The performance and robustness of interest-rate rules in models of the euro area

In this paper, we examine the performance and robustness of optimised interest-rate rules in four models of the euro area which differ considerably in terms of size, degree of aggregation, relevance of forward-looking behavioural elements and adherence to micro-foundations. Our findings are broadly consistent with results documented for models of the U.S. economy: backward-looking models require relatively more aggressive policies with at most moderate inertia; rules that are optimised for such models tend to perform reasonably well in forward-looking models, while the reverse is not necessarily true; and, hence, the operating characteristics of robust rules (i.e., rules that perform satisfactorily in all models) are heavily weighted towards those required by backward-looking models. JEL Classification: E31, E52, E58, E61euro area, macroeconomic modelling, Model uncertainty, monetary policy rules, Robustness

Corporate Governance, Crony capitalism and Economic Crisis: Should the US Business Model replace the Asian Way of 'Doing Business'?

This paper considers the Greenspan/Summers/IMF (GSI) argument that the Asian way of doing business was the deep cause of the Asian crisis. The IMF reform programme for the crisis-affected Asian countries suggested they should abandon the Asian business model and adopt the US corporate model. The main findings are: a) contrary to GSI doctrine, poor corporate governance and lack of competition are not common characteristics of the Asian business model; b) that the stock-market based US business model has severe limitations for developing country corporations, not least because of imperfect share prices and the imperfect market for corporate control.Asian and US corporate models; stock markets; Asian crisis

Financial (in)stability, supervision and liquidity injections : a dynamic general equilibrium approach

This paper develops a dynamic stochastic general equilibrium model with interactions between an heterogeneous banking sector and other private agents. We introduce endogenous default probabilities for both firms and banks, and allow for bank regulation and liquidity injection into the interbankmarket. Our aim is to understand the importance of supervisory and monetary authorities to restore financial stability. The model is calibrated against real data and used for simulations. We show that liquidity injections reduce financial instability but have ambiguous effects on output fluctuations. The model also confirms the partial equilibrium literature results on the procyclicality of Basel II.DSGE, Banking sector, Default risk, Supervision, Money

Early aspects: aspect-oriented requirements engineering and architecture design

This paper reports on the third Early Aspects: Aspect-Oriented Requirements Engineering and Architecture Design Workshop, which has been held in Lancaster, UK, on March 21, 2004. The workshop included a presentation session and working sessions in which the particular topics on early aspects were discussed. The primary goal of the workshop was to focus on challenges to defining methodical software development processes for aspects from early on in the software life cycle and explore the potential of proposed methods and techniques to scale up to industrial applications

Information and the Change in the Paradigm in Economics

Nobel Prize lecture.Asymmetric Information;

The regulation and structure of nonlife insurance in the United States

The insurance industry is underdeveloped in most developing countries because of low levels of income and wealth and because restrictive regulations inhibit the supply of insurance services. But several countries have begun to reform their insurance industries. To help those countries, the authors offer an overview of insurance regulation in the United States - and discuss the economics and market structure of nonlife insurance in entry and exit barriers, economies of scale, and conduct and performance studies. They conclude that the U.S. nonlife insurance industry exhibits low concentration at both national and state market levels. Concentration is low even on a line-by-line basis. The primary concern of regulators has been to protect policyholders from insolvency, but regulation has also often been used to protect the market position of local insurance companies against the entry of out-of-state competitors. Regulation has worked best when based on solvency monitoring, with limited restrictions on entry. It has been more harmful when it involved controls on premiums and products and on the industry's level of profitability. Over the years the industry has shown a remarkable degree of innovation, although it has also faced many serious and persistent problems. The problems include the widespread crisis in liability (including product liability and medical malpractice), the crisis in automobile insurance, the volatility of investment income, the effects of market-driven pricing and underwriting cycles, and the difficulty of measuring insurance solvency. The long-tailed lines of insurance - those that entail long delays in final settlements - are exposed to the vagaries of inflation and rising costs. Two mandatory lines - third party automobile insurance and workers'compensation (for work accidents) - account for nearly 55 percent of premiums. These two lines - plus medical malpractice, other liability, and aircraft insurance - had combined ratios well over 125 percent in 1989. The industry has some ability to collude and to set prices, but seems to be competitive and to earn profits below similarly situated financial firms. Insurance profitability is not consistently above or below normal returns, although earnings for mandatory and strictly regulated lines of automobile insurance and workers'compensation appear to be below-adequate for long-term viability.Insurance&Risk Mitigation,Non Bank Financial Institutions,Insurance Law,Environmental Economics&Policies,Financial Intermediation

The consequences of labour market flexibility: Panel evidence based on survey data

We introduce a new data set on hiring and firing restrictions for 21 OECD countries for the period 1984-90. The data are based on surveys of business people in the countries covered, so the indices we use are subjective in nature. Controlling for country and time fixed effects, and using dynamic panel data techniques, we find evidence that increasing the flexibility of the labor market increases both the employment rate and the rate of participation in the labor force. A conservative estimate suggests that if France were to make its labor markets as flexible as those in the US, its employment rate would increase 1.6 percentage points, or 14% of the employment gap between the two countries. The estimated effects are larger in the female than in the male labor market, although both groups seem to have similar long run coefficients. There is also some evidence that more flexibility leads to lower unemployment rates and to lower rates of long-term unemployment. The analysis of inflows and vacancies present some inconsistencies, although there is some evidence that the correlation between inflows and the business cycle is stronger in more flexible labor markets (again this is stronger for females). We also find some evidence consistent with the hypothesis that inflexible labor markets produce “jobless recoveries” and introduce more unemployment persistence. --Job security provisions,subjective data,employment,unemployment