to float or to fix evidence on the impact of exchange rate regimes on growth we study the relationship between exchange rate regimes and economic growth for a sample of 183 countries over the post bretton woods period using a new de facto classification of regimes based on the actual behavior of the relevant macroeconomic variables in contrast with previous studies we find that for developing countries less flexible exchange rate regimes are associated with slower growth as well as with greater output volatility for industrial countries regimes do not appear to have any significant impact on growth the results are robust to endogeneity corrections and a number of alternative specifications borrowed from the growth literature

the real exchange rate conundrum the case of central america abstract this paper evaluates alternative measures of the real exchange rate for mexico and central american countries bilateral and multilateral real exchange rates using the consumer price index wholesale price index and gross domestic product deflator are calculated there are often significant differences between the bilateral and multilateral measures of the real exchange rate real exchange rates based on consumer price indexes and gross domestic product deflators were found to be more closely related to each other than either one was to the wholesale price index

a growth model of inflation tax evasion and financial repression abstract this paper studies the relation between policies of financial repression inflation rates and long term growth we set up a model which shows that governments might want to express the financial sector because this sector is an easy source of resources for the public budget the inflation tax to the extent that the financial sector increases the efficiency of the allocation of savings to productive investment the choice of the degree of financial development will have real effects on the growth rate of the economy in countries where tax evasion is large the government will optimally choose to repress the financial sector in order to increase seigniorage taxation this policy will then reduce the efficiency of the financial sector increase the costs of intermediation reduce the amount of investment and reduce the growth rate of the economy financial repression will therefore be associated with high tax evasion low growth and high inflation

currency misalignments and growth a new look using nonlinear panel data methods the aim of this article is to investigate the link between currency misalignments and economic growth relying on panel cointegration techniques we calculate real exchange rate rer misalignments as deviations of actual rers from their equilibrium values for a set of advanced and emerging economies estimating panel smooth transition regression pstr models we show that rer misalignments have a differentiated impact on economic growth depending on their sign whereas overvaluations negatively affect economic growth rer undervaluations significantly enhance it this result indicates that undervaluations may drive the exchange rate to a level that encourages exports and promotes growth

exchange rate management and manufactured exports in sub saharan africa this paper presents an overview of the evolution of exchange rate regimes in africa and then attempts to assess empirically the impact of exchange rate policy on manufactured export performance on a panel of major sub saharan africa countries over the 1970 92 period we examine the impact of three exchange rate policy indicators real effective exchangerate changes real exchange rate volatility and model based measures of real exchange rate misalignment export supply functions are estimated for three manufacturing industries textile chemicals and metals and two exchange rate regimes a fixed rates regime including six cfa franc countries and a more flexible regime represented by five non cfa countries our findings show that exchange rate management matters for export performance this is evidenced both by the significant impact of changes in the real effective exchange rate and by the negative influence exerted independently by real exchange rate misalignment on the

corporate benefit policies and health insurance costs we tested the hypothesis that health insurance premium costs per employee are lower for employee groups where multiple health plans are offered and the employer pays a level dollar amount of the chosen premium than for employee groups where these two conditions are not met proposed national legislation relies on these conditions to create a competitive health care market data on 56 employee groups in 1981 and 66 employee groups in 1982 were collected from two surveys of large employers in minnesota regression analysis of premium data from both surveys rejected the hypothesis indemnity plans in multiplan groups were cheaper if the employer paid a level dollar contribution versus a level percent including 100 contribution however groups offered only an indemnity plan had lower premiums than groups meeting the two legislative conditions these findings apply to both individual and family coverage premiums and are not caused by systematic differences in benefit provisions employee demographics or factors influencing loading charges our findings cast doubt on attempts to achieve health care competition by legislative changes in insurance options and contribution methods

gold and silver health plans accommodating demand heterogeneity in managed competition abstract new regulation of health insurance markets creates multiple levels of health plans with designations like gold and silver the underlying rationale for the heavy metal approach to insurance regulation is that heterogeneity in demand for health care is not only due to health status sick demand more than the healthy but also to other taste related factors rich demand more than the poor this paper models managed competition with demand heterogeneity to consider plan payment and enrollee premium policies in relation to efficiency net consumer benefit and fairness the european concept of solidarity specifically this paper studies how to implement a silver and gold health plan efficiently and fairly in a managed competition context we show that there are sharp tradeoffs between efficiency and fairness when health plans cannot or may not because of regulation base premiums on any factors affecting demand enrollees do not choose the efficient plan when taste e g income can be used as a basis of payment a simple tax can achieve both efficiency and fairness when only health status and not taste can be used as a basis of payment health status based taxes and subsidies are required and efficiency can only be achieved with a modified version of fairness we refer to as weak solidarity an overriding conclusion is that the regulation of premiums for both the basic and the higher level plans is necessary for efficiency

fuel tax incidence in developing countries the case of costa rica abstract although fuel taxes are a practical means of curbing vehicular air pollution congestion and accidents in developing countries all of which are typically major problems they are often opposed on distributional grounds yet few studies have investigated fuel tax incidence in a developing country context we use household survey data and income outcome coefficients to analyze fuel tax incidence in costa rica we find that the effect of a 10 fuel price hike through direct spending on gasoline would be progressive its effect through spending on diesel both directly and via bus transportation would be regressive mainly because poorer households rely heavily on buses and its effect through spending on goods other than fuel and bus transportation would be relatively small albeit regressive finally we find that the overall effect of a 10 fuel price hike through all types of direct and indirect spending would be neutral and the magnitude of this combined effect would be modest we conclude that distributional concerns need not rule out using fuel taxes to address pressing public health and safety problems particularly if gasoline and diesel taxes can be differentiated

computable general equilibrium model analysis of economywide cross effects of social and environmental policies in chile abstract the analysis of the linkages between development policies and social and environmental variables is a neglected area within the development literature this paper focuses on the key interrelations among the economic social and environmental elements of the sustainable development triangle a thorough review is undertaken of both social and environmental policies in chile underlining important economic growth and reforms using the static cge model ecogem chile the economywide impacts of several environmental social and combined policies are simulated for the chilean economy six different policies are simulated three environmental policies that impose different taxes on pm10 so 2 and no 2 emissions respectively the same tax on pm10 in a context of high unemployment one social policy that increases government transfers to households and a mixed social environmental policy package where the environmental tax on pm10 and the social transfer policy are simulated simultaneously the results show that environmental tax policies may have negative social effects using real disposable income by quintiles as proxy the impacts depend on the use of the new revenues and the status of employment taxing pm10 emission yields better environmental results than taxing so 2 and no 2 social policies do not show negative environmental impacts combined environmental and social policies improve results thus specific compensating social policies would improve environmental policy acceptance while also reducing poverty or strong income distribution disparities the evidence suggests that environmental policies may have social impacts but not vice versa the results show that the ecogem chile model is useful for analyzing systematically and holistically different economywide policies and their impact on the chilean economy winners and losers may be identified as well as the potential magnitude of gains and losses the results obtained are not all straightforward due to indirect effects

group health insurance a hedonic price approach the authors examine the premium consequences of alternative health insurance provisions by estimating pricing regressions for group insurance with data on 9 019 fee for service plans offered by larger firms in the private sector they find that cost sharing at the point of purchase especially for hospital care significantly lowers fee for service premiums however some aspects of plan design that are often touted as cost reducing such as self insuring or offering employees the option to join a health maintenance organization are found to increase premiums coverage of alcoholism chemical dependency treatments inpatient mental health care and psychologists services which are mandated in many states are found to be expensive copyright 1990 by mit press

did foreign exchange holding influence growth performance during the global financial crisis in a context of increased foreign exchange reserves holding from emerging and developing countries this paper investigates the diminishing return of reserves holding assumption over the most severe phase of the global financial crisis 2008q1 2010q4 relying on a panel smooth transition regression model we highlight the differential effect of the accumulation of foreign exchange reserves for a set of financial vulnerabilities variables specifically while reserve accumulation is effective above a critical threshold to cope with vulnerabilities related to the financial channel we show that it becomes less effective beyond a certain threshold for domestic bank vulnerabilities

the distributional effects of capital account liberalization abstract episodes of account liberalization increase the gini measure of inequality based on panel data estimates for 149 countries from 1970 to 2010 these episodes are also associated with a persistent increase in the share of income going to the top we investigate three channels through which these impacts could occur first the impact of liberalization on inequality is stronger where credit markets lack depth and financial inclusion is low positive impacts of liberalization on poverty rates also vanish when financial inclusion is low second the impact on inequality is also stronger when liberalization is followed by a financial crisis third liberalization seems to alter the relative bargaining power of firms and workers the labor share of income falls in the aftermath of capital account liberalization

how does exchange rate policy affect manufactured exports in mena countries this paper shows that during the 1970s and 1980s mena economies were characterized by a significant overvaluation of their currency this overvaluation has had a cost in terms of competitiveness to determine the degree of overvaluation of the mena currencies an indicator of misalignment was developed based on the estimation of an equilibrium exchange rate edwards exchange rate misalignment in developing countries the johns hopkins university press baltimore 1988 the empirical work was based on a panel of 53 developing countries ten of which are mena economies although overvaluation decreased in the 1990s probably due to flexibilization of the exchange rate regime in some mena countries and to better macroeconomic management in others misalignment remained higher than in other regions this may be explained by the mena countries delay in adopting more flexible exchange rates as well as in reforming their economies in terms of competitiveness the estimation of an export equation has shown

the impact of terms of trade and real exchange rate volatility on investment and growth in sub saharan africa abstract specialization in primary product exports reduces growth but why adverse trends in and the high variance of primary product prices are possible explanations the impact on investment and growth of the level and volatility of the terms of trade and the real effective exchange rate is estimated for a panel of 14 sub saharan african countries over 1980 1995 growth is negatively affected by terms of trade instability and investment by real exchange rate instability both growth and investment increase when the terms of trade improve and real exchange rate overvaluation is eliminated

the overvaluation of purchasing power parity abstract recent panel studies of purchasing power parity have reported strong evidence of mean reversion in real exchange rates however these studies fail to control for cross sectional dependence in the data this failure has dramatic consequences raising the significance level of tests with a nominal size of 5 percent to as much as 50 percent it is shown in this paper that controlling for cross sectional dependence no evidence against the random walk null can be found in panels of up to 64 real exchange rates this finding cannot be attributed to low power as there is ample power in panels of this size to reject the unit root null

motor fuel taxes and household welfare an applied general equilibrium analysis the shifts in expenditure patterns of motor fuel tax receipts that have occurred over the last decade typically are not included in the incidence estimates of these taxes we explicitly incorporate these changing expenditure patterns into our analysis of distributional impacts of motor fuel tax increases using an applied general equilibrium framework our results indicate that the greater the proportion of motor fuel tax revenue devoted to general uses the greater is the absolute and relative burden of the lowest income household and the more regressive is the policy with respect to the overall distributional structure

foreign aid the real exchange rate and economic growth in the aftermath of civil wars foreign aid the real exchange rate rer and economic growth are three key variables that shape the aftermath of civil wars in many developing countries panel estimations drawn from a sample of 39 conflict and 44 non conflict countries between 1970 and 2004 indicate that although post conflict countries receive larger aid flows and exhibit moderate rer overvaluation after peace is attained overvaluation cannot be traced to aid yet foreign aid is among the significant determinants of the equilibrium rer an id is also an important determinant of economic growth particularly after peace is reached aid exhibits decreasing returns however and interacts negatively with rer overvaluation rer overvaluation reduces growth but this effect is ameliorated by financial development post conflict policies should therefore aim to use aid prudently avoid rer misalignment and support financial and capital market development to achi eve high and stable growth in the aftermath of war and beyond

pricing and welfare in health plan choice premiums in health insurance markets frequently do not reflect individual differences in costs either because consumers have private information or because prices are not risk rated this creates inefficiencies when consumers self select into plans we develop a simple econometric model to study this problem and estimate it using data on small employers we find a welfare loss of 2 11 percent of coverage costs compared to what is feasible with risk rating only about one quarter of this is due to inefficiently chosen uniform contribution levels we also investigate the reclassification risk created by risk rating individual incremental premiums finding only a modest welfare cost

cost minimizing risk adjustment conventional risk adjustment which sets capitation payments equal to the average cost of individuals with similar observable characteristics is not optimal if health plans can use private information to select low cost enrollees cost minimizing risk adjustment minimizes the sum of capitated hmo premiums plus ffs costs by balancing the gains from hmo cost efficiency against the overpayments that result from hmo selection estimations using privately insured data suggest that cost minimizing risk adjusted premiums reduce total sponsor costs as much as 25 6 below conventional risk adjustment premiums

asymmetric phase shifts in u s industrial production cycles abstract we identify cyclical turning points for 74 u s manufacturing industries and uncover new empirical regularities a industries tend to comove between expansion and contraction phases over the business cycle b clusters of industry turning points are highly asymmetric between peaks and troughs troughs are much more concentrated and sharper than peaks c the temporal pattern of phase shifts across industries supports the spillovers through input output linkages and d macroeconomic shocks such as unanticipated changes in monetary policy government spending oil prices and financial conditions are significant drivers of industrial phase shifts

dutch disease government policy and import demand in nigeria the effects of sectoral changes and government policies on import demand in nigeria are examined in the context of the oil shocks of the 1970s and 1980s a two equation model is estimated to determine real import demand and the real exchange rate the results show that import demand increased significantly in response to the boom induced squeeze on the agricultural sector furthermore by inducing and sustaining real exchange rate overvaluation expansionary government policies contributed to higher import demand even after the collapse in oil prices

modelling with flexibility through the business cycle using a panel smooth transition model to test for the lipstick effect consumer spending typically declines during periods of economic distress but observers have noted that lipstick purchases appear to increase during recessions which is often referred to as the li

predicting u s recessions financial variables as leading indicators this paper examines the out of sample performance of various financial variables as predictors of u s recessions series such as interest rates and spreads stock prices and monetary aggregates are evaluated individually and in comparison with other financial and nonfinancial indicators the analysis focuses on out of sample performance from one to eight quarters ahead results show that stock prices are useful with one to three quarter horizons as are some well known macroeconomic indicators beyond one quarter however the slope of the yield curve emerges as the clear individual choice and typically performs better by itself out of sample than in conjunction with other variables

exchange rate regime durability and performance in developing versus advanced economies abstract drawing on new data and advances in exchange rate regimes classification we find that countries appear to benefit by having increasingly flexible exchange rate systems as they become richer and more financially developed for developing countries with little exposure to international capital markets pegs are notable for their durability and relatively low inflation in contrast for advanced economies floats are distinctly more durable and also appear to be associated with higher growth for emerging markets our results parallel the baxter and stockman classic exchange regime neutrality result though pegs are the least durable and expose countries to higher risk of crisis

social welfare effects of removing multiple exchange rates evidence from the rice trade in iran in order to encourage the involvement of the private sector in importing rice the iranian government plans to relax the system of multiple foreign exchange rates applied to importers wishing to supply the domestic market in this article the welfare effects of removing the current controls on the rice trade and a domestic rice coupon program are evaluated by applying a partial equilibrium analysis to 1961 1999 data the results show that as far as foreign exchange is concerned liberalization of the rice market causes an increase in rice imports mainly due to a decrease in domestic supply in welfare terms the loss in producer surplus from rice market liberalization is relatively high but most rice consumers and the iranian taxpayer would gain overall gains to consumers and taxpayers are estimated to be higher than the losses incurred by domestic suppliers and therefore net social welfare at national level can be improved by rice market liberalization in iran issues for further discussion include residual food security roles for the state and supply side adjustments in terms of resource use and higher quality production

statistical evidence about libor manipulation a sherlock holmes investigation this paper contributes to the crucial problem of libor malfunctioning due to its manipulation by banks a phenomenon described clearly in the fsa inquiry report published in september 2012 after applying classical tests of non stationarity to a series of participating banks libor quotes we detected some significant breaks in the data that correspond to significant economic events namely lehman brothers bankruptcy or central banks decisions our conclusion is that a possible manipulation confirmed ex post in the fsa report can be deduced throughout the crisis period as a result of the behavior of the coefficients in a linear three regime threshold regression model finally we applied an original procedure to detect those banks most likely to build cartels or at least homogeneous groups during the important period of turmoil under review namely august 2007 through november 2012 this method called hierarchical clustering analysis helped us to precise the conclusions of the abovementioned fsa inquiry

the anticipated and concurring effects of the emu exchange rate volatility institutions and growth abstract reduced exchange rate volatility and higher and less heterogeneous quality of institutional rules and macroeconomic policies are two of the main anticipated and concurring effects expected from a currency union in this paper we measure the magnitude of these two effects for the eurozone countries looking at real effective exchange rates reer and at different indicators of quality of institutional rules and macroeconomic policies qirmp we find that the first effect is much stronger than the second when we compare relative changes for eurozone countries and the rest of the world in the relevant period we further evaluate the impact of both effects on economic growth on a larger sample of countries our findings show that both have significant impact on levels more robust and on rates of growth weaker of per capita gdp

employment fluctuations in u s regions and industries the roles of national region specific and industry specific shocks this study quantifies the roles of national region specific and industry specific shocks in aggregate employment fluctuations in u s regions and industries variation among the growth rates of major regions and industries is decomposed into unobserved national region and industry specific components the results reject the view that any heterogeneity in regional fluctuations is attributable to differences in industry composition after controlling for industry mix effects roughly 40 of the variance of the cyclical innovation in any region s growth rate is particular to that region in addition region specific shocks appear to propagate across regions over time

let s get real a factor analytical approach to disaggregated business cycle dynamics this paper develops a method for analysing the dynamics of large cross sections based on a factor analytic model we use law of large numbers arguments to show that the number of common factors can be determined by a principal components method the economy wide shocks can be identified by means of simple structural var techniques and that the parameters of the unobserved factor model can be estimated consistently by applying ols equation by equation we distinguish between a technological and a non technological shock identification is obtained by minimizing the negative realizations of the technology shock empirical results on 4 digit industrial output and productivity for the u s economy from 1958 to 1986 show that 1 at least two economy wide shocks both having a long run effect on sectoral output are needed to explain the common dynamics 2 although the technological shock accounts for at least 50 of the aggregate dynamics of output it cannot by itself explain dynamics at business cycle frequencies 3 sector specific shocks explain the main bulk of total variance but generate mainly high frequency dynamics 4 both the technological and the non technological component of output show a peak for positive sectoral comovements of output at business cycle frequencies 5 technological shocks are strongly correlated with the growth rates of the investment in machinery and equipment sectors and their inputs many interesting questions about cyclical fluctuations and economic growth can be answered only by studying the dynamic behaviour of sectoral variables when data contain information on time for a large cross section of sectors traditional econometric techniques used in the macroeconomic literature such as vector autoregressive var and vector autoregressive moving average varma models are not appropriate since they require the estimation of too many parameters this is why new methods which allow for the reduction of the parameter space need to be developed the objective of this paper is both methodological and descriptive at the methodological level we develop a simple framework for the dynamic analysis of large cross sections the basic model is a dynamic factor analytic model as in sargent and sims 1977 the sectoral variables are decomposed into two unobservable components a common component driven by macroeconomic shocks and a purely sectoral component when

income distribution impacts of climate change mitigation policy in the susquehanna river basin economy we examine the cost side income distribution impacts of a carbon tax in the susquehanna river basin srb region of the united states utilizing a computable general equilibrium model we find the aggregate impacts of a 25 ton carbon tax on the srb economy are likely to be negative but modest an approximately one third of 1 reduction in gross regional product grp in the short run and double that amount in the long run however unlike many previous studies we find that the carbon tax is mildly progressive as measured by income bracket changes per capita equivalent variation and gini coefficient changes based on expenditure patterns the dominant factors affecting the distributional impacts are the pattern of output income and consumption impacts that affect lower income groups relatively less than higher income ones an increase in transfer payments favoring lower income groups and decreased corporate profits absorbed primarily by higher income groups

will policies to promote renewable electricity generation be effective evidence from panel stationarity and unit root tests for 115 countries abstract this study examines whether policies to promote renewable electricity generation are likely to be effective by applying panel unit root and stationarity tests to time series data on renewable electricity generation for 115 countries over the period 1980 2008 we find that for the panel as a whole and almost three quarters of the individual countries renewable electricity generation is characterized by a unit root this result implies that policies to promote renewable electricity generation such as renewable portfolio standards which result in annual increases in renewable energy and as such which represent permanent positive shocks to the long run growth path of renewable electricity generation will be more effective in increasing renewable electricity generation than policies with a pre specified time horizon

currency crashes in emerging markets an empirical treatment we use a panel of annual data for over 100 developing countries from 1971 through 1992 to characterize currency crashes we define a currency crash as a large change of the nominal exchange rate that is also a substantial increase in the rate of change of nominal depreciation we examine the composition of the debt as well as its level and a variety of other macroeconomic factors external and foreign crashes tend to occur when output growth is low the growth of domestic credit is high and the level of foreign interest rates are high a low ratio of fdi to debt is consistently associated with a high likelihood of a crash

imperfect competition in selection markets policies to correct market power and selection can be misguided when these forces coexist we build a model of symmetric imperfect competition in selection markets that parameterizes the degree of market power and selection we use graphical price theoretic reasoning to characterize the interaction between these forces using a calibrated model of health insurance we show that the risk adjustment commonly used to offset adverse selection can reduce coverage and social surplus conversely in a calibrated model of subprime auto lending realistic levels of competition can generate an oversupply of credit implying that greater market power is desirable

the real exchange rate and macroeconomic performance in sub saharan africa abstract pooled time series and cross section data for 33 countries in sub saharan africa ssa confirm the negative relationship between the real exchange rate rer misalignment and economic performance economic growth imports exports saving and investment macroeconomic instability also slows growth and other indicators of performance higher levels of misalignment are accompanied by higher levels of macroeconomic instability both lower levels of rer misalignment and instability lead to better economic performance the edwards model of rer determination performs well for the region black market premia tend to show a greater degree of misalignment in rer than alternative measures

exchange rate misalignment and growth old and new econometric evidence several studies have tried to identify the relationship between growth and misaligned or overvalued currencies many works easterly 2001 and fajnzylber et alii 2002 find negative correlations between exchange rate misalignment and growth for a long list of developing countries since the seventies the more overvalued the currency the smaller the per capita growth rates even after controlling the regressions for several types of variables the studies cannot reject the statistical significance of overvalued exchange rates in explaining growth this paper presents new econometric evidence for the exchange rate levels and growth relation based on a panel data study for 58 developing countries from 1960 until 1999 using ppp deviation measures our main contribution here is to estimate growth regressions with a real exchange rate index that deals with changes in real gdp per capita levels we use a new overvaluation index that takes into account variations in real per capita incomes adjusting thus our exchange rate estimates for the so called balassa samuelson effect by correcting traditional real exchange rate annual estimates for gdp per capita increases we intend to control our whole series for appreciations due to productivity increases as many authors do for some specific years

external disturbances domestic policy responses and debt accumulation in nigeria abstract this paper provides a case study of the link between external shocks domestic policy responses and external debt accumulation in nigeria the indonesian experience during 1970 1989 is provided as a contrast for policy comparison a significant part of the increase in external debt in the two countries corresponds to financing of capital flight after 1981 current account deficits assumed greater importance in the accumulation of external debt the growth in external debt was caused in part by adverse external conditions the results of this study show that the nigerian debt crisis was exacerbated by inappropriate policy responses indonesia avoided a crisis by applying prudent real exchange rate management and fiscal restraint

perceived inflation under loss aversion building on prospect theory we apply the concept of loss aversion to the formation of inflation perceptions and test empirically for nonlinearities in the inflation perceptions relation for a panel of 10 euro area countries specifically under the assumption of loss aversion inflation changes above a certain reference rate will be perceived more strongly rejecting rationality of inflation perceptions in general under symmetric loss and in a majority of cases under flexible loss functions panel smooth transition models give evidence of nonlinearities in the inflation perceptions relation regarding both actual inflation and time this result is confirmed by dynamic fixed effects estimates where the slope of the estimated value function is significantly steeper in the loss region and the implied average reference inflation rate is found close to 2

growth effect of foreign direct investment in developing economies the role of institutional quality this paper investigates the effect of foreign direct investment fdi on economic growth conditional on the institutional quality of host countries we first develop several theoretical arguments to show that institutional heterogeneity may be an explanation for the mixed results of previous empirical studies second using a panel smooth regression model on a large sample of developing countries we show that fdi has a positive effect on growth only beyond a certain threshold of institutional quality to benefit from fdi led growth institutional reforms should thus precede fdi attraction policies additionally some reforms seem to promote faster marginal effects of fdi while institutional complementarities may lead to an incremental effect on growth

on the link between forward energy prices a nonlinear panel cointegration approach abstract this paper investigates the relationship between forward prices of oil gas coal and electricity using a nonlinear panel cointegration framework to this end we consider a panel of 35 maturities and control for the economic and financial environment using equity futures prices estimating the cointegrating relationship we find that oil gas and coal forward prices are positively linked while the negative link between oil and electricity prices is consistent with a substitution effect between the two energy sources on the long run estimating panel smooth transition regression pstr models we show that the forward oil price adjustment process toward its equilibrium value is nonlinear and asymmetric putting forward the key role played by self sustaining dynamics and speculation phenomena

characterizing nonlinearities in business cycles using smooth transition autoregressive models during the past few years investigators have found evidence indicating that various time series representing business cycles such as production and unemployment may be nonlinear in this paper it is assumed that if the time series is nonlinear then it can be adequately described by a smooth transition autoregressive star model the paper describes the application of these models to quarterly logarithmic production indices for 13 countries and europe tests reject linearity for most of these series and estimated star models indicate that the nonlinearity is needed mainly to describe the responses of production to large negative shocks such as oil price shocks

simulation of a health insurance market with adverse selection a health insurance market is examined in which individuals with a history of high utilization of health care services tend to select fee for service ffs insurance when offered a choice between ffs and health maintenance organizations hmos in addition hmos are assumed to practice community rating of employee groups based on these observations and health plan enrollment and premium data from minneapolis st paul a deterministic simulation model is constructed to predict equilibrium market shares and premiums for hmo and ffs insurers within a firm despite the fact that favorable selection enhances their ability to compete with ffs insurers the model predicts that hmos maximize profits at less than 100 market share and at a lower share than they could conceivably capture that is hmos would not find it to their advantage to drive ffs insurers from the market even if they could in all cases however the profit maximizing hmo premium is greater than the experience rated premium and thus the ave

real exchange rate behavior and economic performance in ldcs in recent years policy discussions have included increasing references to real exchange rate rer stability and correct exchange rate alignment as crucial conditions to improve economic performance in less developed countries ldcs 1 evidence from latin american asian and african countries is often quoted to support the view that the link between rer behavior and economic performance is strong it is argued that while unstable rers inhibited export growth in some of latin america their stability was fundamental in promoting east asian expansion in many african countries on the other hand persistently misaligned local currencies harmed the development of agriculture reducing domestic food supply 2 but in spite of its importance no empirical work has been attempted either to test the relationship between rer behavior and performance indicators at a broad multicountry level or to investigate the sources of rer variability and misalignment in ldcs the theoretical literature on rer determinants has been recently surveyed by sebastian edwards 3 he distinguishes between equilibrium and disequilibrium rers and between external and domestic rer determinants although domestic policies are often said to account for significant rer variations empirical work has only concentrated on the effect of nominal devaluations4 or speculative crises arising from expansionary monetary policies in a system of fixed ex

estimating welfare in insurance markets using variation in prices we provide a graphical illustration of how standard consumer and producer theory can be used to quantify the welfare loss associated with inefficient pricing in insurance markets with selection we then show how this welfare loss can be estimated empirically using identifying variation in the price of insurance such variation together with quantity data allows us to estimate the demand for insurance the same variation together with cost data allows us to estimate how insurers costs vary as market participants endogenously respond to price the slope of this estimated cost curve provides a direct test for both the existence and the nature of selection and the combination of demand and cost curves can be used to estimate welfare we illustrate our approach by applying it to data on employerprovided health insurance from one specific company we detect adverse selection but estimate that the quantitative welfare implications associated with inefficient pricing in our particular application are small in both absolute and relative terms

energy consumption and economic growth in the light of meeting the targets of energy policy in the eu the bootstrap panel granger causality approach abstract the aim of the paper is to assess linkages between energy consumption and economic growth in the light of compliance with the eu energy policy targets stated in the climate and energy package for 2020 in the european union member states in the period 1993 2011 the study is divided into two main stages during the first one using cluster analysis methods four groups of countries which met three energy policy targets stated in the package at similar levels were identified during the second stage the bootstrap granger panel causality approach proposed by konya 2006 was used to verify the hypothesis of causality between energy consumption and economic growth in the countries from four groups created in the previous step the global financial crisis was also taken into account the results obtained reveal that the level of compliance with energy policy targets influences linkages between energy consumption and economic growth the results indicate causal relations in the group of countries with the greatest reduction of greenhouse gas emissions the highest reduction of energy intensity and the highest share of renewable energy consumption in total energy consumption in the remaining groups the results mostly confirm the neutrality hypothesis

risk adjustment with an outside option abstract much of the risk adjustment literature has focused on how persons should be classified and given weights it has given less attention to the amount of funds in the risk adjustment pool if however there is an outside option as there is in the principal american risk adjustment systems there can be favorable or adverse selection in the risk pool to address any such selection requires that the risk adjustment system not be zero sum the main american risk adjustment systems differ in this respect

institutional causes macroeconomic symptoms volatility crises and growth countries that have pursued distortionary macroeconomic policies including high inflation large budget deficits and misaligned exchange rates appear to have suffered more macroeconomic volatility and also grown more slowly during the postwar period does this reflect the causal effect of these macroeconomic policies on economic outcomes one reason to suspect that the answer may be no is that countries pursuing poor macroeconomic policies also have weak institutions including political institutions that do not constrain politicians and political elites ineffective enforcement of property rights for investors widespread corruption and a high degree of political instability this paper documents that countries that inherited more extractive institutions from their colonial past were more likely to experience high volatility and economic crises during the postwar period more specifically societies where european colonists faced high mortality rates more than 100 years ago are much more volatile and prone to crises based on our previous work we interpret this relationship as due to the causal effect of institutions on economic outcomes europeans did not settle and were more likely to set up extractive institutions in areas where they faced high mortality once we control for the effect of institutions macroeconomic policies appear to have only a minor impact on volatility and crises this suggests that distortionary macroeconomic policies are more likely to be symptoms of underlying institutional problems rather than the main causes of economic

incidence of federal and state gasoline taxes the federal specific gasoline tax falls equally on consumers and wholesalers whereas state specific taxes fall almost entirely on consumers the consumer incidence of state taxes is greater in states that use relatively little gasoline

macroeconomic stability investment and growth in developing countries abstract it is widely hypothesised that sound macroeconomic policies promote growth by providing a more secure environment for private sector investment decisions this proposition is tested for a cross section of developing countries over the period 1980 1990 using a variety of measures of the quality of macroeconomic management the evidence suggests that good macroeconomic management is associated with faster growth for a given rate of investment it is less clear that the volume of investment is significantly affected there is little evidence of non linearities the results are robust to an extension of the data period back to 1972

asymmetric shocks among u s states abstract the paper applies a factor model to the study of risk sharing among u s states the factor model makes it possible to disentangle movements in output and consumption due to national regional or state specific business cycles from those due to measurement error the results of the paper suggest that some findings of the previous literature which indicate a substantial amount of inter state risk sharing may be due to the presence of measurement error in output when measurement error is properly taken into account the evidence points towards a lack of inter state smoothing

do panel data permit the rescue of the balassa samuelson hypothesis for latin american countries this paper tests empirically the balassa samuelson bs hypothesis i e rapid economic growth is accompanied by real exchange rate appreciation because of differential productivity growth between tradable and non tradable sectors using annual data for twenty latin american countries the paper applies new panel data unit root tests proposed by im et al discussion paper university of cambridge june 1997 and new panel data cointegration techniques suggested by pedroni oxford bulletin of economics and statistics 1999 and the results are compared with those obtained with conventional time series unit roots and cointegration tests the main finding is that whereas a standard time series approach rejects the balassa samuelson hypothesis for 11 countries out of 20 new panel cointegration techniques permit the rescue of this hypothesis for latin american countries as well as for central american and south american groups of countries considered separately

dutch disease real effective exchange rate misalignments and their effect on gdp growth in eu abstract in this article we study the impact of real effective exchange rate misalignments based on determinants including different types of foreign capital inflows on gdp growth in the eu for this analysis we use a panel of 27 eu countries for the period 1994 2012 with annual frequency core countries have been only slightly undervalued from the crisis onwards while the periphery was overvalued however the gap for the periphery has reduced in the last two years as regards the new member states these were overvalued for the entire time span the results seem to be generally driven by the inflows of bank loans the misalignments are associated with lower long run growth the exchange rate volatilities are not robust in affecting gdp growth while spillovers and global factors seem to matter in all the specifications both in the short and long run

are fluctuations in energy consumption per capita transitory evidence from a panel of pacific island countries this study applies the panel stationarity test developed by carrion i silvestre et al 2005 breaking the panels an application to gdp per capita econometrics journal 8 159 175 to examine the stationarity of energy consumption per capita for a panel of 13 pacific island countries over the period 1980 2005 this test has the advantage that it allows for multiple structural breaks at unknown dates that can differ across countries and can account for all forms of cross sectional correlation between countries the conclusion from the study is that energy consumption per capita in approximately 60 of countries is stationary and that energy consumption per capita for the panel as a whole is stationary the study offers several suggestions for modelling energy consumption and policy making in the pacific islands

real exchange rate levels and economic development theoretical analysis and econometric evidence according to the development approach to exchange rates competitive currencies have been a key factor in most east and southeast asian successful growth strategies there is also today an important empirical literature that relates overvaluations to low per capita growth rates while the econometric literature on this issue is relatively rich theoretical analysis of channels through which real exchange rate levels could affect economic development are very scarce this paper intends to contribute to the debate by bringing more theoretical elements and providing new econometric evidence to the connections between real exchange rate levels and development

real exchange rate misalignment and agricultural export performance in developing countries the influence of fluctuating currency values on agricultural trade has been acknowledged especially since the demise of the bretton woods system of fixed exchange rates following g e schuh s pioneering articles linking exchange rates to country performance in the global agricultural market several attempts were made to quantify the effects of nominal and real exchange rate movements on agricultural trade recently another body of literature emerged aimed at quantifying the effects of exchange rate risk on trade 2 despite these studies inadequate attention has been directed toward analyses of underlying policies that directly influence real exchange rates and that indirectly affect trade performance specifically the issue of incorrect real exchange rate alignment has been ignored real exchange rate misalignment occurs in markets in which actual exchange rates are not allowed to adjust to changes in economic fundamentals unsustainable monetary fiscal and various trade and exchange control policies are its principal cause calculation of misaligned exchange rates is dependent on the ability to disentangle equilibrium from disequilibrium disturbances affecting movements in actual real exchange rates quantification represents a major challenge purchasing power parity ppp provides the simplest way to estimate misalignment however real exchange rate deviations from ppp often do not indicate incorrect alignment of the real exchange rate because the actual rate ought to vary in response to external or internal shocks that modify the equilibrium rate ideally misalignments are measured using real exchange rates that are permitted to vary in response to changed economic conditions the changing path of real equilibrium exchange rates is somewhat elusive and can be identified using a structural model

aid real exchange rate misalignment and economic growth in sub saharan africa generating sustained growth in sub saharan africa is one of the most pressing challenges in global development as the region needs foreign assistance to jump start its development foreign aid becomes crucial however aid booms can also lead to exchange rate overvaluation curtailing exports and growth this paper provides new evidence on the impact of aid and overvaluation on growth and exports using a sample of 83 countries from 1970 to 2004 we find that aid fosters growth with decreasing returns but induces overvaluation overvaluation reduces growth but the effect is ameliorated by financial development finally we find new evidence on the negative impact of overvaluation on export diversification and sophistication

meat imports in sierra leone analysis constraints and policy implications abstract this article examines the factors contributing to the shortages of meat and other livestock products in sierra leone and analyses the import market for meat in sierra leone a two stage least squares procedure is used to determine the import demand responses for meat in sierra leone the empirical estimates suggest that real exchange rates income trade restrictions domestic production and prices of meat and competing products are the key determinants of import demand responses for meat in sierra leone the relative sizes of the estimates reveal that policies targeted at domestic meat production income trade and real exchange rate adjustments have more significant effects than pricing policies

should developing countries undervalue their currencies abstract the washington consensus emphasizes the economic costs of real exchange rate distortions however a sizable recent empirical literature finds that undervalued real exchange rates help countries to achieve faster economic growth this paper shows that recent findings are driven by inappropriate homogeneity assumptions on cross country long run real exchange rate behavior and or growth regression misspecification when these problems are redressed the empirical results for a sample of 63 developing countries suggest that deviations of the real exchange rate in either direction from the value that is consistent with external and internal equilibriums reduce economic growth deviations from balassa samuelson adjusted purchasing power parity on the other hand do not seem to matter for growth performance the real exchange rate should thus be consistent with external and internal balances irrespective of implied purchasing power parity benchmarks

the implications of heterogeneous habit in consumer beverage purchases on soda and sin taxes abstract in this article we study the heterogeneity of habit strength in households demand for regular carbonated sweetened beverages csbs and beer in the united states a demand model that nests a smooth transition function is used to describe habit based consumption patterns revealing heterogeneous strengths of habits among households we find that more habitual consumers those with a strong preference for a particular product are not as sensitive to price or expenditure as the aggregate population this finding is further supported by simulations of the potential effects of soda and beer taxes we find the aggregate response to soda and beer taxes is smaller than when the influence of habit is assumed to be homogeneous

what is a fair co2 tax increase on fair emission reductions in the transport sector we examine how individual preferences for fair reductions of carbon dioxide co2 emissions affect the support for increases in the co2 tax on gasoline and diesel we assume that people not only care about their own material welfare but also have preferences for fairness in policy design and we explore the implications using original data from a mail questionnaire sent to a representative sample of the swedish population the main result is that fairness in policy design does matter those respondents who adhere to a fairness principle tend to be relatively more positive to increases in the co2 tax one possible explanation for this result is that there is a relatively high degree of reciprocity regarding the origin of emissions and the fairness regarding who should bear the burden of co2 reductions via a split sample analysis we also find that the relative importance of fairness principles is dependent upon whether one uses a car often or not this sheds light on the potential goal conflict between the importance of fairness principles and self interest in the form of a need for private car transportation

perfect competition urbanization and tax incidence in the retail gasoline market i introduction in applied tax incidence studies it is typically assumed that prices respond one for one to changes in sales and excise taxes chernick and reschovsky 1997 pechman 1985 shepard 1976 state of wisconsin department of revenue 2004 wiese rose and schluter 1995 zupnick 1975 is this assumption reasonable despite the fundamental role of tax incidence in the study of public finance there is surprisingly little empirical analysis that sheds light on who bears the burden of taxes in this article we examine the incidence of state gasoline excise taxes using monthly price data for all 50 states in the united states over the period 1984 1999 our estimation results generally indicate full shifting of gasoline taxes to the final consumer with changes in gasoline taxes fully reflected in the tax inclusive gasoline price almost instantly we also find that the incidence of excise taxes depends on the competitiveness of retail gasoline markets e g urban vs rural markets gasoline markets in urban states typically exhibit full shifting but those in rural states demonstrate somewhat less than full shifting although the issue of sales and excise tax incidence has received considerable attention over the years most research has focused on tax incidence theory and the standard conclusion of much of this theoretical analysis is that consumers bear the full burden of any sales and excise taxes 1 based primarily on this theoretical foundation most applied incidence studies assume that sales and excise taxes are fully reflected in consumer prices and the distribution of tax burdens across income classes necessarily reflects this assumption however actual empirical testing of this assumption of full forward shifting has been surprisingly sparse 2 in important recent research poterba 1996 and besley and rosen 1999 have conducted empirical analyses of the incidence of excise taxes poterba 1996 uses city specific clothing and personal care price data covering the 1947 1977 and the 1925 1939 periods to examine the degree to which state and local retail sales taxes are shifted to consumers with two data sets based on bureau of labor statistics bls city specific consumer price indices using these bls data on tax inclusive prices poterba 1996 constructs quarterly price indices for each of 28 standard metropolitan statistical areas smsas many of these 28 smsas experienced significant changes in sales tax rates and poterba 1996 uses these tax shocks to determine the incidence of sales taxes his estimation results are somewhat variable but in general he finds for the postwar period that taxes are fully shifted to consumers in some cases he finds limited evidence of overshifting although it is never possible to reject the null hypothesis that prices rise point for point with the changes in the tax and he also finds that full shifting typically though not always occurs in the first quarter of the tax change poterba 1996 also examines tax incidence for individual smsas during the depression era and his results indicate significant differences across metropolitan areas in the degree of tax shifting for example prices on women s clothing in chicago show significant overshifting but atlanta shows negative shifting a result that does not seem plausible besley and rosen 1999 also examine the incidence of sales taxes using price data for 12 narrowly defined commodities in 155 different u s cities using quarterly price data for the period 1982 1990 issued by the american chamber of commerce researchers association accra 3 they not only find full shifting for a number of commodities but also find overshifting for more than half the products a result they attribute to imperfect competition in the retail sector while this recent empirical research has significantly expanded our understanding of the actual nature of sales and excise tax incidence we believe that our work here on gasoline excise taxes makes several contributions to the empirical literature

measuring exchange rate misalignment in turkey we propose a new methodology to measure exchange rate misalignment for turkey which has already undergone a severe economic crisis we estimate the real exchange rate within a time varying parameter model where a return to normality assumption about the parameters are assumed contrary to common belief it is found that except the initial four months of the stabilization program the turkish lira remained structurally undervalued for most of 2000 also we observe a pattern where lira has been structurally overvalued after the crisis in 1994 until 1998 and has displayed structural undervaluation after then

measuring exchange rate misalignment inflation differentials and domestic relative prices abstract empirical studies of exchange rate misalignment generally use crosscountry differences in overall inflation as proxy measures for a country s real exchange rate rer this paper shows that using such differential inflation proxies introduces two systematic biases in model results understatement of rer movements and a spurious trend towards depreciation these biases can be corrected only with disaggregated data on domestic relative prices of tradable and nontradable products using a standard model with disaggregated data for zimbabwe it is found that proxy based results understate misalignment by almost 25 and exaggerate depreciation by 4 per year

capital flows real exchange rate misalignment and ppp tests in emerging market countries the economic performance of emerging markets has significant impacts on economic growth and volatility of macroeconomic indicators in various countries emerging markets accounted for 20 43 of global exports during the period 1970 2005 and held 70 of global foreign reserves in recent years more than 50 of the exports from the euro area japan and the united states go to emerging markets and other developing countries the globalization of capital flows is facilitated by technological innovations and excellent information networks coupled with sharp increases in savings that are directed into financial instruments across borders the use of purchasing power parity ppp as a benchmark in exchange rate policy reforms assumes the existence of a stable relationship between the exchange rate and the ratio of price levels in two countries this article investigates whether or not long run ppp holds in emerging markets johansen s cointegration technique is used with annual data in analysing the relationsh

what would nelson and plosser find had they used panel unit root tests in this study we systemically apply nine recent panel unit root tests to the same fourteen macroeconomic and financial series as those considered in the seminal paper by nelson and plosser 1982 the data cover oecd countries from 1950 to 2003 our results clearly point out the difficulty that applied econometricians would face when they want to get a simple and clear cut diagnosis with panel unit root tests we confirm the fact that panel methods must be very carefully used for testing unit roots in macroeconomic or financial panels more precisely we find mitigated results under the cross sectional independence assumption since the unit root hypothesis is rejected for many macroeconomic variables when international cross correlations are taken into account conclusions depend on the specification of these cross sectional dependencies two groups of tests can be distinguished the first group tests are based on a dynamic factor structure or an error component model in this case the non stationarity of common factors international business cycles or growth trends is not rejected but the results are less clear with respect to idiosyncratic components the second group tests are based on more general specifications their results are globally more favourable to the unit root assumption

a multi level panel star model for us manufacturing sectors we introduce a multi level smooth transition model for a panel of time series which can be used to examine the presence of common nonlinear business cycle features across many variables the model is positioned in between a fully pooled model which imposes such common features and a fully heterogeneous model which allows for unrestricted nonlinearity we introduce a second stage model linking the parameters that determine the timing of the switches between business cycle regimes to observable explanatory variables thereby allowing for lead lag relationships across panel members we discuss representation estimation by concentrated simulated maximum likelihood and inference we illustrate our model using quarterly industrial production in 19 us manufacturing sectors and document that there are subtle differences across sectors in leads and lags for switches between business cycle recessions and expansions copyright 2005 john wiley sons ltd

economic growth in africa abstract this paper draws on the recent endogenous growth methodology to study the factors behind differences in per capita growth rates across africa the results indicate that various economic factors including initial conditions investment population growth trade orientation inflation financial development and the growth of the government sector contribute significantly to economic growth in addition to economic variables we find the degree of political freedom to be a significant contributor to economic growth finally we find some evidence that economic growth by the members of the cfa franc zone has not fared well in comparison to other african countries

financial development and openness evidence from panel data abstract this paper addresses the empirical question of whether trade and financial openness can help explain the recent pace in financial development as well as its variation across countries in recent years utilising annual data from developing and industrialised countries and dynamic panel estimation techniques we provide evidence which suggests that both types of openness are statistically significant determinants of banking sector development our findings reveal that the marginal effects of trade financial openness are negatively related to the degree of financial trade openness indicating that relatively closed economies stand to benefit most from opening up their trade and or capital accounts although these economies may be able to accomplish more by taking steps to open both their trade and capital accounts opening up one without the other could still generate gains in terms of banking sector development thus our findings provide only partial support to the well known rajan and zingales hypothesis which stipulates that both types of openness are necessary for financial development to take place