This paper estimates trends in factor price elasticities adding energy Btu input to fixed capital assets and the labor force in annual US data from 1949 to 2013. Second order effects improve estimates of the production function in log differences. The unrestricted estimates test for concavity and constant returns to scale. Adding energy input reduces the apparent productivity of labor and reveals strong capital-labor factor price elasticities with pronounced trends. Energy and labor trend to become weak complements. These trends offer insight into recent economic history and keys to predicting the future as well.
{"title":"Trends in Factor Price Elasticities Adding Energy to Capital and Labor in the US Economy","authors":"H. Thompson","doi":"10.15353/rea.v11i3.1690","DOIUrl":"https://doi.org/10.15353/rea.v11i3.1690","url":null,"abstract":"This paper estimates trends in factor price elasticities adding energy Btu input to fixed capital assets and the labor force in annual US data from 1949 to 2013. Second order effects improve estimates of the production function in log differences. The unrestricted estimates test for concavity and constant returns to scale. Adding energy input reduces the apparent productivity of labor and reveals strong capital-labor factor price elasticities with pronounced trends. Energy and labor trend to become weak complements. These trends offer insight into recent economic history and keys to predicting the future as well.","PeriodicalId":42350,"journal":{"name":"Review of Economic Analysis","volume":null,"pages":null},"PeriodicalIF":0.5,"publicationDate":"2019-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46847418","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Central banks are among the most powerful institutions in the world: they are granted a legal monopoly in the issuance of money, set interest rates, monitor the banking sector and generally control a country’s money supply and monetary policy. Their decisions and actions affect directly or indirectly almost every economic activity on the planet. However, most of these institutions decide and act independently from government, they are managed by appointed rather than democratically-elected officials and these officials usually come from the private banking sector. These facts generate questions about the functionality of the system and its efficiency in managing global finance. The goal of this research is to investigate the status of central bank management and ownership across the world today, and examine both philosophically and ethically the arguments for and against central bank independence in modern democracies. The analysis concludes that modern democracies should reassess the structure of central banking and address methods and practices that could possibly jeopardize economic development and the effective functioning of democracy in the long run.
{"title":"Central Banking in Modern Democracies: Private vs. Public Control","authors":"Panagiotis Kotsios","doi":"10.15353/rea.v11i2.1627","DOIUrl":"https://doi.org/10.15353/rea.v11i2.1627","url":null,"abstract":"Central banks are among the most powerful institutions in the world: they are granted a legal monopoly in the issuance of money, set interest rates, monitor the banking sector and generally control a country’s money supply and monetary policy. Their decisions and actions affect directly or indirectly almost every economic activity on the planet. However, most of these institutions decide and act independently from government, they are managed by appointed rather than democratically-elected officials and these officials usually come from the private banking sector. These facts generate questions about the functionality of the system and its efficiency in managing global finance. The goal of this research is to investigate the status of central bank management and ownership across the world today, and examine both philosophically and ethically the arguments for and against central bank independence in modern democracies. The analysis concludes that modern democracies should reassess the structure of central banking and address methods and practices that could possibly jeopardize economic development and the effective functioning of democracy in the long run.","PeriodicalId":42350,"journal":{"name":"Review of Economic Analysis","volume":null,"pages":null},"PeriodicalIF":0.5,"publicationDate":"2019-08-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47593118","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study examines probable dynamic spillover transmissions between the Nigerian stock and money markets using the multivariate volatility framework that simultaneously accounts for both returns and shock spillovers. Based on relevant pre-tests, the VARMA-CCC-GARCH framework is selected and consequently employed to model the spillovers. The study finds significant cross-market return and shock spillovers between the two markets. Thus, a shock to one market is more likely to spill over to the other market. It is also observed that shocks have persistent effects on stock market volatility but transitory effects on money market volatility. In other words, shocks to the money market die out over time while shocks to stock market tend to persist over time. In addition, including lagged own shocks and lagged own conditional variance when forecasting the future volatility of both return series may enhance their forecast performance. An alternative approach proposed by Diebold and Yilmaz (2012) is also employed for robustness and the results are consistent with those obtained from the VARMA-CCC-GARCH model.
{"title":"Dynamic spillovers between stock and money markets in Nigeria: A VARMA-GARCH approach","authors":"Afees A. Salisu, Kazeem O. Isah, Alberto Assandri","doi":"10.15353/rea.v11i2.1628","DOIUrl":"https://doi.org/10.15353/rea.v11i2.1628","url":null,"abstract":"This study examines probable dynamic spillover transmissions between the Nigerian stock and money markets using the multivariate volatility framework that simultaneously accounts for both returns and shock spillovers. Based on relevant pre-tests, the VARMA-CCC-GARCH framework is selected and consequently employed to model the spillovers. The study finds significant cross-market return and shock spillovers between the two markets. Thus, a shock to one market is more likely to spill over to the other market. It is also observed that shocks have persistent effects on stock market volatility but transitory effects on money market volatility. In other words, shocks to the money market die out over time while shocks to stock market tend to persist over time. In addition, including lagged own shocks and lagged own conditional variance when forecasting the future volatility of both return series may enhance their forecast performance. An alternative approach proposed by Diebold and Yilmaz (2012) is also employed for robustness and the results are consistent with those obtained from the VARMA-CCC-GARCH model.","PeriodicalId":42350,"journal":{"name":"Review of Economic Analysis","volume":null,"pages":null},"PeriodicalIF":0.5,"publicationDate":"2019-08-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44685360","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine the effect of financial remoteness on foreign direct investment (FDI) using a sample of 173 countries over the period 1970-2015. Our results show that financial remoteness has a significant negative effect on FDI, which suggests that proximity to major financial centres is a key factor in deciding on foreign investments. Our results are robust to alternative measures of financial remoteness and controlling for other determinants of FDI from the literature.
{"title":"Does Financial Remoteness Affect Foreign Direct Investment?","authors":"Michael Machokoto, L. Kassim","doi":"10.15353/rea.v11i2.1626","DOIUrl":"https://doi.org/10.15353/rea.v11i2.1626","url":null,"abstract":"We examine the effect of financial remoteness on foreign direct investment (FDI) using a sample of 173 countries over the period 1970-2015. Our results show that financial remoteness has a significant negative effect on FDI, which suggests that proximity to major financial centres is a key factor in deciding on foreign investments. Our results are robust to alternative measures of financial remoteness and controlling for other determinants of FDI from the literature.","PeriodicalId":42350,"journal":{"name":"Review of Economic Analysis","volume":null,"pages":null},"PeriodicalIF":0.5,"publicationDate":"2019-08-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46520861","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This empirical study adopts an open-economy loanable funds model to investigate the impact of post-Bretton Woods U.S. federal government budget deficits and personal income tax rates on the ex post real interest rate yield on thirty-year Treasury bonds. In this study, the budget deficit is measured in two different ways, the total (“unified”) budget deficit and the primary deficit (the total/unified deficit minus net interest payments). Two different estimation techniques, autoregressive two stage least squares estimation and the ARCH (Autoregressive Conditional Heteroscedasticity) Method, for the 1973-2016 study period provide evidence that the ex post real interest rate yield on thirty-year Treasury bonds has been an increasing function of both federal budget deficit measures (expressed as a percent of GDP) and the maximum marginal federal personal income tax rate. The estimations all imply that elevating either the total/unified or primary federal budget deficit appears to raise the cost of borrowing in the U.S., whereas reducing the maximum marginal personal income tax rate appears to reduce the cost of borrowing. Given the potential effects of longer-term real interest rates on investment in new plant and equipment and overall economic growth, policy-makers should not overlook these findings.
{"title":"An Empirical Analysis of the Effects of Budget Deficits (Total and Primary) and Personal Income Tax Rates on the Ex Post Real Interest Rate Yield on Long-Term U.S. Treasury Bonds","authors":"R. Cebula","doi":"10.15353/rea.v11i2.1625","DOIUrl":"https://doi.org/10.15353/rea.v11i2.1625","url":null,"abstract":"This empirical study adopts an open-economy loanable funds model to investigate the impact of post-Bretton Woods U.S. federal government budget deficits and personal income tax rates on the ex post real interest rate yield on thirty-year Treasury bonds. In this study, the budget deficit is measured in two different ways, the total (“unified”) budget deficit and the primary deficit (the total/unified deficit minus net interest payments). Two different estimation techniques, autoregressive two stage least squares estimation and the ARCH (Autoregressive Conditional Heteroscedasticity) Method, for the 1973-2016 study period provide evidence that the ex post real interest rate yield on thirty-year Treasury bonds has been an increasing function of both federal budget deficit measures (expressed as a percent of GDP) and the maximum marginal federal personal income tax rate. The estimations all imply that elevating either the total/unified or primary federal budget deficit appears to raise the cost of borrowing in the U.S., whereas reducing the maximum marginal personal income tax rate appears to reduce the cost of borrowing. Given the potential effects of longer-term real interest rates on investment in new plant and equipment and overall economic growth, policy-makers should not overlook these findings.","PeriodicalId":42350,"journal":{"name":"Review of Economic Analysis","volume":null,"pages":null},"PeriodicalIF":0.5,"publicationDate":"2019-08-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44335688","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Over the past two decades, the downward trend of income inequality in Brazil has been accompanied by a sharp increase in the real value of the minimum wage. There is no empirical consensus on whether the minimum wage has an equalizing effect on income distribution because of its ambiguous effects on employment. I document the effectiveness of the minimum wage on compressing wage inequality throughout the wage distribution and its effects on employment by using Brazilian regional data over the post-inflationary period (1995-2015). A counterfactual exercise shows that half of the decline in lower-tail inequality is attributable to the increase in the real minimum wage whereas the effects of the minimum wage on upper-tail inequality are negligible. Furthermore, the increase in the minimum wage has small contemporaneous adverse effects on formal employment which appear to vanish after three quarters.JEL classification: E24Keywords: wage inequality, employment, minimum wage.
{"title":"The Role of the Minimum Wage on the Declining Wage Inequality in Latin America: Evidence from Brazil.","authors":"Paul Garcia Hinojosa","doi":"10.15353/rea.v11i1.1517","DOIUrl":"https://doi.org/10.15353/rea.v11i1.1517","url":null,"abstract":"Over the past two decades, the downward trend of income inequality in Brazil has been accompanied by a sharp increase in the real value of the minimum wage. There is no empirical consensus on whether the minimum wage has an equalizing effect on income distribution because of its ambiguous effects on employment. I document the effectiveness of the minimum wage on compressing wage inequality throughout the wage distribution and its effects on employment by using Brazilian regional data over the post-inflationary period (1995-2015). A counterfactual exercise shows that half of the decline in lower-tail inequality is attributable to the increase in the real minimum wage whereas the effects of the minimum wage on upper-tail inequality are negligible. Furthermore, the increase in the minimum wage has small contemporaneous adverse effects on formal employment which appear to vanish after three quarters.JEL classification: E24Keywords: wage inequality, employment, minimum wage.","PeriodicalId":42350,"journal":{"name":"Review of Economic Analysis","volume":null,"pages":null},"PeriodicalIF":0.5,"publicationDate":"2019-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41910606","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study models the trading intensity in European Allowances (EUA) futures contracts, in the European Climate Exchange (ECX) using various specifications and investigates the forecasting ability of observable versus unobservable factors. This set up tests empirically the impact of the evolving market structure through regulatory updates and the contribution of the different market participants to the intensity of trading in the European Carbon market. The findings suggest that observable market characteristics capture better the dynamics of trading intensity than their latent counterparts, which implies that regulatory changes that enhance transparency would also improve market efficiency.
{"title":"Visible and Invisible Forces. What Drives the Intensity of Trading in the European Carbon Market?","authors":"I. Kalaitzoglou","doi":"10.15353/rea.v11i1.1519","DOIUrl":"https://doi.org/10.15353/rea.v11i1.1519","url":null,"abstract":"This study models the trading intensity in European Allowances (EUA) futures contracts, in the European Climate Exchange (ECX) using various specifications and investigates the forecasting ability of observable versus unobservable factors. This set up tests empirically the impact of the evolving market structure through regulatory updates and the contribution of the different market participants to the intensity of trading in the European Carbon market. The findings suggest that observable market characteristics capture better the dynamics of trading intensity than their latent counterparts, which implies that regulatory changes that enhance transparency would also improve market efficiency.","PeriodicalId":42350,"journal":{"name":"Review of Economic Analysis","volume":null,"pages":null},"PeriodicalIF":0.5,"publicationDate":"2019-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43482834","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Canada spends more than Italy on health per capita and as a share of GDP and has a higher per capita GDP. Yet, life expectancy and infant mortality in Italy are better and have improved more over time. The implication is that the Italian health care system provides better value for money. We examine whether Italy does get better health outcomes at lower costs. Using regression analysis, we find that health spending is determined by similar drivers in both Canada and Italy. We also find that more social spending and health spending in either country do not satisfactorily explain the differences in health outcomes, suggesting the importance of broader socio-economic determinants like income and life-style choices. We conclude that while the levels of per capita health spending in Canada are higher than Italy, this partly reflects historical inertia in Canadian health spending partially attributable to the higher costs of health professionals relative to Italy.
{"title":"Spend Less, Get More? Explaining Health Spending and Outcome Differences Between Canada and Italy","authors":"L. D. Matteo, T. Barbiero","doi":"10.15353/rea.v12i4.1898","DOIUrl":"https://doi.org/10.15353/rea.v12i4.1898","url":null,"abstract":"Canada spends more than Italy on health per capita and as a share of GDP and has a higher per capita GDP. Yet, life expectancy and infant mortality in Italy are better and have improved more over time. The implication is that the Italian health care system provides better value for money. We examine whether Italy does get better health outcomes at lower costs. Using regression analysis, we find that health spending is determined by similar drivers in both Canada and Italy. We also find that more social spending and health spending in either country do not satisfactorily explain the differences in health outcomes, suggesting the importance of broader socio-economic determinants like income and life-style choices. We conclude that while the levels of per capita health spending in Canada are higher than Italy, this partly reflects historical inertia in Canadian health spending partially attributable to the higher costs of health professionals relative to Italy.","PeriodicalId":42350,"journal":{"name":"Review of Economic Analysis","volume":null,"pages":null},"PeriodicalIF":0.5,"publicationDate":"2019-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42247050","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper employs the structural threshold approach of Kourtellos et al. (2016) to examine various specifications of the Taylor rule model. Contrary to the previous work on the Taylor rule, this methodology allows for endogeneity of the threshold variable in addition to the right-hand-side variables suggesting a fully comprehensive flexible framework that does not rely on restrictive linearity and/or exogeneity assumptions. In order to examine the model, Turkey is selected as an inflation targeting developing economy, since its central bank (the Central Bank of Turkey) as argued by Dincer and Eichengreen (2014) has been one of the fastest improving central banks in terms of its transparency score. We use monthly data for the period of 2004-2018 that includes a number of historical episodes such as the global financial crisis as well as various internal political developments that may have had an impact on the fluctuations of the relevant macroeconomic variables as well as on the functional form of the inflation targeting Taylor rule specification. Empirical findings highlight the different reactions of the central bank in determining policy rate under different regimes.
{"title":"Threshold Regression Model for Taylor Rule: The Case of Turkey","authors":"P. Deniz, T. Stengos, Ege Yazgan","doi":"10.15353/rea.v12i2.1696","DOIUrl":"https://doi.org/10.15353/rea.v12i2.1696","url":null,"abstract":"This paper employs the structural threshold approach of Kourtellos et al. (2016) to examine various specifications of the Taylor rule model. Contrary to the previous work on the Taylor rule, this methodology allows for endogeneity of the threshold variable in addition to the right-hand-side variables suggesting a fully comprehensive flexible framework that does not rely on restrictive linearity and/or exogeneity assumptions. In order to examine the model, Turkey is selected as an inflation targeting developing economy, since its central bank (the Central Bank of Turkey) as argued by Dincer and Eichengreen (2014) has been one of the fastest improving central banks in terms of its transparency score. We use monthly data for the period of 2004-2018 that includes a number of historical episodes such as the global financial crisis as well as various internal political developments that may have had an impact on the fluctuations of the relevant macroeconomic variables as well as on the functional form of the inflation targeting Taylor rule specification. Empirical findings highlight the different reactions of the central bank in determining policy rate under different regimes.","PeriodicalId":42350,"journal":{"name":"Review of Economic Analysis","volume":null,"pages":null},"PeriodicalIF":0.5,"publicationDate":"2019-01-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42129354","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper presents new links among net foreign assets (NFA), financial liberalization, and the real exchange rates in Sub-Saharan Africa (SSA), utilizing a testable theoretical model inspired by Lane and Milesi-Ferreti (2004) and newly constructed data sets for real exchange rates, net foreign assets, and financial liberalization. First, we check for the existence of a transfer problem – the hypothesis that increases in NFA strengthen the real exchange rates. Second, we examine how real exchange rates have reacted to financial liberalization in SSA. Finally, we explore whether financial liberalization dampens the effects of a transfer problem. Empirical analysis, using cross-country data, confirms the existence of a transfer problem that decreases with increases in trade openness in SSA. We also find that, overall, countries with financial liberalization have more depreciated real exchange rates and that financial liberalization dampens the transfer problem so that the semi-elasticity of NFA becomes negative, implying that financially liberalized SSA countries that experience an increase in net external liabilities would eventually require an appreciated, rather than depreciated, real exchange rate. The results are robust to various model specifications and estimation techniques, inclusion of other determinants of real exchange rates and consideration of endogeneity.
{"title":"The Transfer Problem Surfaces in Sub-Saharan Africa: Net Foreign Assets, Financial Liberalization and Real Exchange Rates","authors":"O. Ibhagui","doi":"10.15353/rea.v11i3.1687","DOIUrl":"https://doi.org/10.15353/rea.v11i3.1687","url":null,"abstract":"This paper presents new links among net foreign assets (NFA), financial liberalization, and the real exchange rates in Sub-Saharan Africa (SSA), utilizing a testable theoretical model inspired by Lane and Milesi-Ferreti (2004) and newly constructed data sets for real exchange rates, net foreign assets, and financial liberalization. First, we check for the existence of a transfer problem – the hypothesis that increases in NFA strengthen the real exchange rates. Second, we examine how real exchange rates have reacted to financial liberalization in SSA. Finally, we explore whether financial liberalization dampens the effects of a transfer problem. Empirical analysis, using cross-country data, confirms the existence of a transfer problem that decreases with increases in trade openness in SSA. We also find that, overall, countries with financial liberalization have more depreciated real exchange rates and that financial liberalization dampens the transfer problem so that the semi-elasticity of NFA becomes negative, implying that financially liberalized SSA countries that experience an increase in net external liabilities would eventually require an appreciated, rather than depreciated, real exchange rate. The results are robust to various model specifications and estimation techniques, inclusion of other determinants of real exchange rates and consideration of endogeneity.","PeriodicalId":42350,"journal":{"name":"Review of Economic Analysis","volume":null,"pages":null},"PeriodicalIF":0.5,"publicationDate":"2019-01-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41455541","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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