scispace - formally typeset
Search or ask a question

Showing papers in "CESifo Economic Studies in 2016"


Journal ArticleDOI
TL;DR: In this article, the authors analyse five ways to monetize the MOOC business and conclude that the most sustainable approach is what they call the "subcontractor model", flavored by touches of the other four models, and claim that MOOC platforms can play a key transformative role in the higher education sector by making teaching practices evolve, rather than by replacing incumbent institutions.
Abstract: We start by using various economic and pedagogical concepts to understand the specificities of MOOC (Massive Online Open Courses) platforms. We then discuss how the private provision of MOOCs, seen as pure public goods, can be sustained. Based on the theory of multisided platforms, we analyse five ways to monetize the MOOC business. Our conclusion is that the most sustainable approach is what we call the 'subcontractor model', flavored by touches of the other four models. We then claim that MOOC platforms can play a key transformative role in the higher education sector by making teaching practices evolve, rather than by replacing incumbent institutions. Finally, we derive a number of directions for public policy: governments should act to foster the cooperation between MOOC platforms and other higher education institutions, so as to improve the benefits that can arise from these technological innovations; a particular focus should also be given to professors in order to encourage them to innovate in their teaching practices.

83 citations


Journal ArticleDOI
TL;DR: In this article, the authors used the panel Health and Retirement Study merged to local house prices from the Federal Housing Finance Agency to estimate the effect of house-price changes on actual and planned retirement timing.
Abstract: Labor-supply effects of changes in house value are potentially important but empirically neglected. Using the panel Health and Retirement Study merged to local house prices from the Federal Housing Finance Agency, we estimate the effect of house-price changes on actual and planned retirement timing. While we find no effect of house-price changes on the annual probability of retiring, we find that people respond to rising house prices by revising down their expected retirement age. We estimate that a 10% real increase in house value reduces expected retirement age by about 4 months. Our findings suggest that movements in the housing market may have important labor supply implications, especially in areas experiencing steep price declines.

42 citations


Journal ArticleDOI
TL;DR: This article found that teaching based on the instilment of knowledge and comprehension (traditional teaching) and techniques that endow pupils with analytical and critical skills (modern teaching) has a strong positive effect on test scores.
Abstract: I estimate in this article the effect of teaching practices on student achievements. I find that teaching based on the instilment of knowledge and comprehension (‘traditional’ teaching), and techniques that endow pupils with analytical and critical skills (‘modern’ teaching) has strong positive effect on test scores. However, a second element of modern teaching, instilment of the capacity for individual study has no effect while transparency, fairness, and feedback in teachers’ conduct with their students improve marginally academic performance. Heterogeneity in these effects suggests that it is best to target the two teaching practices differentially to students of different genders and abilities.

41 citations


Journal ArticleDOI
TL;DR: In this paper, the authors propose a framework for a European fiscal union that combines limited fiscal insurance with an orderly insolvency procedure to restructure the debt of insolvent member states.
Abstract: This contribution develops a blueprint for a European fiscal union. We argue that a viable European fiscal union can be constructed without joint liability for public debt or a centralized government with a large common budget. Such a fiscal union should combine elements of market discipline with stabilization in case of asymmetric shocks. Our proposal addresses the shortcomings of most other reform designs, which fail to offer a solution for insolvent or non-cooperative euro countries. We suggest a design which combines limited fiscal insurance with an orderly procedure to restructure the debt of insolvent member states. We show that fiscal insurance and a sovereign insolvency procedure are no contradiction but, on the contrary, are mutually reinforcing. Effective fiscal insurance helps to limit the stability risks involved in the implementation of an insolvency regime for sovereigns. And vice versa, a well-defined insolvency procedure reduces the risk that a fiscal capacity motivated as an insurance against transitory asymmetric shocks degenerates into a permanent transfer system. Moreover, we show that both elements promote the functioning of the European banking union and the new European fiscal governance.

34 citations


Journal ArticleDOI
TL;DR: In this paper, the short-to medium-run effects on subsequent fertility of starting a career with a fixed-term contract were studied, focusing on career start since they expect that temporary contracts and their inherent economic uncertainty imply a path dependence that might have spill-over effects on other domains of life.
Abstract: We study the short-to medium-run effects on subsequent fertility of starting a career with a fixed-term contract. We focus on career start since we expect that temporary contracts and their inherent economic uncertainty imply a path dependence that might have spill-over effects on other domains of life. Our empirical analysis is based on rich data from the German Socio-Economic Panel, which provides comprehensive information about individuals' labour market history as well as about their fertility. Our main results are the following. Women (i) tend to postpone first birth due to fixed-term employment at labour market entry and (ii) reduce the number of children in the first 10 years after graduation. These associations are strongest in the subsample of native women with at least vocational training. (iii) In contrast, we find no significant correlations for men. We argue that these findings are robust to potential endogeneity threats.

24 citations


Journal ArticleDOI
TL;DR: In this paper, the effect of energy prices and technological knowledge on innovation in green energy technologies was examined using patent data from the European Patent Office on a panel of 26 Organization for Economic Co-operation and Development countries over the period 1978-2009.
Abstract: We examine the effect of energy prices and technological knowledge on innovation in green energy technologies. In doing so, we consider both demand-pull effects, which induce innovative activity by increasing the expected value of innovations, and technology-push effects, which drive innovative activity by extending the technological capability of an economy. Our analysis is conducted using patent data from the European Patent Office on a panel of 26 Organization for Economic Co-operation and Development countries over the period 1978–2009. Utilizing a dynamic count data model for panel data, we analyze 11 distinct green energy technologies. Our results indicate that the existing knowledge stock is a significant driver of green energy innovation for all technologies. Furthermore, the results suggest that energy prices have a positive impact on innovation for some but not all technologies, and that the effect of energy prices and technological knowledge on green energy innovation becomes more pronounced after the Kyoto protocol agreement in 1997 (JEL codes: C33, O31, Q40, Q42, Q55).

22 citations


Journal ArticleDOI
TL;DR: In the wake of the euro area crisis, the debate on instruments to deepen economic integration among its members has intensified, among others putting forward a fiscal stabilization capacity for Economic and Monetary Union (EMU) members.
Abstract: In the wake of the euro area crisis, the debate on instruments to deepen economic integration among its members has intensified, among others putting forward a fiscal stabilization capacity for Economic and Monetary Union (EMU) members. Contributions made so far to further this idea have mostly concentrated on the expenditure side and possible stabilization properties. This analysis reviews the most important proposals and discusses design choices and institutional conditions to develop the revenue side of such a fiscal instrument.

17 citations


Journal ArticleDOI
TL;DR: In this paper, the authors apply a structural model of mothers' labor supply and child care choices to evaluate the effects of two childcare reforms in Germany that were introduced simultaneously in August 2013.
Abstract: We apply a structural model of mothers’ labor supply and child care choices to evaluate the effects of two childcare reforms in Germany that were introduced simultaneously in August 2013. First, a legal claim to subsidized child care became effective for all children aged one year or older. Second, a new benefit called ‘Betreuungsgeld’ came into effect that is granted to families who do not use public or publicly subsidized child care. Both reforms target children of the same age group and are unconditional on the parents’ income or employment status, yet affect mothers’ incentives for labor supply and child care choices in opposite directions. Our model facilitates estimating the joint reform impact as well as disentangling the individual effects of both policies. A comprehensive data set with information on labor supply, the use of and potential access restrictions to various child care arrangements provides the basis for the empirical analysis. We find the overall effect of both reforms to be small but positive as far as mother’s labor supply and the use of formal care is concerned. The legal claim’s positive impact on mothers’ labor supply and the use of formal child care is largely offset by the negative effect on both outcomes resulting from the introduction of the ‘Betreuungsgeld’.

14 citations


Journal ArticleDOI
TL;DR: In this paper, a difference-indifferences approach was used to investigate the effect of unconditional family cash transfers on mothers' labor supply in the intensive margin of mothers' time investment in children.
Abstract: In many parts of the developed world, governments devote a significant share of public funds to unconditional family cash transfers in an attempt to promote the economic well-being of households. But how successful are such policies? Germany has one of the world's most generous child benefit systems, which was subject to a major reform in the mid-1990s. This article exploits the reform using a difference-indifferences approach. The main result suggests that child benefits lead to a substantial reduction of mothers' labor supply at the intensive margin. The result implies that the policy in question is less effective at improving family finances and, consequently, expensive for the taxpayer because increases in benefit receipt are accompanied by negative labor supply responses. However, suggestive evidence seems to support that parents improve their time investment in children.

13 citations


Journal ArticleDOI
TL;DR: In this paper, the authors analyzed the costs and benefits of early child care for mothers' labour supply and child development in Italy, exploring the role of the selection criteria used by local governments to assign child care slots.
Abstract: Our study analyses the costs and benefits of early child care for mothers’ labour supply and child development in Italy, exploring the role of the selection criteria used by local governments to assign child care slots. In Italy, only around 13% of the demand for public child care coverage is met, and the number of applications exceeds the number of places in child care services in all regions. In conditions of excess demand, municipalities introduce selection criteria to give priority to families for whom access to public child care appears to be more valuable. We analyse, through simulations, the consequences of introducing different selection criteria for children, for their mothers, and also for municipalities, using a sample of households with children under three years of age (EU-SILC), and the selection criteria used by six representative Italian municipalities. Our results have some potentially interesting policy implications. The benefits in terms of child outcomes and mothers’ labour supply are stronger in contexts where selection criteria give priority to more disadvantaged households. However, in these contexts the selected households contribute less to the costs of child care, which reduces the municipalities’ monetary revenues.

13 citations


Journal ArticleDOI
TL;DR: In this article, the authors proposed a transfer mechanism to smoothen asymmetric shocks and alleviate the rigidity of the fiscal rules in the euro area, where the cumulative balance of each country is cleared in equal instalments during the subsequent 7-year period.
Abstract: The euro area will not have a centralized budget, and smoothing of country-specific asymmetric shocks via private financial markets will develop only slowly. Mistrust among the governments has caused rigid, even pro-cyclical, fiscal policies. Smoothing mechanisms are absent due to the fear that the transfers would develop into permanent redistribution. For removing these deficiencies, we propose a transfer mechanism to be managed in periods of 7 years so that the cumulative balance of each country is cleared in equal instalments during the subsequent 7-year period. The transfers would smoothen asymmetric shocks and alleviate the rigidity of the fiscal rules.

Journal ArticleDOI
TL;DR: In this paper, the authors analyse the relation between the internal and external influence of 723 top economists using the number of pages indexed by Google and Bing as a measure of external influence.
Abstract: Although the external influence of scholars has usually been approximated by publication and citation count, the array of scholarly activities is far more extensive. Today, new technologies, in particular Internet search engines, allow more accurate measurement of scholars' influence on societal discourse. Hence, in this article, we analyse the relation between the internal and external influence of 723 top economists using the number of pages indexed by Google and Bing as a measure of external influence. We not only identify a small association between these scholars’ internal and external influence but also a correlation between internal influence, as captured by receipt of such major academic awards as the Nobel Prize and John Bates Clark Medal, and the external prominence of the top 100 researchers (JEL Code: A11, A13, Z18).

Journal ArticleDOI
TL;DR: In this paper, the authors used the British Workplace Employment Relations Survey 2004 to find that behaviour of employers and employees is consistent with the presence of gift-exchange motives: firms that screen applicants for personality are less likely to pay low wages and more likely to provide (non-pecuniary) benefits.
Abstract: Recent laboratory evidence suggests that personality traits, in particular social preferences, may affect contractual outcomes under moral hazard. Using the British Workplace Employment Relations Survey 2004 we find that behaviour of employers and employees is consistent with the presence of gift-exchange motives: firms that screen applicants for personality are less likely to pay low wages and more likely to provide (non-pecuniary) benefits. Firms likewise benefit from employee screening, as they can implement more team-working and are generally more successful. Other human resource management practices only poorly predict these patterns. Moreover, there is no association between dismissals and personality tests, indicating that personality tests do not merely improve the fit between applicant and employer. Hence, we conclude that motivation based on gift-exchange motives is a plausible explanation for our results.

Journal ArticleDOI
TL;DR: In this article, the authors discuss the potential trade-offs between effectiveness, moral hazard problems, and permanent redistribution, and propose that a clearly defined exit option as a guarantee against involuntary redistribution can make entry into a stronger fiscal union less risky and hence more attractive for member states.
Abstract: There is a large, yet growing debate about the need to complement the European monetary union with a stronger fiscal union. This article reviews the potential trade-offs between effectiveness, moral hazard problems, and permanent redistribution. Addressing the counter-arguments against a tighter fiscal union is essential to overcome the political reluctance in some member states that are concerned about large amounts of redistribution. We discuss clawback mechanisms that have been suggested in the literature as a measure to limit redistribution, but conclude that clawbacks are undesirable, as they would essentially destroy the insurance value of a fiscal union. Instead, we propose that a clearly defined exit option as a guarantee against involuntary redistribution can make entry into a stronger fiscal union less risky and hence more attractive for member states.

Journal ArticleDOI
TL;DR: In this paper, the authors assess the impact of public support for RD higher education (second stage and first stage respectively) and other qualifications and show that public support signifi- cantly raises the share of researchers holding a PhD.
Abstract: In this paper we assess the impact of public support for RD higher education (second stage and first stage respectively); and other qualifications. Estimations show that public support signifi- cantly raises the share of researchers holding a PhD. There are indications that PhDs substitute for R&D employees with a lower degree. We also show that controlling for the changes in the educational mix of R&D personnel lowers the estimates of the impact of public support on the average wages of researchers.

Journal ArticleDOI
TL;DR: This article introduced a concern for reputation into an established signalling model of grading, and showed that this mechanism reduces or even avoids grade inflation, since it has an impact on future cohorts of graduates, or, put differently, by grading honestly, a school can build up reputation.
Abstract: When students receive better grades without any corresponding increase in ability, this is called grade inflation. Conventional wisdom says that such grade inflation is unavoidable since it is essentially costless to award good grades. In this article, we point out an effect driving into the opposite direction: Grade inflation is not actually costless, since it has an impact on future cohorts of graduates, or, put differently, by grading honestly, a school can build up reputation. Introducing a concern for reputation into an established signalling model of grading, we show that this mechanism reduces or even avoids grade inflation. (JEL codes: I21, I23, and D82)

Journal ArticleDOI
TL;DR: In this article, a theory of public investment by introducing government to a Melitz (2003) and Chaney (2008) model was proposed to predict a positive relationship between missions and exports by destination.
Abstract: From 1997 to 2006, US state governors led more than 500 trade missions to foreign countries. Trade missions are potentially a form of public investment in export promotion. I create a theory of public investment by introducing government to a Melitz (2003)–Chaney (2008) model. Controlling for state and country characteristics, the model accounts for the frequency and destination of trade missions and predicts a positive relationship between missions and exports by destination. By collecting data on trade mission origins and destinations, I estimate this relationship in the data and find that mission destinations are qualitatively consistent with the model. (JEL codes: F13, H76, O24)

Journal ArticleDOI
TL;DR: This paper analyzed differences in unemployment between immigrants and natives over the business cycle, using a comprehensive matched employer-employee data set for Austria, and found that the unemployment rate of immigrants from outside the European Economic Area and their individual transition rates into unemployment are significantly more volatile over the cycle than those of natives.
Abstract: We analyze differences in unemployment between immigrants and natives over the business cycle, using a comprehensive matched employer–employee data set for Austria. We find that the unemployment rate of immigrants from outside the European Economic Area and their individual transition rates into unemployment are significantly more volatile over the cycle than those of natives. We test for existing theories according to which a greater variability in employment can be due to a selection of workers into specific industries, firms, or temporary jobs. We find no evidence for the differential unemployment response of immigrant workers in our sample to be driven by such selection.

Journal ArticleDOI
TL;DR: This paper found that higher cost of dismissing redundant workers is positively associated with misallocation of production factors across plants, and the effect of dismissal cost is especially larger in industries that have higher layoff rate and in industries with large positive or negative sales growth rates.
Abstract: Employment protection affects aggregate productivity via several channels in potentially contradicting ways, which makes it difficult to establish the relationship between the two. This study focuses on the misallocation of production factors across plants, which has been shown in past studies to substantially reduce aggregate productivity. The study provides new evidence on the effect of employment protection on resource misallocation using a large dataset of manufacturing plants covering more than 90 countries. For measuring misallocation, I use the within‐industry dispersion of the marginal product of labor and total factor productivity. The results show that higher cost of dismissing redundant workers is positively associated with misallocation. The effect of dismissal cost is especially larger in industries that have greater demand for adjusting labor. More specifically, the effect is larger in industries that intrinsically have higher layoff rate, and in industries that have large positive or negative sales growth rates.

Journal ArticleDOI
TL;DR: In this article, the authors explore how a firm-level dividend tax on redistributed foreign profits affects the financial decisions of a multinational enterprise (MNE) by using evidence from a recent tax reform in Finland.
Abstract: In this study, we explore how a firm-level dividend tax on redistributed foreign profits affects the financial decisions of a multinational enterprise (MNE). We examine this by using evidence from a recent tax reform in Finland. The so-called equalization tax (EQT) used to be a regular element of European imputation systems, designed to ensure that dividends were not paid out of untaxed profits. Theoretical analyses have suggested that EQT may distort several financial decisions of MNEs. We find a 23% increase in dividend payments and a similar increase in repatriated foreign profits after the repeal of EQT among Finnish MNEs. We also find evidence that the reported profits increased among foreign subsidiaries of Finnish MNEs, which indicates an effect on profit-shifting. No change in investment was detected.

Journal ArticleDOI
TL;DR: In this article, the authors quantified the monetary value of key family policy measures in Germany over the life cycle, based on a dynamic microsimulation model that combines simulated life cycles for a base population from the 2009 wave of the German Socio-economic Panel with a comprehensive tax-benefit model.
Abstract: This article quantifies the monetary value of key family policy measures in Germany over the life cycle. The analysis is based on a dynamic microsimulation model that combines simulated life cycles for a base population from the 2009 wave of the German Socio-Economic Panel with a comprehensive tax-benefit model. The results indicate that households in Germany receive family- and marriage-related transfers of considerable monetary value, yet there is also substantial variation behind the population average. Moreover, it is shown that some measures, such as income tax splitting, may make individuals in fact worse off, in financial terms, over the long course, as a result of negative labour supply incentives which are reinforced through detrimental effects on human capital accumulation.

Journal ArticleDOI
TL;DR: In this article, the authors assessed the real costs and profits of German claims on the Eurosystem through TARGET2 and found that even without a euro area breakup or exit of one member country, holding Target2 claims can cause high economic costs in real terms.
Abstract: The article assesses the real costs and profits of German claims on the Eurosystem through TARGET2. While Germany’s nominal profits from holding TARGET2 claims depend on the development of the nominal interest rate, the real profits are determined by the real interest rate as well as the real exchange rate. The article finds that at the end of 2014, Germany faced current costs of approximately EUR 17 billion in real terms. Calculating the costs and profits of every member country in the euro area reveals that the TARGET2 system mirrors an implicit distribution mechanism, with a volume of approximately EUR 40 billion. The results underline the aspect that even without a euro area breakup or exit of one member country, holding TARGET2 claims can cause high economic costs in real terms. (JEL codes: E42, E44, F32)

Journal ArticleDOI
TL;DR: In this article, the authors argue that the debate is not only about the weighing of the benefits against the costs of monetary policy, but also about the question which mandate the ECB should pursue.
Abstract: The actions by the European Central Bank (ECB) during the global and European crises have triggered a highly controversial debate, in particular in Germany, about the costs and benefits of the chosen policy path. The article reviews, compares, and evaluates the different arguments made in favor and against ECB policies around three key dimensions—the link of the policy path to price stability, financial stability, and economic policy. It argues that this debate is not only about the weighing of the benefits against the costs of monetary policy, but it is primarily about the question which mandate the ECB should pursue. This question remains unanswered.

Journal ArticleDOI
TL;DR: In this article, the authors study monetary policy at the zero lower bound in a traceable three-period model, in which price-level targeting emerges endogenously in the welfare function.
Abstract: We study monetary policy at the zero lower bound in a traceable three-period model, in which price-level targeting emerges endogenously in the welfare function. We characterize optimal price-level forward guidance under discretion and commitment. Potentially non-monotonic discretionary welfare losses are lowest with perfectly flexible prices. Price-level targeting introduces a new constraint on optimal forward guidance that restricts the credible amount of overshooting. With this constraint, the zero lower bound may be binding even after the shock has abated. We characterize conditions when the commitment to hold nominal rates at zero for an extended period is optimal. Finally, we introduce government spending and show that under persistently low policy rates optimal government spending becomes more front-loaded, while procyclical austerity fares worse than discretionary government spending.

Journal ArticleDOI
TL;DR: In this paper, a trabajo estudia la delegación de la emision de deuda soberana en una autoridad independiente, in el context of a union monetaria, where el gasto publico se determina de manera descentralizada.
Abstract: Este trabajo estudia la delegacion de la emision de deuda soberana en una autoridad independiente, en el contexto de una union monetaria donde el gasto publico se determina de manera descentralizada. En el modelo, ningun agente puede comprometerse definitivamente a seguir una regla. Pero, en linea con Rogoff (1985) y con la historia reciente de los bancos centrales, el modelo supone que se puede disenar una institucion de manera que prefiera cumplir con algun objetivo claro, concreto y cuantitativo. Siguiendo el analisis de Beetsma y Bovenberg (1999), demostramos que el nivel de deuda es excesivo (respecto a la solucion de un planificador social) en una union monetaria donde un unico banco central interactua con muchos estados miembros. Extendemos el modelo de Beetsma y Bovenberg para considerar el establecimiento de una autoridad fiscal independiente (IFA en ingles) cuya meta es el mantenimiento del equilibrio presupuestario a largo plazo. Demostramos que la delegacion de la emision de deuda soberana en una IFA en cada estado miembro desplaza hacia abajo la senda temporal de la deuda. Esto se debe a la eliminacion de los factores del sesgo deficitario que son resultado de la politica electoral. Delegar la deuda soberana en una unica IFA comunitaria disminuye aun mas la deuda, al internalizarse el problema de recursos en comun entre los estados miembros. Establecer un unico gobierno federal para la union monetaria tendria menos impacto sobre el deficit, porque se solucionaria el problema de recursos en comun, pero no el del sesgo deficitario de la democracia. Al mismo tiempo, el nivel efectivo de servicios publicos proporcionado por el gobierno federal podria ser menor, debido a la menor eficiencia de informacion asociada con decisiones centralizadas.

Journal ArticleDOI
TL;DR: This article investigated the potential impact of later day care entry on the social and emotional behavior of children, one important aspect of non-cognitive skills based on the English sample of the Millennium Cohort Study.
Abstract: In recent years, almost all children below school age in Western industrialized countries have some experience of attending day care institutions. However, the age at which children enter day care and therefore the overall time spent in day care varies substantially. We investigate the potential impact of later day care entry on the social and emotional behaviour of children, one important aspect of non-cognitive skills. Based on the English sample of the Millennium Cohort Study, we analyse how later entries are associated with children’s development at the age of 5 and 7 years, using propensity score techniques. We find clear evidence of significant associations at the age of 7 years: Later day care entry appears to increase children’s peer problems and to reduce prosocial behaviour. We find hardly any associations with the emotional development of children. Children with low-educated mothers and those from families with a household income below the poverty line are most strongly affected, which provides support for a social gradient in how earlier day care entry impacts non-cognitive skills.

Journal ArticleDOI
TL;DR: In this article, the problem facing an advanced, final-destination country as it seeks cooperation from its less-well-off neighbors to impede unauthorized, third-country migrants from transiting their territories is examined.
Abstract: This article examines the problem facing an advanced, final-destination country as it seeks cooperation from its less-well-off neighbors to impede unauthorized, third-country migrants from transiting their territories. With that aim, it transfers aid to the transit countries in support of their border-control efforts. Aid recipients, however, may have an incentive to divert resources to border security objectives other than immigration control. We characterize the donor’s optimal allocation of aid between the transit countries and the optimal use of aid by the latter in the Nash equilibrium. These values of the policy instruments are subsequently compared with those in an equilibrium where the transit countries (i) compete for a share of aid, (ii) collude to maximize joint welfare, and (iii) follow the donor who moves first. (JEL codes: F22).

Journal ArticleDOI
TL;DR: In this article, the effect of child care provision on family structure is studied in a model of a marriage market with positive assortative matching, where in equilibrium, the poorest women stay single.
Abstract: This article studies the effect of child care provision on family structure. We present a model of a marriage market with positive assortative matching, where in equilibrium, the poorest women stay single. Couples have to decide on the number of children and spousal specialization in home production of public goods and child care. We then study how child care provision affects the equilibrium. Due to specialization in home production, the incentive to use child care is smaller for married mothers than for single mothers. We show that this increases the number of single mothers and the divorce rate. Using survey data from Germany, we present suggestive empirical evidence consistent with this finding.

Journal ArticleDOI
TL;DR: In this paper, the welfare differences among a monetary union, flexible exchange rates and a monetary plus fiscal transfer union were quantified using a medium-scale New Keynesian DSGE model consisting of two heterogeneous countries.
Abstract: This article quantifies the welfare differences among a monetary union, flexible exchange rates (economic disintegration) and a monetary plus fiscal transfer union (higher economic integration). The vehicle of analysis is a medium-scale New Keynesian DSGE model consisting of two heterogeneous countries. The model is solved using data from Germany and Italy. Our solutions imply that a switch to flexible exchange rates and independent monetary policies would have negligible welfare implications. A similar result applies when we add interregional fiscal transfers as insurance. By contrast, the addition of fiscal transfers as redistribution has non-trivial implications and these depend crucially on whether such one-sided transfers trigger moral hazard behavior. (JEL codes: E6, F3, H6)

Journal ArticleDOI
TL;DR: In this paper, the authors show that from a structural point of view, bubbles, Pay-As-You-Go pensions, and sovereign debt are perfect substitutes for short-run fluctuations in investment.
Abstract: Bubbles are usually viewed as a threat to financial stability. This paper takes a more nuanced view. The world economy is going through an episode of Secular Stagnation, where the equilibrium rate of return on capital r is below the growth rate of the economy g. As is well-known, rational bubbles are sustainable when r ≤ g in a steady-state equilibrium. Bubbles can then implement a dynamically efficient equilibrium. We show that from a structural point of view, bubbles, Pay-As-You-Go pensions, and sovereign debt are perfect substitutes. However, when dealing with unexpected short-run fluctuations in investment, sovereign debt is far more efficient than bubbles in shifting consumption over time and in risk-sharing between generations. An increase in sovereign debt is, therefore, an efficient response to Secular Stagnation. Instead, the current Stability and Growth Pact for the eurozone embarks on an opposite course. (JEL codes: E44 and E62).