a comparison of economic agent based model calibration methods abstract despite significant expansion in recent years the literature on quantitative and data driven approaches to economic agent based model validation and calibration consists primarily of studies that have focused on the introduction of new calibration methods that are neither benchmarked against existing alternatives nor rigorously tested in terms of the quality of the estimates they produce in response we compare a number of prominent agent based model calibration methods both established and novel through a series of computational experiments in an attempt to determine the respective strengths and weaknesses of each approach overall we find that a simple likelihood based approach to bayesian estimation consistently outperforms several members of the more popular class of simulated minimum distance methods and results in reasonable parameter estimates in many contexts with a degradation in performance observed only when considering a large scale model and attempting to fit a substantial number of its parameters

common trends the government s budget constraint and revenue smoothing abstract the requirement that the government s budget be balanced in present value terms is shown to be equivalent to the condition that government expenditures inclusive of interest tax receipts and seignorage be cointegrated the condition is in fact stronger requiring that the deficit inclusive of interest be stationary stationarity of the net of interest deficit is neither necessary nor sufficient for intertemporal budget balance however it does have implications for barro s tax smoothing hypothesis data for the period 1890 1986 are consistent with intertemporal budget balance but not with tax smoothing

temporal causality and the dynamic interactions between terms of trade and current account deficits in co integrated var processes further evidence from ivorian time series this paper investigates the relationship between the terms of trade and current account deficits within a context of vecm the results indicate that for the coted ivoire there is a long run relationship between the terms of trade and current account deficits they also indicate that current account deficits in cote d ivoire cannot be explained by the terms of trade a strong unidirectional relationship exists between current account deficits and the terms of trade since the first one granger causes the second finally dynamic simulations have indicated that a significant portion of fluctuations in the terms of trade is explained by current account deficits in light of these findings it can be concluded that economic policy in cote d ivoire should be carried out with extreme caution due to the nature of international commodity markets the mechanism of the terms of trade s formation and the relative exogeneity of current account deficits

periodically expanding discounted debt a threat to fiscal policy sustainability this paper models the behaviour of discounted us debt using a markov switching time series model the significance of modelling fiscal policy within this framework derives from the implications it has for long term sustainability the two regime framework used in this paper identifies periods where the present value of us federal debt is expanding versus periods when it is collapsing using an updated data series from hamilton and flavin 1986 a test is conducted to establish if the expanding periods pose a threat to the long run sustainability of fiscal policy for the usa it is found that they do not copyright 2005 john wiley sons ltd

wage and technology dispersion this paper explains why firms with identical opportunities may use different technologies and offer different wages our key assumption is that workers must engage in costly search in order to gather information about jobs stigler 1961 in equilibrium some firms adopt high fixed cost high productivity technologies offer high wages and fill job openings quickly other firms adopt less capital intensive technologies and offer low wages hiring mostly uninformed workers in equilibrium the amount of wage dispersion leaves workers indifferent about whether to gather information and the fraction of informed workers leaves firms indifferent about their wage and technology choice we show that worker search which would appear to be a rent seeking activity in partial equilibrium may be efficiency enhancing in general equilibrium

bubble finance and debt sustainability a test of the government s intertemporal budget constraint this paper tests whether the government s budget is intertemporally balanced in a number of ec countries by applying a method first developed to detect speculative bubbles in financial markets the test aims to establish whether the government can engage in buble finance and is based on a comparison between two sets of estimates the first is obtained directly by regressing the stock of outstanding debt on a distributed lag of the primary surplus the second is obtained indirectly from a pair of equations one relating the current debt stock to next period s primary surplus and debt stock the other specifying an ar process for the primary surplus in the presence of a bubble only the first set of estimates is inconsistent and hence the two sets differ it is found that the null of no bubble can be rejected in the cases of italy germany denmark and greece implying that the government is not intertemporally solvent in these countries the other ec member states appear to be on a sustainable path

job search and the effect of urban structure on unemployment and married female participation rates a model of urban job search is presented concentrating on the skill level of the seeker the implications for the effect of urban structure on intra urban unemployment and married female participation rate differentials are examined it is found using census data for greater london that urban structure represented by the intra urban distribution of jobs per worker as derived from the job search model has the predicted effects on unemployment and participation rates after allowing for other determinants of these rates the paper concludes with some implications for urban manpower policy

the role of intergovernmental aid in defining fiscal sustainability at the sub national level the concept of fiscal sustainability has become increasingly used over the last 20 years however much of the literature on fiscal sustainability at the sub national level ignores the role of intergovernmental fiscal relations to address this gap this paper discusses a sufficient condition for sub national fiscal sustainability and examines the importance of intergovernmental aid in determining that sustainability using panel data of counties and municipalities in the us and using unit root and cointegration analytic techniques this paper finds different levels of fiscal sustainability between counties and municipalities we also find that intergovernmental aid plays an important role for fiscal sustainability for both counties and municipalities

panel data modelling and the tax spend controversy in the euro zone this article attempts to differentiate between the debatable tax and spend spend and tax fiscal synchronization and institutional separation hypotheses in order to explore empirically the interplay between public expenditures and public revenues in the economic and monetary union emu member states for this purpose panel data models are derived to test the validity of the four hypotheses in emu countries a notable characteristic of this article is that the four hypotheses are tested by dividing emu countries into various subgroups and using disaggregated data for government expenditures and revenues seeking for the robustness of the empirical evidence the panel data methods of generalized two stage least squares gtsls and generalized method of moments gmm are accordingly applied to identify the relationship between public outlays and taxation receipts gtsls and gmm results strongly support the fiscal synchronization hypothesis implying that budget decision making is significantly influenced b

evaluating unemployment policies what do the underlying theories tell us the paper surveys unemployment policies for advanced market economies and evaluates them by examining the predictions of the underlying macroeconomic theories the basic idea is that for the most part different unemployment policy prescriptions rest on different macroeconomic theories and our confidence in the prescriptions should depend at least in part on theories ability to predict some salient stylized facts about unemployment behavior the paper considers four types of policies laissez faire demand management policies supply side policies and structural policies copyright 1995 by oxford university press

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

the behavior of treasury securities monthly 1942 1984 abstract the monthly market value statistics on outstanding united states treasury debt are reported for the 1981 1984 period in addition a monthly series on privately held gross federal debt is reported for the extended 1942 1984 period together with monthly security price indices for various federal debt aggregates examination of the stochastic structure of t bill prices indicates that the riskiness of t bills has increased dramatically in recent years

oligopsony and the distribution of wages we propose a simple model of wage dispersion arising from oligopsonistic competition in the labor market our model has workers who are equally able but who have heterogeneous preferences for non wage characteristics while employers have heterogeneous productivity characteristics we completely and explicitly solve for the equilibrium wage distribution and show that inside and outside forces interact in wage determination this interaction generates spillover effects of minimum wages in a manner which is consistent with the empirical evidence

search unemployment in an overlapping generations setting this paper constructs an overlapping generations model in which the steady state equilibrium is characterized by the existence of search unemployment this dynamic general equilibrium model captures the possible existence of search unemployment in the long run despite the absence of exogenous shocks furthermore it allows for the wage offers distribution to be determined endogenously the effect of partial revelation of information on the existence of search unemployment in the long run is examined it is shown that search unemployment may be eliminated in the long run despite the persistence of the state of imperfect information this paper develops an overlapping generations model in which the steady state equilibrium is characterized by search unemployment 2 unemployment is created via a rational rejection of available wage offers in favor of further search for potentially more attractive offers the proposed dynamic general equilibrium model allows for the existence of long run search unemployment despite the absence of exogenous shocks and permits the presence of an endogenously determined nondegenerate wage offer distribution 3 the paper analyzes the trade off between revelation of information and the level of search unemployment in the long run in the absence of external disturbances the level of search unemployment would be expected to decrease as information becomes available in particular if information is fully revealed search unemployment is naturally eliminated exploring the likelihood of the existence of long run search unemployment in a deterministic world this study provides an example of partial revelation of information which eliminates search unemployment in the long run despite the persistence of the state of imperfect information 4 the proposed model presents a discrete infinite time horizon world where economic activity is conducted under imperfect information in every period a single homogeneous good is produced using two factors capital and labor in the production process the aggregate endowment of labor is exogenously given in

an equilibrium model of search unemployment this paper develops a simple general equilibrium model with sequential search in which a nondegenerate wage offer distribution is endogenously determined we use this model to analyze the comparati

is the budget deficit too large yes specifically we find that recent spending and taxing policies of the government if continued violate the government s intertemporal budget constraint as a result government spending must be reduced and or tax revenues must be increased these conclusions are based on tests of whether government spending and revenue are cointegrated in addition to examining real spending and revenue we also normalize these variables by real gnp and population for a growing economy these normalized measures are perhaps more pertinent we also test and find support for the hypothesis that deficits have become a problem only in recent years

estimation of financial agent based models with simulated maximum likelihood abstract this paper proposes a general computational framework for empirical estimation of financial agent based models for which criterion functions have unknown analytical form for this purpose we adapt a recently developed nonparametric simulated maximum likelihood estimation based on kernel methods in combination with the model developed by brock and hommes 1998 which is one of the most widely analysed heterogeneous agent models in the literature we extensively test the properties and behaviour of the estimation framework as well as its ability to recover parameters consistently and efficiently using simulations key empirical findings indicate the statistical insignificance of the switching coefficient but markedly significant belief parameters that define heterogeneous trading regimes with a predominance of trend following over contrarian strategies in addition we document a slight proportional dominance of fundamentalists over trend following chartists in major world markets

method of pay in finnish industry in this paper a dynamic economic model of the method of pay is derived to serve as a background to an empirical study the model gives for example a prediction that employees who have a short attachment to a firm are apt to engage in incentive work special attention is paid to unobserved heterogeneity across workers in a logit model of the method of pay a new estimator based on a small variance approximation of unobserved heterogeneity is derived

international intertemporal solvency in industrialized countries evidence and implications recent large current account deficits among industrialized countries have caused concern for policy makers some believe for example that the current buildup of claims on the u s by foreigners violates her solvency condition with respect to the rest of the world recent research 22 suggests that for a country s intertemporal solvency condition to hold the change in the country s obligations to the rest of the world i e her current account deficit must be stationary stationarity tests on current accounts were performed for the u s by trehan and walsh 22 and wickens and uctum 23 for the u s and canada by otto 15 and for twenty three countries by gundlach and sinn 10 these papers present evidence that current accounts are non stationary for several major industrialized countries including the u s the u k canada germany and japan these findings do not favor international intertemporal solvency for this reason the issue merits further investigation in this paper we test for the stationarity of current account deficits of the group of seven industrialized countries preliminary results confirm many of gundlach and sinn s 10 findings however several events during the 1980s might have caused discrete breaks in current account balances events potentially linked with current account breaks include the reduction in world inflation tax reduction and reform in the u s and other industrialized countries attempts at international macroeconomic coordination i e the plaza accord and shifts in the after tax rate of return on capital in many countries as shown in recent research on gross national product 16 2 if such breaks are not accounted for stationarity tests will be biased in favor of accepting the null hypothesis of non stationarity our results suggest strong evidence of discrete breaks in the u s and japan and some evidence favoring breaks in the u k germany and canada the break in the u s current account appears to occur in 1983 while breaks in the other countries appear to occur somewhat later between late 1984 and 1987 more importantly once these breaks are incorporated the evidence is more favorable toward the stationarity of current accounts in these countries these findings thus support intertemporal solvency for these countries

rethinking macroeconomics what failed and how to repair it the standard macroeconomic models have failed by all the most important tests of scientific theory they did not predict that the financial crisis would happen and when it did they understated its effects monetary authorities allowed bubbles to grow and focused on keeping inflation low partly because the standard models suggested that low inflation was necessary and almost sufficient for efficiency and growth after the crisis broke policymakers relying on the models floundered notwithstanding the diversity of macroeconomics the sum of these failures points to the need for a fundamental re examination of the models and a reassertion of the lessons of modern general equilibrium theory that were seemingly forgotten in the years leading up to the crisis this paper first describes the failures of the standard models in broad terms and then develops the economics of deep downturns and shows that such downturns are endogenous further the paper argues that there have been systemic changes to the structure of the economy that made the economy more vulnerable to crisis contrary to what the standard models argued finally the paper contrasts the policy implications of our framework with those of the standard models

on the limitations of government borrowing a framework for empiricaltesting this paper seeks to distinguish empirically between two views on the limitations of government borrowing according to one view nothing precludes the government from running a permanent budget deficit paying interest due on the growing debt load simply by issuing new debt an alternative perspective holds that creditors would be unwilling to purchase government debt unless the government made a credible commitment to balance its budget in present value terms we show that distinguishing between these possibilities is mathematically equivalent to testing whether a continuing currency inflation might be fueled by speculation alone or is instead driven solely by economic fundamentals empirical tests which have been developed for this economic question lead us to conclude that postwar u s deficits are largely consistent with the proposition that the government budget must be balanced in present value terms this abstract was borrowed from another version of this item

us deficit sustainability revisited a multiple structural change approach in this article we re examine the long run sustainability of us budget deficits using bai and perron s multiple structural change approach while the deficit would have been weakly sustainable over the full sample 1947 1 2005 3 strong sustainability would appear only between january 1982 and february 1996

government spending and taxation what causes what in the past few years as federal deficits have risen to high nominal levels economists have argued about the effect that raising taxes ostensibly to reduce deficits might have on government spending some economists including milton friedman have argued that raising taxes will simply lead to more spending others including james buchanan and richard wagner have said that the high deficits themselves have been responsible for the growth of federal spending and that if that spending had to be financed completely by direct taxes people would demand that the federal government spend less a third group led by robert barro says that increased taxes and borrowing are results of increased government spending in section ii we briefly review various hypotheses about the relationship between federal government spending and revenues section iii describes the testing procedure used to discriminate between these hypotheses the results of four tests are presented in section iv section v contains a summary and major conclusions to foreshadow what follows we find no evidence that higher real federal taxes today lead to either higher or lower federal spending tomorrow on the other hand we find strong evidence that higher spending now will lead to higher taxes later our results support a view of the world in which the political system somehow determines how much to spend and then looks for revenue sources to finance that level of spending including direct taxation borrowing and money creation we also find evidence that real federal revenues are positively affected by real gross national product gnp real federal spending also rises with real gnp but it appears to be independent of the rate of inflation

investment effects of departures from governmental present value budget balance the paper investigates whether departures from government borrowing constraints affect the relationship between fiscal policy innovations and changes in the investment level break points or apparent departures from present value budget balance are then identified next the investment deficit relationship is examined prior to and following identified break points in an effort to detect potential changes in behaviour the investment deficit relationship is quantified by examining posterior coverage bounds of impulse response functions britain appears to undergo such a break around 1973 data from this country suggest that significantly more crowding out occurred following the identified breaks in contrast data from other comparison countries that do not appear to have experienced breaks indicate stable investment deficit relationships

structural stochastic volatility in asset pricing dynamics estimation and model contest abstract in the framework of small scale agent based financial market models the paper starts out from the concept of structural stochastic volatility which derives from different noise levels in the demand of fundamentalists and chartists and the time varying market shares of the two groups it advances several different specifications of the endogenous switching between the trading strategies and then estimates these models by the method of simulated moments msms where the choice of the moments reflects the basic stylized facts of the daily returns of a stock market index in addition to the standard version of msm with a quadratic loss function we also take into account how often a great number of monte carlo simulation runs happen to yield moments that are all contained within their empirical confidence intervals the model contest along these lines reveals a strong role for a tamed herding component the quantitative performance of the winner model is so good that it may provide a standard for future research

labor turnover and the natural rate of unemployment efficiency wage vs frictional unemployment wage and unemployment responses to changes in economic environment are compared for efficiency wage and frictional models changes in aggregate demand persistence of job specific shocks cost of living and unemployment benefits are considered wages and unemployment move in the same direction in the two models except that an upward shift in aggregate labor demand can reduce the real wage in the efficiency wage but not the frictional model in a numerical simulation calibrated to u s data real productivity shocks in the efficiency wage model yield a ratio of unemployment to wage variability close to that of the united states

unemployment insurance job queues and systematic job search an equilibrium approach the labor market effects of unemployment insurance ui have been viewed in several contexts by economists on the one hand the ui system of jobless benefits and experiencerated taxation of firms is seen as influencing firms decisions to lay off workers 9 10 24 2 key in such analyses is the degree to which firms layoffs are subsidized by an imperfect experience rating a tax system in which employers ui taxes increase by less than their workers benefits increase on the other hand many other studies of ui place primary focus on the worker although employer concern for worker well being plays a role even in the work on the impact of ui on firm layoff decisions each of these worker based studies is concerned with one of two issues 1 ui and compensating wage differentials 14 24 or 2 u i and the job search process first hutchens assumes that workers face a choice in the labor market between high wage high layoff probability firms and low wage low layoff probability firms 14 by reducing the cost of being laid off ui increases one s likelihood of choosing the former kind of job along these lines topel finds evidence that ui generosity substitutes for wages and therefore lowers the compensating differential associated with a high layoff job 23 second several authors have studied the effect of ui on job search this work recognizes that ui lowers the cost of searching and therefore raises the reservation wage expected unemployment duration and expected post unemployment wages 2 previous work on the impact of ui on firm layoff decisions has assumed either a layoff subsidy 9 or demand uncertainty 2 in order to generate layoffs and therefore a u i impact on layoffs in contrast to such work this paper views layoffs in an equilibrium context they occur in our model even with no layoff subsidy and or with no demand uncertainty layoffs are of value to the firm in our model since they correspond to workers rejected from a queue of potential trainees from the firm s point of view a queue of applicants may be desirable in order to lower

the contributions of the economics of information to twentieth century economics in the e eld of economics perhaps the most important break with the past one that leaves open huge areas for future work lies in the economics of information it is now recognized that information is imperfect obtaining information can be costly there are important asymmetries of information and the extent of information asymmetries is affected by actions of e rms and individuals this recognition deeply affects the understanding of wisdom inherited from the past such as the fundamental welfare theorem and some of the basic characterization of a market economy and provides explanations of economic and social phenomena that otherwise would be hard to understand i introduction the century coming to a close has seen vast changes in economics in both ideas and methodology upon ree ection it is remarkable however how many of the seeds of advances in this century were sowed in the previous i would argue that perhaps the most important break with the past one that leaves open huge areas for future work lies in the economics of information the recognition that information is imperfect that obtaining information can be costly that there are important asymmetries of information and that the extent of information asymmetries is affected by actions of e rms and individuals has had profound implications for the wisdom inherited from the past and has provided explanations of economic and social phenomena that otherwise would be hard to understand in this essay i wish to argue that information economics has had directly and indirectly a profound effect on how we think about economics today eighteenth and nineteenth century antecedents to be sure marshall and other nineteenth century economists talked about problems of imperfect information but with one exception discussions of information were obiter dicta caveats at the end of the analysis they were never at the center

explanations of unemployment economists commonly distinguish between two sorts of unemployment roughly speak ing the involuntarily unemployed workers are unwillingly out of work i e they feel that they would be better off with jobs on the other hand the voluntarily unemployed workers prefer to be out of work for any of a wide variety of reasons e g because they are searching or training for a job or because they choose leisure over work

getting at systemic risk via an agent based model of the housing market systemic risk must include the housing market though economists have not generally focused on it we begin construction of an agent based model of the housing market with individual data from washington dc twenty years of success with agent based models of mortgage prepayments give us hope that such a model could be useful preliminary analysis suggests that the housing boom and bust of 1997 2007 was due in large part to changes in leverage rather than interest rates

permanent budget deficits and inflation abstract the issue of whether permanent primary budget deficits have to be monetized is re examined in a simple monetary model hybrid of the sidrauski and overlapping generations frameworks in which intergenerational effects are generated by the arrival of new infinitely lived cohorts the presence of intergenerational effects enlarges for a given fiscal policy the set of admissible monetary policies and weakens the need to monetize the deficit comparisons between the growth and interest rates are in general insufficient to predict whether increased deficit must be monetized because of the existence of both bond and money seigniorage laffer curves

dynamic monopsony and structural change examines at the microeconomic level the assumption that the rate of change of the labor supply to a firm depends on the wage paid by the firm concept of dynamic monopsony response in terms of the optimal wage path to different product prices properties of the optimal path from ebsco

multiple equilibria and minimum wages in labor markets with informational frictions and heterogeneous production technologies it is often argued that a mandatory minimum wage is binding only if the wage density displays a spike at it in this article we analyze a model with search frictions and heterogeneous production technologies in which imposition of a minimum wage affects wages even though after imposition the lowest wage in the market exceeds the minimum wage the model has multiple equilibria as a result of the fact that the reservation wage of the unemployed and the lowest production technology in use affect each other imposition of a minimum wage may improve social welfare

how should tax progressivity respond to rising income inequality we address this question in a heterogeneous agent incomplete markets model featuring exogenous idiosyncratic risk endogenous skill investment and flexible labor supply the tax and transfer schedule is restricted to be log linear in income a good description of the us system rising inequality is modeled as a combination of skill biased technical change and growth in residual wage dispersion when facing shifts in the income distribution like those observed in the us a utilitarian planner chooses higher progressivity in response to larger residual inequality but lower progressivity in response to widening skill price dispersion reflecting technical change overall optimal progressivity is approximately unchanged between 1980 and 2016 we document that the progressivity of the actual us tax and transfer system has similarly changed little since 1980 in line with the model prescription

testing for the sustainability of the current account deficit in two industrial countries abstract the objective of this paper is to test for the sustainability of the current account deficits in the united states and canada over the 1973 1994 period using various unit root and cointegration tests some of which allow for structural changes we conclude that the real current account deficits to gdp ratios are not sustainable

cointegration and government borrowing constraints evidence for the united states testable implications are derived in a present value borrowing constraint model for the u s federal government critical values for unit root and cointegration tests are calculated with monte carlo studies cointegration techniques are employed to determine whether the government has been involved in perpetual debt financing in recent years the data reject this assertion

the long run implications of a hicks neutral technical progress this paper analyzes the steady state welfare implications of a hicks neutral technological progress or alternatively of an i nternational transfer of a hicks neutral superior technology within a n overlapping generations framework the analysis indicates that prod ucers will be induced by profit motives to adopt the advanced technol ogy although its effect on factor prices and intertemporal consumptio n may reduce steady state welfare morever it is shown that in contr ast to the static results a hicks neutral technical progress alters the long run factor price ratio through the effect on capital formati on copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

fiscal deficit sustainability of the spanish regions carrion i silvestre j l fiscal deficit sustainability of the spanish regions regional studies the fiscal deficit of the spanish autonomous communities is investigated using non stationary panel data analysis the paper considers the two main approaches in the literature first assessing whether there is a long run relationship between the revenues and expenditures of the autonomous communities and second focusing on the use of fiscal rules the paper shows that it is possible to relate these approaches in a unified framework

on the difficulty of eliminating deficits with higher taxes some canadian evidence government budget deficits have increased along with government revenues from direct and indirect taxation both in absolute amounts and as a share of national income in canada as well as in several other countries especially since the 1960s this phenomenon also has coincided particularly since 1980 with skepticism over the notion that government deficit spending stimulates economic growth and employment instead many now expect deficits to produce negative effects on economic activity including high real interest rates reduced real capital formation and production increased unemployment and possible long term inflation 2 these expectations have produced a near concensus on the need to reduce government budget deficits but not on the means of achieving that goal some advocate reductions in government spending as the optimal solution while others call for increases in taxation to raise revenue although either policy in principle may achieve the same result for the deficit they arise from different theories of the determinants of government spending in particular those who advocate expenditure cuts suggest that increased taxation would increase government spending more than it would reduce the deficit arguing that there is a causal direction from increased tax revenues to increased government expenditures although the taxation spending causality hypothesis has assumed increased prominence over the last decade 3 little statistical testing has been done for canada studies by manage and marlow 18 and ram 21 lend support to the argument that expenditures are more responsive to revenues than the reverse on the basis of u s data indeed ram s work contradicts the earlier conclu

systematic and random search a synthesis this paper synthesizes two models of search in the labor market systematic and random we construct and test a theoretical model in which the searcher is endowed with information on some possibly zero or all individual firms in the labor market as well as the overall wage offer distribution we test the model using a special wave of the 1976 current population survey the major theoretical results of our model are as follows searchers with lower stocks of knowledge about individual firms higher discount rates or having lower coverage by unemployment insurance are more likely to engage in random search activities

existence uniqueness and stability of equilibrium in an overlapping generations model with productive capital abstract this paper analyzes the existence uniqueness and stability of a steady state equilibrium in an overlapping generations model with productive capital it is shown that for any feasible set of well behaved preferences there exists a production function that satisfies the inada conditions under which the economy experiences global contraction and the steady state equilibrium is characterized by the absence of production and consumption the study establishes a strengthened inada condition which is necessary to preclude global contraction and sufficient conditions for the existence of a unique and globally stable non trivial steady state equilibrium

efficiency wages and wage dispersion the efficiency wage hypothesis has normally been used to generate an equilibrium level of unemployment the authors use it instead to generate an equilibrium wage distribution this paper starts by generalizing the previous work of r m solow in this area they then use their results on effort wage elasticities to derive a model of wage dispersion the wage rate is shown to be an increasing function of the damage potential of workers that is workers with the highest damage potential receive the highest wage the analysis of the equilibrium of the wage distribution provides interesting qualitative insights into the nature of actual wage differentials copyright 1991 by the london school of economics and political science

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

margin requirements and stock market volatility abstract it has long been recognized that margin requirements through leverage affect the volume of speculative activity controlling speculative behavior is one approach to inhibiting overvaluation in stocks and reducing the potential for a precipitate price decline fueled by the involuntary selling that stems for example from margin calls

imperfect information credit markets and unemployment this paper describes how imperfect information in both capital and labor markets can in a context of maximizing firms and perfectly flexible prices and wages give rise to cyclical variations in unemployment whose character closely resembles that of observed business cycles this abstract was borrowed from another version of this item

the revenues expenditures nexus evidence from local government data this paper examines the intertemporal linkages between local government expenditures and revenues the main results that emerge from an analysis of fiscal data from 171 municipal governments over the period 1972 80 are that 1 one or two years are sufficient to summarize the relevant dynamic interrelationships 2 there are important intertemporal linkages between expenditures taxes and grants and 3 past revenues help predict current expenditures but past expenditures do not alter the future path of revenues this last finding is contrary to results that have emerged from previous analyses of federal fiscal data copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

us deficit sustainability a new approach based on multiple endogenous breaks recent empirical work has questioned the consistency of us fiscal policy with an intertemporal budget constraint empirical results have tended to indicate that the deficit process has undergone at least one structural shift during recent decades with the deficit becoming either unsustainable or sustainable in only a weak sense in the post shift period in this paper we re examine sustainability using a new approach based on a cointegration model with multiple endogenous breaks a bayesian methodology is applied incorporating markov chain monte carlo simulators in contrast to previous analyses we find evidence of a sustainable deficit process over the 1947 1992 period despite the occurrence of breaks during the 1970s and 1980s copyright 2000 john wiley sons ltd

government revenue and government expenditure nexus evidence from developing countries the relationship between government revenue and government expenditure has attracted a lot of interest given its policy relevance particularly with respect to budget deficits the goal of this paper is to investigate evidence for causality between government revenue and government expenditure within a multivariate framework by modelling them together with gross domestic product for 12 developing countries our application of the toda and yamamoto 1995 test for granger causality reveals support for the tax and spend hypothesis for mauritius el salvador haiti chile and venezuela for haiti there is evidence for the spend and tax hypothesis while for peru south africa guatemala uruguay and ecuador there is evidence of neutrality

causality and comovement between taxes and expenditures historical evidence from argentina brazil and mexico abstract this paper presents empirical tests for stationarity of fiscal deficits for three latin america countries it also examines the causality patterns between government expenditures and government revenues long historical series covering most of the 20th century for argentina brazil and mexico are used the findings suggest that deficits were stationary in argentina and mexico but not in brazil

entry wages signalling the credibility of future wages a reinterpretation of the turnover efficiency wage model for both empirical and theoretical reasons the mechanism by which existing efficiency wage models link job rationing with turnover costs is unsatisfactory this paper extends the standard turnover efficiency wage model by formally examining the determination of wages as the outcome of a self enforcing contract the problem is analyzed as a game of asymmetric information in which the entry level wage plays a signalling role about the credibility of the future wage payments suggestive evidence in favor of the model is provided by an examination of the restrictions imposed on wage profiles for both empirical and theoretical reasons the mechanism by which existing efficiency wage models link job rationing with turnover costs is unsatisfactory this paper extends the standard turnover efficiency wage model by formally examining the determination of wages as the outcome of a self enforcing contract the problem is analysed as a game of asymmetric information in which the entry level wage plays a signalling role about the credibility of the future wage payments suggestive evidence in favour of the model is provided by an examination of the restrictions imposed on wage profiles

theoretical foundations for sticky wages abstract the paper compares three different types of theoretical explanation of sticky wages they are implicit contracts efficiency wage models and insider outsider models it then reconsiders keynes rationale for sticky wages which focuses on relative wage issues finally the paper considers possible directions for future research

a method for agent based models validation abstract this paper proposes a new method to empirically validate simulation models that generate artificial time series data comparable with real world data the approach is based on comparing structures of vector autoregression models which are estimated from both artificial and real world data by means of causal search algorithms this relatively simple procedure is able to tackle both the problem of confronting theoretical simulation models with the data and the problem of comparing different models in terms of their empirical reliability moreover the paper provides an application of the validation procedure to the agent based macroeconomic model proposed by dosi et al 2015

the causal relation between federal expenditures and receipts federal expenditures have consistently exceeded federal revenues since 1970 in fact the federal government has seen a surplus in only five years since 1950 the symptoms of such fiscal imbalance are of course budget deficits while budget deficits are nothing new in u s history the recent and projected size of the deficit during peacetime nonrecessionary years has been the cause of much concern to academics the news media and politicians this preoccupation with federal deficits has produced a variety of policy proposals to deal with them

u s federal indebtedness and the conduct of fiscal policy abstract this paper examines whether the conduct of u s fiscal policy since the 1920s has been influenced by constraints on the accumulated stock of outstanding federal debt the evidence is affirmative during most of the inter and post war period policy in effect stabilized the federal debt relative to gnp but after 1981 large debt and debt service costs failed to produce deficit reductions consistent with the pattern of previous decades

public expenditure and national income causality further evidence on the role of omitted variables whether changes in public expenditure growth help predict changes in national income growth and or vice versa remains an important issue of sustained interest in the empirical public finance literature in recent years attention has mainly been confined to two specific areas namely estimation of the impact of the public sector on output growth by means of regression analysis and causality testing unfortunately the outcome of both types of analysis has been inconclusive focussing on the impact studies we note that a number of empirical investigations have attempted to measure the effect of the size of the public sector on overall economic growth for instance ram 19 utilizing a two sector model found that growth of government size has a positive effect on economic growth landau 14 15 however presented opposite evidence indicating that the government sector expansion led to a decline in output growth for many dcs and ldcs since 1960 in a recent study barth keleher and russek 4 estimated variants of ram s models with data for 30 countries their empirical results largely support a negative relationship between the scale of government and aggregate economic activity furthermore using the hausman procedure they rejected the hypothesis that the independent variables namely real government spending or other measures of the scale of the government depending on the specification in the regression equations are exogenous this strongly suggests that the conclusions reached by

efficiency wage models of unemployment keynesian economists hold it to be self evident that business cycles are characterized by involuntary unemployment but construction of a model of the cycle with involuntary unemployment faces the obvious difficulty of explaining why the labor market does not clear involuntarily unemployed people by definition want to work at less than the going wage rate why don t firms cut wages thereby increasing profits

cointegration and tests of purchasing power parity nonstationarity in the levels of spot exchange rates and domestic and foreign price indices makes the use of conventional tests of the absolute version of purchasing power parity ppp inappropriate if ppp is true inter country commodity arbitrage ensures that deviations from a linear combination of spot exchange rates and domestic and foreign price levels should be stationary under these conditions exchange rates and price levels should form a cointegrated system we find the null hypothesis of no cointegration cannot be rejected for all five countries thus violating the long run absolute version of ppp

the price dynamics of common trading strategies a deterministic trading strategy can be regarded as a signal processing element that uses external information and past prices as inputs and incorporates them into future prices this paper uses a market maker based method of price formation to study the price dynamics induced by several commonly used financial trading strategies showing how they amplify noise induce structure in prices and cause phenomena such as excess and clustered volatility

inter industry and occupational wage differentials in italy the vast literture on wage determination in the post war era extensively documents the existence of large and persistent wage differentials among industries and workers of comparable skills this paper addresses the issue of wage dispersion in the context of the italian economy the stability over time of industry relative wages confirme previous results obtained for the other countries a wide class of earings equations is estimated using microdata for the italian manufacturing industry the results provide little evidence in support of the view that wage dispersion can be explained by either unmeasured workers charcteristics or by compensating wage differentials conversely the estimated pattern of industry occupation wage differentials is consistent with the existence of rent sharing mechanisms and fairness considerations

an empirical equilibrium search model of the labor market in structural empirical models of labor market search the distribution of wage offers is usually assumed to be exogenous however because in setting their wages profit maximizing firms should consider the reservation wages of job seekers the wage offer distribution is essentially endogenous we investigate whether a proposed equilibrium search model in which the wage offer distribution is endogenous is able to describe observed labor market histories we find that the distributions of job and unemployment spells are consistent with the data and that the qualitative predictions of the model for the wages set by employers are confirmed by wage regressions the model is estimated using panel data on unemployed and employed individuals we distinguish between separate segments of the labor market and we show that productivity heterogeneity is important to obtain an acceptable fit to the data the results are used to estimate the degree of monopsony power of firms further the effects of changes in the mandatory minimum wage are examined

a calibration procedure for analyzing stock price dynamics in an agent based framework in this paper we introduce a calibration procedure for validating of agent based models starting from the well known nancial model of brock and hommes 1998 we show how an appropriate calibration enables the model to describe price time series we formulate the cal ibration problem as a nonlinear constrained optimization that can be solved numerically via a gradient based method the calibration re sults show that the simplest version of the brock and hommes model with two trader types fundamentalists and trend followers replicates nicely the price series of four dierent markets indices the s p 500 the euro stoxx 50 the nikkei 225 and the csi 300 we show how the parameter values of the calibrated model are important in interpret ing the trader behavior in the dierent markets investigated these parameters are then used for price forecasting to further improve the forecasting we modify our calibration approach by increasing the trader information set finally we show how this new approach im proves the model s ability to predict market prices

individual heterogeneity and interindustry wage differentials estimates of interindustry wage differentials are obtained using a fixed effects estimator on a long panel the national longitudinal survey of young men nls after controlling for observable worker characteristics 84 percent of the residual variance of log wages across industries is explained by individual fixedeffects only 16 percent of the residual variance is explained by industry dummies since no controls for specific job characteristics are used job characteristics that vary across industries could potentially explain this rather small residual across industry log wage variance that is not attributable to individual effects clearly then these data do not force us to resort to noncompetitive explanations of interindustry wage differentials such as efficiency wage theory furthermore efficiency wage theories predict that wages in efficiency wage paying or primary industries should be relatively rigid therefore industry wage differentials should widen in recessions however no such tendency is found in the data

direct comparison of agent based models of herding in financial markets abstract the present paper tests a new model comparison methodology by comparing multiple calibrations of three agent based models of financial markets on the daily returns of 24 stock market indices and exchange rate series the models chosen for this empirical application are the herding model of gilli and winker 2003 its asymmetric version by alfarano et al 2005 and the more recent model by franke and westerhoff 2011 which all share a common lineage to the herding model introduced by kirman 1993 in addition standard arch processes are included for each financial series to provide a benchmark for the explanatory power of the models the methodology provides a consistent and statistically significant ranking of the three models more importantly it also reveals that the best performing model franke and westerhoff is generally not distinguishable from an arch type process suggesting their explanatory power on the data is similar

the relationship between wages and firm size an information theoretic analysis the paper derives a positive relationship between the size of establishments and their average wage levels together with a continuous wage distribution from a model where firm sizes are endogenous a fraction of the workers are imperfectly informed from friends about firms wage strategies and the rest search among firms at random the greater the share of workers that are informed the higher is the average wage level and the smaller is the difference between firms wage levels costly interfirm labor mobility is in general shown to be socially excessive copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

estimation of agent based models using sequential monte carlo methods abstract estimation of agent based models is currently an intense area of research recent contributions have to a large extent resorted to simulation based methods mostly using some form of simulated method of moments estimation smm there is however an entire branch of statistical methods that should appear promising but has to our knowledge never been applied so far to estimate agent based models in economics and finance markov chain monte carlo methods designed for state space models or models with latent variables this latter class of models seems particularly relevant as agent based models typically consist of some latent and some observable variables since not all the characteristics of agents would mostly be observable indeed one might often not only be interested in estimating the parameters of a model but also to infer the time development of some latent variable however agent based models when interpreted as latent variable models would be typically characterized by non linear dynamics and non gaussian fluctuations and thus would require a computational approach to statistical inference here we resort to sequential monte carlo smc estimation based on a particle filter this approach is used here to numerically approximate the conditional densities that enter into the likelihood function of the problem with this approximation we simultaneously obtain parameter estimates and filtered state probabilities for the unobservable variable s that drive s the dynamics of the observable time series in our examples the observable series will be asset returns or prices while the unobservable variables will be some measure of agents aggregate sentiment we apply smc to two selected agent based models of speculative dynamics with somewhat different flavor the empirical application to a selection of financial data includes an explicit comparison of the goodness of fit of both models

the emerging u s current account deficit in the 1980s a cointegration analysis this paper seeks to understand the recent history of u s external imbalances by identifying the long run tendency of the u s current account balance and investigating its behavior the procedure that is adopted is to estimate cointegrating regressions between u s exports and imports of goods and services estimates from cointegrating regressions between several measures of u s exports and imports show that up to about the end of 1983 the u s current account tended toward zero since that time there has been an apparent structural shift resulting in a long run tendency for a deficit in excess of 100 billion per year copyright 1992 by mit press

a model of the natural rate of unemployment since the publication of edmund phelps volume the new macroeconomics has treated the labor market as a dynamic process of rational search by unemployed workers for available vacancies wages are viewed as at least potentially flexible though free contracting between workers and firms may lead to fixed wages in the short run imperfect information is a crucial element of the theory for it implies both a need for contracting and a need for rational search rather than simple market clearing in each period a positive rate of frictional unemployment may exist in equilibrium denoted as the natural rate this unemployment is due to the frictions in the search process and imperfections in information rather than to any deficiency in aggregate demand milton friedman defined the natural rate as the level that would be ground out by the walrasian system of general equilibrium equations provided there is embedded in them the actual structural characteristics of the labor and commodity markets including market imperfections stochastic variability in demands and supplies the cost of gathering information about job vacancies and labor availabilities the costs of mobility and so on p 8 this paper reexamines the micro foundations of the natural rate in a model of labor market equilibrium in which turnover flows and imperfect information are explicitly considered workers may quit their current jobs to enter the unemployment pool in order to search among available vacancies for a more preferred position firms economize on turnover by an appropriate wage policy

labor contracts under asymmetric information when workers are free to quit this paper examines the impact of workers ability to quit on the performance of labor contracts between workers and privately informed firms while the need to induce workers to remain with the firm necessarily lowers total welfare the effect on employment levels is to reduce the magnitude of the inefficiency due to asymmetric information whether this inefficiency is under or overemployment the model predicts that employment distortions increase with the strength of lock in effects on workers a prediction which contrasts with the results of efficiency wage models and which may help in empirical testing of labor contract theory

some further evidence on the law of one price the law of one price still holds international trade models often postulate the existence of a representative price i e the price which prevails at all markets this is known as the law of one price in this paper the law of one price is tested for seven commodities among four countries by explicitly considering transaction costs the empirical evidence suggests that in most cases the law of one price cannot be rejected asa maintained hypothesis furthermore for the remaining cases transaction costs seem to cause the failure

equilibrium wage distributions the observation that different firms charge different prices for what appears to be the same commodity or pay different wages for what appears to be equivalent labour has long been explained in economics by a reference to imperfect information this paper is concerned with characterising market equilibrium with imperfect information we do not present a general theory rather we develop in some detail an example of importance in its own right imperfect information in the labour market several properties of our example in particular the existence of equilibria with price wage dispersion unemployment excess supply of labour positive profits multiple equilibria and the nonoptimality or some of all of the equilibria are of more general validity other results may not be this paper is concerned with two kinds of imperfect information a individuals may not know the wage paid in any particular firm or whether there is a vacancy in any particular firm until they apply for a job 1 b there are several characteristics besides the wage rate associated with a job which are important to the individual some like the normal length of a work week become known when the individual applies for the job information about other characteristics e g personalities of colleagues is acquired only gradually there is one important difference between the two kinds of imperfect in

labor turnover wage structures and moral hazard the inefficiency of competitive markets a multiperiod general equilibrium model of the labor market is developed in which risk averse workers are faced with job related uncertainty and labor turnover is costly if a worker is unlucky and suffers a bad job match he quits and joins another firm hoping that he will like its work environment more because the quality of a job match is unobservable workers cannot insure against the risk of a bad match the firm provides implicit insurance against job dissatisfaction typically by paying workers more than their net marginal products in their early years with the firm and less subsequently since the probabilities of the insured against events the quit rates over time are affected by the amount of such insurance provided this implicit insurance is characterized by moral hazard individuals quit when in the absence of insurance they would not the equilibrium contract balances out efficiency in risk bearing with efficiency in turnover incentives we show that the equilibrium contract is not con