Investment Stimulation, with Some Reference to Housing

This paper is a follow-up on Section 5 of Drèze, Malinvaud et al.’s 1994 position paper on “Growth and Employment : The Scope for a European Initiative”, in favour of policies aiming to sustain demand through investments, without aggravating public deficits. We build on several recent papers to investigate further the argument. We first briefly review a non-standard theoretical model based upon contemporaneous thinking about incompleteness of markets, and its econometric validation. This analysis suggests that policies aimed at stimulating aggregate activity and supporting more optimistic expectations may be needed to achieve faster growth in economies suffering from persistent underutilistion of resources. We next elaborate on the principle of employment subsidies, with reference to housing. At times of severe unemployment, a correct evaluation of investment projects must take into account the wedge between the private and the social cost of labour. This labour cost distortion generates a discouting distortion. We briefly discuss both and derive implications for investment stimulation policies. We also review the main problems of implementation of a European investment program and report on a preliminary attempt at checking the applicability to housing in Wallony.

In Search for a Credit Crunch in Germany

The purpose of this paper is to investigate whether a credit crunch occurred in Germany during the recent financial crisis and to analyze the underlying factors. In order to disentangle credit supply and demand we specify a theory-based dynamic disequilibrium model of the German credit market. To estimate this model we use a new approach based on Bayesian Inference suggested by Bauwens and Lubrano (2007). Besides the analysis of the whole banking sector we will apply the model to five groups of banks (big private banks, Landesbanken, savings banks, credit cooperatives, regional institutions of credit cooperatives) that were affected differently by the financial crisis. The results suggest that a credit crunch did not occur in Germany during the recent economic crisis as well as during the following recovery starting in 2010. Furthermore, we find that especially those banks that were more affected by the financial crisis through huge impairments restricted their credit supply more than others. Both supply and demand side factors contributed to the stabilization of credit financing. This suggests that the structure of the German banking sector as well as economic policy measures avoided a credit crunch

Capital Stock and Unemployment: Searching for the Missing Link

This paper examines the proposition that capital stock relative to aggregate output has been an important variable in the determination of the Non-Accelerating Inflation Rate of Unemployment (NAIRU) over the last four decades. The authors present new empirical evidence that lends strong support to the claim that the aggregate capital-output ratio, the real price of imports, and aggregate capacity utilization were determinants of the NAIRU during the period. The same evidence also shows that technical progress and changes in long-term unemployment did not affect the NAIRU. We believe this evidence suggests that, insofar as the aggregate capital-output ratio is affected by changes in real interest rates, the stance of monetary policy is one determinant of the NAIRU

Investment stimulation, with the example of housing

This paper is a follow-up to the recommendations made by Jacques Drèze, Edmond Malinvaud and colleagues in 1993 (Drèze, Malinvaud et al., 1994). The key arguments that are of interest for discussion here are paraphrased below: 'For almost 20 years now, West European unemployment has been a major social problem and the sign of a significant underutilisation of resources at a time of substantial unfilled needs.... The crux of the matter is a situation of inadequate aggregate demand, at a time when there does not seem to exist any leeway for fiscal expansion. The way out of this dilemma has been correctly identified by the European Commission, namely to find ways of stimulating investment without falling back too much on national budgets for funding. The emphasis on social and public investment is natural at a time when unused capacities limit the immediate prospects for business investment (which, moreover, would be labour saving)

De l’optimalité des sytèmes d’assurance-chômage : quelques réflexions

La persistance du chômage et les problèmes budgétaires (en particulier en Belgique) rendent inévitable une réévaluation des avantages et inconvénients des systèmes d'assurance-chômage aujourd'hui en vigueur. Les éléments à prendre en compte sont multiples. La gestion efficace des risques de chômage est rendue difficile par toute une série de facteurs, tels que l'asymétrie d'information, le caractère macro-économique du risque, la segmentation du marché du travail, le pouvoir de marché dont peuvent disposer les entreprises ou les syndicats, les distorsions induites par les mécanismes de financement, etc. L'objectif de cette contribution est de passer en revue les résultats disponibles et de proposer ainsi quelques pistes de réflexions. Ces résultats montrent combien il faut se méfier de raisonnements trop simplistes. Une discussion correcte du bien-fondé d'un système d'assurance-chômage nécessite une approche globale, qui prenne en compte non seulement le montant et les conditions d'octroi des indemnités de chômage, mais aussi le mode de financement de la sécurité sociale et le mode de fonctionnement du marché du travail.

A complete decomposition of unemployment dynamics using longitudinal grouped duration data

In this paper, we study the unemployment dynamics in the Belgian regions, Flanders and Wallonia, on the basis of aggregate stratified data covering the period 1973-93. We decompose the aggregate exit probability from unemployment into calendar time and, both observed and unobserved, compositional effects. We find that changes in the inflow composition affect the cyclical fluctuations in unemployment duration only marginally. However, the long-run improvement in the quality of entrants into unemployment, notably in terms of educational attainment, mitigates the strong upward trend in this duration. This is a new result as none of the existing studies purges the trend in the aggregate outflow rate of the variation in its composition. We also conclude that in Belgium, incidence explains as much as 45% of the evolution of unemployment. Finally, the diverging evolution of unemployment across Flanders and Wallonia predominantly results from a stronger decline in the exit rates from unemployment in Wallonia