bluuebunny/crossref_metadata_2025_split huggingface dataset:
Now or Never: Environmental Protection under Hyperbolic Discounting
Authors: Winkler Ralph 
Published: September 2010

AbstractThe author analyzes the optimal investment in environmental protection in a model of non-overlapping hyperbolically discounting agents. He shows that, in the long run and in the absence of a commitment device, society is stuck in a situation where all agents prefer further investments, yet no agent invests. This holds no matter whether agents are aware of the time inconsistency of their preferences. As a consequence, awareness of the time-inconsistency problem poses at best a short run remedy. Moreover, such an outcome may be Pareto inefficient and may explain the weak performance of long-run environmental policies.
Macroeconomic Relaxation: Adjustment Processes of Hierarchical Economic Structures
Authors: Hawkins Raymond J. , Aoki Masanao 
Published: September 2010

Abstract
We show how time-dependent macroeconomic response follows from microeconomic dynamics using linear response theory and a time-correlation formalism. This theory provides a straightforward approach to time-dependent macroeconomic model construction that preserves the heterogeneity and complex dynamics of microeconomic agents. We illustrate this approach by examining the relationship between output and demand as mediated by changes in unemployment, or Okun’s law. We also demonstrate that time dependence implies overshooting and how this formalism leads to a natural definition of economic friction.
Should we Discount the Far-Distant Future at ist Lowest Possible Rate?
Authors: Gollier Christian 
Published: September 2010

AbstractIn this paper, we elaborate on an idea initially developed by Weitzman (1998) that justifies taking the lowest possible discount rate for far-distant future cash flows. His argument relies on the arbitrary assumption that when the future rate of return of capital (RRC) is uncertain, one should invest in any project with a positive expected net present value. We examine an economy with a risk-averse representative agent facing an uncertain evolution of the RRC. In this context, we characterize the socially efficient stochastic consumption path, which allows us in turn to use the Ramsey rule to characterize the term structure of socially efficient discount rates. We show that Weitzman’s claim is qualitatively correct if shocks on the RRC are persistent. On the contrary, in the absence of any serial correlation in the RRC, the term structure of discount rates should be flat.
On the Relation between Discounting of Climate Change and Edgeworth-Pareto Substitutability
Authors: Kögel Tomas 
Published: September 2010

Abstract
To justify substantial carbon emission reductions, recent literature on cost-benefit analysis of climate change suggests discounting environmental quality at a lower discount rate than the standard consumption discount rate. Recent literature also shows that a theoretical foundation for such a lower environmental discount rate requires rising willingness-to-pay for environmental quality (WTP). A widely believed better alternative is however to adjust instead future environmental benefits for rising WTP and to discount those benefits at the consumption discount rate. According to this latter approach, rising WTP is usually assumed not to change the consumption discount rate itself. Assuming environmental resource scarcity, the present paper shows that an unchanged consumption discount rate is however, by and large, only an appropriate assumption in the knife-edge case in which environmental quality and goods consumption are neither substitutes nor complements in the Edgeworth-Pareto sense (substitutes, respectively, complements in the Edgeworth-Pareto sense implies the marginal utility of goods consumption to be decreasing, respectively, increasing in environmental quality).
Inventory Investment and the Real Interest Rate
Authors: Junayed Sadaquat , Khan Hashmat 
Published: September 2010

Abstract
The relationship between inventory investment and the real interest rate has been difficult to assess empirically. Recent work has proposed a linear-quadratic inventory model with time-varying discount factor to identify the effects of the real interest rate on inventory investment. The authors show that this framework does not separately identify the effects of real interest rate on inventory investment from variables that determine the expected marginal cost of production. In other words, the model does not deliver a testable restriction on the impact of interest rates on inventory investment. The authors highlight the consequences for both short- and long-run empirical analyses. They conclude that understanding the relationship between inventory investment and the real interest rate continues to be a theoretical and empirical challenge for macroeconomists.
The Nature of Equilibrium in Macroeconomics: A Critique of Equilibrium Search Theory
Authors: Aoki Masanao , Yoshikawa Hiroshi 
Published: September 2010

Abstract
The standard Walrasian equilibrium theory requires that the marginal value product of production factor such as labor is equal across firms and industries. However, productivity dispersion is widely observed in the real economy. Search theory allegedly fills this gap by encompassing apparent disequilibrium phenomena in the neoclassical equilibrium framework. Taking up Lucas and Prescott (1974) as a primary example, we show that the neoclassical search theory cannot explain the observed pattern of productivity dispersion. Non-self-averaging, a concept little known to economists, plays the major role. Empirical observation suggests strongly the presence of disturbing forces which dominate equilibrating forces due to optimizing behavior of economic agents. We must seek a new concept of equilibrium different from the standard Walrasian equilibrium in macroeconomics.
The Information Content and Redistribution Effects of State and Municipal Rating Changes in Mexico
Authors: Velázquez Alfonso Mendoza 
Published: September 2010

Abstract
The fiscal and financial reforms carried out in Mexico in 2000 have encouraged a widespread presence of rating agencies and have allowed several States and Municipalities to raise funds through bond offerings in the capital market. Any local government in Mexico intending to access credit and capital markets must count with at least one credit rating from one of the three main agencies: FitchRatings, Moody’s and Standard & Poor’s. This paper investigates the impact of rating changes to State and Municipal governments on bond returns in Mexico. By employing a Capital Asset Pricing Model (CAPM) structure for the mean equation that allows conditional volatility, we find strong support for the Information Content Signaling Hypothesis (ICSH), i.e., rating upgrades (downgrades) are followed by greater (lower) bond returns. We also find some support for the Wealth Redistribution Hypothesis (WRH) indicating that rating upgrades (downgrades) are followed by lower (greater) bond returns. In addition to this, we find high volatility persistence, significant asymmetric responses of volatility to bad and good news, a negative association between market volatility and the level of bond returns and significant effects of volatility in response to rating changes. Finally, the estimations show the market anticipates and responds to rating changes within five-day momentum windows. There is a comparatively stronger reaction of returns on the event day favoring the hypothesis of market inefficiency.
Additive Damages, Fat-Tailed Climate Dynamics, and Uncertain Discounting
Authors: Weitzman Martin L. 
Published: September 2010

AbstractThis paper in applied theory argues that there is a loose chain of reasoning connecting the following three basic links in the economics of climate change: 1) additive disutility damages may be appropriate for analyzing some impacts of global warming; 2) an uncertain feedback-forcing coefficient, which might be near one with infinitesimal probability, can cause the distribution of the future time trajectory of global temperatures to have fat tails and a high variance; 3) when high-variance additive damages are discounted at an uncertain rate of pure time preference, which might be near zero with infinitesimal probability, it can make expected present discounted disutility very large. Some possible implications for welfare analysis and climate-change policy are briefly noted.
Addressing the Psychology of Financial Markets
Authors: Tuckett David 
Published: September 2010

Abstract
The author suggests that the 2008 financial crisis was the culmination of an accelerating and inherently unstable process of financial market evolution. He argues that markets are not well organized to manage the power that financial assets have to generate emotion and their wider effect on human imagination and judgement, anchored in neurobiology. Judgements and decisions about risk, reward and the evaluation of success can become systematically compromised because the excitement of potential gain is disconnected from anxiety about potential consequences, producing groupthink and bubbles. When anxiety breaks through, a catastrophic loss of confidence is inevitable. In the aftermath the emotional pain that would be involved in accepting responsibility stands in the way of lessons being learned.
The author’s theoretical framework is influenced by modern psychoanalysis and draws on an interview study of international fund managers in 2007. He suggests that underlying psychological conflicts have influenced the way market institutions have evolved to compete by selling the promise of exceptional performance. To cope with the expectations upon them, agents are impelled to base their actions on stories which overvalue opportunities and underestimate risks; this creates agency issues and facilitates the process of disconnecting anxiety from excitement that creates bubble potential. Policy implications go well beyond improving regulation and transparency.
Special issue
Managing Financial Instability in Capitalist Economies
Rethinking Global Climate Change Governance
Authors: Barrett Scott 
Published: September 2010

Abstract
This paper explains why the approach taken so far to mitigate global climate change has failed. The central reason is an inability to enforce targets and timetables. Current proposals recommending even stricter emission limits will not help unless they are able to address the enforcement deficit. Trade restrictions are one means for doing so, but trade restrictions pose new problems, particularly if they are applied to enforce economy-wide emission limitation agreements. This paper sketches a different approach that unpacks the climate problem, addressing different gases and sectors using different instruments. It also explains how a failure to address the climate problem fundamentally will only create incentives for different kinds of responses, posing different challenges for climate change governance.
Special issue “Global Governance—Challenges and Proposals for Reform” Published as Policy Paper
Global Governance of Global Monetary Relations: Rationale and Feasibility
Authors: Frieden Jeffry A. 
Published: September 2010

Abstract
Is there a valid argument for international cooperation, and some form of international governance structure, in the international monetary realm? On the purely economic front, the argument is not strong. Yet a broader political economy approach concludes that national currency policy can in fact impose non-pecuniary externalities on partner nations. This is especially the case with major policy-driven misalignments, which cannot easily be countered by other governments. For example, one country’s substantially depreciated currency can provoke powerful protectionist pressures in its trading partners, so that exchange rate policy spills over into trade policy in potentially damaging ways. Inasmuch as one government’s policies create these sorts of costs for other countries, and for the world economy as a whole, there is a case for global governance. This might include some institutionalized mechanism to monitor and publicize substantial currency misalignments. While there appears to be little global political attention to such a mechanism now, there have been initiatives along these lines at the regional level, and the current crisis may have stimulated more general stirrings of interest.
Special issue “Global Governance—Challenges and Proposals for Reform”
Published as Policy Paper
Forecast Evaluation of Explanatory Models of Financial Variability
Authors: Sucarrat Genaro 
Published: September 2010

AbstractA practice that has become widespread and widely endorsed is that of evaluating forecasts of financial variability obtained from discrete time models by comparing them with high-frequencyex postestimates (e.g. realised volatility) based on continuous time theory. In explanatory financial variability modelling this raises several methodological and practical issues, which suggests an alternative approach is needed. The contribution of this study is twofold. First, the finite sample properties of operational and practical procedures for the forecast evaluation of explanatory discrete time models of financial variability are studied. Second, based on the simulation results a simple but general framework is proposed and illustrated. The illustration provides an example of where an explanatory model outperforms realised volatilityex post.
The Effect of Technological Innovation on International Trade
Authors: Márquez-Ramos Laura , Martínez-Zarzoso Inmaculada 
Published: September 2010

Abstract
In this paper, the effect of technological innovation on sectoral exports is analysed using a gravity model of trade. The technological achievement index (TAI) and its four components, creation of technology, diffusion of old innovations, diffusion of recent innovations and human skills, are used as proxies for technological innovation. The two first components are considered proxies for knowledge acquisition and assimilation (potential absorptive capacity), whereas the last two are taken as proxies for knowledge transformation and exploitation (realised absorptive capacity). We hypothesise that the effect of technological innovation on trade could vary according to the technological achievement by generating a non-linear relationship between technological innovation and trade. Our findings indicate a positive and non-linear effect of technological innovation on export performance, which indicates that there are thresholds for positive signs to occur. To foster exports, countries have to consider not only acquisition and assimilation capabilities, but also transformation and exploitation capabilities once a minimum level of potential absorptive capacity has been achieved.
Yes, We Should Discount the Far-Distant Future at Its Lowest Possible Rate: A Resolution of the Weitzman–Gollier Puzzle
Authors: Freeman Mark C. 
Published: September 2010

AbstractIn this paper the author proves that the Expected Net Future Value (ENFV) criterion can lead a risk neutral social planner to reject projects that increase expected utility. By contrast, the Expected Net Present Value (ENPV) rule correctly identifies the economic value of the project. While the ENFV increases with uncertainty over future interest rates, the expected utility decreases because of the planner’s desire to smooth consumption across time. This paper therefore shows that Weitzman (1998) is “right” and that, within his economy, the far-distant future should be discounted at its lowest possible rate.
Contribution of Health to Economic Development: A Survey and Overview
Authors: Husain Muhammad Jami 
Published: September 2010

AbstractThe policies for better health, poverty reduction, and less inequality, throughout the world, require thorough understanding of both the processes and causal paths that underlie the intricate relationship between health and wealth (income). This is deemed difficult, contingent, and only partially understood. The adage ‘health is wealth’ is still, primarily, an intuitive proposition. A vast majority of researchers instead present theoretical and empirical arguments of the reverse proposition, i.e. ‘wealth is health’. A recent strand of the literature, however, reflects changes in the perceptions: improvements of health and longevity are no longer viewed as a mere end- or by-product of economic development; but argued as one of the key determinants of, and therefore means to achieve, economic development and poverty reduction. Hence, better health does not have to wait for an improved economy; rather, measures to reduce the burden of disease, to give children healthy childhoods, to increase life expectancy etc. will in themselves contribute to creating richer economies. Drawing on the traditional and emerging perspectives on the health-income relationship, this literature review presents a non-exhaustive survey of existing methodological approaches and their results that are applied to track and measure how health influences economic outcomes.
Minimum Quality Standards and Novelty Requirements in a One-Short Development Race
Authors: Prokop Jacek , Regibeau Pierre , Rockett Katharine 
Published: September 2010

Abstract
We examine the timing and quality of product introduction in an R&D stopping game, where we allow for horizontal and vertical differentiation in the product market. We observe that discontinuous changes in introduction dates can occur as firms’ abilities as researchers change. Further, when the research abilities of the firms differ, either the high ability firm or the low ability firm may be the first mover. The underlying research abilities of the firms determine the social optimality of the entry patterns we observe. Minimum quality standards and novelty requirements can play a role in correcting these suboptimal patterns of entry. While minimum quality standards increase welfare for a large range of research abilities, we find that increasing the novelty requirement does not necessarily increase either the profits or, consequently, the research investment incentives of the initial innovator, contrary to much of the cumulative innovation literature. Indeed, as the effect of policy interventions differs significantly across industries where quality improvement is steep and those where it is flat, targeted policies towards specific industries as are often observed in minimum quality standards are generally preferable to more broad-based policies.
Investigating the Exponential Age Distribution of Firms
Authors: Coad Alex 
Published: September 2010

Abstract
While several plots of the aggregate age distribution suggest that firm age is exponentially distributed, we find some departures from the exponential benchmark. At the lower tail, we find that very young establishments are more numerous than expected, but they face high exit hazards. At the upper tail, the oldest firms are older than the exponential would have predicted. Furthermore, the age distribution of disaggregated industries (such as the international airline industry) is less regular and can display multimodality. Although we focused on departures from the exponential, we found that the exponential was a useful reference point and endorse it as an appropriate benchmark for future work on industrial structure.
The Great Recession vs. the Great Depression: Stylized Facts on Siblings That Were Given Different Foster Parents
Authors: Aiginger Karl 
Published: September 2010

Abstract
This paper compares the depth of the recent crisis and the Great Depression. We use a new data set to compare the drop in activity in the industrialized countries for seven activity indicators. This is done under the assumption that the recent crisis leveled off in mid-2009 for production and will do so for unemployment in 2010. Our data indicate that the recent crisis indeed had the potential to be another Great Depression, as shown by the speed and simultaneity of the decline in the first nine months. However, if we assume that a large second dip can be avoided, the drop in all indicators will have been smaller than during the Great Depression. This holds true specifically for GDP, employment and prices, and least for manufacturing output. The difference in the depth in the crises concurs with differences in policy reaction. This time monetary policy and fiscal policy were applied courageously, speedily and partly internationally coordinated. During the Great Depression for several years fiscal policy tried to stabilize budgets instead of aggregate demand, and either monetary policy was not applied or was rather ineffective insofar as deflation turned lower nominal interest rates into higher real rates. Only future research will be able to prove the exact impact of economic policy, but the current tentative conclusion is that economic policy prevented the recent crisis from developing into a second Great Depression. This is also a partial vindication for economists. The majority of them might not have been able to predict the crisis, but the science did learn its lesson from the Great Depression and was able to give decent policy advice to at least limit the depth of the recent crisis.
News versus Sunspot Shocks in a New Keynesian Model
Authors: Karnizova Lilia 
Published: September 2010

Abstract
Separately, news and sunspot shocks have been shown empirically to be determinants of changes in expectations. This paper considers both of them together in a simple New Keynesian monetary business cycle model. A full set of rational expectations solutions is derived analytically. The analytical characterization allows an explicit comparison of news about future monetary policy and sunspots. The key distinction between the shocks lies in their relation to the realized policy shock. If monetary policy is “passive”, both types of shocks affect model dynamics through forecast errors. The effect of the news on forecast errors is not unique, and the dynamics induced by news and sunspot shocks can be observationally equivalent. If monetary policy is “active”, the sunspots are irrelevant, and the model responses to the news shocks are unique. In both cases, news shocks strengthen the endogenous propagation of the model, since anticipation of future changes prolongs agents’ reaction. Keywords: news shocks, sunspots, expectations, monetary policy, indeterminacy.
Stabilizing an Unstable Economy: On the Choice of Proper Policy Measures
Authors: Asada Toichiro , Chiarella Carl , Flaschel Peter , Mouakil Tarik , Proaño Christian R. 
Published: September 2010

Abstract
In the last months, the world’s economies were confronted with the largest economic recession since the Great Depression. The occurrence of a worldwide financial market meltdown as a consequence originally stemming from of the crisis in the US subprime housing sector was only prevented by extraordinary monetary and fiscal policy measures implemented at the international level. Although the world economy seems now to be slowing recovering, it is worthwhile exploring the fragility and potentially destabilizing feedbacks of advanced macroeconomies in the context of Keynesian macro models. Fragilities and destabilizing feedback mechanisms are known to be potential features of all markets—the product markets, the labor market, and the financial markets. In this paper we focus in particular on the financial market. We use a Tobin-like macroeconomic portfolio approach, and the interaction of heterogeneous agents on the financial market to characterize the potential instability of the financial markets. Though the study of the latter has been undertaken in many partial models, we focus here on the interconnectedness of all three markets. Furthermore, we also study how labor market, fiscal and monetary policies can stabilize unstable macroeconomies. Besides other stabilizing policies we in particular propose a countercyclical monetary policy that sells assets in the boom and purchases assets in recessions. Modern stability analysis is brought to bear to demonstrate the stabilizing effects of those suggested policies.