Productivity shocks and aggregate fluctuations in an estimated endogenous growth model with human capital

Employing an endogenous growth model with human capital, this paper explores how productivity shocks in the goods and human capital producing sectors contribute to explaining aggregate fluctuations in output, consumption, investment and hours. Given the importance of accounting for both the dynamics and the trends in the data not captured by the theoretical growth model, we introduce a vector error correction model (VECM) of the measurement errors and estimate the model’s posterior density function using Bayesian methods. To contextualize our findings with those in the literature, we also assess whether the endogenous growth model or the standard real business cycle model better explains the observed variation in these aggregates. In addressing these issues we contribute to both the methods of analysis and the ongoing debate regarding the effects of innovations to productivity on macroeconomic activity.

The past, present and future of central banking

The financial crisis, on the one hand, and the recourse to ‘unconventional’ monetary policy, on the other, have given a sharp jolt to perceptions of the role and status of central banks. In this paper we start with a brief ‘contrarian’ history of central banks since the second world war, which presents the Great Moderation and the restricted focus on inflation targeting as a temporary aberration from the norm. We then discuss how recent developments in fiscal and monetary policy have affected the role and status of central banks, notably their relationships with governments, before considering the environment central banks will face in the near and middle future and how they will have to change to address it.

Still More On Why We Should Bury The Marginal Productivity Theory Of The Price Of Capital: A Supplementary Note

The purpose of this note is to supplement the author’s earlier remarks on the unsatisfactory nature of the neoclassical account of how the return on capital is determined. (See Strathclyde Discussion Paper 12-03: “The Marginal Productivity Theory of the Price of Capital: An Historical Perspective on the Origins of the Codswallop”). The point is made via a simple illustration that certain matters which are problematical in neoclassical terms are perfectly straightforward when viewed from a classical perspective. Basically, the marginalist model of the nature of an economic system is not fit for purpose in that it fails to comprehend the essential features of a surplus-producing economic system as distinct from one merely of exchange.

The added value from a general equilibrium analyses of increased efficiency in household energy use

The aim of the paper is to identify the added value from using general equilibrium techniques to consider the economy-wide impacts of increased efficiency in household energy use. We take as an illustrative case study the effect of a 5% improvement in household energy efficiency on the UK economy. This impact is measured through simulations that use models that have increasing degrees of endogeneity but are calibrated on a common data set. That is to say, we calculate rebound effects for models that progress from the most basic partial equilibrium approach to a fully specified general equilibrium treatment. The size of the rebound effect on total energy use depends upon: the elasticity of substitution of energy in household consumption; the energy intensity of the different elements of household consumption demand; and the impact of changes in income, economic activity and relative prices. A general equilibrium model is required to capture these final three impacts.

Development Accounting with Intermediate Goods

Do intermediate goods help explain relative and aggregate productivity differences across countries? Three observations suggest they do: (i) intermediates are relatively expensive in poor countries; (ii) goods industries demand intermediates more intensively than service industries; (iii) goods industries are more prominent intermediate suppliers in poor countries. I build a standard multi-sector growth model accommodating these features to show that inefficient intermediate production strongly depresses aggregate labor productivity and increases the price ratio of final goods to services. Applying the model to data, low and high income countries in fact reveal similar relative efficiency levels between goods and services despite clear differences in relative sectoral labor productivity. Moreover, the main empirical exercise suggests that poorer countries are substantially less efficient at producing intermediate relative to final goods and services. Closing the cross-country efficiency gap in intermediate input production would strongly narrow the aggregate labor productivity difference across countries as well as turn final goods in poorer countries relatively cheap compared to services.

Overtime Working and Contract Efficiency

We present a wage-hours contract designed to minimize costly turnover given investments in specific training combined with firm and worker information asymmetries. It may be optimal for the parties to work ‘long hours’ remunerated at premium rates for guaranteed overtime hours. Based on British plant and machine operatives, we test three predictions. First, trained workers with longer tenure are more likely to work overtime. Second, hourly overtime pay exceeds the value of marginal product while the basic hourly wage is less than the value of marginal product. Third, the basic hourly wage is negatively related to the overtime premium.

Human Capital in Economic Development: From Labour Productivity to Macroeconomic Impact

Micro-econometric evidence reveals high private returns to education, most prominently in low-income countries. However, it is disputed to what extent this translates into a macro-economic impact. This paper projects the increase in human capital from higher education in Malawi and uses a dynamic applied general equilibrium model to estimate the resulting macroeconomics impact. This is contingent upon endogenous adjustments, in particular how labour productivity affects competitiveness and if this in turn stimulates exports. Choice among commonly applied labour market assumptions and trade elasticities results in widely different outcomes. Appraisal of such policies should consider not only the impact on human capital stocks, but also adjustments outside the labour market.

Estimating the Impact on Efficiency of the Adoption of a Voluntary Environmental Standard: An Empirical Study of the Global Copper Mining Industry

This paper uses data on the world's copper mining industry to measure the impact on efficiency of the adoption of the ISO 14001 environmental standard. Anecdotal and case study literature suggests that firms are motivated to adopt this standard so as to achieve greater efficiency through changes in operating procedures and processes. Using plant level panel data from 1992-2007 on most of the world's industrial copper mines, the study uses stochastic frontier methods to investigate the effects of ISO adoption. The variety of models used in this study find that adoption either tends to improve efficiency or has no impact on efficiency, but no evidence is found that ISO adoption decreases efficiency.