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April 17th, 2014

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Research Papers


LCERPA 2014-7
Title: HOW MONETARY POLICY IS MADE: TWO CANADIAN TALES
Author(s): P. Siklos and M. Neuenkirch

Abstract: This paper examines the policy rate recommendations of the Bank of Canada's Governing Council (GC) and the C.D. Howe Institute's (CDHI) Monetary Policy Council (MPC) since 2003. We find, first, that differences in the median recommendations between the MPC and the GC are persistent but small (i.e., 25 bps). The median MPC recommendation is based on a higher steady state real interest rate. However, the response of the MPC and the GC to output and inflation shocks are, for the most part, comparable. Second, we are also able to examine the individual recommendations for the MPC. Estimates of the determinants of consensus inside the MPC or disagreement with the GC yield some useful insights. For example, disagreements are more likely when rates are proposed to rise than at other times. Equally interesting is the finding that the Bank of Canada conditional commitment on the overnight rate in 2009-10 has a relatively larger restricting impact on the MPC's median recommendation than the GC's target rate.

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LCERPA 2014-6
Title: THE CREDIT CYCLE AND THE BUSINESS CYCLE IN CANADA AND THE U.S.: TWO SOLITUDES?
Author(s): P. Siklos and B. Lavender

Abstract: Recent events highlight the importance of understanding the relationship between credit availability and real economic activity. This paper estimates macroeconomic models for Canada to investigate the relationship between changes in non-price lending standards, business loans and output. We allow for the possibility that macroeconomic and financial market conditions in the U.S. affect those in Canada. The responses to financial shocks are dissimilar in both countries. Real time data are also found to have a significant impact on the results. The U.S. and Canada may indeed be likened to 'two solitudes' insofar as the impact of credit conditions is concerned. Differences in the quality of banking standards and supervision of financial institutions, as well differences in the effectiveness of monetary policies in the two countries may partially explain the results.

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LCERPA 2014-5
Title: WHEN IS LIFT-OFF? EVALUATING FORWARD GUIDANCE FROM THE SHADOW
Author(s): M. Neuenkirch and P. Siklos

Abstract: Monetary policy decisions are typically taken after a committee has deliberated and voted on a proposal. However, there are well-known risks associated with committee-based decisions. In this paper we examine the record of the shadow Monetary Policy Council in Canada. Given the structure of the committee, how decision-making takes place, as well as the voting arrangements, the MPC does not face the same information cascades and group polarization risks faced by actual decision-makers in central bank monetary policy councils. We find a considerable diversity of opinion about the recommended future path of interest rates inside the MPC. Beginning with the explicit forward guidance provided by the Bank of Canada market determined forward rates diverge considerably from the recommendations implied by the MPC. There is little evidence that the Bank and the MPC coordinate their future views about the interest rate path. However, it is difficult to explain the basis on which median voter inside the MPC, as well as doves and hawks on the committee, change their views about future changes in policy rates. This implies that there remain challenges in understanding the evolution of future interest rate paths over time.

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LCERPA 2014-4
Title: FEMALE BANK EXECUTIVES: IMPACT ON PERFORMANCE AND RISK TAKING SUBSTITUTES?
Author(s): Cindy Truong and Yan Wendy Wu

Abstract: This paper studies the impact of female executives on the performance and risk taking of US banks. With a sample of US banks from 2002 to 2010, we find that the inclusion of female executives increases bank performance after addressing endogeneity and reverse causality issues. We also provide evidence that female executives decrease the risk taking of banks. These results suggest that there is added value to having female executives on the executive team. We also find that a more balanced gender ratio results in a greater impact on bank performance and risk taking. This supports the argument to increase gender diversity in executive level positions for females.

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LCERPA 2014-3
Title: THE BURDEN OF PRESCRIPTION DRUGS ON SENIORS: REDUCING OUT-OF-POCKET EXPENDITURES THROUGH LOWER CO-PAYMENTS
Author(s): Nicholas Corvari & Logan McLeod

Abstract: The elderly are the most intensive users of healthcare including prescription drugs. Canadian provinces have responded with varying levels of support through senior drug plans that use cost-sharing measures such as co-payments in an attempt to find a sustainable balance between health objectives and budgetary constraints. While provincial co-payments have tended to migrate upwards over time resulting in a greater financial burden for seniors, Saskatchewan deviated from this trend in 2007 by capping its co-payment level. In an effort to provide evidence-based research to the ongoing policy discussion on best-practice approaches for this relatively vulnerable population group, this paper employs a Difference-in-Difference method within a Generalized Linear Model (GLM) to examine the impacts of the Saskatchewan policy change on out-of-pocket expenditure for senior household with a focus on impacts for differing segments of expenditure. The findings suggest the Saskatchewan policy change resulted in a decrease in out-of-pocket expenditures thereby lowering the financial burden for seniors. The results also show the expenditure savings largely accrued to seniors at the higher level of expenditure distribution and the policy change did not result in any significant change for households in the middle and lower quintiles.

To request a copy of this research paper, please contact the corresponding author: lmcleod@wlu.ca

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LCERPA 2014-2
Title: PRICE LIMIT AND STOCK VOLATILITY IN CHINA DURING FINANCIAL CRISES
Author(s): Wing Chan, Derek Wang, Terence Chong

Abstract: This paper explores the effects of price limits on the Chinese A-share stock markets during financial crises. A Logit regression model is estimated to investigate the characteristics of stocks that hit the price limits more frequently under economic turmoil. It is found that the price limit system increased volatility significantly, especially in the downward price movement. Moreover, price limit delays the efficient price discovery for upward and downward price movements. Finally, actively traded stocks with a higher positive correlation with the entire market in the property industry hit the price limits more frequently

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LCERPA 2014-1
Title: RISK ASSESSMENT UNDER A NONLINEAR FISCAL POLICY RULE
Author(s): Cristos Shiamptanis

Abstract: This study revisits the sectoral shifts hypothesis for the US for the period 1948 to 2011. A quantile regression approach is employed in order to investigate the asymmetric nature of the relationship between sectoral employment and unemployment. Significant asymmetries emerge. Lilien's dispersion index is significant only for relatively high levels of unemployment and becomes insignificant for low levels suggesting that reallocation affects unemployment only when the latter is high. More job reallocation is associated with higher unemployment.

Keywords: unemployment, employment reallocation, sectoral shifts, aggregate shocks, conditional quantile regression model, bootstrapping

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LCERPA 2013-16
Title: ARE THE BAILOUTS OF WALL STREET COMPLEMENTS OR SUBSTITUTES?
Author(s): Linus Wilson, Yan Wendy Wu, Stephanie Prejean

Abstract: The Term Securities Lending Facility (TSLF) lent $2.3 trillion worth of general collateral to eighteen investment houses in exchange for riskier securities. Treasury collateral was in high demand in 2008 and 2009 as repo markets shunned lower quality collateral. This paper finds a negative and significant relationship between participating in the TSLF and having funds from the Troubled Asset Relief Program (TARP) and other Federal Reserve lending programs. Thus, it appears that the TSLF was a substitute for other bailouts. In addition, dealers with higher paid CEOs were more likely to borrow in the next TSLF auction cycle

To request a copy of this research paper, please contact the corresponding author: wwu@wlu.ca

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LCERPA 2013-15
Title: CREDIT EXPOSURE AND VALUATION OF REVOLVING CREDIT LINES
Author(s): Robert A Jones, Yan Wendy Wu
Abstract: The revolving credit line is the dominant form of commercial bank lending. We present an arbitrage-free valuation method incorporating the borrower's stochastic credit quality process and drawdown behavior. Credit exposure is measured by the size of _xed balance loan of identical term having the same cost of default protection via credit default swap. Multi-fee structures and performance pricing are incorporated. Numerical experiments reveal important characteristics of credit line values.

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LCERPA 2013-14
Title: OVERPAID CEOS GOT FDIC DEBT GUARANTEES
Author(s): Linus Wilson, Yan Wendy Wu
Abstract: From 2008 to 2009, the FDIC guaranteed hundreds of billions of dollars of newly issued bank debt through the Temporary Liquidity Guarantee Program (TLGP). We find that CEOs making more than their peer groups were significantly more likely to steer their companies to obtain federal guarantees for their banks' debt. The average bank in our sample with a debt guarantee had a CEO who was paid $1.6 million per year more than the average CEO in his or her peer group. In addition, there is strong evidence that large, systemically important banks were more likely to obtain FDIC debt guarantees.

To request a copy of this research paper, please contact the corresponding author: wwu@wlu.ca

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LCERPA 2013-13
Title: EMPLOYMENT REALLOCATION AND UNEMPLOYMENT REVISITED: A QUANTILE REGRESSION APPROACH
Author(s): Theodore Panagiotidis, Gianluigi Pelloni

Abstract: This study revisits the sectoral shifts hypothesis for the US for the period 1948 to 2011. A quantile regression approach is employed in order to investigate the asymmetric nature of the relationship between sectoral employment and unemployment. Significant asymmetries emerge. Lilien's dispersion index is significant only for relatively high levels of unemployment and becomes insignificant for low levels suggesting that reallocation affects unemployment only when the latter is high. More job reallocation is associated with higher unemployment.

Keywords: unemployment, employment reallocation, sectoral shifts, aggregate shocks, conditional quantile regression model, bootstrapping

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LCERPA 2013-12
Title: AGGREGATION AND THE STAGGERING OF PRICE CHANGES
Author(s): Emmanuel Dhyne, Jerzy Konieczny
Date uploaded:

Abstract: Temporal distribution of individual price changes is of crucial importance for business cycle theory and for the microfoundations of price adjustment. While it is routinely assumed that price changes are staggered over time, both theory and evidence are ambiguous. We use a large Belgian data set to analyze whether price changes are staggered or synchronized. We find that the more aggregated are the data, the closer is the distribution to perfect staggering. The results hold both for aggregation across products, and across locations. They are consistent with an economy in which idiosyncratic shocks are the main cause of price changes

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LCERPA 2013-11
Title: TRUST AND VULNERABILITY
Author(s): Chris Bidner, Ken Jackson
Date uploaded:

Abstract: By facilitating mutually beneficial transactions in the absence of perfect legal institutions, trust is a crucial ingredient for economic development. We focus on the conceptual connections between imperfect legal institutions, uncertainty and vulnerability, and their consequences on trust, with the goal of understanding the role for a social safety net in economic development. We study a model in which agents rely on imperfectly enforceable contracts to support cooperation in a prisoners' dilemma production game. Defining trustworthiness as the probability that an agent chooses a cooperative action, we demonstrate that when the game retains fundamental uncertainty over the likelihood of cooperation, there is a direct relationship between vulnerability, social safety nets and trustworthiness. We then elaborate on this result, showing how social institutions can promote trust and the adoption of complex production methods. In addition, we show that under reasonable assumptions, the development of social institutions and legal institutions will have complementary effects when institutions are collectively weak.

Keywords: institutions, trust, global games, social protection

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LCERPA 2013-10
Title: BEHAVIOURAL MECHANISMS TO ENCOURAGE SAVING: RESULTS OF TWO INTERTEMPORAL CHOICE EXPERIMENTS
Author(s): William G. Morrison, Robert J. Oxoby
Date uploaded:

Abstract: We conduct intertemporal choice laboratory experiments to test the effectiveness of two incentive schemes designed to encourage saving over current consumption. The first scheme involves a commitment to save from future (unrealized) increases in income while the second incentive scheme provides a choice of two savings plans one of which unambiguously dominates the other. Importantly, these schemes are evaluated in an environment in which reference-dependent preferences can inhibit savings behavior via the endowment effect. With respect to the first scheme, our results indicate that individuals are willing to save money at a much lower rate of interest when money has been earned but is not yet in their possession. With respect to the second scheme, our results indicate that provision of a choice between two savings plans where one plan unambiguously dominates the other, leads to a significant increase in the numbers of individuals who choose to save.

Keywords: Saving, endowment effect, save-more-later, preference benchmarking.

To request a copy of this research paper, please contact the corresponding author: wmorrison@wlu.ca



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LCERPA 2013-9
Title: FINANCIAL FRICTIONS AND CREDIT SPREADS
Author(s): Ke Pang, Pierre L. Siklos
Date uploaded:

Abstract: This paper begins with the credit-frictions model developed by Curdia and Woodford, in a series of papers, as the basis for attempting to mimic the behavior of selected credit spreads. We are able to replicate the movements in representative credit spreads. Next, we consider the impact on spreads when default risk on loans rise. Assuming that central bank intervention is meant to reduce the impact of such risks on credit spreads, we then study the impact of credit easing (CE) and quantitative easing (QE) since they were at least partly designed to have an influence on spreads. CE is found to reduce spreads unlike QE which has the opposite effect. However, the effectiveness of CE becomes even more apparent when we allow borrowers to default on their loans.

Keywords:

To request a copy of this research paper, please contact the corresponding author: kpang@wlu.ca



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LCERPA 2013-8
Title: THE `OTHER' BENEFITS OF RENEWABLE ENERGY PROMOTION
Author(s): Marisa Beck, Nicholas Rivers, Randall Wigle
Date uploaded:

Abstract: Renewable energy policies address two market externalities at the same time: (1) the environmental cost of conventional energy production (GHG emissions and air pollution) and (2) appropriate earnings from learning-by-doing in the renewable energy sector. Theoretical studies attempt to conceptualize the learning-by-doing gains, and others make some effort to measure the effect of various policy approaches to promoting renewable energy. This technical paper provides background information to complement the policy brief on learning-by-doing in the renewable energy sector in Ontario and its impact on optimal policy choice.

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To request a copy of this research paper, please contact the corresponding author: rwigle@wlu.ca



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LCERPA 2013-7
Title: THE EFFECTS OF THE EXCHANGE RATES ON EMPLOYMENT IN CANADA
Author(s): Haifang Huang, Ke Pang, Yao Tang
Date uploaded:

Abstract: We assess the effects of the exchange rate on employment in Canada from 1994 to 2007. In particular, we exploit differences in the trade partners across industries and construct industry-specific exchange rates. After controlling for the secular decline in manufacturing industries, we find that for an average manufacturing industry, a 1% appreciation in the export-weighted exchange rate will reduce employment by 0.52%. Meanwhile, changes in the import-weighted exchange rate do not have significant effects on employment. We also examine the effect of exchange rate on the overall economy and find that appreciations in the Canadian dollar do not appear to have negative effects on employment in other major industry groups in Canada. Moreover, we estimate the effect of a commodity boom on manufacturing employment via the exchange rate channel. Our analysis predicts that, following a one standard deviation shock to commodity price (i.e., a 12.21% increase in the overall price of commodities produced in Canada), the manufacturing employment will decrease by 0.98%, which is equivalent to about 0.1% decrease in the total industrial employment. Overall, our empirical results suggest that the employment effects of exchange rate appreciations are small in Canada. Therefore, in terms of employment, it appears that the flexible exchange rate does not create an undue burden to the Canadian economy.

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LCERPA 2013-6
Title: THE VARIABLE CHOICE SET LOGIT MODEL APPLIED TO THE 2004 CANADIAN ELECTION
Author(s): M. Gallego, N. Schofield, K. McAlister, JS Jeon
Date uploaded:

Abstract: Formal work on the electoral model often suggests that parties should locate at the electoral mean. Recent research has found no evidence of such convergence. In order to explain non-convergence, the stochastic electoral model is extended by including a competence and sociodemographic valance in a country where regional and national parties compete in the election. That is, the model allows voters to face different sets of parties in different regions. We introduce the notion of a convergence coefficient, c for regional and national parties and show that when c is high there is a significant centrifugal tendency acting on parties. An electoral survey of the 2004 election in Canada is used to construct a stochastic electoral model of the election with two regions: Québec and the rest of Canada. The survey allows us to estimate voter positions in the policy space. The variable choice set logit model is used to built a relationship between party position and vote share. We find that in the local Nash equilibrium for the election the two main parties with high competence valence, the Liberals and Conservatives, locate at the national electoral mean and the Bloc Québécois, with the highest competence valence, locates at the Québec electoral mean. The New Democratic Party has a low competence valence but remains at the national mean. The Greens, with lowest competence valence, locate away from the national mean to increase its vote share.

Keywords: stochastic vote model, valence, local Nash equilibrium, convergence coefficient

To request a copy of this research paper, please contact the corresponding author: mgallego@wlu.ca



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LCERPA 2013-5
Title: EVALUATING THE RELATIONSHIP BETWEEN PAY AND PERFORMANCE: PANEL DATA EVIDENCE FROM ONTARIO UNIVERSITIES
Author(s): Hideki Ariizumi, Anindya Sen, Natasha De Sousa
Date uploaded:

Abstract: In 1996 the Ontario government enacted the Public Sector Salary Disclosure Act, which required organizations receiving public funding from the Province of Ontario to disclose the names, positions, salaries and taxable benefits of employees paid annual salaries of $100,000 or more. The effects of such "sunshine laws" are ambiguous. We construct a unique panel dataset of individual salaries on tenured and tenure track economics professors from 16 universities in Ontario (between 1996 and 2006) in order to evaluate the relationship between performance and salary. Empirical estimates suggest that universities reward research productivity as a top journal publication is significantly associated with roughly a 2%-5% increase in annual salary. These results offer evidence against the notion that the public release of salary information might retard research productivity. Further, academics at universities with salary caps experience lower returns to publications and are less productive than counterparts without such schemes. We interpret our results as empirical evidence on the importance of salary incentives in ensuring enhanced research productivity

Keywords:

To request a copy of this research paper, please contact the corresponding author: hariizumi@wlu.ca



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LCERPA 2013-4
Title: REFERENCE DEPENDENCE, DEFAULT BIAS, AND PROVISION OF TRAINING AND INFORMATION: AN INTERTEMPORAL CHOICE EXPERIMENT
Author(s): William G. Morrison, Robert J. Oxoby
Date uploaded:

Abstract: In this paper, we investigate the potential for default bias and information provision to affect intertemporal decision making in an environment where reference dependent preferences may also play a role. We utilize an experimental protocol to control for 'found money' effects whereby treatment group participants earn and then retain money for a period of time before returning to the laboratory to complete the decisions of interest in an incentive-compatible manner. Our results indicate that in a decision environment where immediate cash is an option, default bias effects are insignificant in encouraging individuals to save. We find positive but weak support for the hypothesis that information provision and/or training encourages individuals to save.

Keywords: Default bias, information provision, savings, intertemporal choice, endowment effect.

To request a copy of this research paper, please contact the corresponding author: wmorrison@wlu.ca



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LCERPA 2013-3
Title: STANDING TOGETHER OR ALONE? FAMILY STRUCTURE AND THE BUSINESS CYCLE IN CANADA
Author(s): Hideki Ariizumi, Yaqin Hu, Tammy Schirle
Date uploaded:

Abstract: In this paper we examine the relationship between business cycle fluctuations and family formation and structure, using Canadian vital statistics and Labour Force Survey data. Similar to US studies, we find that a one percentage point increase in the unemployment rate of men is associated with a 13% decline in the number of marriages formed per thousand single females each quarter. Unlike US studies, we do not find a significant relationship between unemployment rates and aggregate flows into divorce. Using stock measures of marital status and family type, we show that the importance of the business cycle varies substantially by age group. Among 25-44 year olds, there is a significant increase in single parents with children under 18 when unemployment rates rise. Among 35-54 year olds, there is a significant increase in those living alone. There is some evidence of elderly parents joining the households of 45-54 year olds and young adults (18-24) remaining with their single parents during recessions. Overall, the observed decline in marriages during recessions appears driven by a decline in remarriages rather than a decline in first marriages

Keywords:

To request a copy of this research paper, please contact the corresponding author: hariizumi@wlu.ca



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LCERPA 2013-2
Title: VERTICAL TRADE, EXCHANGE RATE PASS-THROUGH AND EXCHANGE RATE REGIME
Author(s): Ke Pang, Yao Tang
Date uploaded:

Abstract: We compare the welfare of different combinations of monetary and currency policies in an open-economy macroeconomic model that incorporates two important features of many small open economies: a high level of vertical international trade and a high degree of exchange rate pass-through. In this environment, a small economy prefers a fixed exchange rate regime over a flexible regime, while the larger economy prefers a flexible exchange rate regime. There are two main causes underlying our results. First, in the presence of sticky prices, relative prices adjust through changes in the exchange rate. Multiple stages of production and trade make it more difficult for one exchange rate to balance the whole economy by adjusting several relative prices throughout the vertical chain of production and trade. Namely, there is a trade-off between delivering an efficient relative price between home and foreign final goods and delivering an efficient relative price between home and foreign intermediate goods. Second, because the small economy faces a high degree of exchange rate pass-through under a flexible regime, it suffers from the lack of efficient relative prices in vertical trade. The larger economy, however, does not face this problem because its level of exchange rate pass-through is low.

Keywords:

To request a copy of this research paper, please contact the corresponding author: kpang@wlu.ca



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LCERPA 2013-1
Title: THE CONVERGENCE COEFFICIENT ACROSS POLITICAL REGIMES
Author(s): M. Gallego, N. Schofield
Date uploaded:

Abstract: Formal work on the electoral model often suggests that parties or candidates should locate themselves at the electoral mean. Recent research has found no evidence of such convergence. In order to explain non-convergence, the stochastic electoral model is extended by including estimates of electoral valence. We introduce the notion of a convergence coefficient, c. It has been shown that high values of c imply that there is a significant centrifugal tendency acting on parties. We used electoral surveys to construct a stochastic valence model of the elections in various countries. We find that the convergence coefficient varies across elections in a country, across countries with similar regimes and across political regimes. In some countries, the centripetal tendency leads parties to converge to the electoral mean. In others the centrifugal tendency dominates and some parties locate far from the electoral mean. In particular, for countries with proportional electoral systems, namely Israel, Turkey and Poland, the centrifugal tendency is very high. In the majoritarian polities of the United States and Great Britain, where the centrifugal tendency is very low. In anocracies, the autocrat imposes limitations on how far from the origin the opposition parties can move.

Keywords: stochastic vote model, valence, local Nash equilibrium, convergence coefficient, the heart.

To request a copy of this research paper, please contact the corresponding author: mgallego@wlu.ca



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LCERPA 2012-4
Title: CAN HIGHER CIGARETTE TAXES STILL IMPROVE BIRTH OUTCOMES? EVIDENCE FROM RECENT LARGE INCREASES. Author(s): PHILIP DeCICCA, JUSTIN SMITH
Date uploaded: MAR 2012

Abstract:Using U.S. natality data, we examine the impact of cigarette excise taxes on maternal smoking participation and low birth weight status. In particular, we implement three empirical strategies: First, we estimate standard two-way fixed effect models. Second, we examine the impact of large state-specific tax increases by matching large-increase states to non-increasing states with similar levels of measured "anti-smoking sentiment". Finally, we match these same large-increase states to non-increasing states with similar pre-increase trends in maternal smoking. Taken together, our findings imply that large cigarette taxes can still reduce maternal smoking and, in turn, improve birth outcomes, particularly for less-educated.

Keywords: Cigarette excise taxes; maternal smoking participation; birth weight.

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LCERPA 2012-3
Title: SUSTAINABILITY IN THE PRESENCE OF GLOBAL WARMING: THEORY AND EMPIRICS
Author(s): HUMBERTO LLAVADOR, JOHN E. ROEMER AND JOAQUIM SILVESTRE
Date uploaded: MAR 2012

Abstract: How should rights to emit carbon into the atmosphere be allocated between the global North and the global South? We postulate a two-region world, comprised of North (US) and South (China). We show that global CO2 emissions follow a conservative path that leads to the stabilization of atmospheric carbon concentrations at 450 ppm. North and South converge to a path of sustained growth at 1% per year (28.2% per generation) in 2075 upon which welfare per capita is equalized globally. During the transition to the steady state, North grows at 1% per year while South grows markedly faster. The transition paths require a drastic reduction of the share of emissions allocated to North, large investments in knowledge, both in North and South, and large investments in education in South. Surprisingly, to sustain North's growth rate, some output must be transferred from South to North during the transition. Although subject to caveats, our results support a degree of optimism by providing evidence of the possibility of tackling climate change in a way that is fair both across generations and across regions while allowing for positive rates of human development.

Keywords: Sustainability, Global warming, Distributive Justice

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LCERPA 2012-2
Title: INTERNAL TRADE AND AGGREGATE PRODUCTIVITY: EVIDENCE FROM CANADA
Author(s): TREVOR TOMBE and JENNIFER WINTER
Date uploaded: FEB 2012

Abstract: While the positive link between international trade and productivity is well established, research on internal trade is limited. Barriers to internal trade may inhibit the efficient geographic distribution of production within a country. Unique Canadian data provides an ideal opportunity to measure the magnitude - and impact on productivity - of barriers to internal trade. Using a flexible, micro-founded approach, we measure internal trade barriers between Canadian provinces. We find between-province trade costs average 30%, rising to nearly 50% in poor regions, net of distance effects. We then adapt a new-trade model to estimate the productivity impact of these barriers. Eliminating inter-provincial trade barriers increases productivity by over 15% in the median province and by over 8% for Canada as a whole, accounting for nearly half the productivity gap with the United States. For comparison, we find these benefits are larger than lowering international trade barriers by 20%. Internal trade barriers also account for over 40% of the regional income inequality across provinces.

JEL Classification: F4, F1, R1

Keywords: Internal trade; Productivity; Regional economic development

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LCERPA 2012-1
Title: ELDERLY INCOME AND LIVING ARRANGEMENTS:DIFFERENCES ACROSS THE ELDERLY INCOME DISTRIBUTION IN CANADA
Author(s): TAMMY SCHIRLE
Date uploaded: FEB 2012

Abstract:In this study I examine the relationship between changes in the living arrangements of the elderly and changes in elderly income across the elderly income distribution. Using Canadian data from 1977-­-2008, the results of unconditional quantile regressions demonstrate a negative relationship between independent living and elderly income, with the strongest effects on middle income deciles in the late 1970s. Increases in the likelihood of independent living placed downward pressure on income over the 1970s-­-1990s. However, simultaneous reductions in the 'penalty' associated with independently living placed upward pressure on incomes, with the strongest effects on the middle income deciles. More recent increases in the independent living penalty are placing some downward pressure on incomes in the bottom half of the elderly income distribution .

JEL Classification: J14 (Economics of the elderly), J12 (Family structure)

Keywords: Income distribution, Elderly, Canada

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LCERPA 2011-7
Title: "GESELL" TAX AND EFFICIENCY OF MONETARY EXCHANGE
Author(s): MARTIN MENNER
Date uploaded: NOVEMBER 2011

Abstract: A periodic "Gesell Tax" on money holdings as a way to overcome the zero-lower-bound on nominal interest rates is studied in a framework where money is essential. For this purpose, I characterize the efficiency properties of taxing money in a full-.edged macroeconomic business cycle model of the third-generation of monetary search models. Both, inflation and "Gesell taxes" maximize steady state capital stock, output, consumption, investment and welfare at moderate levels. The Friedman rule is sub-optimal, unless accompanied by a moderate Gesell tax. In a recession scenario, a Gesell tax speeds up the recovery in a similar way as a large .scale stimulus but avoids crowding out" of private consumption and investment.

Keywords: monetary search-theory, negative interest rates, Gesell tax, capital formation, DSGE model

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LCERPA 2011-06
Title: CONTRACTING INSTITUTIONS AND PRODUCT QUALITY
Author(s): AZIM ESSAJI AND KINYA FUJIWARA
Date uploaded: JULY 2011

Abstract: For many goods, quality improvements involve the use of more sophisticated, higher quality inputs. The production of these sophisticated inputs requires greater collaboration between suppliers and final good producers, with suppliers developing relationship-specific inputs, and final good producers customizing their production processes to incorporate them. In countries with poor legal institutions, the relationship-specific investments needed to achieve strong collaboration, and by extension more sophisticated inputs and higher quality outputs, will arguably be hard to achieve. As the incomplete contracts literature suggests, doubts over contract enforcement will render the return on relationship-specific investments less certain, rendering both suppliers and final good producers less willing to undertake the customization necessary to improve quality. Employing a difference-in-difference methodology on highly disaggregated US import data, this paper studies the impact of legal institutions on product quality. It finds that poor contracting institutions substantially impede a country's ability to produce high quality final goods: in industries where the potential use of customizable inputs is extensive, countries with weaker contract enforcement regimes produce lower quality final goods.

Keywords: Product Quality; International Trade; Contract Enforcement; Relationship-Specific Investments.

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LCERPA 2011-05
Title: EQUILIBRIUM EXCLUSIVE DEALING IN OLIGOPOLY
Author(s): STEFFEN ZISS
Date uploaded: JULY 2011

Abstract: This paper considers a setting in which upstream oligopolists delegate the retailing of their differentiated products to a set of undifferentiated retailing agents. The downstream market structure is assumed to consist of a set of independent agents that exclusively sell the product of a single manufacturer and a common agent that sells the product of many manufacturers. A three-stage game is considered. In the first stage the manufacturers decide whether or not to market their products using an independent agent or the common agent. In the second stage the manufacturers determine the terms of the two-part tariff contract offered to their respective agents. In the final stage the agents engage in either output or price competition with other retailing agents. If the agents engage in output competition then the model shows that it will either be the case that all manufacturers use independent agents or that they all use the common agent. Which of these two equilibria emerge depend on the degree of substitutability between products and on the number of manufacturers. If the agents engage in price competition then a third type of equilibrium also emerges in which some firms adopt the common agent and others adopt independent agents

Keywords: Oligopoly; exclusive dealing.

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LCERPA 2011-04
Title: CAN NATIONAL INFRASTRUCTURE SPENDING REDUCE LOCAL UNEMPLOYMENT? EVIDENCE FROM AN AUSTRALIAN ROADS PROGRAM
Author(s): ANDREW LEIGH AND CHRISTINE NEILL
Date uploaded: JULY 2011

Abstract: Studies of the effect of government spending on unemployment are potentially confounded by reverse causality. To address the endogeneity problem, we exploit variation in a pork-barrel road-building program, and find that higher government expenditure on road-building substantially reduces local unemployment.

Keywords: Infrastructure spending; unemployment.

For more information on this paper, please contact the author directly: cneill@wlu.ca


LCERPA 2011-03
Title: CENTRAL BANK TRANSPARENCY: ANOTHER LOOK
Author(s): PIERRE L. SIKLOS
Date uploaded: JULY 2011

Abstract: This paper extends the Dincer and Eichengreen (2007) index of central bank transparency. Improvements in transparency are notable in Central and Eastern Europe, while the index has shown much smaller rises in most other parts of the world. The pattern observed by Dincer and Eichengreen, consistent with a permanent increase in central bank transparency, is also evident in the updated results. The dramatic enhancements in central bank transparency reported earlier appear to be a feature of the late 1990s and early 2000s. Whether the subsequent data reflect limits to centralbanks transparency or, to some extent, transparency 'fatigue', is unclear.

Keywords: Central Bank Transparency; Europe.

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LCERPA 2011-02
Title: ENTER THE DRAGON: INTERACTIONS BETWEEN CHINESE, US AND ASIA-PACIFIC EQUITY MARKETS, 1995-2010
Author(s): RICHARD C. K. BURDEKIN and PIERRE L. SIKLOS
Date uploaded: JULY 2011

Abstract: This paper applies a variety of short-run and long-run time series techniques to data on a broad group of Asia-Pacific stock markets and the United States extending to 2010. Our empirical work confirms the importance of crises in affecting the persistence of equity returns in the Asia-Pacific region and offers some support for contagion effects. Post-Asian financial crisis quantile regressions yield substantial evidence of long-run linkages between the Shanghai market, the US market and many regional exchanges. Cointegration is particularly prevalent at the higher end of the distribution. Our results suggest that the enormous growth of the Shanghai market in the new millennium has been accompanied a meaningful level of integration with other regional and world markets in spite of ongoing capital controls.

Keywords: Stock returns; convergence; crises; Asia-Pacific; China

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LCERPA 2011-01
Title: INCOME INEQUALITY AMONG SENIORS IN CANADA; THE ROLE OF WOMEN'S LABOUR MARKET EXPERIENCE
Author(s): TAMMY SCHIRLE
Date uploaded: JULY 2011

Abstract: The distribution of income among seniors in Canada has changed substantiallyover the past decade, reecting an overall increase in income and an increase in income inequality. In this study I decompose the distribution of income among senior couples to determine the extent to which changes in the labour market activity and retirement experiences of women and men have contributed to this shift in the income distribution. I use data from the Canadian Survey of Labour and Income Dynamics, 1996 and 2006, and the methods of Firpo, Fortin and Lemieux (2007, 2009). Results suggest increases in women's access to pension income and employment have driven increases in income across the distribution with relatively small disequalizing e_ects. Increases in women's access to public pensions have had important equalizing e_ects, while most of the increase in senior income inequality can be attributed to increases in senior men's and women's education levels.

Keywords: Income inequality; seniors; women in the labour market.

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LCERPA 2010-10
Title: TOWARDS EFFECTIVE INTER-ORGANIZATIONAL COLLABORATION IN TRANS-BORDER SUPPLY CHAINS
Author(s): MICHAEL HAUGHTON
Date uploaded: December 2010

Abstract: If Canada's trans-border supply chains are to optimally contribute to the nation's economic performance, collaboration among key organizations is essential. This paper focuses on two categories of collaboration: (a) among governmental departments that have jurisdiction over or interest in Canada's trans-border supply chain environment and (b) between those departments and the environment's commercial organizations (e.g., freight carriers, manufacturers, customs brokers, and international freight forwarders). The central theme in this paper is that effective collaboration requires clear understanding by all parties of the goals of the other parties as well as the obligations that collaborators must meet in order for those goals to be achieved cost-effectively. This means that an integral component of those obligations is a determined focus on the business costs incurred by collaborators and on ways to eliminate unnecessary costs. This and the paper's other insights to guide collaboration initiatives are grounded in findings from a set of ongoing research projects for which the author is the principal investigator.

Keywords: Trans-border supply chains; inter-organizational collaboration.

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LCERPA 2010-9
Title: REVERSE LOGISTICS NETWORKS WITH THE GATEWAY-CORRIDOR COMPONENTS: A CASE OF WASTE ELECTRICAL AND ELECTRONIC EQUIPMENT
Author(s): CHIALIN CHEN AND FARZAM TAHAM
Date uploaded: December 2010

Abstract: The paper presents a reverse logistics network for the end-of-life management of waste electrical and electronic equipment for the province of Ontario and develops a dynamic simulation model that describes the behaviour of the presented system and incorporates distance, cost, time and quantity variables associated with the system. Using the simulation model, the paper explores different strategic decisions and potential improvements to the system by developing scenarios on the future collection loads and the structure of the network using gateway and corridor components.

Keywords: Reverse Logistics, Simulation, Gateway-Corridor Network

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LCERPA 2010-8
Title: SURFACE FREIGHT ENVIRONMENTAL FOOTPRINTS IN THE ONTARIO-QUÉBEC CONTINENTAL CORRIDOR: FOCUS ON EMISSIONS
Author(s): JOHN LAWSON
Date uploaded: December 2010

Abstract: This paper summarises and updates research, attempting to identify and compare aspects of the environmental impacts of the main competing freight modes - truck, rail and ship - within the transport networks identified in Transport Canada's Gateway initiative as the "Ontario-Quebec Continental Gateway and Trade Corridor."

Keywords: Surface freight; environmental footprints, Ontario-Quebec continental corridor.

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LCERPA 2010-7
Title: SECTORAL AND LABOUR MARKET IMPACTS OF BORDER DELAYS IN CANADA
Author(s): TRIEN T. NGUYEN AND RANDALL M. WIGLE
Date uploaded: November 2010

Abstract: Being heavily trade-dependent and small, the Canadian economy is vulnerable to external shocks ranging from market-related price shocks to nonmarket security-related shocks. In this paper, we explore the economic implications of border delays using a static regional computable general equilibrium (CGE) model for Canada. We considered two sample scenarios of border delays, namely, (a) base case with delay costs of 1% on both merchandise and service trades, and (b) high case with delay costs of 2% on merchandise trade and 1% on service trade. Simulation results showed that border delays could significantly affect the economic performance in terms of welfare, wage structure, sectoral employment and other repercussions at both provincial and national levels. More importantly, the nature and extent of impacts varies across regions and sectors. For example, some provinces were badly hurt (e.g., Machinery in Ontario and Qu\8Eebec) while several sectors in other provinces experience expansion and growth. The findings had relevant policy implications for Canada's regional trade development not only for the traditional trade link with the United States in the south but also for the emerging trade initiatives with Asia-Pacific countries in the west.

Keywords: Border delays; computable general equilibrium (CGE) models.

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LCERPA 2010-6
Title: FREIGHT TRUCKS, MITIGATING GHG EMISSIONS AND THE DANGER OF INCREMENTALISM
Author(s): STEPHEN BLANK
Date uploaded: November 2010

Abstract: This brief paper examines several (seeminly obvious) methods to mitigate truck generated GHG emissions and some of the possible systemic implications of each. We may be asking the wrong questions, trying to fix the wrong problem. The paper also considers several broader themes often neglected in discussions of ways to mitigate truck generated GHG emissions -- scale, timing, cost and, perhaps the largest of these, infrastructure. If mitigation proposals lack sensitivity to these issues they remain abstract and academic. Similarly, if these proposals fail to include a focus on implementation - how they can be pushed through the political-legislative-regulatory pipeline - then, again, their potential utility is greatly diminished.

Keywords: Greenhouse gas emissions; Infrastructure; Trucking.

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LCERPA 2010-5
Title: THE WINDSOR-DETROIT CROSSING: ISSUES IN P3S WHEN INFRASTRUCTURE CROSSES BORDERS
Author(s): WILLIAM P. ANDERSON
Date uploaded: November 2010

Abstract: The Windsor-Detroit crossing at the Detroit River is one of the busiest international trade corridors in the world. The great majority of the trade passing through this corridor is carried by the Ambassador Bridge, which is over 80 years old and privately owned. In an attempt to address transportation deficiencies in the corridor the governments of the United States, Canada, Ontario and Michigan came together in the Detroit River International Crossing (DRIC) initiative. The paper reviews the history and progress of the DRIC, with particular emphasis on the current impasse in gaining legislative approval to begin the process of building a second Detroit River bridge under a public-private partnership (P3) model.

Keywords: Infrastructure; Detroit River Crossing Initiative; Public Private Partnerships.

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LCERPA 2010-4
Title: ACCESS TO INFORMATION, INSTITUTIONAL CAPACITY AND INEFFICIENCY IN THE MEXICAN AIR TRANSPORT SECTOR
Author(s): V\CDCTOR VALD\C9S
Date uploaded: November 2010

Abstract: The operational and financial problems of one of Mexico's flag carrier airlines has revealed the fragility of the air transport industry in Mexico This paper explores the structural causes that generate this and the lack of institutional capacity to reach safety and efficiency goals. The issues are important because they are the basic inputs to help design, implement and monitor public policies that foster safety and efficiency and promote growth in Mexico\8Es airline industry.

Keywords: Airlines; institutional capacity; air transport policy.

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LCERPA 2010-3
Title: TAX EXPENDITURES VS. BUDGETARY EXPENDITURES FOR CANADIAN POST-SECONDARY EDUCATION
Author(s): AZIM ESSAJI AND CHRISTINE NEILL
Date uploaded: November 2010

Abstract: Tax measures that reduce the tax burden on post-secondary students are a large part of total spending on post-secondary education in Canada. These tax expenditures are, however, often forgotten when it comes to discussions of the cost of post-secondary education, may have some undesirable distributional consequences, and likely have little effect on individuals' enrolment decisions. On most dimensions they seem to be inferior to equivalent spending programs. Also of concern is that the interactions between the tax and spending programs and their different reporting standards further reduce the transparency and effectiveness of government funding to post-secondary education. Eliminating the tax credits and using the 'savings' to boost direct spending on assistance to students would improve the effectiveness of programs at a lower cost and with better distributional consequences. Unfortunately, Canadian governments at the federal and provincial level have been doing precisely the opposite, and significantly expanded these tax credits in recent years..

Keywords: Tax expenditures; budgetary expenditures; post secondary education.

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LCERPA 2010-2
Title: LONG MEMORY IN DIAMOND MARKET RETURNS AND VOLATILITY
Author(s): Lu, Chenxi, Terence Tai-Leung Chong and Wing Hong Chan.
Date uploaded: April 2010

Abstract: This paper provides a first attempt to test for long memory in the international diamond market returns and volatility. The results from Lo's modified R/S statistic suggest that diamond returns do not have long memory, while strong evidence is found for long memory in diamond volatilities. The results have important implications for the efficiency of the diamond market and predictability of the diamond return and volatility.

Keywords: Long memory, Modified R/S statistic, Diamond market

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LCERPA 2010-1
Title: LOSS AVERSION AND INTERTEMPORAL CHOICE: A LABORATORY INVESTIGATION
Author(s): R. J. Oxoby and William G. Morrison.
Date uploaded: March 2010

Abstract: We present results from a laboratory study of loss aversion in the context of intertemporal choice. We investigate whether the provision of (windfall) endowments results in different elicited discount rates relative to subjects who earn income or earn and retain the income for a period before making intertemporal decisions. We hypothesize that loss aversion in an intertemporal choice yields higher discount rates among subjects earning and retaining. Our results support this hypothesis: among subjects who earn and retain their income we elicit substantially higher discount rates relative to those experiencing a windfall gain.

Keywords: intertemporal choice, discount rates, experiments

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LCERPA 2009-11
Title: WHY DOES DIVERSITY MATTER? - AN EMPIRICAL ANALYSIS OF PIPED WATER PROVISION IN SUB-SAHARAN AFRICA
Author(s): Ken Jackson
Date uploaded: October 2009

Abstract: Ethnic diversity has been shown to have signifcant, negative efects on the provision of basic public goods, in both developed and developing countries. However, the mechanism underlying this relationship is not fully understood. Two basic theories are drawn from the literature and incorporated within a single model, allowing for the derivation of key diferences in their empirical predictions. The critical diference between models of differential demand and those of collective action problems lies in the distribution of public good provision across households. Using the DHS survey from 15 countries of Sub-Saharan Africa, covering over 100,000 households, I am able to test for the presence of aggregate effects of ethnic diversity and the distributional consequences. The results suggest that local ethnic diversity plays a critical role in limiting the provision of piped water in Sub-Saharan Africa, and that the mechanism behind this effect is ineffective local governance.

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LCERPA 2009-10
Title: Contract Enforceability and the Evolution of Social Capital
Author(s): Ken Jackson
Date uploaded: September 2009

Abstract: Social capital, in the form of generalized trust, appears to have signi cant consequences for economic development. Yet we know little about how social capital evolves, and more specifically, on the role of government institutions in promoting or hindering social capital. This paper develops a model of social capital evolution that focuses on the interaction between government institutions related to contract enforcement and the incentives for civic engagement. The key results suggest a non-linear relationship between government institutions and social capital development, with only intermediate levels of contracting institutions supporting social capital development. For countries with low-levels of social capital, there exists a social capital trap, as no level of contracting institutions can generate the incentives necessary to support the development of social capital. The presence of social divisions caused by factors such as ethnic diversity or wealth inequality may exacerbate this problem.

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LCERPA 2009-09
Title: UNDERSTANDING SOCIAL INCLUSION, SOCIAL COHESION AND SOCIAL CAPITAL
Author(s): Robert J. Oxoby
Date uploaded: Aug 2009

Abstract: The topics of social capital, social cohesion, and social inclusion are increasingly gaining interest in economics, sociology, and politics, particularly in regards to addressing poverty and designing related policies. Here, we seek to develop the connections and interdependencies between these related concepts. We offer a framework for understanding the differences between these concepts and how they fit together in individual decision making.

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LCERPA 2009-08
Title: A QUESTION OF SCALE: ETHNIC DIVERSITY AND THE PROVISION OF PUBLIC GOODS
Author(s): Ken Jackson
Date uploaded: June 2009

Abstract: Ethnic diversity has been shown to have negative consequences on the delivery of key public goods. It may be expected that the impact of ethnicity will be most critical in the diverse societies of Sub-Saharan Africa where the problems of development appear particularly in-tractable. However, given the centralized nature of African politics, the measurement of ethnic diversity is an important factor in the analysis. This paper demonstrates that ethnic diversity has a significant impact on the provision of basic public services such as water and electricity across 13 countries of Sub-Saharan Africa, when measured at local and regional scales, respectively.

Keywords - ethnic diversity, public goods, Africa JEL codes - H42, O17, H70

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LCERPA 2009-07
Title: FINANCIAL INTEGRATION, NOMINAL RIGIDITY AND MONETARY POLICY
Author(s): Ke Pang
Date uploaded: April 2009

Abstract: This paper analyzes the welfare impact of financial integration in a standard monetary open-economy model. Financial integration may reduce welfare in the presence of nominal price rigidity and constraints on the efficient use of monetary policy. The reason is that financial integration leads to an increase in the terms of trade volatility, which is already excessive from a welfare standpoint. From a policy perspective, the model implies that developing economies that are experiencing financial integration may attempt to alleviate the welfare cost of integration by stabilizing the exchange rate, which eliminates the excessive terms of trade adjustment. Hence, this paper provides a novel explanation of "fear of floating". On the other hand, for advanced economies that have the ability to operate efficient inflation targeting monetary policies, financial integration is always beneficial. Thus, the model accounts for the observed acceleration in cross-border asset trade among advanced economies in the early 1990s, as it was mainly the industrial countries that switched to an inflation targeting regime at the time.

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LCERPA 2009-06
Title: THE 1974 AND 2008 FOOD PRICE CRISES: DÉJÀ-VU?
Author(s): Sue Horton
Date uploaded: April 2009

Abstract: The most important policy lesson of the 1974 crisis - that additional investment in agricultural development is a high priority - is even more true in responding to the 2008 crisis. Climate change is bringing additional urgency to the needs in this area.

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LCERPA 2009-05
Title: IODINE STATUS AND AVAILABILITY OF IODIZED SALT: A CROSS-COUNTRY ANALYSIS
Author(s): Sue Horton and Alexander Miloff
Date uploaded: April 2009

Abstract: We use simple multivariate regression for two separate datasets, one for 30 developing countries, and one for 13 developed countries, using data on coverage of salt iodization and soil iodine levels. Results: Median urinary iodine excretion is significantly and positively related to household consumption of iodized salt (elasticity is 0.73) for developing countries, but the soil coefficient is not significant, likely because the dummy variable is not well measured. For the developed countries, there is a positive and significant effect of salt penetration rates (elasticity of 0.83), and a positive and significant effect of soil iodine(elasticity of 0.77). There is also a suggestion that countries with more serious soil deficits, are more likely to iodize salt, such that univariate regressions of urinary iodine excretion on salt consumption or penetration rates underestimate the beneficial effects of iodized salt availability on iodine nutrition. Conclusions: There are limitations to cross-section (ecologic) studies such as this, and the data are not perfect. Nevertheless, the results provide support for policies to iodize salt, given the widespread deficiency of iodine in diets worldwide.

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LCERPA 2009-04
Title: Equity Home Bias and Nominal Rigidity
Author(s): Ke Pang
Date uploaded: March 2009

Abstract: This paper examines optimal portfolio decisions in a monetary open-economy DSGE model. In a complete market environment, Engel and Matsumoto (2005) find that sticky price can generate equity home bias. However, their result is sensitive to the structure of the financial market. In an incomplete market environment, we find super home bias" in the equilibrium equity portfolio, which casts doubt on the ability of sticky price alone in describing the observed equity portfolios. We further show that introducing sticky wage helps to match the data.

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LCERPA 2009-03
Equality Through Exposure: International Trade and the Racial Wage Gap
Author(s): Azim Essaji, Gregory Sweeney and Alexandros Kotsopoulos
Date uploaded: Jan 2009

Abstract: A key implication of Becker's (1957) work on discrimination is that greater product market competition can reduce employment discrimination generally, and discriminatory wage gaps in particular. Using US data on manufacturing wages and import exposure, we explore whether increased competition, in the form of a heightened exposure to imports, reduces the racial wage gap. Our findings support Becker's contention. We find that import exposure helped narrow the racial wage gap by about 1.4 percentage points between 1983 and 1993. The effect is especially pronounced among the most disadvantaged: unskilled Southern workers. For them, import exposure helped reduce racial wage disparities by 2.2 percentage points.

This paper is published in the Journal of Economic Policy Reform, 13(4): 313-323 (December, 2010) http://www.tandf.co.uk/journals/titles/13841289.asp


LCERPA Research paper number: 2009-02
Common (Stock) Sense about Risk-Shifting and Bank Bailouts
Author(s): Linus Wilson and Wendy Wu
Date uploaded: Jan 2009

Abstract: If a bank faces potential insolvency, it will be tempted to reject good loans and accept bad loans to shift risk onto its creditors. We analyze effectiveness of buying up toxic mortgages in troubled banks, buying preferred stock, and buying common stock. If bailouts for banks that are deemed 'too-big-too-fail' involve buying assets at above market values, then these banks are encouraged ex ante to gamble on bad assets. Buying up common (preferred) stock is always the most (least) ex ante- and ex post-efficient type of capital infusion whether or not the bank volunteers for the recapitalization.

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LCERPA Research paper number: 2009-01
First Contract Arbitration: Effects on Bargaining and Work Stoppages
Author(s): Susan Johnson
Date uploaded: Jan 2009

Abstract: Newly certified unions often have a difficult time negotiating a first agreement. The Employee Free Choice Act contains a proposal to reform the National Labor Relations Act to provide for First Contract Arbitration (FCA). This article uses a panel of Canadian jurisdictions which have introduced FCA at different times over several decades, to address three questions:

(1) How does first contract arbitration (FCA) affect the incidence of first agreement work stoppages? (2) Does FCA encourage or discourage collective bargaining involving first agreements? (3) Does FCA influence the duration of first agreement work stoppages? I find that FCA reduces first agreement work stoppage incidence by at least 50 percent. Despite this, FCA is not accessed frequently and it is even rarer for a first contract (in whole or in part) to be imposed. Together these results suggest that FCA encourages collective bargaining by creating an incentive for the parties to bargain in good faith and negotiate an agreement. Finally, FCA has no statistically significant impact on the duration of first agreement work stoppages.

For a copy of this paper, please contact the author directly: sjohnson@wlu.ca


LCERPA Research paper number: 2008-04
Title: Factor adjustments after deregulation: panel evidence from Columbian plants.
Author(s): Marcela Eslava, John Haltiwanger, Adriana Kugler and Maurice Kugler
Date uploaded: Sep 2008

Abstract: We analyze employment and capital adjustments using plant data from the Colombian Annual Manufacturing Survey. We estimate adjustment functions for capital and labour as a non-linear function of the gaps between desired and actual factor levels, allowing for interdependence in adjustments of the two factors. In addition to non-linear employment and capital adjustments in response to market fundamentals, we find that capital shortages reduce hiring and labour surpluses reduce capital shedding. We also find that after factor market deregulation in Colombia in 1991, factor adjustment hazards increased on the job destruction and capital formation margins. Finally, we find that completely eliminating frictions in factor adjustment would yield a substantial increase in aggregate productivity through improved allocative efficiency. Yet, the actual impact of the Colombian deregulation on aggregate productivity through factor adjustment was modest.




LCERPA Research paper number: 2008-03
Title: Product Quality at the Plant Level: Plant Size, Exports, Output Prices and Input Prices in Colombia
Author(s): M. Kugler and E. Verhoogen
Date uploaded: Jan 2008

Abstract: This paper uses uniquely rich and representative data on the unit values of 'outputs' (products) and inputs of Colombian manufacturing plants to draw inferences about the extent of quality differentiation at the plant level. We extend the Melitz (2003) framework to include heterogeneity of inputs and a complementarity between plant productivity and input quality in producing output quality and we show that the resulting model carries distinctive implications for two simple reduced-form correlations - between output prices and plant size and between input prices and plant size - and for how those correlations vary across sectors. We then document three plant level facts: (1) output prices are positively correlated with plant size within industries, on average; (2) input prices are positively correlated with plant size within industries, on average; and (3) both correlations are more positive in industries with more scope for quality differentiation, as measured by the advertising and R & D intensity of U.S. firms. The correlations between export status and input and output prices are similar to those for plant size. These facts are consistent with our model of quality differentiation of both outputs and inputs, and difficult to reconcile with models that assume homogeneity or symmetry of either set of goods. Beyond recommending an amendment of the Melitz (2003) model, the results highlight shortcomings of standard methods of productivity estimation, generalize and provide an explanation for the well-known employer size-wage effect, and suggest new channels through which liberalization of trade in output markets may affect input markets and vice-versa.

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LCERPA Research paper number: 2008-02
Title: Revisiting the Coyne Affair: A Singular Event that Changed the Course Of Canadian Monetary History
Author(s): Pierre Siklos
Date uploaded: Aug 2008

Abstract: The Coyne Affair is the greatest institutional crisis faced by the Bank of Canada in its history. The crisis took place in 1959-1961 and led to the resignation of the Governor, once he was cleared of any wrongdoing. The crisis eventually resulted in a major reform of the Bank of Canada Act. Archival and empirical evidence is used to assess the performance of monetary policy throughout the 1950s. In doing so, a real-time dataset is constructed for both Canada and the US that permit estimation of reaction functions. I find that the case against James Coyne is 'not proven'.

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LCERPA Research paper 2008-01
Title: A model of duel-market airport operations to assess Canada's airport rent formula.
Author(s): William G. Morrison
Date uploaded: 17-09-08

Abstract: This paper develops a model in which an airport has both aviation and non-aviation activities and where demand complementarities exist between these markets. The model provides an analysis of aviation charges, and output under for-profit and non-profit governance structures, and in the case of non-profit airports, the model is used to assess the impact of Canada's recently revised airport rent formula, implemented as an ad valorem tax.

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