Alternative specifications of the demand for money and their implications for forecasting and policy analysis with large macroeconomic models

The demand for money is an important function in large macroeconomic models because of its central role in monetary policy. The interest rate responsiveness of money demand determines the interest rate changes consistent with the initial change in monetary policy and the subsequent changes on aggregate demand and the price level. This paper uses the DRI macroeconometric model to investigate these issues, finding that the model's predictive power and its estimates of the relative potency of monetary and fiscal policy are dependent upon the specification of the money demand function.     

Advertising in demand systems for alcoholic drinks and tobacco: A comparative study

This paper is concerned with the effect of advertising on the interproduct distribution of demand. For that purpose, it examines different ways of incorporating advertising terms into the Rotterdam model and into static and dynamic versions of the Almost Ideal Demand System. In an empirical application to data for the alcoholic drinks and tobacco markets in the United Kingdom, it is concluded that aggregate advertising appears to have had little or no effect upon product demand in this sector over the past three decades. The scope for restraining consumption of these products through advertising bans may be negligible.     

Modeling manufactured imports: Methodological issues with evidence from Australia

This paper investigates the relationship between manufactured import flow to Australia, and relative prices and domestic economic activity net of cyclical demand effects over the period 1981Q3 to 1991Q2. This is done through the estimation of import demand functions for total manufactured imports and nine major import categories using the general-to-specific modeling approach. We find that the homotheticity assumption on activity elasticity is met in most cases. The price elasticity estimates for individual categories range from 0.32 to 2.1, with a weighted average of 0.52. We also find some evidence of upward bias in price elasticity estimates when an aggregate import function is employed in a context where a significant portion of imports are subject to quantitative restrictions (QRs).     

Estimating the demand for risky assets via the indirect expected utility function

This article obtains demand functions for risky assets without making a priori assumptions about the form of the utility function. In a simple portfolio model, the envelope theorem is applied to the indirect expected utility function to derive estimating equations. Tests for the existence of constant absolute or constant relative risk aversion are also developed. Empirical estimation of the demand for financial assets held by U.S. households for the period 1946–1985 indicates that aggregate household behavior is consistent with the existence of constant relative risk aversion, with the coefficient of risk aversion having a value of approximately 1.3.The authors gratefully acknowledge helpful comments from the editor and an anonymous referee.     

Public investment in care services in Turkey: Promoting employment & gender inclusive growth

Recent policy debates on macroeconomic tools to counteract the prolonged global economic recession point to the potential of fiscal policies with appropriate sectoral targets for simultaneously boosting effective demand while alleviating inequalities through employment generation. This paper contributes to the debate by pointing to the social care services sector –in particular early childhood education and care (ECEC) — as an effective target of fiscal spending for robust employment generation and gender inclusive growth. We use a macro-micro simulation model to examine the aggregate and gender employment impact of increasing public expenditures on ECEC services, an underdeveloped sector in Turkey versus physical infrastructure and construction, a common target of stimulatory spending. Our methodological approach combines input-output analysis on aggregate employment effects with a statistical microsimulation approach to assess distributional outcomes. We find that an expansion of ECEC services creates not only significantly more jobs but also does so in a more gender-equitable and fiscally sustainable way than the a construction boom.     

Financial liberalization and long-run stability of money demand in Nigeria

A stable money demand function is essential when using monetary aggregate as a monetary policy. Thus, there is need to examine the stability of the money demand function in Nigeria after the deregulation of the financial sector. To achieve this, the study employed CUSUM (cumulative sum) and CUSUMSQ (CUSUM of square) tests after using autoregressive distributive lag bounds test to determine the existence of a long run relationship between monetary aggregates and their determinants. Results of the study show that a long-run relationship holds and that the demand for money is stable in Nigeria. In addition, the inflation rate is found to be a better proxy for an opportunity variable when compared to interest rate. The main implication of the study is that interest rate is ineffective as a monetary policy instrument in Nigeria.     

Japanese import behavior and cointegration: A comment

In a recent paper, Mah (1994) investigated the behavior of Japanese aggregate import and argued that there was no empirical evidence in favor of the existence of a traditional imperfect-substitutes long-run import demand model using cointegration analysis. In this paper we reinvestigate the problem in a coherent multivariate framework and point out that the results of Mah (1994) are very much dependent on the approach he followed.     

A model of the inflationary process in six major O.E.C.D. economies: Empirical results and policy implications

In contrast to most recent empirical work on inflation which has concentrated on the size and stability of coefficients in the wage equation, this paper provides a reexamination of the price equation. Evidence is presented on the structural determinants of inflation in six large industrial nations. It is demonstrated that price equations which include capital costs and excess demand among the regressors perform exceedingly well according to the usual statistical criteria. The results of this study indicate that the inflationary process possesses a high degree of uniformity among the larger industrial countries. This pertains not only with respect to the specific independent variables in price equations, but also with respect to the high degree of uniformity of the estimated coefficients. Additionally, the findings indicate that lower productivity growth and higher capital costs have contributed significantly to the inflationary process since 1974. Furthermore, since higher capital costs are one consequence of tighter monetary policies, the adoption of such policies in response to the two oil price shocks of the 1970s may have offset their intended deflationary effects on prices through the linkage of wage costs and aggregate demand.     

UK macroeconomic volatility: Historical evidence over seven centuries

Breaking ground from all previous studies, we estimate a time-varying Vector Autoregression model that examines the time-period 1270–2016 — the entire economic history of the U.K. Focusing on permanent and transitory shocks in the economy, we study the fluctuation in conditional volatilities and time-varying long-run responses of output growth and inflation. Unlike all previous studies that use time invariant linear models, our approach reveals that the pre 1600 period is a turbulent economic period of high volatility that is only repeated in the 20th century. The repeating patterns in the conditional volatilities follow from aggregate supply shocks, while most of the inflation responses follow from aggregate demand shocks. Thus, we uncover that despite the technological growth and the various changes in the structure of the U.K. economy in the last century, the recurring patterns call for an examination of the true impact of the various policies on the economy.     

二十一世纪中国经济周期平稳化现象研究(英文)

本文的目的在于回答两个问题：第一，21世纪中国经济周期平稳化的原因何在？第二，21世纪中国经济波动的来源何在？利用统计分析和构造的多方程结构宏观经济模型，我们发现第一个问题的答案几乎完全在于国内因素，包括国内需求冲击的稳定和信贷市场中的自稳定机制；就第二个问题而言，21世纪中国经济波动的最大来源在于国外需求冲击和国内需求冲击——前者对GDP的波动影响较大，而后者则更多地影响CPI。本文的另一个发现是，传统的盯住货币供应量的货币政策对稳定GDP和CPI几乎没有效果。本文的政策建议之一是，在全球危机的背景下，稳定总需求的国内经济刺激政策依然很重要。本文的另一个建议是，为了摆脱全球化的负面影响，我们需要更加依靠城市化而非工业化，并在国内调整各个区域的经济角色。     

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.     

Institutions and structures as barriers? A comparison of native‐born and immigrant unemployment durations across 12 European countries

This study investigated the effect of institutions on the unemployment duration gap between non‐EU immigrants and native‐born in 12 European countries. Going further than the existing literature, our study encompassed unemployment duration, distinguishing between exits to inactivity, primary and secondary employment. Additionally, we have provided a stronger micro‐foundation to the comparative literature by introducing institutional measures for unemployment‐related benefits at the individual level rather than merely using aggregate proxies. Our analysis found no disincentive effects of benefits for immigrants. Furthermore, the employment prospects of immigrants were better when the demand for low‐skilled labour was high, and immigration policy was labour market‐oriented. In contrast, employment protection legislation did not affect the unemployment duration of immigrants.     

Education and Social Policy in Central Asia: The Next Stage of the Transition

This paper discusses the challenges facing the education system of Central Asia and evaluates how these have been addressed in the market economy. We first review the evidence on the economic return to education and determine how the rewards to different levels of education changed during the transition. We then examine the trends in school enrolment and evaluate whether changes in supply or demand explain the enrolment trends we observe. Finally, we evaluate the efficiency of the delivery of education and whether market forces have improved the management of schools. We conclude with a summary of the economic and policy lessons derived thus far from the educational transition. The paper uses aggregate administrative data supplemented with survey data, primarily from the Kyrgyz Republic and Kazakhstan, on enrolment, completion, and expenditures.     

The impact of the twin financial crises

We focus on the first 20 years of the Euro, from 1999 to 2019, and we split this period into two approximate decades to examine the performance of three benchmarks: the real GDP quarterly growth, the annualized real per capita GDP changes and unemployment. These illustrate that the underperformance of Europe is more evident during the second decade. Searching for causes we find that the Global Financial Crisis was an exogenous shock to the EU but its impact was large in both the U.S. and the EU. One major reason is that the U.S. responded quickly and aggressively both fiscally and via an unconventional monetary policy. The Euro area was constrained by a European Central Bank that focused on price stability, and fiscal policy was not much of an option. The second shock of the Sovereign Debt Crisis was endogenous to the Euro area and it, more than the Global Financial Crisis, revealed the original weaknesses and fragility of the European monetary union. This financial fragility quickly translated into declines in aggregate demand and economic underperformance.     

The challenge of youth unemployment

This article was prepared as a contribution to the ILO's Action Programme on Youth Unemployment. It presents an overview of the youth unemployment problem and youth employment policy principally from a European perspective, although it is hoped that much of the comment and analysis is relevant to afar broader range of countries. In the first section, which considers the nature and causes of youth unemployment, it is shown that its basic cause is aggregate demand rather than high youth wages or the size of the youth cohort, and suggests that a successful strategy for dealing with the problem must take this into account. In the second section, dealing principally with the examples of Germany and the United Kingdom, a number of factors are identified which influence the effectiveness of youth employment policy. In particular, it is found that precise targeting of programmes and the involvement of employers' and workers' organizations, as well as government, in the design and implementation of policy are both important determinants of an effective policy. A third section attempts to set the analysis in a more general context.     

Covid-19 pandemic and food security in India: Can authorities alleviate the disproportionate burden on the disadvantaged?

The present study examines covariates of food security and the impact of Covid-19 induced shocks, among households in India using a nationally representative survey. Using a 2SLS panel regression model, we find an important role of incomes, relative food prices, household characteristics, as well as mobility restrictions in response to the rising number of infections in a given region in explaining varying food expenditure shares prior to and during the Covid-19 pandemic. The disproportionate burden of the pandemic induced lockdowns on the disadvantaged and minorities calls for effective action on the part of policymakers to boost aggregate demand, fix supply chains and reduce food price volatility.     

Latinos and School Vouchers: Testing the “Minority Support” Hypothesis*

Objectives. Voucher proponents, as well as some researchers, argue that minorities and individuals of relatively low socioeconomic status (SES) particularly favor school vouchers. Little work has specifically explored Latino attitudes, with the focus typically on African‐American opinions. This article will therefore examine whether Latinos hold unique attitudes toward vouchers. Methods. Ordinal probit regression analysis of a recent national survey of Latinos, African Americans, and Anglos (non‐Latino whites). Results. In the aggregate, Latinos and African Americans are more likely than Anglos to support vouchers. The Latino population variable is statistically insignificant, however, while the African‐American measure is significant and positive. When the aggregate Latino variable is disaggregated into four major Latino national‐origin groups, Puerto Ricans are shown to hold uniquely favorable opinions about vouchers. In addition, there are no opinion differences by income and education. Conclusions. When Catholicism is taken into account, the voucher opinions of Latinos and Anglos are generally indistinct. This suggests that aggregate Latino support for vouchers may drop if Catholic affiliation further declines.     

An Ethnography of Social Assistance to Ethiopian Children by Non‐governmental Organizations: Types,Adequacy and Predictability

Although in Africa social assistance is provided by both state and non‐state actors, systematic research has paid little attention to the aggregate services provided by the latter. This is so despite the significance of the aggregate size, diversity, investment and coverage of the services provided by non‐state actors in the continent. This article reports on an ethnographic assessment of the nature of aggregate social assistance services provided to Ethiopian children by non‐governmental organizations (NGOs) in Africa, taking the cases of services provided by 38 NGOs that run 52 social protection interventions in Ethiopia's capital, Addis Ababa. Data collection employed semi‐structured interviews with officers of the 38 NGOs and exploratory interviews with 25 key informants. Analysis of the ethnographic data revealed that social assistance by NGOs was insufficient, unpredictable, erratic and of inferior quality and, hence, failed to meet the conditions that could make social assistance an effective instrument for breaking the intergenerational transmission of poverty. The analysis also revealed that the same social assistance was not large enough to undermine recipients' commitment to work. The article concludes by recommending the establishment of a social welfare system in Ethiopia that can effectively regulate social assistance in order to ensure the quality of design and implementation, and the integration of discreet social assistance projects.     

Some employment,income, and occupational effects of microelectronic-based technical change: A multisectoral simulation for Canada

This paper computes some potential employment and income effects of microelectronic-based technical change (MTC) in Canada. The probable upper and lower bounds of the predicted outcomes are determined by simulating alternative scenarios, and by computing the range of feasible post technical change transition paths for each scenario. The occupational shifts required to accommodate the technical change are decomposed into those originating from the supply side (labor productivity and materail input changes) versus those induced by final demand changes. These results are presented for an historical period, for the reference or counterfactual (no MTC) path to 1990, and for a 1990 post-technical-change solution. The aggregate results for a plausible scenario indicate that the microelectronic-based technical change modelled in this paper initiates a one-half percent average yearly increase in labor productivity and consequently results in a cumulative displacement of 5 to 6 percent of the (1990) required labor force from 1981 to 1990. Of course, when/if the appropriate structural adjustments take place, those workers will be re-employed and national income will improve correspondingly. An increase in Canada's rate of diffusion (especially vis-à-vis our trading partners) implies more initial displacement, but again the even higher productivity gains (plus the potential for export gains) should ultimately improve national welfare. This conclusion highlights the importance of facilitating the required structural adjustments.     

Can we declare military Keynesianism dead?

This paper empirically tests the Keynesian hypothesis that government defence spending positively impacts on aggregate output, by using a long-run equilibrium model for the US and the UK.Our contribution, with respect to previous works, is twofold. First, our inferences are adjusted for structural breaks exhibited by the data concerning fiscal and monetary variables. Second, we take into account different dynamics between defence spending on aggregate output, showing that the results are sensitive to sub-sample choices. Though the estimated elasticities in both countries show a lack of significance in the more recent years of the sample, defence-spending priorities addressed to international security may revitalize pro-cyclical effects in the UK, by an industrial policy of defence shared with the EU members.