OECD Journal: Economic Studies publishes articles in the area of economic policy analysis, applied economics and statistical analysis, generally with an international or cross-country dimension.
To subscribe to this publication please visit OECD iLibrary.
Call for papers - If you would like to submit an article for publication in OECD Journal: Economic Studies, please contact Jean-Luc Schneider (email@example.com) and Lyn Urmston (firstname.lastname@example.org).
To search by author use the edit --> find option on the internet toolbar
Quick links to Volume 1, 10, 20, 30, 40
Click to READ
OECD Journal: Economic Studies, Volume 2012
Do investors disproportionately shed assets of distant countries during global financial crises?
Rudiger Ahrend, Cyrille Schwellnus
Fiscal multipliers and prospects for consolidation
Ray Barrell, Dawn Holland, Ian Hurst
Avoiding debt traps
Pier Carlo Padoan, Urban Sila, Paul van den Noord
ICT investments and productivity
The determinants of earnings inequality
Jean-Marc Fournier, Isabell Koske
Interest-rate-growth differentials and government debt dynamics
David Turner, Francesca Spinelli
Tackling income inequality
Isabelle Joumard, Mauro Pisu, Debbie Bloch
Click to READ
OECD Journal: Economic Studies, Volume 2011
The Evolution of Homeownership Rates in Selected OECD Countries: Demographic and Public Policy Influences
Dan Andrews, Aida Caldera Sánchez
Residential Mobility and Public Policy in OECD Countries
Aida Caldera Sánchez, Dan Andrews
Public Policies and Investment in Network Infrastructure
Douglas Sutherland, Sónia Araújo, Balázs Égert, Tomasz Kozluk
Exploring the Relationship Between Education and Obesity
Marion Devaux, Franco Sassi, Jody Church, Michele Cecchini, Francesca Borgonovi
Are ICT Users More Innovative?
How Can Fiscal Councils Strengthen Fiscal Performance?
Click to READ
Available from OECD iLibrary
OECD Journal: Economic Studies, Volume 2010
What is the Private Return to Tertiary Education? New Evidence from 21 OECD Countries
Romina Boarini, Hubert Strauss
Intergenerational Social Mobility in OECD Countries
Orsetta Causa, Åsa Johansson
Equity in Student Achievement Across OECD Countries: An Investigation of the Role of Policies
Orsetta Causa, Catherine Chapuis
Does Computer Use Increase Educational Achievements? Student-level Evidence from PISA
How Large Are Competitive Pressures in Services Markets? Estimation of Mark-ups for Selected OECD Countries
Novella Bottini, Margit Molnár
Structural Indicators: A Critical Review
Davide Furceri, Annabelle Mourougane
Migration and Labour Market Outcomes in OECD Countries
Sébastien Jean, Orsetta Causa, Miguel Jimenez, Isabelle Wanner
New International Evidence on Asset-Price Effects on Investment, and a Survey for Consumption
E. Philip Davis
Click to READ
OECD Journal: Economic Studies, Volume 2009
The policy determinants of hours worked across OECD countries
Effects of environmental policy on the type of innovation
Ivan Hascic, Frans de Vries, Nick Johnstone, Neelakshi Medhi
What is holding back productivity growth in India ?
Sean Dougherty, Richard Herd, Thomas Chalaux
Improving public spending efficiency in primary and secondary education
Douglas Sutherland, Robert Price, Frédéric Gonand
The policy determinants of investment in tertiary education
Joaquim Oliveira Martins, Romina Boarini, Hubert Strauss, Christine de la Maisonneuve
How competitive is product market regulation in India?
Paul Conway, Richard Herd
The wage premium on tertiary education
Hubert Strauss, Christine de la Maisonneuve
The role of teacher compensation and selected accountability policies for learning outcomes
Romina Boarini, Elke Lüdemann
Click to READ
OECD Journal: Economic Studies, Volume 2008
Publicly provided services and the distribution of households’ economic resources
François Marical, Marco Mira d’Ercole, Maria Vaalavuo and Gerlinde Verbist
Improving the efficiency of health care spending: what can be learnt from partial and selected analyses of hospital performance?
Globalisation and employment in the OECD
Margit Molnar, Nigel Pain and Daria Taglioni
Globalisation and OECD consumer price inflation
Nigel Pain, Isabell Koske and Marte Sollie
The macroeconomic policy challenges of continued globalisation
Karine Hervé, Isabell Koske, Nigel Pain and Franck Sédillot
Economic resilience to shocks: the role of structural policies
Romain Duval and Lukas Vogel
The incidence of carbon pricing: Norway, Russia and the Middle East
Philip Bagnoli, Jean Château and Yong Gun Kim
Hansjörg Blöchliger and Claire Charbit
The contribution of economic geography to GDP per capita
Hervé Boulhol, Alain de Serrres and Margit Molnar
Economic Studies No. 27 (August 1997)
Corporate governance, competition and performance
The paper gives an overview of the interrelation between corporate governance, product market competition and performance across main "models" of corporate governance in OECD countries. The paper argues that managerial incentives, disciplining and corporate finance are not the fundamental distinguishing features of different financial systems. Instead, differences in ownership and control emerge as important influences on the formulation, implementation and adaptation of corporate strategy. Ownership and control structures are interrelated with competition in product markets: concentration of ownership may be required to establish relations between stakeholders and may impede product market competition.
Innovation, firm size and market structure: Shumpeterian hypotheses and some new themes
This paper surveys the empirical literature on the links between innovation, market structure and firms size. The review shows that there is little evidence in support of the Schumpeterian hypothesis that market power and large firms stimulate innovations. However, positive linkages between concentration/size and innovative activity can occur when certain conditions are met, including high sunk costs per individual project, economies of scale and scope in the production of innovation rents. Recent empirical work suggests that RGD intensity and market structure are jointly determined by technology, the characteristics of demand, the
institutional framework, strategic interaction and chance.
Mark-up pricing, market structure and the business cycle
Joaquim Oliveira Martins, Stefano Scarpetta and Dirk Pilat
This paper presents estimates of mark-ups of prices over marginal costs for 36 manufacturing industries and 7 service sectors in 14 OECD countries. It applies a recently developed methodology, and finds that positive mark-ups are common in both manufacturing and services. The level of the estimated mark-ups can partly be related to competitive conditions by type of market structure. The paper also finds evidence of counter-cyclical behaviour of mark-ups, providing a possible explanation for the pro-cyclicality of employment and real wages.
Competition, productivity and efficiency
This paper discusses the empirical evidence on cross-country productivity gaps and analyses the link between productivity and competition. It finds that inefficiency and low productivity levels are widespread in both manufacturing and services, and throughout the OECD area. The variation in productivity levels and growth rates appears related to the degree of competition facing industries. International competition is an important element in achieving high productivity levels, but domestic factors also play a role. High entry rates appear conducive to productivity, but high concentration is not. In service sectors, government-imposed regulations are often an important restriction on competition and productivity growth.
Social transfers: spending patterns, institutional arrangements and policy responses
Maitland MacFarlan and Howard Oxley
The main income transfers provided by governments to people of working age are addressed. First, reasons for spending differences over time and across countries in transfer programmes are examined. A general finding is that differences in eligibility and entitlement conditions are usually more important than underlying population and risk characteristics. Moreover, eligibility conditions, reflecting policy goals and programme administration, often appear to be more important than benefit levels in explaining spending patterns. The second part of the paper reflects on these results, giving a brief overview of policy reforms that might allow programme objectives to be reached more efficiently.
Economic Studies No. 26 (October 1996)
Reducing poverty while increasing employment: a primer on alternative strategies, and a blueprint
This paper addresses the conflict between poverty reduction and work incentives implicit in the income protection policies of several OECD countries. Alternative approaches to reducing the well-known "poverty trap" are identified and assessed, including Credit and Negative Income Tax programmes, earnings supplementation, and two marginal employment subsidy plans. It is concluded that a judicious combination of a moderate income guarantee plus programmes to stimulate the supply of and the demand for lower skilled labour could yield gains in a number of dimensions relative to existing income protection arrangements. A stylised "blueprint" which illustrates such an approach is presented.
Assessing the role of labour market policies and institutional settings on unemployment: a cross-country study
This paper discusses the role of labour market policy and institutional factors in explaining the differences in structural or "equilibrium" unemployment across 17 OECD countries. The results suggest that these factors do matter for the level of structural unemployment and for the speed of labour market adjustment after an exogenous shock. In particular, generous unemployment benefit systems and stringent employment protection legislation are associated with high unemployment and a lower speed of adjustment. Greater coordination among social partners in the wage bargaining process as well as both highly centralised and fully decentralised bargaining systems are beneficial to labour market performance.
Measures of replacement rates for the purpose of international comparisons: a note
John P. Martin
Much prominence has been given to the role of unemployment and related social welfare benefits as a determinant of high and persistent unemployment. Quantifying this effect depends crucially on the ability to measure accurately the so-called "replacement rate", the proportion of expected income from work which is replaced by unemployment and related welfare benefits. The OECD has devoted much time and effort recently to gathering comparable data on gross and net replacement rates for most OECD countries. This note aims to describe these data briefly and compare them with similar measures computed by other cross-country studies.
Market imperfections and employment
Paul Geroski, Paul Gregg and John Van Reenen
This paper examines whether imperfect competition in product markets has contributed to unemployment problems in industrial economies. Microeconometric evidence on the origin and extent of product market power and the degree to which these rents are captured by workers is surveyed. Product market imperfections appear widespread and, although large deviations of price from marginal cost appear shortlived, many firms enjoy persistently high returns for long periods. Wages are partially determined by rent sharing but this phenomenon is not solely confined to the union sector. The implication is that reductions in product market imperfections would raise employment.
Vulnerability of fixed exchange rate regimes: the role of economic fundamentals
This paper assesses the role of economic fundamentals as causes for devaluations/regime shifts in 12 OECD countries since the late 1970s using a non-linear estimation procedure (probit model). The calculation of probabilities of parity changes indicates that devaluations mainly occurred when economic fundamentals had deteriorated. More recently, exchange rate pressures appear to be triggered by smaller deteriorations in economic fundamentals, as compared with the early 1980s. Prospects of devaluation also appear to be sensitive to changes in key domestic variables, which are traditionally not viewed as direct determinants of "equilibrium exchange rates", such as changes in the rate of unemployment.
Economic Studies No. 25 (May 1996)
An assessment of financial reform in OECD countries
Malcolm Edey and Ketil Hviding
This paper addresses the issue of whether financial liberalisation has led to improved welfare. The benefits of improved allocation of resources and increased eficiency have to be weighed against the possible effects of deregulation on financial stability. While there is no strong evidence of any trend increase in financial volatility in key markets, there have been a number of episodes of instability apparently linked to financial deregulation. However, the analysis of individual crises suggests that inappropriate macroeconomic policies, deficiencies in prudential policies, and microeconomic distortions affecting incentives in the financial sector, were important contributing factors to the crises.
Deregulation and privatisation in the service sector
Jens Hoj, Toshiyasu Kato and Dirk Pilat
This paper discusses the impact of regulatory reforms and privatisation across the OECD area in enhancing competition in the service sector. After discussing the broad trends in regulation and deregulation, the main focus is on the experience in the distribution, construction, road transport, telecommunication and airline sectors. It appears that countries with a high degree of regulation in these sectors tend to have poorer performance. Moreover, the effects of regulatory reforms - and their design and implementation - depend critically on the character of competition within each sector. The analysis suggests that the deregulation process has induced sizable gains in economic performance.
Real long-term interest rates: The evidence from pooled-time-series
Adrian Orr, Malcolm Edey and Michael Kennedy
In this paper a model is presented and estimated that explains real long-term interest rates in terms of developments in low-frequency and high-frequency economic factors in a multi-country framework, for 17 OECD countries since the early-1980s. The results indicate that the low-frequency component of real rates is determined by fundamentals such as the rate of return on business capital, portfolio risk, inflation uncertainty, and indicators of future saving and investment balances. Influences on the high-frequency component include monetary policy actions and shocks to inflation.
Establishing financial discipline: Experience with bankcruptcy legislation in Central and Eastern European countries
One major challenge of economic transition in Central and Eastern European countries is to set up the institutional framework without which markets are unable to operate. In most countries, this has implied reviving the bankruptcy legislation inherited from their pre-Communist era. This paper compares the design, operation and outcomes of bankruptcy legislation in Hungary, Poland, the Czech Republic and Russia. It analyses the reasons why these laws have not been effective so far in solving the widespread insolvency of former state-owned companies, and draws some broad guidelines about desirable features of bankruptcy procedures in economic transition.
Technical progress, factor productivity and macroeconomic performance in the medium-term
Claude Giorno, Pete Richardson and Wim Suyker
This paper analyses the macroeconomic effects of changes in trend factor productivity for the major OECD economies. Medium-term simulations with the OECD INTERLINK model are used to illustrate key uncertainties and sensitivities of adjustment mechanisms to macroeconomic and structural factors. The results suggest that a rise in trend factor productivity leads to higher levels of real income, but the duration of unemployment effects depends crucially on structural factors. If markets are flexible, then the adjustment period may be relatively short-lived, with no permanent effect on the rate of unemployment.
Economic Studies No. 24 (October 1995)
Health care reform: controlling spending and increasing efficiency
Howard Oxley and Maitland MacFarlan
This paper first assesses the reasons for the substantial increase in health spending as a share of GDP over the past thirty years; and then discusses policy options that may help countries to contain expenditures and reach health objectives more effectively. It is argued that much of the increase in spending stems from incentives facing providers of health services rather than from demand-side pressures. Hence, health sector reforms should focus on improving microeconomic aspects of the provision of services. In particular, agencies which fund health care should become more active and selective purchasers of health services.
Speed limit and asymmetric inflation effects from the output gap in the major seven economies
This paper examines the empirical evidence for "speed limit" and asymmetric effects from the output gap on inflation. The empirical evidence for these effects is not clear-cut across all the major seven OECD economies. Nevertheless, allowing for asymmetric inflation effects does lead to some improvement in fit for a majority of countries. Moreover, such effects are shown to provide a rotionale for the importance which is often attached to timeliness in taking macroeconomic policy actions, and which is athenvise difficult to justify on the basis of a linear model.
The impact of trade and capital movements on labour evidence on the French case
Patrick A. Messerlin
This paper examines the impact of trade and capital movements on French employment and relative wages. It provides three results. Firsf trade has a modest impact on total employment. Second, trade has a strong impact on relative wages; the paper provides evidence supporting the saying that liberal trade is associated with better jobs rather than more jobs. Lostly, the paper shows that outword FDI is essentially done by exporting sectors and that inward FDI (which is broadly the same magnitude) occurs in the downsizing industries as well as in the exporting sectors.
Turning points in the international business cycle: an analysis fo the OECD leading indicators for the G-7 countries
M. J. Artis, R.C. Bladen-Hovell, and W. Zhang
This paper examines the performance of leading indicators for predicting turning points in industrial production of the G7 countries. The analysis is based upon leading indicator information and a chronology of industrial production turning points compiled by the OECD. Sequential probability models are applied to the prediction of turning points. This requires that a learning process be specified both for the conditional densities and for the transitional probabilities incorporated in the model. The results of the study indicate that in general, the time taken for the sequential probability to cumulate to a point where a turning point in industrial production is signalled is relatively stable across countries. The signal lead time, however, varies both across countries and between peaks and troughs for individual countries.
Potential output, output gaps and structural budget balances
Claude Giorno, Pete Richardson, Deborah Roseveare and Paul van den Noord
This paper reviews the methods used for estimating potential output in OECD countries and the use of the resulting output gaps for the calculation of structural budget balances. The "split time trend" method for estimating trend output that was previously used for calculating structural budget balances is compared with two alternative methods, smoothing real GDP using a Hodrick Prescott filter and estimating potential output using a production function approach. It is concluded that the production function approach for estimating potential output provides the best method for estimating output gaps and for calculating structural budget balances.
Economic Studies No. 23 (Winter 1994)
The effect of trade and foreign direct investment on employment and relative wages
Robert E. Baldwin
This paper summarises and assesses recent studies on the impact of current trends in trade and direct investment on employment and wages in OECD countries and discusses various policy options being considered to meet the concerns of policy makers about these trends. Consistent with earlier OECD studies, a general conclusion is that such factors as changes in labour supplies, technology and demand are more important than changes in trading patterns in accounting for changes in employment and shifts in relative wages. However, further studies are needed to understand better the employment and wage
impact of foreign direct investment.
The EC's internal market: implementation and economic effects
Peter Hoeller and Marie-Odile Louppe
This article provides a brief overview of the content of the EC's internal market initiative and progress made in its implementation. It also describes the EC's medium-term programme towards ensuring that it becomes a practical reality, It analyses the mechanisms which should lead to welfare gains, and reviews a wide variety of micro- and macroeconomic indicators in order to ascertain whether integration has proceeded since the mid- 1980s. Policy issues, which are more or less closely linked to the success of the internal market initiative, are also addressed. These include competition policy, social and regional policy aspects and changes to the foreign trade regime.
Costs and benefits of moving from low inflation to price stability
This paper reviews issues concerned with the long-run objectives of monetary policy. In particular, it looks at the case for aiming at zero inflation rather than a low positive rate in the long run. Available evidence on the net costs and benefits of disinflating within inflation ranges that are very close to zero appears inconclusive. Measurement biases in standard price indices may be large enough to be materially relevant to the choice of inflation objectives.
Estimating pension liabilities: a methodological framework
Paul Van den Noord and Richard Herd
This paper forms part of on-going OECD work on the economic assessment of public pension systems in view of the process of the ageing of populations. It provides indicative estimates of the size of public pension liabilities in the main seven economies based on simplifying assumptions, and analyses the sensitivity of these estimates for changes in pension rules and the discount rate. The methodology developed here combines actuarial approaches used in the private sector with so-called generational accounts. Such accounts indicate in present-value terms the lifetime financial burden government programmes impose on present and future generations.
A survey of the trade and environment nexus: global dimensions
John Beghin, David Roland-Holst, Dominique van der Mensbrugghe
This paper presents a survey of the growing literature on trade and environment linkages, focusing on the link between trade and environmental policies; environmental regulation and competitiveness; and trade liberalisation, growth and the environment. Linkages refer to environmental externalities; environmental and trade policies; consumer and social preferences towards the environment; factor mobility, technology diffusion, and trade orientation. The paper contrasts South issues which are largely production-based and institutional, with North issues where both demand and supply generate substantial trade-environment linkages. Finally, the paper highlights the need for more empirical results and indicates directions and priorities for this work.
Economic Studies No. 22 (Spring 1994)
Active labour market policy and unemployment - a framework for the analysis of crucial design features
The paper develops a framework for the analysis of active labour market policies and uses that to structure various effects on wage setting, labour demand and labour supply. The empirical evidence on wage and employment effects is surveyed. Several design features are seen as crucial for success: compensation below market wages, strong emphasis on counselling and placement activities, targeting and avoiding the use of active programmes as a means of prolonging the duration of unemployment benefits. The conclusion is that most European countries are likely to do better with more of active labour market programmes but not a lot better.
Medium-term determinants of OECD productivity
A. Steven Englander and Andrew Gurney
This article reviews the theoretical and empirical literature on the sources of medium-term productivity growth and provides an empirical analysis of labour and total factor productivity (TFP) growth in the business sectors of OECD economies. Higher education levels, low initial productivity levels, moderate labour force growth and low inflation are the factors found to be associated with faster TFP growth. Faster capital accumulation accelerates labour productivity growth, but no evidence is found for a TFP growth bonus. Neither this article nor the other empirical studies examined can explain a significant portion of the productivity growth slowdown.
OECD productivity growth: medium-term trends
A. Steven Englander and Andrew Gurney
This note updates data on levels and growth rates of labour and total factor productivity in the business sectors of OECD countries. Productivity levels across countries are made comparable through the use of 1990 purchasing power data. While convergence has continued through the 1980s in productivity levels, considerable variation remains across OECD countries. Only limited evidence was found to suggest that there had been any pick-up in trend productivity growth during the 1980s.
Market structure, trade and industry wages
Joaquim Oliveira Martins
This paper investigates the links between trade flows and industry relative wages for a cross-section of 22 sectors in 12 OECD countries. First, the industries are classified according to stylised facts about market structure. Second, import penetration trends are analysed during the period 1970-90, with special focus on imports from Asian NIEs. Finally, a wage equation is estimated encompassing both the characterisation of industries by type of market structure and measures of import penetration and export intensity. The results show that the impact of import penetration on wages is negative in industries with low product differentiation whereas the reverse result occurs in industries with high product differentiation and market segmentation.
Monetary policy credibility and price uncertainty: the New Zealand experience of inflation targeting
Andreas M. Fischer and Adrian B. Orr
The effects on price uncertainty arising from the legislation of anti-inflation policies in New Zealand are assessed using the standard deviation of price-related expectations across respondents drawn from the Reserve Bank of New Zealand Survey. Also examined is whether diverging views about the current and future stance of monetary policy significantly contribute to price uncertainty. Legislative factors which enhance central bank independence are shown to reduce future price uncertainty and mitigate political influences. However, uncertainty relating to the stance of monetary policy increases price uncertainty, suggesting a transparent operation augments the benefits of inflation targets.
The effects of net transfers on low incomes among non-elderly families
Michael F. Forster
In considering the possible effects of different tax and transfer systems in OECD countries, efficiency concerns have been the centre of the social-policy debate. There has, however, been a growing interest in assessing the extent to which these policies have succeeded in alleviating poverty. This article uses micro data for 11 OECD countries and concludes that simple and comprehensive measures of poverty are reduced once allowance is made for net transfers. The analysis explores different country patterns and shows the relative contributions of three elements to poverty reduction: incidence, intensity and inequality of low incomes.
Economic Studies No. 21 (Winter 1993)
Employment regulation and patterns of work in EC countries
David Grubb and William Wells
This paper constructs indicators for the strength of employment regulation in EC countries, based upon fairly detailed descriptions of restrictions on dismissals, fixed-term employment contracts, temporary work agencies, and working time. It then considers a variety of indicators for patterns of work, such as the ratio of employee employment to population, concentration in the distribution of weekly hours worked, and temporary workers who would have preferred a permanent job. Many regulations appear to be influencing their targets as expected, but there is also evidence that regulation has undesirable indirect effects, reducing the overall level of the regulated forms of employment and increasing dissatisfaction among non-standard workers.
Jorgen Elmeskov and Maitland MacFarlan
This paper examines recent evidence relating to the persistence of high rates of unemployment in many OECD countries. It assesses the empirical relevance of some possible sources of persistence, including changes in the natural rate of unemployment, and slow labour market adjustment towards a longer-run equilibrium. While elements of various hypotheses may be needed to fully explain persistence, the evidence - while not conclusive - suggests that slow aujustment of both wages and employment is an important part of the story.
The role of real and nominal rigidities in macroeconomic adjustment: a comparative study of the G3 economies
Dave Turner, Pete Richardson and Sylvie Rauffet
This paper examines whether divergent behaviour of output, inflation and unemployment in the G3 countries can be explained by differences in real and nominal rigidities in wage and price formation. Such rigidities are found to be much higher in the USA and Germany than Japan, reflected in correspondingly large disturbances to the real economy following demand or supply shocks. In Japan, the flexibility of hours worked and labour force participation are further reasons why disturbances to unemployment are small. The analysis further suggests that the USA may be particularly vulnerable to supply shocks originating from changes in “wedge” variables, and Germany to changes in trend productivity growth.
Interpreting unemployment: the role of labour-force participation
Jorgen Elmeskov and Karl Pichelmann
This paper presents empirical evidence on trends and cycles of unemployment and labour-force participation. Some of the mechanisms behind the observed developments are analysed. The observed interplay between unemployment and participation has implications for the interpretation of unemployment as an economic and social indicator. The paper ends by presenting some unexplained puzzles concerning the interplay between trends and cycles of unemployment and labour-force participation.
Centralisation of wage bargaining and macroeconomic performance - a survey
The paper sets out the theoretical arguments underlying the hypothesis of a hump-shaped relationship between the degree of centralisation of wage bargaining and real wages. Subsequently, it considers extensions to the basic model, drawing also on practical experience in various countries, and investigates the various dimensions of centralisation in the wage formation process. A review of the empirical literature in the field comes up with mixed results. This is not surprising given the diversity of effects discussed in the paper, which motivates why unambiguous policy conclusions do not seem possible.
Economic Studies No. 20 (Spring 1993)
Adjustment under fixed exchange rates: application to the European Monetary Union
A. Steven Englander and Thomas Egebo
Fixing exchange rates between countries entering into the European Monetary Union shifts the burden of inter-regional adjustment onto labour and product markets. At present, rigid labour markets in European economies raise the output and employment costs of aqusting relative price levels at fixed exchange parities. High adjustment costs also reduce financial markets' confidence that fixed-exchange rates and fiscal convergence commitments are feasible, entailing large interest differentials. By contrast, the growing integration of Member countries should diffuse country-specific demand shocks more smoothly than at present, and reduce the impact of localised fiscal policy as well.
The stock market and investment
This paper examines the relationship between share prices and investment, addressing the question of whether investment is influenced by inefficient pricing in equity markets. The results indicate that while there is a significant relationship between share prices and business investment in some countries, this largely reflects share price correlation with, and anticipation of, other macroeconomic developments. Pricing inefficiencies, lo the extent they are present, do not seem to have a statistically or economically significant influence on investment.
Unemployment: a review of the evidence from panel data
Peder J. Pedersen and Niels Westergard-Nielsen
This paper examines evidence obtained from panel data concerning factors which influence individual transitions between different labour market states, particularly unemployment and employment. The effects of individual characteristics, such as age and education, are reviewed, as is the influence of training schemes. The survey then considers how a person’s labour market “history”, such as previous episodes of unemployment, affects hidher employment prospects. Also reviewed are the effects of unemployment benefits on the duration of unemployment, and various aspects of the job search behaviour of unemployed workers.
Economic integration between Hong Kong, Taiwan and the coastal provinces of China
Randall S. Jones, Robert E. King and Michael Klein
Economic integration between Taiwan, Hong Kong and the coastal provinces of southern China has advanced rapidly in recent years. This paper analyzes the sharp increases in trade and investment within what may be called the "Chinese Economic Area": Policy changes in Taiwan and, particularly, China have allowed deeper economic ties to develop, driven by the complementarities among the three economies. The integration of southern China has accelerated structural change in Hong Kong and Taiwan and played an important role in China’s rapid economic growth and transformation toward a more market-based
Globalisation and intra-firm trade: an empirical note
Marcos Bonturi and Kiichiro Fukasaku
Based on firm survey data available in the United States and Japan, the paper examines how the trend towards globalisation in the 1980s, characterised by a FDI boom, has affected the size and trend of intra-firm trade (IFT) flows. The share of IFT in total US trade has been roughly stable at around 35 to 40 per cent and IFT is mostly concentrated in technology and human capital intensive industries. The example of Japanese and other Asian firms in the United States points to the importance of investment in wholesale activities in the promotion of exports.
Economic Studies No. 19 (Winter 1992) Special issue: Costs of reducing CO2 emissions
Costs of reducing CO2 emissions: evidence from six global models
Andrew Dean and Peter Hoeller
This paper summarises and analyses results of the OECD's Model Comparisons Project. The aim of the project is to better understand differences across six global models in the cost of reducing carbon dioxide emissions. In order to facilitate comparisons, key assumptions and reduction targets have been standardised. The paper provides evidence on : i) projected carbon dioxide emissions through the next century; and ii) the carbon taxes and output costs entailed in reducing these emissions.
GREEN: a global model for quantifying the costs of policies to curb CO2 emissions
Jean-Marc Burniaux, Giuseppe Nicoletti and Joaquim Oliveira Martins
By modeling the decisions of households and firms, applied general equilibrium (AGE) models are able to capture the economic mechanisms that link, in each period of time, the available resource base to man-made emissions of CO2. The OECD Economics Department has developed a global dynamic AGE model with the objective of quantifying the economic effects of policies aimed at reducing emissions of CO2 in the atmosphere. The project is called the GeneRal Equilibrium ENvironmental model, hereafter referred to as GREEN. This paper provides a non-technical overview of the GREEN model specification, parameterisation and calibration. As such, it is a complement to the other papers on GREEN in this volume that report the results of various policy-relevant simulations with the model.
The costs of international agreements to reduce CO2 emissions: evidence from GREEN
John P. Martin, Jean-Marc Burniaux, Giuseppe Nicoletti and Joaquim Oliveira Martins
This paper reports the results of several simulations with the OECD's GREEN model designed to quantify the economy-wide and global costs of a range of international agreements to curb carbon dioxide (CO2) emissions. Two particular aspects of international agreements are highlighted. The first is the issue of country coverage; this is examined by simulating an agreement among the OECD countries alone and then extending it to encompass action by the non-OECD countries too. The second is the quantification of the potential welfare gains to individual countries and the world economy as a whole from implementing cost-effective agreements, i.e. international agreements that take account of the principle that the emission reductions should be secured at minimum cost.
Trade and the effectiveness of unilateral CO2-abatement policies: evidence from GREEN
Joaquim Oliveira Martins, Jean-Marc Burniaux and John P. Martin
This paper analyses the effects of unilateral action by one country/region to curb CO2 emissions on both other countrie's emissions - the so-called "carbon leakages" - and changes in sectoral comparative advantage. Several GREEN simulations were run with one or all OECD countries/regions imposing a carbon tax with the aim of stabilising their emissions relative to the 1990 levels. The results suggest that the leakage rate would be small, contradicting the findings of other researchers. In order to test the robustness of this GREEN result, a sensitivity analysis was undertaken with respect to the supply elasticities of fossil fuels and the price elasticity of trade flows. The main conclusion is that the key parameter determining the size of the leakage rate is the supply elasticity of coal.
The effect of existing distortions in energy markets on the costs of policies to reduce CO2 emissions: evidence from GREEN
Jean-Marc Burniaux, John P. Martin and Joaquim Oliveira Martins
This paper highlights how the existence of distortions in energy markets could play an important role in designing a global strategy to curb CO2 emissions. Governments in many non-OECD countries appear to subsidies energy demand heavily. The existence e of these subsidies has several implications. First, eliminating these subsisides is an obvious candidate for a "no-regrets" approach to the design of an international agreement. Second, the economic costs to the world as a whole of curbing global emissions are overestimated when energy subsidies in the non-OECD countries are not treated as explicit distortions. Third, an international agreement involving the elimination of existing subsidies before phasing-in carbon taxes could be achieved at virtually no cost for the non -OECD countries taken as a whole so long as carbon reductions are cost-effectively allocated across countries.
Carbon taxes and current energy policies in OECD countries
Peter Hoeller and Jonathan Coppel
In response to the threat of global warming much attention has been paid to taxes levied on the carbon content of fossil fuels (carbon taxes), since they are potentially efficient economic instrument for reducing emissions of CO2, the main greenhouse gas. This paper first reviews the existing and evolving structure of fossil fuel prices and taxes and the relationship between energy prices and emissions. It then analyses the economic cost of superimposing carbon taxes on top of current energy taxes. Finally, using a simple energy demand system, tax reform proposals are simulated including restructuring present energy taxation by the average implicit carbon tax and a carbon cum energy tax similar to the EC proposal.
Economic Studies No. 18 (Spring 1992)
Regionalisation and world trade
Peter J. Lloyd
This paper considers the growth in regional trading arrangements (RTAs) in the world economy over the period 1961-89. The number of RTAs and of countries participating in them and the intra-area freeing of trade have certainly increased. However, the empirical evidence from an examination of the import trade data for four RTAs among OECD countries (EC, EFTA, Canada-United States FTA, and Australia-New-Zealand CER) does not support the view that RTAs have led to a growing regionalisation of world trade. There is some tendency for world trade to become more polarised as the share of intra-area imports has increased for the westem European and ASEAN regions but not for the North American region. The paper surveys the literature on trade diversion/creation and other effects on non-member countries and considers the effects of RTAs on the multilateral trading system.
Institutional commitments and policy credibility: a critical survey and empirical evidence from the ERM
Thomas Egebo and A. Steven Englander
The success of ERM countries in reducing inflation has led to much analysis of whether ERM membership has given rise to policy credibility effects. This article examines the analytical foundations of the credibility hypothesis, reviews the econometric evidence on whether or not credibility contributed to low-cost disinflation in ERM countries and provides independent estimates of possible credibility effects since 1987. The article finds some policy credibility effects in financial markets in the second half of the 1980s, but there is little evidence that credibility effects in labour or product markets have significantly reduced the costs of disinflation.
What is households' non-market production worth?
This paper deals with the measurement of the non-market production of goods and services by households and explains why the issue is important for various areas of economic analysis. It discusses the definition of production in the UN-OECD System of National Accounts. It then reviews and assesses different measurement methods of the value added by non-market productive household activities. Estimates of the value of unpaid labour for several OECD countries are compared and their importance relative to official measures of GDP, private consumption and household disposable income is shown. The paper concludes with suggestions for future research.
Wages and wage policies in market economies: lessons for Central and Eastern Europe
Robert J. Flanagan
This paper reviews theory and evidence on how market economies solve the labour allocation and performance problems and draws lessons for the economic transitions in the countries of Central and Eastern Europe (CEECs). The paper begins by addressing the role of wages and competitive labour market mechanisms in skill acquisition and in the industrial allocation of labour. Subsequent sections address institutional aspects of wage formation, the conflict between the efficiency and distributional aspects of wages, and how wage incentives are used to encourage high performance within organisations. The problem of establishing effective managerial incentives in CEECs receives particular attention. The paper concludes with a consideration of the difficulty in establishing effective incomes policies to counter the threat of inflation during the economic transitions in CEECs.
Labour markets and the transition in Central and Eastern Europe
Tito Boeri and Mark Keese
The initial phase of the transition from centrally-planned to market-based economies has been marked by a rapid rise in unemployment in Central and Eastern Europe. While this may have been inevitable in the short-run, high and persistent levels of unemployment could strain the social consensus supporting the current reforms. The risks of this occurring are discussed in this article which first presents an overview of labour markets under central planning and then analyses recent developments, including the changing structure of employment, growth of the private sector and the composition of the pool of unemployed. A final section discusses some implications for labour market policies.
Economic Studies No. 17 (Autumn 1991)
Is P-star a good indicator of inflationary pressure in OECD countries?
Peter Hoeller and Pierre Poret
The P-star approach has been developed by the U.S. Federal Reserve as a new indicator of inflationary pressures. This paper assesses its usefulness for 20 OECD Member countries. Regression results are presented and in-sample tracking ability and forecasting performance of the equations are compared to rival inflation models and official OECD projections.
Stock market volatility in OECD countries: recent trends, consequences for the real economy, and proposals for reform
This paper examines the historical patterns among the returns and return volatilities of stock market indices for 15 OECD countries over the last thirty years. It characterises trends in gross volatility and measures of inter-market correlations, describing the degree and manner in which these statistics have changed over time. It discusses the implications of transitory periods of excess volatility for real economic activity and considers financial policies that have been proposed in the United States to limit such volatility. The results suggest that the past three decades have coincided with a world-wide increase in the average levels of volatility in stock returns as well as a general increase in the strength of the positive correlations among national stock index returns and the conditional volatilities of these returns. The evidence to date does not suggest that the increase in volatility has had strong effects on economic activity.
Infrastructure and private-sector productivity
Robert Ford and Pierre Poret
In a recent study, David Aschauer concluded that the significant slowdown of the growth of private-sector total factor productivity in the United States in the early 1970s was due to the contemporaneous slowdown in the rate of investment in public-sector infrastructure. If he is right, the obvious policy implication is that boosting infrastructure investment would be a good way to promote economic growth, a course that has been recommended by some economists. This note examines data for twelve OECD countries and finds that support for Aschauer’s hypothesis is not strong. In particular, the regression results presented here are not sufficiently robust to provide much support for the policy of a sharp rise in infrastructure investment.
Energy prices, taxes and carbon dioxide emissions
Peter Hoeller and Markku Wallin
Taxes levied on the carbon content of fuels (carbon taxes) are being considered in many OECD countries as a possible policy instrument to reduce carbon dioxide emissions. This paper first reviews the policy response in OECD countries to the threat of global warming. It then discusses the link between carbon emission intensities and current energy prices. It examines the relative price effects of current energy policies and the implicit carbon taxes reflected in present energy taxation for different fuels. Finally, the likely effect of a carbon tax on energy prices and emission intensities is discussed.
Real interest rate trends: the influence of saving, investment and other factors
Warren Tease, Andrew Dean, Jorgen Elmeskov and Peter Hoeller
This paper examines the trends in saving, investment and real interest rates. In doing so an attempt is made to identify some of the major influences on real interest rates in the past. In addition, some prospective influences on the course of real interest rates - government saving, the demand for funds from non-OECD countries and demographics - are considered.
Controlling government spending and deficits: trends in the 1980s and prospects for the 1990s
Howard Oxley and John P. Martin
During the 1980s most OECD governments launched medium-term strategies to restore greater balance to the public finances. It was generally agreed that the brunt of the strategy should be borne by expenditure cuts rather than tax increases. This paper describes how governments achieved better budgetary control in the 1980s, examining trends in deficits, revenues and expenditures. The focus throughout is on general government which accounts for most of public sector activity in OECD countries. It also assesses the main spending pressures which OECD governments are likely to face in the 1990s and suggests some possible policy responses.
Economic Studies No. 16 (Spring 1991)
Economics and the environment: a survey of issues and policy options
Jon Nicolaisen, Andrew Dean and Peter Hoeller
Concerns over the pace, scope and causes of environmental degradation have led to a renewed interest in the way environmental and economic policies interact. This paper first reviews the main causes for excessive use of environmental resources in a market economy, focusing also on economy-wide implications. The merits of different policy instruments to counter environmental degradation are then discussed, and the information needed for the successful conduct of environmental policy is reviewed. The paper also considers the policy options to cope with uncertainties surrounding cost and benefit estimates. Finally, the paper highlights some policy issues concerning international co-operation on regional and global issues.
Macroeconomic implications of reducing greenhouse gas emissions: a survey of empirical studies
Peter Hoeller, Andrew Dean and Jon Nicolaisen
This paper surveys various estimates of the macroeconomic implications of reducing greenhouse gas emissions. Most available studies focus on policies to reduce CO2 emissions and are limited to the costs of such policies. The survey first examines the key factors shaping baseline emission scenarios. It then looks at the aggregate cost of emission reductions, as shown by both global and country-specific models, and discusses the key determinants of the model outcomes. The paper also briefly reviews other options for reducing greenhouse gas emissions and draws some more general lessons for the policy response to the threat of climate change.
Business investment: recent performance and some implications for policy
Robert Ford and Pierre Poret
Growth of the capital stocks of OECD countries has flagged in the 1980s, despite a rebound in gross business fixed investment. This has raised concerns of a shortage of capital and focused attention on government policies to further raise investment. The evidence presented in this article does not provide support for the standard theories of investment demand, on which such policies are based. Thus, there is little evidence that government incentives will raise capital accumulation.
International economic linkages and the international debt situation
Peter Dittus, Paul S. O'Brien and Hans J. Blommestein
Since the early 1980s the third-world debt crisis has contributed to fragility in parts of the OECD financial system, brought to a halt growth in many indebted countries, and reduced regional and world trade flows. To investigate the role international linkages between large debtor countries and OECD countries have played in the evolution of the debt situation, purpose-built macroeconomic models of major Latin American economies, integrated with the OECD's INTERLINK system for analysing OECD macroeconomic developments, have been developed. These models are used to show the relationship between debt indicators and OECD fiscal and monetary policy, exchange rate and price developments, as well as to assess the contribution of domestic factors and of various overall strategies of dealing with debt - including the role of new money and debt reduction packages.
Is convergence a spontaneous process? the experience of Spain, Portugal and Greece
Bénédicte Larre and Raymond Torres
Levels of productivity in the OECD countries have become more uniform since the early 1960s; however, the process is uneven and hard to explain from the theoretical point of view. In neo-classical analysis of growth, catch-up occurs spontaneously as a result of the spread of technological progress and capital accumulation. In this paper, developments in three southern European countries are discussed in an effort to throw some light on the factors involved. Catch-up appears not to be spontaneous; the acquisition of technology and efficient capital accumulation depend largely on the degree of development of market mechanisms and the quality of social and economic infrastructures.
The impact of the minimum wage on earnings and employment in France
Stephen Bazen and John P. Martin
Throughout the 1970s and 1980s, the real value of the minimum wage in France has risen due to its frequent up-rating. However, unlike in the United States where the minimum wage is increased infrequently, studies of the French youth labour market have been unable to identify a significant impact of the minimum wage on youth employment. One possible reason for this is that the standard model used to analyse the relationship between the minimurn wage and youth employment is inappropriate. Using an alternative approach, increases in the minimum wage are found to increase real wages of youth, while the impact on adult wages is much smaller. It proved very difficult, however, to derive robust estimates of the impact of real wages on youth and adult employment. But such evidence as there is suggests long-run minimum wage elasticities of youth employment of -0.1 to -0.2, similar to those found in the North American literature, and zero for adult employment.
Economic Studies No. 15 (Autumn 1990)
The sustainability of fiscal policy: New answers to an old question
Olivier Blanchard, Jean-Claude Chouraqui, Robert P. Hagemann and Nicola Sartor
Sustainability of fiscal policy is traditionally assessed by projecting the ratio of public debt to GNP taking into account expected budgetary developments. In the same spirit, the paper presents an indicator of sustainability to illustrate how much change in government spending and/or taxation should be made to assure that the ratio of public debt to GNP remains unchanged. Using this new indicator, the paper appraises the degree to which current fiscal policies are sustainable in a sample of OECD countries over short, medium, and long-term horizons.
Industrial subsidies in the OECD economies
Robert Ford and Wim Suyker
Subsidisation of industrial activities distorts the allocation of scarce resources, is a burden on government finances and generates friction in international trade. This paper draws on a wide range of data sources to examine industrial subsidisation in OECD countries. The sectoral distribution of subsidies and the relative importance of the different instruments of subsidisation are highlighted. The final section of the paper evaluates, to the extent possible, the economic effects of subsidy policy.
Progressivity of income tax systems
This article summarises the background and content of a new OECD data base on the personal income tax and indicates a number of areas in which these new data can be applied. It also reviews the different measures of progressivity of personal income tax and describes the different aspects of tax progressivity reflected by the different measures. Finally, it presents and discusses estimates of income tax progressivity in most OECD countries.
Portfolio effects and the position of the dollar in exchange markets
The article derives the "spontaneous" demand for new dollar assets arising from the growth of global private portfolios which is compared with the "exogenous" supply of such assets. This simplified flow approach suggests that the growth of global portfolios could continue to translate into an important demand for new dollar assets, albeit not sufficient to fully cover the expected financing need. Whether this would require higher expected returns on dollar assets relative to assets denominated in other currencies will largely depend on spontaneous portfolio diversification. While in the near future this process could remain favourable to the dollar, over the longer term - as financial markets outside the United States increase their breadth and depth - it could become less supportive of this currency.
Monetary policy in liberalised financial markets
Adrian Blundell-Wignall, Frank Browne and Paolo Manasse
Rapid progress in financial market deregulation and innovation has occurred in most large OECD economies since the early 1970s. One important consequence of this has been enhanced competition and improvements in the allocative efficiency of financial markets. However, transitional costs (higher inflation and balance-of-payments difficulties) have also been encountered by many economies. At the same time, the process of financial liberalisation has been accompanied by new and longer-run challenges for monetary policy. Thus, liquidity constraints have been reduced, enabling expenditure decisions to be based more on expected wealth and relative prices, implying new transmission mechanisms for monetary policy. The importance of monetary aggregates as an indicator for monetary policy have been one casualty of this development, while the role of financial prices has increased.
Economic Studies No. 14 (Spring 1990)
Saving trends and behaviour in OECD countries
Andrew Dean, Martine Durand, John Fallon and Peter Hoeller
National saving ratios are generally lower now than in the 1960s or 1970s. This paper first reviews developments in national and international saving and investment trends in OECD countries since the 1960s. It then examines sectoral saving trends and considers the links between them. There are seen to be important offsets between government and private sector saving and, within the latter, between the business sector and households, so that national and private saving rates tend to be more stable than their component parts. The paper looks in particular at the reasons lying behind the volatile behaviour of household saving in certain countries in recent years.
The information content of the term structure of interest rates: theory and evidence
Frank Browne and Paolo Manasse
The paper is devoted to an empirical examination of the information content in the term structure of nominal interest rates for future inflation. Tests of the ability of the term structure to forecast future changes in the inflation rate are carried out for six major OECD countries using monthly data. These tests demonstrate that the term structure does have considerable forecasting ability, particularly for rates taken from the short end of the maturity spectrum. However, with one exception, forecasting power tends to fade or disappear completely when the term structure in question is formed using, as the long rate, yields on increasingly distant maturities. This suggests that changes in the nominal term structure using such rates reflect mostly changes in the term structure of ex post real interest rates.
Promoting new industrial activities: a survey of recent arguments and evidence
Gene M. Grossman
Popular support is growing in Europe and North America for an industrial policy that would encourage entry of national firms into new industrial activities. The activities that proponents have in mind are primarily technology-based and skilled-labour intensive. Recent analysis has sought to identify the distinguishing features of modern industries and to evaluate the arguments for government policy support in the light of these features. This paper reviews a number of economically based arguments for an active industrial policy. The arguments rely on the alleged importance to modern industrial competition of economies of scale, of learning-by-doing, of externalities stemming from R&D, production experience, on-the-job training and demand linkages, and of imperfections in capital and product markets due to asymmetries of information. In each instance, the logical merits and empirical relevance of the case for government action are evaluated and an attempt is made to identify an appropriate policy response where it seems warranted.
Measuring potential output in the seven major OECD countries
Raymond Torres et John P. Martin
Over the past decade much greater attention has been paid to setting economic policies in a medium-term framework. In this context, potential output can play a useful role as a summary indicator of aggregate supply, and it does so in the OECD's medium-term work. The aims of this paper are three-fold: i) to explain the method used by the OECD to derive a measure of potential output; ii) to present recent OECD estimates of potential output and capacity utilisation for the seven major OECD countries; and iii) to illustrate some of the possible effects of faster productivity and potential output growth on macroeconomic performance.
A model of housing investment for the major OECD economies
Thomas Egebo, Pete Richardson and Ian Lienert
Housing investment accounts for a small but cyclically volatile share of GNP in the major OECD economies. This paper surveys a range of recent empirical studies of housing and presents a set of estimated equations for the seven major countries in the OECD INTERLINK model. These results suggest that reasonable estimates can be obtained by applying a common stock-adjustment approach to housing, in spite of major variations in institutional factors.
Economic Studies No. 13 (Winter 1989) Special issue: Modelling the effects of agricultural policies
Estimation of agricultural assistance using producer and consumer subsidy equivalents (PSEs/CSEs): Theory and practice
Carmel Cahill and Wilfrid Legg
Producer and Consumer Subsidy Equivalents (PSEs/CSEs) are the main indicators for measuring levels of agricultural assistance in OECD countries. This paper describes the concept and discusses the practical measurement of the PSE and CSE as applied in the OECD calculations. The PSE/CSE is one of several methods of measuring assistance which are briefly reviewed. The effects of changes in exchange rates and the treatment of supply controls are examined, as these are key issues in the interpretation and use of the results in monitoring agricultural policy reform and in trade negotiations. The paper concludes that the PSE/CSE is a useful tool for policy analysis and is constantly evolving to meet the needs of policy-makers.
The Ministerial Trade Mandate model
H. Bruce Huff and Catherine Moreddu
The MTM model is a medium-term, comparative-static, partial-equilibrium model of world agriculture, comprising eleven country models linked through trade. I t was constructed to evaluate the domestic and international market impact of a reduction in assistance to commodities, as measured by PSEs and CSEs. Recently, the model has examined these impacts on production inputs, net farm income, developing countries, and specific types of agricultural policies.
WALRAS - A multi-sector, multi-country applied general equilibrium model for quantifying the economy-wide effects of agricultural policies
Jean-Marc Burniaux, François Delorme, Ian Lienert and John P. Martin
This article provides the methodological background of the WALRAS model which has been developed by the OECD to quantify economy- and world-wide effects of agricultural policies in OECD countries. WALRAS is a multi-sector applied general equilibrium model in which the major OECD agricultural trading countries/regions are represented in a fully integrated world framework. The paper describes the structure of the model and discusses the main economic mechanisms at work with the help of diagrammatic representations. It also discusses the data and parameter values used to calibrate the model.
Quantifying agricultural policies in the WALRAS model
Agricultural policies in OECD countries are complex: they include price supports, income payments, trade barriers and domestic supply controls. This paper relies on the PSE/CSE data and other information to quantify various policy instruments for use in the WALRAS model. It finds that import taxes and export subsidies are particularly important in Japan and the EC, whereas subsidies for supporting domestic production are the main form of farm support in Canada and the United States.
Economy-wide effects of agricultural policies in OECD countries: Simulation results with WALRAS
John P. Martin, Jean-Marc Burniaux, François Delorme, Ian Lienert and Dominique van der Mensbrugghe
This paper reports the results of various scenarios with the OECD’s applied general equilibrium model, WALRAS. These quantify the long-run effects of agricultural policies in OECD countries on resource allocation between the agricultural and non-agricultural sectors, on factor returns, on trade volumes and prices, and on economic welfare. The results suggest that existing levels of farm support in OECD countries are costly, both to the OECD countries and to non-OECD countries. The paper also presents a range of policy-relevant simulations designed to highlight certain aspects of the current debate on agricultural reform.
How robust are WALRAS results?
Dominique van der Mensbrugghe, John P. Martin and Jean-Marc Burniaux
This paper aims to provide an assessment of the robustness of WALRAS simulation results. It does this by presenting the results of sensitivity analysis with respect to changes in both the specification of the model and the values of its key exogenous parameters. None of the three changes in model specification examined makes a major difference to the results. The analysis reveals that the import and export demand elasticities are the most crucial exogenous parameters in WALRAS. However, the presumption that agricultural liberalisation should lead to real income gains is shown to be very robust, even to wide variations in the trade elasticities.
Assessing the role of scale economies and imperfect competition in the context of agricultural trade liberalisation: A Canadian case study
François Delorme and Dominique van der Mensbrugghe
This paper describes a version of the WALRAS model which incorporates scale economies and imperfect competition. This model, referred to as WALRAS-SE, is calibrated to Canadian data. The paper first outlines the theoretical considerations involved, and describes how two alternative assumptions concerning the pricing behaviour of producers in imperfectly competitive markets were implemented in the model. WALRAS-SE is then used to assess the economy-wide effects of unilateral agricultural liberalisation using 1986-88 levels of support. Finally, the results shed light on the key interaction between the structure of support and the sectoral location of economies of scale.
The so-called "non-economic" objectives of agricultural support
L. Alan Winters
Agricultural support costs OECD countries 72 billions of U.S. dollars per year in lost income. It is frequently argued, however, that this is not waste, but is rather a fair price to pay for a number of "non-economic" objectives such as thriving rural communities and increased national food security. This paper analyses these objectives and their relationship with agricultural policy. It draws three conclusions: first, the so-called "non-economic" objectives are, in fact, economic; second, they are amenable to quantification and economic analysis; and, third, present forms of agricultural support may be inefficient means to achieve these objectives.
Economic Studies No. 12 (Spring 1989)
Empirical research on trade liberalisation with imperfect competition: A survey
J. David Richardson
This paper surveys recent empirical research on the benefits of trade liberalisation with imperfect competition and scale economies. Computable general-equilibrium studies are surveyed, as are a large number of partial-equilibrium studies. The first typical conclusion from the studies surveyed is that calculated gains in national purchasing power are usually two to three times the size of those estimated in traditional frameworks with perfect competition. The second is that calculated adjustment pressures from trade liberalisation are considerably higher than implied in most commentary, and higher also than estimates from traditional models.
Population ageing: Economic effects and some policy implications for financing public pensions
Robert P. Hagemann and Giuseppe Nicoletti
Population ageing in the OECD area is expected to affect labour and product markets, and national rates of saving and capital accumulation. Ageing will also place significant pressures on public finances as the share of future output transferred to a large dependent population rises. This paper discusses some of the potential effects of ageing, with particular emphasis on its implications for financing public pensions in Japan, the Federal Republic of Germany, Sweden, and the United States. Future increases in retirement age and reduction of the ratio of benefits to wage levels could help reduce pressures on public finances, while a trust fund can help smooth the transition.
The economic dynamics of an ageing population: The case of four OECD countries
Alan J. Auerbach, Lauence J. Kotlikoff, Robert P. Hagemann and Giuseppe Nicoletti
Demographic changes such as population ageing have many effects that influence a country's fiscal viability. This paper uses a dynamic general-equilibrium model with overlapping generations to evaluate the macroeconomic and fiscal consequences of population ageing in four OECD countries: Japan, the Federal Republic of Germany, Sweden, and the United States. One of the fundamental lessons is that allowing for general equilibrium adjustments reduces the adverse welfare effects of increasing dependency ratios. Nevertheless, the welfare costs and their distributions acmss cohorts pose serious challenges to policy-makers in some cases.
Structural conditions and macroeconomic responses to shocks: Sensitivity analysis for four european countries
Luca Barbone and Pierre Poret
This paper treats expected macroeconomic payoffs from greater competition in product and labour markets by analysing how the four largest European countries would respond to shocks if they had the same degree of price and wage flexibility as the United States. Based on simulations carried out with the INTERLINK model, the main results are: a) fiscal stimulus is more inflationary andproduces smaller output gains when flexibility is increased; ii) following an adverse external supply shock, greater flexibility serves to stabilise prices and minimise output losses, depending, for some countries, on the stance of monetary policy and the exchange-rate regime.
Deregulation and privatisation in an economy-wide context
During the last decade, measures have been taken in many countries to deregulate previously regulated industries and to privatise government-owned enterprises. This paper describes these developments with special focus on the transport and telecommunications industries and reviews the theoretical considerations behind the change in policy approach. It is argued that regulation of prices, restrictions on entry to certain industries and government ownership often lead to inefficiencies which seriously impair the welfare gains expected from such measures. Moreover, regulation is sometimes introduced in markets which left to themselves would have yielded efficient outcomes despite a concentrated production structure.
Revision of the system of national accounts: A note on objectives and key issues
The United Nations System of National Accounts defines aggregates such as income, production, saving and investment which are the basic concepts of macroeconomics. The present SNA is twenty years old and is now being reviewed by statisticians and economists from national administrations and international organisations. The main aim of the review is to update the System to take account of institutional developments that have occurred in the last two decades, but the review has also touched upon some fundamental questions such as the distinction between current and capital transactions, depletion of natural resources and the boundary of economic production.
Economic Studies No. 11 (Autumn 1988)
R&D, innovation and the total factor productivity slowdown
A. Steven Englander, Robert Evenson and Masaharu Hanazaki
What happened to the pace of innovation during the 1970s? This article presents evidence from patents data, regression analysis and stock market data suggesting that the pace of innovation slowed in most industries during this period, despite remarkable advances in some areas, such as information technology. Such a slowdown in innvoation could partially account for the observed slowing in total factor productivity ITFP) growth. The paceof innovation may have accelerated in the early 1980s, and could contribute to a resurgence of TFP growth in the years ahead.
A cross-country analysis of private consumption, inflation and the "debt neutrality hypothesis"
Do expectations of future financing burdens lead the public to save more when the government runs large deficits? This paper analyses the impact of "fiscal expectations" on consumption in eight OECD countries. Estimates of a dynamic demand system, based on an extended life-cycle model embodying fiscal expectations, are reported. The results suggest that: i) the government's inflation-tax is anticipated by consumers; and ii) while private savings do not adjust fully to changes in government deficits and hence debt is not neutral in its effects on spending, expectations of future policy corrections depress private consumption quite noticeably when public debt is explosive.
The disinflation of the 1980s
David T. Coe, Martine Durand and Ulrich Stiehler
The disinflation of the 1980s has been one of the outstanding achievements of macroeconomic policies in OECD countries. After reviewing aggregate price developments between 1980 and 1987, this article discusses and quantifies the main influences which contributed to falling inflation rates. Based on simulations carried out with the OECD INTERLINK model, the main reasons for improved inflation performance are analysed. This full-model approach shows that restrictive monetarypolicy between 1980 and 1983 was the principal factor accounting for the return to more stable price levels in OECD countries. Declines in oil prices also played an important role in sustaining the process after 1985.
Unemployment as a hiring problem
Robert J. Flanagan
This paper analyses the role of increasing maladjustment in the labour market as a source of high unemployment, particularly in Europe. After reviewing and dismissing several labour-supply explanations, the paper focuses on the role of changes in employer hiring decisions. It argues that the reluctance of European employers to hire is related to specific economic and institutional developments, such as pa y compression and greater output uncertainty, that have altered hiring incentives. It demonstrates both the development of a general reluctance to hire and specific effects tied to these incentives in some countries.
Import barriers: an analysis of time-series cross-section data
This note provides evidence from pooled time-series cross-section data on the extent of non-tariff trade barriers in OECD countries. This is accomplished through the estimation of "normal" import shares in GDP and of deviations from average values for individual OECD countries. Natural barriers to trade - distance and cost of transportation - are assessed through econometric estimates of a relationship linking cif-fob margins to distance. Finally, a discussion is provided regarding the issue of underimporting in sub-categories of total imports.
Economic Studies No. 10 (Spring 1988)
Total factor productivity: macroeconomic and structural aspects of the slowdown
Total factor productivity growth (TFP) for the OECD has slowed from just under 3 per cent a year in the 1960s to about 0.5 per cent in the 1980s. This has led not only to a slowdown in the improvement of living standards, but indirectly to stronger inflationary pressures and higher rates of unemployment. This study identifies the slowing of capital accumulation, reduced capacity utilization, reduced opportunities for technology transfer and catch-up, and possibly a slowing in new technology generation as macro and structural influences behind the TFP growth slowdown.
The structure and simulation properties of OECD’s INTERLINK model
This paper reviews recent developments in the OECD’s international macroeconomic model, INTERLINK, the evolution of its simulation properties and the key relationships involved. In doing so, it updates much of the information published in earlier OECD studies related to international economic linkages and the INTERLINK model in particular.
Recent developments in index number theory and practice
The article examines recent developments in index number theory and their implications for the measurement of inflation and growth. The kinds of price and volume indices which are typically compiled in most countries are shown to be only second best from a theoretical viewpoint, so that their movements should not be taken too literally. A consensus in favour of chain indices seems to be emerging among index number specialists even though they are still not used much in practice. The paper attempts to throw more light on the properties of chain indices and also presents a new type of chain index.
What the U.S. current-account deficit of the 1980s has meant for other OECD countries
Jeffrey R. Shafer
How might the world economy have looked different in the 1980s if a large deficit had not arisen in the U.S. current account? This paper examines such a counterfactual history in which U.S. public and private saving behaviour and dollar exchange rates remain roughly as they were in the late 1970s. It concludes that i) macroeconomic performance would not have been clearly better in the OECD area; and ii) although the tensions arising from the U.S. external imbalance would have been reduced, imbalances within Europe might well have given rise to other tensions.
Tax reform in OECD countries: motives, constraints and practice
Robert P . Hagemannn, Brian R . Jones and R . Bruce Montador
This paper examines the question of tax reform in OECD countries. First, the reasons for tax reform are reviewed. These include economic efficiency arguments as well as concerns about equity which are often a major consideration. Next, the paper considers the many factors which constrain governments in their effort to reform the tax system (such as inherent conflicts between efficiency and equity, and the non-revenue objectives of taxation), and how those constraints might be reduced. Finally, the paper reviews the extent of tax reform in OECD countries, noting some of the remaining problems.
Economic Studies No. 9 (Autumn 1987)
The economic consequences of agricultural support: a survey
L. Alan Winters
What are the effects of OECD countries’ agricultural policies on their economic well-being? The article first establishes a conceptual framework for assessing the impact of protectionist policies on aggregate economic welfare, and then reviews sixteen recent studies - ranging in complexity from single-sector studies to general equilibrium models - which have quantified the social costs arising from agricultural policies in Japan, the United States and the EEC. After considering related aspects of agricultural policy, including national security and income distribution and stabilization, the article concludes that the economic returns from reform of agricultural policies are substantial.
Managing crises in the emerging financial landscape
Jeffrey R. Shafer
Rapid innovation and regulatory change in the financial sector have eroded barriers between once-distinct markets within countries and internationally, enhanced the flexibility and range of instruments traded in secondary markets and created an intensely competitive market environment in many areas where competition had once been restrained. This article explores how these broad changes may be altering the probability of crises in financial markets and the forms they might take. It concludes by drawing implications for the role of the lender of last resort and other systemic safeguards in averting or containing crises in the future.
A risk premium model of the yen-dollar and DM-dollar exchange rates
Although the exchange rate is one of the most important economic variables, it has proved to be difficult to explain its movements. One of the difficulties is attributable to changes over time in the relative importance of various determinants of exchange rates, such as interest rates and balance of payments. This article tries to explain exchange rate movements by a model with a risk premium term and parameters which are affected by structural shifts in international financial markets. The results show that risk premium factors are highly significant, while real interest rate differentials have been increasing in importance in recent years.
CD leading indicators
This article explains how the OECD system of leading indicators is constructed, covering the choice of reference cycles, selection of indicator series, identification of turning points, trend estimation and aggregation of series to produce composite indicators. The ability of the composite leading indicators to predict turning points in the industrial production cycle is evaluated using both the complete data that became available after the event as well as the more limited data set that was actually available at the time the indicators were first published. A final section looks at the ability of composite indicators to predict levels.
Indicators of international competitiveness: conceptual aspects and evaluation
Martine Durand and Claude Giorno
This paper reviews the methodological problems involved in constructing indicators of international competitiveness and provides some elements for their evaluation. It presents the measures of competitiveness calculated by the OECD and compares them with those published by other institutions. This comparison highlights the importance of the conceptual principles underlying the construction of such indicators and points to their respective areas of application. A number of indicators portraying special aspects of competitiveness phenomena are then described, together with examples of how they might be used, to illustrate the value of such measures, notably for purposes of cross-country analysis.
A note on the new OECD benchmark Purchasing Power Parities for 1985
Derek Blades and David Roberts
The OECD has recently published a new set of benchmark Purchasing Power Parities (PPPs) for twenty-two Member countries based on price and expenditure data for 1985. The countries include Australia, New Zealand, Sweden and Turkey, for which PPPs have neverpreviously been calculated. The main purpose of this note is to present these new PPPs and to explain how they differ from the previous benchmark estimates for 1980. The note also contains a brief discussion of the uses of PPPs and a short description of how they have been calculated. A final section gives some estimates for 1986 and 1987.
Economic Studies No. 8 (Spring 1987)
Current-account imbalances and adjustment mechanisms
Andrew Dean and Val Koromzay
This paper focuses on the large current-account imbalances among OECD countries that have emerged over the past several years, and on how the evolution of these imbalances might be influenced by various hypothetical changes in the world economy. Quantitative estimates of how exchange-rate changes, changes in relative growth rates among countries or government budget actions might affect external balances are presented. Particular emphasis is given to an analysis of the various channels through which changes in specified variables affect external imbalances, and an assessment of the relative importance of these channels.
Internationalisation of financial markets and the allocation of capital
Mitsuhiro Fukao and Masaharu Hanazaki
This article analyses the effects of the internationalisation of financial markets on the allocation of capital. It examines the increased integration between domestic and international financial markets and the tendency towards convergence of real interest rates among financially open countries. The article then deals with long-term implications for the international allocation of capital, with emphasis on tax distortions. Using estimated tax wedges for business investment and the supply block of OECD’s INTERLINK system it show that, under integrated financial markets, the tax distortions could generate a large imbalance in a country’s net external asset position, involving a significant welfare cost.
International comparisons of tax levels: pitfalls and insights
K.C. Messere and J.P. Owens
International tax statistics are frequently used to compare tax burdens and the extent of government intervention in the economy. This article examines the conceptual and practical problems encountered when making such comparisons and identifies similarities and differences in tax level trends in OECD Member countries. It also provides some explanations for these trends.
Microeconomic changes and macroeconomic wage disinflation in the 1980s
James H. Chan-Lee, David T. Coe and Menahem Prywes
Since 1980 there has been an important decline in wage inflation and also a renewed emphasis on enhancing the supply-side flexibility of economies. This article surveys changes in microeconomic policies affecting the labour market, and in wage-setting practices. Although there have been an impressive number of new developments, for any single country most of the changes have been relatively modest and comparatively recent. The article then discusses how these changes might affect aggregate wage developments and attempts a quantitative assessment of their significance.
Goods and services in OECD countries
Service activities, broadly defined to cover all activities that do not result directly in the production of goods, now account for the major part of GDP and employment in OECD countries. This article examines the relative importance of different service activities in terms of their contribution to GDP and employment and their growth rates over the last two decades. "Services" cover a disparate collection of activities which have experienced widely differing growth rates. It is helpful to distinguish between at least three groups - collective services provided by government, services linked to goods production, and what are here termed "free-standing" services.
Economic Studies No. 7 (Autumn 1986)
Applied general equilibrium models: an assessment of their usefulness for policy analysis
Antonio M. Borges
Introduction of a solution algorithm and the increasing power of computers have made possible the development of complex general equilibrium models and their use in analysing economic policy issues. This paper surveys applied general equilibrium models, analyses their advantages and remaining weaknesses for various policy applications, and discusses efforts to improve on existing models and to extend their usefulness. It concludes that general equilibrium models are indispensable in determining long-term effects of a number of important policy measures (e.g. tax reforms) in a consistent manner, although important aspects of real world economies remain to be integrated into these models.
Marginal tax rates on the use of labour and capital in OECD countries
Michael J. McKee, Jacob J.C. Visser and Peter G. Saunders
Concern for the effects of taxation on the incentives to work, to employ labour, to save and to invest has focused the attention of policymakers on marginal tax rates. This paper provides some illustrative total marginal tax rates on factor use for most OECD countries. The rates aply to two related pairs of decisions: to supply/employ labour and to save and invest (supply/demand capital). The rates are "total" in that they attempt to integrate the effects of all taxes levied on these pairs of decisions by all levels of government.
Public debt in a medium-term perspective
Jean-Claude Chouraqui, Brian Jones and Robert Bruce Montador
This article examines the implications of the recent sharp increase in the ratio of public debt to GNP in most OECD Member countries. The evolution of public debt is also analysed within the wider framework of the government sector's net worth. One particular element in this approach - the future pension liabilities of governments - is seen to have a significant bearing on the debt outlook in several countries. The article then assess the sensitivity of the public debt profile under alternative economic conditions and fiscal policy settings. Finally, it reviews the possible consequences of high and/or rising levels of debt.
The international debt situation and linkages between developing countries and OECD
Paul Saunders and Andrew Dean
The linkages between the debt situation of some of the most indebted developing countries and conditions in the OECD economies are explored by the use of a model which relates developing country debt to changes in OECD growth, prices, interest rates and other key variables. The way in which financial ratios for certain groups of debtor countries could develop over the next five years is examined on the basis of assumptions about world economic developments. Simulations on alternative assumptions allow an assessment of the importance of the linkages and the sensitivity of the debt situation to developments in the OECD economies.
Pure profits and Tobin's q in nine OECD countries
James H. Chan-Lee
This paper presents valuation ratios (Tobin's q) for nine countries. Tobin's q embodies market expectations and is an indicator of expected pure profit rates on the existing capital stock. Since 1982, equity markets have recovered substantially. By end-1985, values of Tobin's q were close to their 1974 levels and to the symbolic figure of unity. The theoretical and conceptual relevance of q is considered, as well as data and measurement limitations. Real debt and equity costs of finance are considered in the light of buoyant stock markets. The implications of the strong recent recovery in q for investment are also noted.
Economic Studies No. 6 (Spring 1986)
Labour market flexibility
Friedrich Klau and Axel Mittelstädt
Differences between unemployment rates for countries or regions may be explicable in terms of different degrees of "labour market flexibility". This article discusses some of the meanings of that term, and related macroeconomic implications. External price or supply shocks arising in conditions of rigid labour markets are thought to lead to higher structural unemployment. Making labour markets more adaptive and responsive to changing demand and supply conditions would therefore help to remove impediments to a return to sustainable high employment levels.
Price dynamics and competition in five OECD countries
David Encaoua and Paul Geroski
This article examines the relationship between the competitive environment facing firms and the extent to which prices charged by these firms are responsive to changes in costs or demand. A model of optimal dynamic pricing is developed and tested on disaggregated industry data from five countries. The general conclusion is that in those sectors where competitive pressures - as proxied by several different indicators - are relatively weak, price smoothing is an important phenomenon. The implications of this finding for macroeconomic behaviour of economies are briefly considered, and in particular the light it sheds on "neoclassical" versus "fix-price" paradigms for macroeconomic theory.
The supply side in OECD's macroeconomic model
John Helliwell, Peter Sturm, Peter Jarrett and Gérard Salou
This paper describes modifications to, and further developments of, the supply block in the Secretariat's world model INTERLINK as of autumn 1985. The objective of the work was to strengthen the role in the model of supply side elements, in particular profitability. In the process, stockbuilding was endogenised, assigning to inventories an important buffer role between sales and output in the dynamic adjustment process. Price formation has been linked more coherently to the revised supply structure via a dual cost function, and labour supply has been endogenised.
International price levels and purchasing power parities
When the prices of goods andservices sold in different OECD countries are converted into a common currency by means of market exchange rates, differences emerge between countries in both the levels andpatterns of their prices. These differences, which are both substantial and persistent, are systematically related to levels of real per capita GDP. They show that there is no tendency for exchange rates to equal the purchasing power parities for final domestic expenditures, at least between countries with markedly different levels of real per capita GDP.
Economic Studies No. 5 (Autumn 1985)
The origins of high real interest rates
Paul Atkinson and Jean-Claude Chouraqui
During recent years real interest rates, both short- and long-term, have been high by historical standards in many OECD countries, regardless of the measure of expected inflation used to adjust nominal rates. A number of domestic factors which may have contributed to unusual upward pressure on interest rates, as well as international transmission aspects, are analysed, but none can be attributed a dominant role.
Substitution between different categories of labour, relative wages and youth unemployment
Daniel S. Hamermesh
Available research suggests that when the relative supply of women to the labour market increases, as it did in most developed countries in the 1960s and 1970s, the wage rate of young workers must fall relative to other wages if youth unemployment is not to rise. This paper discusses the evidence from related empirical studies and evaluates their research methods.
Nominal wages, the NAIRU and wage flexibility
David T. Coe
The historical determinants of nominal wages are analysed for eleven OECD economies, and consideration is given to the implications for future development of wages, and hence of inflation. There appears to be little risk of renewed inflationary pressures emanating from the labour market, because unemployment rates are currently (sometimes substantially) above estimates of the non-accelerating inflation rate of unemployment. Specific measures of wage flexibility are also derived; by any measure, Japan stands out as the country having the most flexible wages.
Profits and rates of return
James H. Chan-Lee and Helen Sutch
There was a widespread decline in profit rates from 1960 to 1982; in some countries, profit shares fell. In the 1970s these phenomena became general, accompanied by low rates of growth and capacity utilisation. This article examines profit trends and cycles in historical perspective, with attention to measurement problems. It discusses various concepts of profit and their economic significance. Inflation, the associated response of interest rates, the revaluation of assets and liabilities and the interaction of these effects with the tax system affect firms' financial profitability, while National Accounts profitability is important as a measure of productive efficiency in the economy.
Representing recent policy concerns in OECD's macroeconomic model
John Llewellyn and Pete Richardson
Over the past few years, a number of issues have demanded increasing attention by policymakers. These include the behaviour of financial markets, the effects of expectations, the interactions of OECD economies with the developing economies, and the determinants of supply-side performance. Analysis of these issues by the OECD Secretariat has progressively been incorporated into its world model, INTERLINK. This note describes, in a non-technical way, the main features and broad preliminary conclusions of this work prior to publication of more detailed technical studies of specific aspects.
Economic Studies No. 4 (Spring 1985) Special issue: The role of public sector
Introduction and summary
Size and scope of public sector activity
Determinants of public sector growth
Programme objectives, achievements and adverse consequences
Taxation, disincentives and distortions
Budget deficits and crowding-out
The redistributive impact of government
Economic Studies No. 3 (Autumn 1984)
Trade between developed and developing countries: the decade ahead
The paper reviews the trade policies applied by developed and by developing countries in the postwar period and examines the effects of these policies on trade between the two groups of countries. Emphasis is given to trade in manufactured goods, which has been the most dynamic element of world trade. The possible interest of developed and developing countries in the liberalisation of their mutual trade is examined, with a view to establishing a policy package for multilateral trade liberalisation. Finally, matters relating to the conduct of a North-South round of trade negotiations are analysed.
Structural budget indicators and the interpretation of fiscal policy stance in OECD economies
Robert W.R. Price and Patrice Muller
Distinguishing "structural" from "cyclical" budget deficits, this paper presents estimates of structural budget deficits in OECD economies and traces them to, primarily, government debt interest payments. It also analyses recent structural budget developments in the context of monetary targeting, pressures on private savings and the growing burden of public debt and debt service, which now places severe limits on the room for fiscal manoeuvre in most OECD countries. It concludes that the budget deficit adjusted for variations both in the cycle and in the rate of inflation appears to be a more informative indicator of the fiscal stance than the budget deficit per se.
International aspects of forecasting accuracy
John Llewellyn and Haruhito Arai
This article examines the accuracy of real GNP and inflation forecasts made by the OECD Secretariat and various bodies in OECD Member countries. In many years, there is cancelling of errors across countries, so that year-ahead forecasts for OECD real GNP have been within one percentage point or so of the outcome. In a few years, however, the majority of single-country forecasts exhibited errors in the same direction, leading to large forecasting errors for OECD GNP. These occasions generally followed large, and novel, shocks to the OECD economy, whether originating inside or outside the region.
Macroeconomic policies and exchange rates
Paul Masson, Adrian Blundell-Wignall, Bixio Barenco and Gerald Holtham
Knowledge of the interaction between macro-economic policy and exchange rates is imperfect and incomplete. Nonetheless, there is a widespread presumption that a country can use an adjustment of its monetary and/or fiscal policy to influence its exchange rate. This paper examines the scope for such usage looking at relevant qualitative, quantitative and historical evidence. Broadly it would appear that, although many other factors are at work, policies can influence exchange rates - at least if the policy adjustments are large enough and in harmony with each other.
The efficacy of monetary targeting: the stability of demand for money in major OECD countries
Paul Atkinson, Adrian Blundell-Wignall, Manuela Rondoni and Helmut Ziegelschmidt
The recent experience with monetary targeting (particularly in countries where velocity has behaved in an unexpected way), and uncertainties implied by the unpredictable future effects of financial innovations have led to reservations about the reliability of relations between money and income. This paper considers the likely implications of financial innovations on the demand for money and uses econometric techniques to analyse the empirical stability of money demand equations in major OECD countries. There appears to be at least one monetary aggregate for which a stable demand function can be identified in each of the major OECD economies.
Domestic and international effects of government spending under rational expectations
Paul Masson, Adrian Blundell-Wignall and Pete Richardson
To what extent do government deficits, by increasing the stock of debt, contribute to higher interest rates? It is sometimes argued that empirical evidence of such a linkage is weak, so that, for example, expansionary fiscal policy in the United States cannot be the cause of high interest rates and of a strong dollar. This paper shows that even in the absence of debt supply effects on interest rates, increased U.S. government spending may be associated with substantial increases in long-term interest rates and in dollar strength, as the result of stronger aggregate demand and unchanged monetary targets.
Economic Studies No. 2 (Spring 1984)
Medium-term financial strategy: the co-ordination of fiscal and monetary policy
Jean-Claude Chouraqui and Robert W.R. Price
This article discusses the implications for fiscal policy effectiveness of persistent budget deficits combined with tight monetary targets. Such asymmetry in the fiscal/monetary policy mix can lead to government debt accumulation and higher debt service costs. Furthermore, when such accumulation is used to finance consumption and causes growing imbalances between government bonds andother financialassets in private portfolios, this asymmetry can cause upward pressure on interest rates. Thus the impact of fiscal policy may tend to diminish over the medium term.
Multinational modelling of financial linkages and exchange rates
The OECD Secretariat's world economic model determines exchange rates and capital flows using a modern "portfolio balance" approach which makes capital flows dependent on interest rate differentials and exchange rate expectations. By accounting in a consistent though aggregative manner for the financial flows among all OECD countries and with the rest of the world, the model determines seventeen exchange rates simultaneously. This paper reports estimation results for the system. Simultaneous-equation estimation techniques with cross-country parameter restrictions are employed, and a significant "risk premium" is identified whereby exchange rates depend on countries' net foreign asset positions.
Some effects of export restraints on Japanese trading behaviour
Philip Turner and Jean-Pierre Tuveri
This article reviews the implications of recent measures restraining Japanese exports. Examining aggregate export volumes, exports by commodity, and by area, it finds that such measures, unlike other forms of trade restriction, have tended to increase export prices. As these prices have been adjusted to partly offset exchange rate changes, the macroeconomic implications of changes in the yen exchange rate are altered. It also appears that avoiding "trade frictions" is becoming an important motive for Japanese direct investment overseas.
A comparison of simulation properties of national econometric models
James H. Chan-Lee and Hiromi Kato
This paper compares the current simulation properties of sixteen national econometric models in active use. The analysis confronts policy-relevant theoretical issues with available empirical evidence. Issues surveyed include: "crowding out", neutrality of money, price/output splits, inflation/unemployment trade-offs and the comparative influences of monetary and fiscal policies under alternative exchange-rate regimes. At the risk of oversimplification, the behavioural properties of these models are mainly eclectic-Keynesian in inspiration. Monetary transmission mechanisms and expectations processes are relatively simp/e and not dominating. Few embody fully-specified stock or wealth effects; and none, the latest thinking on expectations or supply-side effects.
Inflation, holding gains and saving
Income measurement in economic accounts is based on actual or imputed transactions and disregards real holding gains and losses on monetary assets and liabilities, even though these occur with predictable regularity in an inflationary environment. In practice, economic agents are well aware of these gains and losses and may be systematkally taking them into account when making decisions about consumption and saving. Thus the picture of consumer behaviour provided by national accounts may be distorted, especially when inflation is accelerating or decelerating, thus leading to overstatement of the extent to which a fall in inflation is liable to stimulate personal consumption.
Economic Studies No. 1 (Autumn 1983)
Eurocurrency banking: alarmist concerns and genuine issues
Ralph C. Bryant
How far is the rapid growth of Eurocurrency banking a cause for concern?
International economic linkages
Flemming Larsen, John Llewellyn and Stephen Potter
What - and how powervul - are the international linkages that each government needs to respect in devising its own policies and how far do they limit effective national action?
Output responsiveness and inflation: an aggregate study
David T. Coe and Gerald Holtham
How do changes in nominal income show up as real output on the one hand or inflation on the other?
Determinants of saving: theory and evidence
Peter H. Sturm
What makes people and firms change their saving behaviour?
Resource prices and macroeconomic policies: lessons from two oil price shocks
What do the two oil shocks tell us about the effects of changing resource prices on macroeconomic condtions and the appropriate policy responses?
OECD Economic Outlook Special Chapters
Economics Department Working Papers