Sectoral Heterogeneity Research Articles

The Relative Price and Relative Productivity Channels for Aggregate Fluctuations

This paper demonstrates that sectoral heterogeneity itself--without any additional bells or whistles--has first-order implications for the transmission of aggregate shocks to aggregate variables in an otherwise standard DSGE model. The effects of sectoral heterogeneity on this transmission are decomposed into two channels: a channel and a channel. The relative price channel results from changes in the relative prices of aggregates, such as investment vis-a-vis consumption goods, which occurs in a sectoral model in response to even standard aggregate shocks. The relative productivity channel arises from changes in the distribution of inputs across sectors. We show that, for standard sectoral models, this latter channel is second-order, but becomes first-order if we consider a nontraded input such as capital utilization or introduce a wedge that thwarts the steady-state equalization of marginal products of a traded input across sectors. For reasonable parameterizations, the relative productivity channel causes aggregate productivity to vary procyclically in response to non-technological shocks such as changes in government purchases.

Sectoral Heterogeneity in the Employment Effects of Job Creation Schemes in Germany

Summary Job creation schemes (JCS) have been one important programme of active labour market policy (ALMP) in Germany for a long time. They aim at the re-integration of hard-to-place unemployed individuals into regular employment. A thorough microeconometric evaluation of these programmes was hindered by the fact, that available survey datasets have been too small to account for a possible occurrence of effect heterogeneity. However, identifying effect heterogeneity can help to improve the design and implementation of future programmes. Hence, we use administrative data of the Federal Employment Agency, containing over 11,000 participants to analyse the employment effects of JCS on an individual level. We focus explicitly on effect heterogeneity caused by differences in the implementation of programmes, whereas we analysed these effects with respect to group-specific and regional heterogeneity in a previous paper. At first, we evaluate the effects with respect to the economic sector in which the JCS are accomplished. Second, we analyse if different types of support lead to different effects. Finally, we examine if there are varying effects which can be attributed to different implementing institutions. The results are rather discouraging and show that JCS are in general not able to improve the re-integration chances of participants into regular employment.

The Relative Price and Relative Productivity Channels for Aggregate Fluctuations

This paper demonstrates that sectoral heterogeneity itself, without additional bells or whistles, has important, first-order implications for the transmission of aggregate shocks to aggregate variables in an otherwise standard DSGE model. The effects of sectoral heterogeneity on this transmission are decomposed into two channels: a “relative price” channel and a “relative productivity” channel. The relative price channel results from changes in the relative prices of aggregates, such as investment vs. consumption, in response to a shock. The relative productivity channel arises from changes in the distribution of inputs across sectors. We show that, for standard multi-sector models, this latter channel is second-order, but becomes first-order if we consider a nontraded input such as capital utilization or introduce a wedge that thwarts the steady-state equalization of marginal products of a traded input across sectors. For reasonable parameterizations, the relative productivity channel causes aggregate productivity to vary procyclically in response to even non-technological shocks, such as changes in government purchases.

Heterogeneity in Price Stickiness and the Real Effects of Monetary Shocks

There is ample evidence that the frequency of price adjustments differs substantially across sectors. This paper introduces sectoral heterogeneity in price stickiness into an otherwise standard sticky price model to study how it affects the dynamics of monetary economies. Qualitative and quantitative results from a realistic calibration for the U.S. economy show that monetary shocks tend to have larger and more persistent real effects in heterogeneous economies, when compared to identical-firms economies with similar degrees of nominal and real rigidity. In the presence of strategic complementarities in price setting, sectors with lower frequencies of price adjustment have a disproportionate effect on the aggregate price level. In order to better approximate the dynamics of the calibrated heterogeneous economy, an identical-firms model requires a frequency of price changes that is up to three times lower than the average of the heterogeneous economy.

Legal Institutions, Sectoral Heterogeneity, and Economic Development

A large body of evidence suggests that poor countries tend to invest less (have lower PPP - adjusted investment rates) and to face higher relative prices of investment goods. It has been suggested that this happens either because these countries have lower TFP in the investment - good producing sectors, or because they are subject to greater investment distortions. What is still to be understood, however, is what are the causes of these shortcomings. In this paper we address this question by providing a micro-foundation for the cross-country dispersion in investment distortions. Our analysis rests on two premises: 1) countries differ with respect to the rights enjoyed by outside investors (such as bondholders and minority shareholders) and 2) firms producing capital goods face a higher level of idiosyncratic risk than their counterparts producing consumption goods. In a model of capital accumulation where the protection of investors' rights is incomplete, this difference in risk induces a wedge between the returns on investment in the two sectors. The wedge is bigger, the lower the investor protection. In turn, this implies that countries endowed with weaker institutions are poorer, face higher relative prices of investment goods, and invest a lower fraction of their income. Our analysis also suggests that the mechanism we study may be quantitatively important.

Equity Market Comovement and Contagion: A Sectoral Perspective

The paper takes an asset pricing perspective to investigate the equity market comovement and contagion at the sector level during the period 1990-2004 across the regions of Europe, Asia and Latin America. It examines whether unexpected shocks from a particular market, or group of markets, are propagated to the sectors in other countries. The results confirm the sector heterogeneity of contagion. This implies that there are sectors which can still provide a channel for achieving the benefits of international diversification during crises despite the prevailing contagion at the market level. In addition, the results lend support to the importance of financial links in the propagation of contagion.

Inflation Persistence and Price-Setting Behaviour in the Euro Area - a Summary of the Ipn Evidence

This paper provides a summary of current knowledge on inflation persistence and price stickiness in the euro area, based on research findings that have been produced in the context of the Inflation Persistence Network. The main findings are - i) Under the current monetary policy regime, the estimated degree of inflation persistence in the euro area is moderate; ii) Retail prices in the euro area are more sticky than in the US; iii) There is significant sectoral heterogeneity in the degree of price stickiness; iv) Price decreases are not uncommon. The paper also investigates some of the policy implications of these findings. JEL Classification: E31, E42, E52.

Market power and exchange rate pass-through

In this paper we provide new empirical evidence on the relationship between market power, as measured by market share, and incomplete exchange rate pass-through. The role of market power is examined in the context of a Cournot model, which is estimated with data relating to Japan's presence in the US market. To test for the existence of possible aggregation biases due to sectoral heterogeneity, estimations are carried out on time series data for the total economy and the manufacturing sector and on panel data for five manufacturing industries at the three-digit level of classification, using the Johansen multivariate cointegration technique and the recently developed by [Larsson, R., Lyhagen, J., & Lothgren, M. (2001). Likelihood-based cointegration tests in heterogeneous panels. Econometrics Journal, 4, 109–142] multivariate panel cointegration technique. Hypotheses about the degree of pass-through are tested as restrictions on estimated equilibrium pricing equations and robustness tests are performed. The empirical results indicate that Japanese firms have market power and this validates the use of an imperfect competition model. However, it appears that market power is not the only element on which to base the analysis of the incomplete exchange rate pass-through by Japanese firms.

What does the prefrontal cortex “do” in affect: perspectives on frontal EEG asymmetry research

This commentary provides reflections on the current state of affairs in research on EEG frontal asymmetries associated with affect. Although considerable progress has occurred since the first report on this topic 25 years ago, research on frontal EEG asymmetries associated with affect has largely evolved in the absence of any serious connection with neuroscience research on the structure and function of the primate prefrontal cortex (PFC). Such integration is important as this work progresses since the neuroscience literature can help to understand what the prefrontal cortex is “doing” in affective processing. Data from the neuroscience literature on the heterogeneity of different sectors of the PFC are introduced and more specific hypotheses are offered about what different sectors of the PFC might be doing in affect. A number of methodological issues associated with EEG measures of functional prefrontal asymmetries are also considered.

Ecological–Evolutionary Mechanisms of Biodiversity Formation in the Mountains: An Example of Caucasian Mammals

Trends in the altitudinal and sectoral structural variation of ecosystems in mountain areas are considered using an example of mammals as an important component of ecosystems. With consideration of the environment-forming ecogeographic factors, a hierarchical system of taxa reflecting the altitudinal zonal structure of ecosystems of mountain landscapes is proposed. The system includes six categories: (1) mountain ecosystem kingdom; (2) mountain land; (3) cohort of zonality types; (4) zonality type; (5) zonality subtype; and (6) variant of zonality. As a model of the mountain land taxon as a subunit of the mountain ecosystem kingdom, the theriofauna of the Caucasus is considered. The Caucasus is a unique mountain land where two cohorts of zonality types, five zonality types, two zonality subtypes, and 14 zonality variants are well defined. It is shown that the contribution of landscape sectoral heterogeneity to the formation of biological diversity in mountain territories is more substantial than that of altitudinal heterogeneity. The altitudinal zonality of mountain landscapes plays the role of a “matrix” of the variation of biological systems at all levels of living matter organization.

An analysis of UK franchise contracting 1989–1999

AbstractThis paper examines UK franchise contracts over the period 1989–1999. Franchising is modelled as comprising three main variables, contract length, royalty rate and initial franchise fee. Up to now most authors have concentrated on the latter two variables, but with the data in this paper it is possible to assess the characteristics that impact on all three. Further, our analysis looks at what affects the probability of contract change. We take account of the limited dependent variable nature of the data and exploit sectoral heterogeneity. Our main findings are that the focus of attention on ‘aggregate’ variables is inappropriate and that contract length appears to be an important aspect of the franchise contract which is theoretically obvious, but until now has not been empirically tested. Copyright © 2003 John Wiley & Sons, Ltd.

Innovation, Market Structure and the Structure of the Economy: a micro-to-macro model

This paper presents a micro-to-macro model which connects an input–output model with price-dependent input coefficients and basic elements of industrial economics. This enables the determination of the most important variables on the micro, meso and macro levels, and, in particular, the determination of market structure and economic structure. On the basis of the model, we discuss the various intra-industry and interindustry impacts of process innovation. The results show the importance of considering heterogeneity of firms and sectors.

Matching across space: Evidence on mobility in the Czech Republic

The increase in dispersion of regional unemployment in the Czech Republic despite low overall joblessness is suggestive of low labour mobility. At the same time, standard matching functions estimated with district level panel data exhibit spatial instability. A simple model of nonsequential search with endogenous search intensity can link this instability to spatial interdependence in matching, inducing complex functional forms and nonconstant returns to scale. We find a statistically significant, nonuniform impact of surrounding districts on local matching, even after controlling for boundaries and sectoral heterogeneity. Constant returns for this modified matching function cannot however be rejected in most cases.

Dislocation structure in the strain localized region in fatigued 70/30 brass and the interaction with grain boundary: Kaneshiro, H., Katagiri, K., Makabe, C., Yafuso, T. and Kobayashi, H. Metall. Trans. A21A, (3), 667–671, Mar. 1990

Intangible capital has been found to be an increasingly important source of productivity and economic growth. However, its effects on energy intensity have received little attention. Given the importance of reducing energy intensity, this study advances the understanding of the relationship between intangible capital and sectoral energy intensity by taking advantage of a rich dataset of 40 economies derived from the World Input-Output Database (WIOD), spanning across 13 years (1995–2007). A relatively robust causal relationship between intangible capital and sectoral energy intensity has been identified. The qualitative and quantitative interactions of this relationship with income level and sectoral heterogeneity have also been revealed.It is found that the effect of intangible capital on reducing sectoral energy intensity generally diminishes along with increasing income level but a moderate quadratic relationship is identified in some types of intangible capital. Finally, sectors where intangible capital have the largest and smallest effect are also pinpointed.

On the existence of a market for second hand physical capital: An empirical test of the Keynesian and neoclassical assumptions

In this paper we test Keynesian and neoclassical assumptions concerning the existence of second-hand markets for physical capital. These alternative views of the dynamic profit maximizing firm lead to distinct equilibrium price equations. We use a sample of 4-digit SIC consumer goods and capital goods industries over 1967–1975 to test the relative goodness of fit of the competing price equations. We find consumer goods industries conform better to the Keynesian assumptions and capital goods industries more nearly approximate the neoclassical view of the world. We investigate the policy implications of our finding of sector heterogeneity by constructing a three-sector macro model with a Keynesian consumption goods sector, a neoclassical capital-for-consumption-goods-production sector, and a neoclassical capital-for-capital-goods-production sector. Comparative static analysis reveals that both monetary and fiscal policy variables have ambiguous short run effects on real variables in this heterogeneous three-sector model, which may be the minimum level of detail consistent with the observed behavior of US manufacturing industries.