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ECONOMIC ISSUES

Volume 11 (2006)

Part 1, March

Please select from the titles below:

Part 2, September

Please select from the titles below:

Part 1, March

On the Welfare Effect of an Equivalent Tariff and Quota (p.1)

by O Gürtler

Abstract: In the principal-agent literature, a collective tournament, i.e. a tournament between teams, has been proposed as a solution to the free-rider problem. Competition between the teams is said to foster within-team cooperation and, hence, to mitigate free-riding. In this paper, we analyse the impact of an agent's liability on the tournament outcome. In the more realistic case of limited liability, a collective tournament is found to perform very poorly. Free-riding is, in this case, even intensified when applying a collective tournament.

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Fiscal Policy and Growth: The Case of the Spanish Regions (p.9)

by Rajagopal

Abstract: The role of customer value has been recognized by firms over time as an instrument that can stimulate market share and profit optimization. Customer values for a new product of firms in competitive markets are shaped more by habits, reinforcement effects and situational influences than strongly-held attitudes. A basic premise of the paper is that the focus should be on maximizing total customer value and customer satisfaction, factors which are inter-dependent in the decision making process towards buying new products. The framework of analysis is a proposed model which integrates all aspects so as to maximize the potential of the organization and all its subsystems to create and sustain satisfied customers. The discussion in the paper focuses on customer value gaps in the process of marketing new products and explores the possible situations that may lead to lower customer value. The model discussed in the study has been subject to empirical testing through analysis of data collected from 369 respondents to a study conducted in 11 retail auto (or self-) service stores located in Mexico City.

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A Monetary Model of Exchange Rate and Balance of Payments Adjustment (p.25)

by D Nocetti

Abstract: In this note I explore how a non-constant rate of time preference on the part of policymakers affects economic growth. In a simple dynamic general equilibrium model I show that if the incumbent government has a rate of time preference in the form of a quasi-hyperbolic discounting function, tax rates can be substantially higher and economic growth considerably lower than the standard case of exponential discounting.

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Stock Market Growth: An analysis of cointegration and causality (p.37)

by M Bahmani-Oskooee and I Miteza

Abstract: Earlier studies that investigated the relation between exchange rate and domestic output employed panel data. In this paper we improve upon the traditional approaches of the existing econometric literature on contractionary devaluation or depreciation by applying panel unit root and panel cointegration techniques to annual data from 42 countries (18 OECD and 24 non-OECD). After confirming the existence of unit roots in all variables of the model as well as cointegration among all variables, results from different specifications of the model revealed that in the long-run, devaluations are contractionary in non-OECD countries regardless of model specification. However, for OECD countries the results were sensitive to model specification.

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Investment and Non-fundamental Movements in Asset Prices: is there a role for monetary policy? (p.65)

by F Alexandre and P Bação

Abstract: The role of monetary policy during periods of asset price volatility has been the subject of discussion among economists and policymakers at least since the 1920s and the Great Depression that followed. Some economists have been arguing that the performance of inflation-targeting central banks can be improved by reacting to misalignments in asset prices, because these may result in distortions in consumption and investment decisions. Using a sticky price model with endogenous investment driven by non-fundamental movements in asset prices, we discuss the potential benefits, in terms of output and inflation stabilisation, of monetary policy reacting to asset prices over and above the deviation of the inflation forecast from the target. We show that identifying the source of asset price movements is crucial to welfare gains.

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Part 2, September

Contagion and the Role of Market Development: the Case of the Malaysian Futures Market during the East Asian Crisis of 1997 (p.1)

by D Brookfield and A Azizan

Abstract: In looking to explain the possible transmission and causal flows in volatility between financial markets during an economic crisis and the impact of possible contagion, we examine the specific circumstances surrounding the role of the development of futures index trading in Malaysia in relation to the East Asian (or Asian) crisis of the late 1990's. Specifically, our main contribution is to assess whether an undeveloped and subsequently developing futures market had the 'efficiency capacity' to transmit fair prices and, failing that, whether price contagion was spread via futures index trading.

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Quantification of Expectations. Are They Useful for Forecasting Inflation? (p.19)

by O Claveria, E Pons and J Suriñach

Abstract: Business tendency surveys are commonly used to provide estimations of a wide range of macroeconomic variables before the publication of official data. The qualitative nature of data on the direction of change has often led to quantifying survey results making use of official data, introducing a measurement error due to incorrect assumptions. Through Monte Carlo simulations it is possible to isolate the measurement error introduced by incorrect assumptions when quantifying survey results. By means of a simulation experiment we check the effect on the measurement error of respondents diverging from "rationality". We also analyse the predictive performance of different quantification methods for fourteen EU countries and the euro area. We find that allowing for asymmetric and stochastic response thresholds (indifference interval) produces a lower measurement error and more accurate forecasts.

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Imperfectionism in Macroeconomics: New Light on an Old Controversy (p.39)

by J E King

Abstract: The issues at stake in recent debates about ‘imperfectionism’ in macroeconomic theory are strikingly similar to questions raised in the revisionist controversy in German Marxism in the later 1890s and beyond. Orthodox Marxists claimed that the law of value could operate effectively only under free competition, while their revisionist critics countered that the growth of monopoly would improve coordination between different sectors of the economy and reduce the severity of crises. Some strange and unwitting intellectual alliances can be identified. New Keynesian thinking shows clear affinities with orthodox Marxism, while Post Keynesian ideas on this question resemble closely those of the revisionists.

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Determinants of the Demand for Live Entertainments: Some Survey-based Evidence (p.51)

by S Cameron

Abstract: This paper presents estimates, based on survey evidence, of the determinants of total demand by the public for attendance at live events, such as opera, rock music, musicals and theatre. The paper estimates equations for total attendance in the last twelve months as a function of perceptions of price, income, consumption of substitute goods, demographic variables and measures of the 'social network' effect of attendance (including loneliness). The equations are estimated using a fixed effects model for male-female differences. Some differences are established between males and females. There is only limited evidence for a significant role of social network effects.

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