Repository Collection: Cahiers scientifiques

Selection of the number of factors in presence of structural instability: a Monte Carlo study

Mon, 09 Feb 2015 21:04:14 GMT

Title: Selection of the number of factors in presence of structural instability: a Monte Carlo study

Authors: Stevanovic, Dalibor

Issue Date: 2014-12

Abstract: In this paper we study the selection of the number of primitive shocks in exact and approximate factor models in the presence of structural instability. The empirical analysis shows that the estimated number of factors varies substantially across several selection methods and over the last 30 years in standard large macroeconomic and financial panels. Using Monte Carlo simulations, we suggest that the structural instability, in terms of both timevarying factor loadings and nonlinear factor representations, can alter the estimation of the number of factors and therefore provides an explanation for the empirical findings.

Government Spending Multipliers and the Zero Lower Bound in an Open Economy

Mon, 09 Feb 2015 21:04:13 GMT

Title: Government Spending Multipliers and the Zero Lower Bound in an Open Economy

Authors: Mao Takongmo, Charles Olivier

Issue Date: 2014-11

Abstract: What is the size of the government-spending multiplier in an open economy when the Zero Lower Bound (ZLB) on the nominal interest rate is binding? Using a theoretical framework, in a closed economy, Christiano, Eichenbaum, and Rebelo (2011), show that, when the nominal interest rate is binding, the government-spending multiplier can be close to four. Their theory helps us to understand the government spending multiplier in ZLB, but it is difficult to match that theory with the data. We propose a dynamic stochastic general equilibrium in open macroeconomics, with market imperfections, wage and price rigidities and endogenous smoothing monetary policy. We argue that, in a closed economy and in the presence of ZLB, there is no crowding out effect through interest rates. We also argue that in an open economy, there is another channel for the crowding out effect via the real exchange rate. For an open economy, the multiplier falls to the levels usually observed in small,closed economies for which the ZLB is not binding.

Money talks - Paying physicians for performance

Mon, 09 Feb 2015 21:04:12 GMT

Title: Money talks - Paying physicians for performance

Authors: Keser, Claudia; Peterle, Emmanuel; Schnitzler, Cornelius

Issue Date: 2014-10

Abstract: Pay-for-performance attempts to tie physician payment to quality of care. In a controlled laboratory experiment, we investigate the effect of pay-for-performance on physician provision behavior and patient benefit. For that purpose, we compare a traditional fee-for-service payment system to a hybrid system that blends fee-for-service and pay-for-performance incentives. Physicians are found to respond to pay-for-performance incentives. Approximately 89 percent of the participants qualify for a pay-for-performance bonus payment in the experiment. It follows that a patient treated under the hybrid payment system is significantly more likely to receive optimal treatment than a similar fee-for-service patient. Pay-for-performance generally tends to alleviate over- and under-provision of medical treatment relative to fee-for-service. Irrespective of the payment system, we observe unethical treatment behavior, i.e., the provision of medical services with zero benefit to the patient.

Dispatching after Producing: The Supply of Non-Renewable Resources

Mon, 09 Feb 2015 21:04:11 GMT

Title: Dispatching after Producing: The Supply of Non-Renewable Resources

Authors: Daubanes, Julien; Lasserre, Pierre

Issue Date: 2014-10

Abstract: There exists no formal treatment of non-renewable resource (NRR) supply, systematically deriving quantity as function of price. We establish instantaneous restricted (fixed reserves) and unrestricted NRR supply functions. The supply of a NRR at any date and location not only depends on the local contemporary price of the resource but also on prices at all other dates and locations. Besides the usual law of supply, which characterizes the own-price effect, cross-price effects have their own law. They can be decomposed into a substitution effect and a stock compensation effect. We show that the substitution effect always dominates: a price increase at some point in space and time causes NRR supply to decrease at all other points. This new but orthodox supply setting extends to NRRs the partial equilibrium analysis of demand and supply policies. The properties of restricted and unrestricted supply functions are characterized for Hotelling (homogenous) as well as Ricardian (non homogenous) reserves, for a single deposit as well as for several deposits that endogenously come into production or cease to be active.

Endogenous savings rate with forward-looking households in a recursive dynamic CGE model: application to South Africa

Fri, 07 Nov 2014 16:35:40 GMT

Title: Endogenous savings rate with forward-looking households in a recursive dynamic CGE model: application to South Africa

Authors: Lémelin, André

Issue Date: 2014-08

Abstract: Dans la plupart des modèles d'équilibre général calculable dynamiques séquentiels, le taux d'épargne est constant et exogène. Les modèles intertemporels, eux, sont résolus simultanément pour toutes les périodes et les agents pratiquent l'optimisation intertemporelle. Mais la cohérence théorique de l'optimisation intertemporelle n'est atteinte qu'au prix de modèles moins détaillés, à cause de limites sur le volume des calculs. C'est pourquoi, quand le détail des résultats est important, on peut préférer utiliser un modèle dynamique séquentiel. Cet article présente un modèle d'équilibre général calculable dynamique séquentiel dans lequel les ménages déterminent leur taux d'épargne par l'optimisation intertemporelle, en résolvant une forme simplifiée de leur problème intertemporel. C'est ce que nous appelons des « anticipations rationnelles tronquées » (TRE). Dans ce cadre, les ménages ont des anticipations rationnelles pour la période courante et la suivante. Le modèle est donc résolu simultanément pour deux périodes à la fois, la courante 𝜏 et la suivante. Les anticipations rationnelles des ménages pour la période 𝜏 +1 sont données par la solution du modèle. Pour les périodes subséquentes, les anticipations sont formées par extrapolation à partir des valeurs de 𝜏 et 𝜏 +1, en supposant un taux de changement constant. L'approche TRE est implantée dans une version modifiée du modèle PEP-1-t de Decaluwé et al. (2013), au moyen d'une matrice de comptabilité sociale (MCS) de l'Afrique du Sud pour 2005 due à Davies and Thurlow (2011). Différentes simulations sont menées, avec deux variantes de la MCS, l'originale et une version modifiée avec un taux élevé d'épargne des ménages. Les résultats sont comparés avec ceux d'un modèle avec anticipations statiques et optimisation intertemporelle, et avec ceux d'un modèle à taux d'épargne fixe. La principale différence observée est que dans les deux premiers modèles, le taux d'épargne des ménages n'est pas constant, même dans le scénario de référence. De plus, il réagit aux variations du taux de rendement des actifs. Par contre, une réduction exogène du stock de richesse des ménage a très peu d'impact; In the vast majority of recursive dynamic CGE models, the savings rate is constant and exogenous. Intertemporal CGE models, by contrast, are solved simultaneously for all periods, and agents optimize intertemporally. But the theoretical consistency of intertemporal optimization is achieved only at the cost of more aggregated, less detailed models, due to computational limitations. In some applications, therefore, recursive dynamics should be preferred to intertemporal dynamics for practical reasons of computability. This paper presents a recursive dynamic CGE model in which households determine their savings rate from intertemporal optimization, by solving a simplified form of their intertemporal problem. This approach we call « truncated rational expectations » (TRE). In the TRE framework, households have rational expectations for the current period and the following one. Accordingly, the model is solved simultaneously for two periods at a time, the current period 𝜏 and the following one. Household (rational) expectations for period 𝜏 +1 are given by the model solution. For subsequent periods, household expectations are formed by extrapolating from 𝜏 and 𝜏 +1 solution values, assuming a constant rate of change. The TRE framework is implemented in a modified version of the Decaluwé et al. (2013) PEP-1-t model, and applied to South Africa, using a 2005 SAM by Davies and Thurlow (2011). Several simulations are run, with two variants of the 2005 SAM, the original one and a modified one with a high initial household savings rate. The results are compared with those of a static expectations model with intertemporal optimization, and of a fixed-savings rate model. The main difference is that in the first two models, the household savings rate is not constant, even in the BAU scenario. It is also responsive to changes in the rate of return on assets. On the other hand, an exogenous reduction in household wealth has very little effect.