Penalty is a crucial approach to maintain society in order in both legal and political philosophy. How to establish rational and efficient penalty is exceedingly important in practice in economics and politics and this paper explores the optimal mechanism design of the penalty. The penalty mechanism design theory under the monopoly is established and developed in this work. By establishing the penalty mechanism design model, this paper finds that stricter punishment can efficiently deter violation of the regulation and can decrease the profits of the monopolization. Furthermore, penalty can improve concavity such that it is easy to make decision for the firm and the strict penalty results in the optimal decision. We also show that punishment is in general costly, which is highly consistent with the phenomena in practice. Submission Date: 20-04-2011 19:49 Multiple Reserve Requirements and Equilibrium Dynamics in a Small Open Economy Wen-Yao Wang Paula Hernandez-Verme We modeled a typical Asian-crisis-economy using dynamic general equilibrium techniques and established exchange rates from nontrivial fiat-currency demands. The scope for existence of equilibria and dynamic properties are associated with the underlying policy regime. Binding multiple reserve requirements promotes stability under a floating exchange rate regime while backing the money supply acts as a stabilizer in a fixed regime. Submission Date: 01-03-2011 08:35 Foreign Central Bank Conservativeness and Unionized Wage Setting Attila Korpos The design features of central banks have international significance due to their impact on other countries. Domestically, a more conservative central bank generates a tighter policy, which reduces inflation fears, but meanwhile, it increases unemployment fears for labor unions (due to the trade-off along the Phillips curve). Therefore, domestic conservativeness has an ambiguous effect on real wage claims. This paper shows that a foreign central bank\\\\\\\'s conservativeness differs in impact, as it reduces both types of fears, and hence, it always deters real wage claims. Therefore, the home country has a clear interest in the design of an ultra-conservative or strictly inflation targeting foreign central bank. Submission Date: 02-03-2011 14:35 How responsive are real exchange rates in developing countries to terms of trade shocks? Lavan Mahadeva Juan Carlos Parra Alvarez In developing countries, policy assessments about the reaction of the domestic economy to external shocks depend on the degree of substitution between domestic and imported items. We estimate these key parameters for Colombia. We find that the input of the distribution sector in transforming imports is complementary, implying a great potential sensitivity of the Colombian economy to external shocks. However we also find that consumption imports at the point of sale are substitutes with domestic items. Even though the distribution sector is smaller, its influence may dominate because the responsiveness of the real exchange rate is highly nonlinear in the elasticity. Submission Date: 07-03-2011 14:46 The Credit Risk Management and Business Operation Decision of Automobile Loan for Bank Tyrone T. Lin Chia-Chi Lee You-Jie Lin This paper explores the influences of the approved results of loans cases, the borrower??s attributes, and the relationship between the borrower and the case bank on the overdue risks of automobile loans. The results can improve the credit quality and avoid the misjudgment of screening automobile loan customers and also establish a better automobile loan risk management forecasting model. Besides, the case bank has to identify and develop high-quality loan customers with different types of automobile loan products and provide them with exclusively customized services so as to acquire a balance between the risk management and loan business operation decision of the case bank. Submission Date: 20-12-2010 03:53 Simple Price-Level-Targeting versus Inflation-Targeting Monetary Policy Rules under Model Uncertainty Sebastian Schmidt This paper compares the performance and robustness of simple price-level-targeting (PLT) and inflation-targeting (IT) monetary policy rules in three non-nested models of the euro area. Taking advantage of the expectations channel, PLT outperforms IT in two out of the three models. However, the quantitative difference in the stabilization performance of the two types of policy rules is generally small. Optimal model-specific rules of both classes are not robust to model uncertainty but by taking a Bayesian policy approach it is possible to identify rules that perform well across all three models. While the Bayesian PLT and IT rules exhibit similar stabilization outcomes, minor perturbations in the policy parameters can lead to indeterminacy under IT. Submission Date: 10-03-2011 05:23 The Internal-External Debt Ratio and Economic Growth Tilemahos Efthimiadis Tsintzos Panagiotis In this paper we examine the effects of the ratio of internal to external public debt on a country’s economic growth. These effects are examined through a competitive, decentralized model of endogenous economic growth, which relies on public investments. Our findings show that as the internal-external public debt ratio increases, the public to private capital ratio increases which in turn positively affects the long run economic growth rate. The main conclusion of this paper is that the outflow of domestic capital which is needed to service external debt has unfavorable repercussions on an economy’s long run steady state growth rate. Submission Date: 03-02-2011 11:30 A Trend Deduction Model of Fluctuating Oil Prices ZhongXiang Zhang Haiyan Xu Crude oil prices have been fluctuating over time and by a large range. It is the disorganization of oil price series that makes it difficult to deduce the changing trends of oil prices in the middle- and long-terms and predict their price levels in the short-term. Following a price-state classification and state transition analysis of changing oil prices from January 2004 to April 2010, this paper first verifies that the observed crude oil price series during the soaring period follow a Markov Chain. Next, the paper deduces the changing trends of oil prices by the limit probability of a Markov Chain. We then undertake a probability distribution analysis and find that the oil price series have a log-normality distribution. On this basis, we integrate the two models to deduce the changing trends of oil prices from the short-term to the middle- and long-terms, thus making our deduction academically sound. Our results match the actual changing trends of oil prices, and show the possibility of re-emerging soaring oil prices. Submission Date: 02-03-2011 16:03 Effects of Monetary Policy Coordination on Small Open Economies Nilufer Ozdemir This paper proposes an innovative approach for analyzing the influence of external shocks on small open economies. This approach has two new features: First, it incorporates the role of large-country monetary policy coordination in influencing shocks. Second, it categorizes types of external effects into two. The direct effects are propagated by international market surprises. The indirect effects are the shocks which pass through another country before reaching the small open economy. Simulation results show that indirect effects are significantly large and their size depends on where the shock originated from and on the policy coordination regime followed by large countries. Submission Date: 25-02-2011 09:38 Structural heterogeneity and partial budgetary cooperation in a monetary union Severine Menguy The paper analyzes the usefulness of the budgetary cooperation in a monetary union, even if it is limited to a subgroup of countries with close structural characteristics. We find that its advantages depend on the nature of the shocks and on the width of the heterogeneities within the monetary union. The budgetary cooperation, between countries where the sensibilities of the economic activity to the public expenditures and to the foreign economic activity are sufficiently high, is beneficial to stabilize symmetrical demand shocks. It is beneficial to stabilize symmetrical supply shocks if it concerns a sufficiently large number of countries. On the contrary, the budgetary cooperation is generally detrimental to stabilize asymmetrical demand or supply shocks. Submission Date: 14-10-2010 09:20 Causality between Prices, Output and Money in India:An Empirical Investigation in the Frequency Domain Abodh Kumar Neeraj Hatekar Ashutosh Sharma The causation between output and prices has been intensively investigated in the Indian context. Decomposing the money-output causality by frequency is likely to be highly revealing about the underlying macroeconomic processes. In this paper, we examine this issue using a bivariate methodology developed by Lemmens et al. (2008) in order to decompose Granger causality between money supply, prices and output in the frequency-domain. The evidence suggests that money supply granger causes output over the short-run, but over the business cycle frequencies and in the long run, money supply Granger causes prices, not output. Submission Date: 10-02-2011 10:03 Solution of Stock Flow Consistent Macroeconomic Models Via the Gauss Seidel Algorithm Stephen Kinsella This paper builds and solves a stock flow consistent model in the tradition of Godley and Lavoie (2007). The goal of this paper is to develop a benchmark model that is both thorough and flexible enough to be applied to modern industrialized economies to aid monetary and fiscal policy decisions. The main difficulty with stock-flow consistent models is the complexity of the models and their solutions. To reduce the complexity of the solution of each model, an algorithm is developed using the Gauss-Seidel method. This algorithm is successful in solving the expansive linear system of equations representing our economy. Given our choice of parameters, our benchmark model achieves a steady state with an inflation rate of 2%, whilst maintaining full employment. Submission Date: 16-12-2010 16:18 Capital accumulation and TFP growth in the EU:a production-frontier approach Mª del Mar Salinas-Jiménez Submission Date: 30-11--0001 00:00 The Transitional Costs to Trade Liberalization: An Intertemporal General Equilibrium Model for Egypt Abeer Elshennawy Empirical studies of trade liberalization indicates that economies can experience adjustment costs during the course of trade liberalization. A leading World Bank study reveal that transitional costs are basically manifested in falling output, increasing pressure on the balance of payment and rising unemployment.Utilizing an Intertemporal General Equilibrium Model for the Egyptian Economy, this paper investigates the impact of trade liberalization on adjustment costs and assess the costs and benefits of a number of commonly prescribed adjustment policies including gradual reduction of tariffs, export and investment subsidies. The results of the model show that despite the low level of tariffs already existing, pressure on the balance of payment intensifies following trade liberalization Submission Date: 02-03-2011 14:00 Wage-Productivity Differentials and Indian Economic Efficiency Amarendra Sahoo Amarendra Sahoo Thijs tenRaa A frontier-general equilibrium analysis with skill transformation evaluates the productivities of skilled and unskilled labour and potential of the Indian economy. We compare the wages of skilled and unskilled labour between 1994 and 2002 with their respective productivities over this period. Education is considered to be responsible for the skill formation over this period: the change in skilled labour supply is endogenous in the model. Compared to its productivity, skilled labour is underpaid in the initial period and overpaid in the second period. Unskilled labour is underpaid in both periods. A decomposition exercise shows that skilled labour gains from free trade, and stands to lose due to education and domestic competition in the second period. The annualized rate of return to education is between 7 and 10 percent. The economy operates below its potential in both periods, particularly in the second—due to trade limitations and the failure to capture the return to education. Submission Date: 07-12-2010 03:57 An empirical analysis of the determinants of the labor force participation rate in Puerto Rico harri ramcharran This research empirically estimates the determinants of the labor force participation rate in Puerto Rico for the period 1987-2008. The estimated results indicate statistically significant coefficients for the variables real wages (labor income) and transfer payments (non-labor income). The implication of values of these coefficients is that transfer payment considerations are more important than labor income in determining labor supply choice and thus the LFPR. The variables indicating job opportunities and US- Puerto Rico economic linkage are not significant. Policies aimed at reforming the transfer payment mechanism to provide incentives to work are highly recommended. JEL classification: J21, J22. Submission Date: 21-11-2010 12:15 Supplementary Pension Insurance in Slovenia: An Analysis with an Overlapping-generations General Equilibrium Model Miroslav Verbic The article presents an analysis of supplementary pension insurance in Slovenia and its subsequent effects on welfare, macroeconomic variables and pension fund deficit with a dynamic OLG general equilibrium model. It has been established that the volume of supplementary pension saving is insufficient at present in Slovenia to compensate the deterioration of rights from the first pension pillar. Not only is the participation in the (voluntary) second pillar insufficient, but especially the premia are too low. The macro-economic consequences of introducing a fully-funded mandatory component of pension insurance would not be unfavourable. Increased pension saving reduces current consumption and increases the labour supply of active generations, but also increases the volume of disposable savings, so the increased investment may increase capital stock and production, which leads to an increase in economic growth and potential future consumption. Increased labour supply of insured persons would also lead to a higher volume of contributions for mandatory pension insurance, which would reduce the state pension fund deficit. Submission Date: 29-01-2008 00:00 The Poverty-Growth-Inequality Triangle Hypothesis: An Empirical Examination Abbas P. Grammy Abstract: This paper is motivated by empirical observations on the interaction between distribution and growth in reducing absolute poverty. Using data on sixty-six developing countries over the periods 1970-1979, 1980-1989 and 1990-1998, we find that improvement in income distribution is the key channel for poverty reduction. In addition, growth accompanied by improved distribution works better than growth and distribution alone, and that provision of civil liberties and political rights enable people to more actively participate in reducing poverty. Submission Date: 30-11--0001 00:00 Is a real monetary condietions index an important indicator for monetary policy in Malaysia Wai-Ching Poon Submission Date: 27-01-2007 00:00 Convergence clubs: geography and technology Judith Tomkins Alexiadis NA NA This paper investigates the extent of convergence amongst the 51 prefectures of Greece during the time period 1970-2000. The main objectives are to discover whether there is a convergence club amongst the regions, to establish whether there is a spatial pattern to club membership, to assess the impact of agglomeration effects and regional capacities to innovate or adopt technology and finally, to analyse the characteristics of convergence club members. The results suggest that there is a significant spatial dimension to regional growth and that members of the convergence club are not only in close spatial proximity but also share other characteristics in common. The analysis is also shown to have important implications for the direction of regional policy in Greece. Submission Date: 25-09-2006 00:00 Modeling Meat Supply Response under Rational Expectations and CAP Reforms: An Application to the Greek Sheep Industry Anthony Rezitis Submission Date: 29-08-2007 00:00 Welfare Effects of VAT Reforms: a general equilibrium analysis Brita Bye Str?m/Birger ?vitsland/Turid Indirect taxes such as value added taxes (VAT) generate a substantial part of tax revenue in many countries. In practise VAT systems are often characterised by exemptions, reduced rates and zero ratings. A non-uniform VAT system may generate an efficiency loss and encourage rent-seeking and tax fraud activities. It also has high administrative costs. We compare two different non-uniform VAT systems exemplified by the former and current Norwegian VAT systems, with a general and uniform VAT system. Our analysis shows that an imperfect extension of the VAT system to cover more services is welfare inferior to the baseline non-uniform VAT system only covering goods. However a general and uniform VAT system is welfare superior to both the non-uniform systems. Submission Date: 15-08-2008 00:00 Optimal fiscal and tax policies in a general equilibrium model of growth George Economides Vassilatos Vangelis This paper continues the study of optimal second-best economic policy in a growing general equilibrium economy. It considers the case in which a benevolent Ramsey-type government chooses optimally the income tax rate, as well as the allocation of the collected tax revenue among public consumption services, public investment and transfer payments. It then studies the properties of the chosen policies and their implications for the macro economy. Submission Date: 02-04-2008 00:00 Optimal Monetary Policy for a Small Open Economy Jose Angelo Divino This paper focuses on the design of monetary policy rules for a small open economy. The model features optimizing behavior, general equilibrium and price stickiness. The real exchange rate is shown to aﬀect the firm?s real marginal cost, aggregate supply and aggregate demand. The welfare objective depends on the openness of the economy, and the optimal policy rule diﬀers from that which obtains in a closed economy. The inflation versus output gap stabilization trade-oﬀ is caused by the real exchange rate. The implied optimal monetary policy regime is domestic inflation target coupled with controlled floating of the real exchange rate. Submission Date: 02-04-2008 00:00 Interactions between Finance and Growth Shu-Chin Lin Huang, Ho-Chuan (River) Suen, Yu-Bo Efforts devoted to estimating the effects of financial development on a nation\'s long-run economic growth have been hampered by the failure to account for the endogeneity of financial development. This paper employs a simultaneous equations model to tackle the reverse causation and endogeneity bias in the finance-growth nexus. The identification and estimation of the structural parameters of interest can be easily achieved by following the novel approach of Lewbel (2006). Using a broad cross-country data over the 1960-1995 period, we find strong evidence of simultaneity between financial intermediary development and economic growth, and the direction of causality runs both from finance to growth and in the opposite direction from growth to finance. That is, better functioning financial intermediaries foster economic growth, and faster rates of growth have beneficial impacts on the development of intermediation. Submission Date: 29-08-2007 00:00 Consumption in urban China and monetary policy: evidence from the 1990s Per-Ola Maneschiold This study utilizes cointegration theory and error-correction models to estimate a dynamic consumption function for urban China by use of monthly data for the 1990s. The error-correction model reveals a long-run relationship between real consumption, real disposable income, the short-term interest rate and inflation. A structural break is located to September 1996 indicating that inflation is in relative terms more important to the consumption decision in the post-break period still with income as the most important variable. As inflation seems to be more relevant to household consumption decisions in urban China than the nominal interest rate, the policy variable for the People?s bank of China, a strict inflation target for the central bank might increase the effectiveness in monitoring consumption. Submission Date: 30-11--0001 00:00 Does the internet Stimulate Inward Foreign Direct Investment? Changkyu Choi This paper studies the effect of the Internet on the volume of inward foreign direct investment (FDI). The Internet is assumed to induce more FDI by improving productivity. Using bilateral FDI data from 14 source countries and 53 host countries, cross-country empirical regressions based on a gravity FDI equation are performed. We found by ordinary least-squares and weighted least-squares analysis that when the number of the Internet hosts or users in a host country increased by 10%, FDI inflows increased by more than 2%. Submission Date: 21-10-2001 00:00 Welfare and Distributional Impact of Financial Liberalization in Nepal Keshab Bhattarai From analyses of results from a dynamic CGE model of Nepal we argue that by equalizing rates of return across sectors financial liberalization improves efficiency and brings more equal distribution of income. Rural households gain more than urban households from liberalised financial markets over time. Submission Date: 10-02-2002 00:00 Systematic risk in a mature, export oriented industry in a small open economy: The Canadian forestry industry Perry Sadorsky Henriques, Irene Changing conditions in the domestic and global economic environment, and at the industry level can impact a company\'s systematic (market) risk. Changing systematic risk can, in turn, impact a firm\'s current business performance and its future strategic options. This is particularly true of a mature, export oriented industry located in a small open economy. This paper investigates the determinants of systematic risk in the Canadian forestry industry. Daily data are used to estimate quarterly market betas. Although the average firm market beta is 0.62, the quarterly market betas show some variation across both time and cross-section. The results indicate that forest product commodity prices, the term premium, the exchange rate between the Canadian and the American dollar, and firm market value are each statistically significant determinants of systematic risk in the Canadian forestry industry. This paper shows that the financial markets take these factors into account when determining systematic risk. These results are useful for managers, planners, policy makers, and investors who are interested in the Canadian forestry industry. Submission Date: 03-04-2002 00:00 Effects of Trade Liberalization on Domestic Prices: The Evidence From Korea, 1983-1995 Yung Yang Min Hwang This paper presents estimates of the competitive effect of trade liberalizationi on the domestic pricing behavior of Korean manufacturing, utilizing panel data for 18 manufacturing sectors at the 3 digit SIC level over five 3-year periods during 1983-1995. The theoretical framework is based on an oligopolistic model of price determination in an open econmy. Our results indicate that there was a restraining effect from import competition on domestic prices in Korea. One implication is that trade policy should be viewed as another viable policy option to promote domestic competition. Submission Date: 17-04-2002 00:00 An Empirical Examination of the Relationship Between Central Bank Intervention and Exchange Rate Volatility: Some Australian Evidence Michael McKenzie Arguably, market stability is one of the primary reasons behind government intervention in the foreign exchange market. Whether or not the authorities achieve this goal is an empirical matter and testing of this issue is made difficult by the fact that government intervention and exchange rate volatility may be jointly determined. In this paper, the extent to which volatility drives intervention is considered using PROBIT analysis. The results suggest that while support for the hypothesis exists, volatility on its own does not to provide enough information to allow us to accurately forecast government intervention. A modified GARCH model is then tested which incorporates the impact of government intervention in the mean and conditional variance equation. The evidence presented certainly suggest that the dynamics of the way in which the market evolves are different on the days where the central bank is active in the market. Submission Date: 01-04-2002 00:00 Poverty Alleviation Policies: The Problem of Targeting when Income is not Directly Observed Reynaldo Fernandes Anuatti-Neto / Francisco Pazello/ Elaine Toldo This paper aims to propose an indicator to evaluate the degree of targeting of programs to alleviate poverty, which weights success of reaching (families correctly included) and leakage (families wrongly included) in a social program. A proxy means-tested criterion is also proposed, based on estimation of the propensity score (the probability of a family being poor, conditional on covariates). This criterion consists of choosing a cut-off value for the propensity score in such a way as to maximize the proposed indicator. An application of the indicator to the metropolitan regions of Brazil is carried out. It is shown that even when there is a social consensus that policies should be directed toward the truly needy families, a significant degree of mistargeting can persist. Submission Date: 01-04-2002 00:00 An estimation of U.S. Industry-level Capital-Labor Substitution Elasticities: Cobb-Douglas as a Reasonable Starting Point? Edward Balistreri McDaniel/Christine Wong/Eina A key parameter that determines the distributional impacts of a policy shift in general equilibrium models is the elasticity of substitution between capital and labor. Despite the importance of this parameter in applied modeling, its identification continues to pose a challenge. Given the structure of most growth models, we posit that the true relationship between capital and labor is likely to be close to Cobb-Douglas. Using a rich new data set from the Bureau of Economic Analysis, we estimate substitution elasticities for 28 industries, which cover the entire economy, and provide an indication of the long- and short-run estimates. We fail to reject the Cobb-Douglas specification in 20 of the 28 industries. These findings lend support to the Cobb-Douglas specification as a transparent starting point in simulation analysis. Submission Date: 28-05-2002 00:00 Fiscal Reform in Mexico. A General Equilibrium Assessment. Horacio Sobarzo This paper reports the results of an applied general equilibrium model built to evaluate a recent fiscal reform initiative of the Mexican government. Treating public revenues as endogenous and tax rates as exogenous variables, the model explicitly incorporates both the tax structure and the oil exporting sector as important sources of government revenues. The results confirm that the fiscal problem in Mexico lies in the low degree of tax compliance and not so much in the level of tax rates or fluctuations of the world oil price. A fiscal reform aimed at widening the value added tax base does not seem to have strong income distributional effects. To the extent that developing countries normally face difficulties for raising revenues from direct taxation, given the bad income distribution, these results are important. Submission Date: 29-05-2002 00:00 Trade reform and employment re-allocation in Kenya Jorgen Levin The Kenyan reform programme of the 1990s was disappointing with regard to both per-capita income and employment growth. When trade was liberalised in tandem with labour market rigidities and retrenchment of public employees, this had a significant negative impact on employment generation and households well being. In response to this, activities within the informal sector increased tremendously, and an increasing number of individuals were forced to live below the poverty line. When labour markets are functioning poorly facilitating operations of the union could generate a positive impact not only too members of the union but also to the non-union members. Submission Date: 22-09-2002 00:00 Growth, Employment and Wage Formation Valeri Sorolla Raurich, Xavier We develop an endogenous growth model with a non-competitive labor market characterized by a monopoly union in order to study the relation between growth and employment. We show that if there is wage inertia, economic growth positively affects employment in the long run. We also use the model to analyze the effects on employment and growth of increasing public capital. Submission Date: 09-06-2004 00:00 Implicit Government Guarantees, Debt Maturity, and the Efficiency of Debt Markets Yehning Chen This paper studies how implicit government guarantees affect firmsÂ¡Â¦ debt maturity choices and the efficiency of debt markets. It is found that a firm whose debts are implicitly guaranteed by the government will prefer short-term debt financing if the profitability of its investment project is volatile or if the governmentÂ¡Â¦s policy on providing implicit debt guarantees is stable. It is also found that implicit government guarantees may induce debt issuers to prefer a less efficient debt market. These results imply that implicit government guarantees may increase rather than decrease the chance of a financial crisis. Submission Date: 06-09-2004 00:00 Monetary stabilisation in a currency union: The role of catching up member states Marcelo Sanchez We examine the conduct of monetary policy in the face of aggregate and sectoral productivity shocks. The stabilisation performance of a currency union depends on the distribution of shocks across the union, as well as on key parameter values. In the case of uniform structural parameters, the currency union exhibits better stabilisation properties than autonomous monetary policy. Catching up member states are likely to imply cross-country specificities in structural parameters and disturbances. When we allow for country-specific trade-offs between output and inflation, autonomous monetary policy is found to dominate a currency union if member states face idiosyncratic or asymmetric sectoral productivity shocks. In addition, numerical simulation results indicate that the currency union\'s performance depends on the relative importance of aggregate and sectoral productivity disturbances. Catching up countries would benefit from preserving monetary policy autonomy in case intense sectoral readjustments represent the dominant feature of their economies. Submission Date: 30-09-2005 00:00 Exports and productivity in a small open economy: A Causal Analysis of Aggregate Norwegian Data Erik Nesset The direct link from growth in productivity - the export-led growth hypothesis - is analysed using aggregeted Norwegian quarterly time series from 1968 to 1992. By applying techniques of multivariate cointegration, a statistical congruent vector autoregression (VAR) model serves as a general point of departure for structural testing and identification of causal links. The results show that labour productivity can be regarded as \ Submission Date: 28-05-2002 00:00 Seeking Information: The Role of Information Providers in the Policy Decision Process Otto H. Swank The consequences of many policies are complicated and difficult to foresee. Those who are capable of providing information to policy makers often have a vested interest in the outcomes. This gives them an incentive to distort information to manipulate policy decisions. In this article we argue that reputation or penalties for lying do not always induce information providers to tell the truth. Rather than relying on interested parties, policy makers can create public agencies to collect information about policy consequences. This has the advantage that policy makers can affect the preferences of the information provider. The drawback is that public agencies must exert efforts to collect information. We argue that policy makers create public agencies whose preferences deviates from their own preferences. Submission Date: 01-04-2002 00:00 New Economy and Dollar Puzzle Neil Karunaratne Submission Date: 25-11-2001 00:00 Investment, Markup and Capacity Utilization in Tunisia Riadh Ben Jelili Submission Date: 28-05-2002 00:00 Financial Development and Money Demand in Tunisia Adel Boughrara Submission Date: 09-02-2002 00:00 Relative price shocks and food imports under structural adjustment programs in West Africa Joseph Kargbo Submission Date: 01-04-2002 00:00 Exchange Rates and Stock Prices: Implications for EU convergence Bruce Morley Submission Date: 02-04-2002 00:00 The Optimal Taxation of Foreign Source Investment Income Leslie Hull Current tax rates on capital gains earned by foreigners are either positive or zero in most countries. This paper presents a model of optimal taxation on capital gains earned by foreigners that yields positive optimal tax rates under very general conditions. The optimal portfolio implied by the model mimics the home bias seen in actual portfolios. Simulations are presented which model these tax rates between two symmetric countries and between the United States and the United Kingdom. Submission Date: 03-06-2002 00:00 Estimating the Effects of Monetary Policy Shocks: Does Lag Structure Matter? Douglas McMillin Submission Date: 28-05-2002 00:00 Purchasing power parity and economic integration among caribbean countries: Evidence from the 1980s and 1990s Raj Aggarwal Simmons, Walter This study documents that Purchasing Power Parity seems to hold for the 1980s and the 1990s among the currencies of the Caribbean. In addition, this study presents evidence of some economic integration and of currency blocs in the region as it documents co-integration among real exchange rates in the Caribbean for the 1990s (after the economic reforms of the late 1980s and early 1990s). These findings mean that currency risks of foreign investments in the Caribbean region can be hedged using common instruments. These findings also have other important implications for policy makers, managers, investors, and scholars interested in the Caribbean region. Submission Date: 28-05-2002 00:00 Government Expenditure and Economic Growth in South Africa Akinboade O.A Submission Date: 12-01-2003 00:00 Optimal Patent Length in a North-South Framework: A comment Swapneddu Banerjee Kabiraj Tarun We show that under some conditions the non-innovating south gives patent protection for a longer period than the north. A cooperative patent agreement involves a larger protection by each country compared to the non-cooperative situation. Submission Date: 04-02-2005 00:00 Sectoral Linkages and Industrial Efficiency:A Dilemma or a Requisition in Identifying Development Priorities? Vangelis Tzouvelekas Karagiannis Giannis This paper attempts to provide an empirical evaluation of the potential relationship between sectoral linkages and technical efficiency using the 1996 US input-output tables. Sectoral input-oriented technical efficiency is obtained by the econometric estimation of a stochastic input-distance function based on Battese and Coelli (1995) model formulation. On the other hand, sectoral backward and forward linkage coefficients were computed using the non-complete hypothetical extraction method suggested by Dietzenbacher and Van der Linden (1997). The empirical results suggest that there is a negative relationship between sectoral efficiency and linkage coefficients, while on the other hand efficient sectors tend to purchase their intermediate inputs from efficient sectors and vice versa. Submission Date: 14-05-2005 00:00 The Impact of Trade liberalization and Government Risk Attitudes on Food Security and Price Stability--An Application on Taiwan Rice Chi-Chung Chen Submission Date: 14-10-2005 00:00 The Welfare impact of the exchange rate adjustment in Seychelles and possible mitigation mechanisms Oleksiy Ivaschenko In this paper, we investigate the potential welfare impact of the currency devaluation planned by the Seychelles? authorities. The changes in wages and prices that are likely to be triggered by devaluation are estimated separately using the financial programming model. We apply those predicted changes to the unit record household survey data to analyze the impact of devaluation on poverty and inequality. We also investigate how effective and costly are various policies designed to mitigate the adverse effects of devaluation. The results indicate a relatively small negative impact of devaluation on the incidence of poverty and effectively no impact on inequality. The relative loss in per capita expenditure varies from 5% for the poorest to 10% for the richest quintiles of the expenditure distribution. Even in the absence of any mitigation policies the occurred welfare losses can be regained by two consecutive years of per capita GDP growth of 3% per annum that is predicted to result from devaluation. The estimates suggest that the policy of keeping social spending constant, or slightly increased, in real terms is consistent with ensuring that poverty remains at its present levels despite devaluation. This policy is better targeted to the poor and more cost-efficient than the policy of subsidizing the prices of food staples. Submission Date: 09-10-2005 00:00 Impacts of Regional Economic Integration on Industrial Relocation through FDI in East Asia Young-Han Kim Submission Date: 30-11--0001 00:00

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