capital flows in the euro area and target2 balances abstract this paper explores how the uneven recourse by national banking systems in the euro area to the ecb s unconventional refinancing operations that led to the accumulation of large target2 balances at the ncbs has contributed to the evolution of aggregate economic activity in important member states of the euro area for the period between 2008 and 2014 we estimate a panel var model and identify the structural shocks by means of sign restrictions our results suggest that the build up of target2 balances was driven mainly by capital flow shocks while being barely responsive to other aggregate shocks furthermore on the basis of counterfactual experiments we find that the ability to build up sizeable target2 liabilities has contributed substantially to avoiding deeper recessions in the distressed euro area member countries like spain italy ireland and portugal while to a smaller extent depressing aggregate economic activity in core member states such as germany the netherlands and finland

monetary policy committees and interest rate setting abstract this paper shows that it is preferable for monetary policy to be conducted by a committee instead of a single policy maker if there is uncertainty about potential output we examine three decision procedures an optimal procedure averaging and voting and find that the latter is the appropriate way to reach decisions if policy makers are not equally skilled finally we demonstrate that efficient decision procedures reduce the persistence of shocks

an exploration in the theory of exchange rate regimes three exchange rate regimes a float a one sided peg and a cooperative peg are evaluated and compared in terms of efficiency and welfare levels the framework of analysis embodies country specific monies with the money of each country being used to transact in its commodity markets and its currency denominated bonds welfare levels depend only on consumption levels in the presence of perfect foresight all equilibrium allocations are pareto efficient in a floating exchange rate regime the perfect foresight equilibrium allocation coincides with an equilibrium of a costless barter economy the same result holds in a one sided peg if the pegging country s exchange rate stabilizing authority breaks even over time in a cooperative peg regime there is a different equilibrium allocation for each combination of exchange rate levels and monetary policies problems of policy coordination and conflicts in desired monetary policies are discussed

greasing the wheels of international commerce how services facilitate firms international sourcing we use unique plant level data to study the link between the local availability of services and the decision of manufacturing firms to source materials from abroad to guide our empirical analysis we develop a monopolistic competition model of the materials sourcing decisions of heterogeneous firms the model generates predictions about how the intensity of international sourcing of materials depends on a firm s productivity and the availability of local services these predictions are supported by the data we find evidence that more productive manufacturing firms tend to have a higher ratio of imported materials to sales in addition we find evidence that services grease the wheels of international commerce a greater availability of services across regions industries and time increases a firm s foreign sourcing of materials relative to sales interestingly this positive impact of local service availability on imports especially applies to stand alone firms that unlike multinationals are less likely to rely on imported or internally provided services

dynamic inconsistency and the optimal choice of the exchange rate regime abstract in a cash in advance monetary economy facing dynamic inconsistency issues a fixed exchange rate regime may be pareto superior to a flexible regime if it allows for a non zero level of trade in domestic currency denominated assets

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

what lies between market and hierarchy insights from internalization theory and global value chain theory in this paper we suggest that internalization theory might be extended by incorporating complementary insights from gvc theory more specifically we argue that internalization theory can explain why lead firms might wish to externalize selected activities but that it is largely silent on the mechanisms by which those lead firms might exercise control over the resultant externalized relationships with their gvc partners we advance an explanation linking the choice of control mechanism to two factors power asymmetries between the lead firms and their gvc partners and the degree of codifiability of the information to be exchanged in the relationship

compulsory education and the benefits of schooling causal estimates of the benefits of increased schooling using u s state schooling laws as instruments typically rely on specifications which assume common trends across states in the factors affecting different birth cohorts differential changes across states during this period such as relative school quality improvements suggest that this assumption may fail to hold across a number of outcomes including wages unemployment and divorce we find that statistically significant causal estimates become insignificant and in many instances wrong signed when allowing year of birth effects to vary across regions

conscription and the returns to education evidence from a regression discontinuity in 1997 the french government put into effect a law that permanently exempted young french male citizens born after jan 1 1979 from mandatory military service while still requiring those born before that cutoff date to serve this paper uses a regression discontinuity design to identify the effect of peacetime conscription on education and labor market outcomes results indicate that conscription eligibility induces a significant increase in years of education which is consistent with conscription avoidance behavior however this increased education does not result in either an increase in graduation rates or in employment and wages additional evidence shows conscription has no direct effect on earnings suggesting that the returns to education induced by this policy was zero

the political economy of inflation labour market distortions and central bank independence using the citizen candidate model we study the government s choice of institutions for the labour market and the central bank and derive the implications for inflation and employment we derive conditions for the existence of equilibria in which the labour market is distorted and the central bank is dependent or independent under a range of conditions affecting central bank dependence the post election cycle in inflation and employment and inflation bias our results imply that average inflation and inflation variability are lower under an independent central bank whereas employment variability can be lower or higher consistent with evidence for oecd countries many democratic societies delegate key tasks to non elected and independent institutions a prominent example being independent central banks the belief in the advantage of central bank independence is nursed by the cross country evi

the compelling effects of compulsory schooling evidence from canada abstract compulsory school laws have existed for more than a hundred years and policies to mandate further education continue to be discussed the implications of these laws however are not well understood historical changes to compulsory schooling in canada permit an examination of their effects on would be dropouts under very different circumstances than those during changes in other countries mandating education substantially increased adult income and substantially decreased the likelihood of being below the low income cut off unemployed and in a manual occupation these findings suggest significant gains from this legislation which seem unlikely offset by the costs incurred while having to remain in school jel classification i20 i28

who profits from innovation in global value chains a study of the ipod and notebook pcs in an era when new ideas are brought to the market by global value networks of specialists rather than by one company a key question is who captures the most value from innovation in such a structure and why this paper addresses the question of who benefits from innovation in global value chains by looking at specific computer and electronics products we apply a novel industry studies methodology for measuring the distribution of financial value across the supply chains for two models from apple s ipod family and notebook pc models from lenovo and hewlett packard hp these are all examples of globally innovated products combining technologies from the u s japan and other countries and assembled in china our analysis shows that the gross margins of apple for its high end ipod products are generally higher than those earned by hp and lenovo for notebook pcs although not so high as to be considered supernormal a key reason for the difference is that apple s control of the core software proprietary standards and complementary infrastructure of the ipod enables it to retain greater profits whereas a large share of the pc industry profits are siphoned off to microsoft and intel who control key technical standards consistent with teece 1986 our results confirm the importance of stages of technical evolution appropriability regimes and complementary assets as determinants of profiting from innovation on the other hand we find that manufacturing has become commoditized and is no longer a key to profiting from innovation in final electronic products also contrary to recent suggestions in the literature we find no evidence of a causal link between product and industry architectures instead there is a vast electronics industry architecture that can easily support product level value chain configurations ranging from modular to integrated

one money for europe lessons from the us currency union currency union barry eichengreen the creation of a monetary union in europe is often justified by the desire to reap the full benefits of economic integration the complete removal of capital controls raises a large number of issues the case for free capital mobility is strong but not overwhelming it hinges on issues of technology transport costs market structure and labour mobility and in the end is an empirical matter for which us experience may provide useful information policy making institutions differ in important respects however the us tradition of fiscal federalism for example has no ec wide counterpart yet its functions seem a desirable feature of a monetary union in particular it is shown to play an important role in absorbing regional disturbances mostly via the tax system us experience also suggests that a currency union creates pressure for fiscal policy harmonization affecting both taxes and spending although a currency union fundamentally alters the balance of payments adjustment process the potential problem of depressed regions remains a serious one given the increased tightness of the external constraint the limited extent of labour mobility and other features of european labour markets solutions based on us experience include extensive swap facilities and a european version of fiscal federalism

collective decisions with interdependent valuations abstract many collective decision problems have in common that individuals desired outcomes are correlated but not identical this paper studies collective decisions with private information about desired policies each agent holds private information which mainly concerns his own bliss point but private information also affects all other agents we concentrate on two specific mechanism the median and mean mechanisms establish the existence of symmetric bayesian nash equilibria of the corresponding games and compare the performance of the mechanisms for different degrees of interdependencies applications of our framework include the provision of public goods and the design of decision processes in international organizations

why is the euro punching below its weight on the twentieth anniversary of its inception the euro has yet to expand its role as an international currency we document this fact with a wide range of indicators including its role as an anchor or reference in exchange rate arrangements which we argue is a portmanteau measure and as a currency for the denomination of trade and assets on all these dimensions the euro comprises a far smaller share than that of the us dollar furthermore that share has been roughly constant since 1999 by some measures the euro plays no larger a role than the deutschemark and french franc that it replaced we explore the reasons for this underperformance while the leading anchor currency may have a natural monopoly a number of additional factors have limited the euro s reach including lack of financial center limited geopolitical reach and us and chinese dominance in technology research most important in our view is the comparatively scarce supply of safe euro denominated assets which we document the european central bank lack of policy clarity may have also played a role we show that the euro era can be divided into a bundesbank plus period and a whatever it takes period the first shows a smooth transition from the european exchange rate mechanism and continued to stabilize german inflation the second period is characterised by an expanding ecb arsenal of credit facilities to european banks and sovereigns

participation in a currency union in any voluntary cooperative agreement the potential gain from deviation should determine the minimum influence required over common decision making this paper begins by observing that a highly asymmetric distribution of power between two partners is not sustainable if the choice variables are strategic substitutes it then studies a simple general equilibrium model of a monetary union and shows that a small economy will not take part in the agreement unless it can secure influence that is more than proportional to its size and a transfer of seigniorage revenues in its favor copyright 1992 by american economic association

checks and balances and the supply of central bank independence abstract the paper analyzes the institutional conditions under which policymakers can credibly commit to an independent central bank and thereby mitigate the well known time consistency problem in monetary policy it is shown theoretically that granting independence via a statute is only credible for legislative systems with at least two heterogeneous decision making bodies which both have veto rights for example bicameral systems this thesis is supported by empirical evidence the legal independence of central banks is significantly higher in those oecd countries whose legislative processes are characterized by extensive checks and balances furthermore the negative relation between legal independence and inflation is larger in countries with checks and balances than in countries without checks and balances

does complexity explain the structure of trade this paper analyzes whether complexity measured by the number of skilled tasks that are performed simultaneously in production explains countries commodity trade structure we modify romalis 2004 model to incorporate differences in complexity across commodities together with differences in average skills across countries and monopolistic competition our model predicts that the share of developed countries in world trade increases with products complexity the empirical tests confirm this prediction moreover in most cases complexity seems to provide a better explanation of countries commodity trade structure than the one offered only by skill intensity

does head start improve children s life chances evidence from a regression discontinuity design this paper exploits a new source of variation in head start funding to identify the program s effects on health and schooling in 1965 the office of economic opportunity oeo provided technical assistance to the 300 poorest counties to develop head start proposals the result was a large and lasting discontinuity in head start funding rates at the oeo cutoff for grant writing assistance we find evidence of a large drop at the oeo cutoff in mortality rates for children from causes that could be affected by head start as well as suggestive evidence for a positive effect on educational attainment i introduction head start was established in 1965 as part of the war on poverty to provide preschool health and other social services to poor children age three to five and their families and currently serves over 900 000 children each year at a cost of around 7 billion hhs 2006 this paper provides new evidence on the effects of the head start program on schooling and health by drawing on a new source of variation in program funding spe

spurred to upgrade a review of triggers and consequences of industrial upgrading in the global value chain literature summary the global value chains gvc literature intervenes in today s challenging development context by focusing on the means by which developing country industries can upgrade their market positions and outcomes for workers yet while this literature has produced hundreds of rich empirical case studies there has to date been no attempt to systematically analyze this case literature for lessons regarding the antecedents and consequences of the key outcome of upgrading this paper undertakes a systematic analysis of a representative sample of 45 case studies of primary product and light manufacturing industries in developing countries these studies were coded for factors involved in initiating and sustaining upgrading processes the results of upgrading and the role of local institutions in these processes we find that contrary to the major assumptions of the literature advanced country buyers are not the main force in the initiation of industrial upgrading rather in most cases developing country firms initiate upgrades when pushed by shocks of market vulnerability usually produced by state policies that force them to seek to change their status quo operations once initiated upgrading processes can produce a wide spectrum of results from little to no advancement in market position treadmilling to vaulting to the forefront of a global industry leaps forward on the basis of the sources of learning present in the local institutional environment such as state agencies and business associations we also identify conditions under which state participation in upgrading processes can lead to increased local institutional capacity together these findings suggest a framework for upgrading that we refer to as an induced search model this model has important implications for future research on the dynamics of industrial upgrading in developing countries techniques of state intervention and processes of mutually supportive learning between actors in the public and private sector

who captures value from science based innovation the distribution of benefits from gmr in the hard disk drive industry abstract we analyze the discovery of giant magneto resistance gmr and its development and commercialization by the global disk drive industry to answer the question of who captures the benefits from innovation in a global innovation system we assess the returns to the scientists firms and countries associated with gmr we find that the french and german scientists that discovered gmr and their labs benefited by receiving the nobel prize and small licensing fees the firm that first commercialized the technology ibm captured profits from selling hard disk drives and magnetic heads using gmr other hard disk drive and head manufacturers based in the u s and japan were able to quickly assimilate the technology and catch up with ibm france and germany reaped limited returns due to the lack of domestic firms with the absorptive capacity to commercialize gmr the u s and japan benefited from the success of their firms in commercializing gmr as did other countries which were part of the global value chains of those companies consumers and firms that incorporated hard drives in their products ultimately benefited from cheaper hard drives with greater capacity these findings illustrate the importance of absorptive capacity at the firm and national level in capturing benefits from innovation they also show that the benefits to first mover firms can be short lived in a competitive industry with open transfer of knowledge and limited appropriability regimes finally they show that the location of jobs and wages associated with innovative products depends on the structure of the global value chains of leading firms

global value chain governance a relational perspective global value chain gvc governance is an established field within international business research yet the relational aspects of gvcs have to date garnered less scholarly attention than have efficiency considerations this conceptual study s objective is to explore the relational dynamics of gvc governance using an internalization theory perspective and by linking gvc research with insights from the business network literature gvcs are argued to be a distinct form of asymmetrical networks associated with economizing and capability creation features as well as costs the orchestrating firm can thus enhance efficiency outcomes of the gvc using social mechanisms similar to those adopted by core actors in a business network in the study six such mechanisms were identified 1 selectivity 2 inclusion of non business intermediaries 3 joint strategizing 4 relational capital 5 multilateral feedback and 6 rules for equitable value distribution while safeguarding the gvc s efficiency the above social mechanisms are associated with challenges and limitations and therefore do not guarantee international competitive success however deployed in an integrative fashion these social mechanisms facilitate coordination thus economizing on bounded rationality reduce the hazards of imperfect effort by partners thus economizing on bounded reliability and foster innovation and new capability development

towards a capability theory of innovating firms implications for management and policy author s teece dj abstract the author 2017 business enterprises lie at the core of ecosystems that drive economic development and growth in market economies yet until recently mainstream economics has mostly treated firms like homogeneous black boxes run by opportunistic managers the field of strategic management has developed a more nuanced approach to the understanding of how firms are created organized and grow how they innovate and compete and how managers manage one of the leading paradigms in the field is the dynamic capabilities framework in this paper contrasts and complementarities are drawn between dynamic capabilities and economic theories of the firm including transaction cost economics and agency theory connections to the cambridge school are highlighted including the duality between keynes s animal spirits and the dynamic capabilities entrepreneurial owner manager leibenstein s x inefficiency is juxtaposed here with d ineffectiveness knowledge based theories of the firm consistent with cambridge conventions emerge intellectual exchange between strategic management and economics is encouraged to help improve the intuition behind models of firms and the economy

international trade and air pollution damages in the united states abstract this paper investigates the health and economic consequences of trade due to various air pollutants embodied in exports and imports we compare the us emissions generated for us exports and those that were avoided by importing an input output framework of the us economy is employed together with a comprehensive database on damages expressed in monetary terms generated by pollutants as estimated by muller et al 2011 we find that damages associated with international trade in 2002 were considerable the net result is that damages were avoided through trade and that these avoided damages amounted to 2 7 of the us trade deficit and 3 4 of the us value added associated with trade moreover the computed damage to value added ratios differed greatly across industries exports in some industries are so hazardous that more than half of the value added gained from extra exports disappeared due to environmental damages these findings imply that the us might benefit more from trade by increasing its exports more in low damage intensive products than in high damage intensive products

the impact of 9 year compulsory education quasi experimental evidence from taiwan using a regression discontinuity design this article investigates the causal impacts of 9 year compulsory education on students educational attainment and dropout rate by taiwan population and ho

the logic of appropriability from schumpeter to arrow to teece this note expounds the abstract fundamentals of the appropriability problem re assessing insights from three classic contributions those of schumpeter arrow and teece whereas the first two contributions were explicitly concerned with the implications of appropriability for society at large teece s main concern was with practical questions of business strategy and economic organization this note argues that his practical concerns notwithstanding teece contributed en passant but fundamentally to the clarification of basic questions that previous authors had addressed less comprehensively and less satisfactorily specifically his analysis of the innovator s access to complementary assets undertaken from a contracting perspective can be seen as filling a significant gap in the previous theoretical discussion of appropriability 2006 published by elsevier b v

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

the role of the business model in capturing value from innovation evidence from xerox corporation s technology spin off companies this paper explores the role of the business model in capturing value from early stage technology a successful business model creates a heuristic logic that connects technical potential with the realization of economic value the business model unlocks latent value from a technology but its logic constrains the subsequent search for new alternative models for other technologies later on an implicit cognitive dimension overlooked in most discourse on the topic we explore the intellectual roots of the concept offer a working definition and show how the xerox corporation arose by employing an effective business model to commercialize a technology rejected by other leading companies of the day we then show the long shadow that this model cast upon xerox s later management of selected spin off companies from xerox parc xerox evaluated the technical potential of these spin offs through its own business model while those spin offs that became successful did so through evolving business models that came to differ substantially from that of xerox the search and learning for an effective business model in failed ventures by contrast were quite limited

fragmentation incomes and jobs an analysis of european competitiveness increasing fragmentation of production across borders is changing the nature of international competition as a result conventional indicators of competitiveness based on gross exports are becoming less informative and new measures are needed this paper proposes an ex post accounting framework of the value added and workers that are directly and indirectly related to the production of final manufacturing goods the framework focuses on manufactures global value chain income and manufactures global value chain jobs the paper outlines these concepts and provides trends in european countries based on a recent multi sector input output model of the world economy the analysis finds that since 1995 revealed comparative advantage of the european union 27 is shifting to activities related to the production of nonelectrical machinery and transport equipment the workers involved in manufactures global value chains are increasingly in services rather than manufacturing industries the analysis also finds a strong shift toward activities carried out by high skilled workers highlighting the uneven distributional effects of fragmentation the results show that a global value chain perspective is needed to inform the policy debates on competitiveness

the heterogeneous impact of brexit early indications from the ftse abstract the uk s decision to leave the eu is surrounded by several studies simulating its potential effects we take an alternative approach by examining how news of brexit affected expectations as embodied in stock returns using a two stage estimation process while most firms had negative returns following news of the referendum s result with nearly 3 trillion wiped off global markets there was considerable heterogeneity in their changes relative to expectations we show that this heterogeneity can be explained by the firm s global value chain with firms heavily exposed to the eu and uk doing worse in addition we find that firms reliant on imported intermediates also perform worse this however is partially offset via intra firm trade in intermediates when sterling fell relative to host currencies these changes were primarily in the first two trading days and highly persistent understanding these movements gives a better understanding of brexit s potential effects

zero returns to compulsory schooling in germany evidence and interpretation abstract we estimate the impact of compulsory schooling on earnings using changes in compulsory schooling laws in west germany after world war ii most estimates in the literature indicate returns in the range of 10 to 15 while our research design is very similar to studies for various other countries we find a zero return we find no evidence that this is due to labor market institutions or the apprenticeship training system in germany the result might be due to the fact that the basic skills most relevant for the labor market are learned earlier in germany than in other countries

central bank independence and monetary control ing from details these conclusions imply that inflation is lower the higher is cbi and that given independence countries that pre announce monetary policy have even lower rates of inflation furthermore there is no evidence that cbi retards growth or investment as a matter of fact for ldcs the evidence points in the opposite direction low independence is associated with lower growth and investment some economists feel that excessive independence may interfere with the potential stabilisatory function of monetary policy since fluctuations in the growth rate of the economy are found to be unrelated to cbi this does not appear to be the case iii commitment via central bank independence and

who borrows from the lender of last resort understanding why banks borrow from the lender of last resort lolr during a nancial crisis is crucial to understanding the macroeconomic impact of such largescale interventions we document a strong divergence among banks take up of lolr assistance during the nancial crisis in the euro area as banks which borrowed heavily also used increasingly risky collateral we propose four explanations for this divergence

is inflation always and everywhere a monetary phenomenon using a sample of about 160 countries over the last 30 years we test for the quantity theory relationship between money and inflation when analysing the full sample of countries we find a strong positive relation between long run inflation and the money growth rate the relation is not proportional however the strong link between inflation and money growth is almost wholly due to the presence of high or hyper inflation countries in the sample the relationship between inflation and money growth for low inflation countries on average less than 10 per annum over the last 30 years is weak

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

kingpins bottlenecks and value dynamics along a sector this paper explores the dynamics of value distribution within a sector using data on the u s computer industry as an illustration it provides exploratory quantitative evidence for the way in which conditions within the segments of a sector s value chain affect the profitability of those segments compared with the sector as a whole to consider how value shifts from one part of the sector such as computer assemblers to another such as software and microprocessor makers we look at how conditions within a segment such as software developers affect changes in the value share of that segment compared with the entire sector in terms of market capitalization we find that the presence of what we call kingpins firms with superior capabilities modeled in our study as having superior market capitalization and as being disproportionately important in terms of research and development r d is correlated with a higher share of total sector value suggesting that kingpins can help a segment to become a bottleneck sales concentration and the level of r d expenditure are not always reliable predictors kingpins exert a positive externality on their direct competitors yet their segments display increasing internal inequality over time making the presence of kingpins a double edged sword for their peers our findings extend recent work on industry architectures highlighting the interconnectedness of different segments within a sector they also provide a structure to help study the dynamics of value migration which has not yet attracted much academic scrutiny

multinational corporate power influence and responsibility in global supply chains this paper examines the question of how to determine the extent of a multinational corporation mnc s corporate social responsibility for actions by its suppliers drawing on three theories of power and influence from the organization and management literature resource dependence theory social exchange theory and social network theory this paper presents a conceptual framework for analysing the extent of power and influence of an mnc in a global supply chain based on a consideration of i economic and non economic exchanges and ii direct and indirect exchanges in the mnc s industry network the paper also shows how the legal concept of complicity can be incorporated by considering the knowledge links of the mnc to other organizations in the industry network finally the paper demonstrates how the concepts can be integrated to construct a power assessment grid which can be used to assess the extent of responsibility of an mnc for the actions of its suppliers and other parties in the industry as well as a map of power and knowledge relationships between organizations in the industry which can be used for further analyses using social network analysis techniques

global value chain participation and current account imbalances abstract this paper draws a causal link between increased levels of global value chain participation gvcp and increases in a country s current account we document empirically that stronger gvcp is associated with larger current account balances according to our estimates cross country differences in gvcp reduce the hitherto unexplained part of current account imbalances substantially for some countries for example for the united states and japan the unexplained part of the current account falls by 75 and 50 over the sample period when controlling for their gvcp relative to the rest of the world for germany the unexplained part of the current account deficit falls by an average of 10

does longer compulsory schooling affect mental health evidence from a british reform abstract in this paper we examine whether longer compulsory schooling has a causal effect on mental health exploiting a 1972 reform which raised the minimum school leaving age from age 15 to 16 in great britain using a regression discontinuity design we find that the reform did not improve mental health we provide evidence that extending the duration of compulsory schooling impacts mental health through channels other than increased educational attainment we argue that these effects may mitigate or offset the health returns to increased educational attainment

do dropouts drop out too soon wealth health and happiness from compulsory schooling abstract this paper uses compulsory schooling laws to evaluate high school dropout decisions the main empirical result is that lifetime wealth increases by about 15 with an extra year of compulsory schooling students compelled to stay in school are also less likely to report being in poor health unemployed and unhappy the main conclusion is that high school aversion alone is unlikely to explain why dropouts forgo substantial gains to lifetime wealth the results are more consistent with the possibility that adolescents ignore or heavily discount future consequences when deciding to drop out of school if teenagers are myopic making school compulsory or offering incentives to stay in school may help improve lifetime outcomes

indeterminacy and volatility of exchange rates under imperfect currency substitution i introduction this paper presents a model of exchange rate determination under currency substitution its primary objective is to examine the implications of currency substitution for the behavior of exchange rates in a general equilibrium model under uncertainty the basic framework used here is the cash in advance model of lucas 1982 which is extended to allow for substitution among currencies it is well known that under perfect currency substitution foreign exchange rates may become indeterminate and behave independently of fundamental economic variables the reason is that the objects traded in foreign exchange markets are fiat currencies which unless supported by binding legal tender laws have no fundamental economic value when agents have unrestricted access to currency markets and are free to use any currency as the means of payment currency demands are entirely determined by speculation and consequently equilibrium exchange rates become indeterminate e g see kareken and wallace 1981 increased integration of financial markets reduces the costs and the risks of holding balances in multiple currencies 4 this creates more opportunities for currency substitution and it is reasonable to assume that agents are free to use any currency as the means of the payment in some of their international transactions for example suppose some percentage of transactions involving the u s exports to germany can be paid with either u s dollars or german marks agents will look at the opportunity costs i e u s and german nominal interest rates and expected exchange rate changes to decide what combination of the two currencies to use in these transactions if the potential costs and benefits of holding the two currencies are similar then agents will be indifferent between the two currencies we show that this could lead to exchange rate indeterminacy and nonfundamental volatility and change the effectiveness of monetary policies in our cash in advance framework agents are allowed to use any currency in some of their transactions called unrestricted transactions to make different currencies attractive at different times we allow the governments to follow timevarying monetary policies as a result agents will change their currency holdings to maximize the risk adjusted return on their portfolio subject to the constraint that specific currencies must be used as the means of payment in their restricted transactions 2 to answer specific questions about the behavior of exchange rates we obtain closed form solutions for agents demand functions equilibrium interest rates and the equilibrium exchange rate it turns out that two types of equilibrium exist in the first type the two currencies have different risk return profiles such that agents will prefer to use only one of them in unrestricted transactions in this case the exchange rate will be determined by fundamentals however as a large percentage of transactions become unrestricted the equilibrium exchange rate becomes more volatile under this type of equilibrium the effectiveness of monetary policies are changed currencies of countries that have high nominal interest rates will not be in demand for use in unrestricted transactions 3 this lack of demand means that any increase in the money supply of a high nominal rate country will lead to a larger increase in its rate of inflation and thus a larger reduction in the value of its currency in other words increased currency substitution increases the sensitivity of the currency values to changes in the money supply of high nominal rate countries also we show that as national economies become more integrated and more opportunities for currency substitution arise currencies of countries with high nominal interest rates would decline substantially the reason is that higher opportunity costs are associated with holding these currencies and thus agents will fully take advantage of currency substitution to reduce their holdings of these currencies reducing the value of these currencies

early late or never when does parental education impact child outcomes we estimate the causal effect of parents education on their children s education and examine the timing of the impact we identify the causal effect by exploiting the exogenous shift in parents education levels induced by the 1972 minimum school leaving age reform in england increasing parental education has a positive causal effect on children s outcomes that is evident in preschool assessments at age 4 and continues to be visible up to and including high stakes examinations taken at age 16 children of parents affected by the reform attain results around 0 1 standard deviations higher than those whose parents were not impacted

effects of inflation on the pattern of international trade this paper integrates a transactions based model of money with a real trade model and examines how steady state inflation affects the direction and size of international trade the effects of inflation work through changes in supplies of labour and capital which are chosen jointly with production and consumption by utility maximizing households if production exhibits constant returns to scale in domestically mobile factors then it is unlikely that the economy will produce both of the two traded goods for certain rates of inflation small changes can have dramatic effects on the direction of trade for other rates of inflation the volume of trade is affected when money is held for transactions purposes and factor supplies are endogenous changes in inflation can cause changes in the pattern of trade that do not reflect real underlying changes in comparative advantage

behind closed doors revealing the ecb s decision rule abstract this paper aims at discovering the decision rule the governing council of the ecb uses to set interest rates we construct a taylor rule for each member of the council and for the euro area as a whole and aggregate the interest rates they produce using several classes of decision making mechanisms chairman dominance bargaining consensus voting and voting with a chairman we test alternative scenarios in which individual members of the council pursue either a national or a federal objective we then compare the interest rate path predicted by each scenario with the observed euro area s interest rate we find that scenarios in which all members of the governing council are assumed to pursue euro area wide objectives are dominated by scenarios in which decisions are made collectively by a council consisting of members pursuing national objectives the best performing scenario is the one in which individual members of the governing council follow national objectives bargain over the interest rate and their weights are based on their country s share of the zone s gdp

target2 and central bank balance sheets the euro area s target2 payments system has featured heavily in academic and popular discussions of the euro crisis some of this commentary has described the system as being responsible for a secret bailout of europe s periphery another common theme has been that the system has built up large credit risks for germany should the euro break up this paper discusses the target2 system focusing in particular on how it impacts the balance sheets of the central banks that participate in the system it discusses the factors driving target2 balances considers some counterfactual cases in which euro area monetary policy operated differently examines the risks to germany and considers proposals for settlement of these balances

flexible majority rules for central banks we propose a flexible majority rule for central bank committees where the size of the majority depends monotonically on the change in interest rate within a particular time frame small changes in the interest rate require a small share while larger changes require a larger share of supporting votes we show that flexible majority rules are superior to simple majority rules

wish you were here quasi experimental evidence on the effect of education on self reported attitude toward immigrants abstract we use european social survey and labour force survey data from 2002 to 2012 to estimate the causal effect of years of education on european natives opinion toward immigration by exploiting the exogenous discontinuity generated by reforms in compulsory education in europe in the 1940s through the 1990s our findings show that higher levels of education lead to a more positive reported attitude toward immigrants we also investigate the mechanisms behind the effect of education on reported attitudes by evaluating both economic and non economic channels we find that higher levels of education place individuals in occupations that are less exposed to the negative effects of migration although not in sectors occupations where the share of migrants is necessarily smaller suggesting that migrants and low educated natives may be complementary rather than substitutes in the labour market in addition education alters values and the cognitive assessment of the role of immigration in host societies with a positive effect on reported attitude toward diversity and on the assessment of immigration s role in host countries our findings suggest that education as a policy instrument can increase social cohesion in societies that are subject to large immigration flows

central bank design with heterogeneous agents we study alternative institutional arrangements for the determination of monetary policy in a general equilibrium model with heterogeneous agents where monetary policy has redistributive effects inflation is determined by a policy board using either simple majority voting supermajority voting or bargaining we compare the equilibrium inflation rates to the first best allocation

trade in nominal assets monetary policy and price level and exchange rate risk in a previous paper trade in risky assets i have analyzed the pattern of international trade in risky real assets between barter economies relying on the law of comparative advantage and using autarky asset price differences to predict the pattern of asset trade in this paper the analysis is extended to international trade in nominal assets assets with returns paid in currencies between monetary economies the risk chracteristics of real returns on nominal assets depend on price level and exchange rate risk and therefore on monetary policy it is examined how different combinations of monetary policies and exchange rate regimes affect nominal assets return risk characteristics their autarky perices and hence their trade pattern when countries differ with respect to their outputs or their attitudes towards risk when world asset markets are incomplete different monetary policies and exchange rate regimes have dramatic effects on risk characteristics of home and foreign currency bonds and on the trade pattern in these assets as well as on aggregate capital and current accounts

the raising of the school leaving age returns in later life using the recently released uk household longitudinal study we examine whether the raising of the school leaving age in 1972 had a permanent impact on earnings for individuals in their early 50s

global value chains from a 3d printing perspective this article outlines the evolution of additive manufacturing technology culminating in 3d printing and presents a vision of how this evolution is affecting existing global value chains gvcs in production in particular we bring up questions about how this new technology can affect the geographic span and density of gvcs potentially wider adoption of this technology has the potential to partially reverse the trend towards global specialization of production systems into elements that may be geographically dispersed and closer to the end users localization this leaves the question of whether in some industries diffusion of 3d printing technologies may change the role of multinational enterprises as coordinators of gvcs by inducing the engagement of a wider variety of firms even households

forced to be rich returns to compulsory schooling in britain do students benefit from compulsory schooling in an important article oreopoulos 2006 studied the 1947 british compulsory schooling law change and found large returns to schooling of about 15 using the general household survey ghs re analysing this dataset we find much smaller returns of about 3 on average with no evidence of any positive return for women and a return for men of 4 7 additionally we utilise the new earnings survey panel data set nespd that has earnings information superior to that in the ghs and find similar estimates zero returns for women and returns of 3 to 4 for men

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

does education affect risk aversion evidence from the british education reform individual risk attitudes are frequently used to predict decisions regarding education however using risk attitudes as a control variable for decisions about education has been criticized because of the potential for reverse causality causality between risk aversion and education is unclear and disentangling the different directions it may run is difficult in this study we make the first attempt to investigate the causal effects of education on risk aversion by examining the british education reform of 1972 which increased the duration of compulsory schooling from age 15 to age 16 using regression discontinuity design we find that this additional year of schooling increases the level of risk aversion which is contrary to previous findings in the literature and we also find that this result is particularly strong for individuals with less education this positive causal effect of education on risk aversion might alleviate concerns regarding the endogeneity reverse causality issue when using risk aversion as an explanatory variable for decisions about education the sign would remain credible because the coefficients are underestimated

exchange rates and the fiscal theory of the price level abstract this paper addresses exchange rate determination under a nominal interest peg in a two country cash in advance model under two types of cash in advance constraints if both governments peg the nominal interest rate on domestic bonds there is a continuum of equilibria each consistent with different nominal exchange rates and real resource allocations the well known finding of equilibrium uniqueness under a nominal interest rate peg in a closed economy does not survive in a multi country multi currency setting

is education always reducing fertility evidence from compulsory schooling reforms we study the relationship between education and fertility exploiting compulsory schooling reforms in england and continental europe implemented between 1936 and 1975 we assess the causal effect of education on the number of biological children and the incidence of childlessness while we find a negative relationship between education and fertility in england this result can not be confirmed for continental europe the additional education generated by schooling expansions on the continent did not lead to a decrease in the number of biological children nor to an increase in childlessness these findings are robust to a number of sensitivity and falsification checks author s abstract

reanalyzing zero returns to education in germany summary pischke and von wachter review of economics and statistics 2008 90 3 592 598 find zero earnings returns to compulsory schooling in the basic school track in germany we reanalyze their study using a different dataset in an extension we use additional instruments which allow estimation of heterogeneous effects for different groups of compliers we can confirm the previous result and also find zero returns for other compliers in higher track schools moreover we do not find a causal effect of schooling on cognitive skills this is in line with a potential reason pischke von wachter 2008 give for their result namely that basic skills are learned earlier in germany and additional years of schooling are no longer effective copyright 2015 john wiley sons ltd

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

the effect of education on adult mortality and health evidence from britain there is a strong positive and well documented correlation between education and health outcomes in this paper we attempt to understand to what extent this relationship is causal our approach exploits two changes to british compulsory schooling laws that generated sharp across cohort differences in educational attainment using regression discontinuity methods we find the reforms did not affect health although the reforms impacted educational attainment and wages our results suggest caution as to the likely health returns to educational interventions focused on increasing educational attainment among those at risk of dropping out of high school a target of recent health policy efforts jel h52 i12 i21 i28

the intergenerational effects of compulsory schooling this article attempts to improve our understanding of the causal processes that contribute to intergenerational immobility by exploiting historical changes in compulsory schooling laws that affected the educational attainment of parents without affecting their innate abilities or endowments we examine the influence of parental compulsory schooling on children s grade for age using the 1960 1970 and 1980 u s censuses our estimates indicate that a 1 year increase in the education of either parent reduces the probability that a child repeats a grade by between 2 and 4 percentage points

does education improve citizenship evidence from the united states and the united kingdom abstract many studies document an association between schooling and civic participation but none credibly investigate causal links we explore the effect of extra schooling induced through compulsory schooling laws on the likelihood of becoming politically involved in the united states and the united kingdom we find that educational attainment is related to several measures of political interest and involvement in both countries we find a strong and robust relationship between education and voting for the united states but not for the united kingdom our us results approach the uk findings when conditioning on registration possibly indicating that registration rules present a barrier to participation

global value chains a survey of drivers and measures global value chains gvcs emerged as the paradigm for the international organisation of production for most goods and services production is nowadays vertically fragmented across different countries and this reality gave rise to a significant new strand of research in in ternational trade this article starts by discussing the major driving forces of gvcs in recent decades next it surveys the main measures of gvcs accounting for their different scopes and required datasets the artic le highlights the timing of the contributions to the literature signalling their sequential nature and the trend towards more accurate and data demanding indicators

integrating finance into global production networks coe n m lai k p y and wojcik d integrating finance into global production networks regional studies while successful in its aim of globalizing regional development the global production network gpn approach has thus far paid less attention to the role of finance in the dynamics of the global economy and regional development this lacuna is significant as finance is arguably even more globalized and networked than production to address this gap the paper distils the concept of the global financial network gfn from financial geography and related scholarship with advanced business services world cities and offshore jurisdictions at the core interactions between the gpn and the gfn are discussed focusing on the financing and financializing of gpns and the co evolution of globalization and financialization integrating finance into gpn research entails more than a simple extension of the approach it would also enrich it conceptually and enable it methodologically and empirically

chinese electronics export taiwanese contract manufacturing the win win outcome along the evolving global value chain the ascent of china as the world s top exporter is unusual in its rapidity andhigh tech content with a major portion in process trade by chinese classification forming part of the evolving global value chain with chronology andeconomic analysis applied to notions in frequent business usage but not economicsliterature this study shows the global value chain arose from the microelectronicrevolution known as moore s law evolved under the time tomarketimperative and caused widespread outsourcing in america and europe with final stage production mostly in china by taiwanese contract manufacturers the insight gained may help to assess future trends

conditional relative price variance and its determinants open economy evidence from germany the authors present empirical tests of two hypothesis derived from an open economy version of the multimarket equilibrium model the first hypothesis holds that the conditional relative price variance is positively related to the variance of domestic monetary and foreign nominal and real shocks the second hypothesis claims a negative impact of an increase in conditional relative price variance on normal output in contrast to earlier studies the authors use direct measures of conditional relative price variance based on arch estimates the authors results show that both hypotheses are consistent with german data copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the mystique surrounding the central bank s balance sheet applied to the european crisis abstract a central bank s resource constraint bounds the dividends it can distribute by the present value of seignorage which is a modest share of gdp this is in spite of the mystique behind a central bank s balance sheet moreover the statutes of the federal reserve or the ecb make it difficult for it to redistribute resources across regions in a simple model of sovereign default where multiple equilibria arise if debt repudiation lowers fiscal surpluses the central bank may help to select one equilibrium the central bank s main lever over fundamentals is to raise inflation but otherwise the balance sheet gives it little leeway

globalization of production insights from the hard disk drive industry abstract rapid change in the geographical location of production raises important questions regarding the welfare development potential and competitive position of different countries and regions this paper explores in detail the geography of economic activity in a specific industry the hard disk drive hdd component of the computer industry firms in the hdd industry are breaking the production system into ever smaller distinct steps and spreading the physical location of these steps around the world firms from the united states dominate the industry our findings suggest that globalization has enabled us firms to sustain their dominant position in the industry preserve employment in the united states and possibly expand it and increase employment worldwide most notably in southeast asia

co2 emissions per value added in exports of china a comparison with usa based on generalized logarithmic mean divisia index decomposition abstract this study first analyzes co 2 emissions per value added epv in exports of china during 1995 2009 and compares it with that of usa second a generalized logarithmic mean divisia index glmdi method is proposed to decompose the epv gaps between china and usa into five effects this method generalizes existing lmdi methods and makes the multiplicative decomposition of a sum of several terms possible then attribution analysis on value added coefficient effect is conducted results show that aggregate epv of china s exports is 4 20 mt billion us dollars in 1995 which decreases to 2 48 in 2009 for usa it is 0 66 0 33 respectively epv of china s exports is several times greater than that of usa at sectoral level industrial sectors and transport sectors are top sectors with large epv in china s exports which corresponds to the case of usa epv gaps of the service sectors between china and usa have become increasingly prominent since 2000 decomposition results show that emission coefficients value added coefficients and input output structure are the main driving factors of the expanding epv gaps between china and usa attribution analysis on value added coefficient effect the fastest growing effect shows that electrical and optical sector has been the largest contributor to epv gaps between china and usa resulting from value added coefficient effect since 1998 and its effect sharply increases during 1995 2009 policy implications derived are finally discussed

how does a devaluation affect the current account abstract this paper explores how an exchange rate devaluation affects the current account in a sticky price inter temporal optimizing model the main issue addressed is how the features of international pricing affect the response of the current account when prices are all set in the producer s currencies the effect of a devaluation on the current account depends on the conventional marshall lerner conditions this is fundamentally an a temporal condition depending on the elasticity of substitution between home and foreign goods however when prices are all set in consumer s currencies the response of the current account depends upon the size of the inter temporal elasticity of substitution of consumption across time periods this represents an inter temporal condition when pricing to market is partial the effect of devaluation on the current account depends on the strength of the a temporal elasticity relative to the inter temporal elasticity

is extending compulsory schooling alone enough to raise earnings evidence from french and british compulsory schooling laws in this paper i compare two reforms that raised the minimum school leaving age to 16 in france 1967 and in england and wales 1972 using a regression discontinuity design i find that while the reform in england and wales led to a 6 7 percent increase in hourly wages per additional year of compulsory schooling the impact of the change to french law was close to zero the results suggest that the major difference between the two reforms was that the fraction of individuals holding no qualifications dropped sharply after the introduction of the new minimum school leaving age in england and wales whereas it remained unchanged in france

labour market consequences of a high school diploma this article compares the labour market outcomes of high school dropouts to high school graduates who did not enrol into higher education but immediately entered the labour market using parental

the new open economy macroeconomics a survey since the 1995 publication of obsteld and rogoff s redux model there has been an outpouring of research on open economy dynamic general equilibrium models that incorporate imperfect competition and nominal rigidities this paper offers an interim survey of this recent literature 2001 elsevier science b v all rights reserved

the effect of education on crime evidence from prison inmates arrests and self reports we estimate the effect of high school graduation on participation in criminal activity accounting for endogeneity of schooling we begin by analyzing the effect of high school graduation on incarceration using census data instrumental variable estimates using changes in state compulsory attendance laws as an instrument for high school graduation uncover a significant reduction in incarceration for both blacks and whites when estimating the impact of high school graduation only ols and iv estimators estimate different weighted sums of the impact of each schooling progression on the probability of incarceration we clarify the relationship between ols and iv estimates and show that the weights placed on the impact of each schooling progression can explain differences in the estimates overall the estimates suggest that completing high school reduces the probability of incarceration by about 76 percentage points for whites and 3 4 percentage points for blacks we corroborate these findings using fbi data on arrests that distinguish among different types of crimes the biggest impacts of graduation are associated with murder assault and motor vehicle theft we also examine the effect of drop out on self reported crime in the nlsy and find that our estimates for imprisonment and arrest are caused by changes in criminal behavior and not educational differences in the probability of arrest or incarceration conditional on crime we estimate that the externality of education is about 14 26 of the private return to schooling suggesting that a significant part of the social return to education comes in the form of externalities from crime reduction

the product space revisited china s trade profile the concept of product space has encountered broad interest within the development community as an analytical tool against which to assess countries potential to diversify their production and export structures it has received far less attention in the economics literature and its assumptions and building blocks have not been put under scrutiny this paper assesses whether exclusive reliance on export data in product space analysis may limit its value as a tool assessing country capabilities reliance on net trade flows to account for horizontal intra industry trade and on unit values to capture within product differentiation changes the features of the product space based on a highly detailed data set of both trade value and volume and spanning over 144 countries the amended product space put forth in this paper shows that china has indeed expanded its trade profile to now occupy also product areas that are typically associated with higher income countries however china s remarkable success in expanding horizontally within the product space is strongly qualified by the introduction of the vertical dimension which shows the country to be occupying mostly the low unit value segment of product categories more akin to the typical trade profile of a developing country

capabilities structure agency and evolution this paper examines conceptual issues and reviews empirical results bearing on the relationship between research approaches emphasizing organizational capabilities and those based in transaction cost economics tce or in organizational economics more generally following a review of conceptual fundamentals what capability is and why organizations differ in capability it assesses recent progress toward an integration of the capabilities and transaction cost approaches primarily in the context of the analysis of vertical structure and related phenomena this review suggests that progress has been substantial and that the key elements of a promising dynamic synthesis have been identified the paper then considers issues that call for attention if further progress is to be achieved the first of these is the role of agency which must be seen in expansive terms relative to standard economic rationality if its evolutionary significance is to be fully appreciated the second is the role of structure or more specifically industry architecture which affects capability development by way of its effect on the feedback that firms receive after drawing on the recent financial crisis for an illustration of these ideas this paper considers the rise of interest in business models as a useful field of application and it concludes with a discussion of the role of organizational economics beyond tce we argue that whatever the theoretical perspective at the level of the firm analyses must reach beyond that level to grasp the important causal forces affecting capability development firm boundaries and structural features more generally

estimating average and local average treatment effects of education when compulsory schooling laws really matter the change to the minimum school leaving age in the united kingdom from 14 to 15 had a powerful and immediate effect that redirected almost half the population of 14 year olds in the mid twentieth century to stay in school for one more year the magnitude of this impact provides a rare opportunity to a estimate local average treatment effects late of high school that come close to population average treatment effects ate and b estimate returns to education using a regression discontinuity design instead of previous estimates that rely on difference in differences methodology or relatively weak instruments comparing late estimates for the united states and canada where very few students were affected by compulsory school laws to the united kingdom estimates provides a test as to whether instrumental variables iv returns to schooling often exceed ordinary least squares ols because gains are high only for small and peculiar groups among the more general population i find instead that the benefits from compulsory schooling are very large whether these laws have an impact on a majority or minority of those exposed

capital flight to germany two alternative measures abstract we use two measures to study two capital flight channels for germany one measure is based on the concept of trade misinvoicing and one on net claims and liabilities in the eurosystem of central banks for both measures we propose refinements to enhance the assessment of capital flight we find that capital flight towards germany via these two channels has been quite sizable in the recent decade and can tally to about 2 of gdp annually regarding their determinants we show that the two capital flight measures are driven by both common and measure specific factors traditional determinants such as covered interest differentials only play a limited role while crisis specific factors such as economic policy uncertainty the ecb collateral policy as well as currency misalignment are driving factors of the investors apparent flight to safety behavior

federal monetary policy what is the optimal institutional structure for a federal central bank the framework developed in this paper is used to analyze under what conditions an individual region will prefer a monetary union to be organized according to regional or common influences and how a combination of both can be rationalized the implications of an enlargement of a monetary union for changes in its institutional setup are also derived