sacred versus pseudo sacred values how people cope with taboo trade offs psychologists have documented widespread public deference to sacred values that communities formally or informally exempt from tradeoffs with secular limits like money this work has however been largely confined to low stakes settings as the stakes rise deference must decline because people can t write blank checks for every sacred cause shadow pricing is inevitable which sets the stage for political blame games of varying sophistication in a rational world citizens would accept the necessity of such tradeoffs but the attraction to moral absolutes is strong perhaps even essential for social cohesion

a resource exchange theory analysis of consumer behavior marketing has been described as an exchange between two or more social units a psychological exchange theory developed by foa and foa 1974 was used to examine a the structure underlying six different resource categories i e love status information money goods and services and b the functional relations among these six resource categories i e the patterns of exchange the economic concept of resource constraint scarcity was also incorporated into the exchange process the results were basically consistent with both the structural and functional relations derived from foa s theory moreover resource scarcity was found to affect the types of resources an individual was likely to give in an exchange

finance inflation and employment a post keynesian kaleckian analysis the purpose of this paper is to contribute to the post keynesian kaleckian macroeconomic literature we develop a macroeconomic model that explicitly integrates the role of borrowing and cash payment commitments on outstanding debt interest plus principal repayment into the consumption and investment expenditures as well as into the inflation generating process we explore the way that finance influences the distribution effects of inflation in the demand side of a money credit using economy we suggest a new phillips curve that encapsulates the impact of financial commitments on wage and profit claims we argue that high debt and cash payment commitments are likely to be associated with a positive demand side effect of inflation on the rate of employment and that they might be conducive to a negative supply side effect of employment on the inflation rate the author 2011 published by oxford university press on behalf of the cambridge political economy society all rights reserved

the global financial crisis explaining cross country differences in the output impact abstract what explains differences in the crisis impact across developing countries and emerging markets using cross country regressions to assess the factors driving the growth performance in 2009 compared to pre crisis forecasts for that year we find that a small set of variables explain a large share of the variation in the growth impact countries with more leveraged domestic financial systems stronger credit growth and more short term debt tended to suffer a larger effect on economic activity although the relative importance of these factors differs across country groups for emerging markets this financial channel trumps the trade channel for a broader set of developing countries however the trade channel seems to have mattered with more open countries affected more strongly and those exporting food commodities being less hard hit exchange rate flexibility helped in buffering the impact of the shock particularly for emerging markets there is also some evidence that countries with a stronger fiscal position prior to the crisis were impacted less severely we find little evidence for the importance of other policy variables

more mortgages lower growth in newly collected data on 46 economies over 1990 2011 we show that financial development since 1990 was mostly due to growth in credit to real estate and other asset markets which has a negative growth coefficient we also distinguish between growth effects of stocks and flows of credit we find positive growth effects for credit flows to nonfinancial business but not for mortgage and other asset market credit flows by accounting for the composition of credit stocks and for the effect of credit flows we explain the insignificant or negative growth effects of financial development in recent times what was true in the 1960s 1970s and 1980s when the field of empirical credit growth studies blossomed is no longer true in the 1990s and 2000s new bank lending is not primarily to nonfinancial business and financial development may no longer be good for growth these trends predate the 2008 crisis they prompt a rethink of the role of banks in the process of economic growth jel e44 o16 o40 c33

rising inequality as a cause of the present crisis the article argues that the economic imbalances that caused the present crisis should be thought of as the outcome of the interaction of the effects of financial deregulation with the macroeconomic effects of rising inequality in this sense rising inequality should be regarded as a root cause of the present crisis i identify four channels by which it has contributed to the crisis first rising inequality creates a downwards pressure on aggregate demand since poorer income groups have high marginal propensities to consume second international financial deregulation has allowed countries to run larger current account deficits and for longer time periods thus in reaction to potentially stagnant demand two growth models have emerged a debt led model and an export led model third in the debt led growth models higher inequality has led to higher household debt as working class families have tried to keep up with social consumption norms despite stagnating or falling real wages fourth rising inequality has increased the propensity to speculate as richer households tend to hold riskier financial assets than other groups the rise of hedge funds and of subprime derivatives in particular has been linked to rise of the super rich

the myth or folly of the 3 deficit gdp maastricht parameter a relation is presented defining the boundary algebraically and geometrically to the sustainability area of public finance the relation and area involve three magnitudes deficit gdp debt gdp and rate of growth it is shown that the parameters stated in the famous annex to the maastricht treaty 60 percent for the debt gdp ratio and 3 percent for the deficit gdp ratio represent only one particular point on the above mentioned boundary relation to the sustainability area there exists an infinite number of other points sharing the same characteristics on the basis of the oecd data referring to the end of 1996 it is shown that all major european countries find themselves outside the sustainability area except belgium and italy i e exactly the opposite of what is widely believed to be the case in current discussions copyright 1998 by oxford university press

income distribution and the size of the financial sector a sraffian analysis the recent expansion of the financial sector has been accompanied by deregulation an acceleration of financial innovation and changes in income distribution the size of these phenomena has attracted the attention of the literature a large part has analysed the relationship between financial development and inequality arguing that the former tends to reduce the latter for a review of this literature see demirguc kunt and levine 2009 it moves from the claim that perfect credit markets reduce inequality by bringing about the efficient exploitation of personal qualities material endowments and the growth potentials of the economy credit market imperfections hold back the achievement of these results but are counteracted by deregulation and financial innovation which tend to eliminate rent positions

financial intermediation capital composition and income stagnation the case of europe abstract we look into the role of financial intermediation in inducing the european financial crisis of 2008 by exploring the effects of overall lending and the allocation of credit to specific categories of borrowers namely households vs firms we find that for the eu26 during the period 1995 2008 excessive household leverage through mortgage lending exerted a crowding out effect on availability of credit to support innovation and productive investment the crowding out effect ultimately translated into a gdp growth that was decoupled from real household income in this article we explain that shifting credit towards mortgages and away from corporate projects is consistent with rational behaviour based on historical trends aimed at minimizing short term risk for each individual bank nevertheless as a whole the sum of individual risk reducing attitudes generated a long term systemic risk

zero as a special price the true value of free products when faced with a choice of selecting one of several available products or possibly buying nothing according to standard theoretical perspectives people will choose the option with the highest cost benefit difference however we propose that decisions about free zero price products differ in that people do not simply subtract costs from benefits but instead they perceive the benefits associated with free products as higher we test this proposal by contrasting demand for two products across conditions that maintain the price difference between the goods but vary the prices such that the cheaper good in the set is priced at either a low positive or zero price in contrast with a standard cost benefit perspective in the zero price condition dramatically more participants choose the cheaper option whereas dramatically fewer participants choose the more expensive option thus people appear to act as if zero pricing of a good not only decreases its cost but also adds to its benefits after documenting this basic effect we propose and test several psychological antecedents of the effect including social norms mapping difficulty and affect affect emerges as the most likely account for the effect

the great mortgaging housing finance crises and business cycles this paper unveils a new resource for macroeconomic research a long run dataset covering disaggregated bank credit for 17 advanced economies since 1870 the new data show that the share of mortgages on banks balance sheets doubled in the course of the twentieth century driven by a sharp rise of mortgage lending to households household debt to asset ratios have risen substantially in many countries financial stability risks have been increasingly linked to real estate lending booms which are typically followed by deeper recessions and slower recoveries housing finance has come to play a central role in the modern macroeconomy

trade ins mental accounting and product replacement decisions when a consumer who already owns a durable type product in a category faces the opportunity to upgrade to a new higher quality product the replacement purchase decision is driven by both normative economic factors and psychological factors as a normative decision maker s he considers the purchase price of the new alternative but s he additionally considers the mental cost of retiring the old product before s he has gotten his her money s worth out of it during ownership of a product a consumer mentally depreciates the initial purchase price thus creating a mental book value for the product the write off of this mental book value is felt as the mental cost of a replacement purchase based on the principles of mental accounting and mental depreciation i provide a theoretical explanation for this mental cost and why an individual s replacement purchase decision may be more sensitive to the mental cost than the marginal cost when applied appropriately mental accounting can serve a useful purpose

on maximizing the net present value of a project under renewable resource constraints in this paper we study the resource constrained project scheduling problem with discounted cash flows each activity of this resource constrained project scheduling problem has certain resource requirements and a known deterministic cash flow that can be either positive or negative deterministic cash flows are assumed to occur over the duration of the activities progress payments and cash outflows occur at the completion of activities the objective is to schedule the activities subject to a fixed deadline to maximize the net present value subject to the precedence and resource constraints with these features the financial aspects of project management are taken into account we introduce a depth first branch and bound algorithm that makes use of extra precedence relations to resolve a number of resource conflicts and a fast recursive search algorithm for the max npv problem to compute upper bounds the recursive search algorithm exploits the idea that positive cash flows should be scheduled as early as possible while negative cash flows should be scheduled as late as possible within the precedence constraints the procedure has been coded in visual c version 4 0 under windows nt and has been validated on two problem sets

leading indicators of crisis incidence evidence from developed countries abstract we examine which indicators are most useful in explaining the cost of economic crises in eu and oecd countries between 1970 and 2010 to define the dependent variable we combine a measure of costs to the economy which consists of the output and employment loss and the fiscal deficit with a database of crisis occurrence designed specifically for this task we take into account model uncertainty in two steps first for each potential leading indicator we select the relevant prediction horizon by using panel vector autoregression second we identify the most useful leading indicators with bayesian model averaging our results suggest that domestic housing prices share prices and credit growth and some global variables such as private credit constitute important sources of risk

financial deregulation and household saving the last decade has seen widespread domestic financial deregulation in the industrial world particularly in the united states united kingdom and the nordic countries resulting in an increase in competition both between banks and saving institutions thrifts or building societies as they moved into each others services and within each sector this opened up new financial options particularly for households the sector that was probably most affected by government regulation for example there was a significant increase in equity withdrawals from personal housing wealth in both the united kingdom and united states over the ig8os 2 this period also saw a significant change in household consumption behaviour the most dramatic illustration being the fall in the household saving ratio in those countries where the process of deregulation has gone furthest this paper reports the results from estimating a model of household saving using regional data for the united kingdom with a particular emphasis on the interaction between household saving and financial deregulation the estimates are used to calculate the relative importance of different factors in the fall in personal saving over the i98os i conclude that deregulation lowered the equilibrium level of saving over the i98os probably 2 percentage points per annum as well as making saving significantly more dependent on changes in wealth income and real interest rates there have been a number of earlier empirical studies looking at the interaction between financial deregulation and household behaviour manchester and poterba i 989 miles i 992 and koskela et al i 992 present empirical evidence on the interaction between deregulation the housing market and saving in the united states united kingdom and finland respectively others have estimated saving functions which include variables representing the effects of financial deregulation or have considered the impact of financial deregulation on liquidity constraints in consumption 3 the

hiv status and labor market participation in south africa abstract we use econometric methods based on the propensity score to estimate the causal effect of hiv status on employment outcomes in south africa relying on rich data from a national survey which included hiv testing we control for systematic differences between hiv positive and hiv negative individuals we provide the first nationally representative estimates of the impact of hiv status on employment outcomes for southern africa being hiv positive is associated with an increase of 6 to 7 percentage points in the likelihood of unemployment overall and 10 to 11 percentage points for those who are less educated this disadvantage reinforces existing inequalities in south africa

inequality leverage and crises theory and evidence revisited rajan points to rising income inequality as a root cause of the recent financial crisis through high household leverage the rajan hypothesis has ignited debate over the relationship between inequality leverage and crises kumhof ranciere and winant prove the validity of this hypothesis with a theoretical formulation but empirical studies provide mixed evidence using different samples and estimators to clarify this controversy we re examine the issue by using the same data as in the literature and provide additional evidence after taking into account the role of asset bubbles and policy interventions our regression is based on a new tractable theoretical model that is supported by key stylised facts and all our analyses confirm the existence of the inequality leverage crisis nexus

an analysis of australia s large scale renewable energy target restoring market confidence in 2001 australia introduced legislation requiring investment in new renewable electricity generating capacity the legislation was significantly expanded in 2009 to give effect to a 20 renewable energy target ret importantly the policy was introduced with bipartisan support and is consistent with global policy trends in this article we examine the history of the policy and establish that the stop start nature of renewable policy development has resulted in investors withholding new capital until greater certainty is provided we utilise the methodology from simshauser and nelson 2012 to examine whether capital market efficiency losses would occur under certain policy scenarios the results show that electricity costs would increase by between 51 million and 119 million if the large scale ret is abandoned even after accounting for avoided renewable costs our conclusions are clear we find that policymakers should be guided by a high level public policy principle in relation to large scale renewable energy policy constant review is not reform

corporate entrepreneurship strategy extending the integrative framework through the lens of complexity science whereas our understanding of corporate entrepreneurship ce and corporate entrepreneurship strategy ces continues to expand there has been little theoretical development to support the most extensive framework to date the integrative model of ces as proposed by ireland et al entrep theory pract 33 1 19 46 2009 according to the model ces is built upon the three foundational elements of an entrepreneurial strategic vision a pro entrepreneurship organizational architecture and entrepreneurial processes and behaviors as exhibited throughout the organization ireland et al 2009 p 38 the purpose of this study is to present a broad overarching theory complexity science to examine the key elements and propositions of the ces model complexity science founded on assumptions of interdependent heterogeneous agents and nonlinear interactions as well as non deterministic and potentially extreme outcomes offers established multi level concepts theoretical boundary conditions and methodological guidance for scholars to build and test future studies on ce and ces though our complexity perspective draws extensively from conceptual work on complex adaptive systems and agent based models we ground our arguments on the empirical ubiquity of power law distributions in all constructs and levels of analysis within the ces model we conclude with a detailed research agenda as well as a prescriptive discussion related to theory development quantitative analysis and practical applications to guide future studies on ce

improving australia s renewable energy project policy and planning a multiple stakeholder analysis abstract renewable energy re is part of australia s and the world s energy supply matrix with over a 100 billion spent annually on re projects since 2007 businesses seeking to invest in re projects particularly in the wind and solar energy sectors may face an onerous collection of planning approvals and permitting processes that impede investment and implementation in this study we draw on international and domestic stakeholder inputs to a governmental inquiry in australia to show how re projects might be approved in shortened timeframes with reduced associated costs the process mapping and stakeholder analysis demonstrates that re supply projects can benefit from standardized approval processes and documentation a 360 deep engagement with stakeholders and expanded electricity grid access in resource areas augmented through supportive public policy and planning frameworks in addition stakeholder objections to project approval and implementation streamlining were used to contrast the efficacy of the proposed changes in policy

income inequality in the united states 1913 1998 this paper presents new homogeneous series on top shares of income and wages from 1913 to 1998 in the united states using individual tax returns data top income and wages shares display a u shaped pattern over the century our series suggest that the large shocks that capital owners experienced during the great depression and world war ii have had a permanent effect on top capital incomes we argue that steep progressive income and estate taxation may have prevented large fortunes from fully recovering from these shocks top wage shares were flat before world war ii dropped precipitously during the war and did not start to recover before the late 1960s but are now higher than before world war ii as a result the working rich have replaced the rentiers at the top of the income distribution

public control of rational and unpredictable epidemics abstract efforts to improve disease forecasting are often justified on the grounds that accurate and reliable forecasts offer opportunities to improve response to epidemics yet little is known about how disease forecasts influence the responsiveness to public health interventions this paper couples an optimal stopping model and rational disease prevention with a stochastic compartmental epidemiological model of disease spread to develop a framework for evaluating the timing of public health interventions in response to rational but unpredictable epidemics optimal behavior by a public health agency is characterized by a pair of critical prevalence thresholds that trigger implementation and suspension of a public prevention program unlike existing economic thresholds for disease prevention our decision thresholds account for time varying probabilities of different levels of infection prevention by private individuals and the likelihood of crossing epidemiological thresholds that determine disease persistence

inequality credit and financial crises in the three decades leading up to the financial crisis of 2008 09 income inequality rose across much of the developed world this has led to a vigorous debate as to whether widening inequality was somehow to blame for the crisis by driving private sector credit booms despite growing interest empirical evidence on an inequality fragility relationship is limited based on a panel analysis of 18 oecd organisation for economic co operation and development countries for the years 1970 2007 this study provides evidence of a positive relationship between income concentration and private sector indebtedness once other traditional drivers are controlled for if confirmed the implications of this result are as follows i the view that the distribution of income is irrelevant to macroeconomic stability as implicit in mainstream approaches needs further investigation and ii in order to make the financial system more robust policy makers should cast the net wider than monetary policy and regulatory reforms and consider the effects of changes to distributive patterns

tipping and the dynamics of segregation schelling dynamic models of segregation journal of mathematical sociology 1 1971 143 186 showed that extreme segregation can arise from social interactions in white preferences once the minority share in a neighborhood exceeds a tipping point all the whites leave we use regression discontinuity methods and census tract data from 1970 through 2000 to test for discontinuities in the dynamics of neighborhood racial composition we find strong evidence that white population flows exhibit tipping like behavior in most cities with a distribution of tipping points ranging from 5 to 20 minority share tipping is prevalent both in the suburbs and near existing minority enclaves in contrast to white population flows there is little evidence of nonlinearities in rents or housing prices around the tipping point tipping points are higher in cities where whites have more tolerant racial attitudes

house prices borrowing constraints and monetary policy in the business cycle i develop a general equilibrium model with sticky prices credit constraints nominal loans and asset prices changes in asset prices modify agents borrowing capacity through collateral value changes in nominal prices affect real repayments through debt deflation monetary policy shocks move asset and nominal prices in the same direction and are amplified and propagated over time the financial accelerator is not constant across shocks nominal debt stabilises supply shocks making the economy less volatile when the central bank controls the interest rate i discuss the role of equity debt indexation and household and firm leverage in the propagation mechanism finally i find that monetary policy should not target asset prices as a means of reducing output and inflation volatility

studying the effects of household and firm credit on the trade balance the composition of funds matters i introduction the implications of higher levels of financial development have been investigated in a large number of studies both in the empirical growth and in the financial crisis literatures 1 a widely used indicator of financial development is the relative importance of loans issued by commercial banks and other financial intermediaries to the entire private sector that is the private credit to gross domestic product gdp ratio following the definition by king and levine 1993a 1993b a higher level of private credit indicates better developed financial markets and easier credit access for businesses and households yet these two types of borrowers vary in terms of the use of credit and might have different effects on macroeconomic performance in this article we study the link between the components of private credit and the trade balance we focus on the distinction between household and corporate sector credit and investigate whether these two types of credit have adverse effects on the trade balance of goods and services this article builds on a theoretical framework by backus kehoe and kydland 1994 who study the dynamics of the trade balance we extend their work by assuming two types of households one being credit constrained due to enforcement problems we then ease the credit constraints on households and firms and study the hypothesized effects by comparative statics analysis more specifically we argue that an increase in household credit raises the demand for consumption goods whereas firm credit growth raises the demand for investment goods while both can have a negative impact on the trade balance the difference is important because borrowing to finance consumption does not add to the productive capacity of an economy and to greater export earnings frankel and rose 1996 firm credit on the other hand has the potential to increase investment by relaxing the credit constraints on firms thus increasing exports and trade balance exploring the decomposition of private credit in emerging countries is relevant for several reasons first the effects of the increased level of household credit in emerging economies are still ambiguous on the one hand better access to credit helps credit constrained households to smooth out their consumption on the other hand it boosts spending and hence decreases savings in an influential paper japelli and pagano 1994 show that liquidity constraints on households raise the saving rates they also find empirical evidence that an increase in household credit decreases saving rates for a sample of organization for economic cooperation and development oecd countries yet the effects of household credit in emerging economies have not been explored second if we find that household and firm credit have different impacts on the trade balance of goods and services this underlines the importance of the decomposition of private credit which will also have key implications for the financial development growth link the level of private credit in emerging economies has been rising steadily after the financial liberalization process that took place in early 1990s however higher levels of total private credit do not necessarily imply higher levels of firm credit in fact data for emerging economies show that household credit rather than firm credit has been rapidly increasing in the past decade the higher share of household credit in the total private credit can crowd out investment especially in countries where stock and bond markets are not well developed to finance investment finally a possible negative link between household credit and trade balance has important policy implications for emerging economies as argued by wood 1997 the international monetary fund continues to place most emphasis within its programmes on the stabilisation objective and therefore the core of imf programmes continues to be based upon the restriction of domestic credit creation

retrospective modeling of the merit order effect on wholesale electricity prices from distributed photovoltaic generation in the australian national electricity market in electricity markets that use a merit order dispatch system generation capacity is ranked by the price that it is bid into the market demand is then met by dispatching electricity according to this rank from the lowest to the highest bid the last capacity dispatched sets the price received by all generation ensuring the lowest cost provision of electricity a consequence of this system is that significant deployments of low marginal cost electricity generators including renewables can reduce the spot price of electricity in australia this prospect has been recognized in concern expressed by some coalfired generators that delivering too much renewable generation would reduce wholesale electricity prices in this analysis we calculate the likely reduction of wholesale prices through this merit order effect on the australian national electricity market we calculate that for 5 gw of capacity comparable to the present per capita installation of photovoltaics in germany the reduction in wholesale prices would have been worth in excess of a 1 8 billion over 2009 and 2010 all other factors being equal we explore the implications of our findings for feed in tariff policies and find that they could deliver savings to consumers contrary to prevailing criticisms that they are a regressive form of taxation

valuing money and things why a 20 item can be worth more and less than 20 the study of risky decision making has long used monetary gambles to study choice but many everyday decisions do not involve the prospect of winning or losing money monetary gambles as it turns out may be processed and evaluated differently than gambles with nonmonetary outcomes whereas monetary gambles involve numeric amounts that can be straightforwardly combined with probabilities to yield at least an approximate expectation of value nonmonetary outcomes are typically not numeric and do not lend themselves to easy combination with the associated probabilities compared with monetary gambles the evaluation of nonmonetary prospects typically proves less sensitive to changes in the probability range inside the extremes of certainty and impossibility which among other things can yield preference reversals generalizing on earlier work that attributed similar findings to the role of affect in the evaluation process rottenstreich y c k hsee 2001 money kisses and electric shocks an affective psychology of risk psych sci 12 3 185 190 we attribute the observed patterns to a fundamental difference in the evaluation of monetary versus nonmonetary outcomes potential pitfalls in the use of monetary gambles to study choice are highlighted and implications and future directions are discussed

the moderating effect of relationship norm salience on consumers loss aversion people are said to be loss averse when their pain of losing something exceeds their joy of gaining it this research proposes and tests a new moderator of loss aversion the type of relationship norms salient at the time the loss or the gain is experienced we suggest that mere salience of the norms of a communal relationship based on concern for the partner relative to those of an exchange relationship based on quid pro quo leads to a greater degree of loss aversion a typical endowment effect study supports our overall thesis and shows that differences across relationship norms are stronger in selling prices willingness to accept than in buying prices willingness to pay

a supermultiplier stock flow consistent model the return of the paradoxes of thrift and costs in the long run supermultiplier models have been recently brought to the post keynesian debate yet these models still rely on quite simple economic assumptions being mostly ow models which omit the nancial determinants of autonomous expenditures since the output growth rate converges in the long run to the exogenously given growth rate of non capacity creating autonomous expenditure and the utilization rate moves towards the normal utilization rate the paradoxes of thrift and costs remain valid only as level e ects average growth rates this paper investigates whether the core conclusions of supermultiplier models hold in a more complex economic framework described by means of a supermultiplier sfc model in which private business investment is assumed to be completely induced by income while the autonomous expenditure component in this case consumption out of wealth becomes endogenous the results of the numerical simulation experiments suggest that the paradox of thrift can remain valid in terms of growth e ects and that a lower pro t share can also be associated to a higher accumulation rate though with a lower pro t rate

credit cycle coherence in the eurozone was there a euro effect this paper examines effects of the euro introduction on credit cycle coherence in the eurozone through six channels we construct and describe credit cycles for total bank credit household mortgages and non financial business loans for 16 emu economies over 1990 2015 credit cycle coherence is measured by synchronicity of cycle movements and similarity of their amplitudes we find that the effect of euro introduction runs through elimination of currency risk and higher capital flows which decrease coherence of total credit and mortgage credit cycles but increase coherence of business credit cycles falling interest rates contribute to the convergence of total and mortgage credit cycles financial deregulation and legal harmonization are associated with lower coherence of all credit cycles while trade openness has the opposite impact the findings impinge on monetary policy effectiveness in the eurozone with implications for macroprudential policy

external imbalances in the eurozone the paper examines the extent to which current account imbalances of euro area countries are related to intra euro area factors and to external trade shocks we argue that the traditional explanations for the rising imbalances are correct but are incomplete we uncover a large impact of declines in export competitiveness and asymmetric trade developments vis a vis the rest of the world x96 in particular vis a vis china central and eastern europe and oil exporters x96 on the external balance of euro area debtor countries while current account imbalances of euro area deficit countries vis a vis the rest of the world increased they were financed mostly by intra euro area capital inflows in particular by the purchase of government and financial institutions securities and cross border interbank lending which permitted external imbalances to grow over time ruo chen gian maria milesi ferretti and thierry tressel

inequality the great recession and slow recovery rising inequality reduced income growth for the bottom 95 percent of the income distribution beginning about 1980 but that group s consumption growth did not fall proportionally instead lower saving led to increasing balance sheet fragility for the bottom 95 percent eventually triggering the great recession we decompose consumption and saving across income groups the consumptionincome ratio of the bottom 95 percent fell sharply in the recession consistent with tighter borrowing constraints the top 5 percent ratio rose consistent with consumption smoothing the inability of the bottom 95 percent to generate adequate demand helps explain the slow recovery

profit growth in boom and bust the great recession and the great depression in comparative perspective the great recession of 2007 2009 and the great depression of the 1930s were triggered by the collapse of asset price bubbles however preexisting structural imbalances in the us economy were the reason why the burst of speculative bubbles induced a general economic collapse this article argues that the imbalance created by the combination of stagnant labor earnings and surging corporate profits not only played a leading role in the run up to the downturns but also was chiefly responsible for the slow recoveries on the one hand the relative stagnation of labor income represented a key factor behind rising income inequality and a potential drag on consumption which was temporarily alleviated by credit expansion hence the rising household debt levels eventually became unsustainable on the other hand rising corporate profits created an overhang of idle money eager to lend itself to speculative ventures which played a key role in fueling the stock market bubble of the 1920s and the housing bubble of the 2000s the article further argues that despite various superficial and deeper similarities between the circumstances surrounding the great recession and the great depression some fundamental differences in the structure of the us economy then and now suggest vastly different future prospects for american capitalism

the impact of financialisation on the wage share a theoretical clarification and empirical test it is frequently asserted that financialisation has contributed to the decline in the wage share this paper provides a theoretical clarification and a systematic empirical investigation we identify four channels through which financialisation can affect the wage share 1 enhanced exit options of firms 2 rising price mark ups due to financial overhead costs for businesses 3 increased competition on capital markets and shareholder value orientation and 4 the role of household debt in increasing workers financial vulnerability and undermining their class consciousness the paper compiles a comprehensive set of empirical measures of financialisation and uses it to test these hypotheses with a panel regression of 14 oecd countries over the 1992 2014 period we find strong evidence for negative effects of financial liberalisation and financial payments of non financial corporations on the wage share that are in the same order of magnitude as the effects of globalisation

demand driven inequality endogenous saving rate and macroeconomic instability this article examines consumption dynamics in a cambridge model of growth and distribution the model endogenises the workers saving rate and incorporates out of equilibrium dynamics explicitly the analysis identifies a new mechanism of macroeconomic instability that emerges from the interaction between the kaldorian process of demand driven inequality and the workers saving behaviour the mechanism can generate perpetual cycles where the upwards phase is characterised by a prolonged period of falling saving rate and increasing income inequality the article discusses the empirical relevance of the formal analysis the article discusses the empirical relevance of the analytic results

government policies and financial crises mitigation postponement or prevention in the aftermath of the great recession governments have implemented several policy measures to counteract the collapse of the financial sector and the downswing of the real sector within a framework of minsky veblen cycles where relative consumption concerns a debt led growth regime and financial sector confidence constitute the main causes of economic fluctuations we use computer simulations to assess the effectiveness of such measures we find that the considered policy measures help mitigate the impact of financial crises though they do so at the cost of shortening the time between financial crises this result is due to a relatively fast recovery of solvency and confidence induced by the policy measures under study which contribute to an increase in private credit and thereby effective demand our results suggest that without the strengthening of financial regulation any policy intervention remains incomplete

do capital flows change domestic credit allocation since the 1990s domestic bank credit has been reallocated away from lending to non financial business and toward households an expanding literature discusses negative effects on growth and stability of this change in credit allocation we research its drivers we hypothesize that if foreign capital flows into economies with few investment opportunities it may substitute for domestic bank lending to non financial business so that bank balance sheets become more dominated by household lending in gmm estimations on data for 36 economies over 1990 2011 we find evidence consistent with this mechanism foreign capital inflows into the non bank sector but not into the bank sector are associated with lower shares of business lending in domestic bank portfolios the association is weaker in economies with more investment opportunities whether proxied by investment shares current account surpluses or emu membership our results highlight the importance of sectoral destination in determining the effects of capital flows

the limits of fungibility relational schemata and the value of things four experiments test predictions on endowment and mental accounting effects of a theoretical perspective that stresses the symbolic relational significance for consumer transactions and that posits the placement of qualitative boundaries on fungibility although people accepted proposals to buy objects acquired in market pricing relationships as routine the same proposals in communal sharing authority ranking and equality matching relationships triggered distress and erratically high dollar valuations symbolic ownership history also moderated valuations in a purely market setting and the effects of symbolic relational source of income extended even to spending decisions examination of the model s ordinal predictions revealed stronger effects for equality matching than for authority ranking relationships

an economic evaluation of the potential for distributed energy in australia we present here economic findings from a major study by australia s commonwealth scientific and industrial research organisation csiro on the value of distributed energy technologies de collectively demand management energy efficiency and distributed generation for reducing greenhouse gas emissions from australia s energy sector csiro 2009 the study covered potential economic environmental technical social policy and regulatory impacts that could result from their wide scale adoption partial equilibrium modeling of the stationary energy and transport sectors found that australia could achieve a present value welfare gain of around 130 billion when operating under a 450 ppm carbon reduction trajectory through to 2050 modeling also suggests that reduced volatility in the spot market could decrease average prices by up to 12 in 2030 and 65 in 2050 by using local resources to better cater for an evolving supply demand imbalance further modeling suggests that even a small amount of distributed generation located within a distribution network has the potential to significantly alter electricity prices by changing the merit order of dispatch in an electricity spot market changes to the dispatch relative to a base case can have both positive and negative effects on network losses

domestic credit growth and international capital flows during the pre crisis period europe experienced substantial cross country variation in domestic credit growth and cross border capital flows we investigate the inter relations between domestic credit growth and international capital flows during the period 1993 2008 with a special focus on the boom period of 2003 2008 we establish that domestic credit growth in european countries is strongly related to net debt inflows but not to net equity inflows this pattern also holds for an extended sample of 54 advanced and emerging economies

cross country experiences and policy implications from the global financial crisis the financial crisis of 2007 2008 is rooted in a number of factors some common to previous financial crises others new analysis of post crisis macroeconomic and financial sector performance for 58 advanced countries and emerging markets shows a differential impact of old and new factors factors common to other crises like asset price bubbles and current account deficits help to explain cross country differences in the severity of real economic impacts new factors such as increased financial integration and dependence on wholesale funding help to account for the amplification and global spread of the financial crisis our findings point to vulnerabilities to be monitored and areas of needed national and international reforms to reduce risk of future crises and cross border spillovers they also reinforce a sad state of knowledge much of how crises start and spread remains unknown stijn claessens giovanni dell ariccia deniz igan and luc laeven

the red and the black mental accounting of savings and debt in the standard economic account of consumer behavior the cost of a purchase takes the form of a reduction in future utility when expenditures that otherwise could have been made are forgone the reality of consumer hedonics is different when people make purchases they often experience an immediate pain of paying which can undermine the pleasure derived from consumption the ticking of the taxi meter for example reduces one s pleasure from the ride we propose a double entry mental accounting theory that describes the nature of these reciprocal interactions between the pleasure of consumption and the pain of paying and draws out their implications for consumer behavior and hedonics a central assumption of the model which we call prospective accounting is that consumption that has already been paid for can be enjoyed as if it were free and that the pain associated with payments made prior to consumption but not after is buffered by thoughts of the benefits that the payments will finance another important concept is coupling which refers to the degree to which consumption calls to mind thoughts of payment and vice versa some financing methods such as credit cards tend to weaken coupling whereas others such as cash payment produce tight coupling our model makes a variety of predictions that are at variance with economic formulations contrary to the standard prediction that people will finance purchases to minimize the present value of payments our model predicts strong debt aversion that they should prefer to prepay for consumption or to get paid for work after it is performed such pay before sequences confer hedonic benefits because consumption can be enjoyed without thinking about the need to pay for it in the future likewise when paying beforehand the pain of paying is mitigated by thoughts of future consumption benefits contrary to the economic prediction that consumers should prefer to pay at the margin for what they consume our model predicts that consumers will find it less painful to pay for and hence will prefer flat rate pricing schemes such as unlimited internet access at a fixed monthly price even if it involves paying more for the same usage other predictions concern spending patterns with cash charge or credit cards and preferences for the earmarking of purchases we test these predictions in a series of surveys and in a conjoint like analysis that pitted our double entry mental accounting model against a standard discounting formulation and another benchmark that did not incorporate hedonic interactions between consumption and payments our model provides a better fit of the data for 60 of the subjects the discounting formulation provides a better fit for only 29 of the subjects even when allowing for positive and negative discount rates the pain of paying we argue plays an important role in consumer self regulation but is hedonically costly from a hedonic perspective the ideal situation is one in which payments are tightly coupled to consumption so that paying evokes thoughts about the benefits being financed but consumption is decoupled from payments so that consumption does not evoke thoughts about payment from an efficiency perspective however it is important for consumers to be aware of what they are paying for consumption this creates a tension between hedonic efficiency and what we call decision efficiency various institutional arrangements such as financing of public parks through taxes or usage fees play into this tradeoff a producer developing a pricing structure for their product or service should be aware of these two conflicting objectives and should try to devise a structure that reconciles them

pre marital confinement of women a signaling and matching approach abstract parents in several cultures discipline their daughters to inculcate the supposedly feminine virtues and improve their prospects in the marriage market this process invariably involves imposing restrictions on their behavior movement and social relations we refer to such practices as pre marital confinement and provide a unified game theoretic framework which encompasses the different arguments that have been advanced by social scientists to explain pre marital confinement the proposed framework views confinement by parents as an intrinsically valueless or valuable signal of some unobservable characteristic of their daughters which is valued by men in the marriage market we focus on identifying the conditions that lead to a societal norm of confinement we also show that behind a veil of ignorance where gender is unknown agents will choose to prohibit rather than permit confinement if it is intrinsically valueless and the parameters characterizing the society are such that the ex post equilibrium would involve pooling

financialisation and tendencies towards stagnation the role of macroeconomic regime changes in the course of and after the financial and economic crisis 2007 09

financing alternative energy projects an examination of challenges and opportunities for local government abstract local government in australia has a strong collective capacity to reduce ghg emissions through policies funding allocation to renewable energy projects and the delivery of programs and services this study examines the institutional capacity of councils in sydney and how this impacts on decisions to invest in alternative energy projects we find greenhouse gas emission targets of councils are strongly aligned to national targets but do not reflect the local council s institutional capacity political leadership or strategic priorities energy reduction projects are often identified and undertaken by environmental staff without support from financial staff or financial evaluation tools an absence of national guidelines to provide consistency in tracking and reporting limits cross sector benchmarking street lighting contributes to a significant proportion of council s total electricity expenditure and ghg emission profile being highly regulated existing contracts and the current practice of street lighting services limits the councils ability to reduce emissions based on our analysis we recommend a number of measures to overcome these constraints including the use of financial evaluation tools for small scale renewable energy projects a standardised national tracking and reporting platform to facilitate progress reporting and meaningful comparative analysis between councils and policy reform to the regulation of street lighting

persistent norms and tipping points the case of female genital cutting abstract more than 200 million women alive today have undergone female genital cutting fgc despite the associated negative health outcomes the practice has persisted for generations the prevailing theory of fgc persistence is that fgc is a social coordination norm which implies that if a sufficient number of community members agree to abandon fgc a tipping point is reached and the rate of fgc will fall to zero recent empirical evidence is inconsistent with this theory this paper formalizes an alternative theoretical explanation in which households have heterogeneous thresholds i e the rate of fgc in their community at which the household switches from practicing to not practicing fgc this threshold heterogeneity removes the certainty that a tipping point exists and introduces the possibility of a stable internal equilibrium in the rate of fgc in a community using a dataset of more than 27 000 women born across 4 5 decades in burkina faso i use a novel technique to construct community level distributions of household thresholds these distributions show that some communities in burkina faso have tipping points while some have a stable internal equilibrium i find suggestive but statistically insignificant evidence that communities with a larger share of educated women higher poverty rates and lower population density are more likely to have a tipping point additionally the empirical method developed in this paper has applications to the evolution of other social phenomena such as technology adoption voting behavior and racial segregation

estimating equilibrium models of sorting across locations while there is growing interest in measuring the size and scope of local spillovers it is well understood that such spillovers cannot be distinguished from unobservable local attributes using solely the observed location decisions of individuals or firms we propose an empirical strategy for recovering estimates of spillovers in the presence of unobserved local attributes for a broadly applicable class of equilibrium sorting models our approach relies on an iv strategy derived from the internal logic of the sorting model itself we show practically how the strategy is implemented provide intuition for our instruments discuss the role of effective choice set variation in identifying the model and carry out a series of monte carlo simulations to demonstrate performance in small samples

labour share decline financialisation and structural change the purpose of this article is to explain the determinants behind the decline of labour share in the last three to four decades in oecd countries in our view this decline was determined by financialisation and was deepened by the structural changes that occurred almost simultaneously in those economies financialisation or finance dominated capitalism from the 1980s onwards was a key element in the strategic offensive of the advanced countries dominant classes to appropriate higher shares of national income and to restore their control over the political process a control that had been threatened by a generalised advancement of the labour movement in the 1970s the development of a finance dominated capitalism was helped by the process of globalisation which affected not only oecd countries but also many others a new though unstable macroeconomic model emerged which we will call financial capitalism in financial capitalism trade unions lost power vis a vis capital labour flexibility increased enormously and a structural change from manufacturing to services was accelerated in rich countries this resulted in negative consequences for labour share and income inequality after having provided a theoretical discussion of the determinants of the compression of the wage share making reference to the relevant literature we submit our hypotheses to empirical scrutiny performing a panel data analysis on 28 oecd countries the results of the estimations provide support to the theoretical argument

what can we learn from the implementation of monetary and macroprudential policies a systematic literature review the emergence of macroprudential policies implemented by central banks as a means of promoting financial stability has raised many questions regarding the interaction between monetary and macroprudential policies given the limited number of studies available this paper sheds light on this issue by providing a critical and systematic review of the literature to this end we divide the theoretical and empirical studies into two broad channels of borrowers consisting of the cost of funds and the collateral constraint and financial intermediaries consisting of risk taking and payment systems in spite of the existing ambiguity surrounding coordination issues between monetary and macroprudential policies it is argued that monetary policy alone is not sufficient to maintain macroeconomic and financial stability hence macroprudential policies are needed to supplement monetary in addition we find that the role of the exchange rate is critical in the implementation of monetary and macroprudential policies in emerging markets while volatile capital flows pose another challenge in so far as how the arrangement of monetary and macroprudential policies varies across countries key theoretical and policy implications have been identified

the payback method of investment appraisal a review and synthesis abstract the payback pb method of investment appraisal has been the subject of considerable comment and criticism in the literature this paper draws together some of those important literature contributions and the results from published uk and usa survey reports over the past twenty five years while many of the surveys have reported an increasing use of the discounted cash flow financial appraisal methods this has not totally been at the expense of the pb which continues to be a popular method used in industry pb has been shown to be a traditional popular primary and important method in both the uk and usa the use of pb has been shown to be positively related to capital budget size however the importance of pb was seen to be inversely related to capital budget size the use of pb has been shown by some researchers to be positively related to firm size while other researchers have reported that its use is inversely related to firm size however it has also been concluded that the use of pb was not significantly influenced by firm size pb has been shown to be less used for strategically important projects than routine replacement projects in moderately sized usa firms while on the other hand it has been shown to be an important method used in the appraisal of advanced manufacturing technology amt projects in both the uk and usa this paper reviews the pb method of investment appraisal as used in industry first as a technique identifying two of its main disadvantages and then commenting on the discounted payback method evidence showing that the pb acts in a supportive role to the sophisticted dcf methods is presented and the following topics are discussed in detail pb and owner manager conflict as a constraint in its communication role as a reciprocal of the internal rate of return as a proxy for a projects duration and pb and amt projects following the conclusions recommendations for further research are proposed

rising household debt its causes and macroeconomic implications a long period analysis the article analyses the rise in household indebtedness from the point of view of its causes and long run macroeconomic implications the analysis is focussed on the us case differently from life cycle interpretations of the phenomenon and from interpretations in terms of erratic deviations of current income flows from their long run trend the rising household debt is viewed as the outcome of persistent changes in income distribution and growing income inequalities through household debt low wages appear to have been brought to coexist with relatively high levels of aggregate demand thus providing the solution to the contradiction between the necessity of high and rising consumption levels for the growth of the system s actual output and a framework of antagonistic conditions of distribution which keeps within limits the real income of the vast majority of society the question of the long run sustainability of this substitution of loans for wages is finally discussed copyright the author 2008 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

does the current account still matter do global current account imbalances still matter in a world of deep international financial markets where gross two way financial flows often dwarf the net flows measured in the current account contrary to a complete markets or consenting adults view of the world large current account imbalances while very possibly warranted by fundamentals and welcome can also signal elevated macroeconomic and financial stresses as was arguably the case in the mid 2000s furthermore the increasingly big valuation changes in countries net international investment positions while potentially important in risk allocation cannot be relied upon systematically to offset the changes in national wealth implied by the current account the same factors that dictate careful attention to global imbalances also imply however that data on gross international financial flows and positions are central to any assessment of financial stability risks the balance sheet mismatches of leveraged entities provide the most direct indicators of potential instability much more so than do global imbalances though the imbalances may well be a symptom that deeper financial threats are gathering