Working papers results
We study the effects globalization on wage inequality. Our global economy resembles Rosen (1981) Superstars economy, where a) innovations in production and communication technologies enable suppliers to reach a larger mass of consumers and to improve the (perceived) quality of their products and b) trade barriers fall.When transport costs fall, income is redistributed away from the non-exporting to the exporting sector of the economy. As the former turns out to employ workers of higher skill and pay, the effect is to raise wage inequality. Whether the least skilled are stand to lose or gain from improved production or communication technologies, in contrast, depends on wether technology is skill-complement or substitute. The model gives an intuitive explanation for the empirical regularities that skill intensity, market size and wages tend to be positively associated to exporting activity, across sectors and plants.
The literature pioneered by Krugman (1991a) now known as "New economic geography" has developed very insightful models to understand phenomena as the agglomeration of economic activity and the specialization of regions. Nevertheless I think that the emphasis on the process of specialization, has been somewhat misleading both at a theoretical and empirical level. The attention of the literature has been focused on decreasing transport costs as the unique engine of the process. I develop a modified version of such models in which technological knowledge and its growth and spillovers are important forces at work, once agglomeration has taken place. I obtain the interesting result that after the dramatic tendency to specialization, driven by decreasing transport costs, local technological growth generates a tendency towards de-specialization, in the most advanced regions. This pattern fits the stylized facts relative to the last 40 years in the U.S. There, after a strong tendency towards industrial concentration, there has been a tendency, towards de-concentration. A first look at the data for European countries, for the last 30 years also shows a tendency to constant or slightly decreasing concentration of industries and de-concentration of innovative activity.
In an empirical analysis, considering 236 U.S. cities in the period 1980-1990, we document a strong positive correlation between local supply of education skills and their return. In SMSA's where the average education of workers is high the education premium is also high. This is true both considering the levels of the variables in 1980, 1990 and considering their changes. Technical progress, as well as physical capital investments, may be driven by local pressures to enhance the productivity of factors which are locally abundant. Therefore we may interpret this regularity as a sign that in cities where educated workers are abundant, firms will invest in skill-complementary machines and techniques. Acemoglou (1998) claims that this idea could explain the time evolution of education premia in the 80's. Here I bring some compelling evidence that it may provide an explanation for the behavior of education premia across cities.
We try to demonstrate how economists may engage in research on comparative politics, relating the size and composition of government spending to the political system. A Downsian model of electoral competition and forward-looking voting indicates that majoritarian---as opposed to proportional---elections increase competition between parties by focusing it into some key marginal districts. This leads to less public goods, less rents for politicians, more redistribution and larger government. A model of legislative bargaining and backward-looking voting indicates that presidential---as opposed to parliamentary---regimes increase competition between both politicians and voters. This leads to less public goods, less rents for politicians, less redistribution, and smaller government. We confront these predictions with cross-country data from around 1990, controlling for economic and social determinants of government spending. We find strong and robust support for the prediction that the size of government is smaller under presidential regimes, and weaker support for the prediction that majoritarian elections are associated with less public goods.
We search for the circumstances in which the response of national saving to fiscal policy contradicts conventional Keynesian predictions, using data from 18 OECD countries. The data suggest that non-Keynesian effects are associated with large and persistent fiscal impulses. Such responses can be traced to changes in taxes and transfers, more than to changes in government consumption, and are stronger for fiscal contractions than expansions. During large contractions an increase in taxes has no effect on national saving. High or rapidly growing public debt is not a good predictor of non-Keynesian effects. Finally, the composition of the fiscal impulse matters: the non-Keynesian effects of a large fiscal contraction are enhanced when this is carried out primarily by raising taxes.
Exogenous measures of monetary policy shocks, directly derived from financial market information, are used in close (US) and open (US-Germany) economy VAR models to evaluate the robustness of the dynamic effect of monetary policy obtained from traditional identified VAR. The empirical analysis confirms the main features of the monetary policy transmission mechanism in US and Germany, explicitly addressing the issue of simultaneity between the German policy interest rate and the US dollar-DMark exchange rate.
There exists a continuum of prices between Bertrand and joint-profit maximization prices which can be interpreted as the outcome of a two-stage game where firms first invest to increase product differentiation and then compete in prices. The lower the costs of differentiating their products from each other the more relaxed competition in the product market and the closer firms will be to the collusive outcome of the one-shot game for given degree of differentiation. The higher the costs the harsher competition in the market and the closer to the Bertrand solution of the one-shot game with given degree of differentiation.
The empirical VAR literature on the monetary transmission mechanism in closed economies has been successful in providing evidence with which theoretical models of the monetary transmission mechanism are now confronted. The empirical VAR literature on the monetary transmission mechanism in open economies has not enjoyed the same success and it is still marred with a number of empirical puzzles. In this paper we firstly assess the relevance of the progress made estimating VAR in closed economies for the specification of VAR in open economies. Second, we propose to solve the simultaneity between exchange rate and policy interest rates by using information extracted from financial markets independently from the VAR. Lastly, we evaluate the relative importance of macroecomnomic and monetary policy variables in explaining short-term fluctuations in the nominal exchange rates. Our main results are that a commodity price index is an important variable in any VAR analysis of the monetary transmission mechanism, that the simultaneity between German policy rates and the US dollar/D mark exchange rate is not an empirically relevant problem, and that monetary factors are dominated by macroeconomic factors for the explanation of exchange rate fluctuations.
This paper evaluates VAR models designed to analyze the monetary policy transmission mechanism in the United States by considering three issues: specification, identification, and the effect of the omission of the long-term interest rate. Specification analysis suggest that only VAR models estimated on a single monetary regime feature parameters stability and do not show signs of mis-specification. The identification analysis shows that VAR-based monetary policy shocks and policy disturbances identified from alternative sources are not highly correlated but yeld similar descriptions of the monetary transmission mechanism. Lastly, the inclusion of the long-term interest rate in a benchmark VAR delivers a more precise estimation of the structural parameters capturing behaviour in the market for reserves and shows that contemporaneous fluctuations in long-term interest rates are an important determinant of the monetary authoritys reaction function.