what determines the duration of a fiscal consolidation program abstract this paper assesses the determinants of the length of fiscal consolidation using annual data for 17 industrial countries over the period 1978 2009 relying on a narrative approach to identify fiscal consolidation episodes we show that fiscal variables such as the budget deficit and the level of public debt and economic factors such as the degree of openness the inflation rate the interest rate and per capita gdp are crucial for the fiscal consolidation process additionally we employ duration analysis over a set of consolidation spells and find that as time goes by the likelihood of a fiscal consolidation ending is higher however the hazard function is not monotonic indeed it increases until the eighth or ninth year and starts decreasing afterwards we also find that i spending driven consolidations are shorter than tax driven consolidations ii both types of consolidation are longer in non european countries than for european countries and iii the size of the consolidation program in percentage of gdp does not significantly affect duration all in all our results support the importance of cuts in government spending as a way of bringing economies into a sustainable path for public debt moreover they highlight the role played by a fiscal framework that imposes discipline in governments as a device to credibly shorten the length of fiscal consolidation episodes

radicalism versus gradualism an analytical survey of the transition strategy debate academic debate on a transition strategy for former socialist economies continues even a quarter century after the collapse of the communism in central and eastern europe and the former soviet union in this paper through an analytical survey of 137 preceding studies we present an overall picture of the debate and examine the relationship between the debate attitudes and the literature attributes in related studies we found that the radicalists maintain a consistent debate attitude from the viewpoints of time speed and policy sequence of economic transition while the debate attitude of the gradualists is more diversified we also found that there is another group of researchers that stays within the framework of the radicalism versus gradualism debate while at the same time keeping at arm s length from both the radicalists and the gradualists in addition our regression estimation of qualitative selection models provides interesting findings on the relationship between the debate attitudes and the literature attributes

why is china different from eastern europe perspectives from organization theory we draw from recent work in organization theory to explain the differences in reform strategies between china and eastern europe an experimentation approach was adopted in china whereas a big bang approach was more favored in eastern europe the explanation is based on differences in the organizational structure of central planning u form in eastern europe and m form in china the m form is more flexible because it makes local experiments possible contrary to the u form where this would give rise to major complications in coordination

macroeconomic experiences and risk taking of euro area households abstract this paper studies to what extent the experiences of households shape their willingness to take financial risks it starts by extending the u s evidence of malmendier and nagel 2011 to euro area households and shows that experienced stock market returns matter in a statistically significant and economically substantial fashion better experiences make households more willing to take financial risk and increase their stock market participation even if euro area households seem to be discounting the past more quickly than those in the united states subsequently the paper moves on to show that there are additional effects stemming from the experience of stock market crashes which are different from those of stock market booms crashes stay in household s memory and lower stock market participation whereas booms raise participation but their effect eventually fades out furthermore households in countries that witnessed a particularly severe 2008 stock market crash give substantially more weight to the most recent experience suggesting that in these countries an even more pronounced underinvestment in the stock market should be expected in the years to come

will business cycles in the euro area converge a critical survey of empirical research this survey of business cycle synchronization in the european monetary union focuses on two issues have business cycles become more similar and which factors drive business cycle synchronization we conclude that business cycles in the euro area have gone through periods of both convergence and divergence still there is quite some evidence that during the 1990s business cycle synchronization in the euro area has increased higher trade intensity is found to lead to more synchronization but the point estimates vary widely the evidence for other factors affecting business cycle synchronization is very mixed

bank risk taking securitization supervision and low interest rates evidence from the euro area and the u s lending standards using a unique dataset of the euro area and the u s bank lending standards we find that low monetary policy short term interest rates soften standards for household and corporate loans this softening especially for mortgages is amplified by securitization activity weak supervision for bank capital and low monetary policy rates for an extended period conversely low long term interest rates do not soften lending standards finally countries with softer lending standards before the crisis related to negative taylor rule residuals experienced a worse economic performance afterward these results help shed light on the origins of the crisis and have important policy implications the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

is the co2 emissions reduction from scale change structural change or technology change evidence from non metallic sector of 11 major economies in 1995 2009 the contribution of non metallic sector to global co2 emissions is increasing however there are very few studies on non metallic sector co2 emissions from international comparative perspective this paper proposes an integrated model employing lmdi logarithmic mean divisia index decomposition technique and topsis the technique for order preference by similarity to ideal solution method to contribute to the existing literature by filling the gap that the drivers of aggregate and national level non metallic sector co2 emissions and its impacts on co2 emissions reduction have not been estimated by relevant models first we analyze drivers of non metallic sector co2 emissions in bric countries and g7 countries using lmdi decomposition method second we evaluate the low carbon development of non metallic sector in the 11 major economies from a comprehensive viewpoint of main drivers using topsis assessment model finally based on the results of the model this paper presents some implications for the non metallic sector co2 emissions reduction and low carbon development

individual risk attitudes measurement determinants and behavioral consequences this paper studies risk attitudes using a large representative survey and a complementary experiment conducted with a representative subject pool in subjects homes using a question asking people about their willingness to take risks in general we find that gender age height and parental background have an economically significant impact on willingness to take risks the experiment confirms the behavioral validity of this measure using paid lottery choices turning to other questions about risk attitudes in specific contexts we find similar results on the determinants of risk attitudes and also shed light on the deeper question of stability of risk attitudes across contexts we conduct a horse race of the ability of different measures to explain risky behaviors such as holdings stocks occupational choice and smoking the question about risk taking in general generates the best all round predictor of risky behavior

heterogeneous effects of competitiveness shocks on macroeconomic performance across euro area countries this paper considers how competitiveness impacts macroeconomic performance in 11 euro area countries var models are estimated for the individual countries using quarterly data from 1995q4 to 2013q4 besides unit labour costs as a competitiveness measure the models include gdp the current account balance and domestic credit the empirical analyses show that changes in unit labour costs help explain gdp dynamics in the short and medium term in most countries whereas they have little explanatory power for the current account balance or domestic credit for most countries overall the effects of the unit labour costs vary substantially across the countries in the euro area the heterogeneity suggests that policy measures aiming to improve economic growth correct current account imbalances and ensure financial stability need to take country specific features into account

decentralization and the duration of fiscal consolidation shifting the burden across layers of government this paper analyzes the relationship between fiscal decentralization the duration of fiscal consolidation episodes and their success for 17 oecd countries between 1978 and 2009 the consolidation of the general government budget appears to be of longer duration when expenditure decisions are more decentralized we also find that transfers from higher levels of government are cut during consolidation episodes suggesting that central governments shift the burden of consolidation towards lower tiers of government this is especially true when the latter have little legal autonomy to raise tax revenues and have little influence over executive decisions taken at the central level we document that this increases local governments public debt gdp ratios in terms of the success of consolidation episodes countries with greater degrees of decentralization appear to make smaller improvements in their primary balance when consolidating

divided we reform evidence from us welfare policies abstract divided government is often thought of as causing legislative deadlock i investigate the link between divided government and economic reforms using a novel data set on welfare reforms in us states between 1978 and 2010 panel data regressions show that under divided government a us state is around 25 more likely to adopt a welfare reform than under unified government several robustness checks confirm this counter intuitive finding case study evidence suggests an explanation based on policy competition between governor senate and house

financial liberalization and reversals political and economic determinants what accounts for the dynamics of financial reforms this paper identifies the political regime as one of the main factors focusing on democratization and financial reform it puts forward novel evidence for a u shaped relation across countries and over time for different reform measures and a wide range of estimators partial democracy is a main obstacle to financial reforms and democratization when incomplete may lead to severe financial reform reversals nauro f campos and fabrizio coricelli

china s co2 emission structure for 1957 2017 through transitions in economic and environmental policies abstract this paper provides an insight into the structure of co 2 emissions in china through transitions in economic and environmental policies for the period of 1957 2017 by using input output and network analysis with newly compiled environmentally extended historical input output tables of china these tables which include firm level industry level and macro level statistical data are the first environmentally extended input output tables covering the years in the early stage of the people s republic of china the results present the following two main findings the first is due to the stable economic structure associated with the independent economic policy china s emission structure has been stable for more than 60 years heavy industry has contributed about 80 of co 2 emissions since the 1950s on a second account although the emission structure was stable stricter environmental controls and regulations led to a decrease of the growth rate of co 2 emissions after 2010 against this background as a policy choice of china instead of carbon leakage that could break up the stable economic structure balanced technology upgrading across all sectors induced by stricter environmental controls is a realistic way for china to achieve increased energy efficiency emission mitigation and economic development so that the country can keep the promise of reducing co 2 emissions after they peak around 2030

international organizations and the political economy of reforms abstract we develop a simple dynamic model of policy reform that captures some of the determinants that underlie the differences between the reform paths taken by a number of countries since the early 1990s the model focuses on the interaction between domestic institutions and international organizations that promote reform on the one hand and the political incentives for reversing reforms on the other at equilibrium there are three types of reform paths a country can undergo a full scale lasting reform can carry out a partial but lasting reform or can go through cycles of reforms and costly counter reforms domestic institutions along with the incentives provided by international organizations determine the equilibrium path a politically myopic international organization may induce cycles of reforms and costly counter reforms thereby reducing the country s well being an international organization that only provides funds to promote reforms may have a less beneficial effect than one that assists the country with fresh funds to defend reforms when there is a risk of reversal international funds that promote reforms can also influence domestic institutions for example due to the intervention of an international organization countries could have incentives to dismantle institutions that build up reversal cost and or do not fully build their fiscal capacity

are european business cycles close enough to be just one abstract we propose a comprehensive methodology to characterize the business cycle comovements across european economies and some industrialized countries without imposing any given model but trying to leave the data speak we develop a novel method to show that there is no evidence of a european economy that acts as an attractor to the other economies of the area we show that the establishment of the monetary union has not significantly increased the level of comovements across euro area economies finally we are able to explain an important proportion of the distances across their business cycles using macrovariables related to the structure of the economy to the directions of trade and to the size of the public sector

index decomposition analysis applied to co2 emission studies index decomposition analysis ida was first extended from energy consumption to energy related co2 emission studies in 1991 since then many studies have been reported covering various countries and emission sectors however unlike the case of energy consumption studies a comprehensive literature survey that focuses specifically on emission studies has so far not been reported in this paper we attempt to fill this gap by reviewing 80 papers appearing in peer reviewed journals from 1991 to 2012 in this application area the first part of this paper deals with the developments with regard to the ida approaches used by researchers and the scope and focus of their studies in the second part the empirical results reported in the surveyed studies are analyzed consolidated and presented by emission sector the objective is to reveal the relative contributions of key effects on changes in the aggregate carbon intensity and this is done by emission sector and by country the findings of both parts are useful in understanding the development of ida in the application area of emission study as well as the key drivers of aggregate carbon intensities in the past and their possible future developments

holding on for too long an experimental study on inertia in entrepreneurs and non entrepreneurs disinvestment choices abstract disinvestment in the sense of project termination and liquidation of assets including the cession of a venture is an important realm of entrepreneurial decision making this study presents the results of an experimental investigation modeling the choice to disinvest as a dynamic problem of optimal stopping in which the patterns of decisions are analyzed with entrepreneurs and non entrepreneurs our experimental results reject the standard net present value approach as an account of observed behavior instead most individuals seem to understand the value of waiting their choices are weakly related to the disinvestment triggers derived from a formal optimal stopping benchmark consistent with real options reasoning we also observe a pronounced psychological inertia i e most individuals hold on to a losing project for even longer than real options reasoning would predict the study provides evidence for entrepreneurs and non entrepreneurs being quite similar in their behavior

public debt stabilization the relevance of policymakers time horizons policymakers are stuck in time political short termism policy myopia policy short sightedness and similar words have been coined to emphasize the present centric policy thinking politics tends to produce short time horizons and as a result policymakers often fail to use present opportunities to mitigate future harms focusing on fiscal and monetary strategic interactions given different separate decision makers our paper aims to explore the effects of policymakers time horizons on debt stabilization to formalize our ideas we use the novel concept of nonlinear model predictive control feedback nash equilibrium nfne and find that present centric policy thinking and decision horizons matters under several dimensions

do european business cycles look like one abstract this paper provides a comprehensive framework to analyze business cycle features other than synchronization we use stationary bootstrap and model based clustering methods to analyze similarities and differences among the european cycles we find evidence that the length deep and shape of cycles differ across european countries and that these differences are not decreasing over time finally even though we find some correlation between business cycle synchronization and characteristics there is important information in the characteristics that is not captured by the synchronization measures

expectation formation in a new environment evidence from the german reunification abstract exploiting the german reunification we study how households adapt to a new environment in their macroeconomic forecasting east germans expect higher inflation than west germans decades after reunification these differences are likely driven by the persistent effect of the inflation shock after reunification which contrasted strongly with experiences of zero inflation in the gdr east germans higher inflation expectations are reflected in higher consumer debt and lower bond holdings our findings suggest that large changes in the environment can permanently impede people s ability to form expectations with an important role for the interaction of experiences before and after the event

the dynamics of reform and development in china a political economy perspective abstract to make economic reforms acceptable people in power need to be bought out however compensation is limited by the lack of commitment and liquidity under these constraints development may begin with modest reforms in some areas or sectors where investment opportunities are large and expected benefits from the pre reform system are small reform then may extend to other regions or sectors if the propagation process generates enough savings and proper coordination of economic actors takes place a drastic reform of institutions may then occur

the political economy of policy credibility the new classical macroeconomics and the remaking of emerging economies the criterion of policy credibility is invoked with increasing frequency today by new classical development economists in debates over economic and institutional reform in developing and transitional countries the paper argues that the credibility criterion is used to privilege neoliberal economic policies and associated institutions the paper demonstrates that the credibility criterion is theoretically anti pluralist and politically anti democratic in this connection the paper argues that a policy s credibility is always secured endogenously through political and economic power rather than exogenously by virtue of the epistemiological status of the theory that promotes it the paper concludes by suggesting two alternative criteria by which policy regimes and the governance structure of monetary institutions could be adjudicated these alternative criteria are termed the principle of democratic credibility and the principle of fallibility copyright 2000 by oxford university press

asymmetric phase shifts in u s industrial production cycles abstract we identify cyclical turning points for 74 u s manufacturing industries and uncover new empirical regularities a industries tend to comove between expansion and contraction phases over the business cycle b clusters of industry turning points are highly asymmetric between peaks and troughs troughs are much more concentrated and sharper than peaks c the temporal pattern of phase shifts across industries supports the spillovers through input output linkages and d macroeconomic shocks such as unanticipated changes in monetary policy government spending oil prices and financial conditions are significant drivers of industrial phase shifts

dynamics of global business cycle interdependence abstract in this paper we provide a comprehensive analysis of the time varying interdependence among the economic cycles of the major world economies during the post great moderation period we document a significant increase in the global business cycle interdependence occurred in the early 2000s such increase is mainly attributed to the emerging market economies since their business cycles became more synchronized with the rest of the world around that time moreover we find that the increase in global interdependence is highly related to decreasing differences in sectoral composition among countries

the old theory of economic policy and the new institutionalism abstract in economics recent emphasis on institutions suggests new policy dimensions for the traditional theory of economic policy which originated with tinbergen and others at the time of the keynesian revolution the paper presents elements of the traditional view instruments targets and policy models and then considers new aspects of policy especially policy for structural change the discussion emphasizes the implications for institutional design of incomplete knowledge and endogenous politics both public and private actors rely on incomplete policy models and the models themselves can become intermediate targets of policy

compensations as signaling devices in the political economy of reforms we propose an explanation for why efficient reforms are not carried out when losers can block their implementation and compensations are feasible in our model a government tries to sequentially implement two efficient reforms by bargaining with interest groups the organization of interest groups is endogenous compensations are distortionary and different governments care differently about distortions governments use low compensations to discourage losers who just want to receive transfers from organizing this comes at the cost of reforms being blocked by interest groups with relatively high losses resulting in a bias against payment of compensations and the implementation of reforms

good bye lenin or not the effect of communism on people s preferences preferences for redistribution as well as the generosities of welfare states differ significantly across countries in this paper we test whether there exists a feedback process of the economic regime on individual preferences we exploit the experiment of german separation and reunification to establish exogeneity of the economic system from 1945 to 1990 east germans lived under a communist regime with heavy state intervention and extensive redistribution we find that after german reunification east germans are more in favor of redistribution and state intervention than west germans even after controlling for economic incentives this effect is especially strong for older cohorts who lived under communism for a longer time period we further find that east germans preferences converge towards those of west germans we calculate that it will take one to two generations for preferences to converge completely

railway de regulation a european efficiency comparison many european countries have sought to increase the efficiency of national railroad companies through a range of reforms including the separation of infrastructure and operations the creation of independent regulatory institutions and the provision of access to the network to third parties this document reports on a study undertaken to investigate a new world bank panel dataset that covers many european union eu countries over a period of 20 years the authors used this dataset to estimate the effects of reforms on railroad efficiency they compare the passenger traffic efficiency of national railroad companies by means of a production frontier model and then evaluate the effects of reforms on efficiency the data showed that reforms have efficiency increasing effects but the effect of reforms depends on sequencing the introduction of multiple reforms in a package has at best neutral effects but sequential reforms improve efficiency the authors also describe how they used the lisrel technique to test their data and show that their results are robust against potential problems of endogeneity

comparing structural decomposition analysis and index to analyze and understand historical changes in economic environmental employment or other socio economic indicators it is useful to assess the driving forces or determinants that underlie these changes two techniques for decomposing indicator changes at the sector level are structural decomposition analysis sda and index decomposition analysis ida for example sda and ida have been used to analyze changes in indicators such as energy use co2 emissions labor demand and value added the changes in these variables are decomposed into determinants such as technological demand and structural effects sda uses information from input output tables while ida uses aggregate data at the sector level the two methods have developed quite independently which has resulted in each method being characterized by specific unique techniques and approaches this paper has three aims first the similarities and differences between the two approaches are summarized second the possibility of transferring specific techniques and indices is explored finally a numerical example is used to illustrate differences between the two approaches

success and failure of fiscal consolidation in the oecd a multivariate analysis this paper tests five hypotheses explaining the success and failure of fiscal consol idation in a multivariate regression framework these hypotheses concern i the composition of the consolidation programme ii its size and persistence iii the gravity of the debt situation iv the influence of the international macroeconomic environment and v the con tribution of a preceding devaluation to test for composition effects we use cyclically adjusted data although many conclusions of the existing empirical literature are confirmed some do not survive a popular hypothesis that to succeed consolidation should rely on cutting the government wage bill is rejected a new empirical result is that the contribution of a devalu ation to the success of fiscal consolidation depends on the composition of the consolidation programme

this is what the leading indicators lead we propose an optimal filter to transform the conference board composite leading index cli into recession probabilities in the us economy we also analyse the cli s accuracy at anticipating us output growth we compare the predictive performance of linear var extensions of smooth transition regression and switching regimes probit non parametric models and conclude that a combination of the switching regimes and non parametric forecasts is the best strategy at predicting both the nber business cycle schedule and gdp growth this confirms the usefulness of cli even in a real time analysis copyright 2002 john wiley sons ltd

learning from the doers developing country lessons for advanced economy growth from 1980 to 1992 emerging and developing countries grew by 3 4 percent per year their annual rate of growth increased to 5 4 percent between 1993 and 2012 no such increase occurred for advanced nations whose average growth from 1980 to 2012 was roughly constant excluding the impact of the 2008 2009 recession developing nations turned themselves around by embracing discipline sustained commitment to a pragmatic and flexible growth strategy three illustrations of discipline through the lens of trade fiscal and debt reforms in the developing world offer relevant practical lessons for recovery in advanced economies and continued catch up growth in developing nations

divide et impera strategic underpricing in privatizations in several recent initial public offerings in privatization casesshares seemed to be severely underpriced in this paper weprovide a political economy explanation for this apparentunderpricing using a variant of grossmann and helpmann s 1996 model of special interest politics we demonstrate thatgovernments may raise their election chances by rationinginvestors because the resulting broader distribution of sharesmakes regulation that is favorable to the privatized firm morepopular somewhat surprisingly even revenues from theprivatization can be increased through rationing the model alsoexplains the common practice of bonus systems designed to preventinvestors from taking profits immediately

business cycle stylized facts and inventory behaviour new evidence for the euro area abstract the purpose of this paper is for the first time to use business tendency survey data first to identify new facts that are useful for the interpretation of the decline in the volatility of real activity in the euro area and second to test the inventory management hypothesis as an explanation for the great moderation in europe we present stylized facts from the business tendency data on series for inventories current production current orders and expected production for the euro area emphasizing the decline in the volatility of the series further we investigate whether the decline in inventory volatility can be attributed to an endogenous change in the persistence of shocks to the accumulation dynamics of inventories or to an exogenous change in the shocks hitting the inventory optimisation process our results at euro level generally indicate that there is no evidence of a break in the inventory accumulation process on the contrary the impact of exogenous shocks on inventory volatility appears to be steadily declining over time beginning from the mid 1980s

privatization market liberalization and learning in transition economies privatization and market liberalization are widely considered to be complementary reforms in transition economies this article challenges this view and the closely related big bang approach when pursued too vigorously privatization may impede the transition process following liberalization our result is based on an explicit model of market learning compared to a mature market a market in transition is characterized by greater uncertainty regarding market conditions including equilibrium prices and quanti ties economic actors must learn about these conditions through their participation in the market process less than full privatization is optimal if the costs of learning are sufficiently important

inertial credit and opportunistic arrears in transition in a transition economy enterprise restructuring may exhibit a laffer curve response to tighter credit as a result of rational collective inertia in the presence of a rigid production structure unenforceable contracts and high adjustment costs a contraction in credit finance subtracts more liquidity than enterprises can generate internally because unrestructured firms are forced to extend trade credit to illiquid buyers an increase in their number increases the availability of forced supplier credit in turn increasing the attractiveness of inertial behavior as trade credit cannot be enforced a critical mass of trade and wage arrears causes pressure for a collective bailout thus validating inertial behavior even by reformable firms

on the reversibility of structural reforms abstract what are the factors that explain reversals in the implementation of structural reforms our main hypothesis is that reversals in different reforms are driven by different factors this paper presents novel evidence showing that a fdi inflows reduce the likelihood of privatization reversals b worsened terms of trade increase the probability of external liberalization reversals and c labor strikes propel reversals in price liberalization

fiscal consolidations quality economic conditions and success recent research has demonstrated theimportance of good quality of fiscaladjustments for the success of governmentbudget consolidations we extend thisapproach to analyze the importance of theeconomic conditions in which fiscalconsolidations are started for theirsuccess the cyclical positions of thedomestic and international economy theinitial debt level and the stance of fiscalpolicy in the oecd are all importantdeterminants of the likelihood of fiscalconsolidations they also affect thegovernment s choice of consolidationstrategy making them importantdeterminants of the success of fiscalconsolidations in contrast the monetarypolicy stance plays only a negligible rolefor fiscal consolidations we use theanalysis to test for any maastricht effectson the performance of european governmentsduring the 1990s such effects are weak atbest and occurred only during the firsthalf of the decade

selective intervention and internal hybrids interpreting and learning from the rise and decline of the oticon spaghetti organization infusing hierarchies with elements of market control has become a much used way of simultaneously increasing entrepreneurialism and motivation in firms however this paper argues that such internal hybrids particularly in their radical forms are inherently hard to successfully design and implement because of a fundamental incentive problem of establishing credible managerial commitments to not intervene in delegated decision making this theme is developed and illustrated using the case of the world leading hearing aids producer oticon in the beginning of the 1990s oticon became famous for its radical internal hybrid the spaghetti organization recent work has interpreted the spaghetti organization as a radical attempt to foster dynamic capabilities by organizational means neglecting however that about a decade later the spaghetti organization has given way to a more traditional matrix organization in contrast an organizational economics interpretation of oticon organizational changes is developed this lens suggests that a strong liability of the spaghetti organization was the above incentive problem frequent managerial meddling with delegated rights led to a severe loss of motivation and arguably caused the change to a more structured organization refutable implications are developed and the discussion is broadened to more general issues of economic organization

policymakers horizon and trade reforms the protectionist effect of elections this paper shows that electoral incentives deter politicians from supporting trade liberalization we focus on all major trade liberalization bills introduced since the early 1970s in the u s congress in which house and senate members serve respectively two and six year terms and one third of senators face elections every two years we show that senators are more likely to support trade liberalization than house representatives however this result does not hold for the last generation of senators who face elections at the same time as house members suggesting that inter cameral differences are driven by term length considering senators alone we find that the last generation is less likely to support trade liberalization than the previous two this result is pervasive and holds both when comparing the behavior of different senators voting on the same bill and that of individual senators voting on different bills the protectionist effect of election proximity disappears for senators who are retiring or hold safe seats

water on fire gains from electricity trade in light of the ongoing liberalization of electricity trade in the nordic countries and perhaps in northern europe we argue that gains from electricity trade may be different from those traditionally associated with comparative advantages and economies of scale in particular we consider gains arising from the exploitation of technological complementarities between hydro and thermal systems our theoretical framework highlights essential features of the two systems and allows for an analysis of effects of trade we study three trading regimes which may arise either endogenously or because of trade regulations day night power exchange seasonal energy banking and unbalanced trade the analysis suggests that gradual trade liberalization may be costly

structural uncertainty and subsidy removal for economies in transition abstract economies in transition are faced with a high degree of structural uncertainty i e uncertainty about which it is possible to learn through experience we study structural uncertainty s effects on a subsidy removal program subsidy removal causes unemployment but yields fiscal benefits and facilitates private sector growth when the policymaker does not know the speed with which the private sector absorbs the unemployed he will be driven toward a more decisive and therefore more informative policy the model also rationalizes policy reversals and implies that irreversibility constraints and political instability dampen the learning effect making policy more gradualist

downsizing and job insecurity this article offers an explanation of why firms downsizing patterns may vary substantially in magnitude and timing taking the form of one time massive cuts waves of layoffs or zero layoff policies the key element of this theory is that workers expectations about their job security affect their on the job performance in a situation where firms face adverse shocks the productivity effect of job insecurity forces firms to balance laying off redundant workers and maintaining survivors commitment the cost of ensuring commitment differs between firms with different characteristics and determines whether workers are laid off all at once or in stages however if firms have private information about their future profits they may not lay off any workers in order to signal a bright future boosting worker s confidence jel j21 j23 d21 d82

exiting a lawless state an earlier paper showed that an economy could be trapped in an equilibrium state in which the absence of the rule of law led to asset stripping and the prevalence of asset stripping led to the absence of a demand for the rule of law highlighting a coordination failure this paper looks more carefully at the dynamics of transition from a non rule of law state the paper identifies a commitment problem as the critical feature inhibiting the transition the inability under a rule of law to forgive theft this can lead to the perpetuation of the non rule of law state even when it might seem that the alternative is pareto improving

dissecting the cycle a methodological investigation following burns and mitchell we define the cycle as a pattern in the level of aggregate economic activity an algorithm to locate turning points is developed as is a new measure of pro cyclicality a link between turning points and the moments of the series is established thereby providing the statistical foundation that burns and mitchell s work lacked using these tools we are able to dissect cycles in terms of the contributions made by trend growth volatility serial correlation and non linear effects we dissect several models and find little evidence that certain non linear effects are important to the nature of business cycles

the role of social capital in financial development to identify the effect of social capital on financial development we exploit social capital differences within italy in high social capital areas households are more likely to use checks invest less in cash and more in stock have higher access to institutional credit and make less use of informal credit the effect of social capital is stronger where legal enforcement is weaker and among less educated people these results are not driven by omitted environmental variables since we show that the behavior of movers is still affected by the level of social capital of the province where they were born

fiscal consolidation strategy in the aftermath of the global financial crisis and great recession many countries face substantial deficits and growing debts in the united states federal government outlays as a ratio to gdp rose substantially from about 19 5 percent before the crisis to over 24 percent after the crisis in this paper we consider a fiscal consolidation strategy that brings the budget to balance by gradually reducing this spending ratio over time to the level that prevailed prior to the crisis a crucial issue is the impact of such a consolidation strategy on the economy we use structural macroeconomic models to estimate this impact focussing primarily on a dynamic stochastic general equilibrium model with price and wage rigidities and adjustment costs we separate out the impact of reductions in government purchases and transfers and we allow for a reduction in both distortionary taxes and government debt relative to the baseline of no consolidation according to the model simulations gdp rises in the short run upon announcement and implementation of this fiscal consolidation strategy and remains higher than the baseline in the long run we explore the role of the mix of expenditure cuts and tax reductions as well as gradualism in achieving this policy outcome finally we conduct sensitivity studies regarding the type of model used and its parameterization

energy intensity developments in 40 major economies structural change or technology improvement this study analyzes energy intensity trends and drivers in 40 major economies using the wiod database a novel harmonized and consistent dataset of input output table time series accompanied by environmental satellite data we use logarithmic mean divisia index decomposition to 1 study trends in global energy intensity between 1995 and 2007 2 attribute efficiency changes to either changes in technology or changes in the structure of the economy and 3 highlight sectoral and regional differences we first show that heterogeneity within each sector across countries is high these general trends within the sectors are dominated by large economies first and foremost the united states in most cases heterogeneity is lower within each country across the different sectors regarding changes of energy intensity at the country level improvements between 1995 and 2007 are largely attributable to technological change while structural change is less important in most countries notable exceptions are japan the united states australia taiwan mexico and brazil where a change in the industry mix was the main driver behind the observed energy intensity reduction

european business cycles new indices and their synchronicity this article presents a new business cycle index that allows for cycle to cycle comparisons of the depth of recessions within a country cross country comparisons of business cycle correlation and simple aggregation to arrive at a measure of a european business cycle the data augmentation implied by gibbs sampling generates posterior distributions for a latent coincident business cycle index subsample correlations between an aggregated europe index and the national business cycle indices from france germany and italy are consistent with the claim that the european economies are becoming more harmonized

financial development and corporate growth in the eu single market the establishment of the eu 15 single market in 1993 brought about a high degree of similarity in firms growth opportunities across countries while substantial diversity existed in the development of national financial markets we compare within industry growth rates of similar single market firms facing financial systems of different depth and institutional quality as of 1993 moving from the least to the most developed financial market within the eu 15 boosts firms annual value added growth by about three percentage points our results also suggest that the growth gap due to initially underdeveloped financial systems was closed by 2003

the political economy of transition the overriding importance of political constraints in the transition process has led to developments of the theory of the political economy of reform what are the main insights from that theory how does it reflect the transition reality what have we learned and what do we still need to learn the present article will attempt to answer those questions

financial crises in asia and latin america then and now in this paper we analyze the extent to which past financial crises share common characteristics in latin america asia europe and the middle east we examine the recent crises in asia and in latin america in particular their severity to assess whether the considerable historical differences that we have documented for the earlier sample have eroded we conclude that in a deregulated world the well behaved asian financia1 crises are a relic of the past

efficiency assessment of hydroelectric power plants in canada a multi criteria decision making approach abstract hydropower plays a major role in the canadian electricity generation industry few attempts have been made however to assess the efficiency of hydropower generation in canada this paper analyzes the overall efficiency of hydropower generation in canada from comprehensive viewpoints of electricity generating capability its profitability as well as environmental benefits and social responsibility using the topsis the technique for order preference by similarity to ideal solution method the factors that influence the efficiency of the hydropower generation are also presented to help to the sustainable hydropower production in canada the most important results of this study concern 1 the pivotal roles of energy saving and of the social responsibility in the overall efficiency of hydropower corporates and 2 the lower hydropower generation efficiency of some of the most important economic regions in canada other results reveal that the overall efficiency of hydropower generation in canada experienced an improvement in 2012 following a downtrend from 2005 to 2011 amidst these influencing factors energy saving and social responsibility are key factors in the overall efficiency scores while management defined herein by the number of employees and hydropower stations of a corporation has only a slightly negative impact on the overall efficiency score

in search of the holy grail policy convergence experimentation and economic performance we consider a model of policy choice in which appropriate policies depend on a country s own circumstances but the presence of a successful leader generates an informational externality and results in too little policy experimentation corrupt governments are reined in while honest governments are disciplined inefficiently our model yields distinct predictions about the patterns of policy imitation corruption and economic performance as a function of a country s location vis aa vis successful leaders in particular it predicts a u shaped pattern in economic performance as we move away from the leader in the relevant space of characteristics close neighbors should do very well distant countries moderately well on average with considerable variance and intermediate countries worst of all an empirical test with the experience of post socialist countries provides supportive results

growing up in a recession does the historical macroeconomic environment affect preferences for redistribution we find that individuals who experienced a recession when young believe that success in life depends more on luck than effort support more government redistribution and tend to vote for left wing parties the effect of recessions on beliefs is long lasting we support our findings with evidence from three different datasets first we identify the effect of recessions on beliefs exploiting time and regional variation in macroeconomic conditions using data from the 1972 2010 general social survey our specifications control for nonlinear time period life cycle and cohort effects as well as a host of background variables second we rely on data from the national longitudinal survey of the high school class of 1972 to corroborate the age period cohort specification and look at heterogeneous effects of experiencing a recession during early adulthood third using data from the world value survey we confirm our findings with a sample of 37 countries whose citizens experienced macroeconomic disasters at different points in history

economic reform voting and local political intervention evidence from india abstract this paper uses the indian tariff reforms of the early nineties to estimate how voters hurt by economic reforms respond regions more hurt by the tariff reform increased their support for both the party that initiated their suffering and parties with similar preferences in favor of poverty centric policies this response is surprisingly sophisticated where voters did not simply punish incumbents for negative income shocks and correctly discounted initial anti reform stances by opposition parties that later turned out to be false furthermore the strength of this voting response varied with both geography and local political incentives suggesting that the economic effects of reforms might vary substantially in large and decentralized democracies

inventories and the three phases of the business cycle this article demonstrates that recessions typically are followed by high growth recovery phases that push output back to its prerecession level thus postwar fluctuations in real output in the united states have consisted of three sequential phases rather than two contractions high growth recoveries and moderate growth periods following recoveries data from before world war ii also exhibit this pattern for the postwar period the three phase pattern is shown to reflect swings in inventory investment and suggests that output fluctuations have an important transitory component the evidence in this article supports delong and summers s output gaps view and friedman s plucking model view of fluctuations

institutions and performance in european labour markets taking a fresh look at evidence this paper presents a selective survey of the recent literature on labour market institutions and offers new empirical eu based evidence on the impact of labour market reforms on employment and labour market adjustment although the literature traditionally treats labour market institutions as exogenous attention shifted recently towards understanding the underlying causes of specific institutional arrangements as a consequence the literature highlights the great importance of an efficient policy design exploiting these interactions wisely and identifies general principles for achieving an efficient policy design at both macro and micro levels although empirical evidence does not show a major change in terms of intensity of labour market reform after the setting of the economic and monetary union and the creation of the euro the reforms aiming at strengthening the labour market attachment of vulnerable groups tend to have been successful both in raising their employment and increasing labour market adjustment

the design of reform packages under uncertainty the authors present a model of large scale economic reforms modeled on the transition process in eastern europe with aggregate and individual uncertainty concerning the outcome of reforms the government is assumed to choose the speed and sequencing of reforms the authors compare big bang strategies with gradualist reform packages they show that gradualist reform packages may be easier to get started optimal sequencing of reforms should aim at creating constituencies for further reforms and gradualism may generate a higher investment response because of a lower option value of waiting than would a big bang approach copyright 1995 by american economic association

the information content of capacity utilization for detrending total factor productivity abstract in the production function approach an accurate output gap assessment requires a careful evaluation of the total factor productivity tfp cycle we build a common cycle model that links tfp to capacity utilization and we show that in almost all of the pre enlargement eu countries using information about capacity utilization reduces both the total estimation error and the revisions in real time estimates of the concurrent tfp cycle compared to a univariate decomposition we also argue that relaxing the constant drift hypothesis in favour of a non linear specification helps to offset a general tendency to underestimate the tfp cycle in the last decade

searching for good policies policymaking is hard policymakers typically have imperfect information about which policies produce which outcomes and they are left with little choice but to fumble their way through the policy space via a trial and error process this raises a question at the heart of democracy do democratic systems identify good policies to answer this question i introduce a novel model of policymaking in complex environments i show that good policies are often but not always found and i identify the possibility of policymaking getting stuck at outcomes that are arbitrarily bad notably policy stickiness occurs in the model even in the absence of institutional constraints this raises the question of how institutions and the political environment impact experimentation and learning i show how a simple political friction uncertainty over voter preferences interacts with political competition and policy uncertainty in a subtle way that surprisingly improves the quality of policymaking over time

fiscal decentralization fiscal rules and fiscal discipline fiscal decentralization fd and fiscal rules fr are institutional mechanisms that are implemented by varying degrees in increasing number of countries this paper investigates empirically the effect of fr on the effectiveness of fd in achieving fiscal discipline panel evidence strongly supports that balanced budget and expenditure rules help fd to achieve this goal while debt rule has a direct disciplinary effect

priorities and sequencing in privatization evidence from czech firm panel data abstract while privatization of state owned enterprises has been one of the most important aspects of the economic transition from a centrally planned to a market system no transition economy has privatized all its firms simultaneously this raises the question of whether governments privatize firms strategically in this paper we examine the determinants of the sequencing of privatization to obtain testable predictions about the factors that may affect sequencing we investigate the following competing government objectives i maximizing efficiency through resource allocation ii maximizing public goodwill from the free transfers of shares to the public iii minimizing political costs iv maximizing efficiency through information gains and v maximizing privatization revenues next we use firm level data from the czech republic to test the competing predictions about the sequencing of privatization consistent with the hypotheses of a government priority on revenues and public goodwill we find strong evidence that more profitable firms were privatized first the sequencing of privatization is also consistent with maximizing efficiency through information gains our results indicate that many empirical studies of the effects of privatization on firm performance suffer from a selection bias

liberalization endogenous institutions and growth a comparative analysis of agricultural reforms in africa asia and europe thirty years ago a vast share of low and middle income countries was heavily state controlled the liberalizations of the 1980s and 1990s had greatly different effects on growth in countries in africa asia and europe a comparative framework is used to document these differences and a model is developed to formally analyze how liberalization affects production and income distribution when the institutions that govern production and exchange are also affected hypotheses are derived for how endogenous institutional adjustments affect the growth response to liberalization these insights motivate a series of explanations for the differences in performance across regions and commodities following liberalization

success and failure of reform insights from the transition of agriculture this paper analyzes the linkages between the reform strategies in transition countries and economic performance the authors focus on agriculture because of the sharpness of the policy changes fundamental differences among countries and relative simplicity of agricultural relationships the authors document post reform performance in the transition countries of asia and europe the authors show how a pricing reform and subsidy reductions b land rights reform and policies that affect farm restructuring and c the presence institutions that facilitate exchange either markets or market substitutes affect output and productivity the paper ends with general lessons on reforms and transition

why do so few hold stocks the authors investigate why 75 percent of u s households do not hold stocks despite the equity premium and predictions of expected utility models the question is relevant for privatization asset pricing and tax progressivity issues they show that risk aversion per se heterogeneity of beliefs habit persistence time nonseparability and quantity constraints on borrowing do not account for the phenomenon a wedge between borrowing and lending rates and minimum investment requirements are plausible but empirically weak factors more promising explanations are inertia and departures from expected utility maximization there is also qualified support for nondiversifiable income risk as a contributing factor copyright 1995 by royal economic society

uncertain fiscal consolidations the paper explores the macroeconomic consequences of fiscal consolidations whose timing and composition are uncertain drawing on the evidence in alesina and ardagna 2010 we emphasize whether or not the fiscal consolidation is driven by tax rises or expenditure cuts we find that the composition of the fiscal consolidation its duration the monetary policy stance the level of government debt and expectations over the likelihood and composition of fiscal consolidations all matter in determining the extent to which a given consolidation is expansionary and or successful in stabilizing government debt

the political economy of fiscal consolidations in the context of recent research in political economy this paper addresses the policy problem of fiscal consolidation in terms of three types of issues i the macroeconomic effects of alternative strategies to consolidate ii the institutional setups conducive to a consolidation and iii the best strategy for implementing a consolidation in order to maximize its political feasibility one methodological feature of this survey is an emphasis on policy feasibility one methodological feature of this survey is an emphasis on policy issues in order to bridge the gap between the level of abstraction of politico economic models of fiscal policy and the issues faced by a policymaker when attempting a fiscal consolidation

what explains the success or failure of structural adjustment programs in the 1980s development assistance shifted largely from financing investments such as roads and dams to promoting policy reform this change came because of a growing awareness that developing countries were held back more by poor policies than by a lack of finance for investment after nearly 20 years experience with policy based or conditional lending there have now been many studies of adjustment lending most of which take a case study approach many conclude that policy based lending works if countries have decided on their own to reform the authors examine a database of 220 world bank supported reform programs to identify why adjustment programs succeed or fail they find that a few political economy variables can successfully predict the outcome of an adjustment loan 75 percent of the time variables under the world bank s control resources devoted to preparation and supervision or number of conditions have no relationship with an adjustment program s success or failure what development agencies must do then is select promising candidates for adjustment support when the candidates is a poor selection devoting more administrative resources or imposing more conditions will not increase the likelihood of successful reform to improve its success rate with adjustment lending the world bank must become more selective and do a better job of understanding which environments are promising for reform and which are not that is likely to lead to fewer adjustment loans unless there is a significant change in the number of promising reformers to become more effective at supporting policy reform the agency must be willing to accept that this may lead to smaller volumes of lending

learning dynamics and support for economic reforms why good news can be bad support for economic reforms has often shown puzzling dynamics many reforms that began successfully lost public support this paper shows that learning dynamics can rationalize this paradox because the process of revealing reform outcomes is an example of sampling without replacement this concept challenges the conventional wisdom that one should begin by revealing reform winners it may also lead to situations in which reforms that enjoy both ex ante and ex post majority support will still not come to completion the framework can be used to explain why gradual reforms worked well in china where successes in special economic zones facilitated further reform whereas this was much less the case for latin american and central and eastern european countries

energy related ghg emission in agriculture of the european countries an application of the generalized divisia index abstract sustainable agriculture food security and welfare of the farmers require an integrated analysis of the performance of the agricultural sector in this paper we follow the energy environment economy framework and focus on decomposition of changes in the energy related greenhouse gas ghg emission in agricultural sectors of the selected european union eu countries the research relies on country level data from fao and eurostat describing economic activity energy use and ghg emission in the agricultural sectors of the european countries during 1995 2012 the main drivers carbon factor of energy consumed in agriculture energy intensity of agricultural production and growth in agricultural production and their impacts on the energy related ghg emissions in agriculture are analysed for selected countries the generalized divisia index is applied to decompose the changes in the energy related ghg emissions france latvia and belgium appeared as the only countries with increase in ghg emissions during 1995 2012 in the case of france energy intensity went up along with increase in the scale of agricultural production in latvia and belgium an increase in carbon factor appeared as the major factor driving an increase in ghg emissions the appropriate policies need to be employed in these countries seeking to reduce ghg emissions from energy consumption in agriculture improvements in energy efficiency appear to be a more feasible mean for ensuring further reductions in ghg emission

fiscal stability during the great recession putting decentralization design to the test this paper provides an empirical analysis aimed at disentangling the roles played by decentralization level and design as well as the extended decentralized framework provided by subnational borrow

reforms and confidence abstract we examine the choice of economic reforms when policymakers have present biased preferences and can choose to discard information maintain confidence to mitigate distortions from excess discounting the decisions of policymakers and firms are shown to be interdependent confident policymakers carry out welfare improving reforms more often which increases the probability that firms will invest in restructuring while policymakers in different countries can be equally irrational the consequences of bounded rationality are less severe in economies with beneficial initial conditions we also examine how present biased preferences influence the choice between big bang versus gradualist reform strategies our findings help explain differences in economic reform success in various countries

macroeconomic forecasting using diffusion indexes this article studies forecasting a macroeconomic time series variable using a large number of predictors the predictors are summarized using a small number of indexes constructed by principal component analysis an approximate dynamic factor model serves as the statistical framework for the estimation of the indexes and construction of the forecasts the method is used to construct 6 12 and 24 monthahead forecasts for eight monthly u s macroeconomic time series using 215 predictors in simulated real time from 1970 through 1998 during this sample period these new forecasts outperformed univariate autoregressions small vector autoregressions and leading indicator models

sustainability in the eu cement industry the italian and german experiences cement manufacturing is a high volume process with large quantities of substances turned into commercial products in the process consuming non renewable resources and energy it is one of the most material and energy intensive industrial processes as well as being co2 emissions intensive the latter is due in large part to the production of clinker the key component in cement over the last decades the european cement industry has applied a variety of solutions for improving environmental performance and cost competitiveness the co processing of alternative raw materials and fuels in particular has played a pivotal role producing a triple win emissions reductions decreases in the extraction of natural resources and fossil fuels and enhancement of waste management operations this paper outlines characteristics of the european cement industry in order to pinpoint trends and performance improvements and to assess the suitability of sustainability routes adopted and programmes launched finally the paper compares the experiences of the industry in italy and germany the two most important european manufacturers of cement evaluating their different industrial approaches with regard to the use of alternative raw materials and fuels and improvements in resource efficiency results indicate the need for a collaborative approach between the business community policy makers and institutions in order to embrace sustainability as a business imperative adopting models that facilitate systemic change towards circular economy goals