the structure of unemployment we test for a unit root in postwar unemployment rates for sixteen oecd countries when a one time structural break is incorporated the unit root hypothesis can be rejected for most of the countries and the measured persistence of unemployment falls dramatically we then test for multiple structural changes and find evidence of one or two breaks for those countries for which the unit root hypothesis could be rejected almost all of the breaks are positive reflecting the sustained rise in european unemployment the major exception is the united states where long term unemployment rose in the 1970s and fell in the 1980s

optimal voting rules under uncertainty the theory of constitutional choice of voting rules developed by buchanan and tullock is an extended to an explicit decision theoretic form voters in the constitutional position choose what they believe will be their optimal share or majority rule for making social decisions by maximizing their individual expected utility from the anticipated social decisions under conditions of uncertainty the rule that maximizes expected social benefits depends upon 1 the expected distribution and intensity of preferences on future issues and 2 the decisionmaking procedures and costs decisionmaking and external costs are shown to be interrelated following this analysis failure to pass laws imposes external costs in the same way that passing them does so that the optimal majority may be lower when desirable laws are viewed as changing over time decisionmaking costs depend upon the way in which voters are persuaded to support or oppose bills upon the distribution of preferences on bills and on vote trading possibilities if vote trading is almost costless a wide range of decision rules has nearly equal social benefits finally the model is used to discuss optimal voting rules for several decisionmaking bodies

global liquidity through the lens of monetary aggregates this paper examines how the financial activities of non financial corporations nfcs in international markets potentially affects domestic monetary aggregates and financial conditions monetary aggregates reflect in part the activities of nfcs who channel capital market financing into the domestic banking system thereby influencing funding conditions and credit availability periods of capital inflows are also those when the domestic currency is appreciating and such periods of rapid exchange rate appreciation coincide with increases in the central bank s foreign exchange reserves increasing the stock of narrow money the paper examines economic significance of cross country panel data on monetary aggregates and other measures of non core bank liabilities non core liabilities that reflect the activities of nfcs reflect broad credit conditions and predict global trade and growth

analyzing u s output and the great moderation by simultaneous unobserved components this paper seeks to determine the causal interaction between structural trend and cycle innovations in an unobserved components framework of aggregate output for the purpose of identification i propose allowing for shifts in volatility this strategy provides good estimation precision when applied to u s industrial production in the early 1980s predominance of cycle shocks gives way to strong negative spillovers of trend impulses consistent with real business cycle theories the coincident reduction of macroeconomic volatility was mainly caused by pronounced dampening of transitory disturbances this is in accordance with an important role of macroeconomic policy in explaining the great moderation

does trading votes in national elections change election outcomes although forbidden in democratic states a market for votes could improve efficiency this paper examines the way trading votes will change the outcome of an election a two party model with two phases is presented in the pre trading phase the two parties set their agendas consisting of a direct subsidy and an income tax in the trading phase voters buy and sell votes on the basis of rational voter behavior and a given income distribution it is shown that the outcome of the election depends mainly on how the selling voters are distributed among the voters

the economic psychology of stock market bubbles in china the chinese stock markets were extremely volatile during the period 2005 08 the shanghai stock exchange sse composite index increased more than sixfold from 1 012 in 2005 to 6 124 by the end of 2007 it then declined continuously to reach a low of 1 929 on 17 september 2008 or a drop of 70 per cent from its peak in less than 10 months although the market downturn may have been affected by the financial crisis in the united states and the rest of the world the extreme fluctuations of stock prices signify a big market bubble and the burst of that bubble must be explained by intrinsic characteristics or the economic psychology of chinese investors based on a detailed market data analysis this paper attributes the development of the stock market bubble to three key psychological factors greed envy and speculation and the burst of the bubble to three contrasting factors fear lack of confidence and disappointment it concludes that only after chinese companies become really commercialised and profitable and investors become rational can the stock markets become stable without extreme volatility as seen in the past government policies can play a role in soothing market volatility detrimental to shareholders and the wider economy but investors should not depend on government for making their own investment decisions journal compilation 2009 blackwell publishing ltd

diffusion of technical change and the decomposition of output into trend and cycle in this paper we argue that modelling the trend component in real gnp as a random walk is inconsistent with its interpretation as productivity growth as an alternative we specify the trend as an arima whose impulse response function follows an s shaped pattern reflecting the process of diffusion of technical change such an arima is employed to build and estimate an ucarima using usa postwar quarterly data we find that our model although more parsimonious fits the data equally well than the standard random walk plus ar 2 cycle moreover our model has a very low cycle trend variance ratio

price discrimination in the airline market the effect of market concentration we test the hypothesis that price discrimination increases with competition in the airline market using a large cross section of tickets offered by several carriers on various routes we approximate price discrimination with marginal implicit prices of ticket restrictions that carriers typically use to price discriminate saturday night stayover re quirements and advanced purchase discounts we find that the restrictions are associated with lower airfares but that the discounts are smaller on routes with higher market concentration the results suggest that price dispersion attributed to ticket restrictions increases as markets becomemore competitive

zero interest rate policy and unintended consequences in emerging markets since 2009 central banks in the major advanced economies have held interest rates at very low levels to stabilise financial markets and support the recovery of their economies this paper outlines the unintended consequences of the prolonged period of very low world funding interest rates in emerging markets the paper is informed by a mises hayek bis view on credit booms and mises law of unintended consequences consistent with the presented credit boom view i provide evidence that the very low world funding interest rates are associated with a rise in volatile capital flows and asset market bubbles in fast growing emerging markets in line with mises law i further show that these unintended consequences give rise to a new wave of interventionism as policymakers in emerging markets increasingly reintroduce financially repressive measures to isolate the economies from foreign capital inflows

okun s law theoretical foundations and revised estimates okun s law has been accepted as an empirical regularity that predicts a 3 percentage point increase in output for every 1 point reduction in the unemployment rate but only because other facts such as weekly hours induced labor supply and productivity tend to rise as well when output gaps are estimated for the u s economy with a production function approach using two different data sets for potential output and nairu it is found that the marginal contribution of a 1 point reduction in unemployment is only about two thirds percent increase in output changes in weekly hours and capacity utilization have independent effects on the output gap copyright 1993 by mit press

an unobserved components model that yields business and medium run cycles we generalize the unobserved components uc model to allow the permanent component to have different dynamics than the transitory components when decomposing u s economic activity using a multivariate uc model of log output consumption and investment we find that these proposed dynamics in the permanent component are statistically significant and distinct from those of the transitory components our approach provides an alternative explanation for the growth cycles identified by comin and gertler 2006 that is related to the cyclical movements in technology in a framework consistent with the beveridge and nelson 1981 decomposition

vote trading with and without party leaders two groups of voters of known sizes disagree over a single binary decision to be taken by simple majority individuals have different privately observed intensities of preferences and before voting can buy or sell votes among themselves for money we study theoretically and experimentally the implication of such trading for outcomes and welfare when trades are coordinated by the two group leaders and when they take place anonymously in a competitive market the theory has strong predictions in both cases trading falls short of full efficiency but for opposite reasons with group leaders the minority wins too rarely with market trades the minority wins too often as a result with group leaders vote trading improves over no trade with market trades vote trading can be welfare reducing the theoretical predictions are strongly supported by the experimental data

the time varying nairu and its implications for economic policy the nairu the unemployment rate consistent with a constant rate of inflation is estimated in this paper as a parameter allowed to vary over time value is determined in an econometric model where the inflation rate depends on its past values demand and supply shocks the nairu estimated for the gdp deflator varies over the past forty years within 5 4 to 6 5 percent its estimated value for the most recent quarter 1996 q2 is 5 6 percent the nairu has declined in recent years in response to global competition immigration other factors weakening labor s bargaining position and the rapidly declining prices of computers and other electronics

an examination of the market for favors and votes in congress this paper examines the strategies that horse traders and power brokers adopt in trading favors to pass legislation although the favors that they trade are generally impossible to observe the paper develops a model that allows tests of favor trading with data from the senate vote on the byrd amendment to the 1990 clean air act i conduct such a test the test provides evidence that on this vote i favor trading occurred ii the coalition leaders practiced price discrimination and iii the coalition leaders did not collude with each another

estimating the natural rate of unemployment and testing the natural rate hypothesis how should one measure the natural rate of unemployment this paper proposes a systems procedure as an alternative to nairu the natural rate is treated as an unobserved state variable in a system that includes measurement equations for the unemployment rate the rate of wage growth and the rate of inflation the model is derived from a version of the wage bargaining model of blanchard and embodies a version of the natural rate hypothesis the model is estimated by embedding the kalman filter within the full information maximum likelihood procedure for us data the estimated model implies substantial post war variation in the natural rate and a negative but weak effect of inflation surprises on unemployment copyright 1999 john wiley sons ltd

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

the german unemployment since the hartz reforms permanent or transitory fall the hartz reforms were designed to make the german labor market more flexible in order to reverse the increasing trend of unemployment this paper employs unobserved components models in order to distinguish permanent from transitory movements in the german unemployment rate our results show that the permanent component of the german unemployment was reduced in the range of 1 1 and 2 6 percentage points after the hartz reforms

new measures of the output gap based on the forward looking new keynesian phillips curve abstract forward looking versions of the new keynesian phillips curve imply that the output gap the deviation of the actual output from its natural level due to nominal rigidities drives the dynamics of inflation relative to expected inflation we exploit this to set up a bivariate unobserved component model for extracting new estimates of the output gap in the us the gap estimates are large and persistent even after allowing for correlated trend and cycle shock we then augment our model to use the information in the unemployment rate the estimates confirm the presence of a large and persistent cyclical component

has ryanair s pricing strategy changed over time an empirical analysis of its 2006 2007 flights abstract this paper analyzes the question of whether ryanair s pricing strategies have changed over time we create a panel dataset of fares for all of ryanair s european flights over a two year period from 1 january 2006 to 31 december 2007 we calculate the average fare over a 90 day period prior to departure and the intensity of dynamic pricing for each flight in the panel in particular analysing the changes in these variables observed between pairs of equivalent flights our results show that overall both average fares and the intensity of dynamic pricing decreased in 2007 more than one third of flights saw a price reduction of more than 10 now that it has become the dominant low cost carrier in europe ryanair appears to be softening its dynamic pricing activities on existing routes typically employed to stimulate additional touristic demand thus booking in advance becomes relatively more expensive

term premia and inflation uncertainty empirical evidence from an international panel dataset this paper provides cross country empirical evidence on bond risk premia i construct a panel of zero coupon nominal government bond yields spanning ten industrialized countries and nearly two decades i hence compute forward rates and then use two different methods to decompose these forward rates into expected future short term interest rates and term premiums the first method uses an affine term structure model with macroeconomic variables as unspanned risk factors the second method uses surveys i find that term premium estimates declined across countries over the sample period especially in countries that appear to have reduced inflation uncertainty by making substantial changes in the monetary policy frameworks of their central banks during the recent financial crisis term premiums have remained flat and even declined further in some countries perhaps reflecting the effects of quantitative easing actions by many central banks

the effects of logrolling on congressional voting the theoretical public choice literature suggests that vote trading is an important determinant of congressional voting behavior yet empirical voting models do not allow for vote trading these models recognize that observed ideology may influence legislative behavior but do not correct for unobserved ideology this study devises new tests for logrolling and ideology the empirical model controls for logroll agreements and unobserved ideological interest via the correlation of unobserved variables the results reflect the presence of vote trading coalitions on some votes but not on others the results cast doubt on the importance of personal ideological interests of legislators copyright 1992 by american economic association

scale economies and rent seeking in legislative parties this paper examines equilibrium legislative party size based upon scale economies in producing political outcomes political production finding policies legislators desire and votetrading to pass them has strong scale economies up to but not far beyond a majority of the voters either one or two parties is efficient but a larger number is not a single party s optimal long run strategy is to benefit a dominant majority by avoiding the creation of an effective second party but short term rent seeking is in legislators and leaders interests which eventually causes a second effective party and a stable two party equilibrium estimates of party size for the u s congress suggest considerable short term rent seeking

capital flows to emerging economies minsky in the tropics capital inflows to emerging economies have a significant exogenous component they are very large when scaled to the size of the domestic financial sectors of recipients and they have large real macroeconomic effects they also sow the seeds for the ensuing sudden stops or capital flow reversals observed in financial crises in emerging markets this paper tests the implications of applying the kindleberger minsky model of financial crises to capital account reversals in emerging economies or sudden stops as they have been called in the recent literature it uses a panel probit framework with heterogeneous unobserved country effects the most important variables that account for sudden stops are preceding capital surges the share of flows other than foreign direct investment the size of the current account deficit contagion from sudden stops in other emerging markets and the ratio of external debt to exports the main policy conclusion is that emerging economies need specific policies to deal with capital surges in addition macroeconomic policies geared toward preserving sustainable macroeconomic balance may be necessary to avoid sudden stops but they are clearly insufficient copyright the author 2010 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

the industrial organization of congress or why legislatures like firms are not organized as markets this paper provides a theory of legislative institutions that parallels the theory of the firm and the theory of contractual institutions like market institutions legislative institutions reflect two key components the goals or preferences of individuals here representatives seeking reelection and the relevant transactions costs we present three conclusions first we show how the legislative institutions enforce bargains among legislators second we explain why given the peculiar form of bargaining problems found in legislatures specific forms of nonmarket exchange prove superior to market exchange third our approach shows how the committee system limits the types of coalitions that may form on a particular issue

the median and the competitive equilibrium in one dimension two alternative models of legislative outcomes are the minimum winning coalition and the competitive equilibrium koford 1982 in a unidimensional setting the outcome under the former is the median while the outcome under the latter is the highest net demand location this paper describes the competitive equilibrium in a unidimensional model and shows that under some common conditions it coincides with the median in particular for pure redistributive issues however for distributive issues the two equilibria will differ finally the comparative statics of the two models are examined while the winning coalition is sensitive only to changes in the location of the median for distributive issues the competitive equilibrium has the standard economic comparative statics that the outcome adjusts in the direction of the change in preferences

democracy undone systematic minority advantage in competitive vote markets we study the competitive equilibrium of a market for votes where the choice is binary and it is known that a majority of the voters supports one of the two alternatives voters can trade votes for a numeraire before making a decision via majority rule we identify a sufficient condition guaranteeing the existence of an ex ante equilibrium in equilibrium only the most intense voter on each side demands votes and each demands enough votes to alone control a majority the equilibrium strongly resembles an all pay auction for decision power it makes clear that votes are only a medium for the allocation of power the probability of a minority victory is always higher than efficient and converges rapidly to one half as the electorate increases for any minority size the numerical advantage of the majority becomes irrelevant democracy is undone by the market

testing for volatility changes in u s macroeconomic time series we test for a change in the volatility of 214 u s macroeconomic time series over the period 1959 1999 we find that approximately 80 of these series have experienced a break in unconditional volatility during this period even though more than half of the series experienced a break in conditional mean most of the reduction in volatility appears to be due to changes in conditional volatility our results are robust to controlling for business cycle nonlinearity in both mean and variance volatility changes are more appropriately characterized as instantaneous breaks than as gradual changes nominal variables such as inflation and interest rates experienced multiple volatility breaks and witnessed temporary increases in volatility during the 1970s on this evidence we conclude that the increased stability of economic fluctuations is widespread

comovement in gdp trends and cycles among trading partners abstract it has long been recognized that business cycle comovement is greater between countries that trade more intensively with one another however nations face shocks to both the cyclical and trend components of their gdp series contrary to the result for cyclical fluctuations we find comovement of shocks to the trend component of real gdp is weaker among countries that trade more intensively with one another we simulate changes in ten year output growth correlations corresponding to the estimated effects of trade and show that the impact of trade on trend comovement is quantitatively more important than its effect on cyclical comovement

dynamic pricing advance sales and aggregate demand learning in airlines this paper uses a unique u s airlines panel data set to empirically study the dynamic pricing of inventories with uncertain demand over a finite horizon i estimate a dynamic pricing equation and a dynamic demand equation that jointly characterize the adjustment process between prices and sales as the flight date nears i find that the price increases as the inventory decreases and decreases as there is less time to sell consistent with aggregate demand learning and price adjustment demand shocks have a positive and much larger effect on prices than the positive effect of anticipated sales

a re examination of the fiorina plott and eavey voting experiments how much do cardinal payoffs influence outcomes abstract in fiorina and plott s 1978 classic committee voting experiments the players failure to choose the core is puzzling eavey 1991 ran the same experiments with different payoffs to see if the outcomes would change they did contrary to a core equilibrium this paper further examines the results using the individual and aggregate payoffs we examine whether the players maximize aggregate dollar payoffs or coalition aggregate payoffs they do not however the equilibrium moves in a direction consistent with the comparative statics of cardinal payoffs both core and cardinal payoffs seem to determine the results

new empirical generalizations on the determinants of price elasticity abstract the importance of pricing decisions for firms has fueled an extensive stream of research on price elasticities in an influential meta analytical study tellis 1988 summarized price elasticity research findings until 1986 however empirical generalizations on price elasticity require modifications because of 1 changes in market characteristics i e characteristics of brands product categories and economic conditions and 2 changes in the research methodology used to assess price elasticities therefore the authors present a meta analysis of price elasticity with new empirical generalizations on its determinants across a set of 1851 price elasticities based on 81 studies the average price elasticity is 2 62 a salient finding is that over the past four decades sales elasticities have significantly increased in magnitude whereas share and choice elasticities have remained fairly constant the authors find that accommodating price endogeneity has a strong magnitude increasing impa

overreaction in capital flows to emerging markets booms and sudden stops this paper applies the overreaction hypothesis of de bont and thaler de bont w thaler r 1985 does stock market overreact journal of finance 40 3 793 805 developed for stock price behavior to capital flows to emerging markets we find that a surge in capital flows or what we call a capital boom can predict future sharp contractions in capital flows or sudden stops we use a large list of possible economic fundamentals as control variables and the results show that the best predictor of a sudden stop is a preceding capital boom moreover the probability of a country undergoing a sudden stop increases considerably with the length of the boom this probability more than doubles when the boom is three years old and rises by three to four times when the boom lasts for four years these results are interesting for two reasons in the first place they contradict previous studies that emphasize worsening fundamentals as the ultimate cause of a sudden stop second they are of policy interest because of the enormous negative impacts that sudden stops have on the real economy

the empirics of international monetary transmission identification and the impossible trinity the transmission of monetary policy across borders is central to many open economy models research has tried to evaluate the impossible trinity through estimating international interest rate linkages under alternative exchange rate regimes using realized base country interest rates such interest rates include anticipated and endogenous elements which need not propagate internationally we compare international interest rate responses under pegged and non pegged regimes to identified unanticipated and exogenous u s interest rate changes and realized u s interest rate changes we find important differences in estimated transmission from the two sets of measures identified interest rate changes demonstrate a greater concordance with the impossible trinity than realized rate changes

a note on seniority and political competition seniority conveys political power to legislators despite the fact that all legislators have equally valuable voting power what prevents a coalition of junior members from exercising their political power to form a coalition and claim an equal share of the power by eliminating the benefits of seniority several models explain how valuable services are supplied by senior members so the returns to seniority may be looked at as compensation for their services this still does not explain why the providers of those services should be chosen based on seniority rather than on some other criterion

multi dimensional price elasticity for leisure and business destinations in the low cost air transport market evidence from easyjet this study investigates the price elasticity of demand in the european low cost carrier lcc industry by analysing internet fares for all easyjet flights departing from the amsterdam schiphol airport towards 21 european destinations between march and september 2015 results suggest that the price elasticity of demand greatly varies across different dimensions ranging from 0 535 for the business oriented route of hamburg to 1 915 for the leisure oriented route of split price elasticity is also found to be higher for reservations made more days in advance for reservations and departures occurring on weekends and for flights taking off during lunchtime and in the summer period all results are consistent with the different behaviours of leisure and business passengers and the ongoing increase in the business component of the lcc passenger mix

exchange market pressure in oecd and emerging economies domestic vs external factors and capital flows in the old and new normal abstract we study the ways domestic and external global factors such as risk appetite global liquidity u s monetary policy and commodity prices affected the exchange market pressure before and after the global financial crisis as well as the role of these factors during the federal reserve s tapering episode utilizing a comprehensive database on capital controls we investigate whether control measures have a significant impact on mitigating exchange market pressure associated with capital flows net and gross using quarterly data over the 2000 2014 period and a dynamic panel model estimation we find that external factors played a significant role in driving exchange market pressure for both oecd countries and emerging market countries with a larger impact on the latter while the effect of net capital flows on exchange market pressure is muted short term gross portfolio inflows and outflows comprise important factors that account for exchange market pressure short term portfolio flows and long term foreign direct investment flows have a significant impact on exchange market pressure for emerging market economies and no significant effect for oecd countries capital controls seem to significantly reduce the exchange market pressure although the economic size of this impact is highly dependent on the institutional quality

in search of the natural rate of unemployment abstract the natural rate of unemployment can be measured as the time varying steady state of a structural vector autoregression for post war us data the natural rate implied by this approach is more volatile than most previous estimates with its movements accounting for the bulk of the variation in the unemployment rate as well as substantial portions of the variation in aggregate output and inflation these movements in turn can be related to variables associated with labor market search theory including unemployment benefits labor productivity real wages and sectoral shifts in the labor market there is also a strong negative relationship between inflation and the corresponding measure of cyclical unemployment supporting the existence of a short run phillips curve

foreign exchange intervention in emerging markets a survey of empirical studies nowadays foreign exchange interventions occur in emerging market economies whereas empirical studies on interventions mainly refer to advanced economies however interventions in emerging markets are different from those in advanced economies they occur regularly and central banks have considerable leverage derived from relatively high reserves some non sterilisation the central bank s information advantage and capital controls consequently these interventions often successfully impact the level and volatility of exchange rates nevertheless more research on interventions in emerging markets is needed analysing the influence of heterogeneous institutional circumstances examining the role of central bank communication and using high frequency data

why so much stability an optimistic view of the possibility of rational legislative decisionmaking recent formal models of legislatures have proved that equilibrium outcomes are extremely unlikely without either 1 extreme restrictions upon preferences or 2 constraints upon the agenda the implication is that constant instability or dictatorial manipulation is the norm in politics

equilibrium and efficiency in an organized vote market we study an organized market for votes in which trade is directed by a market specialist this market mechanism always produces an equilibrium outcome and whenever vote buying occurs the alternative chosen is pareto superior to the alternative that would be chosen without trade we then characterize the equilibrium outcomes in a one dimensional policy space and show that if the distribution of ideal points is skewed enough then the equilibrium with vote buying differs from the equilibrium without vote buying the median ideal point this difference reflects the ability of an intense minority to obtain a policy it prefers in exchange for side payments

estimating and accounting for the output gap with large bayesian vector autoregressions we consider how to estimate the trend and cycle of a time series such as real gross domestic product given a large information set our approach makes use of the beveridge nelson decomposition based on a vector autoregression but with two practical considerations first we show how to determine which conditioning variables span the relevant information by directly accounting for the beveridge nelson trend and cycle in terms of contributions from different forecast errors second we employ bayesian shrinkage to avoid overfitting in finite samples when estimating models that are large enough to include many possible sources of information an empirical application with up to 138 variables covering various aspects of the us economy reveals that the unemployment rate inflation and to a lesser extent housing starts aggregate consumption stock prices real money balances and the federal funds rate contain relevant information beyond that in output growth for estimating the output gap with estimates largely robust to substituting some of these variables or incorporating additional variables

regional growth and unemployment in the medium run asymmetric cointegrated okun s law for uk regions this article tests for the presence of a medium run asymmetric okun s law relationship between regional output and regional unemployment rate in uk regions the test is performed with a panel data version of the hidden cointegration technique suggested by granger and yoon a novelty of the article is to combine the method of hidden cointegration with a panel data method of removing cross sectional dependence the medium run okun relationship for regions in the uk appears to confirm results found elsewhere in the literature on countries as a whole although the coefficients tend to be smaller

testing for time variation in an unobserved components model for the u s economy abstract this paper analyzes the amount of time variation in the parameters of a reduced form empirical macroeconomic model for the u s economy we decompose output inflation and unemployment in their stochastic trend and business cycle gap components with the latter linked through the phillips curve and okun s law a novel bayesian model selection procedure is used to test which parameters vary over time and which components exhibit stochastic volatility using data from 1959q2 to 2014q3 we find substantial time variation in okun s law while the phillips curve slope appears to be stable stochastic volatility is found to be important for cyclical shocks to the economy while the volatility of permanent shocks remains stable

logrolling in the u s congress i introduction a long standing question in political science is whether exchange occurs in legislatures as it is expected in any economy where the intensity of demand varies the issue was originally raised by buchanan and tullock 1962 and expanded by coleman 1966 and mueller 1967 the subsequent literature has produced numerous models of vote trading haefele 1971 riker and brams 1973 koford 1982a much of the work suggests that vote trading leads to chaotic results see for example riker and brams 1973 kramer 1977 and mckelvey 1976 currently vote trading s quantitative importance and optimality are unknown references to logrolling go back to the early literature in political science bentley 1907 refers to it and since then scholars such as mayhew 1966 and ferejohn 1974 have provided primarily anecdotal evidence for logrolling the economic analysis of logrolling has mostly been theoretical and little work has been done to assess the qualitative and quantitative importance of vote trading in legislatures however much might be learned from such analysis given the apparent puzzle that for most roll calls votes on parts of bills only a minority of districts stand to gain yet such proposals get passed until recently vote trading has not been identified empirically stratmann 1992 is the only paper that identifies vote trades statistically and it looks only at vote trades among agricultural interests however it would be interesting to know whether logrolling is prevalent in circumstances other than farm commodity programs we need to identify logrolling coalitions to assess how widespread logrolling agreements are we expect them to be common if the intensity of demand for legislation varies related to the issue of vote trading is the question of what factors determine congressional voting behavior major elements in a legislator s voting decision are constituency interests ideology party and perhaps vote trading one segment of the literature on congressional voting has focused on the role of political parties as an important force determining a legislator s voting decision some authors have argued that parties provide an organizational framework within which logrolling will happen see for example fiorina 1974 koford 1987 weingast and marshall 1988 johnson and stratmann 1992 alternatively lindsay and maloney 1988 suggest that party discipline forces a legislator to vote for or against a piece of legislation the latter view implies that on some issues party affiliation forces the legislator to vote against constituency interests 1 whether party affiliation is a signal to constituencies of one s overall propensity to vote on bills or a means to build coalitions or whether both elements are important is an unresolved question voting along party lines can be due to party loyalty or party pressure promoting the interests of one s constituency or logrolling within the party to answer questions about voting along party lines and about vote trading and coalitions within a quantitative framework one has to distinguish empirically between party loyalty and logrolling coalitions that are organized within a party empirical studies have typically included a party dummy variable in regression equations however if logrolling coalitions are organized within a party such a dummy variable will measure both potential party loyalty or potential party discipline and membership in a logrolling coalition this paper uses a different approach to separate the logrolling variable from the party loyalty variable and so distinguishes between voting for a proposal because of membership in a log rolling coalition organized by a party and because of potential party discipline this paper analyzes a broad range of votes where logrolling has been reported the analysis spans two congresses 1959 to 1962 and examines trades between interests favoring subsidies for city interests labor interests and farm interests

dynamic optimal taxation with private information we study dynamic optimal taxation in a class of economies with private information optimal allocations in these environments are complicated and history dependent yet we show that they can be implemented as competitive equilibria in market economies supplemented with simple tax systems the market structure in these economies is similar to that in bewley 1986 agents supply labour and trade risk free claims to future consumption subject to a budget constraint and a debt limit optimal taxes are conditioned only on two observable characteristics an agent s accumulated stock of claims or wealth and her current labour income we show that optimal taxes are generally non linear and non separable in these variables and relate the structure of marginal wealth and income taxation to the properties of agent preferences this paper studies optimal taxation in a class of dynamic economies with private information we consider an environment in which agents preferences are defined over consumption and labour and each agent receives a privately observed sequence of i i d preference shocks incentivecompatibility constraints stemming from private information imply that socially optimal or constrained efficient allocations in this environment are complicated and history dependent yet we show that they can be implemented as competitive equilibria in market economies supplemented with simple tax systems the market structure in these economies is identical to that in bewley 1986 huggett 1993 or aiyagari 1994 agents can trade current consumption for claims to future consumption subject to a budget constraint and a borrowing limit these claims have a non contingent pre tax return crucially taxes are conditioned upon only two observable characteristics of an agent current wealth given by the agent s accumulated stock of claims and current labour income they do not depend on any other aspect of an agent s past history most models of dynamic optimal taxation follow the ramsey approach in which the set of fiscal instruments available to the government is exogenously specified 1 linear labour and capital income taxes are typically included in this set while lump sum taxes are ruled out the exclusion of the latter is justified by appealing to incentive or administrative constraints but these are not explicitly modelled these exogenous restrictions on fiscal instruments represent frictions that the government seeks to ameliorate through its optimal choice of tax rates the approach we adopt in this paper builds on the optimal taxation literature initiated by mirrlees 1971 mirrlees assumes that agents receive privately observed shocks to their

logrolling under fragmented authoritarianism theory and evidence from china this paper provides a rigorous theoretical and empirical analysis of the effect of logrolling between interest groups on social welfare in a non democratic political system in particular we focus on china where bureaucratic interest groups are separate vertical organizations reaching down from beijing to the provinces and cities the key question in this paper is what are the effects of the logrolling of parochial interest groups on state policies and social welfare in autocracies we address this question both theoretically and empirically the theory predicts a specific distortion in resource allocation because of logrolling while the empirical results confirm the theoretical prediction we find policy outcomes under logrolling are characterized by excessive spending on all the interest groups preferred goods and insufficient spending on public goods we test the existence of logrolling between the ministry of civil affairs and ministry of health in china our result shows logrolling between the two ministries lead to inefficiencies in social security and health care policies

the asymmetric business cycle abstract the business cycle is a fundamental yet elusive concept in macroeconomics in this paper we consider the problem of measuring the business cycle first we argue for the output gap view that the business cycle corresponds to transitory deviations in economic activity away from a permanent or trend level then we investigate the extent to which a general model based approach to estimating trend and cycle for the u s economy leads to measures of the business cycle that reflect models versus the data we find empirical support for a nonlinear time series model that produces a business cycle measure with an asymmetric shape across nber expansion and recession phases specifically this business cycle measure suggests that recessions are periods of relatively large and negative transitory fluctuations in output however several close competitors to the nonlinear model produce business cycle measures of widely differing shapes and magnitudes given this model based uncertainty we construct a mode

why do all the flights leave at 8 am competition and departure time differentiation in airline markets abstract theoretical models of spatial product differentiation indicate that firms face two opposing incentives 1 minimize differentiation in order to steal customers from competitors and 2 maximize differentiation in order to reduce price competition using data on u s airline departure times from 1975 when fares were regulated and 1986 when fares were not regulated we empirically estimate the effect of competition on differentiation we find a negative relationship in both periods in 1986 however reductions in exogenous scheduling constraints increase differentiation implying that firms may be differentiating their products where possible to reduce price competition this effect is not apparent in the 1975 data

consumer s surplus without apology the purpose of this paper is to settle the controversy surrounding consumer s surplus and by so doing to validate its use as a tool of welfare economics i will show that observed consumer s surplus can be rigorously utilized to estimate the unobservable compensating and equivalent variations the correct theoretical measures of the welfare impact of changes in prices and income on an individual i derive precise upper and lower bounds on the percentage errors of approximating the compensating and equivalent variations with consumer s surplus these bounds can be explicitly calculated from observable demand data and it is clear that in most applications the error of approximation will be very small in fact the error will often be overshadowed by the errors involved in estimating the demand curve the results in no way depend upon arguments about the constancy of the marginal utility of income consequently this paper supplies specific empirical criteria which can replace the apologetic caveats frequently employed by those who presently apply consumer s surplus moreover the results imply that consumer s surplus is usually a very good approximation to the appropriate welfare measures to preview below i establish the validity of these rules of thumb for a

non optimal unanimous agreement in collective decision making unanimous agreement is accepted as a benchmark for economic efficiency because with everyone in agreement on an issue a pareto superior move will result from the issue s approval 1 this view of unanimous agreement is not completely accurate though because when unanimous agreement occurs under a less than unanimous decision rule a situation could arise in which individuals could agree with a majority in order to avoid being in the minority there is an important distinction to be made between a decision rule of unanimity and unanimous agreement under a less than unanimous decision rule under a unanimous decision making rule every voter has veto power and so can vote against an issue to keep it from being approved this means that under a unanimous decision rule nobody will approve an issue unless approval makes the individual better off that the status quo under a less inclusive rule like simple majority rule an issue can be approved without the vote of any particular voter as long as a majority of the voters approve typically the voter s single vote will not affect the outcome of a majority rule election thus the voter faces the more complex choice of being in the majority coalition or in the minority coalition sometimes a voter will be better off in the majority coalition than in the minority coalition even if changes proposed by the majority coalition make the voter worse off than the status quo therefore one would not be justified in concluding that because there is unanimous agreement on an issue everyone is made better off unanimous agreement under majority rule may result from all voters in a majority rule system being better off in the majority rather than the minority even if the change that is unanimously approved is not a pareto superior move 2 the general idea behind non optimal unanimous agreement is relatively straightforward under majority rule a majority has the power to exploit the minority 3 therefore under some situations everybody joins the majority on an issue even though some find themselves worse off when the

prices prices and prices a study in the airline sector abstract this article creates and empirically analyzes a dynamic pricing framework the model includes the main theories on prices in the literature and dynamically analyzes how companies change their pricing policies according to different circumstances through the use of regressions the article shows the relative long and short term impact on pricing equations strategic versus operational matters and on production conditions versus demand perspectives in the setting of operational prices in addition it highlights how the proportions of these pricing perspectives change in the airline sector according to the effect of the environment on the configuration of the strategy determined by monthly and hourly seasonality and also according to the nature of this competitive strategy determined by the characteristics of the company and the destination airport the results confirm our framework and show how firms combine the different perspectives in their pricing strategies

equilibrium price dispersion under demand uncertainty the roles of costly capacity and market structure when capacity is costly and prices are set in advance firms facing uncertain demand will sell output at multiple prices and limit the quantity available at each price i show that the optimal price strategy of a monopolist and the unique pure strategy nash equilibria of oligopolists both exhibit intrafirm price dispersion moreover as the market becomes more competitive prices become more dispersed a pattern documented in the airline industry while generating similar predictions the model differs from the revenue management literature because it disregards market segmentation and fare restrictions that screen customers

let s take a break trends and cycles in us real gdp abstract trend cycle decompositions for us real gdp such as the unobserved components models the beveridge nelson decomposition the hodrick prescott filter and others yield very different cycles which bear little resemblance to the nber chronology ascribes much movements to the trend leaving little to the cycle and some imply a negative correlation between the noise to the cycle and the trend we argue that these features are artifacts created by the neglect of a change in the slope of the trend function once this is accounted for all methods yield the same cycle with a trend that is non stochastic except for a few periods around 1973 the cycle is more important in magnitude than previously reported and it accords well with the nber chronology our results are corroborated using an alternative trend cycle decomposition based on a generalized unobserved components models with errors having a mixture of normals distribution for both the slope of the trend function and the cyclical component

low cost pricing strategies in leisure markets abstract the practice of dynamic pricing typical of low cost carriers is generally regarded as a form of price discrimination between leisure and business travellers on a single flight or route the same may not be true across different routes because of the different incidence of business travellers if price increases in the 15 days prior to departure are meant to discriminate business demand leisure demand should account for earlier price variations in the present study we used a database containing the daily fare over the 3 months prior to each flight operated by easyjet during 2009 for each route we defined the leisure index as the difference between the price rates of change during the 90 days and 15 days prior to departure overall business routes had lower average prices per km while leisure routes showed less dynamic price behaviour with higher minimum and lower maximum prices per km

estimating the u s output gap with state level data this paper develops a method to estimate the u s output gap by exploiting the cross sectional variation of state level output and unemployment rate data the model assumes that there are common output and unemployment rate trend and cycle components and that each state s output and unemployment rate are subject to idiosyncratic trend and cycle perturbations i estimate the model with bayesian methods using quarterly data from 2005 q1 to 2018 q2 for the 50 states and the district of columbia results show that the u s output gap reached about negative 4 6 around the years of the great recession and was about 0 9 in 2018 q2

monetary policy and financial spillovers losing traction abstract has financial globalisation compromised central banks effectiveness in managing domestic financial conditions this paper tackles this question by studying the dynamics of bond yields encompassing 31 advanced and emerging market economies to gauge the extent to which external financial conditions complicate the conduct of monetary policy we isolate a contagion component by focusing on comovements in measures of bond return risk premia that are unrelated to domestic economic fundamentals our contagion measure is designed to more accurately capture relative to simple yield correlation spillovers driven by exogenous global shifts in risk preference or appetite in contrast to what simple comovements in bond yields suggest emerging market economies appear to be much less susceptible to global contagion than advanced economies and the overall sensitivities to contagion have not increased after the global financial crisis the extent to which financial spillovers have compromised policy traction thus appears to be lower relative to studies based on common variation in bond yields

on the stability of legislative outcomes this paper argues that by arranging vote trades in the face of information costs legislative committees contribute to the stability of legislative outcomes a structure of permanent committees and subcommittees facilitates informational specialization and helps legislators acquire experience in their specializations committees arrange vote trades by adjusting amounts of recommended spending on separate items in bills that receive majority support each legislator is allotted a roughly equal amount of legislative spending that he can influence plus an additional amount that depends on his skill and experience as a committee member

a taxonomy and research overview of perishable asset revenue management yield management overbooking and pricing this paper proposes the term perishable asset revenue management to denote the field that combines the areas of yield management overbooking and pricing for perishable assets after summarizing the characteristics common to problems in this field the paper discusses the objectives and constraints faced by decision makers then it offers a comprehensive taxonomy with 14 different elements and reviews the research that has been done related to each element finally it suggests some important areas of future research that can help bridge the gap between theory and application

an output gap measure for the euro area exploiting country level and cross sectional data heterogeneity abstract this paper proposes a methodology to estimate the euro area output gap by taking advantage of two types of data heterogeneity on the one hand the method uses information on real gdp inflation and the unemployment rate for each member state on the other hand it jointly considers this information for all the euro area countries to extract an area wide output gap measure the setup is an unobserved components model that theorizes common output trend and cyclical components across euro area economies in addition to country specific counterparts i estimate the model with bayesian methods using data for the 19 countries of the euro area from 2000 q1 through 2018 q3 and perform model comparisons across different specifications of the output trend the estimation of the model preferred by the data indicates that because of negative shocks to trend output during the global financial crisis output was only slightly below potential in that period but an output gap of about negative 3 emerged during the european debt crisis at the end of the sample period output is estimated to be 3 5 above potential output which is growing at an average annual pace of only 0 5 in recent years

the cyclical component of u s economic activity quarterly data on industrial production and deflated gross national product in the united states from 1947 through 1985 are decomposed into independent nonstationary trend and stationary cycle components using kalman filtering and smoothing techniques estimates of the model parameters imply that at least half of the quarterly innovation in u s economic activity can be attributed to a stationary cyclical component that persists over periods of time as long as five years this finding is inconsistent with the hypothesis that most of the apparent variation in u s economic activity can be attributed to a nonstationary trend component

centralized vote trading this paper presents a model of centralized vote trading in a legislature in this model legislators trade only with party leaders who set prices at which they will buy needed vote changes and sell promises to pass or defeat particular bills each legislator trades away votes on bills of little concern to him and of high concern to leaders and purchases promises from the leaders to pass or defeat particular bills of high concern to the legislator relative to the price the leguslator must pay

inventory shocks and the great moderation why did the volatility of u s real gdp decline by more than the volatility of final sales with the great moderation in the mid 1980s one explanation is that firms shifted their inventory behavior towards a greater emphasis on production smoothing we investigate the role of inventories in the great moderation by estimating an unobserved components model that identifies inventory and sales shocks and their propagation in the aggregate data our estimates provide no support for increased production smoothing instead smaller transitory inventory shocks are responsible for the excess volatility reduction in output compared to sales these shocks behave like informational errors related to production that must be set in advance and their reduction also helps explain the changed forecasting role of inventories since the mid 1980s our findings provide an optimistic prognosis for a continuation of the great moderation despite the dramatic movements in output during the recent economic crisis

the relationships between permanent and transitory movements in u s output and the unemployment rate this paper estimates the permanent and transitory movements in u s output and the unemployment rate and the relationships between them the results suggest that permanent movements in u s output and the unemployment rate are important for explaining overall fluctuations further the correlation between changes in these series arises in large part due to the relationship between their permanent components

the rise of dollar credit in emerging market economies and us monetary policy this paper examines the hypothesis that the boom in dollar credit in the emerging market economies is associated with excessively low interest rate in the us for this purpose we use a multivariate correlated unobserved component model that allows for correlation between shocks to dollar credit interest rates and dollar index both in the short run and in the long run in addition it also provides us a quantitative estimate of the permanent and transitory movements in dollar credit in emerging markets us interest rate and the dollar index the results from this model do suggest that a temporary decline in interest rate and dollar index below their long run levels are associated with an increase in dollar credit with a very high degree of negative correlation the estimate of the cyclical component of the dollar credit in emerging market from our model captures the recent boom and bust in this market and compares favorably to a univariate trend cycle decomposition benchmark

a bayesian model comparison for trend cycle decompositions of output we compare a number of widely used trend cycle decompositions of output in a formal bayesian model comparison exercise this is motivated by the often markedly different results from these decompositions different decompositions have broad implications for the relative importance of real versus nominal shocks in explaining variations in output using us quarterly real gdp we find that the overall best model is an unobserved components model with two features 1 a nonzero correlation between trend and cycle innovations 2 a break in output growth in 2007 under this specification annualized trend output growth decreases from about 3 4 to 1 5 after the break the results also indicate that real shocks are more important than nominal shocks

vote trading in power sharing systems a laboratory investigation in theory decentralized vote trading in power sharing systems promotes a efficiency by assigning greater decision making power to individuals that care a lot about the election s outcome and b dispersion of benefits since even individuals that have little interest about the electoral result can profit by selling their votes we experimentally test these intuitions in the laboratory and find that indeed allowing real subjects to trade votes for money in such systems increases collective welfare and substantially redistributes it towards those that are less concerned about the election importantly these findings hold true under alternative trading institutions thus reinforcing their empirical relevance

combined effects of capacity and time on fares insights from the yield management of a low cost airline abstract based on two strands of theoretical research this paper provides new evidence on how fares are jointly affected by in flight seat availability and purchasing date as capacity based theories predict it emerges that fares monotonically and substantially increase with flight occupancy after controlling for capacity utilization our analysis also supports time based theories indicating a u shaped temporal profile over a two month booking period as well as a sharp increase in fares in the two weeks prior to departure

demand elasticity estimates for new zealand tourism demand elasticities for new zealand tourism are estimated for 16 different international visitor segments segments are differentiated by origin purpose of visit and travel style elasticities for both international visitor arrivals and on the ground expenditure per arrival are estimated for each segment using time series data in general on the ground consumption per arrival is more price sensitive than number of arrivals and asian market segments are found to be more price sensitive both in terms of arrivals and on the ground expenditure compared to international visitors from other regions an application of the results is presented giving the total effect of exchange rate changes on expenditure by international visitors in new zealand and management implications are discussed

financial globalisation and emerging markets volatility the volatility of capital flows to emerging market em countries and frequency of financial crises have imposed high welfare costs on the countries involved the empirical literature provides at best a mixed picture on the relationship between long run em country growth and financial integration meanwhile the prevailing policy discourse regarding reform of the international financial system remains incomplete the focus has largely been on either institutional and policy measures required of em countries or international crisis resolution procedures the role played by private financial markets and institutions in the developed world has not received adequate attention this paper describes some of the structural features inherent in today s financial markets that directly contribute to the instability in em capital flows