deposit insurance and external finance i introduction capital markets serve an essential purpose in the growth and development of modern economies they provide for the efficient channeling of funds from savers to investors there are two basic methods for financing capital investment primary issuance of equity or bonds and securing of bank loans looking around the world we see that countries differ substantially in the relative importance of banks and capital markets in providing investment financing equity market capitalization currently ranges from close to zero in countries like austria argentina and greece to nearly two times gross domestic product gdp in the united kingdom south africa and malaysia the importance of bank loan financing is essentially the mirror image of this what accounts for the cross country differences in the importance of banks and capital market financing of investment the purpose of this article is to address this question directly we contend that much of the variation across countries in the depth and breadth of capital markets can be explained by a combination of the existence of deposit insurance and the extent to which a country s banking system is state owned because of the importance of financial intermediation and the difficulties associated with potential bank failures governments in most countries have established a set of institutional structures to ensure the stability of their banking systems primary among these is the creation of deposit insurance by insuring deposits banks liability holders are significantly less likely to request the return of callable deposits reducing the chances of bank runs but at the same time deposit insurance subsidizes bank risk taking activities and allows the payment of lower interest rates to depositors 1 this channels money through banks and away from financial markets direct state bank ownership has a similar impact see barth et al 2001 la porta et al 2000 we present a simple three sector model in which the economy is composed of firms banks and households the firms require operating capital and can obtain it either through equity issuance or from bank loans banks take deposits from households and make loans to firms while households both allocate their wealth and purchase the firms output the model allows us to show how increases in deposit insurance or the percentage of the banking system that is state owned both reduces the size of the capital market and shrinks the amount of bank credit to the private sector and may decrease the number of firms seeking equity financing to examine the predictions of the model we study a data set composed of 49 countries of these 33 currently have explicit deposit insurance and 42 have some state ownership of banks ranging from less than 2 to almost 90 the data confirm the predictions of the model an increase in either state bank ownership or presence of deposit insurance both decreases the size of capital markets and the extent of bank lending for example we would predict that decreasing the percentage of the banking system that is state owned from 36 as it is in italy to zero would increase in the size of the capital market from less than 10 to over 30 of gdp and a raise in the level of bank lending from 57 to close to 90 of gdp our conclusions are in contrast with those in la porta et al 1997 who study the relationship between law and finance la porta et al note the importance of the countries legal system in determining the structure of the financial system in particular they point out that investors provide capital to firms only if they believe they will get their money back for equity holders this means that they must be able to vote out directors and managers who do not pay them for creditors and holders of bonds this means that they must have authority to repossess collateral furthermore these nominal legal rights must be accompanied by confidence that the laws will be enforced

maritime oil freight flows to 2050 delphi perceptions of maritime specialists abstract this paper aims to synthesise maritime specialists perceptions of changing patterns of maritime oil freight flows to 2050 debate spans published maritime oil flows globally diverse drivers of future flows including economic growth shipping market changes and haul lengths a classic delphi study to explore the perceptions of likely trends and flows to 2050 recruited a panel of early career and established maritime specialists many with long term career commitments to this industry underpinned by market volatility and legislative uncertainty the perceptions of both groups coincided and were conservative local sourcing new arctic seaways and fossil fuel intolerance will tend to reduce oil freight work but perceptions of ship re routing to avoid for example emission control areas and piracy would tend to lengthen hauls in advanced industrial nations reducing energy intensities and diminishing social tolerance of fossil fuels imply gradually reducing maritime oil shipments however to achieve radical national commitments to carbon emissions reductions will necessitate specialist education for naturally conservative maritime professionals and vigorous oil import reduction policies to curtail domestic demand for oil shipments

the role of net foreign assets in a new keynesian small open economy model abstract this paper develops a small open economy sticky price model that determines a unique stable long run asset position for households as function of their incentive to anticipate or postpone consumption and labor effort across periods this is accomplished by adopting an overlapping generations structure in which new households with no assets enter the economy in each period the same characteristics of household behavior that determine long run assets are also important determinants of the model s responses to shocks stabilizing producer prices results in a milder recession following a drop in world demand than stabilizing consumer prices because it prevents the markup in the pricing of goods from increasing in addition given an initial foreign debt allowing consumer prices to rise causes a decrease in the ex post real interest rate on impact lowering the interest burden of the initial debt the differences across policy rules generated by the initial asset position are robust to changes in the latter as long as these are brought about by changes in parameter values that do not alter the fundamental characteristics of household and firm behavior that are also the key determinants of long run assets

a global survey of international business education in the 1990s this article presents the major findings of the fifth global curriculum survey of the academy of international business aib an examination of the status and trends in international business education around the world as of the early 1990s the survey s findings based on responses from more than 500 business schools encompass different goals and methods of internationalization international linkages and experiential activities organizational issues amounts of internationalization progress achieved and degrees of administrative satisfaction with progress achieved the overall conclusion is that considerable progress has been made but much more remains to be accomplished

how labour market flexibility affects unemployment long term implications of the chain reaction theory this paper evaluates two theories of unemployment the natural rate theory whereby unemployment is depicted as fluctuating around a reasonably stable natural rate and the chain reaction theory which views movements in unemployment as the outcome of the interplay between labour market shocks and a network of lagged adjustment processes we show that for labour market systems with two common characteristics lagged endogenous variables and growing exogenous variables lags affect unemployment not only in the short run but in the long run as well the reason is that in the presence of growing exogenous variables the lagged responses are never able to work themselves out entirely in this respect the chain reaction theory contrasts sharply with the natural theory which commonly views unemployment as approaching a natural rate determined solely by the values of the exogenous variables the policy implications of the two theories are quite different as well for an empirical model of the uk market we show that unemployment does not converge to the natural rate as conventionally defined furthermore we show that lagged adjustment processes account for a substantial part of the uk long run equilibrium unemployment rate and for the movement of uk unemployment over the past 15 years this abstract was borrowed from another version of this item

money new keynesian macroeconomics and the business cycle abstract we show in this paper that the typical modern business cycle cannot be reduced to the real business cycles archetype a monopolistic competition model with price adjustment costs affected by technological and monetary shocks better mimics the economic fluctuations in two countries with very different cyclical properties namely france and the united states in our model monetary shocks are necessary to reproduce the standard deviation of output the money output correlation the labour productivity worked hours relative standard deviation the labour productivity worked hours correlation and the mark up output correlation with two independent shocks one real more specifically defined than the solow residual and one nominal the model gives an answer to some empirical puzzles which were left unexplained by traditional rbc models

capital market imperfections and the theory of optimum currency areas this paper studies how within and cross country capital market imperfections affect the welfare effects of forming a currency union the analysis considers a bank only world where intermediaries compete in cournot fashion and monitoring and state verification are costly the first part determines the credit market equilibrium and the optimal number of banks prior to joining the union the second part discusses the benefits from joining a currency union a competition effect is identified and related to the added monitoring costs that banks may incur when operating outside their home country through an argument akin to the brander krugman reciprocal dumping model of bilateral trade however in our framework whether joining a union raises welfare of the home country is ambiguous it depends on the relative strength of investment creation and intermediation diversion effects

not only nokia what finland tells us about new economy growth new economy growth is there a relation between information technologies and the growth rate of productivity is this relation mainly due to the efficiency enhancing effects of few leading industries or rather to the pervasive spreading of it throughout the economy our country study on finland in the 1990s is a contribution to shed light on these issues we find that nokia the world leader in cellular phone production directly and substantially contributed to enhance productivity growth in finland productivity growth gains outside nokia and few other it related service industries have been small temporary or non existent at all though we also provide two pieces of evidence against the existence of technological spillovers between nokia and the other fast growing industries in the finnish economy as shown by the finnish input output table the thinness of the inter industry linkages between the nokia industry and the rest of the economy indicates that productivity gains of the size recorded in the few other fast growing service industries can be associated to nokia s productivity boom only to a very small extent parallel statistical analysis also shows a striking association between the timing and the industry distribution of productivity gains and the declining pace of the price of machinery and equipment investment goods in those industries this is evidence that tfp growth increases in those industries should be mostly attributed to the decline in the world price of computing power altogether we interpret our findings as showing that even in a country endowed with a world class national champion and a policy environment commonly thought of as conducive to growth a new economy takes a long time to show up unlike commonly held tenets it diffusion has shown a limited potential in speeding up this process in finland francesco daveri and olmo silva

monetary union a welfare based approach abstract this article attempts to shed light on the consequences of the transition to emu for individual welfare following specific shocks to this end we develop a two country intertemporal general equilibrium model that extends the obstfeld and rogoff journal of political economy 103 3 1995 624 specification to nominal rigidities through price adjustment costs and pricing to market behavior we show that when facing a positive asymmetric permanent shock to either technology or government expenditures occurring in one country implementing a monetary union is beneficial to the households living in this economy conversely it is detrimental to foreigners further a sensitivity analysis shows that if the gains losses to implementing monetary union are qualitatively robust when facing changes in the degree of nominal rigidities and the elasticity of substitution between foreign and domestic goods they are quite sensitive to the degree of pricing to market in the economy

new directions for stochastic open economy models the paper develops a simple stochastic new open economy macroeconomic model based on sticky nominal wages explicit solution of the wage setting problem under uncertainty allows one to analyze the effects of the monetary regime on welfare expected output and the expected terms of trade despite the potential interplay between imperfections due to sticky wages and monopoly the optimal monetary policy rule has a closed form solution to motivate our model we show that observed correlations between terms of trade and exchange rates are more consistent with our traditional assumptions about nominal rigidities than with a popular alternative based on local currency pricing 2000 elsevier science b v all rights reserved

the importance of international business to the strategic agenda of u s ceos the growth of international business ib and concerns about the relevance of ib research indicate the need for managerial input on the topic a survey of 108 u s ceos reveals that ib issues are an important part of their strategic agenda four types of ib issues are identified which reveal that american ceos appear to be taking a proactive stance regarding the international arena the ceos were also found to hold diverse perceptions of ib issues the implications of these findings are discussed

unemployment wage bargaining and capital labour substitution many economists believe that capital accumulation technical progress and labour force expansion have no lasting effect on unemployment this view rests on the empirically doubtful assumption that the elasticity of substitution between labour and capital is equal to unity i e production is cobb douglas using a simple model based on the work of layard nickell and jackman this paper demonstrates that with a lower elasticity of substitution the equilibrium unemployment rate is affected by all of the above factors it considers briefly how capital accumulation may be endogenised and what long run implications this has for unemployment copyright 1999 by oxford university press

sticky prices as coordination failure this paper links the coordination failure and menu cost approaches to the microeconomic foundations of keynesian macroeconomics if a firm s desired price is increasing in others prices then the gain from price adjustment after a nominal shock is greater if others adjust this strategic complementarity leads to multiple equilibria in the degree of rigidity welfare may be much higher in the equilibria with less rigidity thus nominal rigidity arises from a failure to coordinate price changes jel e12 e30 keynesian macroeconomics waned in the 1970 s because economists grew disenchanted with its weak microeconomic foundations the central difficulty was that keynesian models were based on ad hoc rigidities in nominal wages and prices the 1980 s produced two approaches to reviving keynesian theory the menu cost literature n gregory mankiw 1985 george akerlof and janet yellen 1985 seeks to provide rigorous explanations for nominal rigidities these papers argue that small frictions in price setting are enough to produce large nominal rigidities in contrast the coordination failure literature russell cooper and andrew john 1988 abandons nominal rigidities and seeks alternative foundations for keynesian models the central idea is that many economic activities such as production e g john bryant 1983 trade e g peter diamond 1982 and investment e g nobuhiro kiyotaki 1988 exhibit synergism or strategic complementarity one agent s optimal level of activity depends positively on others activity strategic complementarity can lead to multiple equilibria with high activity equilibria superior to low activity equilibria thus an economy may be stuck in an underemployment equilibrium even though a superior equilibrium exists models with nominal rigidities and models with coordination failures are often presented as competing paradigms 1 this paper shows that this view is incorrect we take a step toward unifying the foundations of keynesian economics by showing that the two sets of ideas are highly complementary nominal rigidity arises from a failure to coordinate price changes this failure has the essential features of coordination failures in previous models flexibility in one firm s price increases the incentives for other firms to make their prices flexible this strategic complementarity leads to multiple equilibria in the degree of nominal rigidity equilibria with less rigidity more active price adjustment are often pareto superior to equilibria with more rigidity these results contribute to our understanding both of coordination failure and of nominal rigidity the range of keynesian phenomena explained by coordination failures is greatly expanded previous coordination failure models contain only real variables and thus ascribe no role to monetary policy or other determinants of nominal spending our results suggest that coordination failure is at the root of inefficient nonneutralities of money theories of nominal rigidities gain new empirical and policy im

capital accumulation and unemployment new insights on the nordic experience this paper takes a fresh look at the analysis of labour market dynamics and argues that capital accumulation plays a fundamental role in shaping unemployment movements this role has generally been examined by considering indirect transmission channels of the capital stock effects i e using variables like interest rates or investment ratios in the estimation of single equation unemployment rate models here we advocate a different approach we directly estimate the effects of capital stock in the labour market by applying the chain reaction theory of unemployment and we find that capital stock is a major determinant of unemployment in the nordic countries in particular the different unemployment experiences of these economies derive from the temporary albeit prolonged negative shocks to capital stock growth in denmark and sweden and the permanent downturn of capital stock growth in finland we are thus able to explain why the crisis of the early 1990s had a more acute impact in finland than in its twin economy sweden

emerging themes in international business research this study is motivated by two research questions 1 which recent contributions have been driving the research agenda in international business 2 which emerging themes in the literature are likely to set the stage for future work to examine these questions the study examined scholarly work in international business over the time period 1996 2006 in six leading international business journals journal of international business studies management international review journal of world business international marketing review journal of international marketing and international business review next a delphi study of the most prolific authors in these journals over the same time period was conducted to delineate a future research agenda in international business addressing these two research questions provides us with a more complete understanding of the progress made to date in international business research and provides a glimpse of the future

reappraising the eclectic paradigm in an age of alliance capitalism this article discusses the implications of the advent of alliance capitalism for our theorizing about the determinants of mne activity in particular it argues that due to the increasing porosity of the boundaries of firms countries and markets the eclectic or oli paradigm of international production needs to consider more explicitly the competitive advantages arising from the way firms organize their inter firm transactions the growing interdependencies of many intermediate product markets and the widening of the portfolio of the assets of districts regions and countries to embrace the external economies of interdependent activities

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

international trade and business in the late 1980s an integrated u s perspective much of the current research and teaching in international business and trade is not part of a concerted effort in a given direction this is the result of a lack of adequate information about what the major issues will be and a lack of adequate communication between the academic business and policymaking communities this article presents the findings of a delphi study conducted with academicians business executives and policymakers involved in international trade the most crucial issue identified by that research is the current challenge to the multilateral trade framework this challenge emanates from such new factors as trade in services subsidization high technology transfer countertrade and orderly marketing agreements after discussing these and other newly emerging issues in international business and trade recommendations are made to encourage a better focus for future research and teaching in the international business and trade arena

trends in international business research twenty five years later international business ib research has made enormous strides in the quarter century since jibs was inaugurated this article reflects upon the development of ib research during that period it first reviews the findings and recommendations of a comprehensive survey of the embryonic field of ib research conducted twenty five years ago several early trends identified then are discussed the astonishing acceleration in the pace of ib research the broadening of research activity across a greater range of functional areas and an expanding geographic base of research outside of north america especially in europe we then discuss the evolution of ib research since that formative period growing breadth and diversity greater methodological sophistication a move toward research transcending traditional functional boundaries development of new research areas such as management information systems and international coalitions and alliances research on the phenomenon of transnational firms as complete systems and the continued broadening of the geographic base of research emerging research areas such as international entrepreneurship and small business and the greening of business are identified the article concludes with calls for more research collaboration across national boundaries and for greater synthesis of research into broader more integrative frameworks

international multilateral negotiations and social networks compared to their bilateral counterparts multilateral negotiations in an international setting present an extremely complex set of negotiation phenomena this paper proposes a model of negotiations that examines how national culture organization specific factors and individual characteristics of the negotiators impact the multilateral negotiation process in a cross national context specifically social network theory and tools are utilized to examine how coalitions form and roles emerge among participants the model also posits the effect of social network activity on negotiation outcomes research propositions are forwarded in hopes of setting an agenda for the research stream implied by the model methods for testing the model and implications for academics and managers are also discussed

taxation unemployment and growth dynamic welfare effects of green policies abstract this paper analyzes the effects of environmental tax reforms on a small open economy the labor market is characterized by union wage setting the carbon tax acts as an implicit tariff which gives rise to terms of trade gains the terms of trade effect together with the union wage setting leads to a positive relationship between the capital labor ratio and net foreign wealth in the short run the disinvestments in real and financial capital give temporary room for higher consumption and instantaneous utility the long run effect on instantaneous utility is more uncertain a strong double dividend may exist

the cyclical nature of markups in canadian manufacturing a production theory approach in this paper the effects of cost and demand characteristics on the magnitude and cyclical behaviour of markups in canadian manufacturing are measured within a production theory framework price to marginal cost ratios for various manufacturing industries are computed and the impact art their secular and cyclical trends from changes in capacity utilization scale economies variable input prices import competition unemployment and other exogenous market and technological determinants are explored using adjusted markup indexes and elasticities the measured price margins seem weakly procyclical further evaluation of the determinants of these cycles suggests that the procyclical nature of markups is primarily related to exogenous factors affecting costs such as energy price shocks and that cost characteristics underlying scale economies provide a countercyclical influence that counteracts the profitability arising from markups

winners and losers from the uro abstract using the synthetic control method this paper estimates the effect of having joined the monetary union on the income per capita of six early adopters of the euro our estimates suggest that while the income per capita of belgium france germany and italy would have been higher without the euro that of ireland would have been considerably lower in contrast the netherlands would have been as well off without the euro we show that these estimates are not contingent on our choice of baseline control groups growth predictors and pre treatment period in addition we use the insights from the literature on the economic determinants of the costs and benefits of monetary unions to explain our estimates we find that early euro adopters with a business cycle more synchronized to that of the union and more open to intra union trade or migration lost less or gained more from the euro a key role in increasing post euro income losses of union members has been played by the integration of capital markets

relevance in international business research a need for more linkages the bi annual presentation by the outgoing aib president has become traditional it is not only an honor but also an unusual opportunity to address an audience composed of international experts in all areas relating to international business it is also a perplexing challenge to choose a topic that should be of general interest without departing too much from one s own field of specialized interest fortunately the aib officers agreed on a theme for this year s meeting relevance in international business research which presented me a topic to discuss

dynamics of the trade balance and the terms of trade the j curve the authors provide a theoretical interpretation of two features of international data the countercyclical movements in net exports and the tendency for the trade balance to be negatively correlated with current and future movements in terms of trade but positively correlated with past movements they document the same properties in a two country stochastic growth model in which trade fluctuations reflect in large part the dynamics of capital formation the authors find that their general equilibrium perspective is essential the relation between the trade balance and the terms of trade depends critically on the source of fluctuations copyright 1994 by american economic association

interactions of commitment and discretion in monetary and fiscal policies we consider monetary scal interactions when the monetary authority is more conservative than the scal with both policies discretionary 1 nash equilibrium yields lower output and higher price than the ideal points of both authorities 2 of the two leadership possibilities scal leadership is generally better with scal discretion monetary commitment yields the same outcome as discretionary monetary leadership for all realizations of shocks but scal commitment is not similarly negated by monetary discretion second best outcomes require either joint commitment or identical targets for both authorities output socially optimal and price level appropriately conservative or complete separation of tasks jel e61 e63

theoretical developments in the light of macroeconomic policy and empirical research macroeconomics is surveyed with emphasis on the implications of the new classical and rational expectations critiques for the keynesian paradigm and the role of macro policies at the background are the main macro developments of the 1 970s and 1 980s as well as the specific lessons of recent high chronic inflation processes a synthesis is emerging in which the basic keynesian view of the existence of market and price coordination failures as well as room for pareto improving policy intervention are maintained at the same time the theoretical underpinnings are undergoing substantial change mainly due to a rational expectations reformulation

does exchange rate variability matter for welfare a quantitative investigation of stabilization policies abstract this paper studies what degree of exchange rate stabilization is optimal for several types of open economies this is accomplished through a quantitative evaluation of optimal monetary policy rules in a two country sticky price model first a calibrated benchmark model with incomplete asset markets supports past conclusions from simpler models emphasizing inflation stabilization rather than exchange rate stabilization it also highlights that the utility gains from optimal stabilization policy are small second while an economy extended to include consumer habits implies greater sensitivity by households to consumption variability it has only minor effects on the benchmark conclusions and benefits finally these conclusions are altered under an alternative environment where international asset markets exhibit asymmetry in the form of original sin such countries can benefit from policies that aggressively stabilize the exchange rate with utility gains larger than the previous cases

pass through of exchange rates and purchasing power parity abstract in this paper we develop and test two hypotheses about purchasing power parity ppp the first is that changes in the price of traded goods relative to domestic substitutes will affect the ppp relation due to the partial pass through of exchange rates the second is that ppp should hold on forward rather than spot exchange rates due to hedging by firms which implies that the interest rate differential should enter the ppp relation for spot rates using quarterly data for several countries we find support for both these hypotheses though the magnitude of the interest rate effect is very small

hysteresis in unemployment unemployment has risen sharply in a number of countries and it appears to be becoming more persistent the experience of the 1970s and 1980s showed that adverse unemployment shocks could have long lasting effects with very serious economic and social consequences a key mechanism producing these adverse consequences was hysteresis in unemployment whereby temporary rises in unemployment generated by supply and or demand shocks had permanent or at least very persistent effects clearly it is important to understand how hysteresis mechanisms might operate in order to avoid such adverse outcomes on the other hand experience during the subsequent two decades showed that under more favourable macroeconomic conditions it is possible to observe good hysteresis effects now is a very appropriate time to re visit the issue of hysteresis in unemployment in order to avoid the errors of the 1970s and 1980s and if possible to get hysteresis effects working in a positive direction copyright 2011 oxford university press

asymmetric effects of money supply shocks and trend inflation in recent years a number of empirical studies have presented evidence that money supply shocks have asymmetric effects that is unexpected negative changes in the money supply slow the economy more than unexpected positive changes accelerate the economy evidence of asymmetry was documented by cover 1992 for the postwar u s economy and his finding was confirmed by de long and summers 1988 morgan 1993 rhee and rich 1995 and karras 1996a b stimulated by these empirical works several attempts have been made to provide microeconomic foundations for the asymmetric effects of money supply shocks 1 among those theories this paper examines the one that focuses on asymmetric price adjustment and let us call it a sticky price theory money supply shocks will have asymmetric effects on real output if prices are less flexible downward than upward this sticky price theory was proposed by tsiddon 1993 ball and mankiw 1994 and caballero and engel 1992 by employing a menu cost model the above researchers show that positive trend inflation can produce the asymmetric effects of money supply shocks the logic of their theory is the following along with price adjustment costs positive trend infla

unemployment persistence does the size of the shock matter one of the stylized facts of unemployment is that shifts in its mean rate between decades and half decades account for most of its variance in this paper we use a statistical analysis based on markov switching regression models to identify the dates of infrequent changes in the mean of the unemployment rate series of fifteen countries we find that in most countries unemployment persistence is much reduced once the infrequently changing mean rate induced by large shocks to unemployment has been removed we conclude that the observed persistence in unemployment appears to be consistent with multiple equilibria models and models with an endogeneous natural rate 1998 john wiley sons ltd

the role of economic theory in modelling the long run this argues for a closer link between the modelling of the long run relations in applied economics and the intertemporal equilibrium notion from economic theory this abstract was borrowed from another version of this item

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

wage dynamics reconciling theory and evidence u s macroeconomic evidence shows a negative relation between the rate of change of wages and unemployment in contrast most theories of wage determination imply a negative relation between the level of wages and unemployment in this paper we ask whether one can reconcile the empirical evidence with theoretical wage relations we reach three main conclusions first we derive the condition under which the two can indeed be reconciled we show the constraints that such a condition imposes on the determinants of workers reservation wages as well as the relative importance of workers outside options as opposed to match specific productivity in wage determination second in the light of this condition we reinterpret the presence of an error correction term in macroeconomic wage relations for most european economies but not in the united states third we show that whether this condition holds or not has important implications for the effects of a number of variables from real interest rates to oil prices to payroll taxes on the natural rate of unemployment this abstract was borrowed from another version of this item

competition and inflation differentials in emu in a monetary union inflation rate differentials may be substantial over the business cycle this paper parameterizes a two country monetary union in which different economic structures in the two countries generate temporary inflation differentials cross country differences are introduced in i the elasticity of demand in the goods markets which cause producers to discriminate prices ii the degree of price inertia and iii the degree of openness or preference for foreign goods in consumption the model is calibrated to reproduce two average large emu countries and it is able to generate such inflation differentials we find the mechanism of price discrimination quantitatively more important than the differences in price inertia moreover under asymmetric shocks differences in the degree of openness such as those observed within the emu can have sizeable effects on the dispersion of inflation rates

capital formation and unemployment this paper criticizes the current enthusiasm for labour market policies as the main route to employment creation in oecd countries such policies are normally seen as a means of encouraging more employment on existing capital stock this approach is one sided and downplays the equally important task of increasing productive capacity with more investment in productive capacity conventional labour market policies for increasing employment would be more effective and some might be unnecessary the paper analyses the role of capital stock within the framework of a simple nairu model based on previous work by the author it also presents some empirical evidence copyright 1995 by oxford university press

exchange rates and traded goods prices abstract this paper presents a partial equilibrium model of the determination of domestic and export prices by a monopolistic competitive firm the model stresses the role of exchange rate uncertainty and expectations the most important result of the analysis is that the stochastic properties of deviations from the law of one price are crucially affected by the currency of denomination of export prices using data on domestic and dollar export prices of japanese goods i find that deviations from the law of one price are due to exchange rate surprises but also to price staggering and ex ante price discrimination

technical progress and aggregate fluctuations abstract we compare the cyclical fluctuations exhibited by a stochastic growth model under various stochastic processes governing technical change all of which are highly autocorrelated the results obtained are quite sensitive to the precise form of this stochastic process in particular the results depend on whether growth is deterministic or stochastic and in each case are quite sensitive to the persistence of an innovation the model does a relatively poor job of accounting for features of observed business cycles when technical change is difference stationary and does a better job when technical change is trend stationary but highly autocorrelated

the views of american multinational ceos on internationalized business education for prospective employees for some time a number of industry leaders have been exhorting american business schools to train their students in the aspects of international business as late as 1987 a group of prominent leaders from business labor academia and government issued a report that stated that business schools must internationalize the entire course of study and should include comparative business practices foreign languages and analyses of other countries and cultures

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

capital accumulation and unemployment a tale of two continents in contrast to much recent work regarding the causes of european unemployment in this paper we emphasize the importance of capital accumulation but unlike the few previous studies which have examined the relationship between capital accumulation and unemployment we argue that what matters for the evolution of employment and the unemployment rate is not the absolute growth rate of a country s capital stock but its evolution relative to other countries capital stock the empirical validity of the above statement is demonstrated for almost all oecd countries using quarterly time series data for the period 1961 1995 more detailed evidence is also presented for germany japan and the united kingdom

what determines aggregate returns to scale abstract this paper develops a unified framework that incorporates four features important in existing models with increasing returns fixed costs decreasing marginal costs product variety and market power when fixed costs are not allowed to vary and profits are imposed to be zero in every period only the degree of returns to variety determines the degree of aggregate increasing returns to scale when fixed costs respond to changes in aggregate activity or the zero profit condition does not hold in the short run aggregate returns depend not only on product variety but also on diminishing marginal costs or market power the degree of market power however does not affect input prices which are critical to determine the uniqueness of equilibrium

capital accumulation labour market institutions and unemployment in the medium run according to the mainstream view labour market institutions lmis are the key determinants of unemployment in the medium run the actual empirical explanatory power of measures for labour market institutions however has recently been called into question the keynesian view holds periods of high real interest rates and insufficient capital accumulation responsible for unemployment empirical work in this tradition has paid little attention to the role of lmis this paper contributes to the debate by highlighting the role of autonomous changes in capital accumulation as a macroeconomic shock in the empirical analysis medium term unemployment is explained by capital accumulation lmis and a number of macroeconomic shocks in a panel analysis covering 20 oecd countries the economic effects of changes in lmi variations in capital accumulation and other macro shocks are compared capital accumulation and the real interest rate are found to have statistically significant effects that are robust to the inclusion of control variables and show larger effects than lmi

price rigidities and market structure conventional wisdom has it that a large part of the explanation of keynesian unemployment is the observed rigidities of wages and prices what has been lacking however is a satisfactory theory or conjunction of theories which explains how wages and prices can be at non market clearing levels the objective of this paper is to sketch out several alternative theoretical explanations of this phenomenon each in contrast with keynesian theory is consistent with the observation that as the economy goes into a recession real product wages do not increase and may in fact decrease all of the theories assume rational profit maximizing firms and all entail some important departure from the standard competitive paradigm the first three explanations represent minor adaptations of standard models

small menu costs and large business cycles a macroeconomic model of monopoly i introduction the conflict between modern neoclassical and traditional keynesian theories of the business cycle centers upon the pricing mechanism in neoclassical models prices are fully flexible they represent the continuous optimization of economic agents and the continuous intersection of supply and demand in keynesian models prices are often assumed to be sticky they do not necessarily equilibrate all markets at all times one of the reasons for the resurgence of the equilibrium approach to macroeconomics has been the absence of a theoretical underpinning for this keynesian price stickiness this note shows that sticky prices can be both privately efficient and socially inefficient the business cycle results from the suboptimal adjustment of prices in response to a demand shock to the extent that policy can stabilize aggregate demand it can mitigate the social loss due to this suboptimal adjustment in some keynesian models prices are simply exogenously fixed 2 in others agents must set their prices in advance of the transaction date the act of altering a posted price is certainly costly these costs include such items as printing new catalogs and informing salesmen of the new price yet these menu costs are small and therefore generally perceived as providing only a weak foundation for these fixed price models however this inference is flawed small menu costs can cause large welfare losses the claim that price adjustment costs are small does not rebut the claim that they are central to understanding economic fluctuations

increasing returns and the foundations of unemployment theory current approaches to macroeconomic theory divide roughly into two basic schools of thought one approach typically associated with rational expectations views the economy as basically at or near walrasian market clearing equilibrium in which case it becomes very difficult to explain away convincingly the undeniable persistence at times of involuntary unemployment another approach views the underemployed economy as being in a state of temporary fixed price disequilibrium in which case aside from having to repress suspicions that the essence of effective demand failure might not have to do with prices fixed at wrong values there is a lot of rationalising to be done about why profitable adjustments are so slow this paper argues that something like an internally consistent theory of steady state involuntary unemployment is possible and even plausible the cornerstone of this third approach is increasing returns to scale which blocks unemployed agents from breaking out of a low level equilibrium trap unless there is overall coordination or stimulation a simple model is presented which contains the basic ideas

international comparisons of pricing to market behavior this paper measures the degree of price discrimination across export destinations that is associated with exchange rate changes using u s u k german and japanese industry level data given the industries sampled more price discrimination across destinations is observed in the u k german and japanese data for industries that match across source countries however behavior is very similar across source countries furthermore destination specific price adjustment on exports to the united states from germany and japan is similar to price adjustment observed on shipments to other destinations most variation in the data appears to be related to industry copyright 1993 by american economic association

an analysis of twenty five years of research in the journal of international business studies the article analyzes the twenty five years of research published in the journal of international business studies jibs since its inception in 1970 the article reviews the authors their institutional affiliations and the discipline content of the published articles

the economic crisis of the 1990s in finland finland s depression a tale of bad luck and bad policies in the 1990s finland underwent a deep depression as its gdp dropped about 14 and unemployment rose from 3 to almost 20 this is a story of bad luck and bad policies bad luck took the form of external shocks the collapse of trade with the former soviet union in 1991 but also sharp cycles in the oecd area however bad luck is far from being the whole story in the absence of bad policies finland would have experienced a recession not a depression bad policies included a poorly designed financial regulation and mistaken reactions to the onset of the crisis of particular interest is the role of financial factors in triggering the crisis and aggravating the effects of bad policies not only were consumption and investment spending hurt by the credit crunch but there is evidence that the private sector s indebtedness has increased structural unemployment which explains why the recovery is proceeding with few job creations a number of general lessons emerge they concern the deregulation of financial markets the policy reaction to massive capital inflows and the role of employment policies seppo honkapohja and erkki koskela

the inherent benefit of monetary unions abstract if the monetary authority lacks commitment a monetary union can dominate flexible exchange rates with forward looking staggered pricing inertia in the terms of trade induced by a fixed exchange rate is a benefit under discretion since it acts like a commitment device by trading off flexibility in the adjustment of the terms of trade the monetary authority improves on its ability to manage private sector s expectations the higher the incidence of asymmetric inefficient shocks and or the higher the degree of nominal price rigidity the greater the inherent benefit of monetary unions in stark contrast to the traditional optimum currency area theory

phillips curves and unemployment dynamics a critique and a holistic perspective the conventional wisdom that inflation and unemployment are unrelated in the long run implies that these phenomena can be analysed by separate branches of economics the macro literature tries to explain inflation dynamics and estimates the nairu the labour macro literature tries to explain unemployment dynamics and determine the real economic factors that drive the natural rate of unemployment we show that the orthodox view that the new keynesian phillips curve is vertical in the long run and that it cannot generate substantial inflation persistence relies on the implausible assumption of a zero interest rate in the light of these results we argue that a holistic framework is needed to jointly explain the evolution of inflation and unemployment

wage setting and the tax system theory and evidence for the united kingdom abstract this paper analyses the effects of a non linear tax system on wage bargaining the main conclusions are an increase in the marginal income or payroll tax rate reduces the pre tax wage in the isoelastic case an increase in the average tax rate increases the pre tax wage by more than the tax increase and a measure of the progressivity of the tax system residual income progression is a sufficient measure of the effect of the tax system on wage pressure empirical evidence is presented to support these propositions and the predictions of the model regarding the effect of recent changes to the u k tax system on the distribution of earnings discussed

international business education a corporate view as a preliminary step in the internationalization of business school curricula 122 major canadian corporations were surveyed for their views on the importance of various management skills and international courses as well as their opinion on the mechanisms institutions and academics for delivering them this article reports on the responses obtained and suggests methods for improving the overall effectiveness of international business education

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

international business and trade in the next decade report from a delphi study the globalization of business causes major changes in the business environment and in business practices forecasting such changes is crucial for the preparation of responses to them this article reports on a delphi study conducted with a global set of experts drawn from the policy business and academic communities over three rounds of mailings these experts analyzed and debated the likelihood of changes in the international business environment over the next decade and the impact of these changes on corporate practices the findings identify key geographic areas of business growth major sectoral transformations shifts in the trade framework and its institution and strategies for corporate adjustment

working to improve the consumer price index he recent report of the advisory commission appointed by the u s senatefinance committee begins with one overarching recommendation thebls should establish a cost of living index coli as its objective in mea suring consumer prices u s senate 1996 p 2 this seems basically right to us indeed the bls has long said that the cost of living framework guides operationaldecisions about the construction of the index gillingham 1974 u s bureau oflabor statistics 1984 1988 1992 1997a putting things slightly differently if thebls staff or other technical experts knew how to produce a true cost of living indexon a monthly production schedule that would be what we would produce althoughwe have no fundamental disagreement with the commission about what the objec tive of the cpi program ought to be we may disagree to some extent about theapproaches and methods that are appropriate and feasible in working toward thatobjective this is a point to which we will return below our rst purpose in the present paper is to comment on the advisory com mission s report and the recommendations it contains