Volume 26, Issue 1

This note illustrates, by reconsidering the seminal optimal speed-of-transition model of Aghion, P., and O. J. Blanchard. (1994. “On the Speed of Transition in Central Europe.” NBER Macroeconomics Annual 9: 283–319), that optimal transition paths, in general, exhibit nonlinearities and discontinuities. Aghion and Blanchard consider only an approximate solution with a constant unemployment rate over the transition process. The exact solution features an increasing unemployment rate with a discontinuity when the state sector is closed down at the optimally chosen endpoint of transition. Economic transition problems bear many similarities to scrap value problems with free terminal time, often encountered in resource economics. In relation to the transition to a green economy, the discussion in this note therefore casts doubt on the optimality of a green transition discussed in, e.g., the European Union in terms of politically specified rather than optimally designed milestones for emissions reductions, i.e., by −55 % compared to 1990 levels until 2030 and net zero until 2050.

We examine how trade and policy uncertainty affect shipping freight rates, using a Bayesian Vector Autoregression (BVAR) model. Trade uncertainty has a strong effect on shipping costs, even though the effects become insignificant within a year. On the other hand, policy uncertainty has a slightly smaller initial effect but tends to have longer-lasting effects on shipping costs. Trade uncertainty tends to benefit European stocks, perhaps as investors may believe that consumers will shift to local companies, with the impact on US stocks also being (mildly) positive, despite the (lagged) deterioration in economic activity. Trade uncertainty tends to have a longer-lasting impact on GDP than policy uncertainty, given then known merits of comparative advantage, while the effect of policy uncertainty is higher in the European markets compared to the US ones.

This paper studies whether individuals that experienced parental unemployment during their childhood/early adolescence have poorer health once they reach the adulthood. We used data from the German Socio-Economic Panel from 2002 until 2018. Our identification strategy of the causal effect of parental unemployment relied on plant closures as exogenous variation of the individual labor market condition. We combined matching methods and parametric estimation to strengthen the causal interpretation of the estimates. On the one hand, we found a nil effect for parental unemployment on mental health. On the other hand, we detected a negative effect on physical health, which is stronger if parental unemployment occurred in late periods of the childhood and heterogeneous across gender. The negative effect of parental unemployment on physical health may be explained by a higher alcohol and tobacco consumption later in life.