subsidizing renewable energy under capital mobility abstract this paper provides a rationale for subsidizing green renewable energy production within a multi country model where energy is produced with mobile capital in green and dirty production we investigate the countries decentralized choice of emissions taxes and green energy subsidies without green subsidies the emissions tax is set inefficiently low since each country ignores the environmental externality inflicted on other countries and since the emissions tax leads to a capital outflow to other countries when the green subsidy is available countries choose a positive subsidy rate since this reduces the overall distortion of the tax subsidy system in doing so each country internalizes a larger part of the environmental externality as a consequence capital is relocated from the dirty into the clean sectors and reduces global pollution hence the subsidy is not only beneficial for the country which imposes it but also for all countries

on cross border bank credit and the u s financial crisis transmission to equity markets this paper examines the role played by cross border equity bond and bank credit flows versus international trade in the transmission of the u s financial crisis to equity markets worldwide we estimate vector autoregressive models with exogenous global factors using monthly data on 36 emerging and developed countries the results from an eclectic methodology that includes causality tests generalized impulse responses and forecast error variance decompositions indicate that the crisis is mostly transmitted through bank credit rather than portfolio flows and international trade the results are robust to altering the exogenous versus endogenous vectors of variables to measuring equity prices in u s dollars or local currency to averaging the data across countries versus averaging the parameters from individual country estimation and to redefining the start date of the crisis the findings endorse the use of banking regulation and capital controls as part of the policy toolkit to limit financial vulnerability

the brevity and violence of contractions and expansions abstract early studies of business cycles argued that contractions in economic activity were briefer shorter and more violent rapid than expansions this paper systematically investigates this claim and in the process discovers a robust new business cycle fact contractions in employment are briefer and more violent than expansions but we cannot reject the null of equal brevity and violence for expansions and contractions in output the difference arises because employment typically lags output around peaks but they coincide in their troughs we discuss the performance of existing business cycle models in accounting for this fact and conclude that none can fully account for it we then show that a business cycle model with asymmetric adjustment costs on employment and a choice of when to scrap old technologies can account for the business cycle fact both qualitatively and quantitatively

endogenous market structures in international trade natura facit saltum abstract almost all of the large literature on international trade with imperfect competition assumes exogenous market structures the purpose of this paper is to develop a simple model that generates alternative market structures as nash equilibria for different parameterizations of the basic model equilibrium market structure is a function of the underlying technology familiar configurations such as a duopoly competing in exports or a single multinational producing in both markets arise as special cases small tax policy changes can produce large welfare effects as the equilibrium market structure shifts implying discontinuous jumps in prices quantities and profits

optimal emission tax with endogenous location choice of duopolistic firms this study explores an optimal pre committed or ex ante environmental tax policy in a three stage game in which polluting firms strategically choose the location of their plants after the government has chosen the optimal emission tax rate we show not only that the optimal emission tax is non decreasing with the declining cost of relocation e g setup or fixed costs or else the progress of globalization but also that the firms may move back their relocated plants to the home country causing the resulting welfare to decline as a consequence the domestic welfare varies in a non monotonic way we also show that such a counterintuitive non monotonic relationship does not arise under time consistent ex post emission taxes

competition in regional environmental policies when plant locations are endogenous abstract a two region model is presented in which an imperfectly competitive firm produces a good with increasing returns at the plant level production of the good causes local pollution the firm decides whether to maintain plants in both regions serve both regions from a single plant or shut down if the disutility of pollution is high enough the two regions will compete by increasing their environmental taxes standards until the polluting firm is driven from the market alternatively if the disutility from pollution is not as great the regions will usually compete by undercutting each other s pollution tax rates

efficient climate policy with internationally mobile firms a major concern in the design of an incomplete climate agreement is thatfirms that use fossil fuels intensively may respond to emission regulationsby relocating their plants from cooperating to non cooperating countries this paper analyses how the cooperating countries might deal with the issueof firm delocation through emission taxes trade provisions and alocalisation subsidy to mobile firms it is shown that firms should not beinduced to stay in the cooperating countries by lowering emission taxesbelow the pigouvian tax rate incentives to stay should be given partlythrough trade provisions and partly through a localisation subsidy a secondbest solution without localisation subsidies is also discussed in thatcase the efficient emission tax is lower than the pigouvian tax rate finally the paper discusses the implications of the first best and thesecond best policy regimes for the pattern of firm localisation

carbon leakage grandfathering as an incentive device to avert firm relocation emission allowances are sometimes distributed for free in an early phase of a cap and trade scheme to reduce adverse effects on the profitability of firms this paper investigates whether grandfathering can also be used to avert the relocation of firms to countries with lower carbon prices we show that under certain conditions relocation can be averted in the long run even if the grandfathering scheme is phased out over time and immediate relocation is profitable in its absence this requires that the permit price triggers sufficient investments into low carbon technologies or abatement capital that create a lock in effect which makes relocation unprofitable

introduction to sunspots and lotteries abstract this introduces the symposium on sunspots and lotteries two stochastic general equilibrium concepts sunspot equilibrium se and lottery equilibrium le are compared it is shown that for some general pure exchange economies which allow for consumption nonconvexities or moral hazards the set of le allocations is equivalent to the set of se allocations provided that the randomizing device can generate events of any probability journal of economic literature classification numbers d51 d82 d84 e32

interpreting a stochastic monetary growth model as a modified social planner s problem abstract using a stochastic cash in advance growth model similar to that studied by cooley and hansen 1989 it is demonstrated that the competitive monetary equilibrium can be expressed as the solution to a modified social planner s problem hence by employing standard dynamic optimization techniques and the second welfare theorem to the modified social planner s problem the equilibrium of the monetary economy can be studied

interjurisdictional capital mobility fiscal externality and a corrective subsidy abstract recent studies emphasize that local property taxation may result in inefficiently small amounts of local public spending this paper shows that the inefficiency can be traced to a fiscal externality when one jurisdiction increases its taxes it causes a flow of capital to other jurisdictions that increases their tax revenues the inefficiency can be corrected with a subsidy that internalizes the externality key empirical parameters determining the magnitude of the externality are identified illustrative calculations indicate that subsidy rates on the order of 40 might be required to achieve efficiency

on the econometrics of world business cycles over the past 10 or 15 years academic interest in business cycles has recovered to a level not matched perhaps since the 1930s in his editorial statement in the first issue of econometric8 in 1933 ragnar frisch not only introduced a new word econometrics which he defined as quantitative economic theory but also listed business cycle theory among four fields of particular interest to econometricians this inclusion reflected the views not only of frisch but also of hayek 1931 tinbergen 1935 and others this interest waned however in the 1950s and 1960s a major factor leading to its reawakening was the paper by robert lucas 1977 on understanding business cycles perhaps this course of events was not surprising a prerequisite for making much progress in this field was dynamic general equilibrium theory by the 1970s the basic theory had been developed and neoclassical growth theory evolved as the dominant framework for business cycle analysis

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

inter regional competition comparative advantage and environmental federalism in this paper we compare endogenous environmental policy setting with centralized and decentralized governments when regions have comparative advantages in different polluting goods we develop a two region two good model with inter regional environmental damages and perfect competition in product markets where both regions produce both goods despite positive spillovers of pollution across regions the model predicts that decentralization may lead to weaker or stricter environmental standards or taxes depending on the degree of regional comparative advantage and the extent of transboundary pollution this suggests that federalism can lead to either a race to the bottom or a race to the top without relying on inefficient lobbying efforts or capital competition resume concurrence inter regionale avantage comparatif et federalisme environnemental dans ce texte les auteurs comparent l appareil de definition de politique environnementale endogene pour des gouvernements centralises et decentralises quand les regions ont des avantages comparatifs dans la production de divers biens polluants on developpe un modele a deux regions et a deux biens operant dans un cadre ou existent 1 des effets de retombees inter regionales toxiques pour l environnement 2 concurrence parfaite dans les marches des produits et 3 ou les deux regions produisent les deux biens malgre les effets de pollution entre regions le modele predit que la decentralisation peut entrainer des standards et des taxes portant sur l environnement qui sont soit plus faibles ou plus forts selon le degre d avantage comparatif regional et la nature de la pollution transfrontiere on suggere que le federalisme peut conduire a une emulation soit vers le bas soit vers le haut sans avoir a avoir recours a des efforts de lobbying inefficaces ou a la concurrence pour le capital pour expliquer le resultat

the impact of selected abatement strategies on transnational pollution the terms of trade and factor rewards a general equilibrium approach abstract widespread publicity of international conflict over transfrontier pollutants such as acid deposition and the november 1986 chemical spill in the rhine river has increased the public s awareness of the need to devise abatement strategies appropriate for transnational pollution this article develops a general equilibrium approach for analyzing the economic impacts of selected abatement strategies the model includes internationally mobile goods capital and pollution flows and flexible output and factor prices the general equilibrium approach provides policymakers with important information which is usually not revealed by a partial equilibrium approach that is demonstrated by applying the model to the north american acid deposition issue

international business cycles what are the facts abstract modern business cycle theory involves developing models that explain stylized facts for this strategy to be successful these facts should be well established in this paper we focus on the stylized facts of international business cycles we use the generalized method of moments and quarterly data from twenty industrialized countries to estimate and test hypotheses concerning pairwise cross country correlations of macroeconomic aggregates a remarkable common feature emerges these correlations are mostly positive not very high and of a similar order of magnitude the most important discrepancy with the theory is the low cross country correlation of consumption

straight time and overtime in equilibrium abstract we formulate an equilibrium model of straight time and overtime wages by imposing restrictions on agents consumption sets and using a commodity space that includes employment lotteries we extract some time series implications from a linear quadratic approximation to our model evaluated at particular parameter values we use our model informally to interpret some features of observed time series for wages and employment

a note on environmental federalism interpreting some contradictory results abstract this paper reconciles some conflicting interpretations of recent literature on interjurisdictional environmental regulatory competition 6 7 present a model in which competition to attract investment by lowering environmental standards leads to a pareto optimal equilibrium 3 and 4 describe a model in which such competition can result in a suboptimal nash equilibrium while it would be possible to draw opposite policy implications from the two models regarding the appropriate degree of environmental federalism such a conclusion would be incorrect this paper reconciles the different results by showing that they depend in large part on monopoly profits and tax exporting not the nature of the pollution externality or environmental federalism

end of pipe or cleaner production how to go green in presence of income inequality and pro environmental behavior in this paper we consider a vertically differentiated duopoly model in which a green producer competes with a brown rival in a market in which consumers are environmentally concerned in particular consumers are assumed to value not only the intrinsic quality of a certain product but also its environmental impact this environmental valuation has a positional content consumers attach a positive attribute to the green product while penalizing the brown one in this context we consider the choice of the green firm between cleaner and end of pipe abatement efforts we find that the interplay between the intensity of market competition consumers income disparity and environmental concern can play a crucial role in directing the green producer towards one or the other technological choice more precisely the adoption of cleaner production technologies can be discouraged by low average income and by tough competition while it can be spurred by the moral social incentive towards pro environmental behavior

international capital flows abstract the surge in international asset trade since the early 1990s has lead to renewed interest in models with international portfolio choice we develop the implications of portfolio choice for both gross and net international capital flows in the context of a simple two country dynamic stochastic general equilibrium dsge model we focus on the time variation in portfolio allocation following shocks and resulting capital flows endogenous time variation in expected returns and risk which are the key determinants of portfolio choice affect capital flows in often subtle ways the model is consistent with a broad range of empirical evidence an additional contribution of the paper is to overcome the technical difficulty of solving dsge models with portfolio choice by developing a broadly applicable solution method

environmental policy when market structure and plant locations are endogenous abstract a two region two firm model is developed in which firms choose the number and the regional locations of their plants both firms pollute and market structure is endogenous to environmental policy there are increasing returns at the plant level imperfect competition between the home and the foreign firm and transport costs between the two markets at critical levels of environmental policy variables small policy changes cause large discrete jumps in a region s pollution and welfare as a firm closes or opens a plant or shifts production to from a foreign branch plant the implications for optimal environmental policy differ significantly from those suggested by traditional pigouvian marginal analysis

inflation and labor market dynamics revisited abstract we demonstrate that the presence of an empirically plausible labor adjustment decision at the firm level rationalizes strategic complementarities in price setting which help explain inflation dynamics those strategic complementarities are typically assumed away in the related existing literature this motivates our revisiting of inflation and labor market dynamics

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

the workweek of capital and its cyclical implications abstract the neoclassical growth model studied in the kydland and prescott time to build paper is modified to permit the capital utilization rate to vary the effect of this modification is to increase the amplitude of the aggregate fluctuations predicted by theory as the equilibrium response to technological shocks if following solow the changes in output not accounted for by changes in the labor and tangible capital inputs are interpreted as being the technology shocks the statistical properties of the fluctuations in the postwar united states economy are close in magnitude and nature to those predicted by theory

new keynesian perspectives on labor market dynamics abstract we find that demand shocks play an important role for business cycle fluctuations in unemployment and job vacancies the reason is that those shocks give a strong incentive to demand constrained firms to adjust production and thereby labor input furthermore we argue that whether real wage rigidity a la hall 2005 employment fluctuations with equilibrium wage stickiness american economic review 95 50 65 helps explain the remaining part of the unemployment volatility puzzle depends critically on assumptions regarding the form of the wage bargain between firms and workers real wage rigidity tends to generate volatility in employment only in the case in which hours are chosen efficiently if on the other hand the real wage is allowed to affect firms s choices of hours directly the feature of real wage rigidity loses its ability to increase employment volatility

cyclical productivity in a model of labor hoarding abstract this paper develops a dynamic model of labor hoarding to explain two empirical facts the cyclical behavior of total factor productivity and the dynamic correlations of sectoral productivity with aggregate variables the model features convex costs of adjusting the labor force which induce firms to vary the intensity of labor utilization over the cycle in particular cyclical variations in labor effort take place as a response to expected future changes in industry conditions i test the restrictions imposed by the model for several two digit manufacturing industries under different assumptions about market structure and returns to scale then using the assumption that aggregate variables carry information about future changes in industry conditions i simulate the model s dynamic response of hours and productivity to aggregate innovations and compare them to those estimated from the data

environmental policy with endogenous plant locations in a game between the governments of two countries each chooses its own environmental policy the nash equilibria of the game are generally not pareto optimal on the one hand each country may want to attract industry giving it an incentive to choose low environmental taxes or standards on the other hand if disutility from pollution is sufficiently high each country might prefer that a firm locates only in other countries this effect tends to make the environmental policy under non cooperation stricter than it would be with cooperation

location choice by households and polluting firms an evolutionary approach this paper examines several policy regimes to deal with the problem of households suffering from environmental damage by firms in the same region we employ an evolutionary framework to analyze migration movements in the course of time since firms and households will not relocate immediately in response to payoff differentials we show that taxation gives firms and households an incentive to stay away from each other laissez faire compensation only gives households firms an incentive to stay away from firms households we find that taxation creates the right incentives to reach a local welfare maximum however when there are multiple local maxima circumstances may arise under which compensation leads to a better outcome than taxation c 2004 elsevier b v all rights reserved

outward foreign direct investment patterns of italian firms in the european union s emission trading scheme we consider the role played by the european union s emissions trading system eu ets as a possible driver of outward foreign direct investment fdi for italian manufacturing firms using a panel dataset of about 22 000 firms covering the first two phases of the eu ets and the period before the eu ets we measure the patterns of fdi towards countries not covered by the eu ets the results show that the eu ets had a weak effect on the number of new subsidiaries abroad extensive margin while it had a larger impact on production taking place in foreign subsidiaries intensive margin especially in trade intensive sectors

cyclical factor utilization abstract we introduce procyclical labor and capital utilization as well as costs of rapidly increasing employment into a business cycle model plausible variations in factor utilization enable us to explain observed variability of real gnp with considerably smaller economy wide disturbances the costs of adjustment create very interesting and realistic lead and lag relationships employment does not peak until a full quarter after output workweeks effort capital utilization and productivity all sharply lead the business cycle

international relocation firm and industry determinants this article is the first to explore the determinants of international relocation of a firm it is found that labour intensive firms in a highly industrialized and open economy such as belgium tend to relocate more to other countries than their highly productive capital intensive counterparts access to a global network firm size and the rate of innovation have a positive effect on the probability of relocation uncertainty has a negative impact on the probability of relocation the positive effect of firm size and profitability on the relocation decision is clearly distinct from its effect on the exit decision of a firm

property rights protest and the siting of hazardous waste facilities ture since that time no major hwf has been sited anywhere in the united states the epa had anticipated that local opposition would make finding these sites an exceptionally difficult task their pessimism was well founded and if anything understated according to the hazardous waste counsultant s latest state by state review the outlook for siting hwfs in the future is even more bleak than in the past due in large part to what they term a worsening of the emotional atmosphere surrounding siting efforts this failure to site any new hwf has come about in spite of assurances by government and company officials that new facilities built according to the present standards would pose negligible risks to the local residents attempts have been made to break the deadlock by instituting extensive public participation procedures establishing state siting boards with the power to overrule local decision makers and requiring facility owners to compensate local governments for safety services the latter provided in this paper we argue that the ambiguous nature of the present property rights governing the siting of hwfs is an important cause of the stalemate we offer a new approach to siting which recognizes the de facto property rights assumed by local communities we propose a political market via a referendum

optimal fiscal policy for a state or local government abstract state and local government services are enjoyed by and taxes borne by two groups residents and non residents this paper addresses the question if state and local governments maximize their residents welfare and cannot distinguish between individual residents and non residents but know the aggregate characteristics of the two groups what set of taxes subsidies and public goods should they choose some of the results obtained are i even when all commodities are taxable and equity is ignored the existence of non resident consumption makes uniform taxation non optimal ii in some cases whether a commodity should be taxed or subsidized is independent of its own price elasticity iii central cities may be subsidized by suburban residents and iv the ability of state and local governments to redistribute is inversely proportional to the openness of the economy

international portfolio flows with growth shocks this paper investigates the impacts of level and growth rate productivity shocks on the cyclical dynamics of gross portfolio flows between two economies using an endogenous portfolio choice problem within a dsge framework we find that the level shocks yield procyclical gross equity flows while the growth rate shocks produce countercyclical flows these dynamics cannot be replicated by only employing persistent shocks to the level of productivity

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

labor productivity and the business cycle can r b c models be saved abstract standard r b c models do not enable one to reproduce the main labor market stylized facts employment is more variable than productivity and average productivity leads the cycle in order to mimic these features we consider a model with indivisible labor labor hoarding and adjustment costs the model is then simulated and compared to u s stylized facts we show that government expenditure shock and some specific labor adjustment costs are necessary to explain the lead of the average productivity over the business cycle

do some forms of financial flows help protect against sudden stops there is a debate on whether some forms of financial flows offer better protection against crises than others using a large panel data set that includes advanced emerging and developing economies during 1970 2003 this article analyzes the behavior of several types of flows foreign direct investment fdi portfolio equity investment portfolio debt investment other flows to the official sector other flows to banks and other flows to the nonbank private sector differences across types of flows are limited with respect to volatility persistence cross country co movement and correlation with growth at home or in the world economy however consistent with conventional wisdom fdi is the least volatile form of financial flow when the average size of net or gross flows is taken into account the differences are striking during sudden stops in financial flows defined as drops in total net financial inflows of more than percentage points of gross domestic product gdp compared with the previous year in such episodes fdi is remarkably stable and portfolio equity seems to play a limited role portfolio debt experiences a reversal though it recovers relatively quickly and other flows including bank loans and trade credit experience severe drops and often remain depressed for a few years

pollution havens and industrial agglomeration abstract this paper examines the pollution haven hypothesis using a spatial economy model of two countries and two sectors the manufacturing sector generates cross border pollution which reduces cross sectoral productivity of agricultural goods and lowers local income we derive a demand reducing effect that discourages firms to move to the country with laxer environmental regulations in the absence of any comparative advantage our analysis also demonstrates that manufacturing agglomeration forces can alleviate the pollution haven effect a pollution haven may not arise if environmental regulation is slightly more stringent in the larger country

uncertainty capital flows and maturity mismatch abstract this paper explores a how the financial uncertainty generated by volatile international capital flows interacts with maturity mismatch on the balance sheets of nonfinancial firms to increase the volatility of output investment and total factor productivity tfp in emerging market economies i build a model of a small open economy in which financial frictions force firms to fund long term projects with short term debt in response to changes in the level of uncertainty regarding the availability of foreign borrowing firms adjust their long term investment contributing to the volatility of investment and output as well as generating endogenous fluctuations in aggregate productivity using data from a panel of major emerging markets i show that the volatility of portfolio debt flows negatively affects output by dampening investment while the volatility of equity flows which do not generate maturity mismatch has no effect consistent with the mechanism in the model the negative impact of capital flow volatility is larger at low levels of financial development and in industries with longer time to build lags my estimates imply that shocks to capital flow volatility account for one fifth of the excess output volatility of the emerging markets in my sample relative to a set of small open advanced economies

environmental taxes and first mover advantages this paper studies whether governments prefer to be leaders or followers in environmental policies to analyze this question i assume transboundary pollution and two countries that have to decide whether to set environmental taxes sequentially or simultaneously when taxes are set sequentially an effect denoted as the sequential setting effect arises that raises the equilibrium taxes i show that whether governments prefer to be leaders or followers in taxes depends on the degree to which environmental pollution spills over to trading partners when this overspill is low enough taxes are strategic complements and both the leader and the follower obtain greater welfare than under a simultaneous tax setting however the leader country obtains greater welfare than the follower in this case governments set taxes sequentially when the degree to which environmental pollution spills over to trading partners is high enough taxes are strategic substitutes and governments set taxes simultaneously in this case each government wants to avoid becoming the follower in taxes

the dynamics of capital flow episodes nous proposons une methodologie nouvelle pour reperer les episodes de flux importants de capitaux cette methode repose sur un modele de markov a changement de regime le grand avantage de ce type de modeles sur les approches retenues dans la litterature est qu il permet de classifier les mouvements de capitaux en differents regimes sans qu il soit necessaire de formuler des hypotheses specifiques au contexte ou a l echantillon choisi

commodity tax competition between member states of a federation equilibrium and efficiency we first describe regional market equilibria whereupon consumers of each region allocate their purchases of private goods between domestic and nondomestic ones according to the structure of relative prices taxes and transportation costs next regional optimal tax levels and public good quantities are derived the tax of the other region being held constant fiscal competition arises from the ability of one region in choosing its tax to alter the tax base of the other

labor hoarding and the business cycle this paper investigates the sensitivity of solow residual based measures of technology shocks to labor hoarding behavior using a structural model of labor hoarding and the identifying restriction that innovations to technology shocks are orthogonal to innovations in government consumption we estimate the fraction of the variability of the solow residual that is due to technology shocks our results support the view that a significant proportion of movements in the solow residual are artifacts of labor hoarding behavior specifically we estimate that the variance of innovations to technology is roughly 50 percent less than that implied by standard real business cycle models in addition our results suggest that existing real business cycle studies substantially overstate the extent to which technology shocks account for the variability of postwar aggregate u s output

environmental regulation induced foreign direct investment the last decade has witnessed a renewed interest in the relationship between environmental regulations and international capital flows however empirical studies have so far failed to find conclusive evidence for this so called pollution haven or race to the bottom effect where foreign direct investment fdi is assumed to be attracted to low regulation countries regions or states in this paper we present a simple theoretical framework to demonstrate that greater stringency in environmental standards can lead to a strategic increase in capital inflows which we refer to as environmental regulation induced fdi our result reveals a possible explanation for the mixed results in the empirical literature and provides an illustration of the conditions under which environmental regulations in the host country can affect the location decision of foreign firms

international trade and environmental regulation time series evidence and cross section test this paper examines empiricallywhether more stringent domestic environmental policiesreduce the international competitiveness ofenvironmentally sensitive goods esgs our timeseries evidence indicates that there are no systematicchanges in trade patterns of esgs in the last threedecades despite the introduction of more stringentenvironmental regulations in most of the developedcountries in the 1970s and 1980s this observedphenomenon is then subjected to a multi countryeconometric test using an extended gravity equationframework the test suggests that overall morestringent environmental regulations do not reducetotal exports exports of esgs and exports ofnon resource based esgs neither was there anyevidence to support the hypothesis that new tradebarriers emerge to offset the effects of morestringent environmental regulations

does financial globalization promote risk sharing article i nfo in theory one of the main benefits of financial globalization is that it should allow for more efficient international risk sharing in this paper we provide an empirical evaluation of the patterns of risk sharing among different groups of countries and examine how international financial integration has affected the evolution of these patterns using a variety of empirical techniques we conclude that there is at best a modest degree of international risk sharing and certainly nowhere near the levels predicted by theory in addition only industrial countries have attained better risk sharing outcomes during the recent period of globalization developing countries have by and large been shut out of this benefit even emerging market economies many of which have reduced capital controls and all of which have witnessed large increases in cross border capital flows have seen little change in their ability to share risk we find that the composition of flows may help explain why emerging markets have not been able to realize this presumed benefi to f financial globalization in particular our results suggest that portfolio debt which had dominated the external liability stocks of most emerging markets until recently is not conducive to risk sharing

a theory of interregional tax competition a general equilibrium model is constructed to study tax competition where local governments compete for capital by holding down property tax rates and public expenditure levels an exact definition of tax competition is provided and both the existence and nonexistence of tax competition are shown to be theoretically possible it is argued however that tax competition must occur under empirically reasonable conditions inefficiency in public production is also explicitly modeled the amount of capital used to produce a given level of public service output is shown to be greater than that which is required to minimize costs evaluated at the prices facing private firms

dynamic climate policy under firm relocation the implications of phasing out free allowances the allocation of free allowances for firms within the european union emissions trading scheme was found to lead to substantial overcompensation which is why some stakeholders recently called for phasing out of free allowances in the near term this paper analyzes the consequences of phasing out free allowances in a two period model when one country unilaterally implements climate policies a carbon price induces firms to invest in abatement capital but may lead to the relocation of some firms the regulator addresses the relocation problem by offering firms transfers i e free allowances conditional on maintaining the production in the regulating country if transfers are unrestricted in both periods then the regulator implements the first best by equalizing the carbon price with the marginal environmental damage and using transfers to prevent any relocation however if transfers in the future period are restricted the planner optimally implements a declining carbon price path with the first period price exceeding the marginal environmental damage a high carbon price triggers investments in abatement capital and thus creates a lock in effect with a larger abatement capital stock firms are less affected by carbon prices in the future and therefore less prone to relocate in the second period

nobel lecture the transformation of macroeconomic policy and research what i am going to describe for you is a revolution in macroeconomics a transformation in methodology that has reshaped how we conduct our science prior to the transformation macroeconomics was largely separate from the rest of economics indeed some considered the study of macroeconomics fundamentally different and thought there was no hope of integrating macroeconomics with the rest of economics that is with neoclassical economics others held the view that neoclassical foundations for the empirically determined macro relations would in time be developed neither view proved correct finn kydland and i have been lucky to be a part of this revolution and my address will focus heavily on our role in advancing this transformation now all stories about transformation have three essential parts the time prior to the key change the transformative era and the new period that has been affected by the change and that is the story i am going to tell how macroeconomic policy and research changed as a result of the transformation of macroeconomics from constructing a system of equations of the national accounts to an investigation of dynamic stochastic model economies

quantitative easing and the post crisis surge in financial flows to developing countries abstract this paper examines gross financial inflows to developing countries between 2000 and 2013 with a focus on the potential effects of quantitative easing qe policies in the united states and other high income countries we find evidence for potential transmission of qe along observable liquidity portfolio balancing and confidence channels moreover we find that qe had an additional latent effect over and above these observable channels one that survives an array of robustness tests retains its significance across different types of financial flows and which cannot be attributed to changes in expectations or elasticity our baseline estimates place the lower bound of a qe effect at around 5 percent of gross inflows above trend for the average developing economy which is a magnitude comparable to a one standard deviation change along the traditional channels we also find evidence of heterogeneity among different types of flows portfolio especially bond flows tend to be more sensitive than fdi to our measured qe effects

cross hauling of polluting factors abstract this paper analyzes the investment environment overlap using a two stage model of two jurisdictions capital exports are modeled as choice variables for capital owners who weigh income considerations against the effects of capital exports on the quality of their local environments and on environmental policy this framework reveals that capital owners have an incentive to cross haul polluting factors across jurisdictions when direct controls are used to regulate emissions and that this cross hauling induces policymakers to ratchet up environmental policies in both locations the importance of instrument type and commitment on environmental policy is also analyzed

does environmental dumping lead to delocation environmental dumping is often viewed as an instrument used by some countries in the attempt to attract foreign investments stated otherwise the delocation of firms would be a major outcome of a stiff environmental policy in this paper we study the impact of a strict anti pollution policy pursued by a government on domestic firms locational decisions and determine the main variables that interact with such a policy some preliminary welfare implications are also provided

international capital flows to emerging markets national and global determinants using a novel dataset for emerging markets we empirically investigate the nature and determinants of aggregate and disaggregate capital inflows we present formal statistical evidence of commonalities in capital inflows with the strongest evidence for the level of equity and bank flows advanced economy long run bond yields and commodity prices are identified as determinants of global capital flows we also consider the national determinants of capital flows finding that financial openness and institutions matter for country flows finally we identify important commonalities in the volatility of bank inflows

financial globalization and real regionalization over the period 1972 1986 the correlations of gdp employment and investment between the united states and an aggregate of europe canada and japan were respectively 0 76 0 66 and 0 63 for the period 1986 to 2000 the same correlations were much lower 0 26 0 03 and 0 07 real regionalization at the same time u s international asset trade has significantly increased for example between 1972 and 1999 united states gross fdi and equity assets in the same group of countries rose from 4 to 23 percent of the u s capital stock financial globalization we argue that these two trends are intimately related we document that the correlation of real shocks between the u s and the rest of the world has declined we then present a model in which international financial market integration occurs endogenously in response to less correlated shocks financial integration further reduces the international correlations in gdp and factor supplies we find that both less correlated shocks and endogenous financial market development are needed to account for all the changes in the international business cycle

a portfolio model of capital flows to emerging markets since the crises of the late 1990 s most emerging market economies have built up substantial positive holdings of us dollar treasury bills while at the same time experiencing a boom in fdi capital inflows this paper develops a dsge model of the interaction between an emerging market economy and an advanced economy which incorporates two way capital flows between the economies the novel aspect of the paper is to make use of new methods for analyzing portfolio choice in dsge models we compare a range of alternative financial market structures in each case computing equilibrium portfolios we find that an asymmetric configuration where the emerging economy holds nominal bonds and issues claims on capital fdi can achieve a considerable degree of international risk sharing this risk sharing can be enhanced by a more stable monetary policy in the advanced economy

overtime effort and the propagation of business cycle shocks abstract this paper presents and estimates a variant of hansen and sargent s 1988 real business cycle model with straight time and overtime the model presented has only one latent variable the state of technology yet it does a better job propagating and magnifying shocks than the labor hoarding models which incorporate unobserved effort this model as well as a version of burnside eichenbaum and rebelo s 1993 labor hoarding model is estimated using maximum likelihood the maximum likelihood parameter estimates are compared to those using gmm

production growth and business cycles ii new directions abstract this paper outlines new directions for investigations of real business cycle models consideration of stochastic growth of exogenous and endogenous forms analysis of suboptimal outcomes arising due to externalities of distorting taxes and implications of labor market heterogeneity

environmental policy in majoritarian systems abstract this paper sheds new light on the determination of environmental tax policies in majoritarian federal electoral systems such as the u s and derives implications for the environmental federalism debate on whether the national or local government should have authority over environmental taxes in the absence of majority bias the socially preferred policy would be federal district level taxation which accounts both for cross boundary pollution and differences in industry concentration across districts in majoritarian systems however where the legislature consists of geographically distinct electoral districts the majority party at the national or state level favors home districts depending on the location of polluting industries and the associated damages the majority party may therefore impose sub optimally high or low pollution taxes due to a majority bias majority bias can influence the social welfare ranking of alternative environmental tax policies in some cases majority bias may make decentralized or federal uniform taxation the preferred solution

productivity shocks and real business cycles abstract productivity shocks play a central role in real business cycles as an exogenous impulse to macroeconomic activity however measured solow prescott residuals do not behave as an exogenous impulse rather econometric evidence provided in this paper indicates that 1 money interest rates and government spending granger cause these impulses and 2 a substantial component of the variance of these impulses between one quarter and one half is attributable to variations in aggregate demand these results are robust to a number of econometric issues including measurement errors specification of the production function and certain forms of omitted real variables

portfolio capital flows hot or cold a distinction is often made between short term and long term capital flows the former are deemed unstable hot money and the latter are deemed stable cold money using time series analysis of balance of payments data for five industrial and five developing countries we find that in most cases the labels short term and long term do not provide any information about the time series properties of the flow in particular long term flows are often as volatile as short term flows and the time it takes for an unexpected shock to a flow to die out is similar across flows long term flows are also at least as unpredictable as short term flows and knowledge of the type of flow does not improve the ability to forecast the aggregate capital account copyright 1995 by oxford university press

firm location and city size reduced productivity advantages as a factor in the decline of manufacturing in urban areas abstract this paper develops a model of firm location and city size that arrives at theoretical conclusions that differ from those of other authors comparative statics results suggest that changes in national wage levels and productivity levels create no determinate dis advantage for large cities relative to small ones as sites for manufacturing activity increased wage and reduced productivity premiums of large cities however result in unambiguous disadvantages statistical analysis indicates that the productivity advantages of large cities have declined in as many as eight two digit manufacturing industries that provide more than one third of metropolitan production worker employment

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

real business cycles and labor markets with imperfectly flexible wages abstract one of the principal criticisms of real business cycle models is that the assumptions made about labor markets do not accord with the actual structure of these markets this paper replaces the standard spot labor market with a market characterized by imperfectly flexible wages which corresponds to impressions of contractual labor relations it is found that the behavior of the model in terms of the predicted variances and correlations is similar to that of the standard real business cycle model but that the variability of hours worked and the correlation of hours worked with wages will depend on the structure of the labor market

overtime labor employment frictions and the new keynesian phillips curve abstract this paper presents a new keynesian nk model that is extended to differentiate between straight time and overtime work the model proposes that the new keynesian phillips curve nkpc should be estimated with marginal cost measured in terms of overtime labor the resulting coefficient estimates are in accordance with theory and statistically significant for the hybrid nkpc which allows for backward looking price setters but not for the purely forward looking nkpc in the hybrid model backward looking behavior is found to be predominant the paper also shows that the incorporation of employment frictions predetermined employment and convex adjustment costs in nk models helps reconcile the frequent price changes found in the microdata with the degree of sluggishness in inflation adjustment to output changes at the macro level

the composition of capital inflows when emerging market firms face financing constraints abstract the composition of capital inflows to emerging market economies tends to follow a predictable dynamic pattern across the business cycle in most emerging market economies total inflows are pro cyclical with debt and portfolio equity flowing in first followed later in the expansion by foreign direct investment fdi to understand the dynamic composition of these flows we use a small open economy soe framework to model the composition of capital inflows as the equilibrium outcome of emerging market firms financing decisions we show how costly external financing and fdi search costs generate a state contingent cost of financing such that the cheapest source of financing depends on the phase of the business cycle in this manner the financial frictions are able to explain the interaction between the types of flows and deliver a time varying composition of flows as well as other standard features of emerging market business cycles if as this work suggests flows are an equilibrium outcome of firms financing decisions then volatility of capital inflows is not necessarily bad for an economy furthermore using capital controls to shut down one type of flow and encourage another is certain to have both short and long run welfare implications

the cyclical properties of disaggregated capital flows abstract we analyze the second moment properties of the components of international capital flows and their relationship to business cycle variables output investment and the real interest rate in 22 industrial and emerging countries total inward flows are procyclical with respect to all three macro variables net outward flows are countercyclical with respect to output and investment in most industrial and emerging countries disaggregated inward flows positively comove with output in industrial countries and with investment and the real interest rate in the g7 economies inward foreign direct investment is the only non procyclical type of inward capital flows with respect to output in the developing economies formal statistical tests based on nonparametric bootstrap techniques detect significant variance increases in all g7 countries disaggregated capital flows over exogenous and endogenously estimated breaks

real business cycle theory wisdom or whimsy abstract this paper assesses the empirical plausibility of the view that aggregate productivity stocks account for most of the variability in post world war ii us output we argue that the type of evidence forwarded by proponents of this proposition is too fragile to be believable the answer could be 70 as kydland and prescott 1989 claim but the data contain almost no evidence against either the view that the answer is really 5 or that the answer is really 200 moreover point estimates of the importance of technology shocks are extremely sensitive to small perturbations in the theory depending on the sample period investigated allowing for labor hoarding behavior in an otherwise standard rbc model reduces the ability of technology shocks to account for aggregate fluctuations by between 30 to 60

harmonizing tailpipe policy in symmetric countries improve the environment improve welfare abstract we show that harmonizing emissions policy may be bad for the environment and or global welfare even when pollution is transboundary and countries are identical in every way harmonization effectively internalizes the transboundary aspects of pollution but it also changes the politics surrounding tailpipe regulation with harmonization producers can no longer avoid strict local regulation by simply exporting their products to overseas markets with weak standards for consumer goods as a result harmonization may raise political opposition to regulation to examine these competing effects we develop a generic treatment of the politics of environmental regulation a treatment we show to be isomorphic to three popular models of political economy majority rules a political elite and a political contributions approach we find that harmonization both weakens environmental regulation and reduces global welfare when the level of political capture by dirty industry is high relative to the rate of pollution transmission across borders

understanding european unemployment with a representative family model abstract a representative family model with indivisible labor and employment lotteries has no labor market frictions and complete markets nevertheless its aggregate responses to an increase in government supplied unemployment insurance ui and to an increase in microeconomic turbulence are qualitatively similar to those in two macromodels with labor market frictions and incomplete markets namely the matching and search island models in ljungqvist and sargent 2007a understanding european unemployment with matching and search island models journal of monetary economics this issue because there is no frictional unemployment in the representative family model an increase in employment protection ep decreases aggregate work because the representative family substitutes leisure for work an effect opposite to what occurs in matching and search island models heterogeneity among workers highlights the economy wide coordination in labor supply and consumption sharing that employment lotteries and complete markets achieve in the representative family model a high disutility of labor makes generous ui cause very low employment levels

the impact of institutional hazards on foreign multinational activity a contingency perspective prior studies have shown that institutional hazards in the form of formal governance deficiencies and informal cultural distance are both negatively related to the amount of foreign multinational activity in countries we argue that the strength of these negative relationships varies systematically with the type of foreign activity horizontal or vertical and the type of institutional hazard governance or cultural because institutional hazards striking vertical affiliates generally also have negative consequences for other parts of a multinational enterprise mne while those striking horizontal affiliates do not we hypothesize that institutional hazards are more negatively related to vertical foreign activity than to horizontal foreign activity since cultural hazards can generally be reduced or resolved once they materialize while governance hazards cannot we also hypothesize that the impact of governance hazards on each type of foreign activity is more negative than the impact of cultural hazards on that type of activity a panel data analysis of sales by us foreign affiliates to affiliated and local unaffiliated customers over the period 1996 2004 lends support to these hypotheses our findings thus show that the impact of institutional hazards on foreign mne activity is more complex than previously assumed

a dynamic small open economy model with involuntary unemployment it is well known that real business cycle small open economy soe models rely on greenwood hercowitz and huffman 1988 preferences to match the countercyclical trade balance observed in open economies as well as other second moments while standard preferences a la king plosser and rebelo 1988 are commonly labelled ineffective owing to their inability to yield the countercyclical trade balance in this paper i show that an soe model with standard preferences and involuntary unemployment with efficient risk sharing can obtain a countercyclical trade balance and match main empirical regularities in small open economies il est bien connu que les modeles de cycles d affaires reels dans une petite economie ouverte peo comptent sur des preferences a la greenwood hercowitz et huffman 1988 pour etre compatibles avec la balance commerciale contre cyclique observee dans les economies ouvertes ainsi que sur d autres second moments alors que les preferences standards a la king plosser et rebelo 1988 sont considerees comme ineffectives a cause de leur inhabilitea engendrer la balance commerciale contre cyclique dans ce texte l auteur montre qu un modele de peo avec preferences standards et chomage involontaire et partage efficient du risque peut engendrer une balance commerciale contre cyclique et s arrimer aux principales regularites observees dans les petites economies ouvertes

optimal property taxation in the presence of interregional capital mobility abstract a single region s optimal property tax policy is examined in a model with interregional capital mobility in this model property taxation is used to finance local public expenditures different tax rates may be imposed on property used to produce goods which are traded between regions and property used to produce nontraded goods e g residential property the key determinants of the difference between the optimal tax rates are identified and it is argued that there exists a bias towards relatively low tax rates on property used to produce traded goods the role of labor mobility is also investigated

new economic theories this paper analyses some of the most important spillovers of recent developments of economic theory into environmental economics attention is given to the anlaysis of sustainable economic development paths where endogenous growth models are used the implications of environmental dumping and more generally of policies concerning global environmental issues where new trade theories are very useful and the effectiveness of environmental policy instruments when markets are imperfectly competitive where industrial organisation theory is employed the paper does not only note recent developments in environmental economics but also relates these to the previous environmental economics literature thus it can be assessed whether new results actually improve our knowledge of crucial economic and environmental issues

country portfolios in open economy macro models this paper develops a simple approximation method for computing equilibrium portfolios in dynamic general equilibrium open economy macro models the method is widely applicable simple to implement and gives analytical solutions for equilibrium portfolio positions in any combination or types of asset it can be used in models with any number of assets whether markets are complete or incomplete and can be applied to stochastic dynamic general equilibrium models of any dimension so long as the model is amenable to a solution using standard approximation methods we first illustrate the approach using a simple two asset endowment economy model and then show how the results extend to the case of any number of assets and general economic structure

unilateral climate policy and foreign direct investment with firm and country heterogeneity we analyse the effects of unilateral climate policy in a two country two firm model with endogenous plant location and heterogeneity in both country size and firm s characteristics the effectiveness of unilateral climate policy is shown to depend on the joint effect of country and firm heterogeneity and on their impact on equilibrium location choice for being effective and not leading to production relocation in the long run unilateral climate policy should be moderate implemented by a sufficiently larger area and complemented by mechanisms promoting the international transfer of clean technologies the model indicates that the smaller area cannot take the lead in global climate mitigation for a protracted time period finally when the local community is not environmentally concerned the unilateral policy unambiguously makes the society worse off

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

plant level nonconvex output adjustment and aggregate fluctuations in most manufacturing industries plant level output is adjusted along three margins of capacity utilization shiftwork weekend work and closing temporarily down due to the discrete and lumpy nature of these margins only a fraction of plants adjust output in response to shocks in a business cycle model calibrated to establishment level observations these nonconvexities make aggregate output less volatile than when plants can adjust smoothly further the mass of adjusting plants is larger in downturns than in upturns leading to counter cyclical volatility of aggregate output and government policy being slightly more effective in recessions than in expansions