This paper presents evidence on the link between employment protection legislation (EPL) and the ... more This paper presents evidence on the link between employment protection legislation (EPL) and the rate of unemployment in a crosscountry panel data set of OECD countries from 1985-2013. We use both a traditional panel specification with lags of the policy variable, and also a unique structural panel vector autoregression (PVAR) method to determine the long-run dynamic interaction between employment protection legislation and unemployment. We confirm that more restrictive EPL for permanently employed workers causes a significant and persistent increase in unemployment, but the effect is only apparent at long lag lengths, some 2-5 years after the law has been implemented. (JEL: J68, J65, J63)
This paper presents a greater fool bubble model with risk averse agents and examines the welfare ... more This paper presents a greater fool bubble model with risk averse agents and examines the welfare consequences of anti-bubble policy. A central bank that perfectly observes overpricing in asset markets attempts to protect investors by making a public announcement whenever any single agent observes that assets are overpriced. This " general deflation of overpriced assets " policy makes the value of the asset common knowledge in states of the world where the asset would have been overpriced, and prevents speculative bubbles from forming. We show that this policy will be welfare diminishing for both buyers and sellers in asset markets if the utility function exhibits constant absolute risk aversion. If utility exhibits decreasing absolute risk aversion, there are some distributions of wealth for which the policy will definitely diminish welfare for both buyers and sellers. However, we show that there are no utility functions under which the policy will definitely increase welfare for either buyers or sellers. This happens because the central bank's information revelation prevents buyers from fully sharing risk with sellers, as in Hirshleifer (1971).
This paper presents evidence on the link between employment protection legislation (EPL) and the ... more This paper presents evidence on the link between employment protection legislation (EPL) and the rate of unemployment in a crosscountry panel data set of OECD countries from 1985-2013. We use both a traditional panel specification with lags of the policy variable, and also a unique structural panel vector autoregression (PVAR) method to determine the long-run dynamic interaction between employment protection legislation and unemployment. We confirm that more restrictive EPL for permanently employed workers causes a significant and persistent increase in unemployment, but the effect is only apparent at long lag lengths, some 2-5 years after the law has been implemented. (JEL: J68, J65, J63)
This paper presents a greater fool bubble model with risk averse agents and examines the welfare ... more This paper presents a greater fool bubble model with risk averse agents and examines the welfare consequences of anti-bubble policy. A central bank that perfectly observes overpricing in asset markets attempts to protect investors by making a public announcement whenever any single agent observes that assets are overpriced. This " general deflation of overpriced assets " policy makes the value of the asset common knowledge in states of the world where the asset would have been overpriced, and prevents speculative bubbles from forming. We show that this policy will be welfare diminishing for both buyers and sellers in asset markets if the utility function exhibits constant absolute risk aversion. If utility exhibits decreasing absolute risk aversion, there are some distributions of wealth for which the policy will definitely diminish welfare for both buyers and sellers. However, we show that there are no utility functions under which the policy will definitely increase welfare for either buyers or sellers. This happens because the central bank's information revelation prevents buyers from fully sharing risk with sellers, as in Hirshleifer (1971).
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