Alfred Greiner

Economic Growth in the U.S. and Europe: The Role of Knowledge, Human Capital, and Inventions

In the last decade the high unemployment rate in Europe, compared to the U.S., has been attributed to specific labor market problems in the European economy. A widespread view among academics and politicians was that the high rate of unemployment in Europe has been caused by the labor market itself. It has been maintained that in Europe strong labor unions, strong position of insiders vis-a-vis outsiders on the labor market, restrictions of hiring and firing practices, job protection and generosity of unemployment benefits have caused a persistent high level of unemployment in the E.U.. The flip side of this hypothesis is that conversely labor market flexibility in the U.S. and wage spread has helped to accelerate employment. In particular, it is often maintained that there has been extensive job creation for low income groups. In the last few years, however, many U.S. labor market specialists, see for example Krueger and Pischke (1997), have become skeptical to consider labor market rigidities as the sole cause for the high and persistent rate of unemployment in the E.U.. The volume of the potential labor force in the U.S. that has been integrated into the active workforce has been too large to be explained by labor market flexibilities solely.1 Conversely Europe, so it is argued by American labor economists, lacked such a large rate of job creation.

Chapter 54 – Monetary Policy, Non-Uniqueness of Steady States and Hysteresis Effects

Publisher Summary nThis chapter discusses various aspects of monetary policy, non-uniqueness of steady states, and hysteresis effects. It is demonstrated that under reasonable assumptions the objective function of the central bank may be non-quadratic, giving rise to multiple optimal equilibria. In the model, this means that there are two optimal equilibria and the initial conditions crucially determine which equilibrium should be selected. Optimal hysteresis effects arise if an exogenous shock leads to a decrease in production such that convergence to the low-level equilibrium becomes optimal, whereas convergence to the high-level equilibrium was optimal before the shock. It is found that there is a high output steady state that goes along with a relatively high inflation rate and a low output steady state that is associated with almost zero inflation.

Monetary Policy, Non-Uniqueness of Steady States and Hysteresis Effects

Abstract It is demonstrated that the assumption of state dependent relative weights for output and inflation may lead to a non-convex objective function with respect to the contour set. State dependent relative weights mean that output stabilization is more important for low levels of actual output compared to higher levels. In this case, the central bank’s solution to an intertemporal optimization problem can generate multiple steady states which can lead to hysteresis.