the effects of entry regulation on oligopolistic interaction the uruguayan banking sector this article develops a methodology to test alternative oligopoly models and to analyze the effects of entry restrictions on conduct this methodology is applied to the uruguayan banking sector whose legal entry barriers were significantly relaxed during the late 1970s the results are consistent with a von stackelberg type of industry where the degree of oligopolistic interaction among the leading firms is reduced as a consequence of the relaxation of the legal entry barriers

exchange rate policies and endogenous time preference a dynamic analysis of a small open economy abstract the effects of exchange rate policies are examined for a small open economy with endogenous rate of time preference using optimizing framework and introducing money into the utility function it is shown that a depreciation of the domestic currency generates a surplus in the current account it also leads to an increase in consumption and a decrease in the holdings of real balances in the long run

entrepreneurs growth and cycles i expound a model of a one good economy where long run growth and output fluctuations are endogenous consequences of the decisions taken by entrepreneurs on the allocation of their resources between production and innovation in a markovian sequence of one period games i show first that the log of output follows a process with random walk characteristics second that contrarywise to the mechanism at work in real business cycle models the variability in the rate of productivity growth does not imply by itself the occurrence of any recession third that a recession is the consequence not of a kydland prescott 1982 negative shock on technology but of the reallocation of factors in the face of an increased opportunity ex ante which the entrepreneurs fail to exploit ex post fourth and finally that although any generation could make itself unilaterally better off by reducing its level of research the onegood economy is intertemporally efficient in that such a move would imply a reduction in the level of welfare of future generations

how does parental leave affect fertility and return to work evidence from two natural experiments this paper analyzes the effects of changes in the duration of paid job protected parental leave on mothers higher order fertility and postbirth labor market careers identification is based on a major austrian reform increasing the duration of parental leave from one year to two years for any child born on or after july 1 1990 we find that mothers who give birth to their first child immediately after the reform have more second children than prereform mothers and that extended parental leave significantly reduces return to work employment and earnings also decrease in the short run but not in the long run fertility and work responses vary across the population in ways suggesting that both cash transfers and job protection are relevant increasing parental leave for a future child increases fertility strongly but leaves short run postbirth careers relatively unaffected partially reversing the 1990 extension a second 1996 reform improves employment and earnings while compressing the time between births

deviations from purchasing power parity and capital flows abstract this article examines the implications of deviations from purchasing power parity ppp for an investor s portfolio decision and the consequent capital flows in a two country intertemporal model with complete financial markets in the presence of deviations form ppp investors from different nations hold disparate portfolios and the equilibrium that results is not a pooling one we solve eplicitly for asset demands and derive the relationship between the direction of capital flows and deviations from ppp in contrast to the small country assumption in the existing literature the world interest rate in this model is determined endogenously

does paternity leave reduce fertility abstract we find that the introduction of two weeks of paid paternity leave in spain in 2007 led to delays in subsequent fertility following a regression discontinuity design and using rich administrative data we show that parents who were just entitled to the new paternity leave took longer to have another child compared to just ineligible parents we also show that older eligible couples were less likely to have an additional child within the following six years after the introduction of the reform we provide evidence in support of two potentially complementary channels behind the negative effects on subsequent fertility first fathers increasing involvement in childcare led to higher labor force attachment among mothers this may have raised the opportunity cost of an additional child we also find that men reported lower desired fertility after the reform possibly due to their increased awareness of the costs of childrearing or to a shift in preferences from child quantity to quality

inflationary finance in an open economy abstract models of inflationary finance that consider trade and capital flows generally conclude that openness curtails the ability of governments to impose the inflation tax due to currency substitution this paper models two channels that allow central banks to increase inflation tax revenue by opening the economy first central banks can open the capital account subject to a reserve requirement on capital inflows revenue maximization produces a smaller reserve requirement on foreign capital inflows that on domestic deposits second central banks can impose prior import deposits to broaden the monetary base in order to use the inflation tax on imports as an alternative to tariff revenue

tariffs real exchange rates and the trade balance in a two country world abstract an intertemporal model of a two country world in which optimizing agents consume three goods importables exportables and nontradables is developed to investigate a tariffs effects on real interest rates real exchange rates and the trade balance real interest rates and real exchange rates are shown to move asymmetrically across countries in response to a temporary tariff we also show that in contrast to the findings of two tradable good models a temporary tariff may actually worsen the trade balance of both deficit and surplus countries even when there are no cross country differences in tastes

entrepreneurship and economic theory this article discusses economic theories of entrepreneurship drawing principally on work conducted in labour economics microeconomics macroeconomics and financial economics the article explains how incentives and constraints of various kinds affect occupational choices and entrepreneurial innovation as well as how entrepreneurial decisions affect macroeconomic performance implications for public policy are drawn

capital mobility and the current account abstract this paper analyzes the effect of unanticipated changes in the terms of trade on consumption expenditures and the current account in a small open economy simple formulas are obtained for the covariances of changes in consumption expenditures the current account and the expected current account with changes in the terms of trade it is shown that if investment is uncorrelated with the terms of trade a necessary condition for unanticipated changes in the terms of trade to be correlated with changes in consumption expenditures and the expected current account is that the real expected return on foreign bonds differs from the real expected return on domestic bonds

understanding real business cycles he 1 960s were a time of great optimism for macroeconomists many economists viewed the business cycle as dead the keynesian model was the reigning paradigm and it provided all the necessary instructions for manipulating the levers of monetary and fiscal policy to control aggregate demand inflation occurred if aggregate demand was stimulated excessively and unemployment arose if demand was insufficient the only dilemma faced by policymakers was determining the most desirable location along this inflation unemployment tradeoff or phillips curve the remaining intellectual challenge was to establish coherent microeconomic foundations for the aggregate behavioral relations posited by the keynesian framework but this was broadly regarded as a detail that should not deter policymakers in their efforts to stabilize the economy the return of the business cycle in the 1970s after almost a decade of economic expansion and the accompanying high rates of inflation came as a rude awakening for many economists it became increasingly apparent that the basic keynesian framework was not the appropriate vehicle for understanding what happens during a business cycle nor did it seem capable of providing the empirically correct answers to questions involving changes in the economic environment or changes in monetary or fiscal policy the view that keynesian economics was an empirical success even if it lacked sound theoretical foundations could no longer be taken seriously the essential flaw in the keynesian interpretation of macroeconomic phenomenon was the absence of a consistent foundation based on the choice theoretic framework of microeconomics two important papers one by milton friedman 1968 and the other by robert lucas 1976 forcefully demonstrated examples of

examining the externality of unemployment insurance on children s educational achievement i exploit differences in the generosity of unemployment insurance ui benefits across states and over time to investigate the link between ui and children s academic achievement estimates show that a 1 increase in maximum weekly ui benefits reduces the probability that a child repeats a grade by around 0 03 percentage points the effect is concentrated among children of low and middle income families this paper s findings which are the first in the literature to show evidence of a positive effect of ui on children s educational outcomes provide insight into the role of ui in the human capital accumulation of children jel i20 i38 j65

a critical appraisal of mckinnon s complementarity hypothesis does the real rate of return on money matter for investment in developing countries this is the post print version of the final paper published in world development the published article is available from the link below changes resulting from the publishing process such as peer review editing corrections structural formatting and other quality control mechanisms may not be reflected in this document changes may have been made to this work since it was submitted for publication copyright 2009 elsevier b v

critical debt and debt dynamics we study the debt dynamics and sustainable debt for an open economy which borrows from abroad in order to nance consumption to service the debt the country may exploit a renewable resource we show that there is for every resource stock r a critical level bh r of debt above which debt tends to in nity but below which it may be steered to zero we demonstrate how to compute bh r using an ode of steepest descent if the economy maximizes a discounted integral of utility depending on consumption and the resource stock the critical debt bh r may be reached in nite time in such a situation slight perturbations of the optimal consumption lead to insolvency the maximum principle ceases to be valid in this case 2000 elsevier science b v all rights reserved jel classixcation c61 f32 f34 o16

the terms of trade and the current account the harberger laursen metzler effect the paper examines the effect of terms of trade changes on a small country s spending and current account assuming optimizing behavior in an intertemporal framework with perfect international capital mobility a temporary future terms of trade deterioration implies a deterioration improvement of the trade balance whereas a permanent terms of trade deterioration has an ambiguous effect depending on the rate of time preference nominal and real variables are considered via exact price indexes two periods and an infinite horizon are examined

transitory and permanent disturbances and the current account an empirical analysis in the intertemporal framework the intertemporal models of current account determination demonstrate that in the analysis of the current account balance of a country it is important to distinguish between transitory and permanent disturbances in income and relative prices this paper attempts to decompose the observed data on income and real exchange rate into transitory and permanent components and then uses the decomposed series to test the empirical validity of the predictions of the intertemporal models evidence from the united states and japan provide very limited support for the intertemporal models in terms of the effects of transitory and permanent changes in income on current account balance for both us and japan the study finds that permanent changes in real exchange rate have significant effects on the current account balance statistical tests find no evidence of hysteresis in the trading relations of the two countries

deterioration of the terms of trade and capital accumulation a reexamination of the laursen metzler effect abstract this paper analyzes the effect of both a permanent and a temporary deterioration in the terms of trade on a small open economy the model based on intertemporal optimization emphasizes the labor leisure choice and the role of capital accumulation the transitional dynamics is shown to depend upon the long run response of the capital stock to the terms of trade shock this consists of a negative substitution effect together with a positive income effect whether or not the laursen metzler effect holds depends upon whether the income effect dominates the substitution effect

the effects of financial liberalization on savings and investment in uruguay the following sections are included introductionfinancial reforms financial deepening and financial crisisstylized outcomes savings investment and growthfinancial liberalization savings and investmentfinancial resource allocation at the micro levelconclusions

financial development and poverty reduction can there be a benefit without a cost abstract this article investigates how financial development helps to reduce poverty directly through a distributional effect beyond its indirect effect through economic growth the results obtained with data for a sample of developing countries from 1966 through 2000 suggest that the poor benefit from the ability of the banking system to facilitate transactions and provide savings opportunities through the mckinnon conduit effect but to some extent fail to reap the benefit from greater availability of credit moreover financial development is accompanied by financial instability which is particularly detrimental to the poor nevertheless the benefits of financial development for the poor outweigh the cost

financial liberalization in india and a new test of the complementarity hypothesis abstract this article reappraises the financial repression hypothesis for india in light of the partial liberalization of the financial sector in the early 1990s using for the first time state of the art multivariate cointegration and vector error correction models vecm from this more robust testing procedure we find that for the indian economy over the sample period 1951 99 money and capital are complementary suggesting that higher real interest rates will further raise the demand for money and lead to higher levels of investment furthermore testing for a structural break in the early 1990s to coincide with the liberalization of the financial sector in india suggests that these reforms have not significantly changed the complementary relationship between money and capital the policy implication is that further financial liberalization maybe required in india to enhance investment and economic growth

taxes and the timing of births because the tax savings of having a child are a realized only if the birth takes place before midnight january 1 the incentives for the marginal birth are substantial using a sample of children from the national longitudinal survey of youth we find that the probability that a child is born in the last week of december rather than the first week of january is positively correlated with tax benefits we estimate that increasing the tax benefit of having a child by 500 raises the probability of having the child in the last week of december by 26 9 percent

trade in nominal assets and net international capital flows abstract nominal assets play a major role in international financial markets while trade in indexed bonds is limited as a result agents are exposed to both price and exchange rate uncertainty nonetheless previous research on net capital flows has assumed the presence of a risk free vehicle to intertemporal asset trade in this paper we develop a general equilibrium intertemporal model with trade limited to nominal bonds and equity we find that exposure to nominal risk dampens net capital flows thus making economies effectively more closed

do generous parental leave policies help top female earners generous government mandated parental leave is generally viewed as an effective policy to support women s careers around childbirth but does it help women to reach top positions in the upper pay echelon of their firms using longitudinal employer employee matched data for the entire norwegian population we address this question exploiting a series of reforms that expanded paid leave from 30 weeks in 1989 to 52 weeks in 1993 the representation of women in top positions has only moderately increased over time and career profiles of female top earners within firms are significantly different from those of their male counterparts the reforms did not affect and possibly decreased the probability for women to be at the top over their life cycle we discuss some implications of this result to put into perspective the design of new family friendly policy interventions

the capital inflows problem revisited a stylized model of southern cone disinflation in the late 1970s countries in latin america s southern cone initiated attempts to lower domestic inflation rates through the progressive reduction of a preannounced rate of exchange rate devaluation the stabilization programs gave rise to massive capital inflows real exchange rate appreciation and current account deficits this paper develops a stylized intertemporal framework in which the effects of a credible preannounced disinflation scheme can be studied it is shown that even when agents have perfect foresight and markets clear continuously the capital inflows phenomenon and the associated real appreciation may result while unanticipated permanent inflation changes are neutral in the paper anticipated inflation is neutral only in exceptional circumstances a preannounced disinflation operates by altering the path of an expenditure based real domestic interest rate that depends on expected changes in the prices of liquidity services and nontradable consumption goods

can financial incentives reduce the baby gap evidence from a reform in maternity leave benefits abstract in this paper i assess whether earnings dependent maternity leave positively impacts fertility and narrows the baby gap between highly educated high earning and less educated low earning women i exploit a major maternity leave benefit reform in germany that considerably increased the financial incentives by up to 21 000 eur for highly educated and higher earning women using the large differential changes in maternity leave benefits across education and income groups in a differences in differences design i estimate the causal impact of the reform on fertility for up to 5 years in addition to demonstrating an up to 23 increase in the fertility of tertiary educated women i find a positive statistically significant effect of increased benefits on fertility driven mainly by women at the middle and upper end of the earnings distribution overall the results suggest that earnings dependent maternity leave benefits which compensate women according to their opportunity cost of childbearing could successfully reduce the fertility rate disparity related to mothers education and earnings

are output fluctuations transitory according to the conventional view of the business cycle fluctuations in output represent temporary deviations from trend the purpose of this paper is to question this conventional view if fluctuations in output are dominated by temporary deviations from the natural rate of output then an unexpected change in output today should not substantially change one s forecast of output in say five or ten years our examination of quarterly postwar united states data leads us to be skeptical about this implication the data suggest that an unexpected change in real gnp of 1 percent should change one s forecast by over 1 percent over a long horizon

demand changes and real exchange rate dynamics in a finite horizon model with sectoral adjustment costs author affiliation hung ju chen department of economics national taiwan university 21 hsu chow road taipei 100 taiwan e mail hjc ntu edu tw corresponding author chen min hsu department of economics national taiwan university 21 hsu chow road taipei 100 taiwan e mail chenmin ntu edu tw acknowledgment we would like to acknowledge the financial support provided by the program for globalization studies at the institute for advanced studies in humanities national taiwan university grant 95r0064 ah03 03 we wish to express our sincere appreciation for helpful comments and suggestions provided by two anonymous referees the editor of the journal joshua aizenman been lon chen ming chia li tsunao okumura and elias sanidas as well as participants at the 2007 annual conference of the asia pacific economic association and the 2007 conference of korea and the world economy we also thank ke shaw lian for his assistance any errors within the work are our responsibility 1 introductionalthough the traditional macroeconomic models tend to explain economic fluctuations by focusing solely on supply shocks given that equilibrium is determined by both demand and supply it would seem obvious that changes in demand may also have important effects in terms of their contribution to economic oscillations changes in demand can easily occur particularly for those small open economies for example small open economies can be easily disturbed by external shocks such as terms of trade shocks through international trade 1 another example is the reduction in the mortality rate as a result of higher health investment both public and private and better healthcare during the economic development 2 for export orientated growth economies in particular such as those of hong kong and taiwan changes in either the terms of trade or the mortality rate can significantly influence economic performance impacting the real exchange rate investment output savings and the current account the phenomenon that life expectancy is steadily lengthening for most developing countries has led to the emergence of a growing number of studies on the impact of population aging 3 since an increase in life expectancy will change the expectation of lifetime utility it will directly affect households inter temporal decisions with regard to consumption and savings however previous studies tend to analyze the impact of mortality decline in a closed economy or in a small open economy with exogenous and constant factor prices 4in order to study the impact of mortality rate changes on the economic performance in an open economy we use the overlapping generations model with uncertain lifetime developed by yaari 1965 and blanchard 1985 to examine household savings behavior within this model agents live with a finite lifetime such that different types of agents simultaneously live in the economy 5 furthermore we extend the blanchard type model to a three good open economy composed of exportable importable and non traded goods to allow us to consider the dynamics of the real exchange rate when demand changes capital production and accumulation are also incorporated into the framework to facilitate an examination of the investment behavior of firms we assume that the economy uses both capital and labor to produce exportable goods and non traded goods while importable goods are imported from abroad capital is produced by the non traded sector and installation costs are incurred when capital is transported to the exportable sector 6 as indicated by morshed and turnovsky 2004 the inclusion of the sectoral adjustment costs of capital can generate persistent deviations from the long run equilibrium by the real exchange rate in response to demand changes 7 because the real exchange rate is playing a dual role of a non traded goods price and a capital price we are able to study the impact of population aging and terms of trade shocks on international capital flows in a small open economy with endogenous factor prices

peer effects in program participation the influence of peers could play an important role in the take up of social programs however estimating peer effects has proven challenging given the problems of reflection correlated unobservables and endogenous group membership we overcome these identification issues in the context of paid paternity leave in norway using a regression discontinuity design our approach differs from existing literature which attempts to measure peer effects by exploiting random assignment to peer groups in contrast we study peer effects in naturally occurring peer groups but exploit random variation in the price of a social program for a subset of individuals fathers of children born after april 1 1993 in norway were eligible for one month of governmental paid paternity leave while fathers of children born before this cutoff were not there is a sharp increase in fathers taking paternity leave immediately after the reform with take up rising from 3 to 35 while this quasirandom variation changed the cost of paternity leave for some fathers and not others it did not directly affect the cost for the father s coworkers or brothers therefore any effect on the brother or the coworker can be attributed to the influence of the peer father in their network our key findings on peer effects are four fold first we find strong evidence for substantial peer effects of program participation in both workplace and family networks coworkers and brothers are 11 and 15 percentage points respectively more likely to take paternity leave if their peer father was induced to take up leave by the reform second the most likely mechanism is information transmission about costs and benefits including increased knowledge of how an employer will react third there is essential heterogeneity in the size of the peer effect depending on the strength of ties between peers highlighting the importance of duration intensity and frequency of social interactions fourth the estimated peer effect gets amplified over time with each subsequent birth exhibiting a snowball effect as the original peer father s influence cascades through a firm our findings demonstrate that peer effects can lead to long run equilibrium participation rates which are substantially higher than would otherwise be expected

trade policy adjustment in ldcs a short run view the article deals with the role of tariff protection and exchange rate policies in ldcs after a terms of trade shock has occurred and a new equilibrium is to be attained constraints concerning the domestic foreign and public sectors are specified it is shown that the optimal response to the shock depends on the domestic features of the economy as well as on its trade openness in particular protectionist attitudes may well be justified and anti trade policies may be helpful to ease adjustment

bargaining and wage resistance in an open macroeconomic model this paper develops a model of an open economy in which wages and employment are determined by bargaining between firms and unions it can be regarded as an extension of an earlier paper ellis and fender 1985 to an open economy this allows us to investigate a number of contemporary issues in particular we shall explore some aspects of wage resistance the tendency for nominal wages to rise so as to offset either partially or totally any rise in the aggregate price level empirical evidence on wage resistance has been produced by sachs i980 who also shows that the assumption of real as opposed to nominal wage rigidity reverses the conclusions about the relative efficacy of monetary and fiscal policy in the fleming mundell model a number of other papers have incorporated wage resistance sometimes due to wage indexation see for example gray 1976 for analysis in a closed economy context and marston i982 modigliani and padoa schioppa 1978 and eichengreen i983 for open economy models in all these papers however wage resistance is assumed rather than derived from more basic assumptions about agents behaviour however some work has appeared recently which attempts to endogenise wage resistance in a closed economy by modelling union employer bargaining see for example mcdonald and solow i98i and ellis and fender i985

exchange rate based disinflation wage rigidity and capital inflows real exchange rate appreciation usually accompanies stabilization programs based on the exchange rate one thing that causes the real exchange rate to appreciate is the capital inflows that follow liberalization of the capital account and the financial market capital inflows cause the exchange rate to appreciate in part because of the resulting increase in expenditures this appreciation is exacerbated if there is some price rigidity and if control of the money supply is only partial all these conditions existed during chile s experiment with exchange rate based disinflation between 1978 and 1981 simulating what might have been the authors study how exchange rate based disinflation affects expenditures switching and reduction when wages are partially indexed in some segments of the labor market the paper also shows the extent to which a more flexible rule on wage indexing would have offset the adverse impact of lower capital flows on protected sector employment

what is the case for paid maternity leave abstract we assess the case for generous government funded maternity leave focusing on a series of policy reforms in norway that expanded paid leave from 18 to 35 weeks we find the reforms do not crowd out unpaid leave and that mothers spend more time at home without a reduction in family income the increased maternity leave has little effect on children s schooling parental earnings and labor force participation completed fertility marriage or divorce the expansions whose net costs amounted to 0 25 of gdp have negative redistribution properties and imply a considerable increases in taxes at a cost to economic efficiency

how should structural adjustment programs be designed abstract more than seven years have elapsed since the onset of the generalized debt crisis of 1982 yet the affected countries have still not managed to stabilize their economies these countries must now attempt structural adjustment in the midst of pervasive macroeconomic and political instability structural adjustment packages should be designed with this reality in mind this paper argues that structural adjustment programs should strive for sustainability rather than the economic liberalization that they presently stress illiberal policies which do not damage overall macro stability are preferable to liberal policies which are inherently unsustainable or engender macro instability liberalization programs that are not sustainable are likely to bring few benefits but have high costs in terms of private investment the paper discusses some of the chief implications of this opinion for the design of adjustment programs

the financial repression liberalization debate taking stock looking for a synthesis financial repression and liberalization became the object of fierce debates between academics and policy makers since the early 1970s as of the late 1980s financial liberalization became also part of the structural adjustment programs sponsored by the international monetary fund and the world bank however the literature on financial repression and liberalization remains controversial on its theoretical conclusions and policy implications given its importance for both the theory and policy of economic development and growth this paper looks for a possible synthesis after reviewing the theoretical contributions and empirical studies under the headings of the mckinnon shaw and new structuralists models the survey concludes that a new synthesis might be found in the post keynesian attempt to take an institutional perspective within a globalised financial and economic environment

investment spending and interest rate policy the case of financial liberalisation in turkey the purpose of the present study is to analyse the impact of interest rate policy on investment spending in turkey over a period which covers years of both financial repression and financial liberalisation the model presented suggests that investment will be positively correlated with below equilibrium interest rates and negatively correlated with above equilibrium rates the model is tested using a switching regime model with an unknown equilibrium rate of interest the results suggest that setting interest rates too high may be as detrimental to economic health as setting them too low moreover there is evidence of an autonomous downward shift in the investment function during the liberalisation period which may have resulted from heightened uncertainty during the period

real business cycles a new keynesian perspective the debate over the source and propagation of economic fluctuations rages as fiercely today as it did 50 years ago in the aftermath of keynes s the general theory and in the midst of the great depression today as then there are two schools of thought the classical school emphasizes the optimization of private economic actors the adjustment of relative prices to equate supply and demand and the efficiency of unfettered markets the keynesian school believes that understanding economic fluctuations requires not just studying the intricacies of general equilibrium but also appreciating the possibility of market failure on a grand scale

reprint of the pros and cons of sick pay schemes testing for contagious presenteeism and noncontagious absenteeism behavior abstract this paper provides an analytical framework and uses data from the u s and germany to test for the existence of contagious presenteeism and negative externalities in sick leave insurance the first part exploits high frequency google flu data and the staggered implementation of u s sick pay mandates to show using a reduced form framework that population level influenza like disease rates decrease after employees gain access to paid sick leave next a simple theoretical framework provides evidence on the underlying behavioral labor supply mechanisms the model theoretically decomposes overall labor supply adjustments moral hazard into contagious presenteeism and noncontagious absenteeism behavior and derives testable conditions the last part illustrates how to implement the model exploiting a german sick pay reform and administrative industry level data on certified sick leave by diagnosis the empirical test finds that the labor supply elasticity for contagious diseases is significantly smaller than for noncontagious diseases under the identifying assumptions of the model this finding provides additional indirect evidence for the existence of contagious presenteeism

terms of trade and current account dynamics a methodological critique this paper suggests that the recent intertemporal studies concerning the implications of terms of trade deterioration on the current account of a small open economy may suffer from significant methodological deficiencies the study demonstrates that while the assumption of a small open economy represents a legitimate modeling simplification the analysis of the impact of perturbation of the terms of trade on the current account of this small open economy is methodologically erroneous in particular the paper demonstrates that a given pattern of terms of trade deterioration may be associated with opposing evolutionary patterns of the current account of this small economy this paper argues that the methodology employed by several influential intertemporal studies concerning the relationship between the terms of trade and the current account of a small economy suffers from critical deficiencies it demonstrates that while the assumption of a small open economy confronting exogenously determined terms of trade represents a legitimate modeling simplification the analysis of the impact of perturbations of this terms of trade on the small open economy and on its current account is methodologically erroneous in particular the paper demonstrates that a small economy may experience diametrically opposing evolutionary patterns of the current account in association with a given pattern of terms of trade deterioration the paper suggests therefore that predictions based on this literature are in need of reassessment these intertemporal studies of the relationship between the terms of trade and the current account of a small economy have been conducted under the simplifying assumption that perturbations in the terms of trade are exogenous and do not affect the world interest rate 2 this approach may reflect a valid simplification as long as the study is concerned with exportable goods whose prices are insignificant in the determination of the general price level in the world economy however if the focus of the analysis is a small country that exports a group of commodities such as agricultural goods or industrial goods a change in the terms of trade for the small economy may reflect fundamental changes in the world relative prices that are

vertical product differentiation and the import demand function theory and evidence in this paper we use a model of vertical product differentiation to cast doubt on the general validity of the import demand function as specified in macroeconomic models the empirical importance of our theoretical concerns is then established according to our first hypothesis the share of a good s imports in total imports is non increasing in domestic wages if the country has comparative advantage in high quality varieties of this good the second hypothesis states that the share of a good s imports is increasing in non wage domes tic income if the country has comparative advantage in high quality varieties of this good

the pros and cons of sick pay schemes testing for contagious presenteeism and noncontagious absenteeism behavior abstract this paper provides an analytical framework and uses data from the u s and germany to test for the existence of contagious presenteeism and negative externalities in sick leave insurance the first part exploits high frequency google flu data and the staggered implementation of u s sick pay mandates to show using a reduced form framework that population level influenza like disease rates decrease after employees gain access to paid sick leave next a simple theoretical framework provides evidence on the underlying behavioral labor supply mechanisms the model theoretically decomposes overall labor supply adjustments moral hazard into contagious presenteeism and noncontagious absenteeism behavior and derives testable conditions the last part illustrates how to implement the model exploiting a german sick pay reform and administrative industry level data on certified sick leave by diagnosis the empirical test finds that the labor supply elasticity for contagious diseases is significantly smaller than for noncontagious diseases under the identifying assumptions of the model this finding provides additional indirect evidence for the existence of contagious presenteeism

debt crisis adjustment policies and capital formation in developing countries where do we stand abstract this paper documents the decline in investment rates observed in developing countries after 1982 and explores analytically and empirically the factors contributing to explain it the paper focuses on the impact of macroeconomic adjustment and reform measures on private investment particularly in latin america and east asia and underscores the importance of macroeconomic uncertainty policy credibility and potential coordination failures in shaping the response of investment to the changes in economic incentives brought about by structural reforms the analysis concludes with some policy recommendations to improve the design of sustainable growth oriented adjustment programs

back to work parental benefits and mothers labor market outcomes in the medium run the authors estimate policy impacts of a generous parental benefit in germany by using a natural experiment and german census data they estimate policy effects for the short run first two years a

capital movements intersectoral resource shifts and the trade balance abstract in this paper i consider the interactions between the internal structure of the economy and its external balance in an intertemporal set up with perfect foresight a simple pattern emerges current account deficits are associated with depreciating real exchange rates the incorporation of real investments and government spendings change this pattern in a systematic way depending on factor intensities the composition of government spending and its timing

capital controls and fiscal policy in the world economy an intertemporal utility maximization framework is employed to model a world economy with capital controls the effects of fiscal policy in such an environment are examined several results emerge concerning the international transmission of fiscal policy under capital controls and the nature of comovements in macro economic aggregates such as output employment consumption and investment some of the paper s other results concern the implications of capital controls for ricardian equivalence the role of financing decisions in the international transmission process under capital controls and the effect of capital controls on the magnitude of fiscal induced fluctuations throughout the world economy contr6les des mouvements de capitaux et politique fiscale dans l conomie mondiale les auteurs utilisent une approche par la maximisation intertemporelle de l utilite pour modeliser une economie mondiale dans laquelle des controles sur les mouvements de capitaux existent ils examinent les effets de la politique fiscale dans un tel contexte on tire de ces analyses plusieurs resultats quant i la transmission internationale des effets de la politique fiscale et quant aux mouvements lies de certains agregats economiques comme les niveaux de production d emploi de consommation et d investissement certains autres resultats de cette analyse ont trait aux implications des controles des mouvements de capitaux sur l1 quivalence ricardienne au role des decisions de financement dans le processus international de transmission quand il y a controle des mouvements de capitaux et aux effets des controles sur les mouvements de capitaux sur la magnitude des fluctuations induites a travers l economie mondiale par la politique fiscale helpful comments from two anonymous referees are gratefully acknowledged discussion in workshops held at ucla duke university iowa state university queen s university vanderbilt university vpi and the university of western ontario has also been useful canadian journal of economics revue canadienine d economique xviii no 4 november novembre 1985 printed in canada imprime au canada 0008 4085 85 743 65 1 50 canadian economics association this content downloaded from 207 46 13 129 on mon 27 jun 2016 05 25 03 utc all use subject to http about jstor org terms 744 jeremy greenwood and kent p kimbrough

practical implications of game theoretic models of r and d the purpose of this paper is to survey recent game theoretic models of research and development and to ask whether they yield practical implications or testable hypotheses the papers i will be discussing have been written or published within the past five years they have a good deal in common relying upon similar assumptions and building upon each other because of this the literature surveyed here may seem narrow and some relevant work has probably been inadvertently omitted i apologize for these omissions for want of space i will not discuss the normative conclusions of this literature

the interaction of factor and product market distortions in developing countries this essay will examine distortions in product and factor markets in developing countries and the interaction of these distortions in respect to the development strategies applied the analysis will concentrate on policy imposed distortions where departures from efficient resource allocation result from policy actions these contrast with distortions resulting from market imperfections 1

parental leave and mothers careers the relative importance of job protection and cash benefits parental leave regulations in most oecd countries have two key policy instruments job protection and cash benefits this paper studies how mothers return to work behavior and labor market outcomes are affected by alternative mixes of these key policy parameters exploiting a series of major parental leave policy changes in austria we find that longer cash benefits lead to a significant delay in return to work and that the magnitude of this effect depends on the relative length of job protection and cash benefits however despite their impact on time on leave we do not find a significant effect on mothers labor market outcomes in the medium run neither of benefit duration nor of job protection duration to understand the relative importance and interaction of the two policy instruments in shaping mothers return to work behavior we set up a non stationary job search model in which cash benefits and job protection determine decisions of when to return to work and whether or not to return to the pre birth employer despite its lean structure the model does surprisingly well in matching empirically observed return to work profiles the simulation of alternative counterfactual regimes shows that a policy that combines both job protection and benefits payments succeeds to induce mothers to spend some time with the child after birth without jeopardizing their medium run labor market attachment

expansions in maternity leave coverage and mothers labor market outcomes after childbirth this article analyzes the impact of five major expansions in maternity leave coverage in germany on mothers labor market outcomes after childbirth to identify the causal impact of the reforms we use a difference in difference design that compares labor market outcomes of mothers who give birth shortly before and shortly after a change in maternity leave legislation in years of policy changes and years when no changes have taken place each expansion in leave coverage reduced mothers postbirth employment rates in the short run the longer run effects of the expansions on mothers postbirth labor market outcomes are however small

on fiscal deficits the real exchange rate and the world rate of interest we use a full general equilibrium two country two period model with perfect capital markets and intertemporal optimization and perfect foresight underlying private consumer behaviour in both countries to analyse effects of pure fiscal policy we demonstrate that higher government budget deficits in one country caused by a cut in commodity taxes today balanced by an equal present value increase tomorrow will not be offset one for one by higher private savings because of pure substitution effects triggered by the change in the intertemporal terms of trade the tax change causes the country with the increased government deficit will therefore run a larger current account deficit which in turn unambiguously leads to higher world real interest rates whether a real appreciation results in the country with the higher deficit is shown to depend on the metzler condition for an undereffected transfer if we spend more on our goods than they spend on our goods on the margin government deficits will lead to an appreciation of the exchange rate of the country with the government deficit and vice versa

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

paid parental leave and children s schooling outcomes this article investigates whether schooling outcomes at age 15 are affected by the duration of maternity leave i e the time mothers spend at home with their new born before returning to work we exploit an unanticipated reform in austria which extended the maximum duration of paid and job protected parental leave from 12 to 24 months for births as of 1 july 1990 using pisa data from the cohorts 1990 and 1987 we find no significant overall impact of the parental leave extension on standardised test scores however subgroup analyses reveal strong heterogeneity by maternal education and child gender