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Abstract

Details

Panel Data and Structural Labour Market Models
Type: Book
ISBN: 978-0-44450-319-0

Article
Publication date: 5 May 2000

Abdullahi O. Abdulkadri and Michael R. Langemeier

A farm household consumption model based on the life‐cycle permanent income hypothesis (LPIH) has been specified and the Euler equations derived in this analysis. Estimation of

Abstract

A farm household consumption model based on the life‐cycle permanent income hypothesis (LPIH) has been specified and the Euler equations derived in this analysis. Estimation of the of the Euler equations using farm household consumption data provided estimates for the intertemporal elasticity of substitution and the coefficient of relative risk aversion. These parameters differ among the farm enterprises in which the households were engaged. Estimates for the intertemporal elasticity of substitution and the coefficient of relative risk aversion ranged from 0.158 to 0.351 and from 2.849 to 6.329, respectively. Results also provide further evidence that the LPIH is valid for modeling farm household consumption.

Abstract

Details

Environmental Taxation and the Double Dividend
Type: Book
ISBN: 978-1-84950-848-3

Article
Publication date: 12 June 2018

Salman Ahmed Shaikh, Mohd Adib Ismail, Abdul Ghafar Ismail, Shahida Shahimi and Muhammad Hakimi Mohd Shafiai

This study aims to examine the consumption behaviour in Organization of Islamic Cooperation countries.

Abstract

Purpose

This study aims to examine the consumption behaviour in Organization of Islamic Cooperation countries.

Design/methodology/approach

Using time series and panel data, this study estimates rational expectations permanent income hypothesis model and the intertemporal elasticity of substitution, and examines the response in consumption to expected and unexpected changes in income.

Findings

The evidence supports the phenomenon of loss aversion. The response of consumption to unexpected income changes is statistically significant in only one-third of the countries in the sample. Conversely, the response of consumption to expected income changes is statistically as well as economically significant in one-fourth of the countries in the sample. The intertemporal elasticity of substitution is also statistically insignificant in majority of OIC countries in the sample.

Practical implications

The evidence in support of loss aversion in preferences could help in explaining the low penetration of equity-based risk sharing instruments in Islamic finance.

Social implications

The excess sensitivity of consumption to income suggests that redistribution efforts to enhance incomes of poor households could help in enhancing their consumption levels.

Originality/value

The study takes a comprehensive sample across time and space for OIC countries as compared to previous studies and also adjusts the budget constraint for Zakat.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 11 no. 4
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 28 March 2022

Debaditya Mohanti and Souvik Banerjee

The present study aims to evaluate the aggregate consumption function from the perspective of the Euler equation using Indian macroeconomic data. Further, to examine the…

Abstract

Purpose

The present study aims to evaluate the aggregate consumption function from the perspective of the Euler equation using Indian macroeconomic data. Further, to examine the robustness of the findings for India, other developing nations are also studied.

Design/methodology/approach

Quarterly time-series data from 1996:1 to 2020:3 on consumption and income in India are used to evaluate the alternative model proposed by Campbell and Mankiw (1989). The alternative hypotheses in the present study are tested by estimating models using the instrumental variable approach. The lagged changes in the quarterly average of 91-day Treasury bill yields are used as the nominal interest rate instrumental variables along with other lagged instrumental variables.

Findings

The evidence presented in this study suggests that aggregate consumption is better explained when the permanent income model incorporates rule-of-thumb consumers, that is, individuals who consume their current income along with those who consume their permanent income.

Practical implications

The new rule-of-thumb framework better explains some of the observed phenomena, such as why the expected changes in consumption are related to the expected changes in income, why the expected changes in consumption are unrelated to real interest rates (i.e. why the intertemporal elasticity of substitution is near zero) and why a high consumption/income ratio is usually followed by an increase in income growth.

Originality/value

This study adds to the limited literature on the Euler-based consumption function in developing economies.

Details

Indian Growth and Development Review, vol. 15 no. 2/3
Type: Research Article
ISSN: 1753-8254

Keywords

Article
Publication date: 5 February 2024

Karlo Marques Junior

This paper seeks to explore the sensitivity of these parameters and their impact on fiscal policy outcomes. We use the existing literature to establish possible ranges for each…

18

Abstract

Purpose

This paper seeks to explore the sensitivity of these parameters and their impact on fiscal policy outcomes. We use the existing literature to establish possible ranges for each parameter, and we examine how changes within these ranges can alter the outcomes of fiscal policy. In this way, we aim to highlight the importance of these parameters in the formulation and evaluation of fiscal policy.

Design/methodology/approach

The role of fiscal policy, its effects and multipliers continues to be a subject of intense debate in macroeconomics. Despite adopting a New Keynesian approach within a macroeconomic model, the reactions of macroeconomic variables to fiscal shocks can vary across different contexts and theoretical frameworks. This paper aims to investigate these diverse reactions by conducting a sensitivity analysis of parameters. Specifically, the study examines how key variables respond to fiscal shocks under different parameter settings. By analyzing the behavioral dynamics of these variables, this research contributes to the ongoing discussion on fiscal policy. The findings offer valuable insights to enrich the understanding of the complex relationship between fiscal shocks and macroeconomic outcomes, thus facilitating informed policy debates.

Findings

This paper aims to investigate key elements of New Keynesian Dynamic Stochastic General Equilibrium (DSGE) models. The focus is on the calibration of parameters and their impact on macroeconomic variables, such as output and inflation. The study also examines how different parameter settings affect the response of monetary policy to fiscal measures. In conclusion, this study has relied on theoretical exploration and a comprehensive review of existing literature. The parameters and their relationships have been analyzed within a robust theoretical framework, offering valuable insights for further research on how these factors influence model forecasts and inform policy recommendations derived from New Keynesian DSGE models. Moving forward, it is recommended that future work includes empirical analyses to test the reliability and effectiveness of parameter calibrations in real-world conditions. This will contribute to enhancing the accuracy and relevance of DSGE models for economic policy decision-making.

Originality/value

This study is motivated by the aim to provide a deeper understanding of the roles macroeconomic model parameters play concerning responses to expansionary fiscal policies and the subsequent reactions of monetary authorities. Comprehensive reviews that encompass this breadth of relationships within a single text are rare in the literature, making this work a valuable contribution to stimulating discussions on macroeconomic policies.

Details

Journal of Economic Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0144-3585

Keywords

Book part
Publication date: 1 July 2015

Enrique Martínez-García

The global slack hypothesis is central to the discussion of the trade-offs that monetary policy faces in an increasingly more integrated world. The workhorse New Open Economy…

Abstract

The global slack hypothesis is central to the discussion of the trade-offs that monetary policy faces in an increasingly more integrated world. The workhorse New Open Economy Macro (NOEM) model of Martínez-García and Wynne (2010), which fleshes out this hypothesis, shows how expected future local inflation and global slack affect current local inflation. In this chapter, I propose the use of the orthogonalization method of Aoki (1981) and Fukuda (1993) on the workhorse NOEM model to further decompose local inflation into a global component and an inflation differential component. I find that the log-linearized rational expectations model of Martínez-García and Wynne (2010) can be solved with two separate subsystems to describe each of these two components of inflation.

I estimate the full NOEM model with Bayesian techniques using data for the United States and an aggregate of its 38 largest trading partners from 1980Q1 until 2011Q4. The Bayesian estimation recognizes the parameter uncertainty surrounding the model and calls on the data (inflation and output) to discipline the parameterization. My findings show that the strength of the international spillovers through trade – even in the absence of common shocks – is reflected in the response of global inflation and is incorporated into local inflation dynamics. Furthermore, I find that key features of the economy can have different impacts on global and local inflation – in particular, I show that the parameters that determine the import share and the price-elasticity of trade matter in explaining the inflation differential component but not the global component of inflation.

Details

Monetary Policy in the Context of the Financial Crisis: New Challenges and Lessons
Type: Book
ISBN: 978-1-78441-779-6

Keywords

Book part
Publication date: 22 November 2012

Enrique Martínez-García, Diego Vilán and Mark A. Wynne

Open-Economy models are central to the discussion of the trade-offs monetary policy faces in an increasingly more globalized world (e.g., Marínez-García & Wynne, 2010), but…

Abstract

Open-Economy models are central to the discussion of the trade-offs monetary policy faces in an increasingly more globalized world (e.g., Marínez-García & Wynne, 2010), but bringing them to the data is not without its challenges. Controlling for misspecification bias, we trace the problem of uncertainty surrounding structural parameter estimation in the context of a fully specified New Open Economy Macro (NOEM) model partly to sample size. We suggest that standard macroeconomic time series with a coverage of less than forty years may not be informative enough for some parameters of interest to be recovered with precision. We also illustrate how uncertainty also arises from weak structural identification, irrespective of the sample size. This remains a concern for empirical research and we recommend estimation with simulated observations before using actual data as a way of detecting structural parameters that are prone to weak identification. We also recommend careful evaluation and documentation of the implementation strategy (specially in the selection of observables) as it can have significant effects on the strength of identification of key model parameters.

Details

DSGE Models in Macroeconomics: Estimation, Evaluation, and New Developments
Type: Book
ISBN: 978-1-78190-305-6

Keywords

Book part
Publication date: 10 December 1998

D.A.G. Draper

Abstract

Details

Explaining Unemployment: Econometric Models for the Netherlands
Type: Book
ISBN: 978-1-84950-847-6

Book part
Publication date: 20 May 2017

Jared C. Carbone and Snorre Kverndokk

Empirical studies show that years of schooling are positively correlated with good health. The implication may go from education to health, from health to education, or from…

Abstract

Empirical studies show that years of schooling are positively correlated with good health. The implication may go from education to health, from health to education, or from factors that influence both variables. We formalize a model that determines an individual’s demand for knowledge and health based on the causal effects, and study the impacts on the individual’s decisions of policy instruments such as subsidies on medical care, subsidizing schooling, income tax reduction, lump-sum transfers, and improving health at young age. Our results indicate that income redistribution policies may be the best instrument to improve welfare, while a medical care subsidy is the best instrument for longevity. Subsidies to medical care or education would require large imperfections in these markets to be more welfare improving than distributional policies.

Details

Human Capital and Health Behavior
Type: Book
ISBN: 978-1-78635-466-2

Keywords

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