growth and unemployment this paper analyses the effects of growth on long run unemployment using a search model of equilibrium unemployment where growth arises explicitly from the introduction of new technologies that require labour reallocation for their implementation the analysis uncovers and compares between two competing effects of growth on unemployment the first is a capitalisation effect whereby an increase in growth raises the capitalised returns from creating jobs and consequently reduces the equilibrium rate of unemployment the second is a creative destruction effect whereby an increase in growth reduces the duration of a job match thereby raising the equilibrium level of unemployment both directly by raising the job separation rate and indirectly by discouraging the creation of job vacancies this paper asks the question of how the rate of economic growth affects unemployment in the long run the main consideration that leads us to think that this is an interesting question has to do with the re allocative aspect of growth in the long run faster economic growth must come from a faster increase in knowledge to the extent that the advancement of knowledge is embodied in industrial innovations it is likely to raise the job destruction rate through automation skill obsolescence and the bankruptcy associated with the process of creative destruction in short increased growth is likely to produce an increased rate of job turnover and the search theories of lucas and prescott 1974 and pissarides 1990 imply that an increased rate of job turnover will result in a higher natural rate of unemployment this conclusion is also consistent with the empirical results of davis and haltiwanger 1990 which show that periods of high unemployment tend to be periods of high job turnover at the establishment level it suggests the possibility of a positive longrun tradeoff between growth and unemployment at least over some range there has been relatively little attention paid to our question in the literature on longrun determinants of unemployment for example the recent empirical examination by layard nickell and jackman 1991 of unemployment rates among oecd countries did not even consider the rate of economic growth as a possible explanatory variable this is consistent with the seminal theoretical work of phelps 1968 which implies that the natural rate of unemployment is independent of the rate of productivity growth the only

unemployment growth and taxation in industrial countries unemployeement and taxes do taxes affect the rate of umemployeement to the layman the upward trend in european unemployment is related to the slowdown of economic growth we argue that the layman s view is correct the increase in european unemployment and the slowdown in economic growth are related because they stem from a common cause an excessively rapid growth in the cost of labour in europe labour costs have gone up for many reasons but one is particularly easy to identify higher taxes on labour if wages are set by strong and decentralized trade unions an increase in labour taxes is shifted onto higher real wages this has two effects first it reduces labour demand and thus creates unemployment secondly as firms substitute capital for labour the marginal product of capital falls over long periods of time this in turn diminishes the incentive to invest and to grow the data strongly support this view according to our estimates the observed rise of 14 percentage points in labour tax rates between 1965 and 1995 in the eu could account for a rise in eu unemployment of roughly 4 percentage points a reduction of the investment share of output of about 3 percentage points and a growth slowdown of about 0 4 percentage points a year francesco daveri and guido tabellini

heterogeneity and volatility puzzles in international finance we develop an equilibrium model in a 2 country 2 good pure exchange economy in which investors with logarithmic utility functions have heterogeneous beliefs about exogenously given output or endowment processes we obtain closed form representations of real ex change rates and of stock prices we show that heterogeneous beliefs together with hetero geneous preferences make the volatility of real exchange rates and of stocks exhibit some properties that have been well documented in the empirical literature these properties include the high volatility of both real exchange rates and stocks compared with that of economic fundamentals the high correlation of stocks during periods of volatile markets the model can also generate the clustering of the volatility of foreign exchange rates and stocks if the differences of beliefs are clustering

trying to explain home bias in equities and consumption investors hold a substantially larger proportion of their wealth portfolios in domestic assets than standard portfolio theory would suggest a phenomenon called equity home bias in the absence of this bias investors would optimally diversify domestic output risk using foreign equities therefore consumption growth rates would tend to co move across countries even when output growth rates do not empirically however consumption growth rates tend to have a lower correlation across countries than do output growth rates a phenomenon i call consumption home bias in this paper i discuss these two biases and their potential relationship as suggested by the literature

technological progress downsizing and unemployment this paper presents a model where the form of innovations is endogenous it is shown that with labour market imperfections which raise the wage above the shadow price of labour firms over invest in innovations cutting labour costs and under invest in increasing quality as a result the market outcome features lower long run growth higher unemployment and lower welfare than the social optimum it is further shown that a firm s incentives to cut labour costs are increased as wages rise and as the firm declines finally a rise in competition increases incentives to downsize for firms with below average quality performance

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

unemployment and productivity in the long run the role of macroeconomic volatility abstract this paper presents a new empirical regularity between the volatility of productivity growth and long run unemployment for a given level of long run productivity growth a theoretical framework based on asymmetric real wage rigidities is shown to have the potential to rationalize this finding the model tends to fit u s long run unemployment better than a specification based on long run productivity growth only especially during the great moderation and the great recession

determinants of long run unemployment this paper investigates the determinants of long run unemployment and growth by extending the endogenous growth model of howitt and aghion 1998 to allow for a more general treatment of the labor market in the spirit of pissarides 1990 we find that i both long run growth and unemployment depend not only on factors that affect long run growth as identified in endogenous growth models with full employment but also on certain labor market parameters ii long run unemployment may rise or fall with growth depending on the model s parameters and iii though government policies that promote growth indirectly through improvement in labor market efficiency always reduce the long run unemployment rate policies that directly encourage investment in research and development may increase the unemployment rate

does the stock market predict real activity time series evidence from the g 7 countries this paper extends one aspect of the us stock market study of fama 1990 and schwert 1990 we examine the relationship between industrial production ip growth rates and lagged real stock returns for the g 7 countries using both in sample cointegration and error correction models and the out of sample forecast evaluation procedure of ashley et al 1980 the cointegration tests show a long run equilibrium relationship between the log levels of ip and real stock prices while the error correction models indicate a correlation between ip growth and lagged real stock returns for all countries except italy the out of sample tests show that in several sub periods the us uk japanese and canadian stock markets enhance predictions of future ip 1999 elsevier science b v all rights reserved

economic integration and the comovement of stock returns abstract we analyze how economic integration affects the cross country comovements in stock returns in developed and emerging markets bilateral trade intensity increases the correlation of returns while real exchange rate volatility the asymmetry of output growth and export dissimilarity decrease it

a new approach to measuring financial contagion this article proposes a new approach to evaluate contagion in financial markets our measure of contagion captures the coincidence of extreme return shocks across countries within a region and across regions we characterize the extent of contagion its economic significance and its determinants using a multinomial logistic regression model applying our approach to daily returns of emerging markets during the 1990s we find that contagion is predictable and depends on regional interest rates exchange rate changes and conditional stock return volatility evidence that contagion is stronger for extreme negative returns than for extreme positive returns is mixed

common stochastic trends in international stock markets abstract this paper presents evidence concerning the number of common stochastic trends in the equity markets of the u s japan england germany and canada monthly and quarterly data from january 1974 through august 1990 on morgan stanley s capital international indices are used to compute johansen 1990 tests for common trends the results indicate the presence of a single common trend driving these countries stock markets estimates of the factor loadings suggest that this trend is most important in the japanese market and least important in the canadian market to interpret this evidence the paper demonstrates that under weak conditions the unit root and cointegration structure of stock prices should mirror the unit root and cointegration structure of their dividend payments the paper tests this prediction by constructing national dividend series from capital international s dividend yield data as well as by using gnp data as with stock prices the evidence points to a single common trend although the stochastic properties and relative importance of this trend differs somewhat from the trend in stock prices

technology shocks and job flows we consider a version of the solow growth model where technological progress can be investment specific or investment neutral the labour market is subject to search frictions and the existing productive units may fail to adopt the most recent technological advances technological progress can lead to the destruction of technologically obsolete jobs and cause unemployment we calibrate the model to replicate the high persistence that characterizes the dynamics of firms neutral technology and the frequency of firms capital adjustment we find that neutral technological advances increase job destruction and job reallocation and reduce aggregate employment investment specific technological advances reduce job destruction have mild effects on job creation and are expansionary hence neutral technological progress prompts schumpeterian creative destruction while investment specific technological progress operates essentially as in the standard neoclassical growth model using structural var models we provide support to the key dynamic implications of the model copyright 2007 wiley blackwell

the dynamics of technological unemployment this article compares the short and long run effects of technological progress on employment it presents a simple model of frictional unemployment capturing the negative creative destruction effects of technological change on employment in the long run faster technological change accelerates job obsolescence which reduces the equilibrium level of employment but it is also shown to have short run positive and potentially important effects on employment this tends to partially reconcile the schumpeterian view of the effects of technological change on labor markets with facts such as the response of most oecd unemployment rates to the 1970s productivity slowdown

the role of portfolio constraints in the international propagation of shocks we study the comovement among stock prices and exchange rates in a three good three country centre periphery dynamic equilibrium model in which the centre s agents face portfolio constraints we characterize equilibrium in closed form for a broad class of portfolio constraints solving for stock prices terms of trade and portfolio holdings we show that portfolio constraints generate wealth transfers between the periphery countries and the centre which increase the comovement of the stock prices across the periphery we associate this excess comovement caused by portfolio constraints with the phenomenon known as contagion the model generates predictions consistent with other important empirical results such as amplification and flight to quality effects copyright 2008 wiley blackwell

measuring world business cycles using kalman filtering and dynamic factor analysis the authors decompose aggregate output consumption and investment for the g7 countries into factors that are 1 common across all countries and aggregates 2 common across aggregates within a country and 3 specific to each individual aggregate in quarterly data for the period 1970 through 1993 fluctuations in all aggregates contain world and country specific common components that are both statistically significant and quantitatively important the authors find that the world and country specific common components play different roles in different business cycle episodes for each of the seven countries and that either may be dominant during a particular episode copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

frictional wage dispersion in search models a quantitative assessment we propose a new measure of frictional wage dispersion the mean min wage ratio for a large class of search models we show that this measure is independent of the wage offer distribution but depends on statistics of labor market turnover and on preferences under plausible preference parameterizations observed magnitudes for worker flows imply that in the basic search model and in most of its extensions frictional wage dispersion is very small notable exceptions are some of the most recent models of on the job search our new measure allows us to rationalize the diverse empirical findings in the large literature estimating structural search models

correlations in price changes and volatility across international stock markets the short run interdependence of prices and price volatility across three major international stock markets is studied daily opening and closing prices of major stock indexes for the tokyo london and new york stock markets are examined the analysis utilizes the autoregressive conditionally heteroskedastic arch family of statistical models to explore these pricing relationships evidence of price volatility spillovers from new york to tokyo london to tokyo and new york to london is observed but no price volatility spillover effects in other directions are found for the pre october 1987 period article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

explaining international stock correlations with cpi fluctuations and market volatility this paper investigates the dynamic correlations among six international stock market indices and their relationship to inflation fluctuation and market volatility the current research uses a newly developed time series model the double smooth transition conditional correlation with conditional auto regressive range dstcc carr model findings reveal that international stock correlations are significantly time varying and the evolution among them is related to cyclical fluctuations of inflation rates and stock volatility the higher lower correlations emerge between countries when both countries experience a contractionary expansionary phase or higher lower volatilities

transitional dynamics of the search model with endogenous growth abstract this paper studies the steady state and dynamics of the standard matching model allowing for endogenous capital accumulation and endogenous growth the existence and uniqueness of a balanced growth path is shown along which the relationship between unemployment and growth may not be considered clear cut the model also exhibits interesting dynamic features and suggests some kind of asymmetry in the adjustment of employment over the cycle a collection of numerical experiments finally shows that a linear approximation of the model may yield a dynamic scheme that is reasonably close to the one obtained with the nonlinear model and that this feature is very robust to changes in particular assumptions made on the specification of various functions

market constraints as a rationale for the friedman savage utility function since the classic paper by friedman and savage 1948 it has generally been accepted that the observed fact that individuals or firms participate in unfair lotteries and other forms of unfair risk taking may be explained by a section in the individual s utility function in which the individual shows risk preference rather than risk aversion in their model friedman and savage specify a utility function which is in turn concave convex and concave thus allowing for simultaneous purchase of insurance risk aversion and participation in lotteries risk preference however while their specified utility function is indeed capable of explaining observed behavior it does seem to be rather unsatisfactory in that it is an ad hoc specification it is the purpose of this paper to suggest a set of circumstances which give rise to a friedmansavage type utility function in particular it is shown that when certain capital market imperfections exist the utility function defined over intermediate wealth should be distinguished from and may have different properties than the one defined on final wealth then even if we accept the common assumption made in the literature that individuals are risk averse that is that their utility function is concave over final wealth it is still possible that they participate in unfair gambling and of course may also purchase insurance

instrument choice when regulators and firms bargain abstract we compare outcomes with an emissions tax and an emissions standard when a firm and regulator engage in cooperative bargaining over the stringency of the regulation bargaining is motivated by giving the firm a choice of abatement technologies if the firm s preferred technology differs from the regulator s the first best outcome is not an equilibrium of the traditional noncooperative game in which the regulator is a stackelberg leader the regulator may therefore choose to offer the firm a more lenient regulation if it agrees to switch technologies we find that the resulting bargaining outcomes differ for a tax and a standard even though information is symmetric and we identify conditions under which each instrument yields lower social costs

job matching and propagation in the u s labor market the vacancy unemployment ratio and employment react sluggishly to productivity shocks we show that the job matching model in its standard form cannot reproduce these patterns due to excessively rapid vacancy responses extending the model to incorporate sunk costs for vacancy creation yields highly realistic dynamics creation costs induce entrant firms to smooth the adjustment of new openings following a shock leading the stock of vacancies to react sluggishly

risk uncertainty and exchange rates this paper is motivated by two facts failure of log linear empirical exchange rate models of the 1970 s and the observed variability of risk premiums in the forward market rational maximizing models predict that changes in conditional variances of monetary policies government spendings and income growths affect risk premiums and induce conditional volatility of exchange rates i examine theoretically how changes in these exogenous conditional variances affect the level of the current exchange rate and attempt to quantify the extent that this channel explains exchange rate volatility using autoregressive conditional heteroscedastic models

indivisible labor lotteries and equilibrium abstract this paper considers an economy where labor is indivisible and agents are identical although the discontinuity in labor supply at the individual level disappears as a result of aggregation it is shown that indivisible labor has strong consequences for the aggregate bahavior of the economy it is also shown that optimal allocations involve lotteries over employment and consumption

unemployment in britain male unemployment in britain has risen from around 2 per cent in the 1950s to around 17 per cent in 1985 see figure 1 the figures are for male unemployment because there is no consistent series for women 1 even more remarkably unemployment has fallen in only three years out of the last twenty 1973 1978 and 1979 to account for this we need a model that explains both changes in the natural or non accelerating inflation rate of unemployment nairu and deviations from it we use a three equation supply side model centred on the labour market this has two main features the first concerns the determination of employment in the short run the labour demand function that we use cuts through the fruitless debate now raging especially in europe as to whether current unemployment is classical or keynesian according to the classical view employment is too high because real wages are too high according to the keynesian view real wages are not binding and unemployment is high because the product market does not clear with prices too high relative to nominal demand the whole debate is set in the framework of perfect competition yet in perfect competition prices are set by impersonal forces and it is not clear what could possibly stop prices clearing the market it is much more reasonable to think of prices as being set by imperfectly competitive firms existing prices being the best they can think of given the demand they face in this context firms demand for labour will depend on both the real product wage and the level of real aggregate demand this is the demand function we estimate and it conforms both to common sense and to the data however this does not imply that employment can be made to grow without limit by pumping up real demand for in the medium term when price surprises are eliminated our model determines three variables employment real wages and real demand on the basis of three equations an employment equation a price equation and a wage equation thus in the medium term there is a natural level of employment and corresponding to this a natural level of real aggregate demand the second key feature of our model concerns the medium term determination of unemployment in the medium term the planned mark up of wages over prices in wage settlements must be consistent with the mark up of prices over wage costs in employers pricing behaviour for if wage setters try to set real product wages higher than is consistent with employers pricing behaviour this generates ever increasing inflation thus the key to understanding unemployment in the medium term is the behaviour of wage setters if events occur that push them towards too high real wages then unemployment has to rise to offset these influences we shall call these influences wage pressure variables or push factors and they are clearly crucial in understanding unemployment the variables here include the social security system employment protection

unemployment dynamics in britain we examine the inter related dynamics of the unemployment flows and stock our model allows them to be linked through the standard accounting identity but also through behavioural relationships we find that for the uk the bulk of the correlation between duration and the unemployment stock arises from the dependence of duration on unemployment taking careful account of the inter temporal identity outflow shocks have contributed little to the evolution of unemployment since the late 1960s given that the correlation of duration and unemployment arises from the behavioural relationship we show that unemployment dynamics arise mostly from shocks to the inflow unemployment remains one of europe s more pressing economic and social problems as highlighted in the eu s lisbon declaration of 2000 a dynamic approach to unemployment starts from the recognition that unemployment is a stock and changes through shocks to the outflow and inflow the research and policy focus has generally been on the outflow process or equivalently unemployment duration a glance at figure 1 shows why this might be so it reveals a very strong co movement of the unemployment rate and the proportion of the unemployed out of work for a year or more analysts have used data like this to argue that the source of unemployment fluctuations has been changes in the outflow process 1 possibly as a consequence of this most policies directed at reducing unemployment focus on improving the search effectiveness and employability of the currently unemployed the unemployment flows and stock are related in quite complex ways and in this paper we focus on these inter related dynamics the model we use allows them to be linked in two ways first there is the simple accounting relationship whereby shocks to the flows accumulate in the stock second search and matching models suggest behavioural relationships of the flows depending on unemployment the presence of the nonlinear accounting identity in the model makes the analysis of the joint system problematic so we proceed sequentially investigating first one link and then the other we find that for the uk the bulk of the correlation between duration and the unemployment stock displayed in figure 1 arises from the dependence of the former on the latter we find a strong dependence of the outflow rate on unemployment taking careful account of the inter temporal identity on the other hand outflow shocks have contributed little to the evolution of unem

asset prices and exchange rates in this paper we study the implications of introducing demand shocks and trade in goods into an otherwise standard international asset pricing model trade in goods gives rise to an additional channel of international propagation through the terms of trade absent in traditional single good asset pricing models the inclusion of demand shocks helps overturn many unrealistic implications of existing international flnance models in which productivity shocks are the sole source of uncertainty our model generates a rich set of implications on how stock bond and foreign exchange markets co move we solve the model in closed form which yields a system of equations that can be readily estimated empirically our estimation validates the main predictions of the theory

sticky prices fair wages and the co movements of unemployment and labor productivity growth abstract this paper studies the co movements of unemployment and labor productivity growth for the u s economy measures of co movements in the frequency domain indicate that co movements between variables differ strongly according to the frequency first long term and business cycle co movements are larger than short term co movements second co movements are negative in the short and long run but positive over the business cycle a new keynesian model that combines nominal rigidity on the goods market sticky prices and real rigidity on the labor market fair wages is shown to be quantitatively consistent with the observed co movements both in the long term and over the business cycle however the model fails to explain the short term co movements

renewable and non renewable energy consumption and economic activities further evidence from oecd countries this article examines the dynamic relationship between renewable and non renewable energy consumption and industrial output and gdp growth in oecd countries using data over the period of 1980 2011 the panel cointegration technique allowing structural breaks is used for empirical investigation the results show that there is a long term equilibrium relationship among non renewable and renewable energy sources industrial output and economic growth the panel causality analyses show bidirectional causality between industrial output and both renewable and non renewable energy consumption in the short and long run however there is evidence of bidirectional short run relationship between gdp growth and non renewable energy consumption while unidirectional causality between gdp growth and renewable energy consumption these results indicate that oecd economies still remain energy dependent for their industrial output as well as overall economic growth however expansion of renewable energy sources is a viable solution for addressing energy security and climate change issues and gradually substituting renewable to non renewable energy sources could enhance a sustainable energy economy

a dynamic equilibrium model of imperfectly integrated financial markets abstract this paper analyzes the determination of global equity portfolios and stock returns in the context of imperfectly integrated stock markets we consider a continuous time two country endowment economy where the level of financial integration is captured by a proportional tax on foreign dividends despite the investor heterogeneity induced by this tax we obtain approximate closed form expressions for asset prices and characterize equity holdings and the joint process followed by country level stock returns in equilibrium our model is consistent with a broad range of empirical findings on international financial integration when the endogenous cross country return correlation is high small frictions in equity markets can generate a substantial home bias in portfolios in the baseline version of our model the cross country return correlation is driven by the fundamental correlation and portfolio rebalancing in a two good extension of the model the adjustment of relative good prices can generate a high stock return correlation even for a low level of fundamental correlation magnifying the impact of the financial friction on portfolios we assess the quantitative performance of the model in a calibration exercise using data from g7 countries

choosing the right instrument the role of public revenues for environmental policy this paper analyses the optimal choice of second best optimal environmental policies using a partial equilibrium model the paper first reconfirms the well known result that the existence of a double dividend in its weak definition favours environmental policy instruments which maximise tax revenues for a given improvement in environmental quality additional revenues can be used to reduce the distortion of existing taxes such as taxes on labour and capital income without uncertainty environmental taxes and auctioned permits are equally appropriate in the presence of uncertainty however the optimal choice of taxes or tradable permits depends on the relative magnitudes of the marginal environmental damage and the marginal benefit from consuming a polluting good in the second part the paper therefore analyses how the revenue capacity affects the optimal choice of environmental policy instruments in the presence of uncertainty the paper shows that the first best choice rule between price and quantity regulation weitzman 1974 remains valid in a second best world with distortionary taxation

international business cycles the authors estimate a dynamic two country model in which economic fluctuations are driven by a worldwide supply shock country specific supply shocks and relative fiscal money and preference shocks identification is achieved using only long run restrictions based on a theoretical model the main results are 1 supply shocks particularly country specific ones are very important in generating international business cycles and 2 although the post 1973 flexible exchange rate period has been inherently more volatile there are no differences in transmission properties of economic disturbances across exchange rate regimes for the endogenous variables they focus on copyright 1993 by american economic association

integration vs segmentation in the canadian stock market this paper examines the issue of integration versus segmentation of the canadian equity market relative to a global north american market we compare the international and domestic versions of the capm and find that integration or the mean variance efficiency of the global market index is rejected by the data segmentation is the preferred model based on a maximum likelihood procedure correcting for thin trading we further divide the sample into securities that are interlisted in canada and the u s and those that are not integration is rejected for both groups which indicates that the source of segmentation can be traced to legal barriers based on the nationality of issuing firms empirical studies of international capital markets have left the issue of segmentation versus integration largely unresolved yet the question of national or international pricing of assets has crucial implications for financial decisions if national stock markets are segmented then international portfolios should display superior risk adjusted performance because some of the priced domestic systematic risk is diversifiable also with segmentation many irrelevance propositions for corporate financial strategy break down home firms face optimal hedging decisions as well as optimal foreign versus home borrowing decisions finally criteria for capital budgeting decisions will be quite different under national and international pricing the purpose of this paper is to shed some light on this integration versus segmentation question for the canadian equity market vis a vis a global north american market in this paper integration is defined2 as a situation where investors earn the same risk adjusted expected return on similar financial instruments in different national markets the key problem of course is the pricing

macroeconomic shocks in a dynamized model of the natural rate of unemployment at the microeconomic level this paper revises and broadens the theory of the equilibrium rate of unemployment the natural rate in a monetary model the authors begin by recreating steven salop s turnover model of the natural rate in its naturally intertemporal version useful findings on impact effects and the adjustment process at the individual firm necessarily excluded by the static version are shown to derive from the dynamized model at the macroeconomic level the authors then provide a general equilibrium analysis of some shocks showing how they drive the equilibrium unemployment rate and in varying ways also disturb the real rate of interest copyright 1992 by american economic association

implications of keeping up with the joneses behavior for the equilibrium cross section of stock returns international evidence this paper tests the cross sectional implications of keeping up with the joneses kuj preferences in an international setting when agents have kuj preferences in the presence of undiversifiable nonfinancial wealth both world and domestic risk the idiosyncratic component of domestic wealth are priced and the equilibrium price of risk of the domestic factor is negative we use labor income as a proxy for domestic wealth and find empirical support for these predictions in terms of explaining the cross section of stock returns and the size of the pricing errors the model performs better than alternative international asset pricing models

international equity flows and returns a quantitative equilibrium approach this paper models trading by foreign and domestic investors in developed country equity markets the key assumptions are that i both the foreign and domestic investor populations contain investors of different sophistication and ii investor sophistication matters for performance in both public equity and private off market investments a quantitative model with these assumptions delivers a unified explanation for three stylized facts about us investors international equity trades that have been documented in the literature i trading by us investors occurs in bursts of simultaneous buying and selling ii americans build and unwind foreign equity positions gradually and iii us investors increase their market share in a country when stock prices there have recently been rising

global unemployment shocks in this paper we use oecd unemployment data 1960 2002 to infer the nature of shocks to unemployment using factor analysis we find that two principal components can account for a large part of the variance of unemployment between and within countries

productivity growth and the structure of the business cycle abstract over the recent years opportunity cost oc models of growth have argued that recessions are times when firms engage in productivity improving activities because of intertemporal substitu tion this paper tests whether this approach is correct the technique used to disentangle the trend from the cycle is semi structural vector autoregression the results are mildly supportive of the oc theory there tends to be a negative impact of demand shocks on productivity both in the short run and in the long run and the short run impact is stronger in those countries where fluctuations are more transitory however there is no significant response of r d to demand shocks

behind this structural boom the role of asset valuations we are in the midst of a structural boom the force of which has not been seen in this country since the 1920 s after the u s unemployment rate hit 6 percent in late 1994 following its two year recovery many experts assumed that unemployment had regained its naturalrate path the natural unemployment rate in the second half of the 1980 s had been put at around 6 5 percent in several estimates and if the trend reduction in the natural rate brought about by the continuing relative decline of high school dropouts in the labor force and those whose education stopped at the diploma is placed at 0 07 per annum it would have declined on that account to around 6 percent by 1995 phelps and gylfi zoega 1997 furthermore we saw in 1995 the end of

changing risk exposures of cross listed firms and market integration abstract a standard finding is that risk exposures of companies that cross list tend to increase against the market in which they list a change typically associated with a decline in the cost of capital however this finding is predicated on the assumption that the home and foreign market co movements are stable over time by contrast another common finding is that risk exposures across market indices have increased over time due to international market integration in this paper i ask whether the firm level findings for changing risk exposures are due to the more general changes in market co movements indeed for a panel of cross listed firms in the u s i find that 72 do not find evidence of breaks in their relationships beyond those derived from their home markets this finding suggests that the apparent increase in risk exposures for cross listed firms arises from general market integration trends moreover the remaining 28 of firms tend to have significant breaks after cross listing be younger and have home markets with lower government regulation

gambles and the shadow price of death recent papers on the value of life involve preferences of the sort introduced by milton friedman and leonard savage 1948 1 given the choice between undergoing a particular gamble in wealth and possessing the mathematical expectation of the payoffs of the gamble the consumers in these studies may prefer the gamble the presence of such risk loving preferences is inferred from two well established facts life is an indivisible commodity in the models and indivisibility leads to preference for gambles the former fact is made clear by philip cook and daniel graham the latter was first noted by yew kwang ng 1965 and is widely known in spite of the obvious connection the implications of risk loving tastes in this area have not been explored this paper examines some implications of such risk loving the idea that indivisibility produces friedman savage preferences and that such preferences create a demand for gambles is extended in section i to a theory of demand for indivisible goods and derived demand for associated optimum gambles this theory suggests that the price of an indivisible good will not compensate for possessing or not possessing the good section ii applies the demand theory to an equilibrium model of labor supply that is relevant to the determination of the value of life in this model the wage diflerential is useful in guiding policy toward public risks in spite of the fact that the differential is not compensating i demand for gambles and demand for goods

are correlations of stock returns justified by subsequent changes in national outputs abstract in an integrated world capital market the same pricing kernel is applicable to all securities we apply this idea to the stock returns of different countries we investigate the underlying determinants of cross country stock return correlations first we determine for a given measured degree of commonality of country outputs what should be the degree of correlation of national stock returns we propose a framework that contains a statistical model for output and an intertemporal financial market model for stock returns we then attempt to match the correlations generated by the model with measured correlations our results show that under the hypothesis of market segmentation the model correlations are much smaller than observed correlations however assuming world markets are integrated our model correlations can be matched with observed correlations

growth wealth and the natural rate is europe s jobs crisis a growth crisis abstract the effect of faster technical progress is studied in our labour turnover model of the natual rate of unemployment in its closed economy version the model implies that in the limit as the steady growth rate is approached the increase in the rate of progress is neutral for the natural unemployment rate its effects are completely offset by the equal increase in the rate of interest it induces however of two small open economies having the same technology level at some date the one where technical progress has always been and always will be faster will have the lower wealth relative to its wage and a lower wage rate relative to future wage rates both effects operate to reduce the natural rate of unemployment whether this theory based hypothesis will be confirmed empirically is a question needing extensive study but a quick comparison of the g7 countries confirms that the proportionate increase of the unemployment rate in recent decades tended to be greater the more pronounced the productivity slowdown

search unemployment and growth we develop a model to study the effects of changes in the size of technological innovations upon search and waiting time unemployment when search is costly and shocks are positively autocorrelated we find that increases in the size of innovations increase steady state search decrease steady state waiting time unemployment and decrease total unemployment

causes of the current stagflation since 1975 labour slack has been unusually high in the oecd countries and yet inflation has not diminished the less favourable mix of unemployment and rate of change of inflation which we call stagflation is explained by a fall in the feasible rate of growth of real wages unmatched by a reduction in the constant term in phillips curve to investigate this mechanism conventional wage and price equations are estimated for 19 countries and then used for simulation stagflation has been caused in roughly equal amounts by rising relative import prices and by the fall in the rate of productivity growth in the basic model the phillips curve is assumed not to adapt to falls in feasible real wage growth but in a final section an adaptive wage equation is estimated which confirms that the process of adaptation is slow

international co movements of real and financial economic variables this study presents a first attempt at investigating whether the international co movements of real economic activity conform to the same international co movements of financial activity this study tests the international co movements of real economic activity on the one hand and financial variables such as stock returns interest rates inflation rates and risk premiums on the other hand we employ a dynamic correlation model on data from oecd countries for the period 1980 2010 our findings demonstrate that international stock markets co react in accordance with the underlying international economic forces we also document three other results first the correlation among countries with respect to real economic activity is statistically positive but the level of this correlation is lower than that of financial variables second there is a significant increase over time in the international correlation level with respect to the financial variables finally the creation of the euro monetary union

fixed cost of work and the demand for lotteries abstract a fixed cost of work is sufficient to induce risk averse individuals who obey the expected utility hypothesis to demand lotteries the critical assumption needed to generate this demand is that leisure is a normal good

global market integration an alternative measure and its application global markets seem to be increasingly integrated but there is no well accepted measure of integration we show that the correlation across markets is a poor measure perfectly integrated markets can exhibit weak correlation we derive a new integration measure based on the explanatory power of a multi factor model and use it empirically to investigate recent trends in global integration for most countries there has been a marked increase in measured integration over the past three decades but this is not indicated by correlations among country indexes

risk sharing and counter cyclical variation in market correlations abstract i present a consumption based dynamic asset pricing model in which international market correlations vary counter cyclically over time the driving force in the model is the time varying effective risk aversion induced by external habit formation market returns are driven by fundamental outputs and discount rates when risk aversion is high the effect of discount rates on market returns rises with the market price of risk to the extent that countries share risk the cross country correlation of discount rates exceeds the cross country correlation of fundamental outputs in bad times market correlations rise as returns are mostly driven by discount rates thus consistent with the empirical evidence periods of high risk aversion are associated with high market correlations and high market volatility after calibration my model is consistent with the observed variation in market correlations as well as other features of asset prices including the equity premium and market volatility

unemployment and growth some empirical evidence from structural time series models this study investigates the empirical relationship between unemployment and growth in a number of oecd economies a structural time series model is used for labour productivity growth to demonstrate that in most economies there seems to be a negative correlation between unemployment and labour productivity growth the results provide little support for the theory that recessions may stimulate productivity growth the use of a structural time series approach allows an attempt to model the underlying dynamics of productivity growth jointly with the effect of unemployment

unemployment insurance and the business cycle what adjustments are needed author affiliation jeremy schwartz loyola university maryland department of economics 4501 north charles street sellinger 315 baltimore md 21210 usa e mail jsschwartz1 loyola edu acknowledgment i wish to thank donald parsons kerry richmond tara sinclair roberto samaniego and anthony yezer for their helpful comments and discussions regarding this article 1 introductionin most developed countries unemployment insurance ui is a static program that remains constant regardless of labor market conditions the united states along with canada are the only oecd countries that routinely adjust the generosity of their ui programs with the business cycle for instance during the 2007 2011 labor market downturn the length of time that ui benefits could be collected in the united states increased to an unprecedented 99 weeks from the standard 26 weeks available under normal economic conditions and the weekly benefit amount increased by 25 from an insurance perspective losing one s job during a recession is a greater loss than during an expansion and consequently a greater benefit may be appropriate however it is also known that increasing ui generosity has a negative effect on job search intensity and puts upward pressure on wages leading to lower job creation given these benefits and costs i seek to answer the following questions what structure of benefits over the business cycle is welfare maximizing is the current policy of increasing the generosity of ui during recessions optimal to accomplish this i develop a dynamic search model of the u s labor market which connects two parts of the optimal ui literature the first takes a partial equilibrium approach to determine the optimal adjustments to ui when job finding rates fall but does not consider ui s impact on job creation the second endogenizes job creation but does not address how the benefit system should adjust with the business cycle the model i present is unique in that it allows for both similar to studies that use the partial equilibrium approach one of the main factors driving the optimal ui program in this article is the moral hazard problem that arises from the inability to monitor the unemployed s job search shavell and weiss s 1979 seminal work shows that a sequence of ui benefits that declines with the length of unemployment provides the necessary incentives to encourage job search when the government s objective is to maximize welfare subject to a fixed budget although not explicitly modeling firm behavior hansen and imrohoroglu 1992 allow the ui budget to be endogenously determined similar to this article the authors also frame the moral hazard problem in terms of the government s inability to monitor rejections of job offers as well as allow for private savings they find that the optimal replacement rate is quite low just 0 15 in their baseline moral hazard case hopenhayn and nicolini 1997 focus on unobservable search intensity and develop a widely used recursive contract approach to determine the cost minimizing ui benefit schedule and employment tax where the policy parameters are contingent on an individual s complete work history a benefit amount that declines during one s unemployment spell and a subsequent employment tax that increases with the length of unemployment is optimal and results in utility falling continuously during unemployment pavoni 2007 extends this approach by including a guaranteed lower bound on utility which results in an optimal benefit schedule that falls sharply and includes a one time drop in benefits to a subsistence level alvarez parra and sanchez 2009 explicitly model this lower bound by including a hidden labor market where workers can continue to receive ui benefits undetected in this study the optimal benefit schedule falls slowly at first to ensure workers search in the formal sector and then falls sharply to zero allowing workers to derive consumption from the informal sector

growth and unemployment short run and long run tradeoffs abstract we consider the role of search unemployment and wage bargaining in determining the relationship between growth and unemployment while the long run tradeoffs between unemployment and growth are weak the short run tradeoffs are much stronger their comovement varies along the transitional path and depends upon the underlying structural change the consequences of the growth unemployment nexus for fiscal policy are addressed the analysis provides insights into the debate regarding the appropriate fiscal policy in light of the increased debt following the initial response to the recent financial crisis our analysis strongly supports an increase in government investment as the appropriate fiscal policy

economic integration and country allocation in europe the impact of european integration at the company and macro levels on correlations between stock market returns is analyzed a new procedure based on randomization methodology is introduced to test for the absence of country systematic differences in the return patterns of two stock markets the results indicate that stock market integration in europe is not yet complete but the comovement of european markets has increased substantially and is likely to continue to grow therefore top down managers of european equity portfolios need to look for a new strategy other than country based allocation

the impact of tfp growth on steady state unemployment theoretical predictions of the impact of total factor productivity tfp growth on unemployment are ambiguous and depend on the extent to which new technology is embodied in new jobs we evaluate a model with embodied and disembodied technology capitalization and creative destruction effects in econometric estimates with a panel of industrial countries we find a large negative impact of tfp growth on unemployment which implies that embodied technology and creative destruction play no role in the steady state dynamics of unemployment capitalization effects explain some of the estimated impact but a part remains unexplained

can productivity growth explain the nairu long run evidence from britain 1871 1999 this paper investigates the effect of productivity growth on the non accelerating inflation rate of unemployment nairu over the long run using historically consistent time series for the uk from 1871 to 1999 a two equation model of unemployment and wage setting that incorporates productivity effects is estimated over the whole period allowing for shifts associated with changes in labour market institutions the results indicate that faster productivity growth reduces the nairu but that this goes only part of the way towards explaining wide swings in average unemployment across the decades

productivity growth on the job search and unemployment abstract the impact of long run productivity growth on unemployment is studied we incorporate disembodied technological progress and on the job search into the endogenous job separation model of mortensen and pissarides 1994 because we include on the job search faster growth reduces unemployment by decreasing job separation and inducing job creation the incorporation of on the job search substantially improves the ability of the mortensen and pissarides model to explain the effect of growth on labor market variables specifically our model generates not only an empirically consistent sign of the effect but also a larger impact of growth on unemployment than the standard matching model

financial entanglement a theory of incomplete integration leverage crashes and contagion abstract we propose a unified model of limited market integration asset price determination leveraging and contagion investors and firms are located on a circle and access to markets involves participation costs that increase with distance due to a complementarity between participation and leverage decisions the equilibrium may exhibit diverse leverage and participation choices across investors although investors are ex ante identical small changes in market access costs can cause a change in the type of equilibrium leading to discontinuous price changes deleveraging and portfolio flow reversals moreover the market is subject to contagion an adverse shock to investors in some locations affects prices everywhere jel d83 g11 g12 g32 g35

capital controls and international capital market segmentation the evidence from the japanese and american stock markets the paper focuses on two countries japan and the u s to test the integration of capital markets in japan the enactment of the foreign exchange and foreign trade control law in december of 1980 amounted to a true regime switch that virtually eliminated capital controls using multifactor asset pricing models we show that the price of risk in the u s and japanese stock markets was different before but not after the liberalization this evidence supports the view that governments are the source of international capital market segmentation the notion that world capital markets are perfectly integrated is central to most theoretical developments in both international finance and macroeconomics indeed it also lies behind much of the recent international policy discussion capital markets are integrated if assets with perfectly correlated rates of return have the same price regardless of the location in which they are traded 1 segmentation may arise either because of government impediments to capital movements or because of individuals attitudes or irrationality if the hypothesis that the international capital markets are integrated is rejected there is still an important empirical question left unanswered which is related to the source of segmentation while there is a rich body of theoretical research on international market integration only a few studies have tried to investigate this important question empirically a first group of empirical studies on market integration has generally adopted

optimal unemployment insurance with monitoring and sanctions this article analyses the design of optimal unemployment insurance in a search equilibrium framework where search effort among the unemployed is not perfectly observable we examine to what extent the optimal policy involves monitoring of search effort and benefit sanctions if observed search is deemed insufficient we find that introducing monitoring and sanctions represents a welfare improvement for reasonable estimates of monitoring costs this conclusion holds both relative to a system featuring indefinite payments of benefits and a system with a time limit on unemployment benefit receipt

distribution and growth in an economy with limited needs variable markups and the end of work this article studies a model of the distribution of income under bounded needs utility derived from any given is bounded from above and demand is therefore not isoelastic on the other hand introducing new varieties always increases utility it is assumed that each variety is owned by a monopoly workers can specialise in material goods production or in the knowledge sector which designs new varieties as productivity increases the economy moves from a solovian zone where wages increase with productivity to a marxian zone where they paradoxically decline with productivity

european financial market dependence an industry analysis this paper uses a copula model to investigate the degree and determinants of european market dependence across 10 industries in 12 euro zone and 8 non euro zone stock markets during the period 1992 2011 most of the industries in euro countries show a dependence increase with the euro area after the introduction of the euro the effects are strongest in countries with larger market capitalization and in the financials industrials consumer goods utilities technology and telecommunications industries overall the export intensity interest rate sensitivity and competitiveness of an industry and the financial development and economic openness of a country are the most important determinants of changes in equity market dependence the period around the lehman collapse also shows higher equity market dependence between european countries while the lower dependence increase during the period of the recent european sovereign debt crisis suggests that country specific factors may matter more than before

why do markets move together an investigation of u s japan stock return comovements this article explores the fundamental factors that affect cross country stock return correlations using transactions data from 1988 to 1992 we construct overnight and intraday returns for a portfolio of japanese stocks using their nyse traded american depository receipts adrs and a matched sample portfolio of u s stocks we find that u s macroeconomic announcements shocks to the yen dollar foreign exchange rate and treasury bill returns and industry effects have no measurable influence on u s and japanese return correlations however large shocks to broadbased market indices nikkei stock average and standard and poor s 500 stock index positively impact both the magnitude and persistence of the return correlations stock return cross country covariances play a key role in international finance changes in these covariances affect the volatility of portfolios and asset prices as these covariances increase one expects that a fewer domestic risks are internationally diversifiable so portfolio volatility increases b the risk premium on the world market portfolio increases 1 c the cost of capital increases for individual firms and d the domestic version of the capm becomes increasingly inadequate 2 despite the important economic consequences of changes in cross country covariances the determinants of the levels and dynamics of these covariances have been little studied from an academic

growth unemployment and labor market policy the role of passive labor market policy as a possible reason for the run up in relative unemployment rates in europe in the 1980s has been extensively studied more recently the focus have shifted to lagging growth rates in europe the lisbon strategy reflects these concerns by calling for reforms that ease market access promote flexible labor markets and simplify taxes and market regulation the principal purpose of this paper is to build a simple model in which the possible effects of payroll taxes and employment protection policies on both unemployment and growth can be studied the model is constructed of off the shelf parts found in the literatures on equilibrium unemployment and endogenous growth of the schumpeterian variety the model identifies channels though which both taxes and employment protection mandates can adversely affect growth though innovation jel e24 o40 j64 o31

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite