does employment protection create its own political support this paper investigates the ability of employment protection to generate its own political support a version of the mortensen pissarides model is used for this purpose if wages are set through nash bargaining workers value employment protection because it strengthens their hand in wage negotiations workers in high productivity matches benefit most from higher wages as they expect to stay employed for longer by reducing turnover employment protection shifts the distribution of match specific productivity toward lower values thus stringent protection in the past actually reduces support for employment protection today introducing involuntary separations reverses this conclusion now workers value employment protection because it delays involuntary dismissals workers in low productivity matches gain most since they face the highest risk of dismissal the downward shift in the productivity distribution is now a shift towards supporters

microstructure noise realized variance and optimal sampling a recent and extensive literature has pioneered the summing of squared observed intra daily returns realized variance to estimate the daily integrated variance of financial asset prices a traditional object of economic interest we show that in the presence of market microstructure noise realized variance does not identify the daily integrated variance of the frictionless equilibrium price however we demonstrate that the noise induced bias at very high sampling frequencies can be appropriately traded off with the variance reduction obtained by high frequency sampling and derive a mean squared error mse optimal sampling theory for the purpose of integrated variance estimation we show how our theory naturally leads to an identification procedure which allows us to recover the moments of the unobserved noise this procedure may be useful in other applications finally using the profits obtained by option traders on the basis of alternative variance forecasts as our economic metric we find that explicit optimization of realized variance s finite sample mse properties results in accurate forecasts and considerable economic gains copyright 2008 wiley blackwell

bayesian analysis of structural credit risk models with microstructure noises in this paper a markov chain monte carlo mcmc technique is developed for the bayesian analysis of structural credit risk models with microstructure noises the technique is based on the general bayesian approach with posterior computations performed by gibbs sampling simulations from the markov chain whose stationary distribution converges to the posterior distribution enable exact finite sample inferences of model parameters the exact inferences can easily be extended to latent state variables and any nonlinear transformation of state variables and parameters facilitating practical credit risk applications in addition the comparison of alternative models can be based on deviance information criterion dic which is straightforwardly obtained from the mcmc output the method is implemented on the basic structural credit risk model with pure microstructure noises and some more general specifications using daily equity data from us and emerging markets we find empirical evidence that microstructure noises are positively correlated with the firm values in emerging markets

permanent and transitory oil volatility and aggregate investment in malaysia abstract this paper investigates the relation between aggregate investment and oil volatility and its permanent and transitory components for a developing country malaysia in the paper the components generalized autoregressive conditional heteroskedasticity cgarch model is utilized to decompose conditional oil volatility into permanent oil volatility and transitory oil volatility respectively reflecting fundamental driven and random shifts in oil volatility they are expected to exert differential effects on aggregate investment adopting a vector autoregression var framework to allow feedback effects between aggregate investment and its determinants the paper documents evidence supporting the adverse effects of conditional oil volatility permanent oil volatility and transitory oil volatility on aggregate investment and real output interestingly contrary to the findings for the developed markets us and oecd the real effects of permanent oil volatility tend to be stronger these findings are reasonably robust to variable specification and measurements in the var system hence there is an indication that heightened oil volatility accounts for the slumps in malaysia s aggregate investment after the asian financial crisis

credit risk and asymmetric information a simplified approach abstract we present a simple model for risky corporate debt debtholders and equityholders have incomplete information about the financial state of the debt issuing company information is incomplete because it is delayed for all agents and it is asymmetrically distributed between debtholders and equityholders we solve for the equityholders optimal default policy and for the credit spreads required by debtholders delayed information accelerates the equityholders optimal decision to default interestingly this effect is small implying only a small impact on credit spreads asymmetric information however has a major impact on credit spreads our model predicts high credit spreads for short term debt as observed empirically in credit markets

role of oil price shocks on macroeconomic activities an svar approach to the malaysian economy and monetary responses abstract this study examines the impact of oil price uncertainty on malaysian macroeconomic activities and monetary responses we use a structural var svar model based on monthly data over the period 1986 2009 the egarch model estimates show an important asymmetric effect of oil price shocks on the conditional oil price volatility dynamic impulse response functions obtained from the svar model show a prolonged dampening effect of oil price volatility shock on malaysian industrial production we also find that levels of consumer price index cpi decline with a positive shock to oil price uncertainty this is the result of negative demand shock due to the postponement of consumption of big ticket items by individuals households and other sectors of the economy we also found that the malaysian central bank adopts an expansionary monetary policy in response to oil price uncertainty variance decomposition analysis reconfirms that volatility in the oil price is the second most important factor to explain the variance of industrial production after its own shocks these results shed some light on how the central bank of malaysia can use controlling mechanisms to stabilize aggregate output and price level

roughing it up including jump components in the measurement modeling and forecasting of return volatility a rapidly growing literature has documented important improvements in financial return volatility measurement and forecasting via use of realized variation measures constructed from high frequency returns coupled with simple modeling procedures building on recent theoretical results in barndorff nielsen and shephard 2004a 2005 for related bi power variation measures the present paper provides a practical and robust framework for non parametrically measuring the jump component in asset return volatility in an application to the dm exchange rate the s p500 market index and the 30 year u s treasury bond yield we find that jumps are both highly prevalent and distinctly less persistent than the continuous sample path variation process moreover many jumps appear directly associated with specific macroeconomic news announcements separating jump from non jump movements in a simple but sophisticated volatility forecasting model we find that almost all of the predictability in daily weekly and monthly return volatilities comes from the non jump component our results thus set the stage for a number of interesting future econometric developments and important financial applications by separately modeling forecasting and pricing the continuous and jump components of the total return variation process

resistance to reform status quo bias in the presence of individual specific uncertainty comment why do governments so often fail to adopt policies which economists consider to be efficiency enhancing our answer to this question relies on uncertainty regarding the distribution of gains and losses from reform we show that there is a bias towards the status quo and hence against efficiency enhancing reforms whenever some of the individual gainers and losers from reform cannot be identified beforehand there are reforms which once adopted will receive adequate political support but would have failed to carry the day ex ante the argument does not rely on risk aversion irrationality or hysteresis due to sunk costs jel d72 f13 why do governments so often fail to adopt policies that economists consider to be efficiency enhancing this is one of the fundamental questions of political economy the answer usually relies on what may be

permanent and temporary inflation uncertainty and investment in the united states abstract we estimate the impact on us non residential fixed investment of permanent and temporary inflation uncertainty we find that while both have a negative effect temporary uncertainty is more important for investment this study has implications for monetary policy and applied econometric practice

panel data evidence of the impact of exchange rate uncertainty on private investment in south east asia this article examines the impact of real exchange rate uncertainty on the private investment in south east asia using panel data from four countries of the region namely indonesia malaysia the philippines and thailand annual time series data from 1972 to 2001 is used before carrying out the estimation the time series properties of the data are diagnosed and an error correction model is developed and estimated the model is estimated using both the fixed effects and the random effects estimators the estimated results from both the estimations suggest that the real exchange rate uncertainty had a negative effect on the private investment in that region

some political aspects of unemployment abstract we study a number of mechanisms through which the economy can be stuck at a high unemployment equilibrium because a poor labour market is associated with support for a poor policy these mechanisms are consistent with the relative scarcity of measures that have been undertaken to cure unemployment the message of the paper is that curing the european unemployment problem is a difficult task because a lot of skill is required to avoid political pitfalls

why are stabilizations delayed when a stabilization has significant distributional implications e g tax increases to eliminate a large budget deficit socioeconomic groups may attempt to shift the burden of stabilization onto other groups the process leading to stabilization becomes a war of attrition each group attempting to wait the others out and stabilization occurring only when one group concedes and bears a disproportionate share of the burden the authors solve for the expected time of stabilization in a model of rational delay and relate it to several political and economic variables they motivate this approach and its results by comparison to historical and current episodes copyright 1991 by american economic association

identifying the oil price macroeconomy relationship an empirical mode decomposition analysis of us data this paper employs the empirical mode decomposition emd method to filter cyclical components of us quarterly gross domestic product gdp and quarterly average oil price west texas intermediate wti the method is adaptive and applicable to non linear and non stationary data a correlation analysis of the resulting components is performed and examined for insights into the relationship between oil and the economy several components of this relationship are identified however the principal one is that the medium run component of the oil price has a negative relationship with the main cyclical component of the gdp in addition weak correlations suggesting a lagging demand driven component and a long run component of the relationship were also identified comparisons of these findings with significant oil supply disruption and recession dates were supportive the study identifies a number of lessons applicable to recent oil market events including the eventuality of persistent oil price and economic decline following a long oil price run up in addition it was found that oil market related exogenous events are associated with short to medium run price implications regardless of whether they lead to actual supply losses

reform support in times of crisis the role of family ties we argue that an important determinant of voters support for economic reform is the strength of family ties while the crisis hypothesis predicts that crises facilitate reform we show in a political economy model that this relation can break down and even reverse when agents take into account the effect of reform on their family members applied to southern european countries with strong family ties the model rationalizes why the extremely high youth unemployment following the great recession has not led to more substantial labor market reforms in such countries austerity might block rather than foster additional structural reforms

explaining share price disparity with parameter uncertainty evidence from chinese a and h shares abstract the price disparity between the a and h share markets for dual listed firms in china is one of the most intriguing puzzles in the mainland and hong kong financial markets in this paper we revisit this price disparity puzzle using the channel of parameter uncertainty in the presence of information asymmetry and market segmentation investors have different views on a firm s asset volatility and hence different valuations of the same reference firm we estimate a structural model for equity pricing using a bayesian approach in which the uncertainty of investor model parameters is represented by the posterior standard deviation of the firm s asset volatility our regression analysis shows that in addition to other market based and macro factors parameter uncertainty explains variations in price disparity

simulation based estimation of contingent claims prices a new methodology is proposed to estimate theoretical prices of financial contingent claims whose values are dependent on some other underlying financial assets in the literature the preferred choice of estimator is usually maximum likelihood ml ml has strong asymptotic justification but is not necessarily the best method in finite samples this paper proposes a simulation based method when it is used in connection with ml it can improve the finite sample performance of the ml estimator while maintaining its good asymptotic properties the method is implemented and evaluated here in the black scholes option pricing model and in the vasicek bond and bond option pricing model it is especially favored when the bias in ml is large due to strong persistence in the data or strong nonlinearity in pricing functions monte carlo studies show that the proposed procedures achieve bias reductions over ml estimation in pricing contingent claims when ml is biased the bias reductions are sometimes accompanied by reductions in variance empirical applications to u s treasury bills highlight the differences between thebondpricesimpliedbythesimulation basedapproachandthosedeliveredbyml some consequences for the statistical testing of contingent claim pricing models are discussed jel c11 c15 g12

time changed levy processes and option pricing abstract the classic black scholes option pricing model assumes that returns follow brownian motion but return processes differ from this benchmark in at least three important ways first asset prices jump leading to non normal return innovations second return volatilities vary stochastically over time third returns and their volatilities are correlated often negatively for equities time changed levy processes can simultaneously address these three issues we show that our framework encompasses almost all of the models proposed in the option pricing literature and it is straightforward to select and test a particular option pricing model through the use of characteristic function technology

asymmetric impacts of international energy shocks on macroeconomic activities while limited by its scarcity of natural resources the impacts of energy price changes on taiwan s economic activities have been an important issue for social public and government authorities this study applies the multivariate threshold model to investigate the effects of various international energy price shocks on taiwan s macroeconomic activity by separating energy price changes into the so called decrease and increase regimes we can realize different impacts of energy price changes and their shocks on economic output the results confirm that there is an asymmetric threshold effect for the energy output nexus the optimal threshold levels are exactly where the oil price change is at 2 48 the natural gas price change is at 0 66 and the coal price change is at 0 25 the impulse response analysis suggests that oil price and natural gas shocks have a delayed negative impact on macroeconomic activities 2012 published by elsevier ltd

estimation of correlations in portfolio credit risk models based on noisy security prices portfolio credit risk models are very often constructed with correlation matrices serving as proxies for interrelations in the creditworthiness of each company in addition to the size of the matrix estimation of correlation is also complicated by the fact that defaults are rare and credit sensitive securities such as stocks bonds and credit default swaps cds are noisy therefore we present in this paper an estimation approach based on credit sensitive instruments that accounts for noise and is highly parallelizable the latter being a very important feature for large portfolios in finance a simulation study shows that the method is reliable and has better statistical properties when benchmarked against other correlation estimators in an empirical study based on the cds premiums and stock prices of 225 firms listed on the cdx north american indices we analyze the correlations computed using numerous approaches overall we find that ignoring noise severely underestimates correlations whereas equity correlation is poorly related to the best correlation estimates inferred from the cds market

on measuring volatility of diffusion processes with high frequency data abstract we analyze a recently proposed method to estimate the volatility of a diffusion process with high frequency data the method is based on fourier analysis all observations are included in the computation without any data manipulation by monte carlo experiments we evaluate its performance in measuring volatility under the assumption that the asset price evolves according to models belonging to the sr sarv 1 class which includes garch 1 1 as a particular case we compare the performance of the method to that associated with the cumulative squared intraday returns the forecasting capability of the models is also evaluated

the benefit of crises for economic reforms when expenditures consistently outrun revenue the resulting inflation may have the effect of convincing the public and government that taxes must be raised to finance public investment in the advanced industrial countries income taxation and big spurts in taxation generally have become possible only under the impact of major emergency and crisis mostly in wartime in a number of developing countries in

macroeconomic effects of regulation and deregulation in goods and labor markets product and labor market deregulation reduce and redistribute rents leading economic players to adjust to this new distribution it typically comes with distribution and dynamic effects to study these effects we build a macroeconomic model on two central assumptions monopolistic competition in the goods market which determines the size of rents and bargaining in the labor market which determines the distribution of rents product market regulation determines entry costs and the degree of competition labor market regulation determines the bargaining power of workers we show the effects of deregulation we then use our results to discuss the political economy of deregulation and recent macroeconomic evolutions in europe

on estimating market microstructure noise variance abstract we study the market microstructure noise variance estimation of high frequency stock prices based on the hansen and lunde 2006 approach we propose estimates using subsampling method at different time scales we conduct a monte carlo study to compare our method against others in the literature our results show that our proposed estimates have lower absolute mean error and root mean squared error and their performance is quite stable at different time scales

job protection the macho hypothesis this paper shows that the stringency of employment protection in mediterranean countries can be partly explained by cultural values embedded in religion both the security provided by this legislation and its redistributive effects in favour of the male breadwinner insiders fit into the framework of mediterranean religions first international individual surveys allow us to document that catholics and muslims are more likely to agree with traditional gender division of work than protestants and the non religious second we develop a political economy model predicting that employment protection should be more stringent in countries where there is a larger share of insiders supportive of traditional family values we then show that this prediction is supported by empirical evidence on oecd countries over the period 1970 99 copyright 2006 oxford university press

understanding economic policy reform one of the eventual consequences of the global debt crisis was a wave of market oriented economic reforms this paper discusses the state of our knowledge on the political economy of this process why were inefficient and often unsustainable policies maintained for so long why are so many governments reforming now after decades of adherence to policies of an opposite kind have the reformers internalized the correct lessons from the east asian experience finally are there any helpful rules for reformers to follow in guiding their policies through complicated political terrain

oil price uncertainty in canada bernanke bernanke ben s irreversibility uncertainty and cyclical investment quarterly journal of economics 98 1983 85 106 shows how uncertainty about energy prices may induce optimizing firms to postpone investment decisions thereby leading to a decline in aggregate output elder and serletis elder john and serletis apostolos oil price uncertainty http ssrn com abstract 908675 2009 find empirical evidence that uncertainty about oil prices has tended to depress investment in the united states in this paper we assess the robustness of these results by investigating the effects of oil price uncertainty in canada our results are remarkably similar to existing results for the united states providing additional evidence that uncertainty about oil prices may provide another explanation for why the sharp oil price declines of 1985 failed to produce rapid output growth impulse response analysis suggests that uncertainty about oil prices may tend to reinforce the negative response of output to positive oil shocks

firms investment decisions in response to demand and price uncertainty we investigate the effect of demand and price uncertainty on firms planned and realized investment from a panel of manufacturing firms uncertainty measures are derived from firms own expectations about demand and prices and firm s sales we find that demand uncertainty at the time of planning depresses planned and subsequent realized investment firms do not revise their plans due to demand uncertainty at the time of spending suggesting that reducing demand uncertainty will only have lagged effects on investment we do not find any effect of price uncertainty our results are consistent with the behaviour of monopolistic firms with irreversible capital

the choice of insurance in the labor market employment protection and unemployment benefits are considered the most prominent insurance devices for workers to protect themselves against the risk of unemployment it occurs that societies either choose a high level of employment protection relative to unemployment benefits or vice versa this paper explains where countries locate on this trade off it is argued that higher coverage of voters out of the labor force with intra household transfers yields a politico economic equilibrium with relatively high employment protection and relatively low unemployment benefits cross country data and survey data on voters preferences are presented that corroborate the outcomes of the model

exchange rate uncertainty and the level of investment in selected south east asian countries the effect of real exchange rate uncertainty on aggregate private investment in indonesia malaysia the philippines and thailand is examined using time series data from 1972 2000 since the use of non stationary time series data may produce spurious results the data series are tested for stationarity using the augmented dickey fuller and phillips perron tests after establishing the stationarity of the data series cointegration tests are performed the cointegration test results reject the hypothesis of no cointegration therefore an error correction model is developed and estimated the estimated results point to an inconclusive empirical relationship between real exchange rate volatility and aggregate private investment

lessons from the asian crisis abstract this paper provides an asymmetric information analysis of the recent east asian crisis it then outlines several lessons from this crisis first there is a strong rationale for an international lender of last resort second without appropriate conditionality for this lending the moral hazard created by operation of an international lender of last resort can promote financial instability third although capital flows did contribute to the crisis they are a symptom rather than an underlying cause of the crisis suggesting exchange controls are unlikely to be a useful strategy to avoid future crises fourth pegged exchange rate regimes are a dangerous strategy for emerging market countries and make financial crises more likely

a coupled markov chain approach to credit risk modeling we propose a markov chain model for credit rating changes we do not use any distributional assumptions on the asset values of the rated companies but directly model the rating transitions process the parameters of the model are estimated by a maximum likelihood approach using historical rating transitions and heuristic global optimization techniques we benchmark the model against a glmm model in the context of bond portfolio risk management the proposed model yields stronger dependencies and higher risks than the glmm model as a result the risk optimal portfolios are more conservative than the decisions resulting from the benchmark model

uncertainty and liquidity in corporate bond market abstractwe examine the uncertainty liquidity connection in the corporate bond market using monthly corporate bond data from 2005 to 2010 we construct proxies for parameter uncertainty by using firm level parameters generated from a structural model of corporate debt we find that uncertainty about firm parameters decreases trading volume but increases bid ask spreads and price bouncing in the cross section and across time in addition the panel var results show that parameter uncertainty has negative forecasting power for future bond liquidity with greater uncertainty in the current month leading to lower trading volume higher bid ask spreads and higher price fluctuations on subsequent months we conclude that parameter uncertainty is one of the underlying factors giving rise to the high level of illiquidity in the corporate bond market

impact of oil price shocks on selected macroeconomic variables in nigeria abstract the impact of oil price shocks on the macroeconomy has received a great deal of attention since the 1970 s initially many empirical studies found a significant negative effect between oil price shocks and gdp but more recently empirical studies have reported an insignificant relationship between oil shocks and the macroeconomy a key feature of existing research is that it applies predominantly to advanced oil importing countries for oil exporting countries different conclusions are expected but this can only be ascertained empirically this study conducts an empirical analysis of the effects of oil price shocks on a developing country oil exporter nigeria our findings showed that oil price shocks do not have a major impact on most macroeconomic variables in nigeria the results of the granger causality tests impulse response functions and variance decomposition analysis all showed that different measures of linear and positive oil shocks have not caused output government expenditure inflation and the real exchange rate the tests support the existence of asymmetric effects of oil price shocks because we find that negative oil shocks significantly cause output and the real exchange rate

family values and the regulation of labor flexible labor markets requires geographically mobile workers to be e cient otherwise rms can take advantage of the immobility of workers and extract monopsony rents in cultures with strong family ties moving away from home is costly thus individuals with strong family ties rationally choose regulated labor markets to avoid moving and limiting the monopsony power of rms even though regulation generates lower employment and income empirically we do nd that individuals who inherit stronger family ties are less mobile have lower wages are less often employed and support more stringent labor market regulations there are also positive cross country correlations between the strength of family ties and labor market rigidities finally we nd positive correlations between labor market rigidities at the beginning of the twenty rst century and family values prevailing before world war ii which suggests that labor market regulations have deep cultural roots

real exchange rate uncertainty private investment in ldcs this paper examines empirically the link between real exchange rate uncertainty and private investment in developing countries using a large cross country time series data set the paper builds a garch based measure of real exchange rate volatility and finds that it has a strong negative effect on investment after controlling for other standard investment determinants and taking into account their potential endogeneity the effect of uncertainty is not uniform however there is some evidence of threshold effects so that uncertainty only matters when it exceeds some critical level in addition the negative effect of real exchange rate uncertainty on investment is significantly larger in economies that are highly open and in those with less developed financial systems

waiting to invest investment and uncertainty the textbook analysis that accepts all projections with positive net present values as positive is quite generally wrong the ability to delay a project means that almost every project competes with itself postponed with uncertain interest rates even the simplest of projects has an option value the effect of interest rate uncertainty on the optimal delay of investment is sizable this implies that the rate of aggregate investment will depend on both the level of the real interest rate and the degree of interest rate uncertainty furthermore it is not necessarily true that investment rises with a fall in interest rates copyright 1992 by university of chicago press

economic impact of oil price shocks on the turkish economy in the coming decades a dynamic cge analysis as a small open economy turkey depends on both imported oil and natural gas importing almost two thirds of its primary energy demand this paper analyzes the economic effects of oil price shocks for turkey as a small open oil and gas importing country to analyze the potential long term effects of oil price shocks on macroeconomic variables of interest including gdp consumer price inflation indirect tax revenues trade balance and carbon emissions we developed turgem d a dynamic multisectoral general equilibrium model for the turkish economy using turgem d we analyzed the impact of oil price shocks under three distinct scenarios reference high and low oil prices the simulation results show that these oil prices have very significant effects on macro indicators and carbon emissions in the turkish economy

family ties and socio economic outcomes in high vs low income countries abstractalesina and giuliano illustrate that strong family ties lead to lower geographical mobility and reduced labour force participation of young and female individuals we extend their analysis by arguing that the effect of strong family ties on economic outcomes depends on a country s level of economic and institutional development this cross country heterogeneity arises because strong family ties not only foster traditional family values which have disruptive effects on economic outcomes but also provide economically valuable social networks especially in societies characterised by weak institutions and limited market access empirical evidence using the european and world value surveys evs wvs are supportive of our theoretical argument

estimation of direct and indirect impact of oil price on growth abstract using a new methodology this paper measures the direct and indirect effects of oil prices on gdp growth of 12 economies because of the indirect effect which is transmitted through a trade matrix even the net oil exporters like indonesia and malaysia cannot escape the negative influence of high oil prices

bayesian analysis of spatial panel autoregressive models with time varying endogenous spatial weight matrices common factors and random coefficients this article examines spatial panel autoregressive sar models with dynamic time varying endogenous spatial weights matrices common factors and random coefficients an empirical application is on the spillover effects of state medicaid spending endogeneity of spatial weights matrices comes from the correlation of economic distance and the disturbances in the sar equation common factors control for common shocks to all states and random coefficients may capture heterogeneity in responses the bayesian markov chain monte carlo mcmc estimation is developed identification of factors and factor loadings and model selection issues based upon the deviance information criterion dic are explored we find that a state s medicaid related spending is positively and significantly affected by those of its neighbors both welfare motivated move and yardstick competition are possible sources of strategic interactions among state governments welfare motivated move turns out to be more a driving force for th

recent oil price shock and tunisian economy abstract the objective of this paper is to study the oil prices macroeconomy relationship by the analysis of the role of subsidy policy the vector autoregression var method was employed to analyze the data over the period 1993 q1 2007 q3 the results of the model using both linear and non linear specifications indicate that there is no direct impact of oil price shock on the economic activity the shock of oil prices affects economic activity indirectly the most significant channel by which the effects of the shock are transmitted is the government s spending

growth and oil price a study of causal relationships in small pacific island countries this paper investigates the nexus between economic growth and oil price in small pacific island countries pics except papua new guinea none of the 14 pics has fossil any fuel resources consequently the other 13 pics are totally dependent on oil imports for their economic activities since pics have limited foreign exchange earning capacities as they have a very narrow range of exports and are highly dependent on foreign aid high oil prices in recent months have seriously tested their economic resilience this paper applies the ardl bounds testing methodology to four selected pics samoa solomon islands tonga and vanuatu which have consistent and reliable time series of data with a view to assess the impact of oil price on economic growth the findings are that oil price gross domestic product and international reserve are cointegrated in all the four pics further both in the long and short runs we observe that there is a uni directional relationship as causality linkage runs only from oil price and international reserves to economic growth the paper makes some policy recommendations

social security as trade among living generations we model u s social security that is legislated endogeneously by living generations specifically we consider the effects of social security on resource allocation and pareto optimality examining which generations gain from social security and whether some generations lose because saving and transfer decisions are made sequentially in the real world we use an infinite horizon overlapping generations framework in which life cycle saving and transfers to the old are determined by living agents we focus on the case in which agents are altruistic but place sufficiently greater weight on own comsumption than on the consumption of agents in other generations so that starting from a steady state without social security living agents would gain utility if consumption were shifted marginally to them from later generations excerpt

emergence and persistence of inefficient states we present a theory of the emergence and persistence of inefficient states based on patronage politics the society consists of rich and poor the rich are initially in power but expect to transition to democracy which will choose redistributive policies taxation requires the employment of bureaucrats by choosing an inefficient state structure the rich may be able to use patronage and capture democratic politics so reducing the amount of redistribution in democracy moreover the inefficient state creates its own constituency and tends to persist over time intuitively an inefficient state structure creates more rents for bureaucrats than would an efficient one when the poor come to power in democracy they will reform the structure of the state to make it more efficient so that higher taxes can be collected at lower cost and with lower rents for bureaucrats anticipating this when the society starts out with an inefficient organization of the state bureaucrats support the rich who set lower taxes but also provide rents to bureaucrats we obtain that the rich bureaucrats coalition may also expand the size of bureaucracy excessively so as to generate enough political support the model shows that an equilibrium with an inefficient state is more likely to arise when there is greater income inequality when bureaucratic rents take intermediate values and when individuals are sufficiently forward looking jel p16 h11 h26 h41

a positive theory of social security in many countries social security accounts for a large fraction of the government budget why is this so given that at any point in time the number of recipients of social security benefits is smaller than the number of contributors in the overlapping generations model studied in this paper all individuals currently alive vote on social security in every period in equilibrium the size of social security is larger the greater is the proportion of elderly people in the population and the greater is the inequality of pre tax income within each generation both predictions of the theory are supported by the empirical evidence in cross country data

what do we know about investment under uncertainty recent theoretical developments relating to investment under uncertainty have highlighted the importance of irreversibility for the timing of investment expenditures and their expected returns this has subsequently stimulated a growing empirical literature which examines uncertainty and threshold effects on investment behaviour this paper presents a review of this literature a variety of methods have been used to investigate the empirical implication of irreversibility in investment the majority focusing on the relationship between investment flows and proxy measures of uncertainty a general conclusion is that increased uncertainty at both aggregate and disaggregate levels leads to lower investment rates this suggests that there is an irreversibility effect under which greater uncertainty raises the value of the call option to delay a commitment to investment this effect appears to dominate any positive impact on investment arising from the fact that greater uncertability under certain circumstances increases the marginal profitability of capital the methods used raise a number of issues which call into question the reliability of the findings and these are addressed in the paper however if such irreversibility effects are present then their omission from traditional investment models casts doubt on the efficacy of such specifications jel classification d81 d92 e22

the statistical and economic role of jumps in continuous time interest rate models this paper analyzes the role of jumps in continuous time short rate models i first develop a test to detect jump induced misspecification and using treasury bill rates find evidence for the presence of jumps second i specify and estimate a nonparametric jump diffusion model results indicate that jumps play an important statistical role estimates of jump times and sizes indicate that unexpected news about the macroeconomy generates the jumps finally i investigate the pricing implications of jumps jumps generally have a minor impact on yields but they are important for pricing interest rate options

comment upon a new classical model of the postwar uk the results presented by attfield demery and duck 1981 in the european economic review 18 p 367 385 are replicated the model is re estimated to take account of the policy switch to floating exchange rates in 1972 with rather less than favourable results a major problem being misspecification of the monetary growth equation