News and Financial Intermediation in Aggregate Fluctuations

We develop a two-sector DSGE model with financial intermediation to investigate the role of news as a driving force of the business cycle. We find that news about future capital quality is a significant source of aggregate fluctuations, accounting for around 37% in output variation in cyclical frequencies. Financial intermediation is essential for the importance and propagation of capital quality shocks. In addition, news shocks in capital quality generate aggregate and sectoral comovement as in the data and is consistent with procyclical movements in the value of capital. From a historical perspective, news shocks to capital quality are to a large extent responsible for the recession following the 1990s investment boom and the latest recession following the financial crisis, but played a much smaller role during the recession at the beginning of the 1990s. This is in line with the belief that revisions of overoptimistic expectations contributed to the last two recessions while movements in fundamentals played a much bigger role for the recession at the beginning of the 1990s

Learning, Capital-Embodied Technology and Aggregate Fluctuations

Recent evidence suggests that agents’ expectations may have played a role in several cycli¬cal episodes such as the U.S. "new economy" boom in the late 1990s, the real estate boom in Japan in the 1980s and the real estate boom in the U.S. which ended in 2008. One chal¬lenge in the expectations driven view of fluctuations has been to develop simple one sector models that can give rise to such fluctuations without a compromise on other dimensions. In this paper we propose a simple generalization of the Greenwood et al. (1988) one sec¬tor model and show it can generate fluctuations that arise as a result of agents difficulty to forecast productivity embodied in new capital. The two key assumptions in the model are: (1) the vintage view of capital productivity, whereby each successive vintage has (po¬tentially) different productivity and (2) agents’ imperfect information and learning about this productivity. The model is consistent with second and third moments from U.S. data. Simulations of the model suggest that, (a) noise amplifies fluctuations and (b) pure noise can trigger recessions that mimic in magnitude, duration and depth the typical post WW II U.S. recession.News shocks, expectations, growth asymmetry, Bayesian learning, business cy¬cles.

Learning, capital-embodied technology and aggregate fluctuations

Business cycles in the U.S. and G-7 economies are asymmetric: recoveries and expansions tend to be long and gradual and busts tend to be short and sharp. Moreover, this type of asymmetry appears more pronounced in the last two cyclical episodes in the G-7. A large body of work views the last two cyclical U.S. episodes, namely, the``new economy" boom in the late 1990s, and the 2000s housing boom-bust as episodes where over-optimistic beliefs have played a significant role. These episodes have revived interest in expectations driven business cycles models. However, previous work in this area has not addressed the important asymmetry feature of business cycles. This paper takes a step towards addressing this limitation of expectations driven business cycle models. We propose a generalization of the Greenwood et al. (1988) model with vintage capital and learning about capital embodied productivity and show it can deliver fluctuations that are asymmetric as in the U.S. data. Learning, calibrated to match the procyclical forecast precision from the Survey of Professional Forecasters, is crucial for the model's ability to generate asymmetries. Forecast errors generated by the model are shown to: (a) amplify fluctuations, and (b) trigger recessions that mimic in magnitude, duration and depth the typical post WW II U.S. recession.News shocks, expectations, growth asymmetry, Bayesian learning, business cycles

Taxing capital income in Hungary and the European Union

Countries seeking membership in the European Union (EU) cannot look to the EU for a blueprint for reforming their system for taxing capital income. Indeed, it is hard to generalize about tax systems in the EU. Most member states apply fairly low tax rates to interest payments and discriminate against profit distributions. But tax rates, exemption levels, and methods of tax integration differ greatly within and across countries, and there is almost no harmonization of methods for taxing capital income. Approaches to taxing capital gains vary greatly, and distortions arise from the treatment of various sources of capital income. In 1993, when the EU began efforts to integrate capital markets, member countries proposed various ways to harmonize capital income taxes, including a proposal to introduce a withholding tax on interest income of residents of member states, with a minimum rate of 15 percent (revised to 10 percent). Under this scheme all interest on bank deposits and government and private bonds would be taxed and there might also be a final withholding tax on residents interest income. But the proposal was not accepted and the EU Commission decided to maintain the status quo, not to pressure member countries to harmonize company taxes. But Hungary could look for models in the Nordic countries (especially Norway and Sweden), Austria, and Finland, which have undertaken far-reaching reforms of capital income taxation. In most EU countries capital gains are either not (directly) taxed or are not taxed systematically. In Finland and Norway identical tax rates are applied to all types of capital income, including capital gains. The centerpiece of the"Scandinavian model"is a dual income tax, combining a progressive tax on personal income with a flat-rate tax on all types of capital income. The"Scandinavian model"contrasts sharply with the"comprehensive income taxation"model, under which a single (progressive) tax schedule is applied to income from all sources. In Austria the treatment of different types of capital income is relatively uniform but the composite tax burden on capital income resembles the highest personal income tax rate rather than a reduced rate. Austria's rate of tax evasion was high, but a 10 percent withholdingtax applied to all interest-bearing assets has reduced discrimination against honest taxpayers.Economic Theory&Research,Public Sector Economics&Finance,International Terrorism&Counterterrorism,Environmental Economics&Policies,Payment Systems&Infrastructure,Economic Theory&Research,Environmental Economics&Policies,Public Sector Economics&Finance,International Terrorism&Counterterrorism,Banks&Banking Reform

Existence of Global Weak Solutions for Some Polymeric Flow Models

We study the existence of global-in-time weak solutions to a coupled microscopic-macroscopic bead-spring model which arises from the kinetic theory of diluted solutions of polymeric liquids with noninteracting polymer chains. The model consists of the unsteady incompressible Navier-Stokes equations in a bounded domain for the velocity and the pressure of the fluid, with an extra-stress tensor as right-hand side in the momentum equation. The extra-stress tensor stems from the random movement of the polymer chains and is defined through the associated probability density function which satisfies a Fokker-Planck type degenerate parabolic equation. Upon appropriate smoothing of the convective velocity field in the Fokker-Planck equation, and in some circumstances, of the extra-stress tensor, we establish the existence of global-in-time weak solutions to this regularised bead-spring model for a general class of spring-force-potentials including in particular the widely used FENE (Finitely Extensible Nonlinear Elastic) model

Rehabilitation: The health strategy of the 21st century.

There is strong evidence that population ageing and the epidemiological transition to a higher incidence of chronic, non-communicable diseases will continue to profoundly impact societies worldwide, putting more pressure on healthcare systems to respond to the needs of the people they serve. These trends argue for the need to address what matters to people about their health: limitations in their functioning that affect their day-to-day actions and goals in life. From its inception, rehabilitation, 1 of the 4 health strategies identified in the Declaration of Alma Ata in 1978, has had functioning as its outcome of interest. Its practitioners are from fields that include physical and rehabilitation medicine, occupational therapy, physiotherapy, speech and language therapy, orthotics and prosthetics, psychology, and evaluators of functioning interventions, including assistive technologies. Demographic and epidemiological trends suggest that the key indicators of the health of populations will be not merely mortality and morbidity, but functioning as well. This, in turn, suggests that the primary focus of healthcare will need to respond to actual healthcare demands generated by the need for long-term management of chronic conditions, including, in particular, the scaling up and strengthening of rehabilitation. This is the case for thinking that rehabilitation will become the key health strategy of the 21st century

Nickel and Dimed German Style: The Working Poor in Germany

Using data from the German SOEP, this paper analyses whether there have been (a) any significant changes in poverty rates and poverty intensities before and after the Hartz IV reforms and (b) whether there have been observable changes in the effect of employment in reducing the threat or intensity of poverty. Using multivariate analyses we can find no evidence of increases in poverty rates comparing the time period 2002–2004 with that of 2005–2006. Further we find no change in the effect of employment in reducing the probability and intensity of poverty during this time period. The “working poor” phenomenon in Germany remains relatively small and statistically unchanged by the Hartz reforms.Income distribution, unemployment, poverty

Money for Nothing and Your Chips for Free? The Anatomy of the PC Wage Differential

The role of the computer at the workplace is examined in determining the wage structure in Germany. It is shown that the wage premium attributed to using a computer at work using cross-sectional results for 1997 is 7%. To control for unmeasured individual effects, we use a random effects and fixed effects estimator. The coefficient for computer usage at the workplace did NOT remain stable and although just barely significant, was reduced to mere 1% with individual fixed effects. We conclude that there are no computer usage wage differentials worth speaking of, once one controls adequately for unobserved individual heterogeneity.