Regime Shifts and Volatility Spillovers on International Stock Markets

A standard capital asset pricing model is extended to allow for stochastic shifts in the volatility of the news process. This model is then estimated on bivariate stock market data to separate two exogenous news processes – a world and a domestic. The results indicate that the influence of the world news process on the Swedish stock market has increased significantly over the period 1970-1995. I also find that the foreign influence is much stronger when the volatility of the world news process is high. Furthermore, when the world state shifts to high risk, the Swedish stock market immediately reacts by a large fall, estimated to 7.0%. The bivariate model is also estimated on a set of other national stock markets.capital asset pricing model; stochastic shifts; news process; Swedish stock market

Economics and Climate Change: Integrated Assessment in a Multi-Region World

This paper develops a model that integrates the climate and the global economy---an integrated assessment model---with which different policy scenarios can be analyzed and compared. The model is a dynamic stochastic general-equilibrium setup with a continuum of regions. Thus, it is a full stochastic general-equilibrium version of RICE, Nordhaus's pioneering multi-region integrated assessment model. Like RICE, our model features traded fossil fuel but otherwise has no markets across regions---there is no insurance nor any intertemporal trade across them. The extreme form of market incompleteness is not fully realistic but arguably not a decent approximation of reality. Its major advantage is that, along with a set of reasonable assumptions on preferences, technology, and nature, it allows a closed-form model solution. We use the model to assess the welfare consequences of carbon taxes that differ across as well as within oil-consuming and -producing regions. We show that, surprisingly, only taxes on oil producers can improve the climate: taxes on oil consumers have no effect at all. The calibrated model suggests large differences in views on climate policy across regions.

Should UI Benefits Really Fall over Time?

The issue of whether unemployment benefits should increase or decrease over the unemployment spell is analyzed in an analytically tractable model allowing moral hazard, adverse selection and hidden savings. Analytical results show that when the search productivity of unemployed is constant over the unemployment spell, benefits should typically increase or be constant. The only exception is when there is moral hazard and no hidden savings. In general, adverse selection problems calls for increasing benefits, moral hazard problems for constant benefits and decreasing search productivity for decreasing benefits.unemployment benefits, search, moral hazard, adverse selection

Employment Turnover and Unemployment Insurance

Two features distinguish European and US labor markets. First, most European countries have substantially more generous unemployment insurance. Second, the duration of unemployment and employment spells are substantially higher in Europe - employment turnover is lower. We show that self-insurance, i.e., saving and borrowing, is a good substitute for unemployment insurance when turnover is high as in the US. If the insurance system is less than perfectly actuarially fair, the employed median voter will prefer to self-insure instead of having unemployment insurance if turnover is high. We also show that high unemployment insurance make unemployed more willing to wait for a job with low separation rates. This could make both high turnover/low insurance (US) and low turnover/high insurance (Europe) stable equilibria. Low turnover also leads to a strong divergence between the long and short run interest of the employed. In abscence of devices such that the median voter can bind future voters to some level of insurance, the voting cycle must thus be long in order to support a high level of insurance.labor markets; unemployment insurance; employment turnover; self-insurance; median voter; stable equilibria

A positive theory of geographical mobility and social insurance

This paper presents a tractable dynamic general equilibrium model that can explain cross-country empirical regularities in geographical mobility, unemployment and labor market institutions. Rational agents vote over unemployment insurance (UI), taking the dynamic distortionary effects of insurance on the performance of the labor market into consideration. Agents with higher cost of moving, i.e., more attached to their current location, prefer more generous UI. The key assumption is that an agent´s attachment to a location increases the longer she has resided there. UI reduces the incentive for labor mobility and increases, therefore, the fraction of attached agents and the political support for UI. The main result is that this self-reinforcing mechanism can give rise to multiple steady-states - one "European" steady-state featuring high unemployment, low geographical mobility and high unemployment insurance, and one "American" steady- state featuring low unemployment, high mobility and low unemployment insurance.Employment; Migration; Geographical Mobility; Political Equilibrium; Unemployment Insurance; Voting

Inequality and Mobility

Acknowledging that wage inequality and intergenerational mobility are strongly interrelated, this paper presents a model in which both are jointly determined. The model enables us to study how inequality and mobility are affected by exogenous changes and what determines their correlation. A main implication of the model is that differences in the amount of public subsidies to education and educational quality produce cross-country patterns with a negative correlation between inequality and mobility. Differences in the labor market, like differences in skill-biased technology or wage compression instead produce a positive correlation. The predictions of the model are found to be consistent with various empirical observations on mobility and inequality.

A Positive Theory of Geographic Mobility and Social Insurance

This paper presents a tractable dynamic general equilibrium model that can explain cross-country empirical regularities in geographical mobility, unemployment and labor market institutions. Rational agents vote over unemployment insurance (UI), taking the dynamic distortionary e.ects of insurance on the performance of the labor market into consideration. Agents with higher cost of moving, i.e., more attached to their current location, prefer more generous UI. The key assumption is that an agent’s attachment to a location increases the longer she has resided there. UI reduces the incentive for labor mobility and increases, therefore, the fraction of attached agents and the political support for UI. The main result is that this self-reinforcing mechanism can give rise to multiple steady-states — one “European” steady-state featuring high unemployment, low geographical mobility and high unemployment insurance, and one “American” steadystate featuring low unemployment, high mobility and low unemployment insurance.employment, migration, geographical mobility, political equilibrium, unemployment insurance, voting.

A positive theory of geographic mobility and social insurance

This paper presents a tractable dynamic general equilibrium model that can explain cross-country empirical regularities in geographical mobility, unemployment and labor market institutions. Rational agents vote over unemployment insurance (UI), taking the dynamic distortionary effects of insurance on the performance of the labor market into consideration. Agents with higher cost of moving, i.e., more attached to their current location, prefer more generous UI. The key assumption is that an agent's attachment to a location increases the longer she has resided there. UI reduces the incentive for labor mobility and increases, therefore, the fraction of attached agents and the political support for UI. The main result is that this self-reinforcing mechanism can give rise to multiple steady-states-one 'European' steady-state featuring high unemployment, low geographical mobility and high unemployment insurance, and one 'American' steady-state featuring low unemployment, high mobility and low unemployment insurance.Employment, migration, geographical mobility, political equilibrium, unemployment insurance, voting

Energy-saving technical change

We estimate an aggregate production function with constant elasticity of substitution between energy and a capital/labor composite using U.S. data. The implied measure of energysaving technical change appears to respond strongly to the oilprice shocks in the 1970s and has a negative medium-run correlation with capital/labor-saving technical change. Our findings are suggestive of a model of directed technical change, with low short-run substitutability between energy and capital/labor but significant substitutability over longer periods through technical change. We construct such a model, calibrate it based on the historical data, and use it to discuss possibilities for the futur