Macroeconomic Perspective Research Articles

More is different ... and complex! the case for agent-based macroeconomics

This work nests the Agent-Based macroeconomic perspective into the earlier history of macroeconomics. We discuss how the discipline in the 70’s took a perverse path relying on models grounded on fictitious rational representative agent in order to try to pathetically circumvent aggregation and coordination problems. The Great Recession was a natural experiment for macroeconomics, showing the inadequacy of the predominant theoretical framework grounded on DSGE models. After discussing the pathological fallacies of the DSGE-based approach, we claim that macroeconomics should consider the economy as a complex evolving system, i.e. as an ecology populated by heterogenous agents, whose far-from-equilibrium interactions continuously change the structure of the system. This in turn implies that more is different: macroeconomics cannot be shrink to representative-agent micro, but agents’ complex interactions lead to emergence of new phenomena and hierarchical structure at the macro level. This is what is taken into account by agent-based models, which provide a novel way to model complex economies from the bottom-up, with sound empirically-based microfoundations. We present the foundations of Agent-Based macroeconomics and we discuss how the contributions of this special issue push its frontier forward. Finally, we conclude by discussing the ways ahead for the fully acknowledgement of agent-based models as the standard way of theorizing in macroeconomics.

A Theoretical Framework for Law and Macroeconomics

This article considers the effects of law within a Keynesian macroeconomic model. Using the investment-savings and liquidity-money (IS/LM) model at the heart of “short-run” macroeconomics, I argue that law affects spending (“aggregate demand”) and that the changes in spending induced by law can affect output. I contrast the law and macroeconomic perspective with the law and microeconomic approach that has dominated law and economics. I demonstrate that law’s effects on aggregate demand, invariably ignored in law and economics, become particularly important when monetary policy is constrained by the “zero lower bound” (ZLB) on nominal interest rates. At the ZLB, interest rates cannot adjust to bring aggregate demand into balance with the economy’s supply potential. Economic output falls short of its potential due to inadequate demand. At the ZLB, I argue that some micro-economically disfavored legal instruments, such as command and control regulation crafted to increase spending, become appealing relative to seemingly superior alternative instruments such as Pigovian taxation. I conclude by arguing that law offers a potentially important but unexplored instrument of macroeconomic policy.

A Theoretical Framework for Law and Macroeconomics

This Article considers the effects of law within a Keynesian macroeconomic model on the economy. Using the IS/LM model at the heart of “short-run” macroeconomics, I argue that law affects spending (“aggregate demand”) and that the changes in spending induced by law can affect output. I contrast the law and macroeconomic perspective with the law and microeconomic approach that has dominated law and economics. I demonstrate that law’s effects on aggregate demand become particularly important when monetary policy is constrained by the “zero lower bound” on nominal interest rates. At the zero lower bound, interest rates cannot adjust to bring aggregate demand into balance with the economy’s supply potential. Economic output falls short of its potential due to inadequate demand. At the zero lower bound, I argue that some micro-economically disfavored legal instruments, such as command and control regulation crafted to increase spending, become appealing relative to seemingly superior alternative instruments such as Pigovian taxation.

Public aid for social innovations in the European Union – macroeconomic perspective

Social innovations are meant to address the needs of society and as such they are a part of the socio-economic development. The purpose of the chapter is to analyse EU funded initiatives, intended for social innovation growth within the European Union. The authors conducted a literature research and analysis of existing solutions using the desk research method. We established that the issues of social innovation are increasingly the subject of scientific research as well as the subject of interest of decision-makers. This is reflected in the activities of the EU institutions. The scope and value of programs aimed at supporting such innovations are increasing. The chapter outcomes contribute to economic policy studies, particularly regarding public aid, as well as extends the scope of literature dedicated to social innovation.

Accounting Standards and Social Welfare: A Macroeconomic Perspective

Accounting Standards and Social Welfare: A Macroeconomic Perspective

Immigration in Emerging Countries: A Macroeconomic Perspective

Roughly one third of migrants worldwide reside in developing countries, yet most papers on the macroeconomic effects of immigration focus on advanced economies. We investigate the medium- and long-term effects of immigration in an emerging country, considering a salient feature of this type of economies: the importance of labor informality. We build an overlapping generations model featuring 24 cohorts, an informal sector, and households with heterogeneous skill levels, among other features, that help us match key demographic and economic characteristics of Chile, an emerging country that has recently experienced an important immigration wave. An immigration wave increases the supply of labor, creating downward pressure on wages in the formal sector. Workers respond by reallocating labor effort to the informal sector, which allows them to mitigate the decline in consumption per worker triggered by lower formal-sector wages. Our model, thus, constitutes a framework for the quantitative analysis of immigration in emerging countries.

Assessing the development of sharing economy based business models from a macroeconomic perspective

Straipsnyje analizuojama, kokie makroekonominiai rodikliai turi poveikį dalijimosi ekonomikos finansinių paslaugų plėtrai. Kadangi per sutelktinio finansavimo platformas suteiktų paskolų dydis eksponentiškai auga Europos Sąjungoje ir vis daugiau paskolų yra suteikiama Lietuvoje, pasirinkta analizuoti Europos Sąjungos ir Lietuvos makroekonominių rodiklių poveikį suteikiamų paskolų dydžiui per sutelktinio finansavimo platformas. Analizuoti makroekonominiai rodikliai: palūkanų norma, vartotojų pasitikėjimo indeksas, akcijų indeksas, vartotojų kainų indeksas, infliacija, verslo pasitikėjimo indeksas ir nedarbo lygis. Darbe atliekamas sutelktinio finansavimo suteiktų paskolų ryšio su atrinktais makroekonominiais rodikliais stacionarumo, priežastinio ryšio, tarpusavio priklausomumo bei ryšio stiprumo, kointegruotumo ir poveikio nustatymo tyrimas. Duomenys apdoroti EViews programa.

Crop Selection and International Differences in Aggregate Agricultural Productivity

A large share of cross-country differences in productivity is explained by differences in agricultural productivity. Using a combination of sub-national agricultural statistics and geospatial datasets on crop-specific potential yields, we study the main drivers of this variation from a macroeconomic perspective. We find that differences in geographically-induced crop-specific comparative advantages can explain a substantial share of the variation in yields across the world. Data reveal substantial gaps between potential and observed yields in most countries. When decomposing these within country gaps, we find that crop selection gaps are on average larger than those induced by input usage alone. The results highlight the importance of understanding the interaction of geography and crop selection drivers in assessing aggregate agricultural productivity differences.

Access to health care, medical progress and the emergence of the longevity gap: A general equilibrium analysis

We study skill- and income-related differences in the access to health care as drivers of longevity inequality from a theoretical life-cycle as well as from a macroeconomic perspective. To do so, we develop an overlapping generations model populated by heterogeneous agents subject to endogenous mortality. We model two groups of individuals for whom differences in skills translate into differences in income and in the ability to use medical technology effectively in curbing mortality. We derive the skill- and age-specific individual demand for health care based on the value of life, the level of medical technology and the market prices. Calibrating the model to the development of the US economy and the longevity gap between the skilled and unskilled, we study the impact of rising effectiveness of medical care in improving individual health and examine how disparities in health care utilisation and mortality emerge as a consequence. In so doing, we explore the role of skill-biased earnings growth, skill-bias in the ability to access state-of-the art health care and to use it effectively, and skill-related differences in health insurance coverage. We pay attention to the macroeconomic feedback, especially to medical price inflation. Our findings indicate that skill-bias related to the effectiveness of health care explains a large part of the increase in the longevity with earnings-related differences in the utilisation of health care taking second place. Both channels tend to be reinforced by medical progress.

More Is Different … and Complex!: The Case for Agent-Based Macroeconomics

This work nests the Agent-Based macroeconomic perspective into the earlier history of macroeconomics. We discuss how the discipline in the 70’s took a perverse path relying on models grounded on fictitious rational representative agent in order to try to pathetically circumvent aggregation and coordination problems. The Great Recession was a natural experiment for macroeconomics, showing the inadequacy of the predominant theoretical framework grounded on DSGE models. After discussing the pathological fallacies of the DSGE-based approach, we claim that macroeconomics should consider the economy as a complex evolving system, i.e. as an ecology populated by heterogenous agents, whose far-from-equilibrium interactions continuously change the structure of the system. This in turn implies that more is different: macroeconomics cannot be shrink to representative-agent micro, but agents’ complex interactions lead to emergence of new phenomena and hierarchical structure at the macro level. This is what is taken into account by agent-based models, which provide a novel way to model complex economies from the bottom-up, with sound empirically-based micro-foundations. We present the foundations of Agent-Based macroeconomics and we discuss how the contributions of this special issue push its frontier forward. Finally, we conclude by discussing the ways ahead for the fully acknowledgement of agent-based models as the standard way of theorizing in macroeconomics.

Measuring The Competitive Impact Of Some International Indicators In Doing Business For Selected Countries

Competitiveness is related to the relative prices and expenditures of production from a macroeconomics perspective. Many economic analysts have linked competitiveness, productivity and technological development. Economic and financial studies have pointed out to a set of international indicators in the International Competitiveness Report (inflation, tax rates and tax systems, political instability, underfunding of infrastructures, and all of these factors play a large role in determining the volume of trade flows between countries). The research has attempted, through data, to classify the selected countries as a research sample into a group of clusters based on indicators through theoretical and practical analysis: 1. Improving the level of indicators of business practice and increasing the attractiveness of any country and its capacity in the international economy requires institutional improvements in the following variables: a. Improve the business environment. b. Tax reform. c. Reducing economic inflation rates. d. Increase the productivity and efficiency of human resources by raising spending on education to close backwardness. Each country in order to achieve integration into the international economy and to achieve competitive efficiency must activate the gravity factors that drive a group of countries, which form clusters of homogeneity to increase economic integration among themselves and this integration brings to these countries a range of benefits that lead to an increase in size Trade exchange between them. .

A macroeconomic perspective on Airbnb’s global presence

The rise of the P2P economy has been fueled by a range of social, economic and technological factors, but limited research has been focused on the P2P economy from a macroeconomic perspective. Therefore this study tried to identify the macroeconomic factors affecting Airbnb’s global presence. In order to explain the number of rentals available in different capitals, we considered several macroeconomic factors, such as countries’ degree of technological development, economic size, the relative size of the tourism and travel industries, tourist arrivals, nominal exchange rate, the average level of economic development (or well-being), and their productivity level. This study found that the total number of listings is positively correlated with the development index, the contribution of trade and tourism to GDP, the nominal exchange rate and negatively with GDP per employed person. Airbnb is more popular in countries where the population is technologically savvy. Another significant variable is represented by the relative size of the tourism and trade industries in the country. Implications of research findings and directions for future research are suggested.

How Do Verified Emissions Announcements Affect the Comoves between Trading Behaviors and Carbon Prices? Evidence from EU ETS

Verified emissions announcements are the most influential events in the European Union emissions trading scheme (EU ETS); they reveal demand information and have a significant impact on the carbon market. The extant literature tends to focus on examining the impacts of these verification events on the prices of carbon allowances, while scholars barely discuss how trading behaviors react to the announcements. Moreover, most of the studies are carried out from a macroeconomic perspective. This paper fills this gap by analyzing the impacts of the verified emissions announcements on the comoves of trading behaviors and carbon prices in Phase I (2005–2007) and Phase II (2008–2012). Specifically, we construct GARCH models to investigate the events’ heterogeneous influences in different periods, i.e., the complete periods, the announcement periods, the pre- and post-announcement periods. We observe that the verified emissions announcements boost the volume of compliance trading, particularly in Phase I. Furthermore, we show that the over-allocation of carbon allowances can be even more influential in disturbing the comoves than the verification events. Our microeconomic findings confirm the maturity of EU ETS in Phase II, exhibiting good agreement with the extant macroeconomic literature.

Inexact stochastic optimization model for industrial water resources allocation under considering pollution charges and revenue-risk control

In this study, an inexact two-stage stochastic downside risk-aversion programming is developed for regional industrial water resources allocation under considering system return-risk and various environment control strategies. In the model, interval-parameter programming, two-stage stochastic programming, and downside risk measure are introduced into an integrated framework for reflecting the complexity and uncertainty of industrial system, and avoiding the expected revenue risk. The method could not only reflect industrial water resources allocation characteristic among multiple users and suppliers, but also provide an effective linkage between economic cost and the system stability. The model is applied to a real case of industrial water resources allocation management in Chongqing city, China, where regional industrial system has faced with lots of difficulties and complexities in water resources utilization and water environmental protection. The impact of pollutants emission reduction and risk-aversion attitude on water resources allocation for different industry sectors, system benefits, and pollutants emissions were analyzed. The results indicated that the total pollutants emission amount control and the expected revenue risk can be used as effective measures for regional industry structure adjustment from terminal environmental and macro-economic perspective. The model has a significant value for regional industrial water optimization allocation under uncertainty to achieve the maximum economic benefits and the effective utilization of multiple water resources.

Quantification of the Size of Local Public Administration: Empirical Study of Polish Regions

The issue of the size of public administration is commonly researched. Most of the times this topic is tackled from a macroeconomic perspective, considering local and central administration together. That is why this paper uniquely takes on the local perspective only, analysing the size of local government (i.e. size of public administration at the local level) in Polish regions during the period of 2009–2013. Based on the existing literature, we chose five variables of the size of local administration at the commune level connected with employment and reflecting costs related to the functioning of local administration structures. All indicators were expressed per capita. With the usage of ANOVA, we proved significant differences in the size of public administration across regions for all variables. To compare the size of local governments across regions, we ranked all variables individually, and then we calculated the average ranking for all variables. Our findings have clear implications for policy makers, providing information about the regions with the biggest/smallest size of public administration at the local level. Our study suggests simple and accessible tool for continuous reporting on the size of public administration in order to monitor costs also in the upcoming years. The results of the monitoring could also be used for the establishment of an incentive program for regional policy representatives.

Synthesis of sustainable production systems using an upgraded concept of sustainability profit and circularity

This paper describes an upgraded concept of the sustainability metric named Sustainability Profit (SP) from various micro- and macroeconomic perspectives and how it can be used for the synthesis of production systems in order to increase their circularity. An upgraded concept of SP is presented from three different perspectives: a microeconomic one, representing the company level, a macroeconomic perspective, combining the company and country (government) levels, and a wider macroeconomic one, with the addition of individuals (employees). Basic indicators of circularity, which measure the share of materials and energy reuse, are incorporated in order to synthesize more sustainable systems involving reuse of materials and energy. The concept is demonstrated on two case studies of supply network synthesis. The first case study is a supply network of fossil and renewable electricity production from various energy sources with fixed electricity demand, and the second case study is a larger-scale, renewable-based supply network for producing food, biofuels and electricity, and is applied to Central Europe. The results indicate that, by maximizing SP using the upgraded concept, overall circularity is favoured, and trade-offs between different sustainability pillars are obtained. The study could further be extended to account for uncertainty and more detailed Eco- and Social profit analysis and circularity measures as a good decision support tool in evaluating sustainable production systems.

Are labour productivity and residential living standards drivers of the energy consumption changes?

The aim of this paper is to analyse the effects that explain the final energy consumption changes in Spain in the period 2000–2013 using the LMDI-I method, distinguishing between the final energy consumption by the productive sectors and households (residential and private transport). The consumption changes in the productive sectors and households have been decomposed into five effects. These are the intensity, the inverse of labour productivity, the structural, the standard of living and the activity effects. The energy intensity effect has been defined from a physical perspective in order to eliminate the possible effects brought about by causes unconnected with the energy process (the evolution of the market, the variation of productivity, etc.) that usually affect the energy intensity indicator when measured from a macroeconomic perspective. The results show that the activity, the living standard of private transport and sectoral intensity effect are those that contribute most to the increase of energy consumption in this period, whereas the inverse of labour productivity, the structural and the intensity effects in private transport contribute to reducing the final energy consumption. The results obtained for the sectoral intensity (except for non-private transport) and the residential intensity effects lead us to recommend that it is necessary to focus on a more effective and intensive policy in the matter of energy efficiency in Spain than that developed in the period of analysis.

The Role of Productivity on the Pension Plan Systems Performance

This paper formulates an analytical framework to analyze whether pension growth can be a determinant of economic growth. The Pension Scheme Performance Evaluation Model (PSPE-Model) intends to study the performance of pension schemes from a macroeconomic perspective. The PSPE-Model tests whether the marginal optimum national pension system coverage critical point based on the national productivity growth performance is simultaneously determined by the efficient coordination of private and public pension system programs coverage and the national productivity level. The model investigates the marginal optimum national pension system coverage critical point of two Asian countries, Japan and Malaysia.

The Economic Consequences Of Mortality Amenable To High-Quality Health Care In Low- And Middle-Income Countries.

We estimated deaths amenable to high-quality health care globally and then modeled the macroeconomic impact in low- and middle-income countries using two macroeconomic perspectives: a value-of-lost-output approach to project gross domestic product (GDP) losses annually for the period 2015-30, and a value-of-lost-welfare approach to estimate the present value of total economic welfare losses in 2015. We estimated that eight million amenable deaths occurred in 2015, 96percent of them in low- and middle-income countries. The value of lost output resulted in a projected cumulative loss of $11.2trillion in these countries during 2015-30, with a potential economic output loss of up to 2.6percent of GDP in low-income countries by 2030, compared to 0.9percent in upper-middle-income countries. The value-of-lost-welfare approach estimated welfare losses of $6.0trillion in 2015. Inadequate access to high-quality health care results in significant mortality and imposes a macroeconomic burden that is inequitably distributed, with the largest relative burden falling on low-income countries. Given that these deaths are unnecessary and the projected GDP losses are avoidable, there is a strong ethical and economic case for promoting high-quality health care as an essential component of universal health coverage.

Bridging the Disclosure Gap: Investor Perspectives on Environmental, Social & Governance (ESG) Disclosures

The corporate sector and the investment community are key players towards achieving sustainable development. By measuring and disclosing the economic as well as social and environmental impacts, companies can work towards this goal. Investors, on the other hand, are increasingly looking to integrate ESG metrics into their investment analyses for improved decision making, enabling them to minimize risks and maximize returns over the long-term. Sustainability reporting, as an enabler, is an essential tool that can guide the corporate sector to meet investor expectations on ESG metrics. However, there continues to be a disparity between what is being reported and what investors consider material while making investment decisions. The aim of this research was to throw light on the prominent ESG metrics and reporting frameworks investors are looking at while managing their investment portfolio and the current difficulties that need to be addressed to achieve full ESG integration. The study was based on a macroeconomic perspective looking at how corporations generally report their sustainability practices globally and the metrics investors use in their decision-making strategies. The Global Reporting Initiative (GRI) standards remain the most popular framework for sustainability reporting worldwide and the annual report is held in highest regard for non-financial disclosures by most of the investors. Results show that while the types of ESG metrics sought by investors differs across sectors, Governance, which includes board accountability, executive compensation, human capital management and board diversity seems to be the overriding issue across all industries. Environmental and Social risks are equally critical to financial performance and investors will demand greater disclosure as more data becomes available. Clarity on investor goals matched with a framework of ESG metrics that meet a high standard of methodological rigor would enable systematic analysis of company performance. It is only a matter of time before full ESG integration becomes mainstream, and by bridging the disclosure gap, both the corporate sector and the investment community can work together towards sustainable development.