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Publications - 1969


 

150 Years of the Oil Price-Macroeconomy Relationship

Serletis, Apostolos
 

A Complete Example of an Optimal Two-Bracket Income Tax

Wen, Jean-Francois

I provide a simple model that is solved analytically to yield tidy expressions for the Pareto efficient tax structures and the optimal two-bracket marginal tax rates. It is for the special case of equally-sized groups of two skill types and no exogenous spending requirements of the government. The results and the exposition give a self-contained treatment of the central ideas of optimal income taxation.

 

A Model of Educational and Economic Planning

Tu, Pierre
 

An Empirical and Qualitative Assessment of Terrorism Sentencing Decisions in Canada since 2001

Oxoby, Robert, Nesbitt, Michael and Potier, Meagan

In this paper, we take a comprehensive and multi-disciplinary look at terrorism sentencing decisions over a 17-year period, between September 2001 when the ATA was first conceived of and September 2018.

 

A Note on Leverage and the Macroeconomy

Istiak, Khandokar and Serletis, Apostolos
 

Are the Responses of the U.S. Economy Asymmetric to Positive and Negative Money Supply Shocks?

Serletis, Apostolos and Istiak, Khandokar
 

A Spatial Approach to Energy Economics

Taylor, M. Scott and Juan Moreno Cruz
 

A Spatial Approach to Energy Economics: Theory, Measurement and Empirics

Taylor, M. Scott and Moreno

This paper sets out a simple spatial model of energy exploitation to ask how the location and productivity of energy resources may affect the distribution of economic activity around the globe. This is a very large research question, and we take one small step towards answering it by combining elements from resource and energy economics into one framework that links the spatial productivity of energy sources (both renewable and non-renewable) to the incentives for economic activity to concentrate. Our theory provides a novel scaling law; a magnification effect; and reveals a complementarity between infrastructure investment and spatially productive energy resources. Our empirical work provides estimates of key model attributes and reviews related empirical work supporting our approach.

 

Asset Integration, Risk Taking and Loss Aversion in the Laboratory

Oxoby, Robert and Morrison, William G.

We report on a laboratory experiment testing for the presence of loss aversion, as separate from risk aversion, utilizing an asset integration protocol designed to ensure that a loss of cash provided by the experimenter is viewed as a real loss by experimental participants. Our experimental design augments the Holt-Laury risk preference elicitation methodology to assess how individuals choose between a safe option and a riskier lottery. When the money at stake is viewed as the individual’s own money, one of the lottery outcomes is in the domain of losses. Our results confirm that individuals display an additional reluctance to participate in a mixed domain lottery beyond that predicted by risk aversion. We show that only preference functions incorporating loss aversion are able to generate predicted behaviour that matches our results.

 

Back to the Future of Green Powered Economies

Taylor, M. Scott and Juan Moreno Cruz
 

Banking Technology in a Markov Switching Economy

Serletis, Apostolos and Isakin, Maksim

We take the user cost approach to modeling the financial firm that maximizes capitalized variable profit to investigate whether the monetary transmission mechanism differs in low and high interest rate environments. We use the panel of U.S. commercial banks from 1992 to 2014 to construct the user costs of financial goods and propose a two-step procedure to estimate a regime-dependent variable profit function in the normalized quadratic semiflexible functional form. We derive demands for and supplies of financial and non-financial goods and provide evidence consistent with neoclassical microeconomic theory. We find several significant differences in the technology of the financial firm across low and high interest rate regimes.

 

Bayesian Persuasion in Credit Ratings, the Credit Cycle, and the Riskiness of Structured Debt

Isakin, Maksim and Alexander David
 

Bestsellers and Blockbusters: Movies, music, and books

Walls, W. D.

This paper is a survey on the economics of blockbusters and bestsellers in popular entertainment and culture, with a particular focus on empirical methods and applications to motion pictures, music and books. We first survey various conceptual models on the economics of superstars and the winner-take-all nature of product success. We then survey the range of statistical methodologies that can be used to quantify formally the winner-take-all nature of the distribution of success while estimating the correlates of success across competing titles. In separate subsections for movies, music, and books, we survey the empirical literature that relates to the blockbuster phenomenon. The final section discusses specific current topics related to the distribution of success, focusing on issues that appear to be fruitful areas for future research.

 

Biased Technological Change and the Relative Abundance of Natural Resources

Boyce, John

This paper documents that natural resources that are more abundant have higher production, lower prices, higher primary industry revenues, and higher R&D. These empirical facts are explained by a model of biased technological change in which relatively more abundant resources attract greater R&D because the return from obtaining a patent is higher in larger markets. Resource specific R&D may be targeted either towards upstream extraction technologies or towards downstream production technologies, and R&D is subject to diminishing knowledge spillovers and diminishing productivity of labor. The estimated elasticity of substitution between natural resources is greater than one, implying that natural resources are substitutes in production. Declining real resource prices in the face of rising resource production are explained by the increasing productivity of labor as knowledge stocks grow.

 

Canada-UK Free Trade: Balancing progressive trade policies and economic benefits

Beaulieu, Eugene, Dawar, Kamala and Garner-Knapp, Lindsey

The United Kingdom (UK) and Canada face uncertainty as they respectively manage relations with their largest trading partners: both the UK's withdrawal from the European Union (EU) post-Brexit and an aggressive American pivot toward a protectionist trade agenda threaten stability and economic prosperity.

 

Can Gender Quotas in Candidate Lists Empower Women? Evidence from a Regression Discontinuity Design

Campa, Pamela and Bagues, Manuel

We provide a comprehensive analysis of the short- and medium-term effects of gender quotas in candidate lists using evidence from Spain, where quotas were introduced in 2007 in municipalities with more than 5,000 inhabitants, and were extended in 2011 to municipalities with more than 3,000 inhabitants. Using a Regression Discontinuity Design, we find that quotas raise the share of women among council members but they do not affect the quality of politicians, as measured by their education attainment and by the number of votes obtained. Moreover, within three rounds of elections, women fail to reach powerful positions such as party leader or mayor, and we do not observe any statistically or economically significant changes in the size and composition of public finances.

 

Can't Touch This! Similarity And Willingness to Keep "Dirty Money"

Johnson, David, Goerg, Sebastian and Rogers, Jonathan

Traditionally, larger than equilibrium allocations by proposers in Dictator Games (gifts) have been explained by aspects of altruism, reciprocity, and fairness. However, this assumes the gift to be mutually desirable to the proposer and responder. Giving may also be driven by a desire of the proposer to rid herself of the gift or to generate obligation on the part of the responder. We examine this by using three sources to generate the endowment in a Dictator Game:(1) undergraduate students, (2) Amazon Mechanical Turk workers, and (3) users of a racially/ethnically charged web forum. This endowment is provided to subjects in a traditional laboratory experiment. We find no significantcant differences in the proposer allocation decisions across the three sources. Rather we find that proposer affect toward the source of the endowment affects the allocation decision. Our results suggest that decision making can be strongly influenced by the provider of income shocks.

 

Capacity Constraints in Durable Goods Monopoly: Coase and Hotelling

Boyce, John, Church, Jeffrey Robert and Vojtassak, Lucia

We examine the effect of a capacity constraint on the profi ts of a durable goods monopoly (DGM) in a two-period model when rationing is efficient. For sufficiently high discount factors, output rises through time without a constraint and a constraint increases the DGM profi ts: it restricts production in the second period, thereby lowering expectations of future prices and the incentive for intertemporal substitution. For lower values of the discount factor, output falls through time without a constraint. Regardless of the discount factor a constraint that binds in both periods may also be profi table. It reduces output in both periods, leading consumers to expect higher prices in the second period and thus increasing market power and prices in the first period.

 

Capital Budgeting and Fiscal Sustainability in British Columbia

Wen, Jean-Francois
 

Carbon Pricing in a Federal State: The Case of Canada

Winter, Jennifer

This short paper reviews the evolution of emissions pricing policies in Canada, and the political changes that led to implementation and political retreat from emissions pricing.

 

Communication Frictions, Sentiments, and Nonlinear Business Cycles

Xu, Libo and Serletis, Apostolos
 

Conditional Correlation Demand Systems

Serletis, Apostolos and Xu, Libo

We address the estimation of singular demand systems with heteroscedastic disturbances. As in Serletis and Isakin (2017) and Serletis and Xu (2019) we assume that the covariance matrix of the errors of the demand system is time-varying, and contribute to the literature by considering the constant conditional correlation (CCC) and dynamic conditional correlation (DCC) parameterizations of the variance model. We derive a number of important practical results and also provide an empirical application to support our methodology.

 

Consumption, Leisure, and Money

Serletis, Apostolos and Xu, Libo

This paper takes a parametric approach to demand analysis and tests the weak separa- bility assumptions that are often implicitly made in representative agent models of modern macroeconomics. The approach allows estimation and testing in a systems-of-equations con-text, using the Minflex Laurent flexible functional form for the underlying utility function and relaxing the assumption of fixed consumer preferences by assuming Markov regime switching. We generate inference consistent with both theoretical and econometric regularity. We strongly reject weak separability of consumption and leisure from real money balances as well as weak separability of consumption from leisure and real money balances, meaning that the inclusion of a money in economic models would be of quantitative importance. We also investigate the substitutability/complementarity relationship among dfferent categories of personal consumption expenditure (nondurables, durables, and services), leisure, and money.We find that the goods are net Morishima substitutes, but because of positive income effects they are gross complements. The implications for monetary policy are also briefly discussed.

 

Demand Systems with Heteroscedastic Disturbances

Serletis, Apostolos and Xu, Libo

We address the estimation of singular demand systems with heteroscedastic disturbances. We relax the homoscedasticity assumption and instead assume that the covariance matrix of the errors of the demand system is time-varying. In doing so, we consider the VECH and BEKK parameterizations of the variance model. We analytically prove the invariance of the maximum likelihood estimator with respect to the choice of the good deleted from a singular demand system, and also prove a number of important practical results regarding how to recover the mean and variance equation parameters (and their standard errors) of the full demand system from those of any subsystem obtained by deleting an arbitrary good.

 

Divisia Monetary Aggregates, the Great Ratios, and Classical Money Demand Functions

Serletis, Apostolos and Gogas, Periklis
 

Embodied Carbon Tariffs

Christoph Bohringer, Carbone, Jared and Thomas F. Rutherford

Embodied carbon tariffs tax the direct and indirect carbon emissions embodied in trade — an idea popularized by countries seeking to extend the reach of domestic carbon regulations. We investigate their effectiveness using simulations from an applied general equilibrium model of global trade and energy use. We find that the tariffs do reduce foreign emissions, but their ability to improve the global cost-effectiveness of climate policy is limited. Their main welfare effect is to shift the burden of developed-world climate policies to the developing world.

 

Employer Loyalty, Training, and Female Labor Supply

Tanaka, Atsuko

This paper develops and calibrates a game theoretical model of statistical discrimination against women. It then quantitatively analyzes the effects of tax credits in the form of child-care subsidies on female labor supply, gender wage differences, and labor allocation efficiency using Japanese data. In my model, employers finance employee training without directly observing individual workers' labor force intentions. In an attempt to distinguish female workers who will exit the labor market from those who will stay with the firm, the employers use long-term wage contracts as a screening device. The model suggests that child-care subsidies can bring a drastic change in allocation efficiency by altering the type of equilibrium that characterizes the worker-firm game. I build on this theoretical prediction by applying the model empirically to the Japanese labor market. I find that the Japanese female labor market as it currently stands is best captured by a pooling equilibrium, where employers cannot distinguish between women who will leave the firm and women who will stay, thereby allowing statistical discrimination. I simulate the effect of tax credits and find that a decrease in child-care subsidies could raise efficiency because the equilibrium shifts from pooling to separating, where employers can discern individual women's labor force intentions and provide training opportunities accordingly.

 

Energy Markets Volatility Modelling using GARCH

Efimova, Olga and Serletis, Apostolos
 

Environmental Regulation and Safety Outcomes: Evidence from Canadian Energy Pipelines

Walls, W. D. and Zheng, X.

This paper investigates the effects of more stringent environmental regulation—specifically, paying amortized abandonment fees as accrued and absolute liability for adverse events—on the safety performance of Canadian oil and gas pipelines. We construct a comprehensive monthly data set that includes pipeline incidents and accidents, throughput, regulatory intensiveness, and physical characteristics for fourteen federally regulated energy pipelines in Canada. The results show that imposingabandonment fees is positively and significantly related to increases in the probability and number of pipeline incidents. A 10% increase in the share of abandonment fees in sale revenues is associated with 1.63 more incidents per month. Establishing absolute liability since 2016 is significantly associated with decreases in the probability of pipeline serious accidents: The probability of accidents decreased by 3% per month since the establishment of absolute liability. Also, imposing absolute liability is most effective for large oil pipelines, which are subject to the highest liability. Oil pipelines subject to the highest liability reduced accidents by 0.343–0.389 per month, while accidents of natural gas pipelines declined by 0.048–0.052 per month.

 

Estimation of the Effects of Statistical Discrimination on the Gender Wage Gap

Tanaka, Atsuko

How much of the gender wage gap can be attributed to statistical discrimination? Applying an employer learning model and Instrumental Variable (IV) estimation strategy to Japanese panel data, I examine how women's generally weak labor force attachment affects wages when employers cannot easily observe an individual's labor force intentions. To overcome endogeneity issues, I use survey information on individual workers' intentions to continue working after having children and Japanese panel data with exogenous variation in average quit rates for female workers. I find that the extent of statistical discrimination is greatest for young age cohorts, ages 24 to 35, and that it diminishes for older cohorts. I also find that if employers could observe an individual's labor force intentions, the gender wage gap could be reduced from 17% to 5% for workers aged 24 to 29.

 

Externalities and Balanced Growth

Tu, Pierre
 

File Sharing and Film Revenues: An Empirical Analysis

McKenzie, J. and Walls, W. D.

This study quantifies the impact of file sharing on the theatrical film industry. Using a large data set of torrent downloads observed on three popular peer-to-peer (P2P) file-sharing networks, we find evidence of a small and statistically significant sales displacement effect on theatrical box-office revenue: the estimated daily displacement elasticity for theatrical admissions is 0.3 for an increase in downloads over a four week period. The release gap between the domestic (North American) and international markets is a key contributor to piracy early in a film's theatrical life, providing a partial explanation of the industry's move toward coordinated day-and-date worldwide releases.

 

Financial Frictions and the Fiscal Theory of Price Level Determination

Serletis, Apostolos and Xu, Libo
 

Fiscal Integration with Internal Trade: Quantifying the Effects of Equalizing Transfers

Tombe, Trevor and Winter, Jennifer

Fiscal transfers between regions exist within many countries. Explicit transfers, such as Canada's equalization program, redistribute funds directly. Countless federal revenue and spending programs do so indirectly. Like capital flows between countries, such transfers interact with trade and affect the distribution of economic activity within and between subnational jurisdictions. Previous research has largely abstracted from trade considerations; we fill this gap. With the aid of a rich quantitative model and detailed data on within-country trade and financial flows, we uncover important effects of fiscal transfers on provincial income, migration, and national GDP in Canada. The effects are large. Transfers lower Alberta's real income by over 8 per cent and its population by over 12 per cent, and increase PEI's real income by 30 per cent and its population by 50 per cent. As employment shifts to lower productivity regions, we find transfers shrink Canada's real GDP by 0.8 per cent and income-sensitive transfers do so by as much as 1.2 per cent — equal to $19-28 billion today. Finally, fiscal transfers affect the size and distribution of gains from internal trade liberalization and spread gains across all regions, even if policy (like the New West Partnership) liberalizes trade only among some.

 

Foreign Aid and Economic Growth in Developing Countries: An Instrumental Variables Approach

Magesan, Arvind

There is little consensus on the capacity for foreign aid to cause economic growth in developing countries. This is due in large part to the fact that foreign aid recipients are selected by donors, confounding identification. This paper proposes an identification strategy that exploits exogenous variation in foreign aid receipts generated by participation in Human Rights Treaties at the UN to identify an average causal effect of aid on growth. Our approach is valid even if the effect of aid is heterogeneous across recipients for unobservable reasons. We find that an additional dollar of per capita aid causes the growth rate in a recipient country to increase by 8% over four years and 5% over a decade. The effect is explained almost entirely by an expansion of the service industry, accompanied by a large increase in household consumption, with no evidence that aid causes "Dutch disease," as many fear it does. We conclude that aid increases growth by inducing a structural change in household demand for services.

 

Fracking and the Elasticity of U.S. Oil Production

Walls, W. D. and Zheng, Xiaoli

The revolution in U.S. oil production attributable to the application of hydraulic fracturing to oil shale formations has resulted in a substantive change in the supply elasticities of U.S. oil producers. We estimate the short-run and long-run price elasticities of U.S. oil production before and after the widespread adoption of hydraulic fracturing production techniques in shale oil formations. The estimates suggest that the boom in shale oil production is associated with a smaller magnitude short-run supply adjustment in response to price reductions; we also find a larger magnitude long-run supply adjustment in response to price recoveries. This suggests that the adoption of hydraulic fracturing technology has substantially dampened price adjustments in crude oil markets in a way that has expanded the supply of crude oil, making renewable fuels less competitive with petroleum-based fuels.

 

Having it Easy: Consumer Discrimination and Specialization in the Workplace

Kapoor, Sacha and Magesan, Arvind

Most studies analyzing the adjustments of workers to discrimination focus on sorting decisions, such as occupations workers pursue. We instead analyze on-the-job adjustments, focusing on the effects of discrimination by consumers. Specifically, using extraordinary data from a large-scale restaurant, we investigate the effects of an out-ward yet immutable physical trait - symmetry of the facial attributes of workers - on trade offs workers make, and the extent to which the trade offs are shaped by consumer preference for the trait. A large scale restaurant is well-suited for studying these issues because, as with many jobs in the services sector, workers must trade off quality of service for the quantity of consumers they serve. Using a combination of observational data and data generated by a field experiment, we find consumers have a preference for the trait and that preferred workers deliver lower service quality. Instead they specialize in serving more consumers. The findings imply that when outward physical traits substitute for service quality in consumer preferences, preferred workers specialize in tasks having no services component because consumers punish them less for poor performance. We conclude that consumer discrimination shapes comparative advantage and, in doing so, generates earnings inequality in the workplace.

 

Hollywood Studio Filmmaking in the Age of Netflix: A Tale of Two Institutional Logics

Hadida, Allègre L., Lampel, Joseph, Joshi, Amit and Walls, W. D.

New online streaming services are challenging long-standing decision-making processes in the traditional motion picture industry, thus placing Hollywood major studios at a crossroads. We use the institutional logics perspective to examine how both traditional studios and new online streaming services make strategic decisions on which films to produce and how these films should be distributed, and scenario analysis to anticipate how their interaction will likely evolve. We argue that the key criteria that studio executives use to make such decisions are shaped by what we define as a commitment institutional logic: decision making heuristics that focus their attention on theatrical release and box office intakes. In contrast, the new online streaming services follow a convenience institutional logic, the product of advanced data analytics to increase subscriptions. In the convenience institutional logic, the need to drive online traffic by providing users with an extensive catalogue of film offerings guides film development and distribution decisions. Whereas the commitment logic aims for mass-market hits in cinemas, the convenience logic seeks to reach a wide range of subscribers at home with micro-segmented content. We compare the two logics, develop four scenarios of how the interaction between them may shape the film industry, and offer recommendations.

 

How Does the U.S. Natural Gas Market React to Demand and Supply Shocks in the Crude Oil Market?

Jadidzadeh, Ali and Serletis, Apostolos
 

Identication of Static and Dynamic Games of Incomplete Information with Multiple Equilibria in the Data

Magesan, Arvind

I study identication of games of incomplete information, both static and dynamic, when there are multiple equilibria in the data. In the case of static games, I show that if multiplicity disappears at a small subset of the support of the observables, payos are identied. All the equilibria of the model are also then identied. As payo relevant unobservables are an alternative explanation to multiple equilibria for observed correlation in player actions conditional on observables, I allow for this type of variable and show that as long as a conditional exclusion restriction on the distribution of the unobservables is satised, payos, equilibria and the distribution of the payo relevant unobservable are identied. Additionally, letting A be the number of choice alternatives, N the number of players and K the number of equilibria, as long as AN K, I show that equilibrium selection probabilities are also identied, a result that is useful for considering the eects of counterfactual experiments in the presence of multiple equilibria. I extend the framework to study identication in dynamic games. The static approach extends in a straightforward way to nite horizon (non-stationary) games, but not to the more common case of innite horizon (stationary) games. I show that by making additional testable restrictions on the transition probabilities, a large class of stationary dynamic games are also identied.

 

Identification and Estimation of Dynamic Games when Players' Beliefs Are Not in Equilibrium

Aguirregabiria, Victor and Magesan, Arvind

This paper deals with the identification and estimation of dynamic games when players’ beliefs about other players’ actions are biased, i.e., beliefs do not represent the probability distribution of the actual behavior of other players conditional on the information available. First, we show that a exclusion restriction, typically used to identify empirical games, provides testable nonparametric restrictions of the null hypothesis of equilibrium beliefs. Second, we prove that this exclusion restriction, together with consistent estimates of beliefs at several points in the support of the special state variable (i.e., the variable involved in the exclusion restriction), is sufficient for nonparametric point-identification of players’ payoff and belief functions. The consistent estimates of beliefs at some points of support may come either from an assumption of unbiased beliefs at these points in the state space, or from available data on elicited beliefs for some values of the state variables. Third, we propose a simple two-step estimation method and a sequential generalization of the method that improves its asymptotic and finite sample properties. We illustrate our model and methods using both Monte Carlo experiments and an empirical application of a dynamic game of store location by retail chains. The key conditions for the identification of beliefs and payoffs in our application are the following: (a) the previous year’s network of stores of the competitor does not have a direct effect on the profit of a firm, but the firm’s own network of stores at previous year does affect its profit because the existence of sunk entry costs and economies of density in these costs; and (b) firms’ beliefs are unbiased in those markets that are close, in a geographic sense, to the opponent’s network of stores, though beliefs are unrestricted, and potentially biased, for unexplored markets which are farther away from the competitors’ network. Our estimates show significant evidence of biased beliefs.

 

Imposing Theoretical Regularity on Flexible Functional Forms

Serletis, Apostolos and Feng, Guohua
 

Income Instability and Fiscal Progression

Garcia-Medina, B. Cecilia and Wen, Jean-Francois

We construct the ratio of the post-fisc transitory income variance to the pre-fisc transitory income variance of family incomes as a measure of fiscal progressivity in Canada between 1993 and 2008. This ratio can be interpreted as measuring the extent to which the fiscal system attenuates personal income instability. We find that the tax and transfer system has been less effective in stabilizing market incomes after 1998 compared to the previous years. This is attributable to the provincial and federal tax reforms from 1999-2001, which particularly affected families headed by individuals with less than high school education. While the reforms reduced the effective marginal tax rates faced across all educational groups, the reduction is relatively larger among families with highly educated main earners. Moreover, the group with less than high school education is distinct in that the average effective tax burden in this group increased. Changes to Social Assistance also appear to have played a role.

 

Information, institutions, and firm organization: A caselet on the Hong Kong personal services sector

Harvey, Patrick J. and Walls, W. D.

This paper describes how innovations in information technology led to a large structural change in the organization of the personal services business sector in Hong Kong. Initially this sector was characterized by high search costs on the part of customers and high costs of advertising on the part of the providers of personal services. Due to these high information and search costs, the efficient organizational form was one in which firms hired multiple workers and customers visited these firms to purchase services. This organizational form reduced search costs for customers and also provided economies in the way sellers could provide information. After the innovation of internet-based provision of information, the search cost for customers and the advertising cost for suppliers were dramatically reduced. Given Hong Kong's regulatory institutions, under the new information and search cost conditions the efficient organizational form was for individual workers to become independently-operated one-worker businesses. A seemingly small change in the provision of information and the search technology led to the industry structure changing from multiple-worker firms to a structure of single-worker firms.

 

Interest Rates, Money, and Economic Activity

Serletis, Apostolos and Dery, Cosmas

In this paper, we are motivated by the fact that little is known about the relative performance of broad and narrow Divisia monetary aggregates, and by recent work that tests and rejects the appropriateness of the aggregation assumptions that underlie the various monetary aggregates published by the Federal Reserve as well as a large number of monetary asset groupings suggested by earlier studies. We present a comprehensive comparison of narrow versus broad Divisia monetary aggregates within three classes of empirical models. We compute correlations between the cyclical components of Divisia monetary aggregates at different levels of aggregation and the cyclical component of industrial production. We test for Granger causality running from the Divisia aggregates to industrial production and various other measures of real economic activity. We also reestimate a structural VAR based on earlier work by Leeper and Roush (2003) and Belongia and Ireland (2015, 2016), modifying that earlier work by using monthly rather than quarterly data and extending it, both by using broad as well as narrower Divisia monetary aggregates and by allowing for GARCH behavior in the structural shocks.

 

Interfuel Substitution: Evidence from the Markov Switching Minflex Laurent Demand System with BEKK Errors

Serletis, Apostolos and Xu, Libo

We investigate interfuel substitution in the United States using the minflex Laurent demand system and a century of data (from 1919 to 2012). We relax the assumption of constant parameters in the demand system, and also relax the homoskedasticity assumption, instead assuming that the covariance matrix of the errors is time-varying. Our results are consistent with theoretical regularity and indicate that the Morishima elasticities of substitution are always positive for all pairs of the energy goods (suggesting substitutability), but exhibit large swings across two regimes, generally being higher in the high demand volatility regime before the 1950s.

 

International Monetary Policy Spillovers

Serletis, Apostolos and Nsafoah, Dennis

This paper explores for spillovers from monetary policy in the United States to a number of advanced countries, namely Canada, Denmark, the Eurozone, Japan, Sweden, Switzer- land, and the United Kingdom. We use monthly data, from January 1997 to December 2017, and a bivariate structural GARCH-in-Mean VAR to investigate the e¤ects of positive and negative U.S. monetary policy shocks, and also whether monetary policy uncertainty in the United States has had statistically signi…cant spillover e¤ects on each of the other advanced countries. Our evidence suggests that positive (negative) U.S. monetary policy shocks increase (reduce) the policy rate in each of the other countries, and that monetary policy uncertainty in the United States has a negative and statistically signi…cant e¤ect on the monetary policy rate of each of the other countries.

 

International Technology Diffusion via Goods Trade: Theory and Evidence from China

Beaulieu, Eugene and Wan, Shan

This paper develops a multi-product firm model of international trade with the endoge- nous decisions on export and import to study technology diffusion via goods trade. In our model, a firm’s productivity in a product is a combination of its general ability which applies to all the goods the firm produces and product expertise which applies only to a particular good. Within each firm, the decisions of export and import are based on product expertise. Technology diffuses via goods trade, therefore a firm can improve its productivity by reverse-engineering the imported advanced foreign prod- ucts. We use Chinese trade data to empirically analyze our theory. The results show that a firm will import the product in the category where it already has higher expertise, which is consistent with the theoretical prediction. We find that a firm’s productivity in a category gets improved when it imports in the same category, but only product expertise gets accumulated, not the firm ability.

 

International Trade and the Environment: A Framework for Analysis

Taylor, M. Scott and Brian R. Copeland
 

Introduction to Internally Consistent Modeling, Aggregation, Inference, and Policy

Heckman, James J. and Serletis, Apostolos
 

Introduction to Macroeconomic Dynamics Special Issue on Complexity in Economic Systems

Serletis, Apostolos
 

Introduction to Macroeconomic Dynamics Special Issue on Dynamics of Oil and Commodities Prices

Manera, Matteo and Serletis, Apostolos
 

Is Happiness Really a Warm Gun? The Consequences of U.S. Weapons Sales for Political Violence

Magesan, Arvind and Swee, Eik Leong

We exploit exogenous shifts in the cost of purchasing commercial weapons from the U.S. to uncover the causal effect of U.S. weapons purchases on political violence. We find that weapons purchases reduce the likelihood of political repression but increase the likelihood of onset of civil war in purchasing countries. The results suggest that state investment in military capability incites civil war in countries where state repression of an aggrieved opposition would have otherwise prevailed.

 

Markov Switching Oil Price Uncertainty

Serletis, Apostolos and Xu, Libo

We investigate whether the United States economy responds negatively to oil price uncertainty and whether oil price shocks exert asymmetric e¤ects on economic activity. In doing so, we relax the assumption in the existing literature that the data are governed by a single process, modifying the Elder and Serletis (2010) bivariate structural GARCH-in-Mean VAR to accommodate Markov regime switching in order to account for changing oil price dynamics over the sample period. We find evidence of asymmetries, against those macroeconomic theories that predict symmetries in the relationship between real aggregate economic activity and the real price of oil.

 

Mental Well-being of the Bereaved and Labor Market Outcomes

Tanaka, Atsuko and Beck, Laurel

This paper examines how grief caused by the death of an immediate family member affects labor force outcomes through adverse changes to mental health for elderly Americans. To deal with measurement issues, we differentiate mental health conditions from personality by exploiting a panel data. We also apply factor analysis to create a synthetic indicator for mental well-being. We find that, whichever mental well-being measure is used, bereavement of a family causes poor mental health conditions to a significant extent, and associated distraction following bereavement have adverse impacts on labor market outcomes for elderly Americans.

 

Minimum Wage, Selection and Welfare: A General Equilibrium Analysis

Hashmi, Aamir

I study the effects of a permanent increase in minimum wage on unemployment, income and welfare in a general equilibrium setting. The increase in minimum wage affects the demand for labor on both intensive and extensive margins. On the intensive margin, individual firms respond to the increase by reducing their demand for low-wage workers. One the extensive margin, the increase affects the equilibrium number of firms by altering their incentives to enter and exit. I build on the general equilibrium model in Hopenhayn and Rogerson (Journal of Political Economy, October 1993, volume 102, issue 5, pp. 915--938) to quantify these effects. There are three types of consumers in my model: type 1 are the minimum-wage earners; type 2 are other workers; and type 3 are entrepreneurs who own firms and consume profits. Firms are heterogenous with respect to productivity and produce according to a labor-only decreasing-returns-to-scale constant-elasticity-of-substitution production function. The model features entry and exit, and the cost of entry is positively related to the mass of entrants. I calibrate the model to US data and use it to quantify the effects of a counterfactual 25% permanent increase in minimum wage. In my preferred post-increase scenario, in which the wages of other workers are downward rigid, overall unemployment increases by 3.2%, and income and welfare decrease by 2.1% and 1.5%, respectively. On the intensive margin, the average firm size (as measured by the number of workers) is 1.4% smaller. On the extensive margin, there are 1.7% fewer firms in the new equilibrium.

 

Mismatch as choice

Chen, Yu (Sonja), Doyle, Matthew and Gonzalez, Francisco M.

We characterize a competitive search equilibrium in which firms in some markets create jobs that workers seek even though those jobs do not make the most productive use of workers' skills. We refer to markets in which workers purposefully search for and accept inferior jobs as exhibiting directed mismatch. This kind of misallocation is driven by the fact that incomplete information about workers' outside options implies that the value of on-the-job search is higher for workers employed in those inferior jobs. Our theory provides new insights into the returns to education as well as the impact of on-the-job search on labor market mismatch. It also suggests that the declining fortunes of college educated American workers in recent decades, like those of high school graduates, are linked to the automation and o¤shoring of routine-task based jobs.

 

Monetary and Fiscal Policy Switching with Time-Varying Volatilities

Xu, Libo and Serletis, Apostolos
 

Monetary Neutrality

Serletis, Apostolos and Koustas, Zisimos
 

Monetary Policy and Leverage Shocks

Serletis, Apostolos
 

Monetary Policy Spillovers in Emerging Economies

Serletis, Apostolos and Azad, Nahiyan

This paper explores for spillovers from monetary policy in the United States to a number of emerging market economies. We estimate the Elder and Serletis (2010) bivariate structural GARCH-in-Mean VAR in the U.S. monetary policy rate and the policy rate of each of six emerging economies that target the inflation rate — Brazil, Chile, Mexico, Romania, Serbia, and South Africa. We also estimate the same model in the U.S. monetary policy rate and the exchange rate (against the U.S. dollar) of each of six emerging economies that target the exchange rate — Bosnia and Herzegovina, Bulgaria, Comoros, Croatia, the Former Yugoslav Republic of Macedonia, and Montenegro. Our evidence suggests that positive (negative) U.S. monetary policy shocks tend to appreciate (depreciate) the currencies of the exchange rate targeting emerging economies, but have an ambiguous effect on the policy rates of the inflation-targeting emerging economies. Moreover, monetary policy uncertainty in the United States leads to an increase in policy rates in those emerging economies that target the inflation rate and to a depreciation of the currencies of those emerging economies that target the exchange rate.

 

Money Supply Volatility and the Macroeconomy

Serletis, Apostolos and Xu, Libo

This paper extends the ongoing literature on the macroeconomic effects of money supply volatility. We use monthly data for the United States and a bivariate, Markov switching, structural vector error correction (VEC) model that is modified to accommodate GARCH-in-Mean errors to isolate the effects of money growth volatility on output growth. The model allows us to study how monetary uncertainty affects economic growth across different macroeconomic regimes.

 

Money, Velocity, and the Stock Market

Pinno, Karl and Serletis, Apostolos
 

Multiple Equilibria in Empirical Games of Incomplete Information

Magesan, Arvind

Multiple equilibria in the data can confound identification in games of incomplete information. The standard approach is to assume “one equilibrium in the data” (OED) in spite of the fact that model generating the data exhibits multiplicity. I first show that games of incomplete information are non parametrically identified without the OED assumption. Identification is obtained using the unconditional probability distribution over player choices which, unlike equilibrium choice probabilities, are identified under mild conditions even when OED fails. The unconditional probabilities operate as a proxy measure of the equilibrium probabilities, and have a key property: independence from the difference between itself and the equilibrium probability. In this way, games of incomplete information can be expressed as a standard linear errors in variables model where the “measurement error” is uncorrelated with the “proxy” probability distribution. However, this approach is invalid in the presence of payoff relevant unobservables. I provide an alternative identification approach, robust to the presence of such unobservables. In particular I show that if equilibrium multiplicity disappears at extreme points in the support of the observables, and a conditional exclusion restriction on the distribution of the payoff relevant unobservables is satisfied, the model can be identified. In particular, binary choice games with only two players are identified if there are at least five points in the support of the excluded variable. Finally, regardless of whether or not there are payoff relevant unobservables, once payoffs are identified everywhere, so are equilibria, and, letting A be the number of choice alternatives, N the number of players and K the number of equilibria, as long as AN ≥ K, Ishow that equilibrium selection probabilities are also identified.

 

Notes on Foreign Aid Selectivity Based on Human Capital

Tanaka, Atsuko

In order to achieve developmental goals more effectively, international communities have paid increasing attention to the pros and cons of "Aid Selectivity." However, the empirical results on the effects of international aid on economic growth in the recipient countries are mixed. This note proposes a theoretical framework to reconcile those mixed findings on aid effectiveness. In particular, I focus on the growth consequences of a poverty-efficient aid allocation in the recipient’s economy, and theoretically illustrate that an important determinant of aid efficacy is the achieved growth of human capital accumulation in recipient countries.

 

Oil, Uncertainty, and Gasoline Prices

Chang,Dongfeng and Serletis, Apostolos
 

One Sided Matching: Choice Selection With Rival Uncertain Outcomes

Johnson, David B. and Webb, Matthew
 

On the Markov Switching Welfare Cost of Inflation

Serletis, Apostolos and Dai, Wei

This paper uses the Markov switching approach to account for instabilities in the long- run money demand function and compute the welfare cost of inflation in the United States. In doing so, it circumvents the problem of data-mining of some earlier seminal contributions on these issues, allowing for complicated nonlinear dynamics and sudden changes in the parameters of the money demand function. Moreover, it extends the sample period, and investigates the robustness of results to alternative money demand specifications, monetary aggregation procedures, and assumptions regarding dynamics aspects of the money demand specification.

 

Optimal Educational investment Programme in an Economic Planning Model

Tu, Pierre
 

Orphan drug pricing and costs

Hollis, Aidan

Background: A common narrative is that high prices are necessary for “orphan drugs” because of the small number of patients. In the context of state health insurance systems the high prices create significant challenges because of limited budgets. Results: This study carefully examines both costs and revenues of two drugs for cystic fibrosis (ivacaftor and lumacaftor), showing that, for this important example, prices are not high because of a small number of patients. It then explores the justifications usually given for high orphan drug prices, including the need to support R&D for new drugs. Each of these standard justifications is shown to be inadequate; instead, it appears that the exercise of market power in the presence of insurance is the dominant driver of high prices. Interpretation: Insurers need to re-examine how they address high-priced drugs.

 

Press and Leaks: Do Newspapers Reduce Toxic Emissions?

Campa, Pamela

This paper investigates whether media presence affects corporate environmental decisions. Using data on plant-level toxic emissions in 1996-2009 from the US Environmental Protection Agency's Toxics Release Inventory and newly collected data on newspapers locations and content, I find that an increase in the number of newspapers near a plant raises the press coverage of the plant's toxic emissions and reduces the amount of these emissions. The effect of newspapers on toxic emissions is specific to industries that produce consumer goods, and is larger in counties that were subject to extreme levels of cancer incidence in the recent past.

 

Recent Monetary Policy and the Credit Card-Augmented Divisia Monetary Aggregates

Serletis, Apostolos, Dery, Cosmas and Liu, Jinan

The main objective of this paper is to examine the information content of the credit card-augmented Divisia monetary aggregates and credit card-augmented Divisia inside monetary aggregates, recently produced by the Center for Financial Stability. We compare the inference ability of the credit card-augmented Divisia monetary aggregates and credit card-augmented Divisia inside monetary aggregates to the conventional Divisia monetary aggregates, at all levels of monetary aggregation. Using cyclical correlations analysis and Granger causality tests, we find that both the conventional Divisia monetary aggregates and the credit card-augmented Divisia monetary aggregates are informative in predicting output. Moreover, during, and in the aftermath of the 2007-2009 financial crisis, the credit card-augmented Divisia measures of money are more informative when predicting real economic activity than the conventional Divisia monetary aggregates. We also find that broad Divisia monetary aggregates provide better measures of the flow of monetary services generated in the economy.

 

Regionalism and Political Violence

Magesan, Arvind and Kapoor, Sacha

We study the eect of representation by regional political parties on political vio- lence in India. Using a regression discontinuity design that exploits close elections, we nd that the election of a regional-party candidate increases the probability of a violent event in the subsequent inter-election years by 6 percentage points and the number of violent events by 9 percent. It increases the probability of a death due to political vio- lence by 6 percentage points and the number of deaths by 16 percent. The increase in violence is explained by insurgent groups being more able to carry out violent attacks when the local elected ocial is a member of a regional party, suggesting that regional ocials lack either the will or the capacity to control violence.

 

Removing Disability Insurance Coverage: The Effects on Work Incentive and Occupation Choice

Tanaka, Atsuko, Hsuan-Chih (Luke) Lin and Ha Nguyen

This paper studies how removing disability insurance coverage affects workers' work incentive and occupation choice. To do so, we exploit the 1997 Canadian Pension Plan (CPP) disability program reform, which required longer work experience for individuals to be eligible for disability insurance. The empirical strategy includes difference-in-difference and triple-difference estimations. The results show that the reform significantly increased work incentive for male individuals with a long non-employment spell. However, the rise in work incentive increased only unemployment, not employment. We also find that the reform barely affected the distribution of employment across occupation.

 

Residential Wireline Telecommunications Services in Canada: Primary Exchange Services and Broadband

Church, Jeffrey Robert and Wilkins, Andrew

This report is a survey and compilation of the data available that documents three aspects of residential telecommunications services in Canada. The two residential telecommunication services are local telephony (primary exchange services) and high speed internet access (broadband). The data compiled documents performance measures, including prices, output, and quality, and metrics relevant to assessing competition.

 

Residential Wireline Telecommunications Services in Canada: Primary Exchange Services and Broadband 2015

Church, Jeffrey Robert and Wilkins, Andrew

This report is a survey and compilation of the data available that documents aspects of residential telecommunications services in Canada. The two residential telecommunication services are local telephony (primary exchange services) and high speed internet access (broadband). The data compiled documents performance measures, including prices, output, and quality, and metrics relevant to assessing competition.

 

Shale Oil Boom and the Profitability of U.S. Petroleum Refiners

Walls, W. D. and Zheng, Xiaoli

This paper provides a quantitative analysis of how the recent boom in U.S. oil production---largely a result of shale oil production---has impacted the domestic petroleum refining industry. We quantify how domestic crude prices are related to refiners' financial performance. The estimates suggest that since 2011 independent refiners' operating incomes rose by 2.2\% to 3.3\% for a domestic crude oil price decrease of 1\%, while they were not associated with domestic crude prices before 2011. The relation between refinery profitability and domestic oil prices is consistent with limited pass-through of domestic crude prices to refined product prices in the U.S. before and since the dramatic rise in shale oil production. Empirical evidence confirms that U.S. gasoline and diesel prices are determined by international rather than domestic crude oil prices. Because of this, there is very limited pass-through from domestic crude oil prices to refined product prices in most regions before and since 2011, resulting in increased refinery profitability during this period.

 

“Should Archie Marry Betty or Veronica?” in Twelve-Cent Archie, 2015, Bart Beaty (ed.), Rutgers.

Oxoby, Robert
 

Soultion and Estimation of Dynamic Discrete Choice Structural Models Using Euler Equations

Aguirregabiria,Victor and Magesan, Arvind

This paper extends the Euler Equation (EE) representation of dynamic decision problems to a general class of discrete choice models and shows that the advantages of this approach apply not only to the estimation of structural parameters but also to the computation of a solution and to the evaluation of counterfactual experiments. We use a choice probabilities representation of the discrete decision problem to derive marginal conditions of optimality with the same features as the standard EEs in continuous decision problems. These EEs imply a …fixed point mapping in the space of conditional choice values, that we denote the Euler equation-value (EE-value) operator. We show that, in contrast to Euler equation operators in continuous decision models, this operator is a contraction. We present numerical examples that illustrate how solving the model by iterating in the EE-value mapping implies substantial computational savings relative to iterating in the Bellman equation (that requires a much larger number of iterations) or in the policy function (that involves a costly valuation step). We de…fine a sample version of the EE-value operator and use it to construct a sequence of consistent estimators of the structural parameters, and to evaluate counterfactual experiments. The computational cost of evaluating this sample-based EE-value operator increases linearly with sample size, and provides an unbiased (in fi…nite samples) and consistent estimator the counterfactual. As such there is no curse of dimensionality in the consistent estimation of the model and in the evaluation of counterfactual experiments. We illustrate the computational gains of our methods using several Monte Carlo experiments.

 

Stochastic Volatility Demand Systems

Serletis, Apostolos and Maksim Isakin
 

Tax Elasticity Estimates for Capital STocks in Canada

Wen, Jean-Francois and Yilmaz, Fatih

We use aggregate panel data for the Canadian provinces to estimate the long-run user cost elasticity (UCE) of capital. The estimates exploit three sources of variation in tax policy: across provinces, industries, and years. The UCE is estimated to be between −0.4 and −1.3 for machinery and equipment; estimates for non-residential construction are statistically not different from zero. We also provide semi-elasticitiesof capital with respect to marginal effective tax rates (METR).

 

Technical Change in U.S. Industries

Serletis, Apostolos and Hossain, A K M Nurul

We use the normalized quadratic cost function, introduced by Diewert and Wales (1987),to measure and analyze the rate and biases of technical change at the sectoral level in eleven major U.S. industries - manufacturing, construction, mining, agriculture, finance, health, wholesale, transportation, education, hospitality, and utilities - using annual KLEM (capital, labor, energy, and intermediate materials) data from the World KLEMS database, over the period from 1947 to 2010. We extend the work in Feng and Serletis (2008), by taking a new approach to econometric modeling, merging the econometric approach to productivity measurement with recent state-of-the-art advances in financial econometrics. In particular, we relax the homoskedasticity assumption and instead assume that the covariance matrix of the errors of the flexible interrelated factor demand systems is time-varying. We also pay explicit attention to theoretical regularity, treating the curvature property as a maintained hypothesis, thus achieving superior modeling in the context of a parametric nonlinear factor demand system that captures certain important features of the data.

 

The Classical Economists and Education

Tu, Pierre
 

The Coevolution of Beliefs and Networks

Arifovic, Jasmina, Eaton, B. Curtis and Walker, Graeme

Social psychologists have shown that people experience cognitive dissonance when two or more of their cognitions diverge, and that they actively manage the dissonance. With this in mind, we develop a model of social learning in networks to understand the coevolution of beliefs and networks. We focus on beliefs concerning an objective phenomenon. Initial beliefs are based on noisy, private and unbiased information. Because the information is noisy, initial beliefs differ,creating dissonance. In our model, behavior is motivated by a desire to minimize this dissonance. In many circumstances this behavior adversely affects the efficiency of social learning, such that in equilibrium the mean aggregate belief is biased and there is significant variation of beliefs across the population. The parameterizations of our model that result in the most inefficient learning produce a fractionalized network structure in which there are a number of distinct groups: within any group all beliefs are identical; beliefs differ from group to group, sometimes greatly; there is no intergroup interaction. Since dissonance minimizing behavior is apparently a deeply rooted feature of humans, we are led to ask: What policies could improve the situation? Our results suggest that policies that improve the availability of objective information and/or increase the size of networks enhance efficiency of social learning. On the other hand, anything that makes changing networks more attractive as a dissonance minimizing strategy has the opposite effect. 1

 

The Demand for Assets and Optimal Monetary Aggregation

Serletis, Apostolos and Jadidzadeh, Ali

This paper uses a highly disaggregated demand system to estimate the degree of substitutability among monetary assets and to address the issue of optimal monetary aggregation in the United States. We address the problems of dimensionality and nonlinearity, estimating a very detailed monetary asset demand system encompassing the full range of assets based on the locally ‡exible normalized quadratic (NQ) expenditure function. We treat the con- cavity property as a maintained hypothesis and provide evidence consistent with neoclassical microeconomic theory. Statistical tests reject the appropri- ateness of the aggregation assumptions for all the money measures published by the Federal Reserve as well as for a large number of groupings suggested by earlier studies. This supports and reinforces Barnett’s (2016) assertion that we should employ the broadest M4 monetary aggregate published by the Center for Financial Stability.

 

The Demand for Gasoline: Evidence from Household Survey Data

Chang, Dongfeng (Karen) and Serletis, Apostolos
 

The Greenhouse Gas Emissions Coverage of Carbon Pricing Instruments for Canadian Provinces

Dobson, Sarah, Winter, Jennifer and Boyd, Brendan

In this paper we provide a comparison of the coverage of Canadian carbon pricing systems. We define coverage as the proportion and types of emissions priced under the various systems, by emissions source. We compare provincially announced pricing systems to the federal benchmark (the minimum coverage provinces must meet) and the federal backstop, the pricing system that will be imposed on provinces with insufficient coverage or who opt to not develop their own policies. For those provinces that have not yet introduced a carbon price we look only at coverage under the federal benchmark and the federal backstop. We find the majority of provincial pricing systems meet or exceed the federal benchmark. Our results also point to the importance of additional complementary policies to address significant sources of unpriced emissions, primarily in agriculture and fugitive sources.

 

The Impact of Foreign Investment Restrictions on the Stock Returns of Oil Sands Companies

Beaulieu, Eugene and Saunders, Matthew M.

On December 7, 2012 the Government of Canada released a policy statement and revised the guidelines for investments by State-Owned Enterprises in the Canadian oil sands. This policy statement was in response to the proposed purchase of Nexen by the Chinese SOE, CNOOC. According to the new guidelines, foreign investors must convince the Minister of Industry that a particular investment is likely to be of net benefit to Canada and those investments by foreign SOEs to acquire controlling interests in a Canadian oil sands company will be found to be of net benefit on an exceptional basis only. The purpose of this paper is to examine the impact of this announced policy change on the stock returns of firms operating in the oil sands. We employ an event study analysis to examine the impact of the policy change on the oil sands share price return after the announcement. We find that the announced changes to foreign investment in the oil sands significantly reduced stock returns in that industry and had a much larger negative impact on smaller oil sands companies (the juniors).

 

The Kindergarten Rule of Sustainable Growth

Taylor, M. Scott and William A. Brock
 

The market for motion pictures in Thailand: Rank, revenue, and survival at the box office

Walls, W. D.

We examine the theatrical market for moti on pictures in Thailand using a sample of films exhibited in 2004–2008. Using data on weekly and cumulative film revenues, we find strong evidence of increasing returns to info rmation as indicated by substantial concave departures from the Pareto size distribution. The distribution of cumulative revenues across films is consistent with the winner-take-all nature of an elimination tournament. In contrast to other markets dominated by Hollywood imports, se veral of the top-earning films in Thailand are domestically produced

 

The Strategic Value of Carbon Tariffs

Christoph Bohringer, Carbone, Jared and Thomas F. Rutherford

Unilateral carbon policies are inefficient due to the fact that they generally involve emission reductions in countries with high marginal abatement costs and because they are subject to carbon leakage. In this paper, we ask whether the use of carbon tariffs—tariffs on the carbon embodied in imported goods—might lower the cost of achieving a given reduction in world emissions. Specifically, we explore the role tariffs might play as an inducement to unregulated countries adopting emission controls of their own. We use an applied general equilibrium model to generate the payoffs of a policy game. In the game, a coalition of countries regulates its own emissions and chooses whether or not to employ carbon tariffs against unregulated countries. Unregulated countries may respond by adopting emission regulations of their own, retaliating against the carbon tariffs by engaging in a trade war, or by pursuing no policy at all. In the unique Nash equilibrium produced by this game, the use of carbon tariffs by coalition countries is credible. China and Russia respond by adopting binding abatement targets to avoid being subjected to them. Other unregulated countries retaliate. Cooperation by China and Russia lowers the global welfare cost of achieving a 10% reduction in global emissions by half relative to the case where coalition countries undertake all of this abatement on their own.

 

Trade and the Environment: New Methods, Measurements, and Results NBER Working Paper No. 22636

Taylor, M. Scott

We review recent research linking international trade to the environment, with a focus on new results and methods. The review is given structure by a novel decomposition linking changes in emissions to changes in productive activity at the plant, firm, industry, and national levels. While some new results have emerged from the application of a Melitz-style approach to trade and the environment, its full potential has not yet been exploited. We discuss existing empirical and theoretical work, introduce three new hypotheses, and suggest paths for future researchers to follow.

 

"Transmission Capacity and the Welfare Effects of Electricity Market Interaction"

Lian, Zeng (Alan) and Lasheng Yuan
 

Undesirable Outputs and a Primal Divisia Productivity Index Based on the Directional Output Distance Function

Feng, Guohua and Serletis, Apostolos
 

User Costs, the Financial Firm, and Monetary and Regulatory Policy

Serletis, Apostolos and Isakin, Maksim

We investigate how key monetary policy instruments and financial regulation affect the banking firm. We take the user cost approach to the construction of prices for financial services and use quarterly data on the U.S. commercial banking sector, over the period from 1992 to 2016, obtained from the Federal Deposit Insurance Corporation. We use the symmetric generalized Barnett variable profit function to derive demands for and supplies of monetary and non-monetary goods and provide evidence consistent with neoclassical microeconomic theory. We find that the compensated price elasticities of banking technology are small in magnitude. Yet a hypothetical policy experiment shows that even small changes in the holding costs of financial goods can result in significant changes in user costs and the quantities demanded and supplied.

 

Volatility and a Century of Energy Markets Dynamics

Serletis, Apostolos and Xu, Libo
 

Volatility in the Cryptocurrency Market

Serletis, Apostolos and Liu, Jinan

How do cryptocurrency prices evolve? Is there any interdependence among cryptocur- rency returns and/or volatilities? Are there any return spillovers and volatility spillovers between the cryptocurrency market and other financial markets? To answer these questions,we use GARCH-in-mean models to examine the relationship between volatility and returns of leading cryptocurrencies, to investigate spillovers within the cryptocurrency market, and also from the cryptocurrency market to other financial markets. Overall, we find statistically significant transmission of shocks and volatilities among the leading cryptocurrencies. We also find statistically significant spillover effects from the cryptocurrency market to other financial markets in the United States, as well as in other leading economies (Germany, theUnited Kingdom, and Japan).

 

Who bears the cost of workers' health-related presenteeism and absenteeism

Tanaka, Atsuko

With an aging population and a rising prevalence of chronic conditions in the United States (U.S.), it is important to understand what happens when workers suffer unanticipated reductions in productivity. This paper investigates who pays for the loss caused by labor productivity reductions---a phenomenon often described as “presenteeism” or “absenteeism”---due to a stroke. Using the Health and Retirement Study (HRS) data, I find that, in the case of older workers, the employer often pays through higher costs of labor, rather than the worker through lower wages, because wages and earnings remain at the level before the worker had a stroke despite reduced hours. The existence of such rigidity in the employment contract translates to an increase in calculated hourly wages. Thus, this study warns that wages, earnings, or salaries cannot be clearly interpreted as accurate values of the marginal product of labor.

 

"Why Market Power? A Direct Measurement of Market Efficiency"

Lian, Zeng (Alan)
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