The Efficiency of Collective Bargaining in Public Schools.

This paper develops a bargaining model of wage and employment determination for the public sector. the solution to the model generates structural wage and employment equations that are estimated using data from New York State teacher-school district collective bargaining agreements.

Essays in macro finance and monetary economics

Les questions abordées dans les deux premiers articles de ma thèse cherchent à comprendre les facteurs économiques qui affectent la structure à terme des taux d'intérêt et la prime de risque. Je construis des modèles non linéaires d'équilibre général en y intégrant des obligations de différentes échéances. Spécifiquement, le premier article a pour objectif de comprendre la relation entre les facteurs macroéconomiques et le niveau de prime de risque dans un cadre Néo-keynésien d'équilibre général avec incertitude. L'incertitude dans le modèle provient de trois sources : les chocs de productivité, les chocs monétaires et les chocs de préférences. Le modèle comporte deux types de rigidités réelles à savoir la formation des habitudes dans les préférences et les coûts d'ajustement du stock de capital. Le modèle est résolu par la méthode des perturbations à l'ordre deux et calibré à l'économie américaine. Puisque la prime de risque est par nature une compensation pour le risque, l'approximation d'ordre deux implique que la prime de risque est une combinaison linéaire des volatilités des trois chocs. Les résultats montrent qu'avec les paramètres calibrés, les chocs réels (productivité et préférences) jouent un rôle plus important dans la détermination du niveau de la prime de risque relativement aux chocs monétaires. Je montre que contrairement aux travaux précédents (dans lesquels le capital de production est fixe), l'effet du paramètre de la formation des habitudes sur la prime de risque dépend du degré des coûts d'ajustement du capital. Lorsque les coûts d'ajustement du capital sont élevés au point que le stock de capital est fixe à l'équilibre, une augmentation du paramètre de formation des habitudes entraine une augmentation de la prime de risque. Par contre, lorsque les agents peuvent librement ajuster le stock de capital sans coûts, l'effet du paramètre de la formation des habitudes sur la prime de risque est négligeable. Ce résultat s'explique par le fait que lorsque le stock de capital peut être ajusté sans coûts, cela ouvre un canal additionnel de lissage de consommation pour les agents. Par conséquent, l'effet de la formation des habitudes sur la prime de risque est amoindri. En outre, les résultats montrent que la façon dont la banque centrale conduit sa politique monétaire a un effet sur la prime de risque. Plus la banque centrale est agressive vis-à-vis de l'inflation, plus la prime de risque diminue et vice versa. Cela est due au fait que lorsque la banque centrale combat l'inflation cela entraine une baisse de la variance de l'inflation. Par suite, la prime de risque due au risque d'inflation diminue. Dans le deuxième article, je fais une extension du premier article en utilisant des préférences récursives de type Epstein -- Zin et en permettant aux volatilités conditionnelles des chocs de varier avec le temps. L'emploi de ce cadre est motivé par deux raisons. D'abord des études récentes (Doh, 2010, Rudebusch and Swanson, 2012) ont montré que ces préférences sont appropriées pour l'analyse du prix des actifs dans les modèles d'équilibre général. Ensuite, l'hétéroscedasticité est une caractéristique courante des données économiques et financières. Cela implique que contrairement au premier article, l'incertitude varie dans le temps. Le cadre dans cet article est donc plus général et plus réaliste que celui du premier article. L'objectif principal de cet article est d'examiner l'impact des chocs de volatilités conditionnelles sur le niveau et la dynamique des taux d'intérêt et de la prime de risque. Puisque la prime de risque est constante a l'approximation d'ordre deux, le modèle est résolu par la méthode des perturbations avec une approximation d'ordre trois. Ainsi on obtient une prime de risque qui varie dans le temps. L'avantage d'introduire des chocs de volatilités conditionnelles est que cela induit des variables d'état supplémentaires qui apportent une contribution additionnelle à la dynamique de la prime de risque. Je montre que l'approximation d'ordre trois implique que les primes de risque ont une représentation de type ARCH-M (Autoregressive Conditional Heteroscedasticty in Mean) comme celui introduit par Engle, Lilien et Robins (1987). La différence est que dans ce modèle les paramètres sont structurels et les volatilités sont des volatilités conditionnelles de chocs économiques et non celles des variables elles-mêmes. J'estime les paramètres du modèle par la méthode des moments simulés (SMM) en utilisant des données de l'économie américaine. Les résultats de l'estimation montrent qu'il y a une évidence de volatilité stochastique dans les trois chocs. De plus, la contribution des volatilités conditionnelles des chocs au niveau et à la dynamique de la prime de risque est significative. En particulier, les effets des volatilités conditionnelles des chocs de productivité et de préférences sont significatifs. La volatilité conditionnelle du choc de productivité contribue positivement aux moyennes et aux écart-types des primes de risque. Ces contributions varient avec la maturité des bonds. La volatilité conditionnelle du choc de préférences quant à elle contribue négativement aux moyennes et positivement aux variances des primes de risque. Quant au choc de volatilité de la politique monétaire, son impact sur les primes de risque est négligeable. Le troisième article (coécrit avec Eric Schaling, Alain Kabundi, révisé et resoumis au journal of Economic Modelling) traite de l'hétérogénéité dans la formation des attentes d'inflation de divers groupes économiques et de leur impact sur la politique monétaire en Afrique du sud. La question principale est d'examiner si différents groupes d'agents économiques forment leurs attentes d'inflation de la même façon et s'ils perçoivent de la même façon la politique monétaire de la banque centrale (South African Reserve Bank). Ainsi on spécifie un modèle de prédiction d'inflation qui nous permet de tester l'arrimage des attentes d'inflation à la bande d'inflation cible (3% - 6%) de la banque centrale. Les données utilisées sont des données d'enquête réalisée par la banque centrale auprès de trois groupes d'agents : les analystes financiers, les firmes et les syndicats. On exploite donc la structure de panel des données pour tester l'hétérogénéité dans les attentes d'inflation et déduire leur perception de la politique monétaire. Les résultats montrent qu'il y a évidence d'hétérogénéité dans la manière dont les différents groupes forment leurs attentes. Les attentes des analystes financiers sont arrimées à la bande d'inflation cible alors que celles des firmes et des syndicats ne sont pas arrimées. En effet, les firmes et les syndicats accordent un poids significatif à l'inflation retardée d'une période et leurs prédictions varient avec l'inflation réalisée (retardée). Ce qui dénote un manque de crédibilité parfaite de la banque centrale au vu de ces agents.

Probabilistic Assignments of Identical Indivisible Objects and Uniform Probabilistic Rules.

We consider a probabilistic approach to the problem of assigning k indivisible identical objects to a set of agents with single-peaked preferences. Using the ordinal extension of preferences, we characterize the class of uniform probabilistic rules by Pareto efficiency, strategy-proofness, and no-envy. We also show that in this characterization no-envy cannot be replaced by anonymity. When agents are strictly risk averse von-Neumann-Morgenstern utility maximizers, then we reduce the problem of assigning k identical objects to a problem of allocating the amount k of an infinitely divisible commodity.

Trade Liberalization and the Profitability of Domestic Mergers.

It is often thought that a tariff reduction, by opening up the domestic market to foreign firms, should lessen the need for a policy aimed at discouraging domestic mergers. This implicitly assumes that the tariff in question is sufficiently high to prevent foreign firms from selling in the domestic market. However, not all tariffs are prohibitive, so that foreign firms may be present in the domestic market before it is abolished. Furthermore, even if the tariff is prohibitive, a merger of domestic firms may render it nonprohibitive, thus inviting foreign firms to penetrate the domestic market. In this paper, we show, using a simple example, that in the latter two cases, abolishing the tariff may in fact make the domestic merger more profitable. Hence, trade liberalization will not necessarily reduce the profitability of domestic mergers.

The Wage Rate and the Profit Rate in the Price of Production Equation: a New Solution to an Old Problem

The aim of this paper is to demonstrate that, even if Marx's solution to the transformation problem can be modified, his basic concusions remain valid.

Heterodox Inflation Stabilization in Argentina, Brazil, and Israel. A Historical Review and Some Stylized Facts

This article presents a review of the stabilization attempts in Argentina, Brazil, and Israel during the 1980’s. Earlier research is summarized and complemented with additional sources of contemporaneous information and a detailed analysis of institutional features. The examination of these episodes underscores the strong economic and empirical relationship between the governments’ fiscal policy and the rate of inflation.

Credibility and Signaling in Disinflation- a Cross Country Examination

This paper develops a model of money demand where the opportunity cost of holding money is subject to regime changes. The regimes are fully characterized by the mean and variance of inflation and are assumed to be the result of alternative government policies. Agents are unable to directly observe whether government actions are indeed consistent with the inflation rate targeted as part of a stabilization program but can construct probability inferences on the basis of available observations of inflation and money growth. Government announcements are assumed to provide agents with additional, possibly truthful information regarding the regime. This specification is estimated and tested using data from the Israeli and Argentine high inflation periods. Results indicate the successful stabilization program implemented in Israel in July 1985 was more credible than either the earlier Israeli attempt in November 1984 or the Argentine programs. Government’s signaling might substantially simplify the inference problem and increase the speed of learning on the part of the agents. However, under certain conditions, it might increase the volatility of inflation. After the introduction of an inflation stabilization plan, the welfare gains from a temporary increase in real balances might be high enough to induce agents to raise their real balances in the short-term, even if they are uncertain about the nature of government policy and the eventual outcome of the stabilization attempt. Statistically, the model restrictions cannot be rejected at the 1% significance level.

Risk Aversion, Intertemporal Substitution, and Option Pricing

This paper develops a general stochastic framework and an equilibrium asset pricing model that make clear how attitudes towards intertemporal substitution and risk matter for option pricing. In particular, we show under which statistical conditions option pricing formulas are not preference-free, in other words, when preferences are not hidden in the stock and bond prices as they are in the standard Black and Scholes (BS) or Hull and White (HW) pricing formulas. The dependence of option prices on preference parameters comes from several instantaneous causality effects such as the so-called leverage effect. We also emphasize that the most standard asset pricing models (CAPM for the stock and BS or HW preference-free option pricing) are valid under the same stochastic setting (typically the absence of leverage effect), regardless of preference parameter values. Even though we propose a general non-preference-free option pricing formula, we always keep in mind that the BS formula is dominant both as a theoretical reference model and as a tool for practitioners. Another contribution of the paper is to characterize why the BS formula is such a benchmark. We show that, as soon as we are ready to accept a basic property of option prices, namely their homogeneity of degree one with respect to the pair formed by the underlying stock price and the strike price, the necessary statistical hypotheses for homogeneity provide BS-shaped option prices in equilibrium. This BS-shaped option-pricing formula allows us to derive interesting characterizations of the volatility smile, that is, the pattern of BS implicit volatilities as a function of the option moneyness. First, the asymmetry of the smile is shown to be equivalent to a particular form of asymmetry of the equivalent martingale measure. Second, this asymmetry appears precisely when there is either a premium on an instantaneous interest rate risk or on a generalized leverage effect or both, in other words, whenever the option pricing formula is not preference-free. Therefore, the main conclusion of our analysis for practitioners should be that an asymmetric smile is indicative of the relevance of preference parameters to price options.

Non-Commitment and Savings in Dynamic Risk-Sharing Contracts

We characterize the solution to a model of consumption smoothing using financing under non-commitment and savings. We show that, under certain conditions, these two different instruments complement each other perfectly. If the rate of time preference is equal to the interest rate on savings, perfect smoothing can be achieved in finite time. We also show that, when random revenues are generated by periodic investments in capital through a concave production function, the level of smoothing achieved through financial contracts can influence the productive investment efficiency. As long as financial contracts cannot achieve perfect smoothing, productive investment will be used as a complementary smoothing device.

Finite-Sample Inference Methods for Simultaneous Equations and Models with Unobserved and Generated Regressors

We propose finite sample tests and confidence sets for models with unobserved and generated regressors as well as various models estimated by instrumental variables methods. The validity of the procedures is unaffected by the presence of identification problems or \"weak instruments\", so no detection of such problems is required. We study two distinct approaches for various models considered by Pagan (1984). The first one is an instrument substitution method which generalizes an approach proposed by Anderson and Rubin (1949) and Fuller (1987) for different (although related) problems, while the second one is based on splitting the sample. The instrument substitution method uses the instruments directly, instead of generated regressors, in order to test hypotheses about the \"structural parameters\" of interest and build confidence sets. The second approach relies on \"generated regressors\", which allows a gain in degrees of freedom, and a sample split technique. For inference about general possibly nonlinear transformations of model parameters, projection techniques are proposed. A distributional theory is obtained under the assumptions of Gaussian errors and strictly exogenous regressors. We show that the various tests and confidence sets proposed are (locally) \"asymptotically valid\" under much weaker assumptions. The properties of the tests proposed are examined in simulation experiments. In general, they outperform the usual asymptotic inference methods in terms of both reliability and power. Finally, the techniques suggested are applied to a model of Tobin’s q and to a model of academic performance.

Responsibility and Cross-Subsidization in Cost Sharing

We propose two axiomatic theories of cost sharing with the common premise that agents demand comparable -though perhaps different- commodities and are responsible for their own demand. Under partial responsibility the agents are not responsible for the asymmetries of the cost function: two agents consuming the same amount of output always pay the same price; this holds true under full responsibility only if the cost function is symmetric in all individual demands. If the cost function is additively separable, each agent pays her stand alone cost under full responsibility; this holds true under partial responsibility only if, in addition, the cost function is symmetric. By generalizing Moulin and Shenker’s (1999) Distributivity axiom to cost-sharing methods for heterogeneous goods, we identify in each of our two theories a different serial method. The subsidy-free serial method (Moulin, 1995) is essentially the only distributive method meeting Ranking and Dummy. The cross-subsidizing serial method (Sprumont, 1998) is the only distributive method satisfying Separability and Strong Ranking. Finally, we propose an alternative characterization of the latter method based on a strengthening of Distributivity.

Exact Skewness-Kurtosis Tests for Multivariate Normality and Goodness-of-fit in Multivariate Regressions with Application to Asset Pricing Models

We study the problem of testing the error distribution in a multivariate linear regression (MLR) model. The tests are functions of appropriately standardized multivariate least squares residuals whose distribution is invariant to the unknown cross-equation error covariance matrix. Empirical multivariate skewness and kurtosis criteria are then compared to simulation-based estimate of their expected value under the hypothesized distribution. Special cases considered include testing multivariate normal, Student t; normal mixtures and stable error models. In the Gaussian case, finite-sample versions of the standard multivariate skewness and kurtosis tests are derived. To do this, we exploit simple, double and multi-stage Monte Carlo test methods. For non-Gaussian distribution families involving nuisance parameters, confidence sets are derived for the the nuisance parameters and the error distribution. The procedures considered are evaluated in a small simulation experi-ment. Finally, the tests are applied to an asset pricing model with observable risk-free rates, using monthly returns on New York Stock Exchange (NYSE) portfolios over five-year subperiods from 1926-1995.

The Backing of Government Debt and the Price Level

This paper studies the interdependence between fiscal and monetary policies, and their joint role in the determination of the price level. The government is characterized by a long-run fiscal policy rule whereby a given fraction of the outstanding debt, say d, is backed by the present discounted value of current and future primary surpluses. The remaining debt is backed by seigniorage revenue. The parameter d characterizes the interdependence between fiscal and monetary authorities. It is shown that in a standard monetary economy, this policy rule implies that the price level depends not only on the money stock, but also on the proportion of debt that is backed with money. Empirical estimates of d are obtained for OECD countries using data on nominal consumption, monetary base, and debt. Results indicate that debt plays only a minor role in the determination of the price level in these economies. Estimates of d correlate well with institutional measures of central bank independence.

Finite-Sample Simulation-Based Inference in VAR Models with Applications to Order Selection and Causality Testing

Statistical tests in vector autoregressive (VAR) models are typically based on large-sample approximations, involving the use of asymptotic distributions or bootstrap techniques. After documenting that such methods can be very misleading even with fairly large samples, especially when the number of lags or the number of equations is not small, we propose a general simulation-based technique that allows one to control completely the level of tests in parametric VAR models. In particular, we show that maximized Monte Carlo tests [Dufour (2002)] can provide provably exact tests for such models, whether they are stationary or integrated. Applications to order selection and causality testing are considered as special cases. The technique developed is applied to quarterly and monthly VAR models of the U.S. economy, comprising income, money, interest rates and prices, over the period 1965-1996.

Inflation dynamics and the New Keynesian Phillips Curve: an identification robust econometric analysis

In this paper, we use identification-robust methods to assess the empirical adequacy of a New Keynesian Phillips Curve (NKPC) equation. We focus on the Gali and Gertler’s (1999) specification, on both U.S. and Canadian data. Two variants of the model are studied: one based on a rationalexpectations assumption, and a modification to the latter which consists in using survey data on inflation expectations. The results based on these two specifications exhibit sharp differences concerning: (i) identification difficulties, (ii) backward-looking behavior, and (ii) the frequency of price adjustments. Overall, we find that there is some support for the hybrid NKPC for the U.S., whereas the model is not suited to Canada. Our findings underscore the need for employing identificationrobust inference methods in the estimation of expectations-based dynamic macroeconomic relations.