predicting recessions with interest rate spreads a multicountry regime switching analysis abstract this study uses markov switching models to evaluate the informational content of the term structure as a predictor of recessions in eight oecd countries the empirical results suggest that for all countries the term spread is sensibly modelled as a two state regime switching process moreover a simple univariate model turns out to be a filter that transforms accurately term spread changes into turning point predictions the term structure is confirmed to be a reliable recession indicator however the results of probit estimations show that on average the markov switching filter does not improve the forecasting ability of the spread

measures of agricultural support policies in transition economies 1994 1997 in the pre reform period agriculture was heavily subsidized in most central and eastern european countries ceec s around 1989 most ceec s began to open up their markets liberalize prices and reduce subsidies and the level of support provided to agriculture declined drastically while not questioning the direction of economic reforms there was concern that the decline in profitability in farning would slow down the impetus for farm restructuring in particular the drive for privatization of land as demanded by potential new farmers however after pursuing rather liberal agricultural policies at the beginning of the transition period some ceec s in recent years have reintroduced higher levels of support stefan tangerman 1996 in this paper based on estimates of various support indicators for the period beginning roughly in 1994 i will address some of the more important questions regarding agricultural support what has been the impact of trade and price policy interventions on the net income of farmers and government budgets how level has the playing field been since the reintroduction of support does the current economic environment provide an appropriate and sound basis for adjustment toward a more competitive agricultural sector this analysis is part of a comparative study by the world bank which covers bulgaria poland romania ukraine and russia in progress plus germany and turkey two reference cases geographically located at the border of the ceec s for each country employing the same methodology the study considers approximately eight commodities which are representative of the country s major import competing and export products

on the nature of competition with differentiated products there is an old debate going back to bertrand 1883 and edgeworth 1925 about the fragility of market equilibrium when competition arises among a few sellers it was hotelling s belief that price instability vanishes when products are differentiated hotelling 1929 recently attention was drawn to the fact that even if product differentiation can weaken the forces leading to price instability it cannot eliminate completely the possibility of price cycles d aspremont et al 1979 the purpose of this paper is to show that vertical and horizontal product differentiation do not operate in the same manner a stable market outcome including an endogenous product specification arises more frequently with the former than with the latter horizontal product differentiation is rooted in taste differences more precisely the potential customers have heterogeneous preferences about the proportion in which the attributes of the product should be combined a wide range of substitute products can then survive in the same market simply because each of them combines the various attributes of the product in a proportion suitable to a particular segment of customers between two products in the range the level of some attributes is augmented while that of others is lowered each variety has its own circle of customers exactly as the inhabitants located around a particular shop form its potential market none the less competitors can raid these privileged market shares by adequate price cuts by contrast vertical product differentiation refers to a class of products which cohabit simultaneously on a given market even though customers agree on a unanimous ranking between them between two products in the range the level of all attributes is augmented or lowered the survival of a low quality product then rests on the seller s ability to sell it at a reduced price compensating thereby for the higher a priori attractiveness of a more desirable quality the seller of a low quality product will specialise in the segment of customers whose propensity to spend on the corresponding range of products is low either because they have relatively lower income or relatively less intensive preferences than other customers at the same time the seller of a high quality product will enjoy an absolute advantage over his competitor 2 interestingly it turns out that price and product competition does not lead to the same results in these two situations regarding the stability of the market equilibrium to stress the differences we have chosen to concentrate on two

strategic non intervention and the choice of trade policy for international oligopoly abstract this paper analyzes a game of strategic trade policy between governments who may choose among quantity controls subsidies and non intervention as policy instruments central to the analysis is our view of non intervention as a distinct policy choice we derive conditions under which non intervention is strictly preferred to the alternative instruments preferences between non intervention and the nash equilibrium subsidy confirm to a simple distance measure involving the stackelberg leadership subsidy the subsidy level zero or nash that is closest to the stackelberg subsidy being preferred

what do the leading indicators lead the authors find that the composite leading index cli is useful for forecasting gross national product gnp both in sample and in an out of sample real time exercise they propose a nonlinear specification in which cyclical shifts of the cli precede those in gnp however the authors find that better forecasts are provided by a simple linear relation between current gnp growth and the growth rate of the cli during the previous quarter along with an error correction term corresponding to the previous quarter s logarithmic difference between the level of the cli and the level of gnp copyright 1996 by university of chicago press

tariffs quality reversals and exit in vertically differentiated industries abstract in a vertically differentiated industry a domestic and a foreign firm first choose the quality of their goods and then compete in quantities or prices in the home market we investigate the cases in which a tariff is chosen before or after the firms quality decision these cases are referred to as the ex ante and the ex post game respectively optimal ex post tariffs are positive and ensure that the domestic firm always produces the high quality good the optimal ex ante tariff is prohibitive and welfare under domestic monopoly is lower than under ex post tariffs unless firms compete in prices and the domestic firm is high quality

terms of trade uncertainty savings and the production structure abstract this paper studies the response of savings and the production structure tradeables non tradeables to an increase in future terms of trade uncertainty holding expected utility constant there is no international trade in risky assets the impact on the production structure is studied by analyzing the markets for domestic equity the paper shows that the response of both non tradeables production and savings is ambiguous cross country evidence indicates that an increase in terms of trade uncertainty leads to a higher fraction of the labor force in the non tradeables sector

commodity taxation in a differentiated oligopoly the authors introduce commodity taxation into a vertical differentiation model with endogenous product selection they show that a uniform ad valorem tax lowers both qualities distorts the allocation of consumers between firms and lowers the consumer prices of both variants a small uniform tax is always welfare improving over the no tax equilibrium a differentiation of tax rates may or may not be desirable on welfare grounds if a welfare improvement is possible through a nonuniform tax it is always the high quality variant that must be taxed at a higher rate copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

are financial spreads useful indicators of future inflation and output growth in eu countries this paper seeks to address the policy issue of the usefulness of financial spreads as indicators of future inflation and output growth in the countries of the european union placing a particular focus on out of sample forecasting performance such analysis is of considerable relevance to monetary authorities given the breakdown of the money income relation in a number of countries and following increased emphasis of domestic monetary policy on control of inflation following the broadening of the erm bands the results confirm that for some countries financial spread variables do contain some information about future output growth and inflation with the yield curve and the reverse yield gap performing best however the relatively poor out of sample forecasting performance and or parameter instability suggests that the need for caution in using spread variables for forecasting in eu countries only a small number of spreads contain information and improve forecasting in a manner which is stable over time 1997 john wiley sons ltd

the predictive power of the term structure of interest rates in europe and the united states implications for the european central bank abstract this paper examines the relationship of the term structure of interest rates to monetary policy instruments and to subsequent real activity and inflation in both europe and the united states the results show that monetary policy is an important determinant of the term structure spread but is unlikely to be the only determinant in addition there is significant predictive power for both real activity and inflation the yield curve is thus a simple and accurate measure that should be viewed as one piece of useful information which along with other information can be used to help guide european monetary policy

predicting severe simultaneous recessions using yield spreads as leading indicators abstract severe simultaneous recessions are defined to occur when at least half of the countries under investigation australia canada germany japan united kingdom and united states are in recession simultaneously i pose two new research questions that extend upon stylized facts for us recessions one are the occurrences of simultaneous recessions predictable two does the yield spread predict future occurrences of simultaneous recessions i use the indicator for severe simultaneous recessions as the explained variable in probit models the lagged yield spread is an important explanatory variable where decreasing yield spreads are a leading indicator for severe simultaneous recessions both us and german yield spreads act as leading indicator for severe simultaneous recessions

predicting u s recessions financial variables as leading indicators this paper examines the out of sample performance of various financial variables as predictors of u s recessions series such as interest rates and spreads stock prices and monetary aggregates are evaluated individually and in comparison with other financial and nonfinancial indicators the analysis focuses on out of sample performance from one to eight quarters ahead results show that stock prices are useful with one to three quarter horizons as are some well known macroeconomic indicators beyond one quarter however the slope of the yield curve emerges as the clear individual choice and typically performs better by itself out of sample than in conjunction with other variables

strategic trade policy with endogenous choice of quality and asymmetric costs abstract this paper examines strategic trade and joint welfare maximizing incentives towards investment in the quality of exports by an ldc and a developed country firms first compete in qualities and then export to an imperfectly competitive third country market under bertrand competition unilateral policy involves an investment subsidy by the low quality ldc and an investment tax by the developed country whereas jointly optimal policy calls for the reverse so as to reduce price competition by increasing product differentiation under cournot competition unilateral policy is also reversed from the bertrand outcome but jointly optimal policy involves a tax in both countries

international capital movements under uncertainty in this paper we analyze the determinants of international movements of physical capital in a model with uncertainty and international trade in goods and securities in our model the world allocation of capital is governed to some extent by the asset preferences of risk averse consumer investors in a one good variant in the spirit of the macdougall model we find that relative factor abundance relative labor force size and relative production riskiness have separate but interrelated influences on the direction of equilibrium capital movements these same factors remain important in a two good version with heckscher ohlin production structure in this case the direction of physical capital flow is determinate unlike in a world of certainty and may hinge on the identity of the factor that is used intensively in the industry with random technology

vertical and horizontal intra industry trade a cross industry analysis for the united kingdom a large theoretical literature has emerged directed at explaining the presence of intra industry trade iit one of the distinctions which comes out of these models is that between horizontal iit where goods are differentiated by attributes and vertical iit where goods are differentiated by quality in this paper horizontal and vertical iit in u k trade are disentangled using a unit value dispersion criterion and a range of industry characteristics the paper not only points up the relative importance of vertical and horizontal iit in the united kingdom it also demonstrates how a failure to separate them out can impact on the interpretation of empirical results copyright 1995 by royal economic society

strategic choice of quality when quality is costly the persistence of the high quality advantage in a two firm two stage model of vertical product differentiation i show that for every convex fixed cost function of quality the firm that chooses the higher quality at the first stage earns the higher profits the result holds for the pure strategy equilibrium in the simultaneous quality game and it holds as well if firms choose their qualities in sequential order

minimum quality standards as a barrier to innovation abstract most models of minimum quality standards do not deal with the dynamic nature of regulation this note shows that presence of minimum quality standards may reduce firm incentives to innovate leading to a lower level of social welfare under regulation

minimum quality standards and collusion we model the introduction of a minimum quality standard in a vertically differentiated duopoly we extend the literature in determining the standard endogenously showing that the maximisation of social welfare entails an increase in the surplus accruing to consumers served by the low quality firm and a decrease in the surplus of the remaining consumers then we consider the effects of the standard on the stability of price collusion proving that the standard makes it more difficult for firms to collude if consumers are sufficiently rich

the heckscher ohlin and travis vanek theorems under uncertainty abstract the heckscher ohlin theorem is valid under uncertainty of the special benchmark sort modelled by helpman razin their pessimism over its validity is vanquished by more structure rational expectations are imposed on consumers and identical and constant relative aversion to income risk is assumed under these circumstances with free commodity trade the heckscher ohlin theorem holds for the international exchange of equities

quality choice trade policy and firm incentives quality choice is examined in a duopoly with one foreign and one domestic firm where consumers have similar preferences for quality but different preferences for brands firms make quality commitments prior to choosing price and policy intervention assumes several forms the policy conclusions depend on whether firms face set up costs in raising product quality in the absence of set up costs both domestic and foreign firms make socially optimal quality choices in the presence of set up costs the foreign firm and often the domestic firm sets quality below the socially optimal level incomplete information alters these conclusions however copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

oligopolistic competition and international trade quantity and quality restrictions abstract we examine trade restrictions such as quantity and quality limitations on imports in an oligopolistic industry consisting of foreign and domestic firms we find that the effects of trade policy hinge on the location of the quality produced by the firms in the quality spectrum a quota leads to positive protection while minimum quality standards leads to negative protection furthermore minimum standards lower national welfare and a quota has an ambiguous effect on welfare

on the persistence of leadership or leapfrogging in international trade when two countries starting from different quality levels reflecting different conditions on domestic market demands open to trade two possible equilibria arise in the first the quality leader maintains its position in the second leapfrogging occurs however the latter is possible only if the initial quality gap is not too wide further when the risk dominance criterion is used only the former equilibrium is selected these results suggest that initial conditions such as domestic market size or home demand preferences are important factors in determining relative competitiveness of firms in international markets

trade policy and its impact on quality of imports this paper examines the role of trade policies in influencing a foreign monopolist s decision on price quantity and in particular the quality of its product we show that a specific tariff leads to higher quality whereas an ad valorem tariff usually does the opposite quotas and specific tariffs are shown to be equivalent and both dominate an ad valorem tariff in terms of welfare we also show that subjecting imports to minimum quality requirements hampers national welfare finally we present a comprehensive ranking of all the policy instruments considered in this paper

anti dumping and countervailing duties under oligopoly abstract this paper constructs a conjectural variations model of international oligopoly in which the home country s optimal policy responses to the foreign government s subsidies and foreign firms dumping can be calculated some theoretical support is found for tariffs that countervail part of the foreign export subsidy the optimal fraction depends on the size of own and cross effects in demand and on the extent of market competition however no normative case is found for anti dumping duties

voluntary export restraints profits and quality adjustment this paper develops a model of vertical differentiation to assess the impact of output constraints on the profits and quality choices of firms subject to them a competitive environment is developed with the automobile industry in mind multiproduct oligopolists producing differentiated goods who behave as coumot competitors the results show that an output constraint will not induce constrained firms to upgrade their product line when their unconstrained competitors produce higher quality models it is also shown that an output constraint can raise the profits of constrained firms despite output increases by unconstrained firms

cost reducing investment competition and industry dynamics textabstractwe demonstrate the possibility of shake out of firms and emergence of inter firm heterogeneity along the socially optimal dynamic equilibrium path of a competitive industry with free entry and exit even when there is no uncertainty and all firms are ex ante identical with perfect foresight atomistic firms with upward sloping marginal cost curves undertake investment in firm specific cost reduction they earn negative net profit in early periods compensated later by strictly positive net profits no entry occurs after the initial time period some firms may exit before others even while other firms earn positive net profit

a reexamination of the neoclassical trade model under uncertainty abstract this paper presents a model that pinpoints the exact places and reasons that the propositions of the heckscher ohlin samuelson model break down under uncertainty within the model if preferences exhibit decreasing absolute risk aversion i a capital poor country tends to obtain lower revenues from its resources than the same resources would yield in capital rich countries ii if there is one riskless and one risky sector a capital abundant country tends to have a comparative advantage in the risky sector and iii the pattern of trade depends on the intra national as well as the inter national distribution of endowments

the optimal speed of transition a general equilibrium analysis we present a benchmark model for the optimal speed of transition from a state owned to a private market economy based on the consumption savings decision in a closed economy we abstract from frictions to focus on the macroeconomic conditions for accumulation of private capital and closure or restructuring of state owned enterprises it is shown that hard budget constraints compensate for too slow speed of enterprise closure but that an excess speed of closure may slow down transition because of output contraction effects this will especially be the case if such a deviation occurs at early stages of transition

shifts in foreign trade competitiveness and growth potential from baltics to bal techs abstract the collapse of socialism and the ensuing transition process have revealed the position of estonia latvia and lithuania in an international economic perspective data presented in this paper suggest that the baltics are competitive in sectors that generate little value added as a result of their inferior level of technology relative to their trade partners mainly oecd europe this raises questions about the income levels attainable in these countries the question with respect to future economic growth is whether there is any potential in the baltic countries to increase the level of technology this paper argues that the socialist past especially the separation of research and development from production is an important obstacle to technological progress in the baltics in order to integrate research and production socialist institutions need to be transformed or abolished while new ones have to be created this will take considerable time and effort

tariffs versus quotas with endogenous quality this paper analyzes the effects and desirability of tariffs quotas and quality controls when the quality of the imported good is endogenous and the foreign producer is a monopolist a crucial determinant of the direction of these effects is shown to be the valuation of increments in quality by the marginal consumer relative to that of all consumers on average a way of comparing infinitesimal equivalent policies is developed and used to compare import equivalent policies

quantity restrictions and endogenous quality choice abstract in a vertical product differentiation model under cournot competition both foreign and domestic firms respond by lowering their investment in long run quality for a quantity restriction at and in the neighborhood of the free trade import level average quality increases only when the low quality foreign firm faces a substantially restrictive quota voluntary export restraint the change in quality depends on whether the foreign firm is of high or low quality and upon the restrictiveness of the quota the imposition of quantity restrictions has important strategic effects on the long run choice of quality

rent seeking protectionism and innovation in the american steel industry trade protection in a declining industry can cause damages beyond those revealed in the usual trade diagram analysis using data on the us steel firms we show that trade protection in that industry rewards poor performance reduces incentives to innovate and frustrates the normal schumpeterian process of creative destruction free trade gives consumers the lowest prices nonetheless protectionism in various guises is pervasive this we show is probably due to political rentseeking by groups that expect to lose as trade patterns adjust to innovation and altered economic conditions these groups invest in political lobbying to secure future returns in trade protection we find empirical evidence that trade protection returns private benefits to the shareholders senior workers and ceo s of lobbying firms perhaps more disturbingly trade protection also appears to reward less innovative firms and may thus frustrate the schumpeterian development of an industry we examine us steelmakers among the most active lobbyers in recent decades steel firms that lobby congress for protection tend to be larger older less diversified and less profitable than non lobbyers they pay their workers and ceos more and their ceos have longer tenure and are more likely to have risen through the ranks of their companies this suggests the owners managers and workers of less dynamic steel firms stand to lose from free trade the announcement of protection raises the stock prices of us steelmakers but by much more for lobbyers than non lobbyers when comprehensive and enduring protection was finally announced lobbyers more than non lobbyers cut jobs while maintaining or possibly increasing wages once comprehensive protection is in place protection also leads to large pay increases for lobbyers ceos this seems consistent with rent seeking and inconsistent with protection helping lobbyers mitigate social consequences of downsizing like unemployment our most striking finding is that high past r d spending is negatively correlated with stock price changes when proteption is announced and positively correlated with subsequent exit from the industry this seems inconsistent with protection providing a hiatus for retooling rather it suggests

trade patterns under uncertainty with country specific shocks the helpman razin model of international trade under uncertainty is extended to allow for country specific productivi ty shocks it is shown that for the multiple sector multiple factor case there exists a set of interesting sufficient conditions under w hich it is possible to predict the pattern of international trade in securities goods and factor content on the basis of cross country d ifferences in factor endowments it is shown that under these circum stances some well known empirical tests have to be modified copyright 1988 by the econometric society

endogenous quality choice price vs quantity competition two versions of a vertical product differentiation model one with fixed and the other with variable costs of quality are analyzed to study how the hypotheses of price versus quantity competition affect equilibrium solutions product differentiation arises under all the scenarios considered contrasting previous findings of symmetric quality choices under cournot behavior however to relax harsher market competition firms differentiate more under bertrand than under cournot a simple welfare measure also indicates that the economy is better off when firms compete on prices with fixed costs of quality not only consumer but also producer surplus is higher under price competition copyright 1993 by blackwell publishing ltd

export subsidies and countervailing tariffs this paper analyses how retaliation affects the profit shifting argument for export subsidies at the first stage the foreign country sets its export subsidy and then at the second stage the domestic country sets its tariff and or production subsidy it is shown that if the domestic country pursues an optimal trade policy then it will always gain from a foreign export subsidy when the domestic country uses a tariff and a production subsidy the optimal foreign policy is an export subsidy but if the domestic country only uses a tariff then an export tax is usually the optimal policy

estimating the effect of tax reform in differentiated product oligopolistic markets abstract the incidence of taxation has been extensively discussed in the public finance literature but mainly within a competitive market setting or within a homogenous good cournot type oligopoly in a differentiated product oligopoly the effect of taxation can be more complex as the rate of taxation may affect not only the prices but also the profile and quality of products that are sold in the market in this paper we examine the effects of changing tax regimes in a differentiated product oligopoly in order to illustrate our approach we employ data from one such market the automobile market in israel

risk sharing and industrial specialization regional and international evidence the authors provide empirical evidence that risk sharing enhances specialization in production to the best of their knowledge this well established and important theoretical proposition has not been tested before the empirical procedure is summarized as follows first the authors construct a measure of specialization in production and calculate an index of specialization for each of the european community ec and non ec oecd countries u s states canadian provinces japanese prefectures latin american countries and regions of italy spain and the united kingdom then they estimate the degree of capital market integration a measure of risk sharing within each of these groups of regions the ec countries the non ec oecd countries the united states canada japan italy spain and the united kingdom and rely on another author s estimate for latin america finally they perform a regression of the specialization index on the degree of risk sharing controlling for relevant economic variables they find a positive and significant relation between the degree of specialization of individual members of a group of countries provinces states or prefectures and the amount of risk that is shared within the group the authors perform regressions using variables such as shareholder rights and the size of the financial sector relative to gdp as instruments for the amount of inter regional risk sharing these regressions confirm that risk sharing facilitated by a favorable legal environment and a developed financial system is a direct causal determinant of industrial specialization this abstract was borrowed from another version of this item

trade policy and quality leadership in transition economies trade policy and quality leadership in transition economies are analyzed in a duopoly model of trade and vertical product differentiation we first show that the incidence of trade liberalization is sensitive to whether firms in transition economies are producers of low or high quality second we find that neither free trade nor the absence of a domestic subsidy are optimal both a tariff and a subsidy increase price competition and while the former extracts foreign rents the latter results in quality upgrading third there exists a rationale for a government to commit to a socially optimal policy to induce quality leadership by the domestic firm when cost asymmetries are low finally we establish an equivalence result between the effects of long run exchange rate changes and those of trade policy on price competition but not on social welfare

import competition product quality reversal and welfare abstract we investigate product quality in an import competing country using the framework of vertical product differentiation comparison of three polices suggests that the quality based r d subsidy brings quality reversal leading to a win win win equilibrium in consumer surplus domestic profit and social welfare

duopoly and quality standards abstract in the absence of sunk costs a low quality producer benefits from a mildly restrictive quality standard whereas a high quality producer suffers from it consumers welfare increases if the firm producing the higher quality does not increase its quality significantly in response to the increase in quality by its rival a sufficiently severe standard causes exit from the industry when there are no sunk cost the high quality producer exits first

trade reorientation and recovery in transition economies how do we define transition and when can we say that transition to a market economy is complete here we suggest that one way of addressing this issue is to analyse current economic data and ask whether in ignorance of the past we can identify countries in central and eastern europe as being somehow different from comparable western market economies in this paper we focus on international trade and argue that several indicators such as the geographical structure of trade and the undervaluation of the exchange rate cannot distinguish the more advanced countries in central and eastern europe we also seek to explain how the reorientation of trade towards the west has been achieved and in particular assess whether improvements on design and quality are a prerequisite for export expansion copyright 1997 by oxford university press