Inflation Differentials in the Euro Area and their Determinants – an empirical view

In this paper, we present evidence on the statistical features of observed dispersion in HICP inflation rates in the Euro area. Our descriptive exercise shows that there is still a remarkable dispersion of HICP inflation rates across the member countries. We find that most of dispersion originates in the non-traded categories of the HICP. This suggests that the main source of dispersion in countries' headline inflation rates is in those components of the HICP where non-traded goods (services, (public) goods with regulated and administered prices) are more intensely represented. We then examine the determinants of inflation differentials in a panel of the states of the Euro area in 1999–2007 using alternative classifications of this group and three different datasets. The evidence presented shows that output gaps and a proxy for price level convergence were statistically significant. On the other hand, some determinants that were found significant in previous studies (for example Honohan and Lane, 2003, 2004; ECB, 2003) has no impact on inflation in our expanded time span (e.g. exchange rate movements) The dispersion of HICP inflation is expected to increase in the coming years as the new EU member states will join the Euro area. There are some risks for these countries connected with the common monetary policy, which is adjusted more to the conditions of stabilized advanced economies forming the core of the Euro area. This creates potential problems for the EU common monetary policy (ECB), in particular negative (positive) interest rates, their repercussions on investment processes, consumption and the possibility of creating asset bubbles.http://deepblue.lib.umich.edu/bitstream/2027.42/64425/1/wp958.pd

The effect of horizontal pay dispersion on the effectiveness of performance-based incentives

In response to general calls for increased transparency in society, pay transparency policies are growing in importance. Given that pay transparency unavoidably gives employees the opportunity to make comparisons between themselves and others, in this study we address the question of how these comparisons impact the incentive effects of performance contingent pay, and consequently their performance outcomes. Specifically, we empirically examine whether horizontal pay dispersion alters the effectiveness of performance-based pay contracts, which firms typically use to incentivize effort. Exploiting our unique access to a large healthcare provider, we document the moderating role of horizontal pay dispersion on the effectiveness of individual monetary incentives at generating increased individual performance. To provide a more nuanced understanding of the moderating effect of pay dispersion, we further examine the boundary conditions of the proposed interaction. In particular, we examine the differential effect of overall pay dispersion on employees that rank high versus low in the pay distribution and disaggregate overall pay dispersion into performance-related versus performance-unrelated pay dispersion. Our findings consistently show a positive moderating effect of pay dispersion when employees are more likely to consider the observed pay dispersion as legitimate, and a negative moderation effect when this is less likely the case. Our study strengthens the understanding of how individual level incentives function in the context of a multi-person firm setting. Our results document that individual incentives are effective, but also suggest that pay dispersion can have a significant influence on the incentive-performance relation. These findings provide some evidence that individuals are concerned not only with their own payout, but also with that of others, and that this concern has a significant impact on individual’s effort provision, and consequently performance.Series: Department of Strategy and Innovation Working Paper Serie

Joint Dispersion Model with a Flexible Link

The objective is to model longitudinal and survival data jointly taking into account the dependence between the two responses in a real HIV/AIDS dataset using a shared parameter approach inside a Bayesian framework. We propose a linear mixed effects dispersion model to adjust the CD4 longitudinal biomarker data with a between-individual heterogeneity in the mean and variance. In doing so we are relaxing the usual assumption of a common variance for the longitudinal residuals. A hazard regression model is considered in addition to model the time since HIV/AIDS diagnostic until failure, being the coefficients, accounting for the linking between the longitudinal and survival processes, time-varying. This flexibility is specified using Penalized Splines and allows the relationship to vary in time. Because heteroscedasticity may be related with the survival, the standard deviation is considered as a covariate in the hazard model, thus enabling to study the effect of the CD4 counts' stability on the survival. The proposed framework outperforms the most used joint models, highlighting the importance in correctly taking account the individual heterogeneity for the measurement errors variance and the evolution of the disease over time in bringing new insights to better understand this biomarker-survival relation.Comment: 27 pages, 3 figures, 2 table

Online Price Dispersion Within and Between Seven European Countries

This paper provides a comprehensive analysis of online price dispersion in Europe, across a broad range of product categories and countries. Using the dominant European price comparison site we collected firm specific prices, weekly, from sevcn European countries (Denmark, France, Italy, Netherlands, Spain, Sweden and the United Kingdom) for 31 unique products, falling into five distinct product categories (printers, PDAs, scanners, games consoles, computer games and music), over the nine month period October 2001 to June 2002. The resulting data set comprises over 17,000 individual price observations. Using a number of alternative measures of price dispersion we find significant differences in the degree of price dispersion observed in online markets, both between countries and across product categories. We consider alternative explanations for online price dispersion and analyse their significance in explaining the observed differences