When can fiscal consolidation be expansionary? Evidence from a small open economy

The paper focuses on the implications of stabilisation policies in a small open economy that were introduced to reverse burgeoning public sector deficit. In particular, I examine the hypothesis that such stabilisation policies can actually have expansionary effects on business investment. While this goes against the standard Keynesian view that the institution of more conservative fiscal and monetary programmes will, at least initially, lead to deflationary outcomes, there are important reasons for believing that such policies will in fact be expansionary. Such predictions are made in a dynamic setting, which weighs the short-term consequences of curtailed government expenditures against their long run implications for future increases in government spending, a reduction in debt burdens and greater stability. With the introduction of expectations, the positive implications of such policies can be immediate. This paper tries to clarify the ‘expectational crowding-in’ process and investigates whether the effects of stabilisation on business investment were due to that process or to other features of the stabilisation programmes. The policy message from my analysis is that budget consolidations producing expansionary effects are more than a theoretical construction. The experience of small open economies mentioned above should be taken into account also in policy making. Empirical findings indicate that EMU countries may need to carry out budgetary consolidations to dispose of room for manoeuvre against first the fiscal constraints in smoothing the business cycle imposed by the Stability Pact, and second, the looming budgetary implications of ageing populations.     

A phased increase in the U.S. investment rate: Sacrifice times, T-year gains, and investment rate returns

We simulate a phased increase in the U.S. investment rate using a translog production function with technical progress (disembodied and/or embodied). We assume there will be an absorption lag implying that factors are underutilized during the transition to a higher investment rate. We find that the “sacrifice time” (the time that elapses until consumption surpasses the value it would have had under the initial investment rate) is roughly nine years. Across alternative specifications, phase-in periods, and absorption lags, the sacrifice time varies from seven to 13 years, and is insensitive to the percentage increase in the investment rate. With a three-year phase-in of a 20 percent increase in the investment rate with a one-year absorption lag, the average “ecade gain” in output (the percentage gain at the end of a decade) is roughly 4 percent; the decade gain in consumption, 0 percent; the five-decade gain, 10 percent in output and 6 percent in consumption; and the “investment rate return” (the internal rate of return on a permanent increase in the investment rate), 13 percent.     

The Role of Race in Football Card Prices*

Objective. Several studies have examined the impact of race and the value of baseball cards, but few have investigated the role of race on football card values. Methods. Data were derived from 1,279 black and white football players who were selected to participate in at least one Pro Bowl and who started their careers between 1946, the year professional football in the United States became racially integrated when Kenny Washington played in a game for the Los Angeles Rams, and 1988, the last year of Topps' monopoly in the football card market. Data for each player's race, value of their rookie card, card availability, card vintage, performance, Hall of Fame status, and position were obtained. Results. When controlling for other factors, race has no effect on the value of players' rookie cards, whereas card vintage exerted the most influence on the value of players' cards. Conclusions. Football card values are largely driven by objective markers, supporting the conclusion that the market performs pretty much as expected for a collector market. Speculations on the absence of race effect, limitations related to the study, and suggestions for future research are offered.     

A world iron and steel economy model: A projection for 1980–1995

This article presents an aggregate global model that projects steel markets for the period 1980–1995, with particular attention to investment in production capacities. The model is developed as a linear complementarity programming problem. The model distinguishes between newly constructed steel mills and average mills to characterize price formation and quantity balances respectively. Various validation tests of the model are discussed.     

An alternative assessment of global climate policies

This paper analyzes alternative pricing schemes for funding investment in climate policies. This paper proposes a new policy scenario, explicitly disentangling the issue of burden sharing of financing new investments from the issue of taxation energy consumption and therefor emissions. We compare traditional allocation schemes with an optimal Ramsey pricing by applying demand elasticity values, derived from empirical estimations of household behavior for the 106 leading countries in the world, representing around 90% of total world energy consumption and carbon emissions in 2014. We calculate country-specific alternative taxation options: uniform, equitable and Ramsey pricing schemes, applied to households, assessing the related welfare effects. Our results show that the optimal pricing scheme, for a given investment need, can improve world welfare at the expenses of equitable considerations. In addition, the aggregate societal benefit outweighs the losses associated with specific group of countries, paving the way for easier political agreement, using compensation schemes to redistribute the proceeds.     

Economic reform when institutional quality is weak: The case of the Maghreb

Institutional improvement can be a very slow and uncertain process when institutional quality is weak. In the meantime, countries have launched far-reaching economic reforms whose success is predicated on a large investment response. However, the uncertainties attending institutional reform can raise perceptions of risk, thereby muting investment responses. Using new values of institutional quality for three Maghreb countries (Algeria, Morocco and Tunisia), which we derive from fuzzy-set based transformations on freedom indices, we show that moving from low institutional quality to a stage of ‘partial improvement’ may reduce income per capita, with financial and trade reforms having unintended negative effects.     

Capital mobility among advanced countries

Mobility of capital has been studied by examining savings–investment correlations, real interest rates differentials, covered and uncovered interest parity, and equity home bias. All these examine the capital mobility question indirectly. This paper directly tests the return/total flow specification of the Mundell–Fleming model. It finds that while portfolio equity and debt flows are, direct investment is not; and in every case, the inclusion of direct investment makes the aggregative-capital variable unresponsive to interest rates. Asset-based exchange rate models may benefit by looking at the composition of cross-border assets, countries can have independent monetary policies with full capital mobility, and macroeconomic policy trilemma for open economies disappears.     

The effect of residence in enclaves on civic concern: An initial exploration

Will those residing in urban enclaves—enclosed socially homogenous residential communities protected by private security—have a lower level of civic concern as compared to those who do not reside in such enclaves? Reich's (1991) work suggests that this is to be expected. To conduct an empirical test, two random samples were drawn from two areas of New York City, one a residential enclave—Battery Park City—the other a non-enclave—Chelsea. The analysis establishes that those who do not live in the enclave have a statistically significant higher level of civic concern. Sample respondent years of education, age, income, gender, and career (arts/business) differences were employed as control variables; after having introduced each control variable independently, the main research hypothesis was sustained.     

The inflation–output volatility trade-off: a case where anti-inflation monetary policy turns out to be successful, a historical assessment

Over the period 1988–2000, the Greek monetary authorities seemed to have implemented a successful disinflation policy. The question, however, is whether this disinflation was optimal or not. This paper, through a theoretical model and the GMM approach, constructs an optimal policy frontier in terms of a trade-off between output and inflation variabilities. The frontier yields increases in the output variance when policymakers attempt to decrease inflation variances, and vice versa. The location of the actual monetary policy performance suggests a policy close to the frontier, implying a successful monetary policy.     

Risk-adjusted martingales and the design of “indifference” gambles

In the probability literature, a martingale is often referred to as a “fair game.” A martingale investment is a stochastic sequence of wealth levels, whose expected value at any future stage is equal to the investor’s current wealth. In decision theory, a risk neutral investor would therefore be indifferent between holding on to a martingale investment, and receiving its payoff at any future stage, or giving it up and maintaining his current wealth. But a risk-averse decision maker would not be indifferent between a martingale investment and his current wealth level, since he values uncertain deals less than their mean. A risk seeking decision maker, on the other hand, would readily accept a martingale investment in exchange for his current wealth, and would repeat this investment any number of times. These ideas lead us to introduce the notion of a “risk-adjusted martingale”; a stochastic sequence of wealth levels that a rational decision maker with any attitude toward risk would value constantly with time, and would be indifferent between receiving its pay-off at any future stage, or giving it up and maintaining his current wealth level. We show how to construct such risk-adjusted investments for any decision maker with a continuous monotonic utility function. The fundamental result we derive is that a pay-off structure of an investment (i) is a risk-adjusted martingale and (ii) can be represented by a lattice if and only if the pay-off functions are invariant transformations of the given utility function.     

Terrorism and the effectiveness of security spending in Greece: Policy implications of some empirical findings

Greece has over the years faced serious security challenges from domestic as well as transnational terrorist activity. This paper examines empirically the effectiveness of counter-terrorism policy and particularly it focuses on current and investment expenditure on domestic security and public order. Using annual budget data for the 1974–2004 period, it investigates whether current and investment spending by the Ministry of Public Order has been an effective policy measure to counter terrorism. The results seem to suggest that such investment has at best a weak negative impact on internal terrorist actions. The main policy implication of this finding is that investing in counter-terrorist infrastructure and equipment can potentially prove to be an effective policy measure in the fight against terrorism. This, however, may be conditional upon a number of other factors including other anti-terrorist measures such as legislation or how efficiently such expenditure is used.     

Mutual Fund Theorem for continuous time markets with random coefficients

The optimal investment problem is studied for a continuous time incomplete market model. It is assumed that the risk-free rate, the appreciation rates, and the volatility of the stocks are all random; they are independent from the driving Brownian motion, and they are currently observable. It is shown that some weakened version of Mutual Fund Theorem holds for this market for general class of utilities. It is shown that the supremum of expected utilities can be achieved on a sequence of strategies with a certain distribution of risky assets that does not depend on risk preferences described by different utilities.     

人力资本投资风险及防范控制研究述评

本文介绍了人力资本投资效益、人力资本投资风险以及人力资本投资风险防范控制等方面的相关研究成果，对相关研究成果进行梳理和评述。该研究能为人力资本投资风险及防控的研究和实践提供基础和借鉴。     

A macroeconomic potential describing structural change of the economy

For the purpose of describing change in an economy's structure, and addressing issues of transformation, the notion of a time-dependent macroeconomic potential function is introduced. It penalizes deviations from equilibrium (entrepreneurial error) and induces moves toward equilibrium. Thus, from the concept of a potential function is derived the concept of short-term and long-term change forces. We focus here on the long-term structural changes of an economy as distinct from short-term cyclical variations, and we represent economic transformations as phase-transitions between monostable and ambiguous bistable states of the economy. One important feature of the potential function approach is that the parameter of the potential can be determined from empirical data. In particular, the parameters can be regressed for input variables. Hence, a relationship has been established between the structural change force and a set of input variables, some of which are controlled in part by either public or private sector agents. The method has been applied to West German and United States industry data for 1950–1980.     

Savings and economic growth in South Africa: A multivariate causality test

This study takes a fresh look at the direction of causality between savings and economic growth in South Africa during the period 1950–2005. The study was motivated by the low and declining savings rate currently prevailing in South Africa, on the one hand, and the dwindling level of economic growth experienced in the country during the 1990s, on the other. Given the weakness associated with the bivariate causality framework, the current study incorporates foreign capital inflow as an intermittent variable in the bivariate model between savings and economic growth—thereby creating a simple trivariate causality framework. Using the cointegration-based error–correction mechanism, the study finds a bi-directional causality between savings and economic growth to prevail in the short run and a distinct unidirectional causal flow from economic growth to savings to dominate in the long run. On balance, the study finds growth-led savings to predominate in South Africa. The results also show that foreign capital inflow and savings Granger-cause each other, while economic growth Granger causes foreign capital inflow. The study, therefore, recommends that in the short run, South African policies should be geared towards achieving both higher savings and economic growth in order to boost investors’ confidence and to attract foreign capital inflow. However, in the long run, the country should shift its focus towards achieving higher economic growth, in order to boost the domestic savings and to sustain a steady flow of foreign capital investment.     

Preferences of the Central Bank of Brazil under the inflation targeting regime: Estimation using a DSGE model for a small open economy

The main objective of this paper is to estimate the preferences of the Central Bank of Brazil after the inflation targeting regime (January 2000 to December 2013), using a DSGE model with microeconomic foundations for a small open economy, based especially on the work of Kam et al. (2009). The model used in this study considers that the Central Bank minimizes a loss function, taking into account the deviation of inflation from its target, output stabilization, the interest rate smoothing and, unlike the previous works, the exchange rate. The results show that the major concern of the monetary authority in the period was the stabilization of inflation, followed by interest rate smoothing, exchange stabilization and, finally, output stabilization. The large value for the exchange rate smoothing parameter suggests the presence of fear of floating in the Brazilian case. An improved inflation targeting strategy should allow for less Central Bank intervention in the exchange rate market.     

Protectionism: An analysis from project LINK

The LINK system of world trade is used to examine present tendencies toward protectionism. In protectionist scenarios we increase the prices of manufactured imports into 13 LINK-OECD countries by 5, 10, and 20 percent respectively, for 1978–1979. If a country's import equations do not depend significantly on relative price, we impose corresponding quantitative import restrictions of 5, 10, and 20 percent. Smaller OECD countries, developing countries, and socialist countries are assumed to be nonprotectionist in these scenarios. The discrepancies between the values of leading variables in the protectionist scenarios and in a baseline case show the effects of the different degrees of protectionism assumed. The results describe and validate Adam Smith's principles of the gains from free trade.     

大小兴安岭生态功能区可持续发展保障机制创新研究

大小兴安岭林区是我国北方重要生态屏障,是森林资源储备基地和木材生产基地,在维护国家生态安全、应对气候变化、保护东北黑土地不受风沙侵蚀等方面具有不可替代的作用。由于长期过度采伐,投入不足,造成森林可采资源枯竭、生态功能弱化、经济结构失衡、基础设施薄弱、社会事业发展缓慢等一系列问题,严重影响到大小兴安岭生态功能区生态功能作用的发挥。根据可持续发展理论,坚持大小兴安岭的生态、经济与社会的全面协调可持续发展是其必然的选择。而建立社会沟通机制、社会责任机制、社会法律机制和社会监督机制等创新管理机制,才能保障大小兴安岭生态功能区的可持续发展。     

Welfare programs and the state economy

Welfare policy has been controversial and support is often drawn along political affiliation lines, the economic return of investment in welfare programs is frequently cited as a justification for new and expanded policies. To investigate the direct and indirect effects of welfare programs on economic performance, the authors develop a multilink approach, through employment and investment. The relationship is then tested with data from each of the United States from 1976 to 2006. Findings show welfare programs have no direct effect on a state's economy. Indirectly, welfare has a negative effect through investment, though the effect on employment is minimal.     

Living Healthy and Living Long: Valuing the Nonpecuniary Loss from Disability and Death

This analysis uses three valuation approaches—risk–risk tradeoff, paired risk–dollar comparison, and utility function estimation—to estimate the nonpecuniary cost associated with disability in late life. In addition, we obtain an estimate of the value of life using a paired risk–dollar comparison. The data were obtained from interviews with 548 persons using an iterative computerized questionnaire. Respondents reported a median value of life of $12 million. They were willing-to-pay .7–1.4 million to avoid disability in late life or approximately $47–$95 thousand for each year of disability over age 62. The results were robust to the valuation technique employed.