unionization and labor market institutions in advanced capitalism 1950 1985 this article examines the depedence of unionization on labor market institutions and long run trends in inflation unemployment and the sectoral composition of the labor force in 18 oecd countries the large number of contending explanations highlights the difficulty in comparative sociology of drawing confident conclusions when there are few cases to compare this problem is addressed through diverse evidence a review of the comparative historical record and a time series analysis to form a bayesian prior distribution which is combined with a cross sectional data set to sharpen conventional estimates of economic and institutional effects this analysis indicates working class organization in trade unions expanded in the postwar period where labor acquired an institutional influence over capitalist labor markets

implications of economic interdependence for endogenous wage indexation decisions this paper shows how economic interdependence affects the indexation decisions of atomistic wage setters in an environment in which monetary authorities do not observe stochastic disturbances before making their policy choices if stochastic disturbances are common across countries interdependence has no effect on equilibrium indexation choices in identical countries however if disturbances are country specific numerical simulations show that interdependence is likely to reduce equilibrium indexation choices relative to a small open economy we also show that indexation choices may be either strategic complements or strategic substitutes but that strategic complementarity becomes more likely as the degree of interdependence rises

factor shares and inequality in the uk trends in factor shares in both national and household income are estimated from the national accounts and compared to those derived from the fes household survey in order to obtain more reliable measures of the contribution of changes in factor shares to the contemporary growth in income inequality the national accounts indicate that upward trends in the shares of investment related and self employment incomes have contributed directly to the rise in inequality during the past 20 years though to a generally secondary extent until 1986 at least the paper outlines the importance and the difficulty of including appropriate measures of capital gains and private benefit income in estimates of household investment related income whether the national accounts or household surveys are used for evidence indicating the continuing value of national income shares as a guide to the longer run implications of factor shares for inequality copyright 1996 by oxford university press

lobbying by capital and labor over trade and labor market policies abstract this paper uses the common agency approach to analyze the joint determination of product and labor market distortions in a small open economy capital owners and union members lobby the government on both tariffs and minimum wages while other factors of production are not organized the paper shows that product and labor market distortions always move in the same direction and that their level is not modified by social pacts between capital and labor it also shows that labor market distortions are second best hence conditionality by foreign organizations should target distortions in product markets but not in labor markets

a critical assessment of measures of central bank independence the methodology of measuring central bank independence suggested by bade and parkin three decades ago and inverse correlations between the measures and inflation have been widely accepted the measurement literature has made important contributions identifying elements of institutional design that establish the relationship between the central bank and the government and the measurements from an ordinal perspective provide some useful insights about the major institutional redesigns of central banks during the past several decades at the same time the measurement literature is problematic first a dummy variable bifurcating central banks into groups of independent and less independent central banks can duplicate the standard correlations suggesting the information content of the specific measures is limited second the correlations between inflation and measures of independence are not as stable as claimed and most important the measurements are subject to classification problems that have not been fully appreciated review of the institutional design and history of the bank of korea bank of japan and the federal reserve provide evidence the classification problems are important the measures of independence are more appropriately regarded as ordinal rankings of central bank independence rather than considered cardinal measures suitable for econometric modeling jel e50 e58 e65

the supply and demand for exports in israel abstract using annual data for israel over the period 1960 1989 we estimate an econometric model for the supply and demand for exports a novel feature is that domestic absorption crowds out export supply exports are imperfect substitutes in world markets for tradeables produced abroad the price elasticity of demand is about 1 3 while the price elasticity of supply is about 1 5 the model is simulated to calculate the effects of policy instruments and other exogenous variables on exports and export prices

the political economy of inflation bargaining structure or central bank independence the causes of inflation are commonly analyzed as the function of either the organization of wage bargaining or the independence of the central bank although these explanations are widely treated as competing recent evidence suggests that there may be merit to both arguments this paper presents a game theoretic model of wage bargaining and monetary policy making that shows why the two institutional causes are not only complementary but elements of a more encompassing logic the empirical superiority of this synthesizing model is demonstrated by reanalyzing data used in al marhubi and willett 1995 and by presenting new evidence

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

inflation and social consensus in the seventies it is widely believed that the two oil price shocks of the i 970s played a major role in the increase in inflation in industrial countries while this hypothesis is consistent with the timing of changes in inflation at the global level it seems to break down when applied to individual countries cross sectionally for example over the period i973 9 switzerland had an average inflation rate of 4 7 while in neighbouring italy inflation averaged i5 6 over the same period furthermore inflation in the pre opec period i97i 2 was actually higher in switzerland than in italy it seems that a supply shock explanation of inflation in the seventies also requires an explanation of why different countries responded so differently to a similar set of shocks at the world level the purpose of this paper is to offer such an explanation and to test the hypothesis with a cross sectional equation accounting for differences in average inflation rates over the period i973 9 in eighteen oecd countries this time period includes the year of the first opec shock i 973 and the following six years up to the time of the second opec shock the hypothesis to be tested is set in the framework of a model similar to that of brunner et al i 980 the key features of the brunner model are that the adjustment of real wage expectations is subject to lags and that labour supply is positively related to the difference between the perceived real wage and the expected or target real wage given these two assumptions a negative supply shock gives rise to a period of stagflation whose intensity will be greater the slower is the speed of adjustment of real wage expectations the model of this paper extends the brunner model in three ways first across countries the speed of adjustment of real wage expectations or targets is assumed to depend positively on the degree of social consensus as proxied negatively by an indicator of average long run strike activity second the model allows for the possibility of inflation inertia or systematically incorrect inflation expectations as well as a sluggish adjustment of real wage expectations third the model incorporates the hypothesis that money supply growth will vary across countries according to variations in inflationary pressures as perceived by governments the first section of the paper provides a discussion of the rationale for the key proposition regarding strikes and social consensus as well as a brief discussion of the role of wage bargaining institutions section ii develops a theoretical model which yields a reduced form cross sectional equation relating the average i 973 9

macroeconomic policy in a two party system as a repeated game this paper considers the interaction of two parties with different objectives concerning inflation and unemployment and rational and forward looking wage setters if discretionary policies are followed an economic cycle related to the political cycle results in equilibrium this cycle is significantly different from the traditional political business cycle reputational mechanisms due to the repeated interaction of the two parties and the public or commitments to a common policy rule can improve upon the discretionary outcome by reducing or eliminating the magnitude of the economic fluctuations

the economics of worldwide stagflation the last fifteen years have witnessed dramatic changes in economics not only in the manner in which the economics profession views economics but also in the manner in which the general public views economics and economists by the late 1960 s there had emerged more or less a consensus macroeconomic framework that is an agreed upon structure to be used to study economic problems at the aggregate level robert solow stated as quoted in leijonhufvud 1968

the anti inflationary influence of corporatist structures and central bank independence the importance of the hump shaped hypothesis many studies have found strong negative correlations between central bank independence and inflation but the casual significance of this relationship is often challenged we find that the negative relationship remains even when a number of other explanatory variables are considered special attention is given to the role of corporatism following calmfors and driffell it is argued that both high and low levels of centralization should be associated with lower inflation we present empirical support for his hump shaped hypothesis and find that the inclusion of corporatism does not diminish the significance of central bank independence

explicit interest and demand deposit service charges comment in an interesting recent paper merris 1985 presented a modification of my 1979 model of the effect of a binding demand deposit interest ceiling upon a bank s choice of the level of the service charge per check the model assumes bank profit maximization under certaintys with a perfectly competitive loan market but finite elasticities of consumer demand for savings accounts and demand deposits my earlier version assumed that the consumer determined ratio of checks written n to demand deposit balances d is an ad hoc linear function of the exogenous demand deposit interest rate rd and the service charge per check b that model implied that the bank s response to a change in the rate ceiling db drd is ambiguous in sign regardless of whether the savings account rate rs is fixed or flexible in contrast merris considers two alternative versions of the model in the first n rather than n d is assumed in ad hoc fashion to be linear in rs rd and b this feature results in db drd being unambiguously positive in the case of a fixed rs though still ambiguous in the case of a flexible rs his second and more interesting version attempts to establish a sound grounding in the preexisting theory of the transactions demand for money by applying the barro santomero b s 1972 model of the demands for savings accounts demand deposits and currency which has implications for the number of account transactions he uses nonlinear functions for the quantities of savings accounts s and demand deposits d as well as for the number of transactions merris asserts that the results here are the same as for his linear model db drd is unambiguously positive if rs is exogenously fixed though still ambiguous if rs is flexible section 2 of this comment points out two mistakes in merris s analysis of the model with consumer theoretic underpinnings either of which is sufficient to invalidate his analysis and results then section 3 shows that when these mistakes are corrected the ambiguity in my original paper regarding the sign of db drd is restored except in certain special cases

central bank independence disinflations and the sacrifice ratio it is widely believed that independent central banks produce costless low inflation yet a few recent studies indicate that more independent central banks are associated with higher output costs during disinflations this carries the implication that there are indeed costs associated with autonomy the author develops and extends those analyses in two important ways first he shows that central bank independence cbi affects both the output and the unemployment costs of disinflation because central banks control only monetary policy they should not exert a differential effect on the two ratios and there should be a positive relationship between independence and both the unemployment and the output costs of disinflations second by including a range of potentially significant political and institutional controls the author demonstrates both the importance of political and institutional determinants of the costs of disinflation and that cbi is a robust predictor of those costs

the political economy of government domestic expenditure in the affluent democracies 1960 80 despite the large number of studies of the determination of government expenditure in the affluent democracies most students of the subject admit that we know relatively little about the complex dynamics of spending change using multiple regression analyses of changes in nonmilitary outlays over the years 1960 to 1973 and 1973 to 1980 this study attempts to remedy some of the problems in the literature by providing new tests of several old hypotheses by introducing and testing several relatively new hypotheses and by evaluating such propositions in the context of an integrated theoretical framework and of analyses that span two distinct political economic eras results suggest that the dynamics of domestic expenditure change are partially conditioned by macroeconomic and political environments of particular eras overall the self interests and ideological preferences of policymakers the institutional and extrainstitutional political action of policy relevant groups and needs for state assistance emerge as principal sources of changes in domestic expenditure

what caused the rise of conservatism a french view conservatism daniel cohen existing theories of political cycles fail to provide an adequate explanation for the widespread shift to conservative economic policies on one view political parties merely court the median voter but this theory is incomplete because it fails to explain why the median voter has become conservative other theories differentiate parties by their ideologies but they wholly fail to explain where changes of ideology come from this author proposes an explanation that does not need to rely on changes in the underlying preferences of voters or parties but in which changing economic conditions lead to different policy choices thus while ends remain unchanged the means to achieve these ends may vary over time the distinction between right and left is still portrayed by the classical trade off between economic efficiency and equity in order to promote equity the government can always redistribute wealth but in order to preserve economic efficiency wealth redistribution should not be expected to be repeated systematically hence the median voter will prefer a laissez faire to an interventionist government when the economy is understood to be affected by a persistent disturbance and the converse when disturbances are temporary thus the shift to conservatism is seen as the result of the sometimes belated realization by the electorate that the shocks of the 1970s were long lasting current forecasts that unemployment in europe is unlikely to fall suggest the continuation of conservative policies irrespective of whether they are implemented by the right or the left

on home grown ness in politics evidence from the 1998 election for alabama s third congressional district faith and tollison 1983 argue that since itis costly to fire a representative for poor performance voters will rationally prefer local candidates withlongstanding ties to the district such candidates implicitlyput more specific human or other types of capital at risk as aklein and leffler 1981 type of performance bond than doother candidates with lesser ties to the district votersunderstand and appreciate the implied efficiency of castingtheir ballots in favor of someone who has a lot to loselocally from nonperformance as their representative usingprecinct level data from the 1998 election for the thirdcongressional district in alabama we find compelling evidencein support of home grown ness in politics

can we afford to grow older population aging and social security over the past decade many governments have been attempting to reduce current and future planned expenditure on social security in justifying these reductions great stress has been laid on the projections of increasing dependency ratios that will result from population aging especially as the post war baby boom generation reaches retirement age in the early part of the next century indeed some commentators have referred to a world crisis in social security rosa 1982 it seems as if those demographers who have not been fully occupied in arguing that rapid population growth constitutes a major threat in one part of the world are warning that fertility decline constitutes a serious issue for the rest admittedly the expenditure projections look serious in the united states the medicare fund is expected to go into deficit in the 1990s and remain in deficit thereafter while projections by the fund s trustees suggest that old age survival and disability insurance oasdi benefits will exceed the revenues from the scheduled oasdi payroll tax rate of 12 4 in every year after 2015 levy 1984 in the united kingdom expenditure on state pensions was expected to rise from f 15 4 billion in 1984 85 to between f36 and f50 billion in 2023 24 at 1984 85 prices the range depending on the type of indexation hmso 1985a see also hemming and kay 1982 this growth will however be reduced by recent legislation designed to reduce replacement ratios in the state scheme and to encourage private rather than public pension provision creedy and disney 1988a other countries also face substantial rises in real pension expenditure between 1980 and 2025 in

organized labor and the political economy of product market distortions why are economic reforms reversed through strikes and demonstrations in some countries but backed by the labor movement in other countries why do product and labor market distortions differ so much across countries this article addresses these questions by means of a simple heuristic model of the economy that replicates in an integrated manner several independent results from the recent political economy literature unlike most of this literature however the model focuses on the role played by organized labor rather than by rent seeking firms and guilds a two stage game between the government and organized labor determines the level of product market distortions for example import tariffs in the first stage the players may undertake costly actions such as redistributing income or striking in order to increase their bargaining power in the second stage they negotiate over product market distortions and wages under very general assumptions several policy regimes exist changes in the key parameters of the economy may trigger a switch in the strategy of trade unions from confrontation to cooperation and hence change the policy regime cross country data highlight that in spite of its simplicity the model reproduces some observed empirical regularities

imported input price and the current account in an optimizing model without capital mobility abstract this paper analyses the effect of an oil price increase in an economy which cannot borrow in the international capital markets current account surpluses and deficits are matched by reserve changes at the central bank it is shown in an optimizing setup that an unanticipated oil price increase worsens the current account and lowers the real interest rate contrary to models which assume perfect capital markets

structural distortions and decentralized fiscal policies in emu the combination of discretionary monetary policy labor market distortions and nominal wage rigidity yields excessive inflation as monetary policy tries to exploit nominal wage contracts to address labor market distortions an inflation target reduces inflation but creates a conflict between monetary policy and discretionary fiscal policy if fiscal policy is set at a higher frequency than nominal wages are preventing the associated excessive accumulation of public debt calls for debt ceilings if countries differ substantially in terms of structural distortions uniform debt ceilings must be complemented by country specific debt targets in order to prevent decentralized fiscal authorities from employing debt policy strategically

determinants of inflationary performance corporatist structures vs central bank autonomy studies by economists have shown that countries with autonomous central banks experience lower inflation than others banian laney and willett 1983 and bade and parkin 1987 one reason for this may be that countries with autonomous central banks are less likely to monetize their deficits burdekin and wahar 1990 studies by political scientists have used measures of the strength of corporatist structures to explain macroeconomic outcomes cameron 1984 however neither economics nor political science research has employed measures of both central bank autonomy and the strength of corporatist structures to explain comparative inflation rates the present paper tests whether measures of corporatist structures and central bank autonomy explain the comparative inflation performance of eighteen industrialized countries this issue is of great importance for students of piecemeal monetary reform in countries where the central banking structure is susceptible to reorganization the results of this paper should inform parties who are active in the reformation and reorganization of central banks in lesser developed and nascent market economics throughout the world

corporatism in decline an empirical analysis of the impact of corporatism on macroeconomic performance and industrial disputes in 18 industrialized democracies during the 1970s and early 1980s most studies on corporatism indicated that corporatist policies led to lower unemployment and inflation and higher economic growth rates in the mid and late 1980s however voices claiming that corporatism is in decline became more and more frequent although hardly any empirical examinations were undertaken the purpose of this study is to estimate empirically the influence of corporatist arrangements on macroeconomic performance and industrial disputes in the 1980s as compared with the 1970s and 1960s this pooled time series cross sectional analysis provides evidence that corporatist policies have not lost their capacity to achieve the desired macroeconomic goals in the 1980s in addition corporatism significantly reduces the number of working days lost however no evidence was found that corporatism leads to increased economic growth there is evidence that economic growth is adversely affected by government outlays

the role of shocks and institutions in the rise of european unemployment the aggregate evidence two key facts about european unemployment must be explained the rise in unemployment since the 1960s and the heterogeneity of individual country experiences while adverse shocks can potentially explain much of the rise in unemployment there is insufficient heterogeneity in these shocks to explain cross country differences alternatively while explanations focusing on labour market institutions explain current heterogeneity well many of these institutions pre date the rise in unemployment based on a panel of institutions and shocks for 20 oecd nations since 1960 we find that the interaction between shocks and institutions is crucial to explaining both stylised facts

selected works of michael wallerstein centralized bargaining and wage restraint the literature on corporatism has presented much evidence associating highly centralized systems of collective bargaining with wage restraint and relatively successful macroeconomic performance in addition centralized bargaining is associated with relatively small wage differentials this paper presents a model of the impact of centralized wage setting on both real wages and relative wages the central assumption is that the centralization of wage setting at the national level unites unions who are complements in production since a wage increase for one group of workers negatively affects the welfare of other workers who are complements in production centralized wage setters choose wages below the equilibrium of decentralized wage setting it is also shown that if the union confederation maximizes a utilitarian welfare function with equal weights centralized wage setting decreases wage dispersion while low paid workers clearly gain from centralized bargaining high paid workers may prefer that bargaining be decentralized

consensus versus majoritarian democracy political institutions and their impact on macroeconomic performance and industrial disputes this article argues that consensual political institutions as operationalized by lijphart and crepaz 1991 have significantly favorable effects on unemployment inflation and the number of working days lost whereas economic growth remains unaffected although this finding is consistent with olson s theoretical concept of encompassing organizations this study shows that olson s empirical operationalization is flawed strong two party westminster systems based on single member district electoral rules and single party bare majority cabinets do not perform as well as weak multiparty coalition governments with proportional representation as an electoral rule an empirical measure of encompassing organizations is introduced termed popular cabinet support a cross sectional time series panel study of 162 elections 18 countries and 9 elections per country n 162 provides strong evidence that governments with consensual inclusive and accommodative constitutional structures and wider popu

government special interest groups and economic growth in descending order of robustness and strength the four major conclusions are i the experience of industrial countries in the postwar period indicates that a large welfare state has been associated with a high rate of economic growth ii the olson thesis that powerful special interest groups impede growth receives empirical support iii the relation between growth and the welfare state is non linear with increases in the size of the welfare state beyond some critical level one sixth of gdp according to our estimates resulting in reductions rather than increases in the growth rates and iv the strength of the growth promoting properties of the welfare state is positively related to the strength of special interest groups as proxied by the proportion of the work force unionized one possible interpretation of these results runs as follows a large welfare state may retard economic growth by reducing the incentives to work to save to move and to change on the other hand in a situation where special interest groups have aquired significant power to block change if they so desire the welfare state which offers assistance to those who are the victims of change may play a growth enhancing role in reducing the incentive to block change the fourth conclusion just stated supports this view the welfare state may also foster economic growth through favourable effects on social consensus political stability and labour management relations the results suggest that the growth promoting forces predominate as long as the welfare state is not too large but beyond a certain point which corresponds more or less to the median situation among developed countries today the growth retarding elements come to the fore

monetary policy and the informational implications of the phillips curve in this paper i examine optimal monetary policy and the informational implications of the phillips curve in a stochastic macroeconomic model it is assumed that wages are not only indexed to the price level but respond to the state of the labor market as well if information about current disturbances is conveyed only through market prices it turns out that wages have independent informational content over and above the informational content of other aggregate prices the optimal policy in this model implies reactions to changes in both wages and the aggregate price level as unlike the commonly used model of gray and fischer wages and prices are only partially correlated signals about the unobserved disturbances the paper also discusses an extension to an open economy and the relation between exchange rate policy and wages copyright 1990 by the london school of economics and political science

the return of lockouts down under in comparative perspective globalization the state and employer militancy virtually unheard of since the great depression lockouts have reemerged strongly in australia and new zealand just as they have all but disappeared in germany the decline of lockouts in germany is convincingly attributed to the enhanced vulnerability of firms to stoppages in certain circumstances amid globalization but the small open economies of australia and new zealand are equally subject to these pressures using macro and micro level data this article illustrates that neoliberal legislative reforms and institutional change have reconfigured the risks costs and payoffs associated with lockouts amid globalization in doing so some flaws in the varieties of capitalism dual convergence literature are highlighted in particular the post hoc classification of the antipodes as liberal market economies bypasses the role of legislative reform in reconstituting employer interests and the differences in electoral party and state structures that impeded facilitated the rise of neoliberal reformers in

central bank independence and macroeconomic performance some comparative evidence this note uses information on a sample of sixteen oecd countries to assess the relationship between central bank independence and macroeconomic performance as previous work suggests politically controlled central banks are more likely to pursue policies that lead to high and variable inflation however the authors find little evidence that political control of central bank policy has any impact on measures of the level or variability of growth unemployment or the ex ante real interest rate copyright 1993 by ohio state university press

unions and interindustry wage differentials abstract we investigate the importance of trade unions in collective bargaining in the context of a developing country manufacturing labor market the methodology we adopt to estimate wage differentials follows the method proposed by haisken denew j p and schmidt c m 1997 review of economics and statistics 79 516 521 since it improves on the standard procedure popularized by krueger a b and summers l h 1988 econometrica 56 193 259 our findings indicate that wage dispersion is far greater in the unionized sector of brazilian manufacturing in contrast to evidence from other countries

inflation and central bank independence a meta regression analysis using 59 studies we perform a meta regression analysis of studies examining the relationship between inflation and central bank independence cbi the studies considered are very different with respect to the cbi indicator used the sample of countries and time periods covered model specification estimators used and publication outlet we conclude that there is a significant publication bias however we also find a significant genuine effect of cbi on inflation differences between studies are not caused by differences in cbi indicators used

comment on measuring the independence of central banks and its effect on policy outcomes by cukierman webb and neyapti cukierman webb and neyapti 1992 significantly broadened and deepened the empirical study of the link between central bank independence and inflation per formance they considered evidence for a group of countries much bigger than any examined previously most of the additions being developing countries and they constructed a range of new indicators of independence based on central bank law the results of a questionnaire and the turnover rate of central bank gover nors in interpreting their findings however they appeared to add a further new dimension to this subject but without examining the dimension s wider implica tions almost as an afterthought cukierman webb and neyapti suggested that a country s choice of exchange rate regime might have some bearing on their results here i extend the analysis to show that a systematic examination of exchange rate fixing arrangements can play a role in both accounting for the pattern of inflation rates across their sample of developing countries and sharpening the as sociation between central bank independence and inflation performance

partially independent central banks politically responsive governments and inflation theories of central bank independence have more exact implications regarding inflation in different political economic environments than generally understood or empirically examined they imply that inflation in any given country time will be a weighted average of what it would be if the central bank completely controlled monetary policy and what it would be if the government completely controlled it with the degree of central bank independence weighting the former an equation embodying this theoretical expectation is estimated by constrained least squares from a time series cross section of inflation rates in developed democracies since the bretton woods era the results confirm that the antiinflationary benefit of central bank independence is not constant but rather depends on every variable in the broader politicaleconomic environment to which wholly autonomous central banks and governments would respond differently conversely the inflationary impacts of all such political economic variables depend on the degree of central bank independence

the home grown presidency empirical evidence on localism in presidential voting 1972 2000 this builds upon the conceptual framework of lewis beck and rice american journal of political science 27 548 56 1983 in combination with the empirical design of kjar and laband public choice 112 143 50 2002 to investigate home grown ness in us presidential elections from 1972 2000 it found that ceteris paribus home state vote shares for us presidential election winners are 5 19 15 11 percentage points higher due to the home grown ness effect in the eight presidential elections analysed this study confirms two aspects of prior work first the estimate of a home grown ness effect in presidential elections of 5 19 percentage points on average supports the 4 percentage point average found by lewis beck and rice 1983 second that support for the winning president monotonically increases as moves are made away from the opponent s home territory confirms the cascading dummy variable series approach developed by kjar and laband 2002

trade and the variety of democratic institutions students of comparative politics have long acknowledged the importance of such institutional factors as electoral systems parliamentary versus presidential rule and the strength of parties but they have either regarded the institutions as given or have explained them entirely in domestic terms associating proportional representation for example with the intensity of social cleavages in economically advanced democracies however these institutional aspects can be plausibly linked to dependence on trade proportional representation the parliamentary system strong parties and large electoral districts have survival value for developed democracies exposed to trade that the recently revived agitation for proportional representation in the united kingdom has been cast explicitly in terms of economic necessity and dependence on trade adds force to this argument and suggests the need for further historical research on other cases of institutional adaptation and change

fiscal policy profits and investment this paper evaluates the effects of fiscal policy on investment using a panel of oecd countries we find a sizeable negative effect of public spending and in particular of its wage component on profits and on business investment this result is consistent with different theoretical models in which government employment creates wage pressure for the private sector various types of taxes also have negative effects on profits but interestingly the effects of government spending on investment are larger than those of taxes our results can explain the so called non keynesian i e expansionary effects of fiscal adjustments jel e22 e62

wage setting and unemployment persistence in europe japan and the usa the persistence of high unemployment in the main european economies is one of the most puzzling economic developments of the past fifteen years average japanese unemployment has risen slightly since the mid seventies whereas unemployment in the united states still exhibits cyclical fluctuations around a gently rising level in marked contrast average unemployment in france germany and the united kingdom rose to a higher plateau during the latter part of the seventies shot up again in the early eighties and has remained persistently high identification of the causes of such unemployment persistence is crucial before one makes policy recommendations three possible causes spring to mind first persistence in the determinants of equilibrium and disequilibrium unemployment second excessive power of insiders in wage setting combined with high correlation between employment status and insider status and finally a high degree of state dependence sluggishness in labour demand although in general one expects all three causes to have played a role in the persistence of high european unemployment there is still a need to identify their relative importance the first set of factors has been assessed empirically in recent papers by among others sachs 1983 bruno and sachs 19x5 bruno 1986 layard and nickel1 1985 bean layard and nickel1 1986 newell and symons 1985 and others many of these papers have also allowed for sluggishness in labour demand although they did not particularly focus on it the second set of factors has been investigated by blanchard and summers 1986 who concluded that there is evidence of much higher correlation between employment status and insider status in the three largest european economies than in the united states

relative wages under decentralized and corporatist bargaining systems in studying the relationship between wage inequality and centralization in collective bargaining we distinguish central from local systems of wage determination by assuming that a central union takes the employment effects of negotiated wages into account whereas unions disregard these effects in decentralized systems two different sources of wage differentials are studied separately i heterogeneous workers with different skills and ii heterogeneous firms with varying levels of economic rent per employee with respect to skill levels the impact of centralization is ambiguous whereas inter firm wage differentials are likely to be lower in corporatist systems

monetary policy and policy credibility theories and evidence within the past decade there has been a significant shift in attitude by many western industrialized countries toward the objectives and conduct of national economic policy the events of the 1970s accelerating inflation and stagnant economic growth motivated the view that inflation had created its own stubborn self sustaining momentum that either was not amendable to the influences of conventional macroeconomic policy or else would yield to such influences only at unacceptable costs this led to the development of a program aimed at reestablishing control over prices while minimizing any adverse consequences of anti inflationary policies on output and employment seen as a new monetary experiment the essential ingredients included prudent financial management abstinence from discretionary intervention commitment to intermediate targets and above all prior announcement of these policies evidence of this program and its effects can be found oni the continents of europe north america and latin america and provide further important lessons in anti inflationary management this paper is a survey of recent theoretical developments in monetary policy which among other issues attempt to explain one rationale for this program and the likely consequences thereof to the extent that the new program of monetary and fiscal reform was deliberately made public and impressed upon citizens as an overriding commitment of governments in advance of its execution reflects a prevailing opinion that economic policies are more effective if they are credible to private economic agents this view emphasized forcefully by william fellner 1976 1979 may be seen as being mainly due to the assimilation of the rational expectations hypothesis

the rise in unemployment a multi country study one of the most remarkable features of recent economic history has been the remorseless rise in unemployment throughout the industrialized countries however while the trend to higher unemployment is universal the experience of individual countries also differs widely the increase is especially marked within the european community where unemployment rates rival those reached in the interwar years by contrast in the scandinavian countries and japan unemployment is lower and has risen very much less experience in the united states lies somewhere between these extremes and in the last few years unemployment there has fallen sharply

how strong is the macroeconomic case for downward real wage rigidity we explore the existence of downward real wage rigidity drwr at the industry level based on data from 19 oecd countries for the period 1973 1999 the results show that drwr compresses the distributions of industry wage changes overall as well as for specific geographical regions and time periods but there are not many real wage cuts that are prevented more important however drwr attenuates larger real wage cuts thus leading to higher real wages there is stronger evidence for downward nominal wage rigidity than for drwr real wage cuts are less prevalent in countries with strict employment protection legislation and high union density

collective wage bargaining and the role of institutional stability a cross national comparison of macroeconomic performance since the advent of the economic crisis interest in the efficacy of collective wage bargaining institutions has increased as the labour market was required to bear the burden of economic adjustment and became an important policy field for institutional reform in many countries in this article the role of institutional stability trust and certainty for the efficacy of collective bargaining systems is investigated and their effects on macroeconomic outcomes inflation and unemployment are analysed we argue that stability of the institutional framework of collective bargaining is of major importance for its efficacy as it reduces uncertainty and provides the necessary basis for trust among bargaining actors thus we hypothesise that institutional change and instability are associated with significant transaction costs and have at least temporarily negative effects on economic outcomes the hypotheses are confirmed by an empirical analysis which uses data of 34 industrialised countries from 1965 to 2014

it s the economy and then some modeling the presidential vote with state panel data using data for the 50 us states for presidential elections from 1972 to 2004 two theories for determining state voting outcomes are considered jointly the economy matters and home grown ness theories fixed effects regressions show that measures of the economy matters real income unemployment and a proxy for inflation have the predicted effects on state voting patterns for presidential elections the home grown theory receives mixed support there is weak evidence that incumbent party candidates garner greater support in their home states there is strong support however for the proposition that incumbent party candidates fare worse in the home state of rival party candidates

party cues in elections under multilevel governance theory and evidence from us states this is the authors accepted refereed and final manuscript to the article the final publication is available at www elsevier com

political and monetary institutions and public financial policies in the industrial countries institutions and policies vittorio grilli donato masciandaro and guido tabellini why do countries as similar as the industrialized oecd countries go through such different experience in terms of public deficits and debts or in terms of inflation the answer cannot come from macroeconomic policy responses to different disturbances nor from the principles of optimal taxation but rather from politics this article focuses on the role that particular institutions exert in providing constraints and incentives which shape the actions of policymakers the electoral process and political traditions affect the ability of governments to deal with deficits and mounting debts what seems to matter most it is found is the effect of the durability of governments governments with short horizons act myopically and never quite tackle the hard choices such governments typically exist in countries with an electoral system favouring many small political parties central bank independence promotes low inflation with no apparent costs in terms of real economic performance irrespective of the political institutions in fact there is no link between monetary and fiscal discipline these findings carry powerful implications for countries facing high indebtedness or stubborn inflation but also for the construction of the european economic and monetary union

politics and business cycles in industrial democracies politics alberto alesina influences from political competition on macroeconomic policy are often thought to be a source of economic fluctuations politicians are described as being driven by two not mutually exclusive main motivations they want to be reelected and they harbour political or ideological biases when such theories are confronted with actual cycles in a number of industrial countries the pattern of inflation unemployment output and budget deficits indicates that partisan policy making is a fairly widespread phenomenon with more limited evidence that electoral preoccupations result in major fluctuations the combination of partisanship and electoral cycles may easily result in socially undesirable outcomes in particular the degree of politico institutional stability and the independence of the central bank have a bearing on macroeconomic outcomes these observations raise a number of important questions about the design of political institutions

financial innovation price smoothing and monetary policy financial innovation price smoothing and monetary policy i introduction in a monetary economy the volume of nominal transactions fluctuates with the level of economic activity empirical evidence suggests that the supply of nominal transaction assets such as currency and bank deposits also fluctuates with the level of economic activity some researchers have attributed these observations to the phenomenon of money endogeneity 1 one explanation for this endogenous supply response is a systematic monetary policy as described by black 1972 under which the central bank passively adjusts the money supply to accommodate the changes in money demand alternatively king and plosser 1984 and saving 1979 stress the role of the private banking system in producing this endogenous response they argue that exogenous changes in real activity elicit sympathetic changes in the demand for transaction services that may be partially or fully accommodated by the banking system through its supply of inside money in either case this endogenous supply response tends to mitigate the price adjustment that accompanies a real supply shock 2 in the long run however the price level is ultimately determined by the central bank in the market for the nominal quantity that it controls e g currency bank reserves when deposit accounts are subject to reserve requirements or the monetary base 3 this suggests that if the private banking system does not fully accommodate the real shock and if the shock exhibits a well defined persistence then endogenous price adjustments that are fully anticipated may be further damped by a passive supply response by the central bank in addition if price expectations affect real interest rates then current period price level smoothing via a passive monetary policy may also be possible 4 in addition to employing transaction assets currency and checkable bank deposit accounts to meet their transaction requirements agents may purchase non deposit transaction services directly for firms these services include the tools available to the modern corporate cash manager such as lockbox collection systems repurchase agreements and zero balance accounts in the household sector they take the form of atms debit and credit cards and overdraft privilages on checkable accounts among others these non deposit transaction services represent an increasingly important medium of exchange their supply by the banking system is not directly controlled by the central bank and also offers another avenue by which the economy may respond endogenously to fluctuating transaction requirements associated with real shocks thereby further mitigating the price adjustment 5 the production of non deposit transaction services is subject to technology shocks in the form of financial innovations these innovations alter the economy wide demand for currency and checkable bank deposit accounts and prices adjust as with the introduction of new technology into the production of goods financial innovations are not fully adopted immediately due to the fixed costs of adjusting individual cash management practices but are instead assimilated over time this implies that their effects on transaction asset demands persist if the rate of adoption has a forecastable component the central bank can smooth expected prices by passively accommodating these innovations as with aggregate productivity shocks this persistence may also enable the central bank to damp the disturbances to the current period price level that these innovations create through the impact of price expectations on real interest rates this paper examines a non deposit transaction services market in a model economy that is developed in section ii it has the following features transactors can meet their transaction requirements by allocating wealth to currency or to bank deposit accounts that pay a market determined interest rate or by purchasing non deposit transaction services directly at a market determined price

the implications of institutional design for macroeconomic performance reassessing the claims of consensus democracy the choice between a proportional representation pr or plurality based electoral system is commonly assumed to involve a trade off the former is assumed to provide fairer representation but at a

competitive devaluation and the great depression a theoretical reassessment abstract historical accounts indict the devaluations of the 1930s for worsening the great depression to assess the consistency of these arguments we develop a two country model of the gold exchange standard its analysis reveals that devaluation under a gold standard need not be beggar thy neighbor contrary to the thrust of the existing literature competitive devaluations like those of the 1930s could have hastened recovery from the great depression

central bank independence and inflation corporatism partisanship and alternative indices of central bank independence a well developed theoretical literature suggests that central bank independence causes low inflation empirical work supporting this hypothesis is unsatisfactory however for two reasons statistical analysis has only recently begun to include control variables and important political variables that are related to inflation have not yet been included analysis has not yet undertaken a systematic comparison of alternative indices of central bank independence this paper addresses both weaknesses by testing the explanatory power of eight indices of central bank independence in a political economic model of inflation the results suggest that while support for the central bank independence hypothesis survives a relatively inclusive set of control variables support for the hypothesis is not independent of the particular index upon which analysis relies