macroeconomics of stagflation under flexible exchange rates the concerns of macroeconomic policy in the industrial countries in recent years have shifted the focus of open economy ncroeconomics to new and interesting problems although no synthesis or a fully coherent theory of policy has yet emerged from this research the results have already led to major revisions in views about the nature of the problems that policy has to deal with this paper provides a selective survey and discussion of son of the results of recent research with errhasis on their inplications for policy pentti j k kouri department of economics 269 mercer street second floor new york university new york n y 10003 macroeconomics of stagflation under flexible exchange rates

theoretical approaches to monetary disinflation abstract during the 1980s many countries adopted tight monetary policies to reduce high inflation rates which were the legacy of the 1970s as inflation threatens to rise at the beginning of this decade this paper provides a survey of the 1980s literature which sought to provide theoretical understandings of how monetary disinflation is achieved four models are presented monetarist neo keynesian new classical and post keynesian each model s explanation of the recession which accompanies the monetary disinflation is outlined as well as possible policy measures to reduce the extent of the recession and to hasten the return to full employment

prices employment and pro labor governments in this analysis of a game between a government and a union the welfare function of the union depends on the welfare of the workers and the welfare function of the government depends on the welfare of the workers and the owners a government is said to be more proworker if it gives more weight to the workers welfare in its utility function we study the effect on a more proworker government on the equilibrium of the economy a more proworker government is found to induce a lower wage lower unemployment lower prices higher welfare for the workers and typically lower welfare for the owners copyright 1995 by the editors of the scandinavian journal of economics

union wage policy the importance of labour mobility and the degree of centralization with endogenous product prices nationwide wage setting gives lower unemployment than decentralized wage setting however intermediate level wage setting may give more unemployment than both completely decentralized and completely centralized wage setting the main part of the paper considers a dynamic model which includes flows of workers between firms and in and out of unemployment with less than full centralization the wages chosen by unions are lower the higher is the degree of labor mobility wages are also lower the higher is the degree of centralization unless labor mobility is very high copyright 1991 by the london school of economics and political science

employment policies wage formation and trade union behavior in a small open economy a model of trade union determined wages is developed which provides an explanation of underemployment based on optimizing behavior it is shown that fiscal policy will in general affect employment under perfect foresight and immediate wage flexibility future consequences of short run stabilization policies are discussed ratchet effects with respect to government expenditure and game theoretic interdependence between government and trade union behavior are emphasized if the trade union takes short run policy measures in order to increase employment as an indication of an employment stabilization rule the future behavior of the trade union changes and the result may be a decrease in long run employment

grandfather rules and the theory of optimal tax reform abstract this paper analyzes grandfather rules gr within the context of the optimal tax reform problem and a reform that eliminates differential capital taxation two general conclusions are suggested first gr can be a very effective reform implementation tool appropriately structured gr can convert potential losers from reform into gainers so that the reform becomes pareto improving alternatively gr can often be used to distribute the gains from reform more equitably second gr should nevertheless be used with caution market adjustments often imply that losses are sufficiently small that little grandfathering is needed moreover the effects of gr are very sensitive to the length of time they are in force and their implementation may lead to efficiency losses

comment on e j driffill macroeconomic stabilization policy and trade union behavior as a repeated game driffill s paper is motivated by the notion that government concern over the level of unemployment enables unions to obtain higher real wages than they otherwise would with the paradoxical result that stabilization policy raises the average unemployment rate a closely related problem has been studied by barro gordon 1983 in the context of the inflation unemployment tradeoff in that case government attempts to reduce the unemployment rate end up creating higher inflation the process reaching equilibrium when the marginal cost of inflation to the government is equal to the putative gain that would be obtained from lower though unattainable unemployment

deregulation liberalization and consolidation of the mexican banking system effects on competition este articulo analiza la evolucion de la competencia en el sistema bancario mexicano en el periodo 1993 2005 periodo de desregulacion liberalizacion y consolidacion del sector para ello se utilizan dos medidas de competencia derivadas de la teoria de la organizacion industrial el indice de lerner y el estadistico h de panzar y rosse la evidencia empirica no permite rechazar la existencia de competencia monopolistica el indice de lerner muestra una disminucion en la rivalidad competitiva en el mercado de los depositos y un incremento en el mercado de los prestamos observandose una estrategia de subsidiacion cruzada entre ambos mercados los resultados obtenidos cuestionan la efectividad de las medidas hasta ahora implementadas dirigidas a incrementar la competencia en la banca mexicana

privatization competition and supercompetition in the mexican commercial banking system abstract much literature before and after the privatization of mexico s commercial banking system in 1991 1992 argued that the system was collusive and noncompetitive and would likely continue to be for years banks would collude to underloan so that at least in comparison with what would happen in a competitive system they could overcharge because a parallel literature on lending after bank privatization suggests that the problem is often not too little but too much we resolved to test for competitive behavior in the mexican banking system using an empirical approach developed by shaffer econom lett 29 1989 321 j money credit bank 25 1993 49 federal reserve bank of philadelphia working paper no 93 28r we find a structural break in the middle of the privatization period that signals the start of an episode of what shaffer calls supercompetitive behavior in such a supercompetition banks run at levels of output where marginal cost exceeds marginal revenue this behavior is consistent with a struggle in which banks take losses now because they think the market share they get in the bargain offers a positive present value of expected future return the behavior can also be consistent with just the sort of banking crises that ensued in mexico

mexico s experiments with bank privatization and liberalization 1991 2003 during the 1990s mexico conducted two experiments with its banking system in the first experiment 1991 96 it privatized the banks this experiment took place with weak institutions to enforce contract rights it also took place without institutions that encourage prudent behavior by bankers the result was reckless behavior by banks and a collapse of the banking system in the second experiment 1997 2003 mexico reformed many of the institutions that promoted bank monitoring and it opened up the industry to foreign investment it was less successful however in reforming the institutions that promote the enforcement of contract rights the result was that bankers behaved prudently but prudent behavior in the context of weak contract rights implies that banks are reluctant to extend credit to firms and households

the impact of bank capital on profitability and risk in asian banking abstract this article applies the generalized method of moments technique for dynamic panels using bank level data for 42 asian countries over the period 1994 to 2008 to investigate the impacts of bank capital on profitability and risk ignoring influence factors the extant literature presents an ambiguous impact of bank capital on profitability risk however when the effects from the influencing factors are taken into consideration three conclusions are reached first along with the change in the categories of banks investment banks have the lowest and positive capital effect on profitability whereas commercial banks reveal the highest reverse capital effect on risk second banks in low income countries have a higher capital effect on profitability banks in lower middle income countries have the highest reverse capital effect on risk while banks in high income countries have the lowest values third banks in middle eastern countries own the highest and positive capital effect on profitability far east central asian banks have the largest reverse capital effect on risk while the lowest value occurs in middle eastern countries banks finally our results also reveal that persistence of profit is greatly affected by different profitability variables and all risk variables show persistence from one year to the next

wages and employment under trade unionism microeconomic models and macroeconomic applications the first part of this paper is a critical survey of microeconomic research into behavioural models of trade unionism although certain formulations of union objectives and models of wage and employment determination in unionized markets have found favor with economists unfortunately only a little is known about their empirical relevance the second part of this paper deals with the daunting problems of applying these models at the macroeconomic level one such model is estimated with data from sweden s mining and manufacturing sector from 1968 to 1982

is incomes policy the answer to unemployment in western europe unemployment has remained obstinately high ever since 1975 what has prevented governments from reducing it the answer is simple if unemployment were reduced by normal methods inflation would rise it follows that the only way to cut the long run level of unemployment is to find some other way of controlling inflation no such device will be costless but if we could find any method that was less costly than unemployment we ought to adopt it maurice chevalier was asked in later life what he thought of old age it s not so bad he replied when you consider the alternative that was a true economist talking and it is also the spirit in which i shall approach the unhappy choices open to us my argument will proceed roughly as follows first imagine that a costless incomes policy is available then most people would probably agree that if inflation was too high a temporary incomes policy would be a good idea in order to get inflation down but what then when it was down we would still be left with far too high an unemployment rate only a permanent incomes policy can substantially reduce the non inflationary level of unemployment however against these benefits have to be set the costs of an incomes policy a conventional incomes policy which permanently suspended collective bargaining would be out of the question in a free society so we have to have an incomes policy that works by incentive rather than by regulation the best thing would be a tax on wage increases levied on employers and proportional to wage increases above a prescribed norm i shall spend some time discussing this tax using various different models of wage setting to explain how it would have its effect and finally i shall try producing a first draft of the operator s manual

exchange rate policy and wage formation in an economy with many trade unions abstract exchange rate policy may confront governments with an important credibility problem while there is usually a long run gain from abstaining from devaluations there may also be a short run benefit from a devaluation this short run benefit may cause expectations of future devaluations resulting in wage and price rises that make the expectations self fulfilling this issue is analysed within a model with many trade unions if the government pursues a non devaluation policy the trade unions gain from voluntary wage restraint however if the non devaluation policy isn t credible the cooperation on wage restraint may break down

do depositors punish banks for bad behavior market discipline deposit insurance and banking crises this paper empirically investigates two issues largely unexplored by the literature on market discipline we evaluate the interaction between market discipline and deposit insurance and the impact of banking crises on market discipline we focus on the experiences of argentina chile and mexico during the 1980s and 1990s we find that depositors discipline banks by withdrawing deposits and by requiring higher interest rates deposit insurance does not appear to diminish the extent of market discipline aggregate shocks affect deposits and interest rates during crises regardless of bank fundamentals and investors responsiveness to bank risk taking increases in the aftermath of crises

exchange rate policy wage formation and credibility abstract since the collapse of the bretton woods system some european countries have pursued discretionary exchange rate policies in order to maintain or enhance the international competitiveness of the traded goods sector these countries which typically feature centralized wage setting have also tended to experience high nominal wage increases the overall outcome may be described as a devaluation wage spiral this paper applies two models of repeated games to analyze the strategic interaction between an exchange rate setting policy maker and a wage setting trade union it is shown how a devaluation wage spiral may result from a conflict of interest over the real wage it is also shown how reputational forces may provide a way out of the devaluation wage spiral

treasury i and the tax reform act of 1986 the economics and politics of tax reform abstract during president reagan s state of the union address in january 1984 he requested that treasury secretary donald regan prepare a plan for action to simplify the entire tax code so that all taxpayers big and small are treated more fairly in response the department of the treasury spent ten months preparing a report to the president that has come to be called treasury i this three volume study explained the need for tax reform and the general directions such reform should take provided a comprehensive set of proposals for reform of the income tax and analyzed the feasibility and desirability of an american value added tax following almost two years of public debate the tax reform act of 1986 became law on october 22 1986 though widely hailed as the most far reaching reform of the nation s tax system since the 1940s the 1986 act falls far short of the promise of treasury i it is useful to devote attention to treasury i even though much of it failed to survive the legislative process

classical unemployment accommodation policies and the adjustment of real wages a model of wage formation and stabilization policy in economies with strong trade unions is developed the analysis provides a theoretical underpinning for the assertion that accommodation policies may cause wage inflation and ultimately reduce employment various methods of accomplishing a real wage adjustment are discussed i a policy of complete nonaccommodation 2 continued accommodation policies but with lower employment targets 3 social contracts and 4 tax based incomes policies tip

the recent slowdown of productivity growth the slowdown of productivity growth in the developed countries during the seventies will in this paper be viewed as a combined effect of three closely interacting forces i a long term deterioration in the efficiency and flexibility of some basic mechanisms of the economic and political systems of these countries ii the fading away of a number of uniquely favourable circumstances for productivity growth during the fifties and sixties and iii the exposure of these economies to unusually severe macroeconomic disturbances in the seventies careful inspection of time series with attempted modifications for cyclical factors suggests that there was hardly any general slowdown of productivity growth among developed countries before approximately i972 4 1 as we know the situation is radically different since then labour productivity growth per year for the entire national economy gdp per man hour seems to have fallen between the periods i960 73 and i973 9 by about i 2 percentage points in the united states 45 by about 24 percentage points in western europe2 45 and by about 5 9 percentage points in japan 6o table i see also fig i the slowdown was of about the same size in the business and manufacturing sectors see table i to calculate the extent of the slowdown of total factor productivity growth is of course a much more hazardous matter to which i will return later if just the various system changes and the fading away of the uniquely favourable factors had been the dominating forces behind the productivity growth slowdown we would expect the slowdown to have been gradual rather than abrupt as it turned out to be this abruptness as well as its timing makes the dramatic macroeconomic disturbances around i972 4 a prime suspect when looking for the villain behind the productivity growth slowdown indeed it is a basic hypothesis of the paper that these macroeconomic disturbances were not only by themselves strongly unfavourable for productivity growth but that they also revealed and accentuated the gradual deterioration of the

public service employment and the public private wage differential in british regions successive forms of regional policy in the uk have sought to support the maintenance and creation of public sector employment opportunities in relatively disadvantaged regions nationally negotiated public sector pay rates mean that the private public pay gap is likely to be wider in lower demand regions this will be reinforced by the relative absence of private sector employment crowding out in such higher unemployment regions this paper investigates the association between private and public sector service employment using panel data for british regions and estimates regional public private wage differentials using british household panel survey data for 1991 to 1996 across britain private sector employment growth is weakly positively associated with higher public service employment growth but the association is stronger in scotland and the north of england the pattern of regional wage differentials found is consistent with lower crowding out in higher unemployment regions this suggests that reg

macroeconomic performance and collective bargaining an international perspective this paper critically reviews the research on how collective bargaining systems influence macroeconomic performance in industrialized countries the review considers effects of bargaining level coordination and corporatist institutional arrangements key empirical results turn out to be quite fragile and much of the paper explores issues of measurement and specification that account for the fragility the paper concludes that complementarities between key institutions and between institutions and the economic environment may be more important for macroeconomic performance than the effects of individual institutions and it suggests research strategies

union militancy external shocks and the accommodation dilemma stabilization policy under centralized wage setting is represented as a noncooperative game between an encompassing union and the government the dilemma of the government is whether or not to accommodate supply disturbances when it cannot tell if they are due to an intentionally militant wage policy or unforeseen external price shocks in a single round of wage setting there is no government strategy which can both guarantee full employment and prevent union militancy in a repeated game however there exists a conditional accommodation policy which permits accommodation of supply shocks while inducing the union to refrain entirely from a militant wage policy

optimal tax reform in the presence of adjustment costs abstract the optimal implementation of an efficiency enhancing capital taxation reform is examined when the government is concerned about arbitrary reform induced redistributions and investment causes firms to incur adjustment costs theoretical results indicate that immediate partial enactment of reform is optimal with concave adjustment costs while with convex adjustment costs the optimal reform implementation policy is either i immediate partial enactment with sufficiently low adjustment costs ii phased in partial enactment with intermediate adjustment costs or iii postponed partial enactment with sufficiently high adjustment costs numerical results suggest that relative to the optimal one step implementation policy little is gained by phasing in reform

stabilisation policy targets and unemployment in imperfectly competitive economies this paper argues that the rate of equilibrium unemployment depends on the objectives of the central bank in a model where the central bank uses monetary policy to stabilise the economy we show that unemployment and inflation will be lower with an inflation target than with targets for output money or nominal gdp the intuition for this is that the elasticities of demand in both the product and the labour markets are greater when there is an inflation target we show that this leads to a lower mark up of price over marginal cost and makes wages more sensitive to unemployment

comment on h tson soderstrom union militancy external shocks and the accommodation dilemma soderstrom s paper is an original and valuable contribution to the interesting and in my opinion highly relevant problem of whether or not and to what extent a nonaccommodation policy is an optimal government strategy in the presence of centralized wage setting and external shocks the author forcefully stresses the benefits of gradualism thereby dismissing the all or nothing choice that usually governs the literature on the accommodation problem

bank privatization and performance empirical evidence from nigeria the authors assess the effect of privatization on performance in a panel of nigerian banks for the period 1990 2001 they find evidence of performance improvement in nine banks that were privatized which is remarkable given the inhospitable environment for true financial intermediation their results also suggest negative effects of the continuing minority government ownership on the performance of many nigerian banks the authors results complement aggregate indications of decreasing financial intermediation over the 1990s banks that focused on investment in government bonds and non lending activities enjoyed a relatively higher performance

foreign entry and the mexican banking system 1997 2007 proquest denotes formulae omitted in recent years governments around the world have been opening up their banking systems to foreign competition with the expectation of making them more efficient stable and resilient to shocks academics and policymakers have therefore been exploring the effects of foreign bank entry from both a theoretical and an empirical point of view most studies conclude that foreign entry increases the contestability of markets thereby reducing administrative costs lowering net interest margins nims and driving down bank rates of return nevertheless as clarke and others note much of what we know comes from cross country studies that are heavily weighted toward developed economies 1 this is particularly crucial because the impact of foreign entry may vary with the level of economic development 2the literature to date on foreign bank entry in developing economies does not provide a consensus set of results there is some evidence that foreign entry increases social welfare clarke cull and martinez peria find that enterprises in countries with high levels of foreign bank participation tend to rank interest rates and access to long term loans as lesser constraints on their operations and growth than do enterprises in countries with low levels of foreign bank participation 3 martinez peria and mody analyzing a group of latin american cases in a pooled time series cross sectional framework find that foreign banks charge lower interest rate spreads than domestically owned banks 4 they also find that foreign bank entry is associated with an overall increase in administrative efficiency and a decrease in interest spreads suggesting that foreign entry spurred competition denizer obtains similar results in a study of turkey foreign entry reduced domestic bank overhead expenses as well as bank profitability 5 unite and sullivan find that foreign entry was associated with declines in interest rate spreads overhead expenses and profits in the philippines but the effect was confined to domestic banks that had been tied to business groups 6 kasekende and sebudde report that foreign banks in uganda have better internal control mechanisms than domestic banks in terms of judging the quality of borrowers 7not all the evidence points in the same direction however havrylchyk finds that foreign banks in poland are more efficient than domestic banks but then shows that the efficiency gains are all located in so called greenfield banks domestic banks that are acquired by foreign banks do not become more efficient 8 cardim de carvalho finds no differences between foreign and domestic banks in brazil in terms of credit allocation or technical efficiency 9 indeed technical progress in online banking and automation in brazil has been introduced more aggressively by domestically owned banks claessens demirguc kunt and huizinga find that foreign banks operating in developing economies have higher overhead expenses charge higher interest margins and earn higher rates of return than domestic banks 10foreign banks may also be less willing to extend credit on the basis of softknowledge about firms than domestically owned banks studies of argentina and pakistan suggest that foreign entry may therefore give larger firms even greater advantages by exacerbating problems of differential access to capital 11 the finding that foreign banks eschew soft knowledge lending is supported by multicountry studies that use panel data techniques detragiache tressel and gupta report that foreign entry in a panel of poor economies is associated with a net reduction in total lending to the private sector foreign banks appear to have skimmed offthe best credit risks leaving domestic banks with a pool of weaker borrowers from which to select 12 a related body of research suggests that foreign banks represent a trade offfor a developing country galindo micco and powell develop a model and present evidence indicating that foreign banks may be less susceptible to funding shocks than domestic banks because they can tap capital from their home institutions but at the same time foreign banks are more reactive to shocks that affect expected returns

stagflationary bias and the interaction of monetary policy and wages in a unionized economy economics research centre school of economic and social studies university of east anglia norwich nr4 7tj u k the paper investigates the claim of gylfason and lindbeck public choice 1994 that a stagflationary bias arises from the interaction between monetary policymaking and wagesetting if among other things the government and unions share a concern for inflation it uses a game theoretic model of this interaction in which the government plays an economy wide union though simple this nests several other models as special cases in that corresponding to gylfason and lindbeck s model the factors which they identify are shown to be sufficient for stagflationary bias in a specified sense however for the union to care about inflation is not a necessary condition the main result of the paper concerns the more general model it establishes a set of necessary and sufficient conditions for stagflationary bias as previously defined these conditions do not include a shared concern for inflation the paper comments briefly on the significance of this result for stagflation and economic modelling

a wage bargaining model for denmark recent models of wage bargaining provide the background for formulating a wage employment model which is estimated for the manufacturing sector in denmark emphasis is laid on an interpretation of the empirical findings in a maroeconomic context the major results are that wage setting is not characterized by money illusion shorter working hours lead in the long run to full wage compensation and a fall in total number of hours worked and expansionary demand management policies induce wage increases which eventually eliminate the expansionary effects on activity

labor union objectives and collective bargaining we consider a model oflabor union behavior in which workers make decisions about wages and employment by simple majority rule we show that under general conditions such a union has a well behaved objective function different from those previously postulated in the literature we then show that the union s majority preferences generally lack a von neumann morgenstern utility representation and thus cannot be inserted into traditional bargaining models we then develop and characterize the solutions to a new bargaining model that is consistent with the structure of union preferences several comparative statics results are presented

trade unions wage formation and macroeconomic stability an introduction the process of wage formation is a crucial aspect of the current discussion about the causes of stagflation in fact differences between various policy prescriptions usually depend on differing assumptions about wage responses proposals to reduce unemployment through expansion of monetary demand are usually based on assumptions of rigid money wages in contrast recommendations of non intervention policies often rest on the opposite assumption of rigid real wages in which case monetary expansion will cause inflation but not affect employment

fiscal activism under inflation targeting and non atomistic wage setting this paper presents a game between a fiscal authority an independent central bank and non atomistic wage setters the effects of fiscal activism and inflation targeting on labour market outcomes are analysed the results suggest that inflation targeting provides incentive for wage restraint moreover real wages are increasing in the degree of fiscal activism as wage setters exploit the response of a fiscal authority seeking to promote employment numerical results suggest that the benefits of targeting inflation are larger when the government pursues an activist policy and therefore that there is some substitutability between fiscal and monetary rules

hybrid carbon incentive mechanisms and political acceptability this paper analyses how hybrid systems of carbon taxes and tradeable permits optimize some conflicting dimensions of political acceptability related to the design of these instruments pure systems like taxes without exemptions or auctioned tradeable permits cause problems for political acceptability in open economies due to high overall costs abatement cost plus payments on the tax or auctions for current polluters unfortunately pure systems based on grandfathering of emission rights across the board do not provide a feasible alternative because of monitoring and enforcement problems in contrast consciously designed hybrid systems employ grandfathering of emission rights together with either carbon taxes or auctioned carbon permits in order to overcome acceptability problems of pure systems while leaving incentives to reduce emissions at the margin untouched moreover monitoring and enforcement costs of the hybrid systems are less due to the lower number of participating agents compared with the pure systems while opportunities for cost or burden sharing exist as well

macroeconomic strategies towards internal and external balance in the nordic countries the aim of this paper is to clarify the policy strategies pursued in the nordic countries in the 1970s and 1980s to attain internal and external balance a distinction is made between i a bridging strategy ii a sheltering or adaptive strategy and iii a production strategy of export led growth these strategies are characterized and related to the experience of the

macroeconomic stabilization policy and trade union behaviour as a repeated game lt is unquestionably true that the presence of trade unions in an economy affects its macroeconomic behaviour by attempting to maintain traditional patterns of relative wages among occupations and industries and by resisting cuts in real wages unions slow macroeconomic adjustment and structural change in response to macroeconomic shocks it is often argued that by insulating groups of workers from competitive pressures wage determination is less associated with market clearing than it otherwise would be overlapping contracts and resistance to relative wage changes thus give aggregate wage inflation mo mentum it would not otherwise have taylor 1980 jackman 1983 trade union bargaining may affect the position of the phillips curve jackman and layard 1982 nickell 1982 a popular argument for the increases in the nairu non acceleratinginflation rate of unemployment which have taken place between 1960 and 1980 in many industrialized countries where unions are strong is that trade unions have grown more militant and their bargaining behaviour has changed in some way this argument goes back at least as far as hines 1964

trade unions and the choice of capital stock this paper considers the interaction between a firm and trade union in determining employment wages and capital stock we take the monopoly trade union model of oswald 1982 where the union sets the wage and add the firms choice of capital stock the standard predictions of the union literature are highly dependent on the degree of strategic dominance of the union vis a vis the firm

the determinants of net interest income in the mexican banking system an integrated model abstract this paper analyzes net interest income in the mexican banking system over the period 1993 2005 taking as reference the seminal work by ho and saunders ho t saunders a 1981 the determinants of banks interest margins theory and empirical evidence journal of financial and quantitative analysis xvi 4 581 600 and subsequent extensions by other authors our study models the net interest margin simultaneously including operating costs and diversification and specialization as determinants of the margin the results referring to the mexican case show that its high margins can be explained mainly by average operating costs and by market power although non interest income has increased in recent years its economic impact is low

market power in cee banking sectors and the impact of the global financial crisis the aim of this study is to undertake an up to date assessment of market power in central and eastern european banking markets and explore how the global financial crisis has affected market power and what has been the impact of foreign ownership three main results emerge first while there is some convergence in country level market power during the pre crisis period the onset of the global crisis has put an end to this process second bank level market power appears to vary significantly with respect to ownership characteristics third asset quality and capitalization affect differently the margins in the pre crisis and the crisis periods while in the pre crisis period the impacts are similar for all banks regardless of ownership status in the crisis period non performing loans have a negative effect and capitalization a positive effect only for domestically owned banks

trade unions nonneutrality and stagflation the claim that in policy games nonneutrality and a stagflation bias emerge in equilibrium if the unions care about inflation per se is discussed this assumption is shown to be not necessary to obtain a stagflation bias the same applies to nonneutrality if a government acts in the economy the question of whether unions should be envisaged as institutions i e interested in variables unrelated to wages and employment is also addressed two model based alternatives providing microeconomic foundations versus macroeconomic foundations to unions behaviour are presented the conclusion is that the modelling of unions remains an unsettled problem

partial tax reform an optimal taxation perspective this paper presents a framework for evaluating partial tax reform proposals based on the theory of optimal taxation which is complementary to an analysis based on the theory of equitable taxation developed by walter hettich in this journal the analysis focuses on the fundamentally different perspectives on tax reform of the two schools of thought never theless the two approaches are complementary in that first they require decision makers to state explicitly their views on horizontal and vertical equity and second they then provide a systematic means of evaluating partial tax reforms based on those criteria

the short run phillips curve with monopoly unions this paper concerns an economy subject to stochastic shocks where a union sets wages the government affects the price level and firms set employment the author shows that the phillips curve may then be upward or downward sloping for given preferences of agents depending on the nature of the shocks it most likely slopes downward when the government has little short run control of the price level or shocks stem from the demand side and upward when shocks originate on the production side average inflation while inefficiently high is brought down by union indexation of wages to the price level copyright 1988 by the editors of the scandinavian journal of economics

why real wages do not fall when there is unemployment abstract erroneous anticipations of fiscal policy results in involuntary unemployment if mutually agreeable unemployment may be eradicated by recontracting the real wage and employment level however if labor demand is inelastic unit elastic or within a bounded elastic range unemployment persists

rules discretion and reality both with respect to inflation and productivity macroeconomic performance in the last decade or so has been disappointing promises of policymakers to improve things have been frequently thwarted not only in terms of inflation and growth but also in terms of achieving targets for such summary measures of policy as the budget deficit or the money supply moreover critics have charged that policy failures are to blame for many of our economic difficulties the net effect has been to raise the practical question of whether the political process as now constituted can produce good economic policies the last decade or so has also been marked more than coincidentally by substantial professional criticism of conventional neokeynesian macro models and the theory of policy associated with them one of the major punch lines of this research is that activist macroeconomic policy is misguided indeed at best it is seen as ineffective and at worst highly counterproductive as a consequence the so called new classical economists argue that policymakers should avoid activism or discretion and instead be guided by simple rules the issue of rules vs discretion has of course been a source of long standing professional debate and while the new classical economists have provided some additional intellectual ammunition for rules this hardly serves to explain the apparent popular resurgence in advocacy of rules recent interest in rules is reflected in the emphasis on monetary targeting in proposed legislation even constitutional amendments for controlling the federal budget and in attempts to untarnish the gold standard this paper reviews the current state of the rules vs discretion debate i the nature of policy some preliminaries

the impact of the strategic sale of restructured banks evidence from indonesia summary we examine the effect of strategic sale which is the sale of banks to strategic foreign investors on bank performance the government of indonesia implemented such a policy as part of a bank restructuring in the aftermath of the 1998 banking crisis using difference in differences models we find that strategic sale leads to a 12 15 cost reduction these results are robust to the use of other estimators such as difference in differences matching estimators and stochastic frontier analysis to that of other performance measures such as return on assets and net interest margin and to that of different sample types these results suggest that strategic sale could play an important role in restructuring troubled banks in developing countries

union wages temporary lay offs and seniority it is widely believed that the seniority system in conjunction with the collective bargaining process contributes significantly to the determination of the unemployment level in unionized sectors causa i empiricism suggests that real wage demands often remain buoyant in these sectors in the face of seemingly high rates of unemployment among union members james medoff 1979 p 380 convincingly documents the evidence that adjustment through lay offs is substantially greater in unionized firms than in comparable non unionized firms the usual but somewhat informal explanation is that the outcome of union voting is greatly influenced by senior workers who are fairly certain that they will not be laid off when normal shifts in the industry s demand for labour occur 2 these inframarginal workers are believed to vote for higher wage settlements than they would if their own jobs were not so secure

comment on t hersoug workers vs government who adjusts to whom ever since the days of keynes economists have been puzzled by the behavior of wages in the classical macroeconomic system real wages were supposed to clear the labor market yet real wage rates were only slightly reduced by the massive and persistent unemployment during the depression it is true that nominal wage rates fell but prices fell in roughly the same proportion

integration and competition in the european financial markets abstract financial integration in europe should affect the competition between markets and intermediaries and generate a convergence of both interest rates and margins among different countries this paper analyzes both the evolution of the convergence in interest rates and the level of competition and its inequalities among the european banking systems for the period 1993 2001 the inequality index used the theil index allows us to break down the inequalities into a country and a specialization effect if the former effect dominates it would mean that national banking markets are segmented due to the existence of obstacles or barriers to integration on the other hand dominance of the latter effect would be related to the different level of competition depending on the type of banking specialization

tax incidence partial policy improvements and centralized wage setting subsidies are often recommended both in theoretical analysis and in practical applications as a remedy for involuntary unemployment cf oswald 1984 likewise subsidies which assist domestic firms in their competition with foreign rivals are viewed with increasing favor in order to raise the number of well paid jobs high wage or high value added industries should be subsidized or protected from foreign competition see bhagwati and srinivasan 1983 these considerations are of a partial equilibrium nature however there is no theory as to how wages are determined and only one industry is examined in an otherwise competitive economy this paper focuses on the case where the government uses some taxes as policy instruments but balances its budget by other revenueraising taxes and where a wage setting union takes this government behavior as given the tax incidence on workers then has an impact on wages and expansion in one industry raises wages in general and reduces employment in the others so that the subsidy in one industry implicitly becomes the tax in another the study proceeds as follows in section ii we specify the determination of employment and wages in an open economy with one economy wide union in section iii we assume that the government can discriminate between the industries and in section iv that the authorities are subject to uniform tax and subsidy rates in both of these cases specific policy rules are obtained

workers versus government who adjusts to whom a dominant trade union and the government are regarded as players in a game it is argued that the institutional setting is such that the union in effect makes the first move and government the last then the stackelberg solution with the union as the leader is a nash equilibrium this solution is in accordance with an accommodating policy implying relatively high wage and price levels and a poor trade balance a nonaccommodating policy with the unions as the follower would be preferred by the government and may not imply lower employment but is likely to require short run losses in order to be established a cooperative solution could be to mutual benefit but is rarely observed problems of realizing such a solution are discussed