Essays on macroeconomic effects of fiscal policy rules

Economic and Monetary Union can be characterised as a complicated set of legislation and institutions governing monetary and fiscal responsibilities. The measures of fiscal responsibility are to be guided by the Stability and Growth Pact, which sets rules for fiscal policy and makes a discretionary fiscal policy virtually impossible. To analyse the effects of the fiscal and monetary policy mix, we modified the New Keynesian framework to allow for supply effects of fiscal policy. We show that defining a supply-side channel for fiscal policy using an endogenous output gap changes the stabilising properties of monetary policy rules. The stability conditions are affected by fiscal policy, so that the dichotomy between active (passive) monetary policy and passive (active) fiscal policy as stabilising regimes does not hold, and it is possible to have an active monetary - active fiscal policy regime consistent with dynamical stability of the economy. We show that, if we take supply-side effects into ac-count, we get more persistent inflation and output reactions. We also show that the dichotomy does not hold for a variety of different fiscal policy rules based on government debt and budget deficit, using the tax smoothing hypothesis and formulating the tax rules as difference equations. The debt rule with active monetary policy results in indeterminacy, while the deficit rule produces a determinate solution with active monetary policy, even with active fiscal policy. The combination of fiscal requirements in a rule results in cyclical responses to shocks. The amplitude of the cycle is larger with more weight on debt than on deficit. Combining optimised monetary policy with fiscal policy rules means that, under a discretionary monetary policy, the fiscal policy regime affects the size of the inflation bias. We also show that commitment to an optimal monetary policy not only corrects the inflation bias but also increases the persistence of output reactions. With fiscal policy rules based on the deficit we can retain the tax smoothing hypothesis also in a sticky price model.

Essays on Labor Market Frictions, Technological Change and Macroeconomic Fluctuations

The dissertation consists of an introductory chapter and three essays that apply search-matching theory to study the interaction of labor market frictions, technological change and macroeconomic fluctuations. The first essay studies the impact of capital-embodied growth on equilibrium unemployment by extending a vintage capital/search model to incorporate vintage human capital. In addition to the capital obsolescence (or creative destruction) effect that tends to raise unemployment, vintage human capital introduces a skill obsolescence effect of faster growth that has the opposite sign. Faster skill obsolescence reduces the value of unemployment, hence wages and leads to more job creation and less job destruction, unambiguously reducing unemployment. The second essay studies the effect of skill biased technological change on skill mismatch and the allocation of workers and firms in the labor market. By allowing workers to invest in education, we extend a matching model with two-sided heterogeneity to incorporate an endogenous distribution of high and low skill workers. We consider various possibilities for the cost of acquiring skills and show that while unemployment increases in most scenarios, the effect on the distribution of vacancy and worker types varies according to the structure of skill costs. When the model is extended to incorporate endogenous labor market participation, we show that the unemployment rate becomes less informative of the state of the labor market as the participation margin absorbs employment effects. The third essay studies the effects of labor taxes on equilibrium labor market outcomes and macroeconomic dynamics in a New Keynesian model with matching frictions. Three policy instruments are considered: a marginal tax and a tax subsidy to produce tax progression schemes, and a replacement ratio to account for variability in outside options. In equilibrium, the marginal tax rate and replacement ratio dampen economic activity whereas tax subsidies boost the economy. The marginal tax rate and replacement ratio amplify shock responses whereas employment subsidies weaken them. The tax instruments affect the degree to which the wage absorbs shocks. We show that increasing tax progression when taxation is initially progressive is harmful for steady state employment and output, and amplifies the sensitivity of macroeconomic variables to shocks. When taxation is initially proportional, increasing progression is beneficial for output and employment and dampens shock responses.

Essays on Finnish Economic Growth and Productivity, 1860-2005

This study examines Finnish economic growth. The key driver of economic growth was productivity. And the major engine of productivity growth was technology, especially the general purpose technologies (GPTs) electricity and ICT. A new GPT builds on previous knowledge, yet often in an uncertain, punctuated, fashion. Economic history, as well as the Finnish data analyzed in this study, teaches that growth is not a smooth process but is subject to episodes of sharp acceleration and deceleration which are associated with the arrival, diffusion and exhaustion of new general purpose technologies. These are technologies that affect the whole economy by transforming both household life and the ways in which firms conduct business. The findings of previous research, that Finnish economic growth exhibited late industrialisation and significant structural changes were corroborated by this study. Yet, it was not solely a story of manufacturing and structural change was more the effect of than the cause for economic growth. We offered an empirical resolution to the Artto-Pohjola paradox as we showed that a high rate of return on capital was combined with low capital productivity growth. This result is important in understanding Finnish economic growth 1975-90. The main contribution of this thesis was the growth accounting results on the impact of ICT on growth and productivity, as well as the comparison of electricity and ICT. It was shown that ICT s contribution to GDP growth was almost twice as large as electricity s contribution over comparable periods of time. Finland has thus been far more successful as an ICT producer than a producer of electricity. Unfortunately in the use of ICT the results were still more modest than for electricity. During the end of the period considered in this thesis, Finland switched from resource-based to ICT-based growth. However, given the large dependency on the ICT-producing sector, the ongoing outsourcing of ICT production to low wage countries provides a threat to productivity performance in the future. For a developed country only change is constant and history teaches us that it is likely that Finland is obliged to reorganize its economy once again in the digital era.

Food intake, growth and social interactions of signal crayfish, Pacifastacus leniusculus (Dana)

The knowledge about the optimal rearing conditions, such as water temperature and quality, photoperiod and density, with the understanding of animal nutritional requirements forms the basis of economically stable aquaculture for freshwater crayfish. However, the shift from a natural environment to effective culture conditions induces several changes, not only at the population level, but also at the individual level. The social contacts between conspecifics increase with increasing animal density. The competition for limited resources (e.g. food, shelter, mates) is more severe with the presence of agonistic behaviour and may lead to unequal distribution of these. The objectives of this study were to: 1) study the distribution of a common food resource between communally reared signal crayfish (Pacifastacus leniusculus) and to assign potential feeding hierarchy on the basis of individual food intake measurements, 2) explore the possibilities of size distribution manipulations to affect population dynamics and food intake to improve growth and survival in culture and 3) study the effect of food ration and spatial distribution on food intake and to explore the effect of temperature and food ration on growth and body composition of freshwater crayfish. The feeding ranks between animals were assigned with a new method for individual food intake measurement of communally reared crayfish. This technique has a high feasibility and a great potential to be applied in crayfish aquaculture studies. In this study, signal crayfish showed high size-related variability in food consumption both among individuals within a group (inter-individual) and within individual day-to-day variation (intra-individual). Increased competition for food led to an unequal distribution of this resource and this may be a reason for large growth differences between animals. The consumption was significantly higher when reared individually in comparison with communal housing. These results suggest that communally housed crayfish form a feeding hierarchy and that the animal size is the major factor controlling the position in this hierarchy. The optimisation of the social environment ( social conditions ) was evaluated in this study as a new approach to crayfish aquaculture. The results showed that the absence of conspecifics (individual rearing vs. communal housing) affects growth rate, food intake and the proportion of injured animals, whereas size variation between animals influences the number and duration of agonistic encounters. In addition, animal size had a strong influence on the fighting success of signal crayfish reared in a social milieu with a wide size variation of conspecifics. Larger individuals initiated and won most of the competitions, which suggests size-based social hierarchy of P. leniusculus. This is further supported by the fact that the length and weight gain of smaller animals increased after size grading, maybe because of a better access to the food resource due to diminished social pressure. However, the high dominance index was not based on size under conditions of limited size variation, e.g. those characteristic of restocked natural populations and aquaculture, indicating the important role of behaviour on social hierarchy.

N-syndecan and HB-GAM in neural migration and differentiation : Modulation of growth factor activity in brain

The juvenile sea squirt wanders through the sea searching for a suitable rock or hunk of coral to cling to and make its home for life. For this task it has a rudimentary nervous system. When it finds its spot and takes root, it doesn't need its brain any more so it eats it. It's rather like getting tenure. Daniel C. Dennett (from Consciousness Explained, 1991) The little sea squirt needs its brain for a task that is very simple and short. When the task is completed, the sea squirt starts a new life in a vegetative state, after having a nourishing meal. The little brain is more tightly structured than our massive primate brains. The number of neurons is exact, no leeway in neural proliferation is tolerated. Each neuroblast migrates exactly to the correct position, and only a certain number of connections with the right companions is allowed. In comparison, growth of a mammalian brain is a merry mess. The reason is obvious: Squirt brain needs to perform only a few, predictable functions, before becoming waste. The more mobile and complex mammals engage their brains in tasks requiring quick adaptation and plasticity in a constantly changing environment. Although the regulation of nervous system development varies between species, many regulatory elements remain the same. For example, all multicellular animals possess a collection of proteoglycans (PG); proteins with attached, complex sugar chains called glycosaminoglycans (GAG). In development, PGs participate in the organization of the animal body, like in the construction of parts of the nervous system. The PGs capture water with their GAG chains, forming a biochemically active gel at the surface of the cell, and in the extracellular matrix (ECM). In the nervous system, this gel traps inside it different molecules: growth factors and ECM-associated proteins. They regulate the proliferation of neural stem cells (NSC), guide the migration of neurons, and coordinate the formation of neuronal connections. In this work I have followed the role of two molecules contributing to the complexity of mammalian brain development. N-syndecan is a transmembrane heparan sulfate proteoglycan (HSPG) with cell signaling functions. Heparin-binding growth-associated molecule (HB-GAM) is an ECM-associated protein with high expression in the perinatal nervous system, and high affinity to HS and heparin. N-syndecan is a receptor for several growth factors and for HB-GAM. HB-GAM induces specific signaling via N-syndecan, activating c-Src, calcium/calmodulin-dependent serine protein kinase (CASK) and cortactin. By studying the gene knockouts of HB-GAM and N-syndecan in mice, I have found that HB-GAM and N-syndecan are involved as a receptor-ligand-pair in neural migration and differentiation. HB-GAM competes with the growth factors fibriblast growth factor (FGF)-2 and heparin-binding epidermal growth factor (HB-EGF) in HS-binding, causing NSCs to stop proliferation and to differentiate, and affects HB-EGF-induced EGF receptor (EGFR) signaling in neural cells during migration. N-syndecan signaling affects the motility of young neurons, by boosting EGFR-mediated cell migration. In addition, these two receptors form a complex at the surface of the neurons, probably creating a motility-regulating structure.

Genomic approach to organ-specific growth control

Growth is a fundamental aspect of life cycle of all organisms. Body size varies highly in most animal groups, such as mammals. Moreover, growth of a multicellular organism is not uniform enlargement of size, but different body parts and organs grow to their characteristic sizes at different times. Currently very little is known about the molecular mechanisms governing this organ-specific growth. The genome sequencing projects have provided complete genomic DNA sequences of several species over the past decade. The amount of genomic sequence information, including sequence variants within species, is constantly increasing. Based on the universal genetic code, we can make sense of this sequence information as far as it codes proteins. However, less is known about the molecular mechanisms that control expression of genes, and about the variations in gene expression that underlie many pathological states in humans. This is caused in part by lack of information about the second genetic code that consists of the binding specificities of transcription factors and the combinatorial code by which transcription factor binding sites are assembled to form tissue-specific and/or ligand-regulated enhancer elements. This thesis presents a high-throughput assay for identification of transcription factor binding specificities, which were then used to measure the DNA binding profiles of transcription factors involved in growth control. We developed ‘enhancer element locator’, a computational tool, which can be used to predict functional enhancer elements. A genome-wide prediction of human and mouse enhancer elements generated a large database of enhancer elements. This database can be used to identify target genes of signaling pathways, and to predict activated transcription factors based on changes in gene expression. Predictions validated in transgenic mouse embryos revealed the presence of multiple tissue-specific enhancers in mouse c- and N-Myc genes, which has implications to organ specific growth control and tumor type specificity of oncogenes. Furthermore, we were able to locate a variation in a single nucleotide, which carries a susceptibility to colorectal cancer, to an enhancer element and propose a mechanism by which this SNP might be involved in generation of colorectal cancer.

Heparin-binding growth-associated molecule (HB-GAM) in activity-dependent neuronal plasticity in hippocampus

Cell adhesion and extracellular matrix (ECM) molecules play a significant role in neuronal plasticity both during development and in the adult. Plastic changes in which ECM components are implicated may underlie important nervous system functions, such as memory formation and learning. Heparin-binding growthassociated molecule (HB-GAM, also known as pleiotrophin), is an ECM protein involved in neurite outgrowth, axonal guidance and synaptogenesis during perinatal period. In the adult brain HB-GAM expression is restricted to the regions which display pronounced synaptic plasticity (e.g., hippocampal CA3-CA1 areas, cerebral cortex laminae II-IV, olfactory bulb). Expression of HB-GAM is regulated in an activity-dependent manner and is also induced in response to neuronal injury. In this work mutant mice were used to study the in vivo function of HB-GAM and its receptor syndecan-3 in hippocampal synaptic plasticity and in hippocampus-dependent behavioral tasks. Phenotypic analysis of HBGAM null mutants and mice overexpressing HB-GAM revealed that opposite genetic manipulations result in reverse changes in synaptic plasticity as well as behavior in the mutants. Electrophysiological recordings showed that mice lacking HB-GAM have an increased level of long-term potentiation (LTP) in the area CA1 of hippocampus and impaired spatial learning, whereas animals with enhanced level of HB-GAM expression have attenuated LTP, but outperformed their wild-type controls in spatial learning. It was also found that GABA(A) receptor-mediated synaptic transmission is altered in the transgenic mice overexpressing HB-GAM. The results suggest that these animals have accentuated hippocampal GABAergic inhibition, which may contribute to the altered glutamatergic synaptic plasticity. Structural studies of HB-GAM demonstrated that this protein belongs to the thrombospondin type I repeat (TSR) superfamily and contains two β-sheet domains connected by a flexible linker. It was found that didomain structure is necessary for biological activity of HB-GAM and electrophysiological phenotype displayed by the HB-GAM mutants. The individual domains displayed weaker binding to heparan sulfate and failed to promote neurite outgrowth as well as affect hippocampal LTP. Effects of HB-GAM on hippocampal synaptic plasticity are believed to be mediated by one of its (co-)receptor molecules, namely syndecan-3. In support of that, HB-GAM did not attenuate LTP in mice deficient in syndecan-3 as it did in wild-type controls. In addition, syndecan-3 knockout mice displayed electrophysiological and behavioral phenotype similar to that of HB-GAM knockouts (i.e. enhanced LTP and impaired learning in Morris water-maze). Thus HB-GAM and syndecan-3 are important modulators of synaptic plasticity in hippocampus and play a role in regulation of learning-related behavior.

Regulation of Growth by Drosophila FoxO Transcription Factor

Forkhead box class O (FoxO) transcription factors are members of the forkhead box transcription factor superfamily, with orthologues in various species such as human, worm and fly. FoxO proteins are key regulators of growth, metabolism, stress resistance and, consequently, life span. FoxOs integrate signals from different pathways, e.g. the growth controlling Insulin-TOR signaling pathway and the stress induced JNK and Hippo signaling pathways. FoxO proteins have evolved to guide the cellular response to varying energy and stress conditions by inducing the expression of genes involved in the regulation of growth and metabolism. This work has aimed to deepen the understanding of how FoxO executes its biological functions. A particular emphasis has been laid to its role in growth control. Specifically, evidence is presented indicating that FoxO restricts tissue growth in a situation when TOR signaling is high. This finding can have implications in a human condition called Tuberous sclerosis, manifested by multiple benign tumors. Further, it is shown that FoxO directly binds to the promoter and regulates the expression of a Drosophila Adenylate cyclase gene, ac76e, which in turn modulates the fly s development and growth systemically. These results strengthen FoxOs position among central size regulators as it is able to operate at the level of individual cells as well as in the whole organism. Finally, an attempt to reveal the regulatory network upstream of FoxO has been carried out. Several putative FoxO activity regulators were identified in an RNAi screen of Drosophila kinases and phosphatases. The results underscore that FoxO is regulated through an elaborate network, ensuring the correct execution of key cellular processes in metabolism and response to stress. Overall, the evidence provided in this study strengthens our view of FoxO as a key integrator of growth and stress signals.

Engineering the pentose phosphate pathway of Saccharomyces cerevisiae for production of ethanol and xylitol

The baker s yeast Saccharomyces cerevisiae has a long tradition in alcohol production from D-glucose of e.g. starch. However, without genetic modifications it is unable to utilise the 5-carbon sugars D-xylose and L arabinose present in plant biomass. In this study, one key metabolic step of the catabolic D-xylose pathway in recombinant D-xylose-utilising S. cerevisiae strains was studied. This step, carried out by xylulokinase (XK), was shown to be rate-limiting, because overexpression of the xylulokinase-encoding gene XKS1 increased both the specific ethanol production rate and the yield from D xylose. In addition, less of the unwanted side product xylitol was produced. Recombinant D-xylose-utilizing S. cerevisiae strains have been constructed by expressing the genes coding for the first two enzymes of the pathway, D-xylose reductase (XR) and xylitol dehydrogenase (XDH) from the D-xylose-utilising yeast Pichia stipitis. In this study, the ability of endogenous genes of S. cerevisiae to enable D-xylose utilisation was evaluated. Overexpression of the GRE3 gene coding for an unspecific aldose reductase and the ScXYL2 gene coding for a xylitol dehydrogenase homologue enabled growth on D-xylose in aerobic conditions. However, the strain with GRE3 and ScXYL2 had a lower growth rate and accumulated more xylitol compared to the strain with the corresponding enzymes from P. stipitis. Use of the strictly NADPH-dependent Gre3p instead of the P. stipitis XR able to utilise both NADH and NADPH leads to a more severe redox imbalance. In a S. cerevisiae strain not engineered for D-xylose utilisation the presence of D-xylose increased xylitol dehydrogenase activity and the expression of the genes SOR1 or SOR2 coding for sorbitol dehydrogenase. Thus, D-xylose utilisation by S. cerevisiae with activities encoded by ScXYL2 or possibly SOR1 or SOR2, and GRE3 is feasible, but requires efficient redox balance engineering. Compared to D-xylose, D-glucose is a cheap and readily available substrate and thus an attractive alternative for xylitol manufacture. In this study, the pentose phosphate pathway (PPP) of S. cerevisiae was engineered for production of xylitol from D-glucose. Xylitol was formed from D-xylulose 5-phosphate in strains lacking transketolase activity and expressing the gene coding for XDH from P. stipitis. In addition to xylitol, ribitol, D-ribose and D-ribulose were also formed. Deletion of the xylulokinase-encoding gene increased xylitol production, whereas the expression of DOG1 coding for sugar phosphate phosphatase increased ribitol, D-ribose and D-ribulose production. Strains lacking phosphoglucose isomerase (Pgi1p) activity were shown to produce 5 carbon compounds through PPP when DOG1 was overexpressed. Expression of genes encoding glyceraldehyde 3-phosphate dehydrogenase of Bacillus subtilis, GapB, or NAD-dependent glutamate dehydrogenase Gdh2p of S. cerevisiae, altered the cellular redox balance and enhanced growth of pgi1 strains on D glucose, but co-expression with DOG1 reduced growth on higher D-glucose concentrations. Strains lacking both transketolase and phosphoglucose isomerase activities tolerated only low D-glucose concentrations, but the yield of 5-carbon sugars and sugar alcohols on D-glucose was about 50% (w/w).

Polypore assemblages in boreal old-growth forests, and associated Coleoptera

This thesis examines assemblages of wood-decaying fungi in Finnish old-growth forests, and patterns of species interactions between fruit bodies of wood-rotting Basidiomycetes and associated Coleoptera. The present work is a summary of four original publications and a manuscript, which are based on empirical observations and deal with the prevalence of polypores in old-growth forests, and fungicolous Coleoptera. The study area consists of eleven old-growth, mostly spruce- and pine-dominated, protected forests rich in dead wood in northern and southeastern Finland. Supplementary data on fungus beetle interactions were collected in southern Finland and the Åland Islands. 11251 observations of fruit bodies from 153 polypore species were made in 789 forest compartments. Almost a half of the polypore species demonstrated a distinct northern or southeastern trend of prevalence. Polypores with a northern prevalence profile were in extreme cases totally absent from the Southeast, although almost uniformly present in the North. These were Onnia leporina, Climacocystis borealis, Antrodiella pallasii, Skeletocutis chrysella, Oligoporus parvus, Skeletocutis lilacina, and Junghuhnia collabens. Species with higher prevalence in the southeastern sites were Bjerkandera adusta, Inonotus radiatus, Trichaptum pargamenum, Antrodia macra, and Phellinus punctatus. 198 (86%) species of Finnish polypores were examined for associated Coleoptera. Adult beetles were collected from polypore basidiocarps in the wild, while their larvae were reared to adulthood in the lab. Spatial and temporal parallels between the properties of polypore fruit body and the species composition of Coleoptera in fungus beetle interactions were discussed. New data on the biology of individual species of fungivorous Coleoptera were collected. 116 species (50% of Finnish polypore mycota) were found to host adults and/or larvae of 179 species from 20 Coleoptera families. Many new fungus beetle interactions were found among the 614 species pairs; these included 491 polypore fruit body adult Coleoptera species co-occurrences, and 122 fruit body larva interrelations. 82 (41%) polypore species were neither visited nor colonized by Coleoptera. The total number of polyporicolous beetles in Finland is expected to reach 300 species.