Different macroclosures of the original Johansen model and their impact on policy evaluation

It seems necessary to get a better understanding of the economics involved in the rather large and complicated computable general equilibrium models now being implemented in several countries. This paper contributes to the discussion on how the results from such models depend on the choice of closure rule. Within a very general setup, the original Johansen model, the different behaviors of the model are discussed under different closure rules, and the effects of fiscal policy under the alternative closures are quantified by numerical experiments.     

A quantification of lobbying benefits with an application to the common agricultural policy

We employ an empirical general equilibrium model of the CAP to determine which factors and countries would be expected to be opposed to or support reform of the CAP. The objective is to determine who are the “friends” and “enemies” of the CAP. The analysis studies the extent to which lobbying activity by these interested parties could be expected to encourage or discourage internal EU reform of the CAP. Several alternative policies to reform the CAP are evaluated in this manner in order to determine if one or another set of policies has a greater chance of being accepted. Specifically, we study the Uruguay Round Agreement, as well as a number of stated negotiating positions presented during the Round. The result will be a summary assessment of the relative politico-economic acceptability of these reform proposals within the EU. Our results lead to a very simple policy conclusion. Given the set of policy packages considered here, there is little doubt that the EU was most inclined to adopt a proposal incorporating compensation payments. Without further disaggregation of the analysis to identify the United States or Japan, we can only note that such a proposal is also the best as far as overall welfare goes for the rest of the world. Our results confirm the importance of sidepayments in the implementation of the Uruguay Round Agreement.     

Explaining third-party success in gubernatorial elections: The cases of Alaska, Connecticut, Maine and Minnesota

In the 1990s alone, four states elected third-party governors. Walter Hickel of Alaska and Lowell Weicker of Connecticut were elected in 1990. Maine elected Angus King in 1994. And Jesse Ventura was elected governor of Minnesota in 1998. In this article, I examine these four cases in an attempt to identify the factors that contribute to third-party electoral success. I apply two models to these cases. The first model, “alternative culture,” holds that certain voters—regardless of specific context—are predisposed to support alternative candidates. The second model, “institutional context,” looks at factors such as name recognition, resources, and access to media as explanations of third-party success. I find that except for the influence of “partisan independence,” there is little evidence to support the persistence of an alternative culture of third-party voting. Rather, these four cases are linked by a context particularly favorable to these alternative candidates.     

Inflation and aggregate demand shocks

This paper derives and estimates a small general equilibrium model under the assumptions of imperfect competition and translog technology to simulate the impact of shifts in aggregate demand on prices. The simulations suggest that demand expansions are deflationary. This result challenges the common perception that the dynamic aggregate supply schedule is upward sloping.     

Portfolio stock adjustment and the real exchange rate: The Dollar-Mark (DM) and Mark-Sterling

The advent of “freely floating” exchange rates in the 1970's coincided with the emergence of what is known as “monetary” or “asset” models of exchange rate behavior where exchange ratesmove to equilibrate demand for stocks of monies. The fundamental monetary model assumes purchasing power parity holds in the long-run, and therefore exchange rates are determined by the same factors that determine relative prices, to wit, money stocks, real incomes, and nominal interest rates. Though early proponents of the monetary view clearly emphasized its long-run nature, empirical testing has by and large neglected this caveat. Thus a model developed for long-run equilibrium exchange rates has instead been tested many times over on short-run equilibrium rates. The latter require a distinct model of their own. This paper develops a short-run equilibrium exchange rate model based on deviations of the short-run exchange rate from its long-run equilibrium. The model differs in that all variables are cast in real terms. It also differs in that the monetary and current account exchange rate versions are shown to be subsets of the more general wealth/portfolio framework used here. The present model considers, in addition to stocks of monies, stocks of foreign assets, and stocks of domestic wealth.     

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.     

Policy simulations with a macroeconometric model of the Indian economy

In this paper, the results of various dynamic policy simulations are analyzed within the context of a macroeconometric model of the Indian economy. The model contains 35 equations and offers a consistent framework for policy analysis. It is considerably expanded on the side of the fiscal sector and usefully incorporates the interdependence between monetary and fiscal sectors and gives due attention to supply side considerations. Magnitudes of effects of sustained policy changes are analyzed for the period 1964–1965 to 1974–1975. Impact multipliers and elasticities are also analyzed. Government expenditures variables and deficit financing are shown to have substantial impact on the system whereas changes in tax-rates, discount-rates, and liquidity ratios for commercial banks are shown to have only a marginal impact. The model is used for exploring the growth potential of the economy in a forecast period of five years under alternative assumptions regarding policy options.     

Short run responses to foreign exchange crises

This paper constructs a short-run general equilibrium model for an LDC-type economy. Some key features are the possibility of excess capacity and the presence of quantitative restrictions on exports and imports. A rich variety of pricing possibilities for tradeable goods is allowed for, including “water in the tariff” as well as domestic prices exceeding world prices with binding import quotas.The model is used to analyze alternative responses to a foreign-exchange crisis. Import controls, devaluation and cuts in government expenditures are compared. We find that: i) import quotas can worsen the balance of trade, ii) rationing foreign exchange for noncompetitive imports is stagflationary, increasing prices even under excess capacity, iii) a devaluation has strong effects on income distribution, although output and employment expand, and iv) cuts in government spending are deflationary but the income distribution effects are neutral.     

Governance structures of socially complex knowledge flows: Exchange, entitlement and gifts

The intangible aspects of knowledge transfer in multinational corporations (MNCs) continue to be a crucial area of research in social science research and raise the issue of knowledge governance structures. The purpose of this conceptual note is twofold. Firstly, we believe that there is more than one governance structure for successful knowledge transfers and flows. We provide a typology of three governance structures: “exchange,” “entitlement,” “gifts.” Secondly, most MNCs will need to take advantage of all three or a combination of these three socially complex governance structures.     

Multicountry dynamic multipliers under fixed and floating exchange rates: An econometric analysis

The present paper attempts to analyze the dynamic multiplier effects of fiscal monetary policies for developed countries in a consistent framework of a global econometric model under both fixed and flexible exchange rate regimes. The paper first discusses the estimation of exchange rate functions for eight developed countries with special reference to “fundamentals” in economic performance such as international gaps in inflation, productivity, expected real rate of return, and so on. The results are then incorporated into the global model to derive and compare dynamic multipliers under both fixed and flexible exchange rate regimes. “Insulation effects” are observed in most cases in terms of both output and inflation, though this differs according to the country. Policy implications are discussed at the end.     

Are Subsidies to be Blamed? A Reexamination of U.S. Countervailing Duty on Hog Imports From Canada

A dramatic increase in U.S. hog imports from Canada triggered a successful countervail action against Canada in 1985, and resulted in an import tariff. This paper finds Canadian subsidies were not a major factor explaining increased hog exports, rather, the depreciation of the Canadian dollar played a larger role. More importantly, we find that hog imports from Canada did not “injure” the U.S. industry. These results imply the U.S. hog countervail duty was the outcome of rent-seeking activities rather than due to economic factors.     

Five ways to ration capital: The case of a developing economy

The performances of two programming models and three “simple” investment rules, the benefit-cost ratio, internal rate of return, and present value to constrained cost ratio, are compared in solving a four-year capital rationing problem in a Latin American nation. The properties and advantages of the various approaches are discussed and policy conclusions are drawn. In addition, the effects of including project timing variants and political/ bureaucratic constraints are explored.     

Hungary in transition: a computable general equilibrium model comparison with Austria

We approach the problem of Hungary's transformation from a partially centrally planned to a market-oriented economy with a cross-country comparison using two computable general equilibrium (CGE) models of Hungary, 1977 and 1986, and one of Austria, 1976. These three models represent a continuum of small open economies and allow a “quasidynamic” analysis using static CGE models. We examine two types of transformation issues: external (trade liberalization, import price reductions, and redirection of foreign trade; “Dutch Disease reversal”) and internal (decreases in subsidy levels). Overall, it is clear that with Hungary's borrowing constraints, liberalization should not be pursued in isolation; a change in the tax structure is necessary at the same time. The results for Austria indicate that liberalization brings smaller welfare improvements accompanied by smaller increases in the current account and government deficits.     

Where o’ where did my baseball cards go?: Race,performance, and placement in the Topps ERA, 1956–1980

On the surface, baseball cards appear to be little more than uninteresting object of child's play; yet they provide invaluable data for assessing unique aspects of the social order. They reveal much about the state of society when they were produced and the people who collected them. This paper examines the unique numbering system the Topps company developed to differentiate among the “royalty of the diamond” from 1956 to 1980. Their system assigned to each card in a set a number that explicitly designated its placement, while implicitly establishing a hierarchical ordering among the players, ostensibly based on performance. It is arguable whether the numbering system Topps developed was based on performance or the ascribed characteristic of race. The results of our work suggest that player performance, not race, was the primary factor in the assignment of “prestigious” card numbers in Topps’ system.     

Can Latin America carry its international debt? A prospective analysis using the Wharton Latin American debt simulation model

The international debt of the LDCs has become a critical concern, perhaps currently the most critical one, from the perspective of debtor countries and creditors alike. Through the efforts of the IMF, the BIS, the central banks, and the large commercial banks, a crash may have averted for the time being, but the heavy burden of the debt remains, particularly in Latin America, where it is increasingly concentrated. Draconian remedial measures now threaten social and economic development throughout the continent.This article evaluates the perspective for Latin American debts and payments using a debt simulation model. Debt restructuring with the usual “IMF conditions” will impose serious economic shocks in Latin America. But even so, debt service ratios will remain high except under optimistic assumptions about growth in the industrial countries and about commodity prices. Only in case of a solid economic recovery in the United States, Europe and Japan can one be sanguine about Latin America's ability to work its way out from under the debt burden.     

The Jamaican fishing study reinterpreted

The data obtained in the Jamaican fishing study (Davenport, 1960) and the analysis imposed are reconsidered. The assumptions of both the game theory approach and a Bayesian analysis (Kozelka, 1969) are criticised and an alternative market model is presented. It is shown that if fish prices fluctuate according to a simple model of supply and demand then the strategic behaviour of the fishing captains can be explained.     

Partial information on decisional competences and the desirability of the expert rule in uncertain dichotomous choice situations

The paper analyzes the expert resolution problem by employing extended versions of the uncertain dichotomous choice model. The main purpose of this study is to illustrate how the analysis of optimal decision rules can be carried out while dispensing with the common restrictive assumption of full information regarding individual decisional competences. In contrast to most previous studies in this field we here evaluate the expert rule under alternative assumptions regarding the available partial information on judgmental competences rather than compare it in an ad hoc manner to some common alternative rules, such as simple majority rule. A fuller optimality analysis allowing the evaluation of all relevant decision rules, and not merely the expert rule, is attempted for a five-member panel of experts assuming a uniform distribution of individual competences. For three-member groups the optimality issue is resolved by assuming no information on individual competences and interpreting the expert rule as an even-chance lottery on skills.     

The Simplest Dynamic General-Equilibrium Model of an Open Economy

This paper presents the simplest possible general-equilibrium model of an open economy in which producer and consumer decisions are both intra- and intertemporally consistent. Consumers maximize the present value of the utility of consumption; producers maximize the present value of profits. The model solves for the set of intertemporally consistent prices. The parsimonious structure of the model is achieved by dividing the economy into two producing sectors—exports and domestic goods—and two consumed goods—imports and domestic goods. As a result, there is only one endogenous price per period to be solved for (the price of the domestic good), although “structural” questions, such as the evolution of the real exchange rate, can be posed with the model. Furthermore, with this structural breakdown, the model can be calibrated with national accounts data only. In the paper, we show how to calibrate such a model (including specification of an adjustment-cost function, to avoid “bang-bang” behavior) and use the model to examine various questions where intertemporal issues are important, including terms-of-trade shocks and tariff reform.     

Assimilation and discriminatory perceptions and experiences: The case of Hispanics in the United States

This paper examines the relationship between assimilation and discriminatory practices encountered by Hispanic-Americans. Theories of intergroup relations have typically assumed that as members of minority ethnic groups assimilate to a dominant group, they perceive and experience lower degrees of discrimination directed against them. In reviewing theories of majority–minority relations, we have called this the “assimilationist” model. This view has been opposed by some scholars who argue that as minority ethnics assimilate and become more knowledgeable of the larger society, they perceive and experience higher levels of discrimination against them and their group. We have termed this the “conflict model” of interethnic relations. Using data from the 2002 National Survey of Latinos, conducted by the Pew Hispanic Center, we test opposing hypotheses based on these two models. Our findings, while exploratory, largely support the assimilationist model, with a few contradictory results. We discuss these findings and their implications for understanding the current situation of Hispanics in the United States.     

Aspects of a new world development strategy II: Factors affecting the long-term prospects of developing nations

This paper explores some quantitative dimensions of the interdependence of rich and poor regions in the context of the United Nations World Model. It extends the original work on that model in three ways: (1) by updating some of the key parameters and exogenous variables in the light of recent data; (2) by developing a “control” solution to be used as a point of reference in policy simulations; and (3) by exploring the sensitivities of each of two groups of regions— developed and developing—to changes in one another's growth rates. Goals of closing the income gap between developed and developing regions and of increasing income levels in the latter are discussed.