Supply-side Effects Research Articles

Time-Change Risks and the Aggregate Stock Market Behavior

This paper investigates how the investors responses to the evolution of uncertainty affect equilibrium asset returns. I develop a discrete-time real endowment economy where the aggregate economic uncertainty, as detected by a time-change for the endowment process, alters the perceived utility from consumption and drives the state of the economy. The equilibrium pricing kernel reflects both the return on investments - a supply-side effect, as in the standard framework - and the agents' responses - a demand-side effect - which evolve with the arrival of news. Equilibria with both unpredictable and persistent impact of uncertainty are fully characterized: the pricing of supply-side and demand-side time-change risks is discussed. The model calibration shows that many features of financial returns are well described consistently with a low correlation of returns with consumption growth and a low and constant risk aversion. The model captures a high and countercyclical equity premium and Sharpe ratio, a high and clustered volatility, a rich time-variation of returns and a low and little volatile risk-free rate. I empirically verify the designed mechanism for intertemporal decisions by relating the model state-variable to the consumption-wealth ratio.

The Impact of Climate Change on Nuclear Power Supply

A warmer climate may result in lower thermal efficiency and reduced load—including shutdowns—in thermal power plants. Focusing on nuclear power plants, we use different European datasets and econometric strategies to identify these two supply-side effects. We find that a rise in temperature of 1°C reduces the supply of nuclear power by about 0.5% through its effect on thermal efficiency; during droughts and heat waves, the production loss may exceed 2.0% per degree Celsius because power plant cooling systems are constrained by physical laws, regulations and access to cooling water. As climate changes, one must consider measures to protect against and/or to adapt to these impacts.

Discussion

Discussion

Global retail lending in the aftermath of the US financial crisis: Distinguishing between supply and demand effects

This paper examines the broader effects of the US financial crisis on global lending to retail customers. In particular we examine retail bank lending in Germany using a unique data set of German savings banks during the period 2006 through 2008 for which we have the universe of loan applications and loans granted. Our experimental setting allows us to distinguish between savings banks affected by the US financial crisis through their holdings in Landesbanken with substantial subprime exposure and unaffected savings banks. The data enable us to distinguish between demand and supply side effects of bank lending and find that the US financial crisis induced a contraction in the supply of retail lending in Germany. While demand for loans goes down, it is not substantially different for the affected and nonaffected banks. More important, we find evidence of a significant supply side effect in that the affected banks reject substantially more loan applications than nonaffected banks. This result is particularly strong for smaller and more liquidity-constrained banks as well as for mortgage as compared with consumer loans. We also find that bank-depositor relationships help mitigate these supply side effects.

Supply-Side Effects of Exchange Rate, Exchange Rate Expectations and Induced Currency Depreciation

This paper examines the repercussions of induced currency depreciation in a small open economy. The results presented in this paper are based on a model which has firmer microeconomics foundation and that takes into account both the supply side and demand side effects of exchange rate variations. The distinguishing feature of our model is the role of exchange rate expectations. We have considered three kinds of expectations; adaptive expectations, extrapolative, and regressive expectations and have performed several sensitivity tests based on these expectations. Our simulation exercise shows that the effect of induced currency depreciation depends largely on the supply-side effects of the exchange rate. In most cases, we found that currency depreciation results in fall in output, an increase in prices and an improvement in balance of trade. In the absence or weak supply-side effects of exchange rate, we learn that if Marshall-Lerner conditions holds then depreciation of the home currency would have favorable effects on output but has adverse effects on balance of trade.

Adherence to adalimumab therapy in Crohnʼs disease: A French multicenter experience

We evaluated adherence to adalimumab therapy in Crohn's disease (CD). This was an observational multicenter study conducted in four French university hospitals between April 4, 2008 and January 1, 2010. Patients were systematically asked, at each clinical visit, whether or not they delayed or missed an injection of adalimumab over the past 3 months. Patients were also asked about the reasons for their nonadherence. Of the 108 patients analyzed, 33 (30.6%) delayed the administration of at least one injection and 16 (14.8%) missed at least one injection over the past 3 months. The main reasons for overall nonadherence were: forgetfulness (24.6%), infection (24.6%), and travel (20%). Other reasons for nonadherence were intentional nonadherence (10.8%), pharmaceutical supply issues (9.2%), side effects (7.7%), pregnancy (1.5%), and CD-related hospitalization (1.5%). Adalimumab regimen of 40 mg every other week was a positive predictor for injection delays (P = 0.02, odds ratio [OR] = 3.76, 95% confidence interval [CI], 1.28-11.05), whereas having at least one relapse in the past 12 months was associated with fewer delays (P = 0.02, OR = 0.37, 95% CI, 0.15-0.87). [correction made here after initial online publication]. Disease duration over 90 months negatively predicted failure to inject adalimumab (P = 0.009, OR = 0.17, 95% CI, 0.05-0.64). The overall nonadherence rate for adalimumab use was 45.4%. Most of the reasons for nonadherent behaviors could be avoided. An adalimumab regimen of 40 mg every other week was negatively related to adalimumab adherence; both the occurrence of at least one relapse in the past 12 months and disease duration over 90 months were positively related to adherence.

Free migration between the EU and Switzerland: Impacts on the Swiss economy and implications for monetary policy

The agreement with the European Union on liberalized migration had sizable effects on the Swiss economy. Simulations with a macroeconometric model show that the agreement mitigated the incidence of labor shortages and stimulated business investment, giving rise to an increased growth potential. The inflow of new immigrants also affected the demand-side of the economy by boosting consumption and housing investment. As the supply-side effects prevailed, inflation was dampened. Monetary policy reacted by pursuing a more expansionary course. Annual GDP growth was raised by half a percentage point in the upswing 2004–2008. However, as the employment effect was of similar size, the widely expected productivity gains did not materialize. Moreover, the unemployment rate was lifted by 0.5 to 0.7 percentage points and household suffered from lower real wage growth. The consequences of the migration agreement over a full economic cycle are more difficult to assess. If the increased flexibility of labor supply observed in the recent upturn carries symmetrically over to recessions, the migration agreement reinforces the swings in GDP and employment growth but dampens the swings in unemployment and inflation. In contrast, if the reaction of migration flows to rising and falling labor demand is asymmetric, unemployment might increase over the cycle because recovering labor demand attracts additional foreigners while the formerly dismissed workers remain in the unemployment pool. These different possibilities are illustrated in the paper by additional model simulations.

Conflict and Education Demand in the Basque Region

The relationship between conflict and education has been studied before. However, previous authors have always focused strongly on the supply-side effects, whereas this article examines the influence of conflict on the demand for education. It is theoretically shown that, under relatively general conditions, individuals living in a conflict area have an incentive to increase their level of education and that this effect depends on the individual’s skill level. This hypothesis is tested using the conflict in the Basque Region as a case study, which is an example of a conflict in which one would not expect strong supply-side effects. Using other Spanish regions, an artificial region is created in which the population has a similar educational distribution as in the Basque Region. When comparing the true and artificial regions, individuals with a medium education level clearly show an increase in education during the conflict, as predicted by the theoretical model.

Long-Term Effects of Feed-In Tariffs and Carbon Taxes on Distribution Systems

In deregulated electricity sector climates, such as in Ontario, the production of clean or renewable energy by small power producers through distributed generation (DG) is encouraged. This paper examines the policies that can be used to encourage DG investment and incorporates them into a mathematical model. This model is then used to create scenarios for examining the economic and environmental supply-side effects of policies to a distribution system over a ten-year period. The policies analyzed include a combination of feed-in-tariffs, CO <sub xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">2</sub> tax, and cap-and-trade schemes. The results are discussed in the context of the Ontario market and its Standard Offer Program, implemented on a 32-bus radial distribution system.

The Economic Effects of Bus Transit in Small Cities

This analysis investigates the impact of public transit in counties with small to medium-sized cities. The objectives are to answer: Do counties with bus transit have lower growth in transfer payments such as food stamps, Temporary Aid to Needy Families (TANF), or higher income growth, employment growth, and population growth? Public transit is commonly viewed as a social service; this analysis explores the economic impact of this public investment. The authors find that relative to counties without bus transit, counties with bus systems have significantly lower unemployment rates, lower growth in family assistance, lower growth in food stamp payments, and higher population and employment growth. Yet, the positive impact on job access, which reduces payments for family assistance and food stamps is tempered by lack of discernable effects on income likely driven by supply-side effects in the labor market.

Why Patients of Low Socioeconomic Status with Mental Health Problems Have Shorter Consultations with General Practitioners

Poor people receive shorter consultations in general practice than more affluent people. Our aim was to study the two reasons generally advanced for this for patients consulting with mental health problems: people of low socioeconomic status (SES) demand shorter consultations or they tend to match with practitioners who devote little time to their patients. Of 600 general practitioners (GPs), 144 agreed to participate. During the study period (2005), 713 patients consulted with mental health problems of whom 405 (56.8%) completed questionnaires. Of these, 144 (34.8%) were defined as suffering from Major Depressive Disorder (MDD). Multilevel modelling was used to explore the relationship between patient and GP characteristics, and duration of the consultation. A multivariate model found two significant patient variables for the consultation duration: severity of MDD symptoms (P = 0.01) and SES (proxied by education level, P = 0.05). The multilevel model including GPs' characteristics demonstrated that the apparent correlation between patients' SES and consultation length was due to a confounding factor: low SES patients were visiting GPs who are, generally, providing shorter consultations (P < 0.001). With the SES variable no longer significant: P = 0.2, although severity of symptoms remained in the model (P = 0.001). The shortness of the consultation length is due to a supply-side effect, implicating dissatisfaction for patients with mental health problems. This may not be generalizable to other patients. Findings are in favour of a specific intervention aimed at giving poor people equal access to GPs' time.

Financial Crisis and Bank Lending

This paper estimates the amount of tightening in bank C&I loan rates during the financial crisis. After controlling for loan characteristics and bank fixed-effects, the average C&I loan spread was about 61 basis points higher in 2009:Q4 than an otherwise similar loan made under the average condition between 1997 and 2008. It was about 71 basis points higher when compared to 2008:Q4. The findings are robust with respect to the large bank and the medium bank subsamples. Small banks, however, did not seem to tighten their loan rates by as much as larger banks. To delve deeper into how the tightening took place, cross sectional regressions of loan rate spreads on loan characteristics and bank financial condition are performed at each quarter to produce time-series of the estimated effects. The results indicate that during the financial crisis, banks lowered the discount on loan size, charged a higher price of risk, imposed surcharges on loans that were not made under commitment, and reduced the discount on collateralized loans (versus unsecured loans). Banks’ own financial condition was found to have significant effects on loan price. During the financial crisis, the factor loading of delinquent loans in a bank’s own portfolio on loan spreads rose. Combined with rising loan delinquency, the portfolio effect alone led to substantially higher spreads. The amount of unused loan commitments is also found to have a significant effect on loan spreads, providing further evidence of the supply-side effects on loan pricing. Profitability, however, was not found to have a significant effect on spreads.

Effects on the U.S. of an H1N1 Epidemic: Analysis with a Quarterly CGE Model

We simulate the effects of a hypothetical H1N1 epidemic in the U.S. using a quarterly CGE model. Quarterly periodicity allows us to capture the short-run nature of an epidemic. We find potentially severe economic effects in the peak quarter. Averaged over the epidemic year, the effects are considerably damped. Our results indicate that the macroeconomic consequences of an epidemic are more sensitive to demand-side effects, such as reductions in international tourism and leisure activities, than to supply-side effects, such as reductions in productivity. This suggests that demand stimulus policies might be an appropriate economic response to a serious epidemic.

Government Purchases and the Real Exchange Rate

Recent empirical research documents that an exogenous rise in government purchases in a given country triggers a persistent depreciation of its real exchange rate—which raises an important puzzle, as standard macro models predict an appreciation of the real exchange rate. This paper presents a simple model with limited international risk sharing that can account for the empirical real exchange rate response. When faced with a country-specific rise in government purchases, local households experience a negative wealth effect; they thus work harder, and domestic output increases. Under balanced trade (financial autarky) this supply-side effect is so strong that the terms of trade worsen, and the real exchange rate depreciates. In a bonds-only economy, an increase in government purchases triggers a real exchange rate depreciation, if the rise in government purchases is sufficiently persistent and/or labor supply is highly elastic.

Government Purchases and the Real Exchange Rate: A Comment

The conventional international RBC model and also the traditional Keynesian model predict that an increase in government purchase results in an appreciation of the real exchange rate (Backus et al. 1994). Data show the opposite. Kolmann’s present paper addresses this government purchase-real exchange rate puzzle. He develops a series of micro based models to establish the central point that limited risk sharing is fundamental to resolve this puzzle. The main features of Kollmann’s static baseline model are as follows: (i) there is an extreme form of financial market incompleteness (trade balance is zero), (ii) all intermediate goods are internationally traded while the final good is not, (iii) the nontraded final good uses a mix of foreign and home produced intermediate goods with a local home bias in the technology, (iv) traded intermediate goods are produced with only labour using a CRS technology, (v) exogenous wasteful government purchases are financed by lump-sum taxes, (vi) wage and prices are flexible. In this environment, an increase in home government purchase gives rise to a negative wealth effect. Consumption and leisure being normal goods decrease in demand. People work harder and home production increases. This positive supplyside effect causes real exchange rate to depreciate via the depreciation of terms of trade. This effect is exacerbated if there is greater risk aversion or higher labour supply elasticity. Kollmann also demonstrates that introduction of sticky prices and wages and extending the model to multiperiods does not alter this central result. Kollmann shows that under full risk sharing the effect of government purchase on real exchange rate is exactly opposite to what happens in an incomplete risk sharing environment. Full risk sharing means that the real exchange rate equals the ratio of the marginal utilities of home goods to foreign goods. An adverse wealth effect of an increase in government purchase on home consumption raises the marginal utility of home consumption which means an appreciation of the real exchange rate contradicting the stylized facts. The punch-line is that incompleteness of the asset market is fundamental for resolving this puzzle. Open Econ Rev (2010) 21:65–67 DOI 10.1007/s11079-009-9154-4

The Influence of Conflict on the Demand for Education in the Basque Region

It has previously been shown that civil conflict influences many economic factors, including education, which play an important role in development and economic growth. Previous authors working on the influence of conflict on education have, however, always focused strongly on the supply-side effects, whereas this paper examines the influence of conflict on the demand for education. It is theoretically shown that, under relatively general conditions, individuals living in a conflict area have an incentive to increase their level of education and that this effect depends on the individual's skill level. This hypothesis is then tested using the conflict in the Basque Region as a case study, which is an example of a conflict in which one would not expect strong supply-side effects. Using the other Spanish regions, an artificial region is created in which the population has a similar educational distribution as in the Basque Region. When comparing the true and artificial regions, it can clearly be seen that for individuals with a medium level of education, there is a strong incentive to increase their education level, which is in concordance with the theoretical model.

Revisiting the Supply-Side Effects of Government Spending

Revisiting the Supply-Side Effects of Government Spending

Revisiting the Supply-Side Effects of Government Spending

We revisit the macroeconomic effects of government consumption in the neoclassical growth model when agents face uninsured idiosyncratic investment risk. Under complete markets, a permanent increase in government consumption has no long-run effect on the interest rate and the capital-labor ratio, while it increases hours due to the negative wealth effect. These results are upset once we allow for incomplete markets. The same negative wealth effect now causes a reduction in risk taking and the demand for investment. This leads to a lower risk-free rate and, under certain conditions, also to a lower capital-labor ratio, and lower productivity.

Supply-Side Effects of Strong Energy Price Hikes in German Industry and Transportation

The paper studies the short-term effects of energy price hikes on the supply of industrial goods and transport services including the repercussions on remuneration of input factors. While industry had suffered more strongly from the oil price shock of the late 1970s compared with the one of the early 1970s and the 2004-08 upsurge, evidence is reverse for transportation. Regarding the impact on the income distribution, both sectors share the pattern that in the recent episode rising energy costs were more than compensated by falling unit labor costs while in the 1970s cost structures had been strained by expansive wage policy in addition to the oil price shocks.

Revisiting the supply side effects of government spending

We revisit the macroeconomic effects of government consumption in the neoclassical growth model when agents face uninsured idiosyncratic investment risk. Under complete markets, a permanent increase in government consumption has no long-run effect on interest rates and capital intensity, while it increases work hours due to the negative wealth effect. These results are upset once we allow for incomplete markets. The same negative wealth effect now causes a reduction in risk taking and the demand for investment. This leads to a lower risk-free rate and, under certain conditions, also to a lower capital–labor ratio and lower productivity.