Willi Semmler

The Forces of Economic Growth: A Time Series Perspective

In economics, the emergence of New Growth Theory in recent decades has directed attention to an old and important problem: what are the forces of economic growth and how can public policy enhance them? This book examines major forces of growth--including spillover effects and externalities, education and formation of human capital, knowledge creation through deliberate research efforts, and public infrastructure investment. Unique in emphasizing the importance of different forces for particular stages of development, it offers wide-ranging policy implications in the process. The authors critically examine recently developed endogenous growth models, study the dynamic implications of modified models, and test the models empirically with modern time series methods that avoid the perils of heterogeneity in cross-country studies. Their empirical analyses, undertaken with newly constructed time series data for the United States and some core countries of the Euro zone, show that models containing scale effects, such as the R&D model and the human capital model, are compatible with time series evidence only after considerable modifications and nonlinearities are introduced. They also explore the relationship between growth and inequality, with particular focus on technological change and income disparity. The Forces of Economic Growth represents a comprehensive and up-to-date empirical time series perspective on the New Growth Theory.

The US Wage Phillips Curve across Frequencies and over Time

Although widely used in many areas of applied sciences, wavelet analysis has not fully entered the economic discipline yet. In this article we apply wavelet analysis to one of the most investigated relationships is in empirical macroeconomics: the relationship between wage inflation and unemployment. Using US postwar data we find a frequency-dependent relationship of a sort that is consistent with Phillips’ original insights. It also turns out that this relationship is remarkably stable over the 1948–93 period, but not in the aftermath, as a consequence of a process of adaption of the wage formation process to a low inflation environment.

Testing Wage and Price Phillips Curves for the United States

This paper demonstrates how the labour and product markets interact in determining as outcome a generalized reduced-form price Phillips curve. For the labour market we consider a wage Phillips curve and for the product market a price Phillips curve. We estimate separately the wage and price Phillips curves for the USA, using ordinary least squares, non-parametric estimation and three-stage least squares techniques. The finding is that wages are always more flexible than prices with respect to their respective demand pressure and that price inflation responds somewhat more to a medium-run cost pressure than does wage inflation. The implications for macroeconomic stability are demonstrated. We also show-as a link between product and labour markets-that employment is related to output as Okuns law states. In comparing linear and non-linear estimates of the wage and price Phillips curves we find furthermore that for some relationships non-linearities are important while not for others. Although overall the non-linear estimates tend to confirm our linear estimates, non-linearities in some relationships of the Phillips curve are important as well. Copyright

CLASSICAL AND NEOCLASSICAL COMPETITIVE ADJUSTMENT PROCESSES

In recent neoclassically and classically oriented literature on competitive processes several models have been presented which work not only with the ‘law of demand’ but also with the ‘law of profitability’. In such dynamical models a cross-dual process is stylized in which price changes are initiated by imbalances in supply and demand and changes of outputs are caused by profitability differentials. Such cross-dual dynamics can now be found in neoclassical tradition (Morishima 1976, 1977; Mas–Colell 1974, 1986) and in classical tradition. In classical tradition the analysis of such a cross-dual adjustment process was initiated particularly by some recent publications of Nikaido (1978, 1983, 1985) who questioned the stability of classical competition. In comparison to his results it is the purpose of this article to show that the classical approach to the dynamics of competition may be able to produce stability results which are of at least comparable interest to those of neoclassical stability theory.

A macroeconomic limit cycle with financial perturbations

Abstract Utilizing the Hopf-bifurcalion theorem for nonlinear differential equations and Olechs theorem on global stability, the paper shows how a nonlinear macro limit cycle can change its character when financial perturbation terms are introduced into the model. As demonstrated financial perturbations affect the vector field in certain regions of the trajectories and a variety of different outcomes can be generated. Financial instability as put forward in Minskys writings can result from the proposed dynamics under not too restrictive conditions.

Business cycles : theory and empirical methods

Introduction W. Semmler. Part I: Complex Dynamics in the Business Cycle. I. Business Cycles and Long Waves: a Behavioral Disequilibrium Perspective J.D. Sterman, E. Mosekilde. II. Competitive Markets and Endogenous Cycles: an Evaluation M. Boldrin. III. Analytical and Numerical Methods in the Study of Nonlinear Dynamical Systems in Keynesian Macroeconomics H.-W. Lorenz. IV. Business Cycles, Fiscal Policy and Budget Deficits R.H. Day. V. Continuous-Time Dynamical Models with Distributed Lags M. Jarsulic. Part II: Monetary and Financial Factors in the Business Cycles. VI. Price Flexibility and Output Stability: an Old Keynesian View J. Tobin. VII. The Stability of Models of Monetary Growth with Adaptive Expectations or Myopic Perfect Foresight P. Flaschel. VIII. A Model of the Financial Sector and its Reaction to Aggregate Fluctuations R. Franke, W. Semmler. IX. External Finance, Investment Expenditure and the Business Cycle D. Delligatti, M. Gallegatti. X. Monetary Factors and Gestation Lag in a Kaleckian Model of the Business Cycle T. Asada. Part III: Testing for Nonlinearities in the Business Cycle. XI. Asymmetric Economic Propagation Mechanisms S.M. Potter. XII. Asymmetries in Business Cycles: Econometric Techniques and Empirical Evidence S. Mittnik, Zhiqiang Niu. XIII. Testing for Chaos and Nonlinearities in Macroeconomic Time Series C.L. Sayers. XIV. Using U-Statistics to detect Business Cycle Nonlinearities B. Mizrach. XV. The Time Reversibility Test with Application to Financial Data P. Rothman. Index.

Filtering Time Series with Penalized Splines

The decomposition and filtering of time series is an important issue in economics and econometrics and related fields. Even though there are numerous competing methods on the market, in applications one often meets one of the few favorites, like the Hodrick-Prescott filter or the bandpass filter.In this paper, we suggest to employ penalized splines fitting for detrending. The approach allows to take correlation of the residuals into account and provides a data driven setting of the smoothing parameter, none of which the classical filters allow. We show the simplicity of the penalized spline filter using the open source software R and demonstrate differences and features with numerous data examples.

Externalities of investment, education and economic growth

We present a growth model in which investment in physical capital shows positive externalities which build up knowledge capital. A prerequisite for these spillovers to take place is that a country devotes time to education. Externalities associated with investment need education to raise the stock of knowledge capital. Analysing the competitive economy we demonstrate that the model may explain why some low-income countries show convergence whereas others do not. Furthermore, we demonstrate that in the social optimum the level of investment is always higher than in the competitive economy whereas the time spent for education may be lower or higher. We also show how the competitive economy may replicate the social optimum for an appropriate choice of a lump-sum tax and an investment subsidy. Empirical evidence is provided in order to demonstrate the plausibility of our model

On the optimal exploitation of interacting resources

The paper demonstrates — partly analytically and partly numerically — that traditional results in resource economics obtained from the study of only one resource do not carry over to ecologically interacting resources. As in the traditional approach, we also employ dynamic optimization. The limiting behavior of the trajectories is first studied analytically by letting the discount rate approach infinity. A numerical study is then undertaken by means of a dynamic programming algorithm in order to explore the fate of the resources for various finite discount rates. The relation of our results to results in optimal growth theory is also discussed.

Multiple Equilibria, History Dependence, and Global Dynamics in Intertemporal Optimization Models

Multiple equilibria and history dependent optimal solutions are important features of a wealth of widely diverse economic models. These features are typically related to the presence of market imperfections, expectational phenomena, and the like. Less known is that they can also arise in efficient deterministic intertemporal optimization models. We examine different mechanisms that can generate multiple optimal equilibria in models of the latter type, and discuss the properties of the thresholds that separate the basins of attraction of the different equilibria. As most of the existing literature, the chapter focuses on one-dimensional state space models. However, an extension to the two-dimensional case is also presented. Since in many important instances the thresholds cannot be found analytically, we present three methods that allow to compute and analyze them numerically. Finally, we give a cursory review of efficient dynamic economic models with multiple equilibria. 92 C. Deissenberg et al.