a wage price regime switching model abstract the model we discuss in this paper combines an employment function which is based on a kaldor type consumption function and a simple production function with a wage price subsystem whose parameters switch when a critical level of employment is reached depending on the way in which exogenous variables are specified and on parameter values the model is capable of generating a wide variety of behavior in both real and nominal wages and prices

cyclical and causal relations between real wages and employment in the eu this paper analyses and compares the joint behaviour of real wages and employment over the business cycle in the european union eu economies using both annual and quarterly data since 1960 further investigation of the cointegrating properties and the existence of causal effects in the real wage employment relation is undertaken by employing appropriate var models the evidence suggests weak procyclical or acyclic behaviour of real wages relative to cyclical employment in the quarterly data and stronger procyclicality in the annual data thus confirming the dunlop tarshis result for the majority of the eu economies with a few exceptions no cointegrating relations were detected while the granger causality tests suggest either weak or lack of unidirectional causality finally the sensitivity analysis showed that the filtering method has not much influence on the results but the choice of deflator may overturn them in certain cases

unions w ages and employment evidence from finland reduced form wage and employment equations derived from a bargaining model are estimated using the two step method proposed by engle and granger 1987 econometrica 55 251 276 wages and employment arinfluenced by varriables which determine profits on the one hand and the utility of the union on the other hand in addition bargaining power appears to matter union strength was discovered to have a positive effect on both wages and employment in the manufacturing industry the a positive effect on both wages and employment in the manufacturing industry the two step method made it possible to evaluate both the long run elasticities and shortrun adjustment step response functions indicate that adjustment is not particularly slow in general this papers to be true for wages but especially for employment hence if the actual real wage employment combination is considered inappropriate it is not primarily due to too slow adjustment rather it implies that the equilibrium is inappropriate

the behaviour of publicly owned utilities in wholesale electricity markets the case of the pacific northwest abstract seemingly unrelated regression techniques are used to estimate wholesale demand functions for three public utilities purchasing power from a federal agency between 1981 and 1983 from hourly data three separate goods are defined intrapeak maximum demand peak period energy consumption and off peak energy consumption explanatory variables include normalized peak period price retail load served by the utilities hydroelectric energy potential and opportunity cost of own resources these utilities are shown to respond quickly and predictably to changes in the relative cost of purchased power and to act in manners consistent with cost minimization

public utility pricing under risk the case of self rationing comment and extension this paper reviews a previously offered model of electricity load management containing uncertainties this analysis allows individual customer demand to fluctuate within a billing period also it allows diversity or imperfect correlation among customer demands the behavioral effects are examined for a fuse that allows utilities and customers to incur costs or ration the loads under excess demand charges the behavioral implication is that the demand price is effective at each instant of the billing period the fuse analogy suggests that demand and energy prices be kept separate and that behavior is best understood as a two stage procedure

the effects of unions on investment and innovation evidence from wirs the above is representative of much popular discussion of the effects of unions on investment and innovation in the professional literature the view that unions deter investment by expropriating quasi rents is also commonplace see e g simons i944 baldwin i983 grout i984 in addition it is argued that union foisted restrictive work practices might make investment a more costly process see e g denny and nickell i989 in recent years the above theoretical notions have appeared to receive some empirical support in that in the united states the level of the investment capital ratio does appear to be lower in union firms see hirsch i988 and references therein in this paper we use information contained in the i 984 workplace industrial relations survey in order to investigate the actual impact of unions on investment the rest of the paper is organised as follows in section i i we informally review the alternative channels through which unions might affect investment section i 2 contains a simple theoretical model of investment which embodies all the alternative channels our results are to be found in section ii and finally some conclusions are contained in section iii

lag length selection and tests of granger causality between money and income one of the most widely accepred relationships in macroeconomics is the positive relationship between the rate of growth of the money supply and the rate of growth of income a diversity of opinion arises however with the attempt to identify a causal relationship between these variables while friedman and schwartz 1963 initiated the empirical investigation of money income causality sims 1972 made the most significant contribution to this literature with a practical application of the criterion developed by granger 1969 for identifying a causal relationship since the appearance of sims s approach and an alternative one advanced by sargent 1976 many researchers have applied these techniques to the investigation of the causal relationship between money and income l with two exceptions hsiao 1981 and mcmillin and fackler 1984 these researchers have arbitrarily chosen the lengths of their distributed lags the purpose of this paper is to test for granger causality between money and income this paper differs from previous work in that considerably more attention is focused on the effect of the lag specification on the test results in particular we investigate the extent to which rules of thumb arbitrary lag specifications and

real wages employment relationship in finnish manufacturing a var approach granger s concept of causality and the vector autoregressive var technique is used to investigate the real wages employment relationship in finnish manufacturing the stationarity of the time series is examined and a number of co integration tests for the adequacy of a pure var specification performed the results using a bivariate var model based on a lag structure determined by akaike s information criterion suggests that real wages granger cause employment the slight non constancy of the model suggests however that the conclusion concerning the nature of the real wages emploment relationship should be treated with causion

the effect of the stock market on investment a comparative study this paper is concerned with examining whether exogenous events whose only direct effect is to change stock prices can indirectly affect corporate investment through the stock price mechanism it is argued that the actual effect of share price changes depends on institutional considerations which affect the degree of managerial autonomy e g the extent of the use of the takeover mechanism gearing ratios and the role of employees in corporate decision making therefore it would be reasonable to expect the stock market to be less influential in japan or germany when compared with the u s or u k this paper provides some econometric evidence which supports this view in that once one has allowed for other influences on investment share prices provide no additional explanatory power for investment behaviour in japan or germany but they do affect investment in the u k and u s if one believes that the stock market is sometimes swayed by irrational considerations the absence of an influence of share prices on investment in japan or germany may then be regarded as an advantage

the effects of inflation and real wages on employment this paper considers the effects of inflation on employment the absence of index linked loans and the possibility that errors are committed in times of inflation lead to a higher probability of bankruptcy during inflation if firms care about bankruptcy this implies a lower level of employment empirical results confirming this are presented and suggest that higher inflation has substantially contributed to the fall in employment in the united kingdom the authors also demonstrate that a negative real wage elasticity is not robust to changes in specification copyright 1987 by the review of economic studies limited

corporate borrowing and credit constraints structural disequilibrium estimates for the u k this paper develops a structural model of the market for corporate borrowing in the united kingdom the authors allow trade to be dispersed across a number of submarkets and suppose that disequilibrium operates at this disaggregated level solving for the level of aggregate trade they can estimate nonlinear equations for the demand and supply of borrowing and for the associated interest rate the authors use survey data to measure the strength of spillover from other markets the estimates reveal that disequilibrium has had substantial effects the authors also obtain interesting and plausible estimates for the parameters of the behavioral equations copyright 1990 by mit press

trade and price variation in an integrated european power market this paper examines the potential gains in terms of increased social surplus from integrating the power markets in europe and assesses the scope for free seasonal and diurnal trade in a setting of third party access tpa we construct an equilibrium model at the level of the wholesale markets taking account of the existing power generating infrastructure of varying flexibility as well as the existing transmission network interconnecting the countries involved the model indicates an overall gain from integrating the power markets electricity prices are substantially reduced for all regions involved thus implying a significant redistribution of income from producers to consumers trade flourishes with regions establishing themselves as either pure exporters pure importers or as intermediaries acting as transit countries

the determinants of firms performance can finance constraints improve technical efficiency this paper analyses the mechanisms through which binding finance constraints can induce debt constrained firms to improve technical efficiency to guarantee positive profits this hypothesis is tested on a sample of firms belonging to the italian manufacturing technical efficiency scores are computed by estimating parametric production frontiers using the one stage approach as in battese and coelli battese g coelli t 1995 a model for technical efficiency effects in a stochastic frontier production function for panel data empirical economics 20 325 332 the results support the hypothesis that a restriction in the availability of financial resources can affect positively efficiency 2004 elsevier b v all rights reserved

autoregressive modelling and money income causality detection abstract a step wise procedure based on granger s concept of causality and abaike s final prediction error criterion is suggested as a practical means to identify the order of lags of each variable in a multivariate autoregressive process the model seems useful because it can serve as a reduced form formulation to avoid imposing often spurious or false restrictions of the model it also provides a reasonably powerful test of causality the idea is applied to u s postwar money and income data it is found that between m1 and gnp a bivariate feedback model fits the data best between m2 and gnp a one way causal model from money to income performs better diagnostic checks applied to our model seem to indicate the adequacy of our approach

threshold effects of financial status on the cost frontiers of financial institutions in nondynamic panels this article applies hansen s 1999 2000 threshold regression model to estimate translog cost frontiers in the hope of shedding light on the banking industry s production processes and the extent of its technical efficiency te the threshold technique allows for the existence of multiple technologies of production distinguished by an exogenous threshold variable strong evidence of multiple technologies is found in the industry irrespective of which financial indicator as constructed by factor analysis defines the threshold variable cost savings and scale economies among the various underlying technologies are compared herein we also highlight the differences between the threshold results and the conventional cost frontier

the estimated effects on industry of time of day demand and energy electricity prices industrial electricity tariffs usually contain two types of consumption related charges the energy charge assessed on total kilowatthours and the demand or capacity charge assessed on maximum kilowatts both charges can be differentiated by time of day applying a premium to kilowatts and kilowatthours consumed during specified peak hours the costs of both these dimensions energy and maximum demand vary by time of day and by season plant capacity must be constructed to meet the maximum or peak demand also capacity is comprised of plants of varying fuel efficiencies 1 figure i depicts a typical firm s pattern of demand or load curve over 24 hours under traditional electricity prices the firm pays usually on a monthly basis an energy price p for total energy f o e dt and demand price p for maximum demand e if these charges are used in a time of day tariff they will be at a higher level during potential utility system peak hours defining the interval to t1 as peak intrapeak maximum demand equals ep and peak energy use equals it e dt if both prices are differentiated by time of day then pp po and pp p where the subscripts denote the peak and off peak periods 2 time of day demand and energy charges can have differing effects the peak energy charge encourages within the peak hours a reduction in the area beneath the load curve that is a reduction in peak energy kilowatthour use it does not explicitly encourage a rearrangement of the load pattern within this interval and so may not reduce the maximum intrapeak demand the peak demand charge encourages a reduction in the maximum demand this can be accomplished directly by flattening peak period use or less directly by reducing use at each instant within the peak hence the peak demand charge has its primary effect on the pattern of use while the energy charge primarily nffprte th 1 p1 nf llq

the own wage elasticity of labor demand a meta regression analysis firms labor demand responses to wage changes are of key interest in empirical research and policy analysis however despite extensive research estimates of labor demand elasticities remain subject to considerable heterogeneity in this paper we conduct a comprehensive meta regression analysis to re assess the empirical literature on labor demand elasticities building on 942 elasticity estimates from 105 different studies we identify sources of variation in the absolute value of this elasticity heterogeneity due to the theoretical and empirical specification of the labor demand model different datasets used or sectors and countries considered explains more than 80 of the variation in the estimates we further find substantial evidence for the presence of publication selection bias as estimates of the own wage elasticity of labor demand are upwardly inflated

granger causality real factor prices and employment a re appraisal with uk data this paper reports the results produced by applying tests for granger causality of post war u k real wage and employment data the results suggest that real wages granger cause employment with no feedback this result is robust to the inclusion of real materials prices the results are not robust to changes in the sample period real wages and employment appear independent with data up to 1977 4 the oscillations of real wages between 1976 and 1978 when a stern wage policy was implemented and dismantled are responsible for these different results this explains the contradictory results reported in previous studies

minimal adjustment costs and the optimal choice of inputs under time of use electricity rates in time of use tou pricing schemes utilities charge rates that depend on the time of day and the season of the year at which electricity is used estimates of the effects of tou rates on business customers in the u s and israel demonstrate that most firms do not appear to respond at all to newly introduced tou rates but those that do respond make substantial adjustments in this paper we show that adjustment costs associated with changing the level of employment can explain the observed pattern of behavior in the u s and israel we apply our model to large industrial firms in israel and show that it predicts their actual responses to tou rates quite well

relative prices and the demand for labour in british manufacturing the existence of an aggregate demand for labour schedule derived from profit maximization of the individual firm and giving a negative relationship between the labour capital ratio and the real wage is central to most traditional theoretical macroeconomics even though such a relationship is typically not embodied in macroeconomic models but beginning with the work of dunlop 1938 and tarshis 1939 the negative relationship could not be found in the data a more modern reference is bodkin 1969 this evidence led naturally to disequilibrium analysis notably that of barro and grossman 1971 more recently sargent 1978 has attempted with some success to rehabilitate the demand for labour schedule by showing that costly adjustment of the workforce obscures the current relationship between the wage and labour demand while leaving it essentially intact that paper and the related one by neftci 1978 was criticized by geary and kennan 1979 because it had used retail prices to represent output prices and they showed that for a number of countries employment could not be explained satisfactorily by the real product wage however geary and kennan failed to allow for the simultaneous effect of the real prices of raw materials and capital services in this paper we shall see that allowing for the effects of other relative prices notably the price of inputs relative to output and the real interest rate the real wage has a powerful but slow acting negative effect on the demand for labour the long run elasticity is about 2 and the mean lag is over 18 months we also find that the price of inputs has a long run elasticity of about 2 and that high values of the real interest rate have a powerful depressant effect on the level of employment in manufacturing the most striking implication for policy of our analysis is that measures of demand output money government spending do not have a significant influence on manufacturing employment controlling for the effects of relative prices thus government macroeconomic policy can affect the level of employment in manufacturing if and only if it can affect relative prices

inflation bankruptcy default premia and the stock market in this paper we explore some of the possibilities and argue that in the absence of index linked loans higher inflation implies higher liquidation rates and default premia this would also be one possible reason why higher inflation would depress share values our evidence also suggests that the modigliani and cohn 1979 valuation errors hypothesis is extremely important in order to see why higher inflation might lead to more bankruptcies consider the following example suppose that the real interest rate p is i and that a firm has borrowed iooo if there is no inflation the firm s interest payments are io now suppose that inflation p rises to io and that the nominal interest rate r is given by the formula i r i p i fi then r rises to i i i and total interest payments to i i i hence at a time when revenue has risen by only io interest payments rise elevenfold and this creates cashflow problems for the firm index linked debt would avoid this problem because the principal could be indexed and would rise to i ioo leaving the firm to only pay li i in interest

a real target model of wage inflation with variable union power the uk experience 1962 1984 this paper offers a reassessment of the hypothesis that nominal wage determination involves union real wage targets whose attainment depends on the bargaining process the conventional model is augmented by the introduction of employer targets as well as nonlinear specification for relative power empirical evidence suggests that our estimates of union power can partially explain share price fluctuations

neoclassical demand for labour functions for six major economies can real factor prices and in particular the real wage explain the level of employment over the business cycle the question is of fundamental importance for macroeconomic policy and is of course the subject of longstanding controversy dunlop i938 failed to find the expected negative relationship between employment and the wage in the data and the subsequent debate is summarised in bodkin i969 crudely the data seemed to refute the competitive model of the labour market for if product markets are competitive and firms operate on their demand curves employment should be explained by real factor prices relative to product prices the capital stock and the state of technology to explain the lack of relationship barro and grossman i97i suggested that at times mutuality reinforcing quantity constraints could emerge in labour and output markets so that firms employed fewer workers than one would predict from the level of real wages and other relative prices however recently sargent i978 has attempted with some success to rehabilitate the demand for labour function by showing that costly adjustment of the workforce obscures the current relationship between the wage and labour demand while leaving it essentially intact in his account firms adjust slowly towards an employment level which is influenced by future expected real wages which might themselves reflect the past history of real wages his paper and the related one by neftci i978 was criticised by geary and kennan i979 for using retail prices to represent output prices and they showed for a number of countries that employment could not be satisfactorily explained by the real product wage taken on its own however geary and kennan failed to allow for the simultaneous effect of the real price of raw materials in symons i 982 one of us showed that allowing for this effect the real wage has a powerful elasticity about 2 but slow acting two year mean lag negative effect of the demand for labour in british manufacturing this was strong evidence but it was not completely conclusive the model fitted well only over subperiods and whereas the various breakdowns of the model could be ascribed to firms discounting certain transient shifts in the real wage there still seemed to be scope for reasonable doubt about the results however recently andrews and nickell i 982 a b working with annual rather than quarterly data and for the british economy as a whole have developed a demand for labour function with similar dynamics and with signifi

the employment financing nexus evidence from a panel of west german firms the objective of the paper is to investigate the linkage between financial factors and employment decisions of west german firms the underlying model is based upon rational expectations and convex adjustment costs the time series cross section estimates for the period 1989 1994 are obtained using information on individual firms contained in business surveys we find that financial constraints can indeed restrain the level of employment in small firms on the contrary there is no evidence that this result applies to larger firms as well

dynamic labour demand using error correction model using a new econometric model this study provides evidence that contradicts previous assertions about the japanese labour market the interrelationship between employment and hours of labour is stressed in this analysis by explicitly dividing labour input into both employment and labour hours this model enables results to be obtained through both simulation and estimation which allow measurement of adjustment speeds and elasticity in both employment and labour hours to wages the results of the simulations are as follows no apparent difference in adjustment speeds between employment and hours of labour was found the adjustment of hours of labour is more cyclical and overshoots whereas that of employment is smoother the adjustment speed of each simulation is slower than that found in most previous studies in the present long run simulation it is not as slow in the short run and policy simulations therefore adjustment speeds strongly depend on the method of simulation

the employment real wage relationship an international study the neoclassical and keynesian theories of employment both predict an inverse relationship between employment and real wages in the short run the observed correlation between employment and real wages however has usually failed to conform to this prediction dunlop 1938 and tarshis 1939 reported a positive correlation between real and money wages which given procyclical movement of money wages was interpreted as evidence against the theoretical prediction the statistical significance of these results was however challenged by ruggles 1940 and tobin 1948 more recent studies by kuh 1966 and bodkin 1969 failed to detect a significant relationship between real wages and employment these findings stimulated a series of contributions by solow and stiglitz 1968 barro and grossman 1971 1976 and others developing alternative models not apparently refuted by the evidence barro and grossman recast macro theory under the assumption that markets did not clear modigliani 1977 argued that the observed relationship between employment and real wages could be accounted for in an oligopolistic model of firm behavior thus both the competitive and equilibrium assumptions of the classical model were diagnosed as the sources of its apparent empirical refutation

a model of imperfect competition with keynesian features the recent literature on the reappraisal of keynes has viewed keynesian equilibria as arising when prices are fixed and effective demands and supplies are equilibrated through the adjustment of quantities one problem with this approach is that it lacks a theory of price determination in particular of why prices are fixed in the present paper we show that a number of keynesian features arise in a model in which prices are fully flexible but where agents have some monopoly power one advantage of this approach is that it provides a theory of the determination of both prices and quantities

employment and distributional effects of restricting working time we study the employment and distributional effects of regulating reducing working time in a general equilibrium model with search matching frictions job creation entails fixed costs but existing jobs are subject to diminishing returns we characterize the equilibrium in the de regulated economy where firms and individual workers freely negotiate wages and hours then we consider the effects of a legislation restricting the maximum working time while we let wages respond endogenously employment effects are sensitive to the representation of preferences in our benchmark small reductions in working time starting from the laissez faire equilibrium solution always result in a small increase in the equilibrium employment while larger reductions reduce employment the regulation benefits workers both unemployed and employed even if wages decrease and even in cases where employment falls but reduces profits and output

the response of small and medium size business customers to time of use tou electricity rates in israel this paper reports on the methodology data and results of the israeli time of use tou electricity pricing experiment in the industrial commercial sector we concentrate on the estimation of the demand functions for electricity under tou and the net welfare gains which result from applying tou rates to small and medium size business customers in israel this experiment which was preceded by a 15 month load research study to allow an optimal sample design was concluded in june 1992 the analysis yielded four major conclusions 1 the estimated gains of small and medium size customers in israel from tou rates are sufficient to justify investment in tou metering technology 2 there have been small but noticeable shifts of electricity from the peak to the mid peak if relevant and to the off peak periods during all seasons of the year and particularly during the winter 3 the structure and number of labour shifts during the day and weather are important factors in determining the response of business customers to the tou rates 4 price elasticities vary substantially over the seasons and across sic groups they do not vary with customer size

the efficient estimation of econometric models with rational expectations the efficient estimation of econometric models with rational expectations by the substitution method usually entails the use of a non linear simultaneous equations estimator and hence is not very attractive computationally it is shown that for a wide class of problems efficient estimates can also be obtained with standard estimation methods if instead an errors in variables approach is used for many other problems although not providing fully efficient estimates because rationality is not imposed the errors in variables method will still have a strong appeal because otherwise it uses all of the structural information in the model unlike the substitution method when an incomplete information set is used it guarantees consistent estimates and it is easy to compute

long and short term interest rates in a risky world abstract the paper develops and tests a general equilibrium model in which variability or risk affects the choice of portfolios our measures of variability include only the variability of unanticipated growth in monetary and non monetary aggregates and our tests use data ending with the change in federal reserve procedures in october 1979 we find that increased variability of unanticipated money growth raises demands for debt and money and reduces the demand for real capital interest rates on both short and long term debt rise by a risk premium we estimate the size of the risk premium before and after the october 1979 change and we show that the change in federal reserve procedures moved the economy to a less efficient point

1992 its impact on us trade a var approach european economic integration is a landmark event of the last decade of this century its impact on the international scene in general and on international trade in particular will be substantial doubtss about europe s intention to continue towards full monetary and political integration as envisaged in the maastricht treaty should not obscure achievements of the community to this date while the impact of integration on output and prices of ec members has been the subject of a number of reports there has been little in the way of estimating the effects of integration on bilateral trade with the united states to fill this gap in the literature we specify and estimate a number of vector autoregression var models of bilateral trade for the usa with a select number of ec members after testing the outside sample forecasting ability of our models we forecast trade flows between the usa and four ecc countries france germany italy and the united kingtom the forecasts are made once assuming no chan