common agency with rational expectations theory and application to a monetary union we extend the theory of common agency to the situation where the principals payoffs are affected by their ex ante expectations of the agent s ex post choice we show how the usual truthful schedules must be modified to account for the rational expectations constraint we apply the model to a monetary union where member governments influence the policy of the common central bank using incentive contracts we examine how the outcomes depend on different delegated objectives of the bank and find that some often advocated rules create an excessive deflationary bias

the futile quest for a grand explanation of long run government expenditure this paper carries out a critical reappraisal of the two contending theories purporting to explain long run government spending wagner s law and different variants of the ratchet effect we analyze data spanning from the early 19 th century until the present day in sweden and the united kingdom hence in contrast to previous studies we evaluate the validity of wagner s law and the ratchet effect hypothesis over a very long time period starting at the beginning of industrialization cointegration analysis is used to investigate the long run relationships between government expenditure and gdp focusing on sub periods and structural breaks moreover we test the ratchet effect hypothesis by estimating models which allow for asymmetric adjustment according to our main results wagner s law does not hold in the long run although the data are consistent with wagner s law between roughly 1860 and the mid 1970s this can be traced to the formation of the modern public sector including the introduction of public education health care and so forth yet wagner s law did not hold during the initial industrialization phase before 1860 and in recent periods gdp only affects the government spending share when we control for population age structure finally we find some evidence of asymmetric adjustment in the uk particularly in the post wwii period however the ratchet effect is not a general cause of the growth of government spending

central bank constitutions for federal monetary unions abstract in a monetary union the central bank constitution must distribute the power over monetary policy between the members and the administrative center of the union we compare alternative distributions and evaluate their performance dominance of regional interests always leads to inefficient monetary stabilization policies whether or not dominance of regional interests leads to a higher long run rate of inflation depends on the union s political constitution

an empirical re examination of wagner s law abstract it is argued in this paper that for a more meaningful test of wagner s law allowance must be made in regard to prevalence of peace and stability using six different versions and employing both nominal and real data from ten states of the united states wagner s law is vindicated

growth effects of public expenditure on the state and local level evidence from a sample of rich governments there is a vast empirical literature investigating the relationship between government size and economic growth but the empirical evidence of growth effects of public expenditure using cross country regressions is still inconclusive according to a number of authors this is not surprising since the negative relationship only applies for rich countries with a large public sector restricting their analysis on rich countries only they can show the predicted negative impact naturally a selection of a sub sample of rich countries is always somewhat arbitrary another possibility is to concentrate on governments within a rich country however only few studies investigate the effect of state and local spending on economic growth this study concentrates on the relationship between public expenditure and economic growth within a rich country using the full sample of state and local governments from switzerland over the 1981 2001 period the general finding is a fairly robust negative relationship between gov

a test of the wagner s hypothesis for the fiji islands in this article we examine wagner s law for fiji for the period 1970 to 2002 using the johansen 1988 test for cointegration we find one cointegration relationship between national output and government expenditure using five different long run estimators we find robust results on the impact of national income on government expenditure the elasticity ranges from 1 36 to 1 44 implying that a 1 increase in income leads to a 1 36 1 44 increase in government expenditure moreover we find that in the long run national income granger causes government expenditure while these results are consistent with wagner s law we warn policy makers that because fiji s total debt stands at around 69 of gdp in future the bulk of expenditure will go towards debt financing at the expense of productive sectors

does monetary unification lead to excessive debt accumulation abstract if discretionary monetary policy gives rise to an inflation bias monetary unification boosts the accumulation of public debt the additional debt accumulation harms welfare if governments are sufficiently myopic in the presence of myopic governments debt ceilings play a useful role in avoiding excessive debt accumulation in a monetary union and allowing a conservative independent central bank to focus on price stability with supply shocks monetary unification results in excessive variability of public debt a debt target that constrains stabilization policy helps to prevent this

causality between public expenditure and national income this paper deploys the granger method to determine the directions and patterns of causality between national income and total as well as various components of public expenditure empirical results based on the data for india 1950 81 suggest that while at the disaggregate level the causal process is rather diverse it is essentially feed back type at the aggregate level it neither confirms the wagnerian income public expenditure nor the keynesian public expenditure national income view the paper recommends that two variables be treated as jointly dependent in both the public finance and macroeconometric studies

monetary cohabitation in europe how can monetary policy in stage iii of european monetary union be coordinated between the ins and the outs this paper compares alternative institutional mechanisms and concludes that a generalized system of inflation targets at the european level has several merits it strengthens domestic credibility of monetary policy it rules out deliberate attempts to gain competitiveness through devaluations it forces monetary policy to respond automatically to various macroeconomic shocks which is stabilizing for the real exchange rate and it distributes these shocks symmetrically across countries on the basis of a simple theoretical model of policy coordination the paper shows that a system of inflation targets approximates an optimal policy of international cooperation preliminary empirical evidence supports these theoretical results this abstract was borrowed from another version of this item

the government expenditure economic growth relation in japan an analysis by using the adl test for threshold cointegration based on annual data from japan for the period 1960 to 2010 we investigate the government expenditure economic growth relation in japan by using the autoregressive distributed lag test for threshold cointegration developed by li and lee 2010 in particular we evaluate the validity of wagner s view and the keynesian view in the case of japan the empirical results presented herein indicate that of these two classical economics perspectives only wagner s view holds for japan the findings also demonstrate that the adjustment process towards its long run equilibrium is asymmetric

the stability pact more than a minor nuisance stability pact more than a minor nuisance the stability and growth pact will lead member countries to aim for cyclically balanced budgets until this steady state is reached europe will continue its efforts at de cit cutting while so doing politicians are less likely to undertake the dif cult labour market reforms that are really needed is further scal retrenchment wise the paper reviews the reasons that have been advanced in favour of a stability pact and nds them wanting the most serious justi cations such as the systemic risk of bank crisis following a government s failure to service its debt can be better dealt with in other ways for example by prudential limits on banks exposure to public debts moreover our analysis reveals that the macroeconomic costs of the stability pact while sizeable are not as dangerous as often believed the costs will be barely visible once the steady state is reached the true macroeconomic costs are front loaded they concern the next few years after a decade already dominated by convergence efforts barry eichengreen and charles wyplosz

regulatory attitudes and environmental innovation in a model combining internal and external r d the extent to which environmental regulatory institutions are either green or brown impacts not just the intensity of regulation at any moment but also the incentives for the development of new pollution control technologies we set up a strategic model of r d in which a polluter can deploy technologies developed in house or license technologies developed by specialist outsiders an eco industry polluters exert r d effort and may even develop redundant technologies to improve the terms on which they procure technology from outside we find that while regulatory bias has an ambiguous impact on the best available technology strategic delegation to systematically biased regulators can improve social welfare

estimating the permanent income elasticity of government expenditures evidence on wagner s law based on oil price shocks this paper provides instrumental variable estimates of the permanent income elasticity of government expenditures it uses annual variation in the international oil price weighted with countries average oil net export gdp shares as a plausibly exogenous source of within country variation in countries permanent income the short run estimates of the permanent income elasticity are robust across alternative specifications and are below one the estimated elasticity coefficients range between 0 3 and 0 6 and have standard errors of 0 1 and 0 4 respectively point estimates of long run elasticities are somewhat larger but still smaller than unity the investment component of government spending is found to be more elastic than the consumption component whereas elasticity differences between rich and poor countries are insignificant

co integration and error correction models the temporal causality between government taxes and spending several interesting papers have recently considered whether government taxes granger cause government spending or vice versa the findings based on standard granger 6 causality tests are not consistent manage and marlow 10 conclude that when evidence of one way causality exists federal taxes granger cause federal spending while anderson wallace and warner 1 conclude that the evidence supports one way causality in the opposite direction ram 11 reexamining the issue concludes that taxes granger cause spending at the federal level but that spending granger causes taxes at the state and local level von furstenberg green and jeong 13 in another related article examine the tax and spend spend and tax causality issue using a more general vector autoregressive var model they introduce in addition to federal taxes and spending two economic variables the gnp gap and the inflation rate decompose federal spending into several categories and remove the effects of automatic stabilizers when appropriate they find little evidence that taxes granger cause spending and limited evidence that spending causes taxes a finding which corresponds most closely to that of anderson wallace and warner 1 our purpose is to reconsider the causality issue with the aid of co integration and errorcorrection modeling our analysis illustrates with a specific example how sources of causality can be neglected in standard granger causality tests moreover addressing the question of temporal causality between government taxes and spending provides insight as to how different policies might or might not help control the growth of government the results of our estimating various co integration and error correction models with quarterly data suggest bi directional causality between government taxes and spending both for the federal and state and local sectors this finding counters the conclusions of previous studies when annual data are used however our

monetary union with voluntary participation a monetary union is modelled as a technology that makes a surprise policy deviation impossible and requires voluntarily participating countries to follow the same monetary policy within a fully dynamic context we show that such an arrangement may dominate a regime with independent national currencies two new results are delivered by the voluntary participation assumption first the optimal plan is shown to respond to a country s temptation to leave the union by tilting both current and future policy in its favour this yields a non linear rule according to which each country weight in policy decisions is time varying and depends on its incentive to abandon the union second we show that there might be conditions such that a break up of the union as has occurred in some historical episodes is efficient the paper thus provides a first formal analysis of the incentives behind the formation sustainability and disruption of a monetary union

bargaining in environmental regulation and the ideal regulator abstract we present a model of environmental regulation in which the stringency of a firm s emissions standard is determined by cooperative bargaining between the firm and a regulator we show that bargaining can be socially beneficial because it can achieve the first best outcome this outcome is never an equilibrium of the noncooperative stackelberg game we also show that the social cost function is not the preferred objective function for a regulator when regulations are determined by bargaining social costs are lower with a regulator that attaches more importance to damages and enforcement costs than to the firm s compliance costs

lag length selection and tests of granger causality between money and income one of the most widely accepred relationships in macroeconomics is the positive relationship between the rate of growth of the money supply and the rate of growth of income a diversity of opinion arises however with the attempt to identify a causal relationship between these variables while friedman and schwartz 1963 initiated the empirical investigation of money income causality sims 1972 made the most significant contribution to this literature with a practical application of the criterion developed by granger 1969 for identifying a causal relationship since the appearance of sims s approach and an alternative one advanced by sargent 1976 many researchers have applied these techniques to the investigation of the causal relationship between money and income l with two exceptions hsiao 1981 and mcmillin and fackler 1984 these researchers have arbitrarily chosen the lengths of their distributed lags the purpose of this paper is to test for granger causality between money and income this paper differs from previous work in that considerably more attention is focused on the effect of the lag specification on the test results in particular we investigate the extent to which rules of thumb arbitrary lag specifications and

asymmetric information and monetary policy in common currency areas in a common currency area cca the common central bank sets a uniform rate of inflation across countries taking into account the area s economic conditions suppose that countries in recession favor a more expansionary policy than countries in expansion a conflict of interest between members arises when national business cycles are not fully syncronized if governments of member countries have an informational advantage over the state of their domestic economy such conflict may create an adverse selection problem national authorities overemphasize their shocks in order to shape the common policy towards their needs this creates an inefficiency over and above the one policy fits all cost discussed in the optimal currency area literature in order to minimize this extra burden of asymmetric information monetary policy must over react to large symmetric shocks and under react to small asymmetric ones the result is sub optimal volatility of inflation

the unbearable tightness of being in a monetary union fiscal restrictions and regional stability we study how constrained fiscal policy can affect macroeconomic stability and welfare in a two region model of a monetary union with sticky prices and distortionary taxation both government spending and taxes can be used to stabilize regional variables however the best welfare outcome is obtained under some tax variability and constant regional inflations we use a variety of rules to characterize constrained fiscal policy and find that strict fiscal rules coupled with a monetary policy that targets union wide inflation result in regional inflation stability and the welfare costs of such rules are not as unbearable as one would expect fiscal authorities can enhance welfare by targeting the regional output gap while targeting regional inflation is less successful since inflation stability is guaranteed by the central bank

pollution taxes when firms choose technologies we consider the properties of a pollution tax when the regulated firm has a discrete choice of technologies with which to reduce pollution the firm s technology choice makes possible two sequences of play the traditional one in which the regulator moves first committing to a tax rate before the firm adopts a technology and an alternative one in which the firm moves first by adopting a technology we find that a range of pollution levels including possibly the first best one are unattainable when the regulator moves first the regulator may be better able to achieve the first best outcome when the firm moves first

an evaluation of alternative monetary policy rules in a model with capacity constraints a small model of the u s output inflation nexus is used to examine the implications of two policy rules one where the interest rate responds to contemporaneous inflation and one where the response is a forecast of future inflation the model is asymmetric in that positive deviations of aggregate demand from potential are more inflationary than negative deviations are disinflationary with asymmetry following a myopic rule and allowing the economy to overheat requires deep or protracted recessions to control inflation whereas following a forward looking rule not only reduces volatility but also raises the equilibrium level of output shifts in the stance of monetary policy influence the economy and financial markets with a considerable lag as long as a year or more the challenge of monetary policy is to interpret current data on the economy and financial markets with an eye to anticipating future inflationary forces and to countering them by taking action in advance alan greenspan 1994 p 609

games of monetary and fiscal interactions in the emu abstract this paper constructs various models of the emu and ecb when member countries have different objectives voting in pursuit of national interest can yield moderate and stable inflation the metaphor of walsh type contracts implements a monetary policy rule that averages the member countries most preferred rules in a repeated relationship where a country suffering a large adverse shock can use political bargaining to subvert the ecb s commitment the optimal rule should incorporate some flexibility to forestall that finally freedom of national fiscal policies undermines the ecb s monetary commitment this may justify fiscal constraints like the stability and growth pact

monetary fiscal policy interactions and commitment versus discretion in a monetary union abstract we consider monetary fiscal policy interactions in a monetary union if monetary and fiscal authorities have different ideal output and inflation targets the nash equilibrium output or inflation or both are beyond the ideal points of all authorities leadership of either authority is better fiscal discretion entirely negates the advantage of monetary commitment the optimal monetary rule is equivalent to discretionary leadership of monetary over fiscal policy agreement about ideal output and inflation creates a monetary fiscal symbiosis yielding the ideal point despite disagreement about the relative weights of the two objectives for any order of moves without fiscal co ordination and without monetary commitment

one monetary policy and 18 central bankers the european monetary policy as a game of strategic delegation abstract this paper employs a multi country delegation monetary policy model and argues that a decision making mechanism based on the median voter theorem where intensity of preferences cannot play a role does not capture important aspects of policy setting in the european monetary union replacing the median voter mechanism with a less restrictive weighted mean mechanism it is shown that strategic delegation can lead to a surprising degree of central bank inflation aversion this finding supports the the twin sister hypothesis and the perception of the european central bank implementing the policy of the bundesbank rather than a more inflationary monetary policy

an econometric test of wagner s law for six countries based on cointegration and error correction modelling techniques the present study empirically examined five different versions of wagner s law by employing annual time series data on six countries over the period 1951 1996 three countries are part of the emerging industrialized countries of asia south korea taiwan thailand and three are industrialized countries japan usa and the united kingdom the analysis is an advance over previous work in two ways first the stationarity propertities of the data and the order of integration of the data are empirically investigated using the augmented dickey fuller adf and the kwiatkowski et al journal of econometrics 1 1992 kpss tests and second the hypothesis of a long run relationship between income and government spending is tested using bivariate cointegrated systems and employing the methodology of cointegration analysis as suggested by johansen journal of economic dynamics and control 12 1988 and johansen and juselius oxford bulletin of economics and statistics 52 1990 the results indicate that

monetary policy in a heterogeneous monetary union the australian experience australia is a monetary union with strong regional specialization manufacturing and service industries are located in the population centres on the south eastern seaboard and mining and pastoral activities take place in the interior and north of the continent monetary policy affects the interior and north more strongly than the south eastern seaboard because australian primary goods are mostly exported and the exchange rate provides the main transmission channel for monetary policy the reserve bank of australia must consider the economic interests of the interior and north and the south eastern seaboard since monetary policy cannot differentiate between regions there is a need for interregional macroeconomic risk sharing

pollution policy and trade liberalization of environmental goods during the doha round at the world trade organization reductions in trade barriers on environmental goods eg were put forward as a means of helping developed and developing countries alike deal with current environmental problems we examine the potential effectiveness of such a strategy in a developing country that imports all its consumption of eg from an imperfectly competitive foreign eco industry we point out that trade liberalization of eg might in fact lead to less stringent pollution taxes which can result in an actual rise in pollution levels we then show that the environmental effectiveness objective of this trade reform can be achieved when the regulator uses quantitative abatement standards as an alternative pollution policy instrument however this environmental achievement comes at the expense of social welfare

one for some or one for all taylor rules and interregional heterogeneity we document a novel empirical phenomenon the u s federal reserve appears to set interest rates partly in response to regional economic disparities this result is robust even after controlling for factors such as the central bank s forecasts and a battery of explanatory variables we argue that this likely does not reflect an explicit concern about regional differences by policymakers but instead can be explained by a model with nonlinear regional phillips curves consistent with the predictions of this model we find that the federal reserve responds disproportionately to fluctuations in low unemployment states alternative explanations cannot account for this finding

a volatility based theory of fiscal union desirability abstract heterogeneous countries may rationally choose to form a currency union first and a fiscal union later we find and illustrate empirically for the emu countries reasonable volatility conditions under which this sequencing in the deepening process is indeed rationalizable changes in the distribution of expected income shocks require a reassignment of political weights to restore unanimous support for an added fiscal dimension the bargaining space depends on countries relative income size and cross correlation of shocks

eco innovation in the transition to a circular economy an analytical literature review abstract in the ongoing sustainability debate the circular economy ce has been steadily gaining ground as a new paradigm at the same time eco innovation ei has been recognised as a key element in carrying out the transition from a linear to a circular system of production and consumption however little information can be found concerning whether and how ei can actually facilitate the change to a ce while extensive literature on ei and a growing body of research exploring the ce already exist there is as yet no comprehensive understanding concerning the connections between these two concepts drawing on academic contributions from the fields of ei and ce this analysis seeks to clarify and synthesise findings at the intersection of these two fields the aim is threefold derive literature based working definitions of ce and ei review the role of ei at ce s macro meso and micro levels and characterise ce inducing ei in terms of targets mechanisms and impacts our literature review shows that an ei driven techno economic transition to a ce requires specific solutions i e different forms of ei driven clean congruence at distinct levels of operation generally speaking movement toward a ce is found to be contingent on systemic ei that is not only intense in technology but also involving dynamic and holistic combinations of service innovations and novel organisational set ups

one money one market the effect of common currencies on trade currency unions their dramatic effect on international trade a gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade the panel data bilateral observations for five years during 1970 90 covering 186 countries includes 300 observations in which both countries use the same currency i find a large positive effect of a currency union on international trade and a small negative effect of exchange rate volatility even after controlling for a host of features including the endogenous nature of the exchange rate regime these effects statistically significant imply that two countries sharing the same currency trade three times as much as they would with different currencies currency unions like the european emu may thus lead to a large increase in international trade with all that that entails andrew rose

capital tax competition under a common currency abstract we re examine the view that capital taxes are too low when capital is mobile across tax jurisdictions we do so by emphasising a previously neglected implication of decentralised capital tax setting when jurisdictions share a common currency namely capital taxes give rise to a vertical externality by affecting the revenues of the over arching central bank from issuing the common currency this externality may lead ceteris paribus to too high regional capital taxes and may more than offset the usual effects of tax competition in this case and contrary to conventional wisdom decentralised capital taxes will be too high

a bound testing analysis of wagner s law in nigeria 1970 2006 this study tests wagner s law the tendency for government activities to expand along with economic expansion for nigeria using annual time series data between 1970 and 2006 it adopts the bounds test approach proposed by pesaran et al 2001 based on unrestricted error correction model uecm and toda and yamamoto s 1995 granger noncausality tests empirical results from the bounds test indicate that there exists no long run relationship between government expenditure and output in nigeria in addition toda and yamamoto s 1995 causality test results show that wagner s law does not hold for more than the period being tested rather we found a weak empirical support in the proposition by keynes that public expenditure is an exogenous factor and a policy instrument for increasing national income

ideas for rent an overview of markets for technology this article surveys some of the recent literature on technology markets and summarizes its main issues and insights we structure our analysis in three parts the supply and demand of technology the factors that condition the formation and growth of technology markets industry structure and dynamic issues in addition we summarize some of the studies that have tried to document the size and growth of these markets we find that the literature has focused mainly on the supply of technology but several other aspects of these markets remain under studied including the demand for external technology the role of uncertainty in technology markets and the dynamic interaction between industry structure and the market for technology understanding these will illuminate whether markets for technology will continue to grow or remained confined to pockets of the economy copyright 2010 the author 2010 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

the added worker effect abstract this paper uses the gross change data and cointegration error correction modeling to test the hypothesis of added worker effect in the u s labor market it is shown that prime age males unemployment u m and flows from unemployment to out of the labor force un m cause an increase in prime age and young females flows from not in the labor force keeping house to employment and decrease their flows into unemployment

the macroeconomics of social pacts in this paper we analyze macroeconomic interactions between trade unions the central bank and the fiscal policymaker we explicitly model unions concern for public expenditure paving the way for an analysis of the potential gains from cooperation between the fiscal policymaker and the unions i e the so called corporatist or social pacts that have characterized economic policies in a number of european countries in the last few decades we also highlight the profoundly different incentives generated by institutional arrangements such as the maastricht criteria and the stability and growth pact the former has unambiguously induced more efficient outcomes the latter is likely to backfire

dynamic incentives of environmental regulations the effects of alternative policy instruments on technology diffusion abstract we develop a framework for comparing empirically the effects of alternative environmental policy instruments on the diffusion of new technology market based and command and control approaches can he quantitatively compared by estimating the economic penalty that firms through their actions reveal to be associated with violation of standards in the context of concerns about global climate change we empirically examine the likely effects of pigouvian taxes technology adoption subsidies and technology standards we employ state level data on the diffusion of thermal insulation in new home construction comparing the effects of energy prices insulation cost and building codes

do asymmetries matter for european monetary policy in this paper we analyze the impact of economic and institutional ecb decision rules asymmetries on the effectiveness of monetary policy in euroland we consider a model where asymmetric shocks and divergent propagation of shocks in output and inflation are potential causes of tensions within the ecb concerning the conduct of common monetary interest rate policy welfare implications of the alternative decision procedures are discussed

wagner s law revisited cointegration and causality tests for new zealand wagner s law states that the share of government expenditure in gross national product gnp will increase with economic development many associated empirical studies substitute gnp with gross domestic product gdp this article presents an empirical investigation into the validity of wagner s law for new zealand over the period 1960 to 2007 and compares the results obtained using these two measures of output application of the autoregressive distributed lag ardl bounds test suggests a cointegrating relationship between either output measure and the share of government spending and further application of general to specific gets engle and granger eg phillip hansen s fully modified ordinary least squares fmols and johansen s time series techniques illustrate statistical robustness and an income elasticity between 0 56 and 0 84 the results suggest that output measures granger cause the share of government expenditure in the long run thereby providing support for wagner s law and these resul

energy innovations ghg emissions nexus fresh empirical evidence from oecd countries abstract this study explores the impact of improvements in energy research development erd on greenhouse gas ghg emissions using environmental kuznets curve hypothesis for 28 oecd countries over the period of 1990 2014 in doing so we have employed a panel data where public budget in energy research development and demonstration erd d has transformed into a finite inverted v lag distribution model developed by de leeuw 1962 this model considers that energy innovation accumulates in time and presents empirical evidence how energy innovation contributes in reducing energy intensity and environmental pollution as well our results indicate that energy innovation measures require lapses of time to reach their full effect i e innovation applied to measures for environmental correction does not reach its whole effect immediately requiring instead a certain amount of time to pass innovation policies have recommended for improving environmental quality

autoregressive modelling and money income causality detection abstract a step wise procedure based on granger s concept of causality and abaike s final prediction error criterion is suggested as a practical means to identify the order of lags of each variable in a multivariate autoregressive process the model seems useful because it can serve as a reduced form formulation to avoid imposing often spurious or false restrictions of the model it also provides a reasonably powerful test of causality the idea is applied to u s postwar money and income data it is found that between m1 and gnp a bivariate feedback model fits the data best between m2 and gnp a one way causal model from money to income performs better diagnostic checks applied to our model seem to indicate the adequacy of our approach

the new keynesian economics preface 1 from keynesian to new keynesian economics 2 keynesian microfoundations in historical perspectives part i real rigidities 3 the labour market and real wage rigiditry 4 credit rationing and imperfect capital markets 5 real rigidities in the goods market part ii nominal rigidities introduction 6 rational models of irrational behaviour 7 price setting with adjustment cost 8 real and nominal price rigidity further issues part iii coordination failures and hysteresis 9 coordination failures 10 hysteresis conclusions

symbiosis of monetary and fiscal policies in a monetary union we consider the interaction between the monetary policy in a monetary union and the separate fiscal policies of the member countries we use a barro gordon type model extended to many countries and fiscal policies each country s fiscal policies inflict externalities on other countries and the common monetary policy has its time consistency problem but if the two types of policymakers agree about the ideal levels of output and inflation then this ideal is attained despite disagreements about the weights of the objectives despite ex post monetary accommodation to fiscal profligacy without fiscal coordination without monetary commitment and for any order of moves

wagner s law versus displacement effect abstractthe public sector has grown dramatically over the past few centuries in many developed countries in this article we use wavelet methods to distinguish between two leading explanations for this growth wagner s law and the displacement effect in doing so we use the long term data of 10 oecd countries for a maximum time span of 1800 2009 we find that the validity of wagner s law is likely to vary strongly over time for each country a roughly similar feature in most of the countries is that the law is less valid in the earliest stage of economic development as well as in the advanced stages with the validity tending to follow an inverted u shaped pattern with economic development further our results indicate that the long run growth of government size cannot be adequately explained by wagner s law on the other hand the displacement effect appears to account for the bulk of the growth in most of the countries

testing wagner versus keynes using disaggregated public expenditure data for canada this paper attempts to test wagnerian versus keynesian hypotheses by examining the relationship between national income and total public expenditure as well as its various components for canada during the period 1950 1995 engle and granger s two step cointegration and error correction techniques are employed to test these two hypotheses the results of this study support both the hypotheses when tested with broader aggregate expenditure data i e total government current expenditure ce and total current expenditures on goods and services cegs although the results of this study do not support the existence of any long run relationship between gdp and the disaggregated public expenditure variables they do support the existence of short run causation implying that national income may be causing or caused by a component of the total government current expenditure in the short run

an analysis of the stability and growth pact we use a stylised model to analyse the stability and growth pact for countries that have formed the european monetary union emu in our model shortsighted governments fail to internalise the consequences of their debt policies for the common inflation rate fully therefore while governments have no incentive to sign a stability pact in the absence of a monetary union they do so with monetary union to restrain this externality with uncertainty a monetary union combined with an appropriately designed pact will be strictly preferred to autonomy with differences in initial conditions conflicts of interest arise we study the nash bargaining solution

the macroeconomic policy mix in a monetary union with flexible inflation targeting abstract policy mix problems may arise in a monetary union with centralized monetary policy and decentralized fiscal policy a consequence of this may be an inappropriate stabilization of shocks this paper addresses how policy coordination problems between fiscal authorities depend on the type of shocks and the objectives of the monetary authority it is shown that non coordinated fiscal policies tend to be too counter cyclical in the case of aggregate shocks and that this bias can be reduced by lowering the weight to output stability in monetary policy oppositely for country specific shocks non coordinated fiscal policies tend to be too pro cyclical and this bias can be reduced by increasing the weight to output stability in monetary policy considering the assignment of policy tasks within the set of binding policy rules for fiscal and monetary policies it is found that flexible inflation targeting dominates strict inflation targeting

optimal monetary policy cooperation through state independent contracts with targets abstract simple state independent monetary institutions are shown to secure optimal cooperative policies in a stochastic linear quadratic two country world with international policy spill overs and national credibility problems institutions characterize delegation to independent central bankers facing quadratic performance related contracts punishing or rewarding deviations from primary and intermediate policy targets

endogenous contract structure and monetary policy abstract we analyze the co determination of monetary policy and the labor contracts chosen by members of the public who can either fix or index their nominal wages fixed nominal wages allow the central bank to offset productivity shocks while the public fix nominal wages in response to the central bank offsetting shocks so there is an equilibrium in which realistically nominal wages are fixed and shocks offset a result which holds in single as well as in multi period games in addition there may be equilibria in which agents index their nominal wages and the central bank optimally responds by stabilizing price in contrast to conventional models the ramsey rule may be implemented in a finitely repeated game the central bank does not deviate for fear that agents would change their labor contracts such that the central bank s least favored equilibrium will subsequently be played

a repeated game model of monetary union given a policy rule of the common central bank of a monetary union member countries with different preferences about inflation and facing asymmetric shocks have different incentives to secure political intervention in the bank s operation and achieve the temporary benefit of surprise inflation this is modelled as a repeated game and the most cooperative outcome subject to the countries incentive compatibility constraints is found the optimal rule responds flexibly to asymmetric shocks adjusting policy away from the full commitment level toward the discretionary level so as to maintain the worse hit country s incentive to abide by the rule

the effect of within sector upstream and downstream energy taxes on innovation and productivity the aim of this paper is to investigate the effect of environmental regulatory stringency on innovation and productivity using a panel of 8 european countries for 13 manufacturing sectors over the years 2001 2007 this research topic falls under the heading of the porter hypothesis ph of which different versions have been tested we consider both the strong and the weak versions of the ph while also adding some peculiar features to the analysis firstly we assess the role played by environmental taxes that is an instrument rarely tested as a factor which can support the ph secondly we analyse not only the effect of environmental taxes within a given sector within sector but also the role played by environmental taxes in upstream and downstream sectors in terms of input output relationships thirdly we test these relationships also indirectly by verifying whether innovation is one of the channels through which higher sectoral productivity can be achieved by imposing tighter environmental regulations our main findings suggest that downstream stringency is the most relevant driver of innovation and productivity while within sector regulations only affect productivity but not innovation moreover the effect of regulations on productivity is mostly direct while the part of the effect mediated by induced innovations as measured by patents is relevant only for what concerns downstream regulations

is transparency about central bank plans desirable a central bank with private information about its preferences has an incentive to reduce its planned inflation to increase the public s perception of its inflation aversion and lower expected future inflation a regime is said to be transparent if planned inflation is observable and reveals the central bank s preferences and to be non transparent if planned inflation is unobservable and can be only imperfectly inferred from actual inflation a central bank in the non transparent regime is said to become more transparent when actual inflation becomes a better signal of planned inflation i find several results about transparent and non transparent regimes some are novel and some contrast with the results of earlier papers in particular i demonstrate that in a non transparent regime increased transparency need not improve the public s ability to infer a central bank s private information i show that society and central banks are better off with more transparency my numerical results suggest that society and central banks prefer the transparent to the non transparent regimes

optimal reputation building in the new keynesian model abstract we study the optimal committed monetary policy when the private sector has imperfect information and has to infer the central banker s ability to commit the optimal policy is designed to influence learning and improve the central banker s reputation of being committed the reputation building implies that when a committed central banker first takes office he should resist the temptation to stimulate output with initially high but declining inflation he should reverse a missed inflation target rather than accommodate it and he should adopt a less accommodative inflation response to a cost push shock than a full commitment solution suggests

the immediate challenges for the european central bank immediate challenges for the ecb issues in formulating a single monetary policy this paper discusses a number of issues that the newly constituted board of the ecb will face early on conducting a european monetary policy will be very different from living under the protective umbrella of the bundesbank we discuss voting on the ecb board and argue that the ability to communicate with the public will be critical for the success of the new institution we also ask how a single monetary policy a common change in the interest rate controlled by the ecb is transmitted to the economy of each member country we show that the monetary process differs significantly inside emu initially at least the cost of a disinflation episode could fall disproportionately on a few member countries those with both a financial structure that spreads a monetary contraction widely and a wage price structure that is relatively inflexible this process moreover is sure to evolve in part as a result of financial industry restructuring already under way but in part accentuated by the common money furthermore as the lucas principle suggests the wage price process itself will adapt to the changing focus of european monetary policy rudi dornbusch carlo favero and francesco giavazzi

monetary and fiscal policies interaction in monetary unions in this paper the literature on the interaction between monetary and fiscal policies in a monetary union is surveyed by adopting the concept of symbiosis as a starting point the paper highlights the importance of uncertainty policy makers preferences and targets then the role of commitment to policy rules and coordination is addressed the analysis also focuses on the importance of the data considered for the generation of the policy mix as a final step the paper discusses the main results in the literature on public debt management in a monetary union all the reported theoretical results are then adopted to retrieve policy and institutional implications for the european monetary union

energy innovation and renewable energy consumption in the correction of air pollution levels abstract this study analyses the relationship between economic growth and environmental pollution specifically it investigates the presence of an environmental kuznets curve ekc in 17 oecd countries over the period of 1990 2012 the results confirm the existence of an n shaped ekc relationship between income and environmental degradation the study offers a novel methodological contribution that makes it possible to explain the environmental pollution process through the analysis of low carbon technologies this demonstrates how income levels affect energy consumption and how higher energy demand leads to a larger share of fossil sources in the energy mix and thus increased greenhouse gas ghg emissions the effect on per capita ghg emissions is explored in a model containing a dampening variable that moderates the relationship between energy consumption and income this empirical evidence helps to explain the interaction between energy regulation economic growth and carbon emissions this study also confirms the positive effect that energy innovation process exerts on environmental pollution finally it is noted that renewable energy sources help to improve air quality

pollution controlling innovation in oligopolistic industries some comparisons between patent races and research joint ventures abstract much of the literature on pollution control innovation has focused on normative comparisons of exogenous regulatory policies in light of the incentives they induce on firms r d efforts in contrast in the positive analysis below both r d incentives and regulatory policy arise endogenously as functions of market structure and external cost differentials incentives for pollution controlling innovation are found to arise from within the industry in a patent race setting when innovation gives the race winner s a cost advantage over the other industry members this cost advantage is shown to come about when innovating firms successfully use their influence to raise their rivals costs by bringing about a policy change forcing industry members to internalize pollution externalities in contrast an industry wide research joint venture rjv has incentive to collusively prevent development of innovation unless environmental activists are sufficiently strong this latter result is illustrated by the case u s vs automobile manufacturers association where the justice department found evidence that the big three used an rjv to slow the introduction of pollution control innovation

keynes versus wagner public expenditure and national income for three african countries the public expenditure income hypothesis has long been debated in economics following keynes public expenditure is seen as an exogenous factor to be used as a policy instrument to influence growth on the other hand wagner argues that expenditure is an endogenous factor or an outcome not a cause of growth in national income the purpose of this paper is to apply both the granger and holmes hutton statistical procedures to test the income expenditure hypothesis for three african countries ghana kenya and south africa we find that the hypothesis of public expenditure causing national income is not supported by the data for these african countries

short and long term relation between economic development and government spending the role of quality of institutions abstractthis paper tests the wagner s assumption of the one sided directional flow moving from economic growth to public spending considering an international database over the 1996 2012 period by

political shocks and public debt the case for a conservative central bank revisited abstract we explore the dynamics of public debt and optimal institutions in the presence of political shocks arising from electoral uncertainty under commitment optimal stabilization is established by combining an inflation target with a debt target the inflation target should be contingent on the political shocks while the debt target forces the government to fully absorb the political shocks in the period in which it occurs in the absence of such inflation and debt targets but with monetary commitment a conservative central bank enhances stabilization an even more conservative central bank is optimal if monetary policy cannot commit

a time domain transfer function model of wagner s law the case of the united kingdom economy the dynamic relationship which is implied by wagner s law is well established in the literature however the methodology which has been applied to investigate this dynamic relationship has tended to avoid a dynamic specification this paper investigates wagner s law employing transfer function methodology in the time domain for the uk over the period 1946 85

dynamic incentives by environmental policy instruments a survey abstract in this paper i survey and discuss recent developments on the incentives provided by environmental policy instruments for both adoption and development of advanced abatement technology a main conclusion to be drawn from the literature is that under competitive conditions market based instruments usually perform better than command and control moreover taxes may provide stronger long term incentives than tradable permits if the regulator is myopic if the government can anticipate new technology or is able to react on it optimally regulatory policies by virtue of administered prices taxes and policies by setting quantities issuing tradable permits are almost equivalent the literature also shows that under competitive conditions there is no difference between auctioning permits and grandfathering moreover timing and commitment of environmental policy is not crucial for adoption under competitive conditions commitment has positive incentive effects however if an r d sector has market power in the presence of market imperfections the ranking of the different policy instruments is ambiguous

does host market regulation induce cross border environmental innovation this paper evaluates the effect of host country environmental policy stringency on the offshoring of environmental patents for 2000 top world r d performers it is shown that a more stringent environmental regulation triggers both the extensive and intensive margin of patent offshoring in the field of environmental technologies results are robust to various different specifications alternative definitions of innovation offshoring and of regulation restrictions and to the consideration of possible endogeneity of regulation it is suggested inter alia that r d subsidies and non market based regulatory measures are more important than market based instruments as drivers of cross border environmental innovation length 26 pages

determinants of environmental innovation in us manufacturing industries abstract this paper provides new evidence on the determinants of environmental innovation we employ panel data models to study how environmental innovation by us manufacturing industries responded to changes in pollution abatement expenditures and regulatory enforcement during the period 1983 through 1992 we find that 1 environmental innovation as measured by the number of successful environmental patent applications granted to the industry responded to increases in pollution abatement expenditures however 2 increased monitoring and enforcement activities related to existing regulations did not provide any additional incentive to innovate we also find some empirical evidence that environmental innovation is more likely to occur in industries that are internationally competitive

green technologies and environmental productivity a cross sectoral analysis of direct and indirect effects in italian regions abstract this paper provides empirical investigation of the effects of environmental innovations eis on environmental performances as proxied by the environmental productivity ep measure we focus on sectoral environmental productivity of italian regions by exploiting the regional accounting matrix including environmental accounts regional namea patent applications have been extracted by the patstat database and assigned to the environmental domain by adopting different international classifications of green technologies the latest release of the oecd env tech indicators and the union of this with the previously established wipo green inventory econometric results outline that regions sectors characterized by higher levels of green technologies gts are those facing better environmental performance these positive effects directly stem from the introduction of gt in the same sector as well as from the introduction of gt in vertically related sectors

price regulation in the spanish energy sectors who benefits abstract this paper analyses the distribution of benefits between firms and consumers due to the price regulation of the spanish energy sectors electricity oil fuels and gas during the decade 1987 1997 to that effect we compare the actual evolution of energy prices with alternate benchmarks in order to assess the potential existence of a pro industry or a pro consumer bias in the pricing policies followed by the regulator our results show a pro industry biased regulatory context where consumers benefitted very little from price control the successive price adjustments over time allowed the companies to keep all the productivity gains and cost reductions and to increase their profitability rates relative to those achieved in the manufacturing sector

timing and commitment of environmental policy adoption of new technology and repercussions on r d we investigate the interplay between environmental policy incentives to adoptnew technology and repercussions on r d we study a model where a monopolistic upstream firm engages in r d and sells advanced abatement technology to polluting downstream firms we consider four different timing and commitment regimes of environmental tax and permit policies ex post taxation or issuing permits interim commitment to a tax rate a quota of permits after observing r d success but before adoption and finally two types of ex antecommitment before r d activity one with a unique tax rate quota of permits the other one with a menu of tax rates permit quotas we study the second best tax and permit policies and rank these with respect to welfare in particular we find that commitment to a menu of tax rate dominates all other policy regimes

environmental corporate social responsibility and financial performance disentangling direct and indirect effects abstract this paper assesses the impact of environmental corporate social responsibility ecsr on corporate financial performance cfp measured by roa and tobin s q we show that the relationship between firms return on assets roa and ecsr strengths and concerns is negative and statistically significant we also show that firms tobin q and ecsr strengths and concerns are negatively correlated in a statistically significant way however accounting for the interaction between firms environmental efforts and r d yields a different perspective while the direct impact of ecsr on cfp is still negative the interaction of ecsr and r d has a positive and significant impact on it ecsr strengths and concerns harm cfp since they are perceived as a potential cost however this csr activity fosters r d efforts of firms which generates additional value indirect effect

the strategic use of innovation to influence regulatory standards this paper investigates the welfare consequences of strategic behavior by firms to affect the amount of environmental regulation they face environmental regulation often attempts to force an industry to develop cleaner technology but the regulator may have no means to commit to a specific standard this lack of regulatory commitment induces firms to choose innovation strategically it is well known that firms have incentives to suppress innovation to induce the regulator to ratchet down the standard and this strategic behavior lowers welfare this paper explores a countervailing incentive in oligopoly settings firms have heightened incentives to innovate so as to increase regulation and raise rivals costs in equilibrium the incentive to raise rivals cost can mitigate the welfare loss arising from no regulatory commitment also a regulator who is unable to commit ex ante to the stringency of a regulatory standard can induce more clean technology than a regulator with a commitment mechanism

innovation and the international diffusion of environmentally responsive technology abstract new evidence is presented on environmental innovation and diffusion over the 1970s and 1980s at a global level a substantial amount of innovations occurred in the united states japan and germany the share of environmental patents in all patents varied between 0 6 and 3 and as such was higher than the corresponding share of pollution abatement expenditure in gdp japanese environmental innovation rates were consistently high certain plausible connections between environmental regulation and innovation also emerge across these three countries and over time innovation responded to pollution abatement expenditure an indicator of the severity of environmental regulations environmental patenting rates in developing countries were also high reaching 2 in many years in brazil developing country innovators obtained a non trivial number of patents most of which appear geared towards adapting imported technologies to local conditions however domestic innovation was only one path to new technologies imports of disembodied environmental technologies foreign patents registered in developing countries were substantial foreign patents were typically important or generic patents evidence also suggests that such patents protected intellectual property in equipment exported developing countries especially in east asia often chose to obtain technologies embodied in pollution abatement equipment

delegation as commitment the case of income tax audits in this article we study the value of delegating authority over income tax audit policy arising from the incompleteness of contracts consider a utilitarian government whose ability to commit is limited to aggregate dimensions of its audit policy as publicly verifiable information about detailed allocations of audit budgets is not available we show that the welfare level associated with the full commitment solution can be attained by delegating authority over audit policy to a manager the latter is offered a simple incentive scheme based only on the aggregate variables which are publicly observable in contrast if the government retains authority direct commitment to these same variables does not allow the full commitment welfare level to be achieved thus despite sharing a common informational basis delegation may perform better than centralized arrangements in the presence of incomplete contracts

environmental regulation with technology adoption learning and strategic behavior we analyze a model of environmental regulation with learning about environmental damages and endogenous choice of emissions abatement technology by a polluting firm we compare environmental policy under discretion in which policy is updated upon learning new information versus under rules in which policy is not updated when investment in abatement technology is made prior to the resolution of uncertainty neither discretion nor rules with either taxes or standards achieve an efficient solution except in special cases when there is little uncertainty rules are superior to discretion because discretionary policy gives the firm an incentive to distort investment in order to influence future regulation however when uncertainty is large discretion is superior to rules because it allows regulation to incorporate new information taxes are superior to standards under discretion regardless of the relative slopes of marginal costs and marginal damages for the case of quadratic abatement costs and damages

accountability transparency and inflation targeting inflation targeting regimes define a performance measure for the central bank a regime that places a large small weight on achieving the target is analogous to a high low powered incentive scheme high powered incentive structures promote accountability but may distort stabilization policy the optimal power under inflation targeting is derived under perfect and imperfect information the fundamental trade off between accountability and stabilization depends on the degree of transparency defined as the ability to monitor the central bank s performance multiplicative uncertainty increases the optimal weight to place on achieving an inflation target