Volume 14, Issue 1

The author set up a simplistic agent-based model where agents learn with reinforcement observing an incomplete set of variables. The model is employed to generate an artificial dataset that is used to estimate standard macro econometric models. The author shows that the results are qualitatively indistinguishable (in terms of the signs and significances of the coefficients and impulse-responses) from the results obtained with a dataset that emerges in a genuinely rational system.

The authors construct a historical database of public investment (both total and broken down into its main components) for the period 1925 to 1981 in order to measure its impact on economic activity. Given the possible presence of crowding-out effects between public investment and private investment, in their analysis they control for the latter. The results suggest that: i) public investment had a significant impact on output, one which varies depending on the category of public investment considered, and; ii) private and public investment are positively related, i.e., public investment has a crowding-in effect on private investment, and both have a positive and significant impact on GDP. The results contrast with those of previous studies that have analyzed this relationship, though using a different time period, one that includes the economic liberalization era. Nevertheless, these differences can be rationalized by the findings of Ilzetzki et al. ( How Big (Small?) are Fiscal Multipliers? 2013), who point out that key country-specific characteristics such as trade openness and the exchange rate regime are determinant in the relationship between public investment and output.

Replication crisis and debates about p -values have raised doubts about what we can statistically infer from research findings, both in experimental and observational studies. With a view to the ongoing debate on inferential errors, this paper systematizes and discusses experimental designs with regard to the inferences that can and – perhaps more important – that cannot be made from particular designs.

As suggested by recent empirical evidence, one of the causes behind the widespread rise of inequality experienced by OECD countries in the last few decades may have been the increased flexibility of labor markets. The authors explore this hypothesis through the analysis of a stock-flow consistent agent-based macroeconomic model able to reproduce with good statistical precision several empirical regularities. They employ three different sensitivity analysis techniques, which indicate that increasing job contract duration (i.e. decreasing flexibility) has the effect of reducing income and wealth inequality. However, the authors also find that this effect is diminished by tight monetary policy and low credit supply. The last result suggests that the final outcome of structural reforms aimed at changing labor flexibility can depend on the macroeconomic environment in which these are implemented.

This paper explores whether a truth-telling promise can work to reduce the hypothetical bias in preference elicitation. Using an induced value experiment in China with a random nth-price auction, the author finds: 1) Hypothetical bias exists in a random nth-price auction with induced values and making a truth-telling promise can reduce the hypothetical bias. 2) All treatments are demand-revealing except for the hypothetical baseline.

The author develops a dynamic model with two types of electronic money: reserves for transactions between bankers and zero-maturity deposits for transactions in the non-bank private sector. Using this model, he assesses the efficacy of unconventional monetary policy since the Great Recession. After quantitative easing, keeping the interest on reserves near zero too long might create deflation. The central bank can safely get out of the “low rate-cum-deflation” trap by “raising rate and raising money supply”.

Many studies have suggested that stringent labor protections and higher labor costs can limit foreign direct investment (FDI) in host countries. This would imply that the decisions of foreign firms are sensitive to the degree of flexibility in the labor market in the U.S. The U.S. has a steady stream of immigration, which has preserved the stability of the labor supply for the U.S. market. This makes the U.S. a good test case for the relationship between immigration and FDI because it is not only the largest host for FDI but also has the largest immigrant population in the world in absolute terms and is experiencing a significant reduction in labor supply and an increase in the minimum cost of labor. Utilizing a timeseries analysis of data from 1970 to 2016, this study suggests that expansive immigration policies directly increase FDI inflows in the U.S. and indirectly increase FDI inflows by lowering labor costs and securing a stable supply of labor.

To study coordination in complex social systems such as financial markets, the authors introduce a new prediction market set-up that accounts for fundamental uncertainty. Nonetheless, the market is designed so that its total value is known, and thus its rationality can be evaluated. In two experiments, the authors observe that quick consensus emerges early yielding pronounced mispricing, which however does not show the standard “bubble-and-crash”. The set-up is implemented within the xYotta collaborative platform (https://xyotta.com). xYotta’s functionality offers a large number of extensions of various complexity such as running several parallel markets with the same or different users, as well as collaborative project development in which projects undergo the equivalent of an IPO (initial public offering) and whose subsequent trading matches the role of financial markets in determining value. xYotta is thus offered to researchers as an open source software for the broad investigation of complex systems with human participants.

In contrast with the ‘missing micro-foundations’ argument against Keynes’s macroeconomics, the paper argues that it is the present state of microeconomics that needs more solid ‘Keynesian foundations’. It is in particular Keynes’s understanding of investors’ behaviour that can be fruitfully extended to consumption theory, in a context in which consumers are considered as entrepreneurs, buying goods and services to engage in timeconsuming activities. The paper emphasizes that the outcome in terms of enjoyment is particularly uncertain for those innovative and path-breaking activities, which Keynes discussed in his 1930 prophetic essay about us, the grandchildren of his contemporaries. Moreover, the Keynes-inspired microeconomics suggested in the paper provides an explanation of why Keynes’s prophecy about his grandchildren possibly expanding leisure did not materialize yet. The paper finally points at the need for appropriate economic policies supporting consumers’ propensity to enforce innovative forms of time use.

In the study of Giffen behavior or “Giffenity”, there remains a paradox. On the one hand, the Wold-Juréen (1953) utility function has been touted as the progenitor of a multi-decade search for those two-good, particular utility functions, which exhibit Giffenity. On the other hand, there is no evidence that the Wold-Juréen (1953) utility function has ever been fully evaluated for Giffenity, with perhaps one minor exception, Weber (, 1997). But there, Weber showed that the Giffenity of Good 1 depends upon the relative magnitude of income vis-à-vis the price of Good 2. Weber’s precondition is so vague that it lacks broad appeal. This paper offers a new and a clear cut precondition for Giffen behavior under the Wold-Juréen (1953) utility function. That is, we show that if the price of Good 1 is greater than or equal to the price of Good 2, then Good 1 is a Giffen good.

The total output of an economy usually follows cyclical movements which are accompanied by similar movements in stock prices. The common explanation relies on the demand side. It points out that stock market wealth drives consumption which triggers production afterwards. This paper focuses on influences via the supply side of the economy. The aim of the paper is to explore channels where stock price patterns influence the amount of credit taken by firms. The author examines trend and volatility cycles on the stock market. There are three channels addressed: the stock market valuation as piece of information for the assessment of a firm’s creditworthiness, the influence on restructuring prospects in times of financial distress and the stock market related remuneration of the top management affecting capital demand. The author ask to which extent a channel may contribute to the stock price - output relation when there is mutual feedback. A model à la Delli Gatti et al. ( A new approach to business fluctuations: heterogeneous interacting agents, scaling laws and financial fragility, 2005) drives the results. Firms take credit to finance their production which determines their financial fragility. If their stochastic revenue is too low, they are bankrupt and leave the economy. The capital loss hurts the bank’s equity base and future credit supply is diminished. This causes business cycles. Results show that if the bank assesses creditworthiness according to the stock price then idiosyncratic stock price fluctuations have only a slight effect as they disturb selection and hinder growth. If stock market optimism matters for bankruptcy ruling the level of stock owners’ influence does not matter. If optimism is wide spread among stock investors however, investment behaviour is also correlated through the stock prices and this results in huge real economy cycles without any long-term growth. If volatility is considered in the decision of managers they act more prudently and this fosters growth.

If we reassess the rationality question under the assumption that the uncertainty of the natural world is largely unquantifiable, where do we end up? In this article the author argues that we arrive at a statistical, normative, and cognitive theory of ecological rationality. The main casualty of this rebuilding process is optimality. Once we view optimality as a formal implication of quantified uncertainty rather than an ecologically meaningful objective, the rationality question shifts from being axiomatic/probabilistic in nature to being algorithmic/predictive in nature. These distinct views on rationality mirror fundamental and longstanding divisions in statistics

The great recession (2008) triggered an apparent discrepancy between empirical findings and macroeconomic models based on rational expectations alone. This gap led to a series of recent developments of a behavioral microfoundation of macroeconomics combined with the underlying experimental and behavioral Beauty Contest (BC) literature, which the authors review in this paper. They introduce the reader to variations of the Keynesian Beauty Contest (Keynes, The general theory of employment, interest, and money, 1936), theoretically and experimentally, demonstrating systematic patterns of out-of-equilibrium behavior. This divergence of (benchmark) solutions and bounded rationality observed in human behavior has been resolved through stepwise reasoning, the so-called level k, or cognitive hierarchy models. Furthermore, the authors show how the generalized BC function with limited parameter specifications encompasses relevant micro and macro models. Therefore, the stepwise reasoning models emerge naturally as building blocks for new behavioral macroeconomic theories to understand puzzles like the lacking rise of inflation after the financial crisis, the efficacy of quantitative easing, the forward guidance puzzle, and the effectiveness of temporary fiscal expansion.

This paper shows how to bootstrap hypothesis tests in the context of the Parks’s (1967) Feasible Generalized Least Squares estimator. It then demonstrates that the bootstrap outperforms FGLS(Parks)’s top competitor. The FGLS(Parks) estimator has been a workhorse for the analysis of panel data and seemingly unrelated regression equation systems because it allows the incorporation of cross-sectional correlation together with heteroskedasticity and serial correlation. Unfortunately, the associated, asymptotic standard error estimates are biased downward, often severely. To address this problem, Beck and Katz (1995) developed an approach that uses the Prais-Winsten estimator together with “panel corrected standard errors” (PCSE). While PCSE produces standard error estimates that are less biased than FGLS(Parks), it forces the user to sacrifice efficiency for accuracy in hypothesis testing. The PCSE approach has been, and continues to be, widely used. This paper develops an alternative: a nonparametric bootstrapping procedure to be used in conjunction with the FGLS(Parks) estimator. We demonstrate its effectiveness using an experimental approach that creates artificial panel datasets modelled after actual panel datasets. Our approach provides a superior alternative to existing estimation options by allowing researchers to retain the efficiency of the FGLS(Parks) estimator while producing more accurate hypothesis test results than the PCSE.

Although it is not a new phenomenon, in recent years inequality has moved to the top of the political agenda given the concern that will result in political instability and social resentment. Persistence in inequality can further undermine economic growth and development by hindering educational opportunities, human capital formation, and intergenerational mobility. The persistent nature of inequality stands as one of the most serious challenges for the global economy. This paper analyses inequality persistence for a sample of 60 countries from 1984 to 2015. The authors conclude that inequality is persistent and government redistribution polices through taxes and transfers did not significantly reduce inequality persistence.

The current economic crisis has witnessed a strong deceleration in the growth of international trade. This has been even greater in the cases of the European Unionand the eurozone, where the rates of export growth have even reached negative figures. In this paper, the authors examine to which extent exchange rate volatility might account for the drop in the rate of growth of exports in the eurozone since the start of the crisis. To that end, they estimate export functions, augmented to include several measures of exchange rate volatility, for the four largest economies of the eurozone, i.e., France, Germany, Italy and Spain, for the period 1994:1–2014:4. In the empirical application, the authors make use of two alternative measures for exchange rate volatility, i.e., (i) the Standard deviation and (ii) the conditional variance from the GARCH methodology, of the change in the logarithm of the exchange rate, for both nominal and real exchange rates, and in the latter case computed using as deflators both Export prices and unit labour costs. The empirical results show no clear-cut evidence on the impact of exchange rate volatility on the exports of the countries analysed, suggesting that financial markets were developed enough so that exchange rate volatility does not hinder the evolution of exports.

The paper’s main objective is to analyze the collective bargaining response in terms of internal flexibility during the Great Recession (GR) in five EU countries (Spain, Germany, France, Italy, United Kingdom), and three economic sectors (industry, commerce and hospitality, and financial services and real estate), at the establishment level (ECS2013 database). The theoretical framework used is linked to the varieties of unionism and to the debate on the tendency towards the international homogenization or heterogenization of collective bargaining between the European Union countries. Using a descriptive statistical analysis and a probit model, this paper presents new evidences. However, the responses were heterogeneous between countries and sectors, the use of internal functional flexibility has been more intense than the numerical and salary internal flexibility. Moreover, it is related to the intensity of GR. These results, in general, while requiring a more detailed analysis of the effects of the GR on internal flexibility in the EU countries, contribute to introducing a new perspective in the socioeconomic literature about the collective bargaining and internal flexibility.

The authors investigate how the Global South’s gross domestic product (GDP) is impacted by trade with China. While the current literature on the growth impacts of trade (by leading partner countries) often neglects the properties of macro panel data, such as cross-sectional dependence, heterogeneity and structural breaks, their models take these features into account. Their empirical results based on 22 major developing countries from 2000Q1 to 2016Q4 identify positive contributions ofimports from China to GDP in the studied sample, although these effects are smaller compared to imports from other emerging and developing economies (excluding China) (EME) and advanced economies (AdE). The authors also show that, in contrast with considerable impacts of exports to EME and AdE, exports to China have limited effects on the growth of its partners. However, the global financial crisis marks a turning point of China’s role as a major driver of growth in the South. Namely, while the positive growth effects of trade with China after the global crisis are on the rise, the opposite is true for EME and AdE. Examining the effects by individual countries, the authors present that the distance between China and its partners, economic and institutional development levels of its partners are almost irrelevant to the contributions of imports from China to its partners’ growth. Based on these findings they provide some important policy recommendations for the economies of the Global South.

This paper analyzes the relationship between stock market capitalization to GDP and real GDP in 10 Central and Eastern European countries (CEECs) that joined the European Union in 2004 and 2007, with the objective of determining whether the financial markets played a role as drivers of economic development in these countries or vice versa. The methodology, using a cointegrated Vector Autoregressive (VAR) model, is based on the application of three different measures of causality: Granger causality test, Toda-Yamamoto approach and Frequency Domain approach. The results obtained suggest evidence of a causal relationship in both directions between the variables in a significant number of countries, and especially in those where the variables show to be clearly cointegrated (Bulgaria, Hungary, Latvia, Romania, Slovakia and Slovenia).

This paper investigates how firm size and global sourcing affect the export surviving probabilities. By using data on export and import transactions disaggregated by destination/origin for the entire Danish manufacturing firms between the period 1995–2006, the author is able to classify the firms into different size categories and to observe whether they continue or cease to export. Moreover, he is able to define whether the firms source intermediate inputs from high- or low-wage counties. The results, after controlling for the endogeneity of the international sourcing decision by using instrument variable and propensity score matching, indicate that firm size is positively correlated with the likelihood of continuing to export. Moreover, for small and medium size firms, global sourcing seems also to increase the probability of staying in the export market but only if they source from high-wage countries. However, sourcing inputs from abroad, no matter if it is from high- or low-wage countries, do not seem to significantly affect the export surviving probabilities for larger firms.

The creation of the Manaus Free Trade Zone had a development purpose in the Brazilian political, economic and social scenario between 1960 and 1970. This industrial pole was an important device in achieving the desired development, populating a region considered deserted and exposed to external threats at that time. It has guaranteed the improvement on labor standards and social conditions in the Manaus’ district and has become the main driving force behind regional employment, higher salaries and growth over the past decades. Using the residuals and the stochastic frontier techniques to estimate the labor and social performances of the Manaus Free Trade Zone, the analysis confirms that the implementation of the special economic zone collaborated to labor and social efficiency in the area – compared to other important industrial Brazilian municipalities – due to the rigid checks conducted by SUFRAMA and the strict respect of labor standards applied in the MFTZ. Nevertheless, economic linkages in the region are still weak and positive spillovers from Manaus to its surroundings were probably inexistent.

In this paper, a conceptual theoretical model is developed to better integrate various dimensions of the firms’ decision to export. The model sheds light on the affirmations of the founding models of the ‘new theory of international trade’, in particular the role of productivity and sunk costs of exporting in the firms’ export decision. It also takes into account two stylized facts that seem difficult to be reconciled with the implications of the founding models: 1) many domestic firms, regardless of their productivity level, enter foreign markets every year with little sales and cease all exporting activities in less than a year; 2) several of high-productivity firms choose to only serve their domestic market.

This paper investigates the effects of offshoring on individual job satisfaction and perceived risk of job loss. The authors merge microdata from the German Socio-economic Panel dataset (SOEP) with indicators of insertion in global value chains at the industry level for the period 2000–2013. They test two hypotheses. First, the authors investigate whether workers in industries with higher offshoring intensity report lower job satisfaction and/or are more prone to be unsecure at their jobs. Second, they test whether these effects differ among four categories of collars. Their findings indicate that offshoring is associated with lower job satisfaction. The results are also indicative of some heterogeneity in the offshoring effect, with high skilled white-collar workers being mostly unaffected by offshoring and low skilled blue-collar workers showing the largest negative effects. Discriminating between manufacturing and services activities, the authors find that the extent of heterogeneity and the offshoring effect is relatively larger in manufacturing industries. They also find that the effect of offshoring intensity upon job satisfaction is more negative and significant in periods of economic decline. Finally, the results show that offshoring is not significantly related with job insecurity, a result that applies to all workers’ categories. Still, in a period of economic decline job insecurity may increase when the offshoring intensity rises.

This paper investigates the relationship between trade openness and income inequality in 11 Latin American countries over the period 1989–2015. The authors use a panel dynamic approach to take into account the high persistence of income inequality. The analysis classifies trade flows, exports and imports according to trading partner’s income level. Then, the authors split trade flows according to different stages of production. The results show that overall trade flows do not statistically affect income inequality in Latin America. However, trade has divergent effects depending on the trade partners: trade with similar- and lower-income countries exacerbates inequality, while trade with higherincome countries reduces income dispersion. The results also emphasise the role of the export channel (in particular in primary commodities) in explaining income inequality in Latin American countries and imports of consumption goods seem to matter more than imports of intermediate and capital goods.

The authors replicate and extend the Monte Carlo experiment presented in Doz, Giannone and Reichlin (A Quasi-Maximum Likelihood Approach For Large, Approximate Dynamic Factor Models, Review of Economics and Statistics , 2012) on alternative (time-domain based) methods for extracting dynamic factors from large datasets; they employ open source software and consider a larger number of replications and a wider set of scenarios. Their narrow sense replication exercise fully confirms the results in the original article. As for their extended replication experiment, the authors examine the relative performance of competing estimators under a wider array of cases, including richer dynamics, and find that maximum likelihood (ML) is often the dominant method; moreover, the persistence characteristics of the observable series play a crucial role and correct specification of the underlying dynamics is of paramount importance.

This study replicates Ahn, Khandelwal, and Wei’s (2011) model of intermediary trade. The study produces two main results. First, the authors are able to reproduce empirical evidence for AKW’s three main predictions for Chinese exports. This is impressive because much of the data for their replication are independently sourced. However, when the authors subject their model to additional tests, they find that the evidence is not robust. Using more recently available data to test AKW′s first prediction, the authors estimate coefficients that are wrong-signed and significant. When they re-analyze the evidence supporting the second and third predictions, they find that the full sample results mask significant heterogeneity across Chinese regions. In many cases, key coefficients are insignificant. In a few cases, they are wrong-signed and significant. Finally, using multiple versions of a key variable measuring the number of required import documents by country, the authors discover that the results are not robust across versions.