Global Modeling and Target Optimality

This article's point of departure is the observation that global modelers characteristically do not justify their policy recommendations in terms of social optimality criteria. Instead, they simply compare the forecasts of their descriptive models with the simulations of their prescriptive models. This article attempts to clarify why social optimality criteria are necessary in global modeling and how such criteria can be constructed. In this vein, the socially optimal paths of policy targets are derived for a simple, illustrative global model

Imperfect Information, Simplistic Modeling and the Robustness of Policy Rules

The paper presents a methodology for dealing with the problems of imperfect information or simplistic modeling in macroeconomic policy problems. The methodology permits to choose a robust policy from a given set of candidate policies--that is, a policy that makes the social welfare least sensitive to various potential modeling errors. This can be achieved even if the potential modeling errors are related to model structure or delays in model equations--without requiring that the models with more complicated structure or delays are fully solved and optimized. The particular example chosen to illustrate the methodology is a macroeconomic model of intertemporal optimization of monetary control of inflation and unemployment. The conclusions for this particular model are two-fold. Firstly, neglected delays or other modeling errors cannot, in general, substantiate rigorously the constant monetary growth rule that is usually advanced because of such modeling inaccuracies. In fact, by choosing an appropriate feedback policy formulation it is possible to obtain reasonable results of an active policy even if the underlying model used for policy derivation is very simple and the economic reality to which the policy is applied is much more complicated. Secondly, rigorous case can be made against 'impetuous' policy making with regard to inflation and unemployment, that is, against policies that by attaching a small weight to unemployment attempt to approach rapidly long-run targets for inflation. Such a policy strategy may induce instability, either through delay effects, or by making the macroeconomic system very sensitive to other modeling errors

Cooperation across multiple game theoretical paradigms is increased by fear more than anger in selfish individuals.

Cooperative decisions are well predicted by stable individual differences in social values but it remains unclear how they may be modulated by emotions such as fear and anger. Moving beyond specific decision paradigms, we used a suite of economic games and investigated how experimental inductions of fear or anger affect latent factors of decision making in individuals with selfish or prosocial value orientations. We found that, relative to experimentally induced anger, induced fear elicited higher scores on a cooperation factor, and that this effect was entirely driven by selfish participants. In fact, induced fear brought selfish individuals to cooperate similarly to prosocial individuals, possibly as a (selfish) mean to seek protection in others. These results suggest that two basic threat-related emotions, fear and anger, differentially affect a generalized form of cooperation and that this effect is buffered by prosocial value orientation

Entry and fiscal policy effectiveness in a small open economy within a Monetary Union

In this article I develop an imperfectly competitive dynamic general equilibrium model for a small open economy integrated in a monetary union. Here, the type of entry in the non-traded goods’ sector affects fiscal policy effectiveness. Fiscal policy effectiveness is enlarged when aggregate demand stimuli increase intra-industrial competition (case I). This is due to the counter-cyclical mark-up mechanism generated by entry. Such a mechanism is absent in the usual monopolistic competition where entry only has a sharing effect (case II).info:eu-repo/semantics/publishedVersio

Testing the effectiveness of the French work-sharing reform: a forecasting approach

The authors analyse the macroeconomic impact of the French work-sharing reform of 2000 (a reduction of standard working hours in combination with wage subsidies). Using a vector error correction model (VECM) for several labour market variables as well as inflation and output the authors produce out-of-sample forecasts for 2000/2001. A comparison of these forecasts -which serve as a benchmark simulation without structural shifts- to the realised values (with shifts) suggests significant beneficial employment effects of the policy mix. Other shifts were absent and thus cannot explain the outcome. Output, productivity, hourly labour costs, and inflation are only transitorily affected or not at all

Active labor market programs - employment gain or fiscal drain?

This paper provides a new perspective by classifying active labor market programs (ALMPs) depending on their objectives, relevance and cost-effectiveness during normal times, a crisis and recovery. We distinguish ALMPs providing incentives for retaining employment, incentives for creating employment, incentives for seeking and keeping a job, incentives for human capital enhancement and improved labor market matching. Reviewing evidence from the literature, we discuss especially indirect effects of various interventions and their cost-effectiveness. The paper concludes by providing a systematic overview of how, why, when and to what extent specific ALMPs are effective

Motives and comprehension in a public goods game with induced emotions

This study analyses the sensitivity of public goods contributions through the lens of psychological motives. We report the results of a public goods experiment in which subjects were induced with the motives of care and anger through autobiographical recall. Subjects' preferences, beliefs, and perceptions under each motive are compared with those of subjects experiencing a neutral autobiographical recall control condition. We find, but only for those subjects with the highest comprehension of the game, that care elicits significantly higher contributions than anger, with the control treatment in between. This positive influence of the care motive on unconditional giving is accounted for partly by preferences for giving and partly by the beliefs concerning greater contributions by others. Anger also affects attention to own and other's payoffs (using mouse tracking) and perceptions of the game's incentive structure (cooperative or competitive)