North-south trade and directed technical change

In a world where poor countries provide weak protection for intellectual propertyrights, market integration shifts technical change in favor of rich nations. Throughthis channel, free trade may amplify international income differences. At the sametime, integration with countries where intellectual property rights are weakly protectedcan slow down the world growth rate. A crucial implication of these results is thatprotection of intellectual property is most beneficial in open countries. This prediction,which is novel in the literature, finds support in the data on a panel of 53 countriesobserved in the years 1965-1990.

Japan's lost decade: Does money have a role?

We study the contribution of the stock of money to the macroeconomic outcomesof the 1990s in Japan using a small scale structural model. Likelihood-basedestimates of the parameters are provided and time stabilities of the structural relationshipsanalyzed. Real balances are statistically important for output and inflationfluctuations and their role has changed over time. Models which give moneyno role give a distorted representation of the sources of cyclical fluctuations. Thesevere stagnation and the long deflation are driven by different causes.

Schumpeterian technology shocks

We analyze the labor market effects of neutral and investment-specific technologyshocks along the intensive margin (hours worked) and the extensive margin(unemployment). We characterize the dynamic response of unemploymentin terms of the job separation and the job finding rate. Labor market adjustmentsoccur along the extensive margin in response to neutral shocks, along theintensive margin in response to investment specific shocks. The job separationrate accounts for a major portion of the impact response of unemployment. Neutralshocks prompt a contemporaneous increase in unemployment because of asharp rise in the separation rate. This is prolonged by a persistent fall in thejob finding rate. Investment specific shocks rise employment and hours worked.Neutral shocks explain a substantial portion of the volatility of unemploymentand output; investment specific shocks mainly explain hours worked volatility.This suggests that neutral progress is consistent with Schumpeterian creative destruction,while investment-specific progress operates as in a neoclassical growthmodel.

A structural model of Australia as a small open economy

This paper sets up and estimates a structuralmodel of Australia as a small open economyusing Bayesian techniques. Unlike other recentstudies, the paper shows that a small microfoundedmodel can capture the open economydimensions quite well. Specifically, the modelattributes a substantial fraction of the volatilityof domestic output and inflation to foreigndisturbances, close to what is suggested by unrestrictedVAR studies. The paper also investigatesthe effects of various exogenous shockson the Australian economy.

ClubMed? Cyclical fluctuations in the Mediterranean basin

We investigate macroeconomic fluctuations in the Mediterranean basin, their similarities and convergence. A model with four indicators, roughly covering theWest, the East and the Middle East and the North Africa portions of theMediterranean, characterizes well the historical experience since the early 1980.Idiosyncratic causes still dominate domestic cyclical fluctuations in many countries. Convergence and divergence coexist are local and transitory. The cyclicaloutlook for the next few years is rosier for the East than for the West.

Are these classical business cycles?

The aim of this paper is to test formally the classical business cyclehypothesis, using data from industrialized countries for the timeperiod since 1960. The hypothesis is characterized by the view that the cyclical structure in GDP is concentrated in the investment series: fixed investment has typically a long cycle, while the cycle in inventory investment is shorter. To check the robustness of our results, we subject the data for 15 OECD countries to a variety of detrending techniques. While the hypothesis is not confirmed uniformly for all countries, there is a considerably high number for which the data display the predicted pattern. None of the countries shows a pattern which can be interpreted as a clear rejection of the classical hypothesis.

Monetary unions and the transaction cost savings of a single currency

This paper studies the transaction cost savings of moving froma multi-currency exchange system to a single currency one. Theanalysis concentrates exclusively on the transaction andprecautionary demand for money and abstracts from any othermotives to hold currency. A continuous-time, stochastic Baumol-like model similar to that in Frenkel and Jovanovic (1980) isgeneralized to include several currencies and calibrated to fitEuropean data. The analysis implies an upper bound for thesavings associated with reductions of transaction costs derivedfrom the European Monetary Union of approximately 0.6\% of theCommunity GDP. Additionally, the magnitudes of the brokeragefee and the volatility of transactions, whose estimation hastraditionally been difficult to address empirically, areapproximated for Europe.

Is altruism important for understanding the long-run effects of social security?

This paper quantifies the effects of social security on capital accumulation and wealth distribution in a life cycle framework with altruistic individuals. The main findings of this paper are that the current U.S. social security system has a significant impact on capital accumulation and wealth distribution. I find that social security crowds out 8\% of the capital stock of an economy without social security. This effect is driven by the distortions of labor supply due to the taxation of labor income rather than by the intergenerational redistribution of income imposed by the social security system. In contrast to previous analysis of social security, I found that social security does not affect the savings rate of the economy. Another interesting finding is that even though the current U.S. social security system is progressive in its benefits, it may lead to a more disperse distribution of wealth.

Financial integration, productivity and capital accumulation

Understanding the mechanism through which financial globalization affect economic performance is crucial for evaluating the costs and benefits of opening financial markets. This paper is a first attempt at disentangling the effects of financial integration on the two main determinants of economic performance: productivity (TFP)and investments. I provide empirical evidence from a sample of 93 countries observed between 1975 and 1999. The results suggest that financial integration has a positive direct effect on productivity, while it spurs capital accumulation only with some delay and indirectly, since capital follows the rise in productivity. I control for indirect effects of financial globalization through banking crises. Such episodes depress both investments and TFP, though they are triggered by financial integration only to a minor extent. The paper also provides a discussion of a simple model on the effects of financial integration, and shows additional empirical evidence supporting it.

Skill-biased technological change and the business cycle

Over the past two decades, technological progress in the United States hasbeen biased towards skilled labor. What does this imply for business cycles?We construct a quarterly skill premium from the CPS and use it to identifyskill-biased technology shocks in a VAR with long-run restrictions. Hours fallin response to skill-biased technology shocks, indicating that at least part of thetechnology-induced fall in total hours is due to a compositional shift in labordemand. Skill-biased technology shocks have no effect on the relative price ofinvestment, suggesting that capital and skill are not complementary in aggregateproduction.

Are changes in education important for the wage premium and unemployment?

A generalized rise in unemployment rates for both college and high-schoolgraduates, a widening education wage premium, and a sharp increase incollege education participation are characteristic features of thetransformations of the U.S. labor market between 1970 and 1990. This paperinvestigates the interactions between these changes in the labor marketand in educational attainment. First, it develops an equilibrium searchand matching model of the labor market where education is endogenouslydetermined. Second, calibrated versions of the model are used to studyquantitatively whether either a skill-biased change in technology or amismatch shock can explain the above facts. The skill-biased shock accountsfor a considerable part of the changes but fails to produce the increasein unemployment for the educated labor force. The mismatch shock explainsinstead much of the change in the four variables, including the wage premium.

Speculative dynamics in the term structure of interest rates

When long maturity bonds are traded frequently and traders have non-nestedinformation sets, speculative behavior in the sense of Harrison and Kreps (1978) arises.Using a term structure model displaying such speculative behavior, this paper proposesa conceptually and observationally distinct new mechanism generating time varying predictableexcess returns. It is demonstrated that (i) dispersion of expectations about futureshort rates is sufficient for individual traders to systematically predict excess returns and(ii) the new term structure dynamics driven by speculative trade is orthogonal to publicinformation in real time, but (iii) can nevertheless be quantified using only publicly availableyield data. The model is estimated using monthly data on US short to medium termTreasuries from 1964 to 2007 and it provides a good fit of the data. Speculative dynamicsare found to be quantitatively important, potentially accounting for a substantial fractionof the variation of bond yields and appears to be more important at long maturities.

Aggregate consequences of limited contract enforceability

We study a general equilibrium model in which entrepreneurs finance investment with optimal financial contracts. Because of enforceability problems, contracts are constrained efficient. We show that limited enforceability amplifies the impact of technological innovations on aggregate output. More generally, we show that lower enforceability of contracts will be associated with greater aggregate volatility. A key assumption for this result is that defaulting entrepreneurs are not excluded from the market.

Salience and consumer choice

We present a theory of context-dependent choice in which a consumer's attention is drawnto salient attributes of goods, such as quality or price. An attribute is salient for a good when itstands out among the good's attributes, relative to that attribute's average level in the choice set (orgenerally, the evoked set). Consumers attach disproportionately high weight to salient attributesand their choices are tilted toward goods with higher quality/price ratios. The model accounts fora variety of disparate evidence, including decoy effects, context-dependent willingness to pay, andlarge shifts in demand in response to price shocks.

Monetary policy shocks and transmission in Italy: A VAR analysis

This paper provides updated empirical evidence about the real and nominal effects of monetary policy in Italy, by using structural VAR analysis. We discuss different empirical approaches that have been used in order to identify monetary policy exogenous shocks. We argue that the data support the view that the Bank of Italy, at least in the recent past, has been targeting the rate on overnight interbank loans. Therefore, we interpret shocks to the overnight rate as purely exogenous monetary policy shocks and study how different macroeconomic variables react to such shocks.