Showing papers in "The Manchester School in 2015"
TL;DR: In this article, the authors assess the long-term economic impact of the Basel III reform using a wide range of macroeconomic and econometric models and find that the economic costs of the new regulatory standards for bank capital and liquidity are considerably below existing estimates of the benefits that the reform should have by reducing the probability of banking crises.
Abstract: Using a wide range of macroeconomic and econometric models we assess the long-term economic impact of the Basel III reform. Our main results are the following. (1) The economic costs of the new regulatory standards for bank capital and liquidity are considerably below existing estimates of the benefits that the reform should have by reducing the probability of banking crises (Basel Committee on Banking Supervision (2010) ‘An Assessment of the Long-term Impact of Stronger Capital and Liquidity Requirements’, Basel). (2) The reform dampens output volatility modestly, although there is some heterogeneity across models. (3) The adoption of countercyclical capital buffers can substantially amplify the dampening effect on output volatility.
85 citations
TL;DR: In this paper, the interaction between macro-prudential and monetary policies, using a DSGE model with a housing market and collateral constraints, was studied, and it was shown that when both policies act together, monetary policy should ensure price stability while the macro-regulatory authority should safeguard financial stability.
Abstract: This paper studies the interaction between macroprudential and monetary policies, using a DSGE model with a housing market and collateral constraints Monetary policy follows a standard Taylor rule for the interest rate The macroprudential authority implements a Taylor-type rule for the loan-to-value, ratio reacting to output and house prices Results show that introducing the macroprudential rule or extending the interest-rate rule to respond to house prices increases welfare, since it enhances financial stability However, for the optimal policy mix, when both policies act together, monetary policy should ensure price stability while the macroprudential authority should safeguard financial stability
33 citations
TL;DR: In this article, the optimal two-part tariff licensing contract for an internal patentee in a differentiated Cournot duopoly was studied, and the type of the royalty payment that is optimal for the patentee depends on the kind of goods produced in the industry, more precisely on whether they are substitutes or complements and on the degree of product differentiation.
Abstract: This paper studies the optimal two-part tariff licensing contract for an internal patentee in a differentiated Cournot duopoly. We find that the type of the royalty payment, whether ad valorem or per-unit, that it is optimal for the patentee depends on the kind of goods produced in the industry, more precisely on whether they are substitutes or complements and on the degree of product differentiation. We also find that licensing always increases social welfare, although it may hurt consumers.
30 citations
TL;DR: In this article, the authors test their results by using three-stage least squares method in a panel set up for a system of four equations on growth, public investment, corruption and private investment.
Abstract: In an endogenous growth model with information asymmetry between the government and the bureaucracy, the bureaucrats can falsely report of high-quality high-cost procurement, while providing low-quality low-cost product. This reduces the quality of public services, but inflates the public spending, which in effect reduces growth. We test our results by using three-stage least squares method in a panel set up for a system of four equations on growth, public investment, corruption and private investment. Our primary results are twofold. First, corruption increases public investment. Second, corruption reduces the returns to public investment and makes it ineffective in raising economic growth.
29 citations
TL;DR: In this paper, an optimal two-part licensing scheme based on ad valorem royalties within a differentiated Bertrand duopoly where the innovator is also the downstream producer, and compared it with the optimal twopart per-unit royalty mechanism.
Abstract: This paper analyses an optimal two-part licensing scheme based on ad valorem royalties within a differentiated Bertrand duopoly where the innovator is also the downstream producer, and compares it with the optimal two-part per-unit royalty mechanism. After showing that the optimal two-part ad valorem licensing scheme reduces to a pure ad valorem royalty scheme, we show that per-unit contracts are typically preferred to ad valorem contracts by the patentee, as, under price competition, the per-unit royalty has a stronger strategic effect than the ad valorem royalty. In contrast, welfare is higher under the ad valorem contract than under the per-unit mechanism.
26 citations
TL;DR: The authors carried out a meta-regression analysis on a sample of 269 estimates of the OLC to uncover reasons for differences in empirical results and to estimate the 'true' OLC.
Abstract: This paper seeks to identify whether there is a representative empirical Okun's law coefficient (OLC) and to measure its size. We carry out a meta-regression analysis on a sample of 269 estimates of the OLC to uncover reasons for differences in empirical results and to estimate the 'true' OLC. On statistical (and other) grounds, we find it appropriate to investigate two separate subsamples, using respectively (some measure of) unemployment or output as dependent variable. Our results can be summarized as follows. First, there is evidence of type II publication bias in both subsamples, but a type I bias is present only among the papers using some measure of unemployment as the dependent variable. Second, after correction for publication bias, authentic and statistically significant OLC effects are present in both subsamples. Third, bias-corrected estimated true OLCs are significantly lower (in absolute value) with models using some measure of unemployment as the dependent variable. Using a bivariate MRA approach, the estimated true effects are −0.25 for the unemployment subsample and −0.61 for the output subsample; with a multivariate MRA methodology, the estimated true effects are −0.40 and −1.02 for the unemployment and the output subsamples respectively.
26 citations
TL;DR: The authors, Volume 83, Issue Supplement S2, pages 27-59, September 2015, published in Manchester School, Volume 83 and issue supplement S2, pages 27−59.
Abstract: Published in Manchester School, Volume 83, Issue Supplement S2, pages 27–59, September 2015
23 citations
TL;DR: In this paper, the authors suggest that operational targets for governments (e.g. for 5 years ahead) should involve deficits rather than debt, because such rules will be more robust to shocks.
Abstract: Theory suggests that government should as far as possible smooth taxes and its recurrent consumption spending, which means that government debt should act as a shock absorber, and any planned adjustments in debt should be gradual. This suggests that operational targets for governments (e.g. for 5 years ahead) should involve deficits rather than debt, because such rules will be more robust to shocks. Beyond that, fiscal rules need to reflect the constraints on monetary policy, and the extent to which governments are subject to deficit bias. Fiscal rules for countries in a monetary union or fixed exchange rate regime need to include a strong countercyclical element. Fiscal rules should also contain a ‘knock out’ if interest rates hit the zero lower bound: in that case the fiscal and monetary authorities should cooperate to formulate a fiscal expansion package that allows interest rates to rise above this bound. In more normal times, the design of fiscal policy rules is likely to depend on the extent to which governments are subject to deficit bias, and the effectiveness of any national fiscal council. For example, governments that had not shown a history of deficit bias could aim to target deficits five years ahead (rolling targets), and these would not require cyclical adjustment. In contrast, governments that were more prone to bias could target a cyclically adjusted deficit at the end of their expected period of office. In both cases fiscal councils would have an important role to play, in ensuring plans were implemented in the first case and allowing for departures from target when external shocks occurred in the second.
22 citations
TL;DR: For example, this paper pointed out that while the prior level of bank equity was patently too low, the way in which the regulatory requirements for higher equity ratios have been introduced encouraged deleveraging, especially via reductions in cross-border lending.
Abstract: Never before in any previous crisis has monetary policy responded with such aggressive expansion. Not only have short-term policy rates been cut to zero, but the monetary base, and even more so commercial bank reserves, have been increased hugely. Yet bank lending to the private sector and the broad money supply have stagnated, and the recovery has been weak. While the prior level of bank equity was patently too low, the way in which the regulatory requirements for higher equity ratios have been introduced encouraged deleveraging, especially via reductions in cross-border lending. Much more thought should have been given both to the incentives that bank CEOs faced and to the appropriate mechanisms for raising additional bank equity.
18 citations
TL;DR: The authors provide a broadly parallel analysis for the USA, where research has been less targeted on this issue and report similar findings for temporary workers in the USA as found for fixed-term contract workers in Britain.
Abstract: Atypical work arrangements have long been criticized as offering more precarious and lower paid work than regular open-ended employment An important British paper by Booth et al (Economic Journal, Vol 112 (2002), No 480, pp F189–F213) was among the first to recognize such jobs also functioned as a stepping stone to permanent work This conclusion proved prescient, receiving increased support in Europe Here, we provide a broadly parallel analysis for the USA, where research has been less targeted on this issue We report similar findings for temporary workers in the USA as found for fixed-term contract workers in Britain
15 citations
TL;DR: This article showed a strong association between flexible schedules and reduced absence rates even after controlling for other family friendly policies also thought to reduce absence, and suggested that the other policies, financial support for caregivers and family leave for caregivers, play a weaker role in explaining absence.
Abstract: Using establishment data, we show a strong association between flexible schedules and reduced absence rates even after controlling for other family friendly policies also thought to reduce absence. The evidence suggests that the other polices, financial support for caregivers and family leave for caregivers, play a weaker role in explaining absence. The primacy of the role of schedule flexibility remains in a variety of robustness exercises including an effort to account for endogeneity. The size of the influence also shows heterogeneity as it emerges as larger in female dominated workplaces. The estimates help to inform current policy deliberations.
TL;DR: In this article, the authors study the evolution of residential investment in 17 OECD countries spanning the period 1970 to 2013 and test their conceptual framework by means of a sample of 17 countries.
Abstract: Six years after the burst of the housing bubble in some of the main world economies, the recovery does not follow a homogeneous pattern among them. In this context, it is necessary to pay attention to the evolution of residential investment, which traditionally has played an important role in the revival of the economy after previous episodes of bubbles in the housing market. In the second stage of our study, we test our conceptual framework by means of a sample of 17 OECD countries which spans the period 1970 to 2013.
TL;DR: In this article, the association between parental occupation and children's earnings in eight EU countries is compared using the European Union Survey on Income and Living Conditions (EU-SILC) data set, analysing residual background correlations (RBCs) on earnings, controlling for children's education and occupation, and patterns by gender.
Abstract: The association between parental occupation and children's earnings in eight EU countries is compared using the European Union Survey on Income and Living Conditions (EU-SILC) data set, analysing: (i) residual background correlations (RBCs) on earnings, controlling for children's education and occupation, and (ii) patterns by gender, controlling for selection into employment. Findings on cross-country differences confirm well-known differences in intergenerational income inequality. RBCs are statistically significant irrespective of gender in the UK, Spain and Italy, for men in France and Ireland, for women in Denmark and not significant in Germany and Finland. Not controlling for selection delivers downward biased estimates of RBCs, highlighting the effect of family background on employability.
TL;DR: In this paper, the authors review a number of coalitional solution concepts for the analysis of cartel and merger stability in oligopoly and show that different assumptions on the behaviour and on the timing of the coalitions of firms yield very different results on the associations of firms which are stable.
Abstract: In this paper we review a number of coalitional solution concepts for the analysis of cartel and merger stability in oligopoly. We show that, although so far the industrial organization and the cooperative game theoretic literature have proceeded somehow independently on this topic, the two approaches are highly inter-connected. We show that different assumptions on the behaviour and on the timing of the coalitions of firms yield very different results on the associations of firms which are stable. We conclude by reviewing some recent extensions of the coalitional analysis to oligopolistic markets with heterogeneous firms and incomplete information.
TL;DR: In this article, the authors analyzed the effects of foreign direct investment on wages paid by domestic firms in the Italian manufacturing sector over the period 2002-2007, and found that workers employed in domestic firms with a low-medium technological absorptive capacity seem to benefit from the presence of multinational enterprises in terms of higher wages.
Abstract: This paper analyzes the effects of foreign direct investment on wages paid by domestic firms in the Italian manufacturing sector over the period 2002-2007. In particular, the authors investigate the im- pact of multinational enterprises on wages paid by local firms which operate in the same industry, known and horizontal wage spillovers, or have linkages with multinational enterprises in both downstream and upstream industries, known as vertical wage spillovers. By using a large panel dataset, consisting of 551,000 observations, the authors find evidence of wage spillovers only at inter-industry level and, more specifically, for those firms who supply their goods to multinational enterprises, described as backward wage spillovers. Moreover, findings suggest that the wage spillover effect is strongly affected by the technological gap between local and foreign firms: only workers employed in domestic firms with a low- medium technological absorptive capacity seem to benefit from the presence of multinational enterprises in terms of higher wages.
TL;DR: The authors argue that large-scale asset purchases, or to put the matter more generically, use of the central bank's balance sheet as a distinct tool of monetary policy, is likely to become part of the standard toolkit for monetary policymaking in normal times as well.
Abstract: I argue in this paper that one of the two forms of hitherto unconventional monetary policy that many central banks have implemented in response to the 2007 financial crisis - large-scale asset purchases, or to put the matter more generically, use of the central bank's balance sheet as a distinct tool of monetary policy - is likely to become part of the standard toolkit of monetary policymaking in normal times as well. As intended, these purchases have lowered long-term interest rates relative to short-term rates, and lowered interest rates on more-risky compared to less-risky obligations. Moreover, their introduction fills a conceptual vacuum that has long stood at the heart of monetary policy analysis and implementation. By contrast, forward guidance on the future trajectory of monetary policy has been less successful. Public statements by central banks about their actions and intentions will no doubt continue, but transparency for the sake of transparency is not the same as the deliberate attempt to shape market expectations for purposes of achieving specific monetary policy objectives. Finally, there is a conceptual component to all this as well. In contrast to the last century or more of monetary theory, which has focused on central banks' liabilities, the basis for the effectiveness of central bank asset purchases turns on the role of the asset side of the central bank's balance sheet. The implications for monetary theory are profound.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
TL;DR: The authors show that the standard finding for the public sector is driven by the dominating influence of large feminized occupational groups, such as nursing and teaching, which have flat job hierarchies and low wage variance.
Abstract: A standard finding is that the public sector exhibits lower gender wage gaps than the private sector. This is attributed to less gender discrimination in the public sector. We show that this conclusion is flawed as the standard finding for the public sector is driven by the dominating influence of large feminized occupational groups, such as nursing and teaching, which have flat job hierarchies and low wage variance. Other occupations within the public sector exhibit sizeable wage gaps which cannot be explained by workplace or worker characteristics. This implies that gender discrimination is substantial in some public sector occupations.
TL;DR: The authors explored the relationship between reported job satisfaction and own, relative and comparison-group wage and found that choice of relevant comparison group is affected by gender; men display behaviour characteristic of competitiveness while women do not.
Abstract: A substantial and persistent earnings gap exists between male and female employees in Britain. Despite this gap, British women typically report higher levels of job satisfaction than men. We consider this apparent contradiction by asking whether the higher job satisfaction reported by female employees is associated with their being less concerned by the level of co-worker wages. We explore the relationship between reported job satisfaction and own, relative and comparison-group wage; allowing for asymmetry in responses across genders. We find that choice of relevant comparison group is affected by gender; men display behaviour characteristic of competitiveness while women do not.
TL;DR: In this paper, the authors examine interactions and influences between committee members when there is heterogeneity among members and identify significant interactions and directions of influence among Monetary Policy Committee members at the Bank of England.
Abstract: It is widely believed that setting monetary policy through a majority voting committee has major benefits. A monetary policy committee can take personalities out of monetary policy decisions. Critical to understanding these claims is an assessment of how such a committee functions. In this paper we examine interactions and influences between committee members when there is heterogeneity among members. We are able to identify significant interactions and directions of influence among Monetary Policy Committee members at the Bank of England.
TL;DR: The authors examines endogenous choice of firm's strategic variables (i.e., price or quantity contract) in a duopoly in which the demand functions that they face are asymmetric in managerial delegation case with separation between ownership and management.
Abstract: This paper examines endogenous choice of firm's strategic variables—i.e. price or quantity contract—in a duopoly in which the demand functions that they face are asymmetric in managerial delegation case with separation between ownership and management. We show that when the degree of asymmetry between the demand functions that the two firms face is low, price and quantity competitions are observed in the equilibrium, whereas when the degree of such asymmetry is high, the two types of market structures in which the strategic variables selected by the two owners are different from each other are observed in the equilibrium.
TL;DR: In contrast to the traditional focus on central banks' liabilities, the effectiveness of this policy tool turns on the role of the asset side of central banks balance sheet as discussed by the authors, and the implications for monetary theory are profound.
Abstract: Large-scale asset purchases—and sales too—are likely to become part of the standard toolkit of monetary policymaking. Central banks' purchases since the financial crisis have lowered long-term interest rates relative to short-term rates, and lowered interest rates on more-risky compared to less-risky obligations. Moreover, their introduction fills a conceptual vacuum that has long stood at the heart of monetary policy analysis and implementation. In contrast to the traditional focus on central banks' liabilities, the effectiveness of this policy tool turns on the role of the asset side of central banks' balance sheet. The implications for monetary theory are profound.
TL;DR: In this paper, the authors modify a standard quality ladder model by assuming that R&D is driven by outsider firms and the winners of the race sell licenses over their patents, instead of entering directly the inter- mediate good sector.
Abstract: In this paper we modify a standard quality ladder model by assuming that R&D is driven by outsider firms and the winners of the race sell licenses over their patents, instead of entering directly the inter- mediate good sector. As a reward they get the aggregate profit of the industry. Moreover, in the intermediate good sector firms compete a la Cournot and it is assumed that there are spillovers represented by strategic complementarities on costs. Our goal is to prove that there exists an interval of values of the spillover parameter such that the relationship between competition and growth is an inverted-U-shape.
TL;DR: An examination of the annual changes in differentials suggest that the PRBs may have had relatively little systematic impact on earnings over and above that observed for comparable individuals working elsewhere in the public sector.
Abstract: This paper examines the impact of the UK Public Sector Pay Review Bodies (PRBs) on the pay of their remit groups comparing the real weekly earnings of workers using ASHE and LFS data from 1993 to 2007 for 10 occupational subgroups. Using consecutive difference-in-differences we can identify whether the PRBs have had an impact by comparing the differences in pay for different occupations in successive time periods. Our examination of the annual changes in differentials suggest that the PRBs may have had relatively little systematic impact on earnings over and above that observed for comparable individuals working elsewhere in the public sector.
TL;DR: In this paper, the long-memory persistence in economic growth is determined jointly by the convergence speed of shocks in both environmental quality and population, and by simulating a modified Solow-Swan economy, the authors demonstrate that the convergence-speed of the shocks in these systems significantly affects the long run growth trajectory of output.
Abstract: We study dynamics of interactions among economic growth, population, and environmental quality when stochastic shocks in these systems display long-memory property. We make two important contributions. First, we show that the long-memory persistence in economic growth is determined jointly by the convergence speed of shocks in both environmental quality and population. Second, by simulating a modified Solow-Swan economy we demonstrate that the convergence-speed of shocks in these systems significantly affects the long-run growth trajectory of output. Our empirical examination evince that adjustment of output to long-run equilibrium is very slow, thanks to the slowly dissipating population and pollution shocks.
TL;DR: The authors argued that all macro/finance models are "false" so should not be judged solely on the realism of their assumptions The role of theory is to explain the data, and models should be judged by their ability to do this.
Abstract: This lecture is about how best to evaluate economic theories in macroeconomics and finance, and the lessons that can be learned from the past use and misuse of evidence. It is argued that all macro/finance models are ‘false’ so should not be judged solely on the realism of their assumptions The role of theory is to explain the data. Models should be judged by their ability to do this. Data-mining will often improve the statistical properties of a model but does not improve economic understanding. These propositions are illustrated from the last 50 years of macro and financial econometrics.
TL;DR: In this article, the authors assess the effects of competition-friendly reforms on the zero lower bound (ZLB) on the monetary policy rate in a monetary union, using a dynamic general equilibrium model calibrated to two regions within the euro area (EA) and the rest of the world.
Abstract: We assess the effects of competition-friendly reforms on the zero lower bound (ZLB) on the monetary policy rate in a monetary union, using a dynamic general equilibrium model calibrated to two regions within the euro area (EA) and the rest of the world.
Reforms simultaneously implemented in the entire EA favor an earlier exit from the ZLB if they generate sufficient short-run inflationary effects. This happens if capital accumulation increases, magnifying the expansionary effects of reforms on permanent income and, thus, short-run aggregate demand. If investment does not increase, the effects are not sufficient to reduce the ZLB duration.
TL;DR: In this article, the entry strategy of a foreign multinational into a local market with initially two asymmetric local firms is discussed, and the process of selection of the target firm by constructing sequential offer game, bidding game and repeated offer game is presented.
Abstract: We discuss entry strategy of a foreign multinational into a local market with initially two asymmetric local firms. We show that greenfield investment occurs when both local cost asymmetry and subsidiary set up cost are small, exporting occurs when both trade cost and technology gap are low, otherwise acquisition occurs. Under acquisition equilibrium the less efficient firm is acquired unless the cost of technology transfer is large enough. We focus on the process of selection of the target firm by constructing sequential offer game, bidding game and repeated offer game. However, the MNC's entry always reduces host country welfare.
TL;DR: In this paper, the effects of transparency and corruption on macroeconomic performance and volatility depend on the relative importance of the marginal supply-side effects of distortionary tax and corruption, the degree of central bank conservativeness and/or the initial degree of opacity about central bank preferences.
Abstract: This paper examines the issues of institutional quality and central bank transparency through the interaction of monetary and fiscal policies. We have found that the effects of transparency and corruption on macroeconomic performance and volatility depend on the relative importance of the marginal supply-side effects of distortionary tax and corruption, the degree of central bank conservativeness and/or the initial degree of opacity about central bank preferences. If the marginal effect of tax is relatively important, more opacity might induce higher level and volatility of inflation when the central bank is sufficiently conservative. Furthermore, opacity and tolerated corruption can mutually reinforce or weaken each other’s effects on the level and volatility of inflation. Transparency is generally a better strategy when the central bank is conservative. However, there could be a case for opacity in order to compensate for the undesirable macroeconomic effects of corruption when the central bank is liberal.
TL;DR: In this paper, the authors present a two-period model in which an employee searches for business projects in a changing environment, and an employee who discovers a profitable project in period 1 is reluctant to search again in period 2 because the old project may continue to be profitable.
Abstract: We present a two-period model in which an employee searches for business projects in a changing environment. An employee who discovers a profitable project in period 1 is reluctant to search again in period 2 because the old project may continue to be profitable. Management's response to this inertial tendency is either to increase the financial incentives to encourage searching or to accept no searching. The former response increases search efforts and total profits; the latter response has the opposite results. Inertia can be removed by restructuring the firm in period 2, but this may create a time-inconsistency problem.
TL;DR: Theoretical research has provided new insights into the sources of "market freezes" as mentioned in this paper, and the challenge is to make use of these insights to help design better regulatory frameworks and improve the structure of the financial system.
Abstract: The experience of market disruption during the recent financial crisis has focused attention on the requirements for increasing the resilience of financial markets. Theoretical research has provided new insights into the sources of ‘market freezes’. These models offer new explanations for the sudden drying up of liquidity in terms of adverse selection, ambiguity aversion, coordination failure, hoarding and market manipulation. The challenge is to make use of these insights to help design better regulatory frameworks and improve the structure of the financial system.