Volume 22 (2017)
Part 1, March
Please select from the titles below:
Part 2, September
Please select from the titles below:
Part 1, March
by C Senarathne and P Jayasinghe
Abstract: The Heteroskedastic Mixture Model (HMM) of Lamoureux, and Lastrapes (1990) is extended, relaxing the restriction imposed on the mean i.e. μt-1=0 . Instead, an exogenous variable rm, along with its vector βm, that predicts return rt is introduced to examine the hypothesis that the volume is a measure of speed of evolution in the price change process in capital asset pricing. The empirical findings are documented for the hypothesis that ARCH is a manifestation of time dependence in the rate of information arrival, in line with the observations of Lamoureux, and Lastrapes (1990). The linkage between this time dependence and the expectations of market participants is investigated and the symmetric behavioural response is documented. Accordingly, the tendency of revision of expectation in the presence of new information flow whose frequency as measured by ‘volume clock’ is observed. In the absence of new information arrival at the market, investors tend to follow the market on average. When new information is available, the expectations of investors are revised in the same direction as a symmetric response to the flow of new information arrival at the market.
by A Piergallini and G Rodano
Abstract: The modern New Keynesian literature discusses the stabilising properties of Taylor-type interest rate rules mainly in the context of complex optimising models. In this paper we present a simple alternative approach to provide a theoretical rationale for the adoption of the Taylor rule by central banks. We find that the Taylor rule can be derived as the optimal interest rate rule in a classical Barro-Gordon macroeconomic model. The successful practice of central bankers, at the core of the Great Moderation, and currently re-invoked to re-normalise monetary policy after the unprecedented quantitative-easing actions aimed to escape the Great Recession, can perfectly be explained by standard theory, without recourse to more complicated derivations.
by O Gomes
Abstract: One of the most challenging endeavours economic theorists currently face is the integration of emotions in the conceptual frameworks used to explain the choices and the behaviour of agents. Emotional decisions are much harder to understand, evaluate and analyse than rational ones, because emotions are diffuse, difficult to isolate and to categorise, and also because they correspond to personal inner-states that might be externalised in so many different ways. This paper suggests the use of a possible classification of emotions in order to guide economists when developing their emotional-oriented decision-making models. The classification is the one proposed by psychologist Robert Plutchik through his popular ‘wheel of emotions’, a diagram that highlights the existence of a few basic emotions that might acquire, each of them, various different tones or intensities.
by E C Alfredsson and J M Malmaeus
Abstract: Despite the importance of economic growth for the current economy, business and societal planning there are few long-term growth projections undertaken. There is, however, a vivid debate on what is called the 'new normal' - secular stagnation - which is undertaken within academic disciplines. This overview covers mainstream, heterodox and scientifically oriented economic perspectives on the prospects for economic growth in the 21st century. The survey shows that existing long-term projections and scenarios indicate growth rates ranging from around half a percentage point less than during the last two decades (projected by the Organisation for Economic Co-operation and Development, OECD), to dramatically lower growth rates). Differences stem from different perspectives on the determinants of economic growth and the potential for improvements in productivity. Headwinds are: an aging population, especially in OECD countries; resource constraints, including energy; increasing environmental costs in particular due to the consequences of climate change; overaccumulation; increasing income differences; and declining social capital. One conclusion is that policymaking based on the assumption that economic growth will continue at pre-crisis levels is unwise and risky.
by D Shepherd, R Muñoz Torres and M A Mendoza
Abstract: In this paper we examine the regional structure of output growth, volatility and prosperity in Mexico, focusing in particular on the degree of integration between both the regions and the individual states of the country. The results suggest that there is a high degree of similarity across the regions in the responses to domestic and international shocks affecting the economy, but there are also significant differences across the individual states within each region. We identify a positive relationship between output growth and volatility, but the relationship between growth and regional disparities appears to be negative, suggesting that higher (lower) growth is generally associated with lower (higher) regional dispersion in per capita GDP levels.
Part 2, September
by S Platoni
Abstract: This paper investigates a system of dynamic incentives developed within the framework of the classic Diamond and Mirrlees (1978) disability model, but considering disability as a temporary state and rephrasing the analysis in terms of current and promised future utilities. The model therefore assumes that if disabled individuals receive benefits to the extent that able individuals are indifferent between working and not working, then the marginal utility of consumption is lower for working individuals. A comparison, based on a numerical simulation, between the dynamic incentives (DI) model and a private savings (PS) model characterised by a stationary tax-transfer policy allows the assertion that, even if the first system converges to the second system, the total utility guaranteed by the government in the DI model is greater than the total value achieved by the PS model, and in the DI model, the gap in consumption between able and disabled individuals increases not only along working histories, as in the PS model, but also across working histories.
by M Arayssi and A Fakih
Abstract: The primary objective of this paper is to shed further light on the connection between financial development and economic growth in Kenya over the period 1960-2013. A Cobb-Douglas production function, augmented by incorporating financial development and other factors, is used. This paper uses a vector autoregressive (VAR) model to determine the causal relationship between financial development and economic development. Three alternative production function representations are proposed: a basic model including financial development and inflation along with capital and labour, a variant adding foreign direct investment (FDI), and a third focusing on the interaction between financial development and FDI. The results show that financial development is a by-product of growth. The interaction between FDI and financial development is causing growth. There is bidirectional causality between growth and the labour force. Policy-makers in Kenya can obtain fruitful impacts of FDI to enhance growth by improving the role of financial development. They may also need to improve the quality of labour to sustain growth.
by M Ismael
Abstract: We study the stability properties of a Diamond (1965) overlapping generations model in which agents have to pay transaction costs related to the capital accumulated. In particular, these costs depend positively on the amount of individuals savings. At first, we show that under standard conditions, the feasible path may be dynamically inefficient (efficient) if there is an over-accumulation (under-accumulation) of capital with respect to Golden Rule. Namely, the introduction of transaction costs reduces the Golden Rule level of saving comparing to the standard model. It is also shown that the stationary equilibrium is determinate. Further, transaction costs promote the emergence of cycles of period two and therefore acts as a destabilizing factor. The analytical findings are completed by a numerical example.
by A G Eid and I L Awad
Abstract: This paper investigates the relationship between government expenditure and non-oil private GDP in Saudi Arabia over the period 1970-2015, using a Markov Switching Autoregressive Model (MSAR)-which captures the dynamic pattern of time series and allows us to test the impact of government expenditure on GDP growth in finite unobserved states of the economy. The study results show that the growth effects of contemporaneous government consumption expenditure and government fixed capital formation expenditure are found to be negative only in the low (recessionary) state of the economy. This could be explained by the crowding out effect that exists only in recessionary periods. On the other hand, the disaggregated government expenditure model indicates that defence and security expenditure is estimated to have the expected negative and significant impact on non-oil private GDP growth, but only in the low state. In addition, out of the three highest government civil items of expenditure, human resources development is found to have a positive and significant growth effect in both states of the economy, while the growth effect of the other two types (health and economic development expenditure) is found to be insignificant in the low state. This insignificant growth effect of some types of government expenditure in the low state of non-oil private GDP could be explained by the procyclical nature of government expenditure because of the excessive dependency on oil revenues.
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