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ECONOMIC ISSUES

Volume 22 (2017)

Part 1, March

Please select from the titles below:

Articles

Book Reviews

Part 2, September

Coming September 2017, including Special Issue content from the ESRC Factor Income Distribution, Work and Employment Seminar Series

Part 1, March

Information Flow of Heteroskedasticity for Capital Asset Pricing: An Expectationbased View of Risk (p.1)

by C Senarathne and P Jayasinghe

Abstract: The Heteroskedastic Mixture Model (HMM) of Lamoureux, and Lastrapes (1990) is extended, relaxing the restriction imposed on the mean i.e. μt-1=0 . Instead, an exogenous variable rm, along with its vector βm, that predicts return rt is introduced to examine the hypothesis that the volume is a measure of speed of evolution in the price change process in capital asset pricing. The empirical findings are documented for the hypothesis that ARCH is a manifestation of time dependence in the rate of information arrival, in line with the observations of Lamoureux, and Lastrapes (1990). The linkage between this time dependence and the expectations of market participants is investigated and the symmetric behavioural response is documented. Accordingly, the tendency of revision of expectation in the presence of new information flow whose frequency as measured by ‘volume clock’ is observed. In the absence of new information arrival at the market, investors tend to follow the market on average. When new information is available, the expectations of investors are revised in the same direction as a symmetric response to the flow of new information arrival at the market.

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A Simple Explanation of the Taylor Rule? (p.25)

by A Piergallini and G Rodano

Abstract: The modern New Keynesian literature discusses the stabilising properties of Taylor-type interest rate rules mainly in the context of complex optimising models. In this paper we present a simple alternative approach to provide a theoretical rationale for the adoption of the Taylor rule by central banks. We find that the Taylor rule can be derived as the optimal interest rate rule in a classical Barro-Gordon macroeconomic model. The successful practice of central bankers, at the core of the Great Moderation, and currently re-invoked to re-normalise monetary policy after the unprecedented quantitative-easing actions aimed to escape the Great Recession, can perfectly be explained by standard theory, without recourse to more complicated derivations.

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Plutchik and Economics: ‘...Disgust, Fear, and, Oh Yes, Love’ (p.37)

by O Gomes

Abstract: One of the most challenging endeavours economic theorists currently face is the integration of emotions in the conceptual frameworks used to explain the choices and the behaviour of agents. Emotional decisions are much harder to understand, evaluate and analyse than rational ones, because emotions are diffuse, difficult to isolate and to categorise, and also because they correspond to personal inner-states that might be externalised in so many different ways. This paper suggests the use of a possible classification of emotions in order to guide economists when developing their emotional-oriented decision-making models. The classification is the one proposed by psychologist Robert Plutchik through his popular ‘wheel of emotions’, a diagram that highlights the existence of a few basic emotions that might acquire, each of them, various different tones or intensities.

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Prospects for Economic Growth in the 21st Century: A survey covering mainstream, heterodox and scientifically-oriented perspectives (p.65)

by E C Alfredsson and J M Malmaeus

Abstract: Despite the importance of economic growth for the current economy, business and societal planning there are few long-term growth projections undertaken. There is, however, a vivid debate on what is called the 'new normal' - secular stagnation - which is undertaken within academic disciplines. This overview covers mainstream, heterodox and scientifically oriented economic perspectives on the prospects for economic growth in the 21st century. The survey shows that existing long-term projections and scenarios indicate growth rates ranging from around half a percentage point less than during the last two decades (projected by the Organisation for Economic Co-operation and Development, OECD), to dramatically lower growth rates). Differences stem from different perspectives on the determinants of economic growth and the potential for improvements in productivity. Headwinds are: an aging population, especially in OECD countries; resource constraints, including energy; increasing environmental costs in particular due to the consequences of climate change; overaccumulation; increasing income differences; and declining social capital. One conclusion is that policymaking based on the assumption that economic growth will continue at pre-crisis levels is unwise and risky.

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Economic Growth and Regional Integration in Mexico (p.89)

by D Shepherd, R Muñoz Torres and M A Mendoza

Abstract: In this paper we examine the regional structure of output growth, volatility and prosperity in Mexico, focusing in particular on the degree of integration between both the regions and the individual states of the country. The results suggest that there is a high degree of similarity across the regions in the responses to domestic and international shocks affecting the economy, but there are also significant differences across the individual states within each region. We identify a positive relationship between output growth and volatility, but the relationship between growth and regional disparities appears to be negative, suggesting that higher (lower) growth is generally associated with lower (higher) regional dispersion in per capita GDP levels.

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