Globalization, Roundaboutness, and Relative Wages

We depart from the trade and wages literature and its emphasis on North-South trade, examining North-North by developing the basic linkages between trade-based integration and relative wages in an Ethier-type division of labor model. Using this model we identify a formal relationship between international trade, productivity, and wages. We then examine the trivariate relationship between trade, growth in total factor productivity (TFP), and the skill premium in a vector autoregression framework. We find evidence of a long-run relationship between growth in intermediate goods and changes in TFP. Controlling for this relationship we also find a positive relationship between trade and the skill-premium

New insights from a structural economic dynamic approach to balance of payments constrained growth

In this paper it is shown that once-for-all variations in the level of the exchange rate may play an important role in the sectoral composition of the economy and this fact has important implications in terms of a disaggregated version of the Thirlwall’s law even if the argument of the quantitative unimportance of relative price movements holds. The growth rate of a country is then shown to be affected by once-for-all movements in the level of nominal exchange rates and the concept of a natural exchange rate is introduced

Econometric analysis of interest rate pass-through

The econometric analysis of interest rate pass-through is examined. It is noted a number of recent studies have employed a procedure that underestimates the extent of interest rate pass-through. This issue is highlighted via an analysis of pass-through from the U.S. Federal Funds rate to the U.S. 30-year fixed mortgage rate. In contrast to work of Payne (2006), which draws an inference of incomplete interest rate pass-through, the adoption of an unbiased method leads to the conflicting conclusion that it is complete. The importance of adopting an unbiased method is noted given the central role of interest rate pass-through in the effectiveness and transmission of monetary policy.

A Rational Expectations Model of Inflation for West Germany: Evidence from Quarterly Data

A Rational Expectations Model of Inflation for West Germany: Evidence from Quarterly Data A rational expectations model is developed by using the quarterly data for West Germany. The theoretical model consists of a demand for money function and a Lucas supply function. This model is able to provide a satisfactory description of inflation in West Germany. The results indicate an almost one-to-one positive relation between inflation and anticipated growth in the money supply, and a negative relation between the unanticipated growth in the money supply and inflation

Economic consequences of a rise in defense spending after September 11, 2001

The purpose of this paper is to discuss the effects of a rise in defense spending on key macroeconomic variables since September 11, 2001. For examining the effects of the rise in defense spending, empirical models were developed for GDP, employment, trade deficit, and budget deficit. In addition to estimation results, simulations were made to assess the effect of defense spending employing the empirical models. Findings reveal that the rise in defense spending had a favorable impact on GDP and employment but led to larger trade and budget deficits.budget deficit, defense spending, employment, GDP, trade deficit,