Cardiff Business School

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Previous empirical literature suggests that estimated wage cyclicality depends on the structure of the relationship between real wages and an observed indicator of the business cycle that econometric models impose prior to estimation. This paper, alleviates the problem of imposing such structure by searching directly for the largest common cycles in longitudinal microdata using a Bayesian dynamic latent factor model. We find that the comovement of real wages is related to a common factor that exhibits a significant but imperfect correlation with the national unemployment rate. Among others, our findings indicate that the common factor explains, on average, no more than 9% of wage variation, it accounts for 20% or less of the wage variability for 88% of the workers in the sample and roughly half of the wages move procyclically while half move countercyclically. These facts are inconsistent with claims of a strong systematic relationship between real wages and business cycles.

Arghyrou, Gregoriou and Pourpourides (2009) argue that exchange rate uncertainty causes deviations from the law of one price. We test this hypothesis on aggregate data from the G7-area. We find that exchange rate uncertainty explains to a significant degree deviations from Purchasing Power Parity.

In this paper we investigate the cyclicality of real wages. The approach we take is to search for the largest possible common cyclical component in a statistical sense. This contrasts with the existing literature which uses observable variables to proxy for a common cycle. We do so by using a Bayesian dynamic latent factor model and longitudinal microdata. We find that the comovement of real wages can be related to a common factor that exhibits a significant but far from perfect correlation with the national unemployment rate. Our findings indicate that (i) the common factor explains, on average, no more than 9% of wage variation, (ii) the common factor accounts for 20% or less of the wage variability for 88% of the workers in the sample and (iii) roughly half of the wages move procyclically while half move countercyclically. These facts are inconsistent with claims of a strong systematic relationship between real wages and the business cycle. We show that these results are inconsis...

Parental transfers towards the education of children are non-trivial, especially in countries, characterized by both imperfect credit markets and high economic growth rates. In this paper, we analyze the role of parental altruism on economic growth and dynamic efficiency, especially when credit markets for education loans are missing. We demonstrate conditions under which missing or imperfect credit markets increase economic growth and do not hinder dynamic efficiency. We also show that a newly constructed index of parental altruism, orthogonal to income effects, exhibits high cross-country correlations with model-implied measures of parental altruism at different levels of credit market development. JEL Classification Codes: I25, O16, O41