Showing papers in "The Manchester School in 2010"
TL;DR: This paper set out a framework for classifying and thinking about unconventional monetary policies, highlighting how they can be viewed within the overall context of monetary policy implementation, and provided a systematic characterization of the wide range of central bank responses to the recent crisis, and highlighted the channels of transmission and identified some of the main policy challenges.
Abstract: This paper sets out a framework for classifying and thinking about unconventional monetary policies, highlighting how they can be viewed within the overall context of monetary policy implementation. The framework clarifies the differences among the various forms of unconventional monetary policy, provides a systematic characterization of the wide range of central bank responses to the recent crisis, helps to underscore the channels of transmission and identifies some of the main policy challenges. In the process, the paper also addresses a number of contentious analytical issues, notably the role of bank reserves and their inflationary consequences.
190 citations
TL;DR: In this article, the success of the EC's plans for economic and political integration depends upon the degree of economic convergence of the national economies, and a preferred approach based on both cointegration and time-varying parameter (Kalman filter) analysis is outlined.
Abstract: The success of the EC's plans for economic and political integration depends upon the degree of economic convergence of the national economies. The study of convergence is concerned with the relative long-run behavior of a number of time series and therefore involves the simultaneous analysis of time series and cross-section data. Alternative measures of convergence are outlined and a preferred approach based on both cointegration and time-varying parameter (Kalman filter) analysis is outlined. These are then used to measure EC convergence. The broad conclusions are that convergence has been taking place within the EC economies but that it is a much slower and more protracted process than many commentators suggest. Copyright 1992 by Blackwell Publishers Ltd and The Victoria University of Manchester
110 citations
TL;DR: This paper examined the parallel trends in education and labour market developments in Australia and Britain using unique information on reported overskilling in the workplace and found that the prevalence of over-skilling decreases with education at least for Australia, but the wage penalty associated with over-training increases with education.
Abstract: In this paper we examine the parallel trends in education and labour market developments in Australia and Britain using unique information on reported overskilling in the workplace. To a degree, the overskilling information overcomes the problem of unobserved ability differences and focuses on the actual job–employee mismatch more than the conventional overeducation variables can. The paper finds that the prevalence of overskilling decreases with education at least for Australia, but the wage penalty associated with overskilling increases with education. Although the prevalence of overskilling differs between Australia and Britain, the pattern of the wage penalties is fairly similar in both countries.
110 citations
TL;DR: This paper set out a framework for classifying and thinking about unconventional monetary policies, highlighting how they can be viewed within the overall context of monetary policy implementation, and provided a systematic characterization of the wide range of central bank responses to the recent crisis, and highlighted the channels of transmission and identified some of the main policy challenges.
Abstract: This paper sets out a framework for classifying and thinking about unconventional monetary policies, highlighting how they can be viewed within the overall context of monetary policy implementation. The framework clarifies the differences among the various forms of unconventional monetary policy, provides a systematic characterization of the wide range of central bank responses to the recent crisis, helps to underscore the channels of transmission and identifies some of the main policy challenges. In the process, the paper also addresses a number of contentious analytical issues, notably the role of bank reserves and their inflationary consequences.
98 citations
TL;DR: The evolution of economic ideas and models has often been altered by economic events as mentioned in this paper, and it also seems likely that the recent financial and economic crisis will both rearrange the economic landscape and affect the focus of economic and financial research going forward.
Abstract: 1I ntroduction The evolution of economic ideas and models has often been altered by economic events. The Great Depression led to the widespread adoption of the Keynesian view that markets may not readily equilibrate. The Great Inflation highlighted the importance of aggregate supply shocks and spurred real business cycle research. The Great Disinflation fostered a New Keynesianism, which recognized the potency of monetary policy. The shallow recessions and relative calm of the Great Moderation helped solidify the dynamic stochastic general equilibrium (DSGE) model as a macroeconomic orthodoxy. Therefore, it also seems likely that the recent financial and economic crisis—the Great Panic and Recession of 2008 and 2009—will both rearrange the economic landscape and affect the focus of economic and financial research going forward. A key feature of recent events has been the close feedback between
77 citations
TL;DR: This paper examined sequential privatization of public enterprises, and found that under plausible assumptions one privatization increases the welfare gains of the subsequent privatizations, even if privatization does not improve welfare at the early stages, it can eventually lead to a point such that privatizations after that point are beneficial to the society.
Abstract: We investigate a mixed economy where state-owned public enterprises compete against private firms. We examine sequential privatization of public enterprises, and find that under plausible assumptions one privatization increases the welfare gains of the subsequent privatizations. Thus, even if privatization does not improve welfare at the early stages, it can eventually lead to a point such that privatizations after that point are beneficial to the society and the privatization program ends up with a success.
73 citations
TL;DR: In this article, a field experiment was conducted to investigate whether low-skilled male Albanians face discrimination in the Greek labour market and found that the probability for Albanians to receive an interview is lower than for Greeks by 21.4 percentage points.
Abstract: By means of a field experiment we investigate whether low-skilled male Albanians face discrimination in the Greek labour market. To test for discrimination in occupational access, curriculum vitae which differed only in ethnicity were faxed to firms. The probability for Albanians to receive an interview is lower than for Greeks by 21.4 percentage points. Furthermore, by exploiting the informal wage and insurance coverage offers on the part of employers, we find a wage discrimination factor of 11 per cent against the Albanians, while their probability of being registered with insurance is 25.7 percentage points lower than that for Greeks.
66 citations
TL;DR: In this paper, the authors analyse the interaction between credit and asset prices in the transmission of shocks to the real economy using a Markov switching vector autoregression and find no evidence of financial imbalances coming from mutually reinforcing effects of lending and asset price in the euro area.
Abstract: We analyse the interaction between credit and asset prices in the transmission of shocks to the real economy using a Markov switching vector autoregression. While we confirm the existence of different regimes, we find no evidence of financial imbalances coming from mutually reinforcing effects of lending and asset prices in the euro area. In the USA, on the contrary, there is some evidence for reinforcing effects between asset prices and lending. Moreover, it turns out that in the USA asset prices are important determinants of GDP, while in the euro area lending is an important determinant of inflation.
49 citations
TL;DR: The authors examined the hypothesis that predictable variation in excess returns can be explained by future business conditions using GARCH-M methodology and data on U.K. share returns over the period 1965-92, and found that excess returns are able to capture expectations regarding the future state of the economy.
Abstract: This paper examines the hypothesis that predictable variation in excess returns can be explained by future business conditions. Using GARCH-M methodology and data on U.K. share returns over the period 1965-92, the authors find that excess returns are able to capture expectations regarding the future state of the economy. Futher, 'news' on future business conditions in the economy would appear to be related to the observed persistence in the conditional variance of excess returns. Copyright 1995 by Blackwell Publishers Ltd and The Victoria University of Manchester
49 citations
TL;DR: In this article, the authors consider the endogenous timing in mixed duopoly with subsidies and show that private leadership may disappear from equilibrium and that Cournot and public leadership become the likely equilibrium outcomes.
Abstract: This is the first paper to consider the endogenous timing in mixed duopoly with subsidization. Pal (Economics Letters, Vol. 61 (1998), pp. 181–185) shows that private leadership is always an equilibrium outcome in a mixed duopoly without any subsidy. By including the production subsidy, we observe that private leadership may disappear from equilibrium and that Cournot and public leadership become the likely equilibrium outcomes. Furthermore, we find that when firms have identical technologies the first-best allocation can be attained by the same subsidy before and after privatization even though firms' production timings are endogenized. Finally, we examine privatization with lobbying activities and show that such privatization leads to the deterioration of social welfare.
45 citations
TL;DR: In this article, the authors assess the existence of threshold effects in economic growth, linked to the development of the banking sector, and define convergence clubs, characterized by educational and banking sector development indicators, which exhibit specific behavior as regards the factors determining long run growth.
Abstract: The purpose of this paper is to assess the existence of threshold effects in economic growth, linked to the development of the banking sector. We, first, discuss the possibility of multiple steady state equilibria doe to reciprocal externalities between the banking sector and the real sector. To check the existence of multiple steady states, associated with both financial development and educational development, we perform stability tests on a 'Barro-type' conditional [beta]-convergence equation. Optimal splits of our ninety-one-country sample are then estimated through a maximum likelihood method. We thus define 'convergence clubs', characterized by educational and banking sector development indicators, which exhibit specific behavior as regards the factors determining long-run growth. Copyright 1995 by Blackwell Publishers Ltd and The Victoria University of Manchester
TL;DR: In this article, it was shown that the short-run effects predicted by Walters only arise when the credibility of the peg differs as between the labor and financial markets: but even if such a difference exists, the system is stable in the long run.
Abstract: Alan Walters has suggested that the European Monetary System will prove dynamically unstable when capital controls are removed. The argument is analyzed within a model where overlapping contracts generate price inertia. In this context, it is found that the short-run effects predicted by Walters only arise when the credibility of the peg differs as between the labor and financial markets: but even if such a difference exists, the system is stable in the long run. Copyright 1991 by Blackwell Publishers Ltd and The Victoria University of Manchester
TL;DR: In this paper, the authors examined the relationship between interest rates and company failure and argued that the response of insolvencies to changes in interest rates depends on the composition of company debt and whether the change in interest rate is expected or unexpected, real or nominal.
Abstract: This paper examines the relationship between interest rates and company failure. It argues that the response of insolvencies to changes in interest rates depends on the composition of company debt and whether the change in interest rates is expected or unexpected, real or nominal. It shows that when company debt is at variable interest rates, companies are especially vulnerable to unanticipated changes in real interest rates. Evidence is presented which shows that such changes are a major factor in explaining the aggregate company liquidation rate in England and Wales. Copyright 1995 by Blackwell Publishers Ltd and The Victoria University of Manchester
TL;DR: In this article, the authors investigate the design of monetary policy in an inflation targeting regime and argue that a lack of clarity in official descriptions of the operation of monetary policies in the United Kingdom undermines its credibility and effectiveness.
Abstract: The authors investigate the design of monetary policy in an inflation targeting regime. They argue that a lack of clarity in official descriptions of the operation of monetary policy in the United Kingdom undermines its credibility and effectiveness. The authors describe a model of inflation and use it to argue that policy should be defined and announced as a simple feedback rule, relating changes in interest rates to inflation and other indicators. Incomplete credibility where private sector agents learn about policy is investigated. Using a stochastic version of the model, the expected variance in inflation is found for different rules. Copyright 1996 by Blackwell Publishers Ltd and The Victoria University of Manchester
TL;DR: The authors developed a reputation model to discuss the role of banks in the corporate bankruptcy process and showed that small firms are more likely to be liquidated when they are in financial distress than larger firms.
Abstract: This paper develops a reputation model to discuss the role of banks in the corporate bankruptcy process Financially distressed firms either default on their current obligations or liquidate themselves voluntarily Banks, who interact repeatedly in the debt market, either reduce the obligations of troubled firms or pursue liquidation The strategy of banks is determined by a trade-off between acquiring a reputation for being tough against financially distressed firms (but incurring liquidation costs) and reducing firms' obligations so as to increase the proportion of repayment (but weakening the position against future defaults) The model shows that small firms are more likely to be liquidated when they are in financial distress than larger firms Copyright 1996 by Blackwell Publishers Ltd and The Victoria University of Manchester
TL;DR: In this paper, a bivariate Markov regime switching model is employed to verify whether the relationship between inflation and inflation uncertainty, or the negative effects of inflation and uncertainty on output growth, vary with the level of inflation.
Abstract: A bivariate Markov regime switching model is employed to verify whether the relationship between inflation and inflation uncertainty, or the negative effects of inflation and inflation uncertainty on output growth, vary with the level of inflation Inflation and inflation uncertainty are positively correlated in the high-inflation regime In contrast, in the low-inflation regime, the direct effect of inflation on output growth is insignificant, but the indirect negative effect on growth via inflation uncertainty is highly significant The negative influence in a high-inflation regime is 2664 times greater than that in a low-inflation regime
TL;DR: In this paper, the authors examined some standard propositions pertaining to the formulation of foreign exchange market expectations using a new survey database, which consists of disaggregated survey responses for three key currencies conducted simultaneously in the G-7 countries.
Abstract: In this paper, some standard propositions pertaining to the formulation of foreign exchange market expectations are examined using a new survey database. The database has two novel features over such data used by other researchers. In particular, it consists of disaggregated survey responses for three key currencies conducted simultaneously in the G-7 countries. It is demonstrated, inter alia, that there are important intracountry and intercountry differences with respect to individual forecasting performances. This result indicates a substantial degree of suboptimal information processing. Copyright 1992 by Blackwell Publishers Ltd and The Victoria University of Manchester
TL;DR: In this article, the conditions for risk neutrality and efficiency in forward markets are derived, and it is concluded that there is evidence for small but stationary risk even in the long run.
Abstract: This paper is concerned with whether forward exchange rates are unbiased predictors of realized future spot rates. In common with recent literature in the area, the cointegration methodology is employed. In contrast with much of that literature, the main emphasis is on making inferences on the estimated parameters. In this connection, the conditions for risk neutrality and efficiency in forward markets are derived. The Johansen procedure is applied to monthly data for the United Kingdom and Germany. It is concluded that there is evidence for small but stationary risk even in the long run. Copyright 1994 by Blackwell Publishers Ltd and The Victoria University of Manchester
TL;DR: The authors investigated the relationship between the firm's production methods and the generosity of its sick-pay, and found that firms that might be expected to value reliability highly, characterized as those that use just-in-time, are more likely to provide less generous paid leave.
Abstract: Studies of sick-pay and absenteeism have traditionally treated absence as a worker-related phenomenon. There are good reasons to suppose, though, that firms' incentives to control absenteeism are not uniform. Using an employee/employer-matched data set, we investigate the relationship between the firm's production methods and the generosity of its sick-pay. The results suggest that firms that might be expected to value reliability highly, characterized as those that use just-in-time, are more likely to provide less generous sick-pay. Those findings survive when we control for the use of complementary policies that buffer production from absence shocks.
TL;DR: In this article, the authors investigate several market-neutral trading strategies and find empirical evidence that market neutral equity trading outperforms in 2008, the first full year of the global financial meltdown.
Abstract: We investigate several market-neutral trading strategies and find empirical evidence that market-neutral equity trading outperforms in 2008, the first full year of the global financial meltdown. In our experiments we use 14 distinct market-neutral trading strategies, using the combination of seven trading methods and two selection methods of pairs trading.
TL;DR: In this article, the authors test for Granger causality between changes in the gap between U.K. and world interest rates and changes in SDR/Sterling exchange rate.
Abstract: The current practice of central banks lending gold to gold producers allows the gold leasing rate to be derived from published data. Gold leasing rates, a potential measure of real world interest rates, are calculated and compared with real interest rates derived from U.K. index-linked gilts. The authors then test for Granger causality between changes in the gap between U.K. and world interest rates and changes in the SDR/Sterling exchange rate. They find evidence of Granger causality in both directions, which is consistent with economic theory. Copyright 1994 by Blackwell Publishers Ltd and The Victoria University of Manchester
TL;DR: This article found that policy-makers respond to the gap between inflation and an intermediate target that reflects the recent history of inflation, and showed that there is no response of interest rates to inflation when inflation is within 1 per cent of the intermediate target but a strong response when it is further from the target.
Abstract: The opportunistic approach to monetary policy is an influential but untested model of optimal monetary policy. We provide the first tests of the model, using US data from 1983Q1 to 2004Q1. Our results support the opportunistic approach. We find that policy-makers respond to the gap between inflation and an intermediate target that reflects the recent history of inflation. We find that there is no response of interest rates to inflation when inflation is within 1 per cent of the intermediate target but a strong response when inflation is further from the intermediate target.
TL;DR: In this article, the role of the real exchange rate in macroeconomic equilibrium is analyzed and the stabilizing role of monetary policy in adjustment towards the supply-side equilibrium exchange rate is analyzed both before and after entry to the exchange rate mechanism of the European Monetar System.
Abstract: This paper analyzes the role of the real exchange rate in macroeconomic equilibrium. The supply-side equilibrium exchange rate, that level of the real exchange rate at which (relative) inflation is constant, is derived from a simple macro-model and related to the standard "NAIRU" model. The stabilizing role of monetary policy in adjustment towards the supply-side equilibrium exchange rate is analyzed both before and after entry to the exchange rate mechanism of the European Monetar System. Resolution of the conflict between supply-side and external equilibrium produces a stricter definition of the fundamental equilibrium exchange rate of J. Williamson. Copyright 1992 by Blackwell Publishers Ltd and The Victoria University of Manchester
TL;DR: In this paper, the authors show that if firms with asymmetric costs can engage in technology licensing, welfare may be higher under Cournot competition than under Bertrand competition if the technological difference between the firms is moderate.
Abstract: If firms with asymmetric costs can engage in technology licensing, we show that welfare may be higher under Cournot competition than under Bertrand competition. Under fixed-fee licensing, consumer surplus and welfare are higher under Cournot competition if the technological difference between the firms is moderate. Under royalty licensing, if the bargaining power of the licenser is not very high and the technological difference between the firms is large, consumer surplus and welfare are higher under Cournot competition. We also show that technology licensing has important implications on the profit differential between Bertrand and Cournot competition.
TL;DR: In this paper, the impact of changes in the real price of houses on the level of wealth and the rate of consumption of the personal sector is analyzed and a theoretical framework is developed to assess under what conditions the real net worth of agents is increased by unanticipated house price inflation.
Abstract: This paper analyzes the impact of changes in the real price of houses upon the level of wealth and the rate of consumption of the personal sector. A theoretical framework is developed to assess under what conditions the real net worth of agents is increased by unanticipated house price inflation. Long-term trends in the value of the U.K. housing stock and in the excess returns to housing wealth are measured. The implications of the results for policy and for economic modeling are discussed. Copyright 1993 by Blackwell Publishers Ltd and The Victoria University of Manchester
TL;DR: In this article, the authors argue that entry must be consistent with the economy's fundamental equilibrium exchange rate, but that governments can influence the speed of convergence to the fundamental equilibria.
Abstract: The paper discusses how a country should choose the rate at which it enters a fixed or quasi-fixed exchange rate zone. It is argued that entry must be consistent with the economy's fundamental equilibrium exchange rate, but that governments can influence the speed of convergence to the fundamental equilibrium exchange rate. Once entry has occurred, this can either involve using fiscal policy to alter the economy's transitional inflation path or monetary policy to move within the currency band. This framework is applied to U.K. entry into the European Monetary System and suggests that entry was at an unrealistically high rate.
TL;DR: In this article, the authors analyse the dynamics relationships between inflation, output growth, and real and nominal uncertainty using the VARFIMA-BEKK MGARCH model of inflation and output growth and quarterly data for the UK covering the 1957:Q2-2006:Q4 period.
Abstract: The aim of this paper is to analyse the dynamics relationships between inflation, output growth, and real and nominal uncertainty using the VARFIMA-BEKK MGARCH model of inflation and output growth and quarterly data for the UK covering the 1957:Q2–2006:Q4 period. The analysis is also done for the three sub-periods determined by considering the structural changes such as the Great Moderation in the series of the UK. Two findings are obtained. First, the evidence obtained from the full period supports a number of important conclusions, one of which is mixed evidence regarding the effect of inflation on inflation uncertainty, another one being strong evidence regarding the positive effect of inflation uncertainty on inflation and output growth. Taking this into account, it is possible to put forward that an essential determinant of economic growth is uncertainty about the inflation rate. The last finding for this period is that output growth uncertainty is a positive determinant of the inflation and output growth rate. Second, the evidence found from the sub-periods is that there are no linkages between inflation, output growth and their volatility.
TL;DR: In this paper, the authors examined the welfare effects of a merger between two asymmetric firms and found that for quantity competition, the merger increases total welfare if the cost asymmetry falls into a specific range.
Abstract: We follow the duopoly framework with differentiated products as in Singh and Vives (1984) and Zanchettin (2006) and examine the welfare effects of a merger between two asymmetric firms. We find that for quantity competition, the merger increases total welfare if the cost asymmetry falls into a specific range. Furthermore, this parameter range widens if the products are closer substitutes. On the other hand, mergers are never welfare enhancing in this setting when firms compete in prices.
TL;DR: In this paper, an endogenous order of moves is analyzed in a mixed duopoly where firms first strategically choose their capacity levels and then compete at price level, and it is shown that there are two equilibria: in one of them the public firm is the leader in capacities and, in the other, the follower.
Abstract: An endogenous order of moves is analyzed in a mixed duopoly where firms first strategically choose their capacity levels and then compete at price level. In equilibrium, firms are shown to set prices simultaneously while capacities are chosen sequentially. This result is in contrast to the assumption of simultaneous order of moves for capacities choice made by Barcena-Ruiz and Garzon (Economics Bulletin, Vol. 12 (2007), pp. 1–7) in a mixed duopoly. Besides, we find that there are two equilibria: in one of them the public firm is the leader in capacities and, in the other, the follower.
TL;DR: The GARCH family of statistical processes are used to examine the characteristics of the volatility of the returns on capitalization-ranked portfolios of U.K. company shares in this paper.
Abstract: The GARCH family of statistical processes are used to examine the characteristics of the volatility of the returns on capitalization-ranked portfolios of U.K. company shares. In common with U.S. evidence, the authors find an asymmetry related to firm size. Unexpected returns of large firm portfolios influence the future volatility and returns of small firm portfolios but not the reverse. The authors extend earlier studies by considering whether the direction of the shock is important. There is evidence of a 'leverage' effect and it is concluded that the appropriate choice of volatility model for U.K. equity returns depends upon firm size. Copyright 1996 by Blackwell Publishers Ltd and The Victoria University of Manchester