Do institutions matter for economic fluctuations? Weak property rights in a business cycle model for Mexico

This paper shows that introducing weak property rights in the standard real business cycle (RBC) model can help to explain economic fluctuations. This is motivated by the empirical observation that changes in institutions in emerging markets are related to the evolution of the main macroeconomic variables. In particular, in Mexico, the movements in productivity in the data are associated with changes in institutions, so that we can explain productivity shocks to a large extent as shocks to the quality of institutions. We find that the model with shocks to the degree of protection of property rights only - without technology shocks - can match the second moments in the data for Mexico well. In particular, the fit is better than that of the standard neoclassical model with full protection of property rights regarding the auto-correlations and cross-correlations in the data, especially those related to labor. Viewing productivity shocks as shocks to institutions is also consistent with the stylized fact of falling productivity and non-decreasing labor hours in Mexico over 1980-1994, which is a feature that the neoclassical model cannot match.

Financial shocks and the US business cycle

Employing the financial accelerator (FA) model of Bernanke, Gertler and Gilchrist (1999) enhanced to include a shock to the FA mechanism, we construct and study shocks to the efficiency of the financial sector in post-war US business cycles. We find that financial shocks are very tightly linked with the onset of recessions, more so than TFP or monetary shocks. The financial shock invariably remains contractionary for sometime after recessions have ended. The shock accounts for a large part of the variance of GDP and is strongly negatively correlated with the external finance premium. Second-moments comparisons across variants of the model with and without a (stochastic) FA mechanism suggests the stochastic FA model helps us understand the data.

Life-Cycle, Effort and Academic Inactivity

It has been observed that university professors sometimes become less research active in their later years. This paper models the decision to become inactive as a utility maximising problem under conditions of uncertainty and derives an age-dependent activity condition for the level of research productivity. The model implies that professors who are close to retirement age are more likely to become inactive when faced with setbacks in their research while those who continue research do not lower their activity levels. Using data from the University of Iceland, we find support for the model’s predictions. The model suggests that universities should induce their older faculty to remain research active by striving to make their research more productive and enjoyable, maintaining peer pressure, reducing job security and offering higher performance related pay.

Cohort effects within firms, and their implications for labour market outcomes and the business cycle

The project aims to achieve two objectives. First, we are analysing the labour market implications of the assumption that firms cannot pay similarly qualified employees differently according to when they joined the firm. For example, if the general situation for workers improves, a firm that seeks to hire new workers may feel it has to pay more to new hires. However, if the firm must pay the same wage to new hires and incumbents due to equal treatment, it would either have to raise the wage of the incumbents, or offer new workers a lower wage than the firm would do otherwise. This is very different from the standard assumption in economic analysis that firms are free to treat newly hired workers independently of existing hires. Second, we will use detailed data on individual wages to try to gauge whether (and to what extent) equity is a feature of actual labour markets. To investigate this, we are using two matched employer-employee panel datasets, one from Portugal and the other from Brazil. These unique datasets provide objective records on millions of workers and their firms over a long period of time, so that we can identify which firms employ which workers at each time. The datasets also include a large number of firm and worker variables.

The Optimal Distribution of the Tax Burden over the Business Cycle

This paper analyses optimal income taxes over the business cycle under a balanced-budget restriction, for low, middle and high income households. A model incorporating capital-skill complementarity in production and differential access to capital and labour markets is developed to capture the cyclical characteristics of the US economy, as well as the empirical observations on wage (skill premium) and wealth inequality. We .nd that the tax rate for high income agents is optimally the least volatile and the tax rate for low income agents the least countercyclical. In contrast, the path of optimal taxes for the middle income group is found to be very volatile and counter-cyclical. We further find that the optimal response to output-enhancing capital equipment technology and spending cuts is to increase the progressivity of income taxes. Finally, in response to positive TFP shocks, taxation becomes more progressive after about two years.

Cyclical and Welfare Effects of Public Sector Unions in a Real-Business-Cycle Model

Motivated by the highly-unionized public sectors, the high public shares in total employment, and the public sector wage premia observed in Europe, this paper examines the importance of public sector unions for macroeconomic theory. The model generates cyclical behavior in hours and wages that is consistent with data behavior in an economy with highly-unionized public sector, namely Germany during the period 1970-2007. The union model is a signifi cant improvement over a model with exogenous public employment. In addition, endogenously-determined public wage and hours add to the distortionary e ffect of contractionary tax reforms by generating greater tax rate changes, thus producing signi ficantly higher welfare losses.

On the cost of rent-seeking by government bureaucrats in a Real-Business-Cycle framework

This paper studies the wasteful e ffect of bureaucracy on the economy by addressing the link between rent-seeking behavior of government bureaucrats and the public sector wage bill, which is taken to represent the rent component. In particular, public o fficials are modeled as individuals competing for a larger share of those public funds. The rent-seeking extraction technology in the government administration is modeled as in Murphy et al. (1991) and incorporated in an otherwise standard Real-Business-Cycle (RBC) framework with public sector. The model is calibrated to German data for the period 1970-2007. The main fi ndings are: (i) Due to the existence of a signi ficant public sector wage premium and the high public sector employment, a substantial amount of working time is spent rent-seeking, which in turn leads to signifi cant losses in terms of output; (ii) The measures for the rent-seeking cost obtained from the model for the major EU countries are highly-correlated to indices of bureaucratic ineffi ciency; (iii) Under the optimal scal policy regime,steady-state rent-seeking is smaller relative to the exogenous policy case, as the government chooses a higher public wage premium, but sets a much lower public employment, thus achieving a decrease in rent-seeking.

Tax smoothing in a business cycle model with capital-skill complementarity

This paper undertakes a normative investigation of the quantitative properties of optimal tax smoothing in a business cycle model with state contingent debt, capital-skill complementarity, endogenous skill formation and stochastic shocks to public consumption as well as total factor and capital equipment productivity. Our main finding is that an empirically relevant restriction which does not allow the relative supply of skilled labour to adjust in response to aggregate shocks, signi cantly changes the cyclical properties of optimal labour taxes. Under a restricted relative skill supply, the government fi nds it optimal to adjust labour income tax rates so that the average net returns to skilled and unskilled labour hours exhibit the same dynamic behaviour as under fl exible skill supply.

Unemployment and Endogenous Reallocation over the Business Cycle

This paper studies unemployed workers’ decisions to change occupations, and their impact on fluctuations in aggregate unemployment and its underlying duration distribution. We develop an analytically and computationally tractable stochastic equilibrium model with heterogenous labor markets. In this model three different types of unemployment arise: search, rest and reallocation unemployment. We document new evidence on unemployed workers’ gross occupational mobility and use it to calibrate the model. We show that rest unemployment is the main driver of unemployment fluctuations over the business cycle and causes cyclical unemployment to be highly volatile. The resulting unemployment duration distribution generated by the model responds realistically to the business cycle, creating substantial longer-term unemployment in downturns. Finally, rest unemployment also makes our model simultaneously consistent with procyclical occupational mobility of the unemployed, countercyclical job separations into unemployment and a negatively-sloped Beveridge curve.

Directed Search over the Life Cycle

We develop a life-cycle model of the labor market in which different worker-firm matches have different quality and the assignment of the right workers to the right firms is time consuming because of search and learning frictions. The rate at which workers move between unemployment, employment and across different firms is endogenous because search is directed and, hence, workers can choose whether to seek low-wage jobs that are easy to find or high-wage jobs that are hard to find. We calibrate our theory using data on labor market transitions aggregated across workers of different ages. We validate our theory by showing that it predicts quite well the pattern of labor market transitions for workers of different ages. Finally, we use our theory to decompose the age profiles of transition rates, wages and productivity into the effects of age variation in work-life expectancy, human capital and match quality.

Computing Markov-Perfect Optimal Policies in Business-Cycle Models

Time-inconsistency is an essential feature of many policy problems (Kydland and Prescott, 1977). This paper presents and compares three methods for computing Markov-perfect optimal policies in stochastic nonlinear business cycle models. The methods considered include value function iteration, generalized Euler-equations, and parameterized shadow prices. In the context of a business cycle model in which a scal authority chooses government spending and income taxation optimally, while lacking the ability to commit, we show that the solutions obtained using value function iteration and generalized Euler equations are somewhat more accurate than that obtained using parameterized shadow prices. Among these three methods, we show that value function iteration can be applied easily, even to environments that include a risk-sensitive scal authority and/or inequality constraints on government spending. We show that the risk-sensitive scal authority lowers government spending and income-taxation, reducing the disincentive households face to accumulate wealth.

Experimental heteroxenous cycle of Lagochilascaris minor Leiper, 1909 (Nematoda: Ascarididae) in white mice and in cats

Reports of natural infections of sylvatic carnivores by adult worms of species similar to Lagochilascaris minor in the Neotropical region led to attempts to estabilish experimental cycles in laboratory mice and in cats. Also, larval development was seen in the skeletal muscle of an agouti (Dasyprocta leporina) infected per os with incubated eggs of the parasite obtained from a human case. In cats, adult worms develop and fertile eggs are expelled in the feces: in mice, larval stages of the parasite develop, and are encapsulate in the skeletal muscle, and in the adipose and subcutaneous connective tissue. From our observations, we conclude that the larva infective for the mouse is the early 3rd stage, while for the final host the infective form is the later 3rd stage. A single moult was seen in the mouse, giving rise to a small population of 4th stage larvae, long after the initial infection.

The dynamics of yeast telomeres and silencing proteins through the cell cycle.

Genes integrated near the telomeres of budding yeast have a variegated pattern of gene repression that is mediated by the silent information regulatory proteins Sir2p, Sir3p, and Sir4p. Immunolocalization and fluorescence in situ hybridization (FISH) reveal 6-10 perinuclear foci in which silencing proteins and subtelomeric sequences colocalize, suggesting that these are sites of Sir-mediated repression. Telomeres lacking subtelomeric repeat elements and the silent mating locus, HML, also localize to the periphery of the nucleus. Conditions that disrupt telomere proximal repression disrupt the focal staining pattern of Sir proteins, but not necessarily the localization of telomeric DNA. To monitor the telomere-associated pools of heterochromatin-binding proteins (Sir and Rap1 proteins) during mitotic cell division, we have performed immunofluorescence and telomeric FISH on populations of yeast cells synchronously traversing the cell cycle. We observe a partial release of Rap1p from telomeres in late G2/M, although telomeres appear to stay clustered during G2-phase and throughout mitosis. A partial release of Sir3p and Sir4p during mitosis also occurs. This is not observed upon HU arrest, although other types of DNA damage cause a dramatic relocalization of Sir and Rap1 proteins. The observed cell cycle dynamics were confirmed by direct epifluorescence of a GFP-Rap1p fusion. Using live GFP fluorescence we show that the diffuse mitotic distribution of GFP-Rap1p is restored to the interphase pattern of foci in early G1-phase.

Preliminary investigations on transmission and life cycle of the ear mites of the genus Raillietia trouessart (Acari: Gamasida) parasites of cattle

The life cycle of ear mites of the genus Raillietia Trouessart consists of egg, larva, proto-and deutonymph and adult. The proto-and deutonymph are free living, non feeding instars. The teneral adult is the transfer stage. The minimum period required for completion of the life cycle is approximately eight days.

Variation in the intensity of inbreeding depression among successive life-cycle stages and generations in gynodioecious Silene vulgaris (Caryophyllaceae).

Inbreeding depression is one of the hypotheses explaining the maintenance of females within gynodioecious plant populations. However, the measurement of fitness components in selfed and outcrossed progeny depends on life-cycle stage and the history of inbreeding. Comparative data indicate that strong inbreeding depression is more likely to occur at later life-cycle stages. We used hermaphrodite individuals of Silene vulgaris originating from three populations located in different valleys in the Swiss Alps to investigate the effect of two generations of self- and cross-fertilization on fitness components among successive stages of the life cycle in a glasshouse experiment. We detected significant inbreeding depression for most life-cycle stages including: the number of viable and aborted seeds per fruit, probability of germination, above ground biomass, probability of flowering, number of flowers per plant, flower size and pollen viability. Overall, the intensity of inbreeding depression increased among successive stages of the life cycle and cumulative inbreeding depression was significantly stronger in the first generation (delta approximately 0.5) compared with the second generation (delta approximately 0.35). We found no evidence for synergistic epistasis in our experiment. Our finding of more intense inbreeding depression during later stages of the life cycle may help to explain the maintenance of females in gynodioecious populations of S. vulgaris because purging of genetic load is less likely to occur.