José L. Torres

Public and private sector wages interactions in a general equilibrium model

This paper develops a dynamic general equilibrium model in which the public and the private sector interact in the labor market. Previous studies that analyze the labor market effects of public sector employment and wages have mostly assumed exogenous rules for public wage and public employment. We show that theories that equalize wages with marginal products in the private sector can rationalize the interaction of public and private sector wages when extended to accommodate a non-trivial government sector/public sector union that endogenously determines public employment and wages. Our model suggests a positive correlation between public and private sector wages. Any increase in tax revenues, coupled with the existence of a positive public-private sector wage gap, makes working in the public sector an attractive option. Thus, a positive neutral productivity shock increases public and private sector wages. More interestingly, even a private-sector specific productivity shock spills-over to the public sector, increasing public wages. These facts lend some support to the wage leading role of the private sector. Nevertheless, at the same time, a positive shock to public sector wages would lead to an increase in private sector wages, via the flow of workers from the private to the public sector.

ICT-specific technological change and productivity growth in the US 1980-2004

This paper studies the impact of the information and communication technologies (ICT) on U.S. economic growth using a dynamic general equilibrium approach. We use a production function with six different capital inputs, three of them corresponding to ICT assets and other three to non-ICT assets. We find that the technological change embedded in hardware equipment is the main leading non-neutral force of the U.S. productivity growth and accounts for about one quarter of it during the period 1980-2004. As a whole, ICT-specific technological change accounts for about 35% of total labor productivity growth.

TECHNOLOGICAL SOURCES OF PRODUCTIVITY GROWTH IN GERMANY, JAPAN, AND THE UNITED STATES

In this paper we use a dynamic general equilibrium growth model to quantify the contribution to productivity growth from different technological sources in the three leading economies of the world: Germany, Japan, and the United States. The sources of technology are classified into neutral progress and investment-specific progress. The latter can be split into two different types of equipment: information and communication technologies (ICT) and non-ICT equipment. We find that in the long run, neutral technological change is the main source of productivity growth in Germany and Japan. For the United States, the main source of productivity growth arises from investment-specific technological change, mainly associated with ICT. We also find that a non-negligible part of productivity growth in the three countries has been due to the technology specific to non-ICT equipment.

National security, military spending and the business cycle

This paper develops a Dynamic Stochastic General Equilibrium model where national security is an argument in the agent’s utility function and the government chooses optimally the level of military spending to maximize social welfare. National defense depends on military expenditure and on the strategic environment reflecting a potential hostile external threat. We use aggregate data on consumption, investment, and military spending for the US economy to estimate the parameters of the model. Estimation results suggest that consumption and national defense are complements and that military spending variability is mainly explained by external threat shocks although it also depends on the macroeconomic conditions. We compute impulse response functions of the main macroeconomic variables to several shocks: a total factor productivity shock, a defense technology shock, and a strategic environment shock. Surprisingly, we find that the optimal response to an increase in the external threat (a worsening in the strategic environment) will rise output by reducing consumption and increasing investment.

Distance matters: an assessment of international tourism demand in Spain.

This article studies international tourist flows to Spain using data panel techniques. Most standard models only include income and relative cost of living as the main explanatory variables of the international tourism demand. By contrast, we show that geographic distance, interpreted as a proxy for the cross-sectional variation in travel cost among origin countries, is a very important variable in determining international tourism flows to Spain. The inclusion of this variable dramatically increases the explanatory power of the model and hardly changes the estimated value of income and price elasticities, which are consistent with those obtained in the literature.

Stochastic intramarginal interventions in target zones

Abstract In this paper, we develop an exchange rate target zone model with stochastic intramarginal interventions that generalizes Krugmans standard model. We assume that money supply changes are (negative) proportional to the velocity shocks. The model produces realistic patterns for the relationship among exchange rate, fundamentals and interest rate differentials, which can explain some empirical failures of previous target zone models. The main result derived from the model is that non-linearities in the behavior of both exchange rate and interest rate differential disappear as intramarginal interventions increase.

An heterogeneous expectations target zone model

Abstract This paper studies the credibility of a target zone considering the existence of heterogeneous expectations in the foreign exchange market. In general, we consider two types of agents: credible and non-credible agents (i.e. fundamentalists). One of the main results of the model is the possibility of collapse of a target zone as a function of expectations. This implies the existence of an endogenous realignment risk.

Information and communication technologies over the business cycle

Abstract This paper quantifies the relative importance of different sources of technological progress as determinants of short-run fluctuations in the US economy. In particular, it focuses on the role of the technical innovations associated with information and communication technologies (ICT). The paper points to three main findings. First, neutral technical change is the main determinant of the US aggregate fluctuations, and its contribution remained constant throughout the postwar sample. Second, the importance of ICT increased significantly during the last decades of the considered sample, which nowadays is responsible for approximately 1/5 of GDP fluctuations. Third, the variance reduction of exogenous shocks typically associated with the last decades of the postwar sample, mainly comes from ICT and neutral shocks, whereas the volatility of innovations in traditional capital remained relatively stable. Overall, we conclude that attention should be focused on identifying those incentives behind the adoption of knowledge and technology, an issue related to the neutral progress, rather than the quality or technology embedded in capital goods such as ICT assets.

Technological sources of economic growth in Europe and the U.S.

This paper assesses the role of different sources of technological change as determinants of economic growth in a group of selected OECD countries during the period 1980–2010. We consider three different sources of growth: neutral technical change associated with Total Factor Productivity, investment-specific technical change (ISTC) embodied in capital assets, and improvements in the quality of labor services generated by human capital accumulation. The contribution to growth of each of these sources is computed using two different approaches: the standard (statistical) growth accounting and the structural growth decomposition obtained from a general equilibrium growth model. We found that the effect of ISTC dominates that of neutral technology and human capital in all of the countries considered. On average, more than 50% of productivity growth is explained by ISTC. Contributions to growth from ICT and non-ICT technical change are in general of similar magnitude.