UNIFORM OUTPUT SUBSIDIES IN AN ECONOMIC UNION WITH FIRMS HETEROGENEITY

In this paper we show the importance of cost asymmetry and demand curvature in the effect of a uniform output subsidy policy in an economic union. We consider an economic union formed by two countries each with a single firm producing a homogeneous good. We find that when firms have different cost, the optimal level of the uniform subsidy can be negative if the demand is concave enough. The low cost firm expands its market share if the demand function is sufficiently convex whereas in the case of a concave demand function it is the higher cost firm which gains market share. This implies that a uniform output subsidy policy may cause a change in production e¢ciency. Finally, we consider how a divergence between private and social costs of public funds may a¤ect the desirability of such a subsidy policy.Uniform output subsidy policy, economic union, social welfare, cost differences

Demand shocks and trade balance dynamics

This paper studies the current account dynamics in the G-7 countries plus Spain. We estimate a SVAR model which allows us to identify three different shocks: supply shocks, real demand shocks and nominal shocks. We use a different identification procedure from previous work based on a microfounded stochastic open-economy model in which the real exchange rate is a determinant of the Phillips curve. Estimates from a structural VAR show that real demand shocks explain most of the variability of current account imbalances, whereas, contrary to previous findings, nominal shocks play no role. The results we obtain are consistent with the predictions of a widely set of open-economy models and illustrate that demand policies are the main responsible of trade imbalances.Current account, SVAR

Exchange rate dynamics in crawling-band systems

In this note we show that an exchange rate crawling-band system can borrow a portion of those aspects of a target zone that lead to its stabilizing effects on the exchange rate, depending on the relationship between the crawl rate and the drift of the fundamentals process. If the crawl rate is sufficiently high (with respect to the drift), the crawling-band is similar to a free float regime. As the crawl rate decreases, the crawling-band system collapses to a standard target zone.crawling band

A Non-parametric reassessment of target zone nonlinearities: The Spanish Peseta/Deutsche Mark exchange rate

In this paper we present evidence concerning the existence of target zone nonlinearities in the Spanish Peseta/Deutsche Mark exchange rate using data with daily frequency for the period 1989-1996. Using a non-parametric technique, the Alternation Conditional Expectations (ACE) algorithm, we obtain evidence of the existence of non-linearities in both exchange rate and interest rate differential, with a functional form close to the non-linear effects given by the target zone model with realignment risk.Target zones, exchange rate, realignment risk, ACE algorithm

Fiscal harmonization in the presence of public inputs

Fiscal harmonization for the European Union member states is a goal that encounters major difficulties for its implementation. Each country faces a particular trade-off between fiscal revenues generated by taxation and the productive efficiency loss induced by their respective tax code. Countries for which a particular harmonized tax code requires more taxation will have to face an increased efficiency loss, whereas those required to decrease their taxes will have to face a loss in fiscal revenue. This paper provides a quantitative measure of these trade-offs, for a number of taxes and for the European Union member states, using a DGE model with public inputs. Calibration of the model for the EU-15 member states gives us the following results: i) The maximum tax revenue level is not far away from the current tax levels for most countries, ii) The cases of Sweden, Denmark and Finland are anomalous, as productive efficiency can be gained by lowering tax rates without affecting fiscal revenues, iii) In general, countries would obtain efficiency gains without changing fiscal revenues by reducing the capital tax and increasing the labor tax and iv) Capital tax harmonization to the average capital tax rate can be done with quite small changes in both fiscal revenues and output for the majority of countries.Fiscal harmonization, applied general equilibrium

Productivity growth and technological change in Europe and the U.S.

This paper presents an evaluation on the technological sources of labor productivity growth across European countries and the US economy for the period 1980-2004. Assets of capital are divided into those related to the information and communication technologies (ICT), and non-ICT assets. Technological progress is divided into neutral change and investment specific change. Previous exercises have aimed at ICT as a serious contributor to the upsurge of US productivity from 1995 on. Contribution to productivity growth from each type of technological progress for the US and EU-15 countries is computed using two different approaches: a growth accounting and a general equilibrium. The US and Denmark are the countries with the larger contribution from ICT-technological progress. Overall, we find that Europe is well behind the US in terms of the effects of ICT technological change.Productivity growth, Investment-specific technological change, Neutral technological change

The credibility of the Venezuela crawling-band system

This paper studies the credibility of the Venezuela crawling-band exchange rate regime during the period July, 1996-February, 2002. We show that, introducing some modifications, the credibility analysis widely applied to target zone regimes can also be used in studying the credibility of crawling- band regimes. In analyzing the credibility of the Venezuela crawling band, first we use the so-called simple credibility tests developed by Svensson (1991). Additionally, we estimate the expected rate of realignment using the drift- adjustment method. Both the credibility tests and the drift-adjustment method give similar results, showing that the crawling-band system was highly credible during the period.crawling band exchange rate system, credibility, realignments

Asymmetric amplification in amino acid sublimation involving racemic compound to conglomerate conversion

A straightforward unprecedented sublimation protocol that reveals both conversion of a racemic compound into a racemic conglomerate and subsequent enantioenrichment has been developed for the proteinogenic amino acid valine. The phenomenon has been observed in closed and open systems, providing insight into asymmetric amplification mechanisms under presumably prebiotic condition

Public and private sector wages interactions in a general equilibrium model

This paper develops a dynamic general equilibrium model in which the public and the private sector interact in the labor market. Previous studies that analyze the labor market effects of public sector employment and wages have mostly assumed exogenous rules for public wage and public employment. We show that theories that equalize wages with marginal products in the private sector can rationalize the interaction of public and private sector wages when extended to accommodate a non-trivial government sector/public sector union that endogenously determines public employment and wages. Our model suggests a positive correlation between public and private sector wages. Any increase in tax revenues, coupled with the existence of a positive public-private sector wage gap, makes working in the public sector an attractive option. Thus, a positive neutral productivity shock increases public and private sector wages. More interestingly, even a private-sector specific productivity shock spills-over to the public sector, increasing public wages. These facts lend some support to the wage leading role of the private sector. Nevertheless, at the same time, a positive shock to public sector wages would lead to an increase in private sector wages, via the flow of workers from the private to the public sector. JEL Classification: C32, J30, J51, J52, E62, E63, H50Labor market, public employment, public wages, Trade Unions

Funciones de densidad de los fundamentos y del tipo de cambio en una zona objetivo: evidencia empírica para el SME

En este artículo se analizan las funciones de densidad de los fundamentos y de las desviaciones del tipo de cambio bajo diferentes supuestos acerca del rumbo del proceso de los fundamentos y de las intervenciones monetarias que se efectúen. Una vez que se obtienen las funciones teóricas para los fundamentos, mediante un cambio de variable, podemos simular numéricamente las funciones de densidad para las desviaciones del tipo de cambio con objeto de comparadas con las empíricas. Los anteriores análisis de las distribuciones del tipo de cambio en el SME se han realizado usando el marco alemán como la moneda de referencia, asumiendo implícitamente la existencia de un sistema bilateral, cuando en realidad se trata de un sistema multilateral. Con objeto de solucionar este problema presentamos un método para calcular las distribuciones multilaterales de las desviaciones del tipo de cambio. La mayoría de las distribuciones que se obtienen presentan una baja frecuencia en el centro de la banda de fluctuación, algo que no es recogido en trabajos empíricos anteriores que rechazaban el modelo básico de zonas objetivo