labour tax reform employment and intergenerational distribution a simulation model of an open economy with a unionized labour market is set up to analyze the effects of a labour tax reform which combines cuts in marginal tax rates with measures to broaden the tax base we find that such a reform will be contractionary and welfare reducing if unions set wage rates with the purpose of maximizing the after tax income of their members by contrast if unions also allow for the disutility of work of their members the reform will stimulate employment increase the welfare of all generations and redistribute welfare in favour of future generations

the demand for energy cross country evidence using the florida model abstract income and own price elasticities of demand for energy for 51 countries in 1980 are presented based on pooled estimates from an 11 good demand system estimated with the florida model results indicate income elasticities of demand for energy are significantly larger than unitary for all countries and own price elasticities of demand for energy range between 0 8 and 1 0

maintaining low inflation money interest rates and policy stance abstract this paper presents a systematic empirical relationship between money and subsequent prices and output using us euro area and swiss data since the 1960 1970s monetary developments unlike interest rate stance measures are shown to provide qualitative and quantitative information on subsequent inflation the usefulness of monetary analysis is contrasted to weaknesses in modeling monetary policy and inflation with respectively short term interest rates and real activity measures the analysis sheds light on the recent change in inflation volatility and persistence as well as on the phillips curve flattening and reveals drawbacks in pursuing a low inflation target without considering monetary aggregates

is the price level tied to the m2 monetary aggregate in the long run a long run link between money and prices is evident for the united states since the korean war if the m2 measure of money is used and the velocity of m2 v2 is modeled as a mean reverting series this link between m2 and prices is the basis for a dynamic model of inflation that compares favorably in forecasting exercises with phillips curve and more typical monetarist approaches the behavior of v2 is examined from 1870 to the present providing a basis for reconsidering previous findings that v2 follows a random walk copyright 1991 by american economic association

the demand for energy evidence from a cross country demand system abstract some new evidence on the income own price elasticities of demand for energy consumption by consumers is presented estimates are derived from a complete system of cross country demand equations with energy being one of the commodities considered

trade foreign direct investment and economic growth in asian economies despite the increasing role of foreign direct investment fdi in economic development very limited research has been carried out on the causal links between trade fdi and economic growth in asian economies this study examines empirically the inter play between exports imports fdi and economic growth for nine asian economies by conducting multivariate causality tests in the vector error correction model vecm framework the results reveal two way causal connections between trade inward fdi inward merger and acquisitions m as and growth for most of the sample economies there is a unidirectional causal link running from outward m as to growth and trade these findings suggest that export expansion import liberalization fdi inflows and inward m as are integral elements of the growth process in asian economies

estimation of current quarter gross national product by pooling preliminary labor market data two methods of using labor market data as indicators of contemporaneous gross national product gnp are developed the establishment survey data are used by inverting a partial adjustment equation for hours a second gnp forecast can be extracted from the household survey by using okun s law using preliminary rather than final data adds about 2 to 4 percentage point to the expected value of the root mean squared errors and changes the weights that the pooling procedure assigns to the two forecasts the use of preliminary rather than final data results in a procedure that assigns more importance to the okun s law forecast

engel s law diet diversity and the quality of food consumption increasing income brings about a decline in the relative importance of food consumption a wider spread of spending patterns and a demand for higher quality goods using an index number approach this article analyzes these three closely related tendencies stripping out the impact of prices from the dispersion of food expenditures gives a volume based measure of diet diversity that is relevant for nutrition using unpublished data from the world bank s international comparison program for 31 items of food in more than 150 countries we find that diets of rich countries are substantially more diverse than those of the poor and that volumes are the more appropriate way to measure the inequality of diversity the quality of the food basket based on the luxury necessity distinction of consumption increases with income but the elasticity is small there is a modest tendency for the structure of prices to be regressive since prices of luxuries relative to necessities are lower in richer countries additionally our diversity and quality measures are shown to have implications for demand analysis and well being

is inflation always and everywhere a monetary phenomenon using a sample of about 160 countries over the last 30 years we test for the quantity theory relationship between money and inflation when analysing the full sample of countries we find a strong positive relation between long run inflation and the money growth rate the relation is not proportional however the strong link between inflation and money growth is almost wholly due to the presence of high or hyper inflation countries in the sample the relationship between inflation and money growth for low inflation countries on average less than 10 per annum over the last 30 years is weak

financial technology shocks and the case of the missing m2 m2 growth was unusually weak in the early 1990s when its velocity soared although m2 growth subsequently recovered its velocity plateaued at a high level giving rise to a case of missing money these swings in m2 growth have accompanied opposite swings in bond mutual fund inflows m2 growth is better tracked and the missing m2 problem is resolved when money models are modified to account for shifts in bond mutual fund costs this approach avoids the capital gains and portfolio substitution problems posed by adding bond or equity funds to m2 while capturing the substitution effects relevant to money demand

money and prices evidence from the g7 countries this paper examines the exogeneity of money and prices within a money demand vector error correction model the exogeneity of the variables is central to several buffer stock models however the paper makes two modifications to the traditional approach the first is to explicitly acknowledge the importance of the supply of money function by including the function alongside its demand counterpart the second is to estimate the behaviour of the nominal sector and real sector simultaneously overall the results from the g7 countries suggest that the concerns raised by buffer stock models are relevant

alternative p models of inflation forecasts i introduction inflation forecasts play a key role in monetary and macroeconomics during the past three decades dramatic changes in the inflationary environment have stimulated a wealth of studies on the relative accuracy of alternative models of inflation forecasts in particular mehra 1988 stockton and glassman 1987 and reichenstein and elliott 1987 found varying performance in traditional models including the term structure phillips curve and typical monetarist models across postwar periods against this background hallman porter and small 1991 hps introduced a model called p star p sup as inflation forecasters holy grail the p sup framework is built on the general perception that inflation over the long run is a monetary phenomenon however as christiano 1989 argued p sup entails no practical implication for shorter run horizons that are of primary interest to inflation forecasters he further pointed out that for the period of 1970 89 one to three year ahead forecasts from p sup are not meaningfully more accurate than those from traditional models the usefulness of p sup as an anchor for the price level also suffers from another limitation the assumption that velocity which is the ratio of nominal gdp to a monetary aggregate is stable over the long run hps justified the validity of this hypothesis based on postwar 1955 88 data for the broad monetary aggregate m2 used in their model during the early 1990s however the growth rate of m2 apparently slowed down relative to that of gdp leading to a sharp rise in m2 velocity this consequently caused p sup to persistently underpredict actual inflation duca 1995a has provided a detailed discussion on plausible sources of this instability in velocity the literature has also offered plausible solutions to correct p sup models for the observed structural change ranging from redefining the relevant monetary aggregate to directly accounting for a trend break in velocity while evidence supports that these individual methods improve upon the original p sup formulation there is a lack of research comparing their performance especially in periods other than the early 1990s the first objective of the present study therefore is to fill this void the second objective of this paper is to reevaluate the robustness of earlier findings regarding the relative performance of hps s original p sup model to this end we divide the full out of sample forecast period of 1970 96 into three subsamples our results reveal a pattern of switching forecast performance between money based and output based models across recent periods the fragility of these models highlights the extent of temporal instability in the inflation generating process this paper proceeds as follows the next section describes alternative p sup model specifications and other inflation forecast models section iii discusses the forecast results section iv summarizes and concludes ii model specifications the p sup model the benchmark of the p sup model is the quantity theory of money which relies on the equation of exchange 1 p sub t equivalent to m sub t v sub t y sub t where p is the price level m is a measure of money supply v is the velocity of money y is the level of output real gdp and a time subscript denotes the current value of a variable it follows that if v sub t and y sub t reach their long run equilibrium levels at mathematical expression omitted and mathematical expression omitted respectively then the current equilibrium price level mathematical expression omitted can be determined as 2 mathematical expression omitted according to hps mathematical expression omitted is measured by the historical mean of v sub t and mathematical expression omitted by the level of potential gdp

implication for cities of the liberalizing national economies in twenty first century for cities the liberalization of national economies and the creation of a global economy have profound and far reaching implications global capitalist restructuring has been a key force in reshaping cities during the late1980s 1990s and 2000s it has demanded the production and use of new information technologies and in doing so has forged new relationships among new technologies and new spatial forms and processes in cities technological innovation and territorial restructuring have also deeply modified cities emerging socio economic systems at the centre of change are the three major global cities new york tokyo and london sassen 1993 other cities that have been affected by the liberalization and creation of a global economy are found mainly in newly industrializing asian countries such as seoul singapore and hong kong bombay mexico city and cities in south america are among countries in the developing world that have experienced some change in their economies in response to changing wo

the changing demand for energy in rich and poor countries over 25 years abstract country specific income and own price elasticities of demand for private consumption of energy are compared across time and affluence for 43 countries that participated in the 1980 1996 and 2005 international comparison program based on estimates from a ten good demand system results indicate that income elasticities of demand for energy are significantly larger than unitary in 1980 are approximately unitary in 1996 but become inelastic for all 43 countries in 2005 own price elasticities decrease absolutely going from 1980 to 1996 to 2005 ranging from 0 8 to 1 0 in 1980 0 7 to 0 8 in 1996 and 0 6 to 0 7 in 2005 elasticity estimates are also calculated for the set of countries in 1996 and 2005 that do not participate in the icp in 1980

interpreting euro area inflation at high and low frequencies abstract several authors have recently interpreted the european central bank s ecb s two pillar framework as separate approaches to forecast and analyse inflation at different time horizons or frequency bands the ecb has publicly supported this understanding of the framework this paper presents further evidence on the behaviour of euro area inflation using band spectrum regressions which allow for a natural definition of the short and long run in terms of specific frequency bands and causality tests in the frequency domain the main finding is that variations in inflation are well explained by low frequency movements of money and real output growth and high frequency fluctuations of the output gap

can we improve the perceived quality of economic forecasts a number of topics are discussed concerning how economic forecasts can be improved in quality or at least in presentation these include the following using 50 uncertainty intervals rather than 95 noting that even though forecasters use many different techniques they are all occasionally incorrect in the same direction that there is a tendency to underestimate changes that some expectations and recently available data are used insufficiently lagged forecasts errors can help compensate for structural breaks series that are more forecastable could be emphasized and that present methods of evaluating forecasts do not capture the useful properties of some methods compared to alternatives

the relevance of p star analysis to uk monetary policy recent articles have attempted to restore the use of a simple measure of the money supply as an indicator of future price levels p star and to reestablish a causal link from money to prices in this paper we argue that the p star approach is flawed it is certainly more complex than traditional monetarist approaches but the fundamental questions of causality are in no way either affected or resolved we argue that the p star relationship does not have a causal link with prices but rather the causality runs from prices to money we also find that there is some causality running from money to real income so that monetary conditions do seem to have some predictive power for future levels of activity copyright 1994 by royal economic society

measuring the deadweight loss from taxation in a small open economy a general method with an application to sweden the paper develops a simple general equilibrium framework for calculating the marginal deadweight loss from taxation in a small open economy the framework allows a decomposition of the deadweight loss from each tax instrument into the losses stemming from the contraction of the different tax bases the paper describes a method of calibrating the model which exploits the links between the various factor supply elasticities implied by the standard life cycle model it also develops a method of estimating effective tax rates that is consistent with optimising household and firm behaviour to illustrate how the model works it is calibrated to a data set for sweden the quantitative results highlight the importance of accounting for the interaction between the major tax bases when estimating deadweight loss

three sides of harberger triangles prevailing economic wisdom is highly critical of injudicious tax policies or government regulations uncorrected externalities unchecked monopolistic practices and various other market failures when economists are challenged to quantify the economic costs of associated price distortions it is standard practice and has been since the 1960s to use a small number of assumptions and selected elasticities to estimate areas of the relevant harberger triangles this simple and straightforward exercise has numerous applications and the virtue of producing answers rather than conjectures harberger triangles come in many shapes and sizes figure 1 offers an illustration of such a triangle for the simple case of an excise tax point a of figure 1 at which the demand and supply schedules intersect denotes market equilibrium in the absence of the tax with quantity q1 transacted at price p1 introduction of an excise tax at rate t payable by firms selling the commodity shifts the supply schedule upward by t at the new market equilibrium firms sell q2 units of the commodity at a market price of p2 receiving after tax p3 a p2 0 t market equilibrium at point a in figure 1 has the feature that marginal consumption benefits equal marginal production costs the excise tax drives a wedge between marginal benefits and marginal costs at consumption level q2 consumers are willing to pay any amount up to p2 for additional units of the good and suppliers would readily provide additional units of the good for any price of p3 or greater but these additional transactions do not take place due to the effect of the tax wedge the loss associated

marginal cost of public funds for different tax instruments and government expenditures the marginal cost of public funds that is the size of the direct and indirect excess burden costs for marginal tax revenues is examined in this paper for an open economy with a savings response and using swedish 1979 data the marginal cost of public funds spent on transfer payments is estimated to vary from 1 47 for a distributionally neutral tax on labor and capital to 7 20 for a more progressive tax where average and marginal labor taxes increase by the same rates for changes in the most important tax instrument the marginal cost of public funds varies from 0 98 for expenditures on infrastructure to 2 27 for transfer payments

estimating the demand for calories in india this article examines the long run relationship between per capita calorie intake per capita income and food prices using aggregate data for india 1961 1992 cointegration analysis yields an income elasticity of calorie intake of 0 34 while the food price elasticity is insignificant thus economic growth in india as measured by increasing per capita income has significantly improved calorie intake future income growth can alleviate further inadequate nutrition however significant improvements in calorie intake cannot be made directly by food subsidies a further result is that calorie intake is granger caused by income and not vice versa income generation is unconstrained by calorie intake

an augmented p star model of indian inflation abstractan augmented p star model is estimated and tested to identify the drivers of inflation in india the model includes monetary and non monetary factors demand pull and cost push factors and

affluence and food a simple way to infer incomes accurate and timely measures of cross country real incomes are still a rarity as the share of expenditure devoted to food is readily available we use engel s law in reciprocal form to measure affluence analysis of real income data for over 100 countries indicates that this approach is viable to recognize the role of uncertainty in the analysis we present the results in the form of stochastic cross country income comparisons

the measurement of waste within the production sector of an open economy a methodology for measuring the loss of output that can be attributed to distortions within the production sector of an open economy is proposed examples of distortions are tariffs on imported intermediate inputs taxes or subsidies on exports specific taxes on an output that is used as an input by another industry nonneutral corporate income taxes interindustry monopolistic markup pricing and union induced wage differentials the methodology generalizes the earlier work of allais and debreu

the long run relationship between trade and population health evidence from five decades in recent years the increase in international trade has sparked a debate about the impact of international trade on population health to date however there has been very little econometric research on the relationship between these two variables this paper examines the long run relationship between trade openness and population health for a sample of 74 countries over five decades from 1960 to 2010 using panel time series techniques it is shown that international trade in general has a robust positive long run effect on health as measured by life expectancy and infant mortality this effect tends to be greater in countries with lower development levels higher taxes on income profits and capital gains and less restrictive business and labour market regulations

the solow growth model vector autoregression var and cross section time series analysis the paper examines whether the mankiw et al results regarding the solow model are specific tothe statistical methodology used therefore instead of using cross section data annual data were used and the solow model was investigated using a vector autoregression var analysis for the g7 countries and cross section time series data for the g3 countries analysis shows that in both cases the mankiw et al results generally hold it also shows that the use of annual data can play an important and complementary role in revealing the differences in the growth process between individual countries

labor supply and taxes a survey i survey the male and female labor supply literatures focusing on implications for effects of wages and taxes for males i describe and contrast results from three basic types of model static models especially those that account for nonlinear taxes life cycle models with savings and life cycle models with both savings and human capital for women more important distinctions are whether models include fixed costs of work and whether they treat demographics like fertility and marriage and human capital as exogenous or endogenous the literature is characterized by considerable controversy over the responsiveness of labor supply to changes in wages and taxes at least for males it is fair to say that most economists believe labor supply elasticities are small but a sizeable minority of studies that i examine obtain large values hence there is no clear consensus on this point in fact a simple average of hicks elasticities across all the studies i examine is 0 30 several simulation studies have shown that such a value is large enough to generate large welfare costs of income taxation for males i conclude that two factors drive many of the differences in results across studies one factor is use of direct vs ratio wage measures with studies that use the former tending to find larger elasticties another factor is the failure of most studies to account for human capital returns to work experience i argue that this may lead to downward bias in elasticity estimates in a model that includes human capital i show how even modest elasticities as conventionally measured can be consistent with large welfare costs of taxation

the substantial bias from ignoring general equilibrium effects in estimating excess burden and a practical solution we show that under typical conditions the simple excess burden triangle formula substantially underestimates the excess burden of commodity taxes in some cases by a factor of 10 or more this formula performs poorly because it ignores general equilibrium interactions most important interactions between the taxed commodity and the labor market many prior studies have shown that general equilibrium interactions affect excess burden but have not appreciated the bias associated with ignoring these interactions or the quantitative importance of this bias we derive an implementable alternative to the simple formula this alternative formula captures interactions that the simple formula omits as a result it is both unbiased and usually more accurate

the energy gdp relationship in developing countries empirical evidence and stability tests abstract the elasticity of energy consumption with respect to gdp is an important element in projecting energy needs in economic development this study uses cross section and pooled cross section time series data to find that the elasticity of energy consumption with respect to gdp in developing countries is in the neighbourhood of 1 35 and significantly above one over the period covered 1970 to 1976 the relationships appear to have remained stable there are significant differences between areas of the world but the differences in the elasticities between different continents are not large

comment on lof mekasha and tarp 2014 summary in nowak lehmann et al 2012 we used time series methods to investigate the impact of aid on per capita gdp lof mekasha and tarp lmt 2014 criticize our econometric approach our interpretation and our data handling procedure which lead to a large share of missing observations in some specifications using a different time series approach a different aid variable and a different sample they claim to find a positive effect of aid on income which contrasts with our own results in this comment we first explain why we disagree with lmt s critique of our econometric method and show that our results do not depend on our way of dealing with missing data second we show that the methods used by lmt are unsuitable and rely on similarly problematic data handling procedures supplementing their approach with appropriate cointegration and causality tests shows that there is no robust effect of aid on income

energy consumption and economic activity in industrialized economies a note abstract in industrialized countries the income elasticity of primary energy demand is not far off unity furthermore it can be argued that there is little use in distinguishing between short and long term income elasticities a long term income elasticity does not have a direct impact on energy demand and hence it is of doubtful use in energy demand projections via an aggregate oecd model it was estimated that the short term impact of prices on primary energy demand is about 0 15 while the long term impact is 0 43 but increasing over time

relationships between economic growth foreign direct investment and trade evidence from china this study investigates the causal links between trade economic growth and inward foreign direct investment fdi in china at the aggregate level the integration and cointegration properties of quarterly data are analysed long run relationships between growth exports imports and fdi are identified in a cointegration framework in which this paper finds bi directional causality between economic growth fdi and exports economic development exports and fdi appear to be mutually reinforcing under the open door policy

money and inflation in the euro area a case for monetary indicators abstract this paper examines inflation indicators for the euro area by studying the relationship between inflation output money and interest rates using data spanning 1980 2001 the central finding is that both the output gap and the real money gap the difference between the real money stock and the long run equilibrium real money stock contain considerable information regarding future inflation in contrast the eurosystem s money growth indicator the difference between nominal money growth and a reference value the prominent first pillar in its monetary strategy contains little information about future inflation and no information beyond that contained in the output and real money gaps the predictive performance of the output gap has improved compared to that in a previous version of this paper most likely because of better estimation methods

regression direction and weak exogeneity abstract the absence of testing for weak exogeneity in money demand has often led to stark conditioning claims regarding the validity of price equations this paper uses the johansen procedure to explore the conditioning properties of money demand systems for nonborrowed reserves m1 and m2 our results show that irrespective of the specification of the cointegrating relation a feedback mechanism enters the equation for money the opposite however is not true for the price equations the results also cast a warning for single equation models of money demand in that weak exogeneity is sensitive to how the system is defined

formation of inflation expectations from the simple to the rational expectations hypothesis using quarterly survey expectational data for seven ec countries this paper tests how producers form their inflation expectations the results indicate that the simple expectational hypotheses do not give an adequate account of the variation in the price expectational data because they fail to allow for the information contained in forecast models of inflation however the producers generally do not incorporate disequilibrium inflation into their inflation expectations

the desirability of commodity taxation under non linear income taxation and heterogeneous tastes abstract this paper revisits the atkinson stiglitz result on uselessness of commodity taxation in the presence of optimal non linear income taxation in a more general setup namely when tastes are heterogeneous this general analysis displays the key economic assumptions under which the atkinson stiglitz result is robust a small tax on a given commodity is desirable if high income earners have a relatively higher taste for this commodity or if consumption of this commodity increases with leisure an application to the case of savings suggests that even in the presence of optimal non linear earnings taxation there is a role for a supplemental capital income tax in the standard overlapping generation model

an examination of regional interaction and super regions in britain an error correction model approach gray d 2005 an examination of regional interaction and super regions in britain an error correction model approach regional studies 39 619 632 this paper examines spill over effects among regions estimating error correction models of british rates of unemployment and conducting granger causality tests it is found that on a short run basis the west midlands is a leading territory within a closely knit group of surrounding regions the paper draws a distinction between a core and a leading region suggesting the core region the south east is a follower responding to and magnifying economic fluctuations the policy implications are that current regional delineations may not be consistent with the demands of economic coherence at the national level and so is not optimal for the delivery of decentralized spatial economic policy indeed as economic engineering in the high unemployment periphery has consequences for more prosperous areas it may be better not to allow local administrators too m

foreign direct investment pollution and economic growth evidence from malaysia the bounds test developed by pesaran et al 2001 is applied to examine the existence of a long run relationship between foreign direct investment fdi inflows pollution and output of malaysia granger causality tests are also utilized to test for the presence of the short run and long run causal relationship between these variables both fdi inflows and pollution have short run causal relationship on output output only has long run causal relationship on fdi inflows

structural breaks cointegration and the farm retail price spread for lamb this paper examines the farm retail price spread for lamb from monthly uk data for 1979 1993 using cointegration it examines seasonal patterns in producer and retail prices and seeks to identify a long run relationship between them results show that a long run relationship exists and that the direction of granger causality is from retail to producer prices lamb prices are therefore set in the retail market results also show that there is a structural break in the relationship in january 1990 when the price increases this coincides exactly with a change in policy

religiosity and income a panel cointegration and causality analysis abstractin this article we examine the long run relationship between religiosity and income using retrospective data on church attendance rates for a panel of countries from 1930 to 1990 we employ panel cointegration and causality techniques to control for omitted variable and endogeneity bias and test for the direction of causality we show that there exists a negative long run relationship between the level of religiosity measured by church attendance and the level of income measured by the log of gdp per capita the result is robust to alternative estimation methods potential outliers different samples different measures of church attendance and alternative specifications of the income variable long run causality runs in both directions higher income leads to declining religiosity and declining religiosity leads to higher income

stability of money demand function revisited in china as china s economic reforms have undergone significant structural changes after 1979 it has been rather difficult to formulate a stable money demand function over the period following that year while previous literature on the long run relationship of money demand in china shows the existence of stable money demand this article revisits the stability of the china money demand function over the period after 1979 to employ the unit root tests and the cointegration tests with structural break the empirical evidence demonstrates that economic and financial deregulation did affect the stability of demand for money in china over the period 1977 to 2002 moreover the estimated long run income and interest elasticity are respectively 1 01 1 11 and 0 14 0 08 using the real m1 m2 equation in addition real income and the interest rate are found to be weakly exogenous we overall do find structural breakpoints mainly in 1980 and 1993 and they look to match clearly with corresponding critical financia

private donations government grants commercial activities and fundraising cointegration and causality for ngos in international development cooperation ngos could help scale up foreign aid efforts by mobilizing private donations however fundraising activities do not necessarily result in higher donations and substitution effects between different sources of revenue may diminish the overall pool of ngos resources this paper examines the determinants of private donations to us based ngos engaged in international development cooperation we employ panel cointegration and causality techniques to analyze the interactions between private donations government grants commercial revenues and fundraising expenditures according to our results a marginal dollar spent on fundraising yields almost five dollars in new donations in the long run government grants crowd in private donations in the long run whereas commercial revenues crowd out donations in the long run moreover our panel vector error correction model reveals complex short run dynamics

microfoundations and the demand for money the reader should note that i write this piece in a style that aims to be accessible to that much neglected representative agent the woman on the eurostar train hence unlike the man on the clapham omnibus i assume my intrepid traveller has reasonable knowledge of monetary economics and econometrics but not of the details of the demand for money space constraints force me to indulge in a certain amount of poetic licence but i hope this results in poetic justice there have been many wars fought on this particular battlefield some with almost religious zeal on the theoretical side of the debate we sometimes have the equivalent of religious fundamentalists be they muslims jews christians etc who would dismiss almost any evidence unless it were associated with a strong microtheoretic basis as laid down in the koran talmud or bible the empirical side encompasses agnostics atheists as well as born again econometricians pure theorists inhabit the sunlit uplands while applied economists and policymakers flounder in the muddy plain below occasionally gaining solace from their copy of zen and the art of motorcycle maintenance in general in economics we do not have the luxury of controlled experiments as is the case in the natural sciences what distinguishes good microfoundations from bad and how to weight priors and statistical evidence is subject to much dispute leamer i983 hendry et al i990 as in religion sometimes there is the occasional miracle proclaimed after a suitable interval a new saint may be declared and disciples flock to the new shrine later doubts may arise as to whether a miracle really did occur human behaviour is difficult to explain let alone predict so the search for the equivalent of the holy grail ark of the covenant etc is bound to be arduous in scholarly journals we generally read of the success of the demand for money like diplomats who are sent abroad to lie for the good of their country publication may require applied economists to be somewhat economical with the actualite lovell i983 leamer i983 in this article i want to be as honest as possible about our success and failures in this area the prior information an armchair economist would consider when thinking about the demand for money over the past 40 years in western industrialised countries which have experienced moderate inflation might

cointegration and predictability of asset prices abstract this article argues that whatever concerns one might have about the identification of a cointegrating relationship with market inefficiency cointegration tests can still be usefully employed to investigate the predictability of asset prices we examine the case of n dimensional systems and show that the standard assumption made in the literature that cointegration implies predictability of all n asset prices is not valid in the presence of r cointegrating vectors only r prices are predictable and standard wald or lm tests carried out within johansen s maximum likelihood ml framework can be used to establish for which prices unpredictability does not hold similarly one can distinguish between joint unpredictability in the short and long run when asset prices are driven by fundamentals

post independence india a case of finance led industrialization abstract this paper examines whether financial intermediaries have played a leading role in influencing india s economic performance after describing the evolution and functions of the financial sector we construct a set of vector autoregressive var and vector error correction models vecm to evaluate the strength and direction of the links between measures of formal intermediation and various economic aggregates the results suggest that i the financial sector was instrumental in promoting aggregate investment and output but also in the steady shift toward industry that has characterized india s development ii the operative channel was one of debt accumulation rather than improvements in total factor productivity and iii its contributions went beyond the passive support of fiscal policy

monetary analysis and monetary policy in the euro area 1999 2006 abstract this paper assesses the practical experience of monetary analysis at the ecb from the introduction of the euro in 1999 through 2006 the paper exploits a unique and rich real time data set containing both the vintages of data and the economic models that have been employed in the ecb s monetary analysis during the first eight years of monetary union it embodies both a description of how monetary analysis was conducted over this period and a quantitative evaluation of the indicators of risks to price stability that derived from this analysis a close investigation of this material is used to evaluate the role monetary analysis has played in the evolution of monetary policy in the euro area

hourly wage rate and taxable labor income responsiveness to changes in marginal tax rates recently a voluminous literature estimating the taxable income elasticity has emerged as an important field in empirical public economics however to a large extent it is still unknown how the hourly wage rate an important component of taxable income reacts to changes in marginal tax rates in this study we use a rich panel data set and a sequence of tax reforms that took place in sweden during the 1980 s to estimate the elasticity of the hourly wage rate with respect to the net of tax rate while carefully accounting for the endogeneity of marginal tax rates as well as other factors that determine wage rates we do find a statistically significant response both among married men and married women the hourly wage rate elasticity with respect to the net of tax rate is estimated to 0 14 0 16 for males and 0 41 0 57 for females in addition we obtain uncompensated taxable labor income elasticities of around 0 21 for men and 0 96 1 44 for women in contrast to earlier studies we also find significant income effects for males accordingly for males the compensated taxable labor income elasticity is about 4 percentage points higher than the uncompensated one

testing the induced innovation hypothesis an error correction model of south african agriculture abstract this paper applies cointegration techniques to a model of induced innovation based on the two stage constant elasticity of substitution ces production function this approach results in direct tests of the inducement hypothesis which are applied to data for south african commercial agriculture for the period 1947 1991 south african data is used because the policy changes have been substantial enough that the factor and price ratios have turning points rather than being monotonic the time series properties of the variables are checked cointegration is established and an error correction model ecm constructed allowing factor substitution to be separated from technological change finally the ecm formulation is subjected to causality tests which show that both the factor price ratios and r d and extension expenditures are granger prior to the factor saving biases of technological change thus each stage of the analysis corroborates the inducement hypothesis however straightforward price inducement is only part of the explanation of changes in factor ratios policy induced innovation in response to tax concessions and subsidised credit is also present

a quantitative reassessment of the finance growth nexus evidence from a multivariate var abstract the long run relationship between financial development and economic growth is examined in a multivariate vector autoregression var framework using 10 sample countries difficulties surrounding the cross country regressions and bivariate time series studies are outlined the long run financial development and output relationships are identified in a cointegrating framework through tests of over identifying restrictions we find bi directional causality between financial development and economic growth in all the sample countries conclusions that stand distinct from those in the existing empirical literature we attribute our findings to i analysis of a higher dimensional system ii a new method of identifying the long run economic relationships and iii a new approach to long run causality testing

is there curvature in the slutsky matrix d o the poor substitute among commodities more flexibly than the rich when relative prices change even when compensated for the income effects of the price changes is it necessary to add a third dimension to the slutsky substitution matrix to identify household income in short do the terms of the slutsky elasticity matrix curve smoothly from poor households to rich households in such a way that equation 1 is meaningful

estimates of the demand for energy using cross country consumption data using cross country consumption data we estimate a system of demand equations in a piecewise manner to investigate whether price and expenditure elasticities for energy differ between broad groups of countries the empirical results reject the assumption of constant parameters across regimes of poor and rich countries the derived elasticities suggest that the own price elasticity for energy is higher in poor than in rich countries we find no evidence for the commonly held view that expenditure elasticities for energy decline with income

money and velocity during financial crises from the great depression to the great recession abstract this study models the demand for a broad monetary aggregate m2 from the great depression through the great recession key to the model is the interaction between a measure of time variation in economic agents perceived financial risk and an index of the cost of portfolio adjustment the finding of a useful money demand relationship suggests that skepticism regarding the indicator role of a broad liquid money aggregate as a policy guide may be exaggerated further our model provides some guidance for policymakers who face the challenge of unwinding large balance sheets as risk premia return to normal and velocity adjusts

eurosystem monetary targeting lessons from u s data abstract using a small empirical model of inflation output and money estimated on u s data we compare the relative performance of monetary targeting and inflation targeting the results show monetary targeting to be quite inefficient yielding both higher inflation and output variability this is true even with a nonstochastic money demand formulation our results are also robust to using a p model of inflation therefore in these popular frameworks there is no support for the prominent role given to money growth in the eurosystem s monetary policy strategy

the information content of money in forecasting euro area inflation this article contributes to the debate on the role of money in monetary policy by analysing the information content of money in forecasting euro area inflation we compare the predictive performance within and among various classes of structural and empirical models in a consistent framework using bayesian and other estimation techniques we find that money contains relevant information for inflation in some model classes money based new keynesian dynamic stochastic general equilibrium dsge models and vector autoregressions vars incorporating money perform better than their cashless counterparts but there are also indications that the contribution of money has its limits the marginal contribution of money to forecasting accuracy is often small money adds little to dynamic factor models and it worsens forecasting accuracy of partial equilibrium models finally nonmonetary models dominate monetary models in an all out horserace

structural breaks energy consumption and economic growth revisited evidence from taiwan abstract this paper studies the stability between energy consumption and gdp for taiwan during 1954 2003 we use aggregate as well as various disaggregate data of energy consumption including coal oil gas and electricity to employ the unit root tests and the cointegration tests allowing for structural breaks our main findings are first though gas consumption seems to have structural breaks in the 1960s after considering the structural breaks the series is a stationary variable when taiwan adopted its expansionary export trade policy second we find that different directions of causality exist between gdp and various kinds of energy consumption the empirical result shows unanimously in the long run that energy acts as an engine of economic growth and that energy conservation may harm economic growth third the cointegration between energy consumption and gdp is unstable and some economic events may affect the stability overall we do find the structural breakpoints and they look to match clearly with the corresponding critical economic incidents

do non intermediation services tell us more in the finance growth nexus causality evidence from eight oecd countries abstractthis paper provides new evidence on a traditional finance growth nexus through dividing financial services into financial intermediation and non intermediation services and examining their

energy consumption and economic activity in industrialized countries the dynamic aggregate time series relationship abstract most econometric studies suggest that the income elasticity of demand for energy is approximately unity for the developed market economies it is shown that over the period 1950 1978 the long run income elasticity is substantially higher than unity in terms of a ces energy demand function this result reflects the application of a generalized dynamic estimation methodology where serial correlation is regarded as a diagnostic guide to distributed lag fitting price elasticities are also estimated but these are in line with conventional estimates

adding bond funds to m2 in the p star model of inflation abstract during the early 1990s m2 growth has been unusually weak and the p star model has underpredicted inflation at the same time bond funds have grown rapidly we find that the p star model performs well recently when m2 is adjusted for bond funds

vertical price leadership on local maize markets in benin abstract this paper considers vertical price relationships between wholesalers and retailers on five local maize markets in benin we show that the common stochastic trend and the long run disequilibrium error must explicitly be considered to correctly interpret the restrictions on the error correction structure in terms of economic power in the channel interesting differences between markets are found in the two major towns retailers play a more prominent role in the price formation process than generally assumed in the literature on development economics in the two larger rural centers however wholesalers involved in arbitrage among urban markets do influence price formation

international tax competition and gains from tax harmonization abstract in a world economy there are two types of distortions which can be caused by capital income taxation in addition to the standard closed economy wedge between the consumer saver marginal intertemporal rate of substitution and the producer investor marginal productivity of capital i international differences in intertemporal marginal rates of substitution implying an inefficient allocation of world savings across countries and ii international differences in the marginal productivity of capital implying an inefficient allocation of world investment across countries the paper focuses on the structure of taxation for countries which are engaged in tax competition and on potential gains from a tax harmonization we show that if the competing countries are sufficiently coordinated with the rest of the world then tax competition leads each country to apply the residence principle of taxation and there are no gains from tax harmonization if however there is not sufficient coordination then tax competition leads to low capital income taxes and the tax burden falls on the internationally immobile factors the outcome is nevertheless still efficient relative to the available constrained set of tax instruments

the long run effect of aid on health evidence from panel cointegration analysis abstractalthough a major objective of aid donors is to improve health outcomes in recipient countries there is relatively little research on whether aid to the health sector leads to improved heal

taxation of investment and savings in a world economy the equilibrium of capital and equilibrium market prices are derived for a world economy with a unified securities market mobile capital no uncertainty and varying tax rates on different sources of income in each country the paper then characterizes optimal tax rates for a small country in this setting focusing on the peculiar incentives created when the before tax rate of return differs among securities due to differences in their typical tax treatment copyright 1986 by american economic association

lessons on monetary policy from the 1980s t he half decade running from mid 1982 to mid 1987 was a pretty good era for u s monetary policy as these things go a sharp easing of policy beginning some time around midyear 1982 helped set in motion a recovery from the most severe business downturn the united states had experienced since the 1930s a downturn that tight monetary policy earlier on had deliberately brought about in order to slow the alarming acceleration of prices the recovery that ensued developed into a sustained expansion that continued without interruption through the end of 1987 thereby setting a new record for the longest recorded business expansion in u s peacetime experience a fiscal policy based on unprecedentedly large and continually growing structural budget deficits was a major factor underlying this record length expansion but at least monetary policy did not stand in the way just as importantly the severe 1981 82 recession served its intended purpose of substantially restoring price stability and even after five years of expansion inflation remained modest by recent historical standards at least as judged by these outcomes for the standard objectives of macroeconomic policy u s monetary policy was a distinct success during these years economists hoping to say something useful about monetary policy have had a tougher time the quantitative relationships connecting income and price movements to the growth of familiar monetary aggregates including especially the m1 measure of the money stock that had been the chief focus of monetary policy during 1979 82 utterly fell apart during this period moreover the collapse of these long standing

inflation and monetary dynamics in the us a quantity theory approach in this article we investigate the long run link between inflation and money growth in the united states since 1960 a measure of the long run inflation trend is constructed which bears the interpreation of monetary inflation rate and is directly related to the excess nominal money growth process money growth less output growth as postulated by the quantity theory consistent with the memory characteristics of the series their fractional integration and cointegration properties are taken into account in empirical modelling the proposed measure is then compared with several existing measures of core inflation aimed at capturing long run inflation dynamics but unrelated to money growth the monetary long run inflation rate performs well in out of sample forecasting exercises especially over a 2 3 year horizon yielding valuable information to monetary policymakers