The Role of Institutions in Cross-Section Income and Panel Data Growth Models: A Deeper Investigation on the Weakness and Proliferation of Instruments

This paper investigates the role of institutions in determining per capita income levels and growth. It contributes to the empirical literature by using different variables as proxies for institutions and by developing a deeper analysis of the issues arising from the use of weak and too many instruments in per capita income and growth regressions. The cross-section estimation suggests that institutions seem to matter, regardless if they are the only explanatory variable or are combined with geographical and integration variables, although most models suffer from the issue of weak instruments. The results from the growth models provides some interesting results: there is mixed evidence on the role of institutions and such evidence is more likely to be associated with law and order and investment profile; government spending is an important policy variable; collapsing the number of instruments results in fewer significant coefficients for institutions.

Colonialism, Elite Formation and Corruption

This paper argues that corruption in developing countries has deep historical roots; going all the way back to the characteristics of their colonial experience. The degree of European settlement during colonial times is used to dfferentiate between types of colonial experience, and is found to be a powerful explanatory factor of present-day corruption levels. The relationship is non-linear, as higher levels of European settlement resulted in more powerful elites (and more corruption) only as long as Europeans remained a minority group in the total population.

Does the euro dominate Central and Eastern European money markets?

The so-called German Dominance Hypothesis (GDH) claimed that Bundesbank policies were transmitted into other European Monetary System (EMS) interest rates during the pre-euro era. We reformulate this hypothesis for the Central and Eastern European (CEE) countries that are on the verge of accessing the eurozone. We test this \Euro Dominance Hypothesis (EDH)" in a novel way using a global vector autoregressive (GVAR) approach that combines country-speci c error correction models in a global system. We nd that euro area monetary policies are transmitted into CEE interest rates which provides evidence for monetary integration between the eurozone and CEE countries. Our framework also allows for introducing global monetary shocks to provide empirical evidence regarding the e ects of the recent nancial crisis on monetary integration in Europe.

International Evidence on the New Keynesian Phillips Curve Using Aggregate and Disaggregate Data

We present a unique empirical analysis of the properties of the New Keynesian Phillips Curve using an international dataset of aggregate and disaggregate sectoral in ation. Our results from panel time-series estimation clearly indicate that sectoral heterogeneity has important consequences for aggregate in ation behaviour. Heterogeneity helps to explain the overestimation of in ation persistence and underestimation of the role of marginal costs in empirical investigations of the NKPC that use aggregate data. We nd that combining disaggregate information with heterogeneous-consistent estimation techniques helps to reconcile, to a large extent, the NKPC with the data.

Distributional and Poverty Consequences of Globalization: A Dynamic Comparative Analysis for Developing Countries

This study examines the impact of globalization on cross-country inequality and poverty using a panel data set for 65 developing counties, over the period 1970-2008. With separate modelling for poverty and inequality, explicit control for financial intermediation, and comparative analysis for developing countries, the study attempts to provide a deeper understanding of cross country variations in income inequality and poverty. The major findings of the study are five fold. First, a non-monotonic relationship between income distribution and the level of economic development holds in all samples of countries. Second, both openness to trade and FDI do not have a favourable effect on income distribution in developing countries. Third, high financial liberalization exerts a negative and significant influence on income distribution in developing countries. Fourth, inflation seems to distort income distribution in all sets of countries. Finally, the government emerges as a major player in impacting income distribution in developing countries.

Discretionary Policy in a Monetary Union with Sovereign Debt

This paper examines the interactions between multiple national fiscal policy- makers and a single monetary policy maker in response to shocks to government debt in some or all of the countries of a monetary union. We assume that national governments respond to excess debt in an optimal manner, but that they do not have access to a commitment technology. This implies that national fi scal policy gradually reduces debt: the lack of a commitment technology precludes a random walk in steady state debt, but the need to maintain national competitiveness avoids excessively rapid debt reduction. If the central bank can commit, it adjusts its policies only slightly in response to higher debt, allowing national fiscal policy to undertake most of the adjustment. However if it cannot commit, then optimal monetary policy involves using interest rates to rapidly reduce debt, with signifi cant welfare costs. We show that in these circumstances the central bank would do better to ignore national fiscal policies in formulating its policy.

Institutions and Economic Development. New tests and new doubts.

Is institutional quality a major driver of economic development? This paper tackles the question by focusing on the within-country variation of growth rates of GDP per capita. While previous attempts using this methodology have controlled for many of the standard de- terminants of the empirical growth literature, we argue that such ap- proach is not adequate if good institutions are the main reason behind decisions to invest in human or physical capital accumulation or to engage in international trade. Our regressions exclude the proximate causes of growth in order to estimate the overall e¤ect of institutional quality. Perhaps surprisingly, we nd no support for the thesis that institutional quality improves economic growth. These results encourage a reconsideration of the evidence provided elsewhere in the literature.

Interprovincial disparities in China since the reforms: Convergence or divergence?

This paper investigates the extent of disparities amongst the provinces of China since the economic reform in 1978 up to the most recent year for which data is available. After a brief review of theoretical and in particular recent empirical literature on regional inequality in China it investigates whether or not the dynamic economic growth in China has been coupled with increasing disparities amongst the Chinese provinces. The paper utilises a few models of convergence along the lines of those hypothesised by neoclassical economists. It employs per capita income and per capita consumption to identify the possible absolute and conditional convergence since the economic reforms. The coverage and impact of the disparities in terms of the relative size of population affected are then taken into account in the analysis of inequality in income and consumption.

Fear of model misspecifcation and the robustness premium

Robust decision making implies welfare costs or robustness premia when the approximating model is the true data generating process. To examine the importance of these premia at the aggregate level we employ a simple two-sector dynamic general equilibrium model with human capital and introduce an additional form of precautionary behavior. The latter arises from the robust decision maker s ability to reduce the effects of model misspecification through allocating time and existing human capital to this end. We find that the extent of the robustness premia critically depends on the productivity of time relative to that of human capital. When the relative efficiency of time is low, despite transitory welfare costs, there are gains from following robust policies in the long-run. In contrast, high relative productivity of time implies misallocation costs that remain even in the long-run. Finally, depending on the technology used to reduce model uncertainty, we fi nd that while increasing the fear of model misspecfi cation leads to a net increase in precautionary behavior, investment and output can fall.

Prognostication of neurologic outcome in cardiac arrest patients after mild therapeutic hypothermia: a meta-analysis of the current literature.

PURPOSE: To assess the sensitivity and false positive rate (FPR) of neurological examination and somatosensory evoked potentials (SSEPs) to predict poor outcome in adult patients treated with therapeutic hypothermia after cardiopulmonary resuscitation (CPR). METHODS: MEDLINE and EMBASE were searched for cohort studies describing the association of clinical neurological examination or SSEPs after return of spontaneous circulation with neurological outcome. Poor outcome was defined as severe disability, vegetative state and death. Sensitivity and FPR were determined. RESULTS: A total of 1,153 patients from ten studies were included. The FPR of a bilaterally absent cortical N20 response of the SSEP could be calculated from nine studies including 492 patients. The SSEP had an FPR of 0.007 (confidence interval, CI, 0.001-0.047) to predict poor outcome. The Glasgow coma score (GCS) motor response was assessed in 811 patients from nine studies. A GCS motor score of 1-2 at 72 h had a high FPR of 0.21 (CI 0.08-0.43). Corneal reflex and pupillary reactivity at 72 h after the arrest were available in 429 and 566 patients, respectively. Bilaterally absent corneal reflexes had an FPR of 0.02 (CI 0.002-0.13). Bilaterally absent pupillary reflexes had an FPR of 0.004 (CI 0.001-0.03). CONCLUSIONS: At 72 h after the arrest the motor response to painful stimuli and the corneal reflexes are not a reliable tool for the early prediction of poor outcome in patients treated with hypothermia. The reliability of the pupillary response to light and the SSEP is comparable to that in patients not treated with hypothermia.

The Distributional Consequences of Supply-Side Reforms in General Equilibrium

This paper addresses the issue on whether tax reforms consisten with lower public debt-to-GDP in the long-run can lead to a more efficient and equitable economy. To this end we solve a heterogeneous agent model comprised of a government, a representative capitalist and representative skilled and unskilled workers, under both rational expectations and adaptive learning. Our main ndings are that (i) reductions in capital taxation, while bene cial at the aggregate level, lead to increased inequality mainly due to the substitutability of un- skilled labour and capital; (ii) a fall in taxation for skilled labour is Pareto improving, which is largely explained by its complementarity with the other factor inputs; (iii) all agents would prefer increasing the tax rate on capital to increasing the tax rate on skilled and un- skilled labour since it leads to relatively lower welfare losses; and (iv) heterogeneity in initial beliefs under adaptive learning quantitatively matters for welfare.

Corruption and the Military in Politics: Theory and Evidence from around the World

Recent theoretical developments and case study evidence suggests a relationship between the military in politics and corruption. This study contributes to this literature by analyzing theoretically and empirically the role of the military in politics and corruption for the first time. By drawing on a cross sectional and panel data set covering a large number of countries, over the period 1984-2007, and using a variety of econometric methods substantial empirical support is found for a positive relationship between the military in politics and corruption. In sum, our results reveal that a one standard deviation increase in the military in politics leads to a 0.22 unit increase in corruption index. This relationship is shown to be robust to a variety of specification changes, different econometric techniques, different sample sizes, alternative corruption indices and the exclusion of outliers. This study suggests that the explanatory power of the military in politics is at least as important as the conventionally accepted causes of corruption, such as economic development.

First-and second-best allocations under economic and environmental uncertainty

This paper uses a micro-founded DSGE model to compare second-best optimal environmental policy and the resulting allocation to first-best allocation. The focus is on the source and size of uncertainty, and how this affects optimal choices and the inferiority of second best vis-à-vis first best.

On monetary policy and stock market anomalies

This study utilizes a macro-based VAR framework to investigate whether stock portfolios formedon the basis of their value, size and past performance characteristics are affected in a differentialmanner by unexpected US monetary policy actions during the period 1967-2007. Full sample results show that value, small capitalization and past loser stocks are more exposed to monetary policy shocks in comparison to growth, big capitalization and past winner stocks. Subsample analysis, motivated by variation in the realized premia and parameter instability, reveals that monetary policy shocks’ impact on these portfolios is significant and pronounced only during the pre-1983 period.

The Rise and Fall of the ABS Market

The nancial crisis has raised some concern about the quality of information available on some traded assets on the securities markets to market participants and regulators. Asset-backed securitization in general got partial blame for the paucity of liquidity on bank balance sheets and the consequent credit crunch. After the Asset-Backed Security (ABS) market fell to near inactivity in 2009, the US federal government's Term Asset-Backed Securities Loan Facility (TALF) provided backing and a boost to the issuance of asset-backed securitization. In this market condition, given the nature of ABS, it is di¢ cult for them not to be relatively illiquid, and this has resulted in unacceptable levels of market risk for most investors. Their liquidity before the crisis was driven by a market in continuous expansion, fed by Special Purpose Vehicle (SPV), Conduits, and other low capitalized term-transformation vehicles. Nowadays, the industry is concerned with the ongoing ABS reforms and how these will be implemented. This article reviews the ABS market in the last decade and the possible consequences of the recent regulatory proposals. It proposes a retention policy and the institution of a new nancial body to supervise the quality of the security in an ABS pool, its liquidity, and the model risk implied by the issuer's valuation model.