steinar holden
University of Oslo, Department of Economics, Faculty Member
We develop an equilibrium theory of credit rating in the presence of rollover risk. By in uencing rational creditors, ratings a ect sovereigns' probability of default, which in turn a ects ratings. In equilibrium, credit rating is... more
We develop an equilibrium theory of credit rating in the presence of rollover risk. By in uencing rational creditors, ratings a ect sovereigns' probability of default, which in turn a ects ratings. In equilibrium, credit rating is pro-cyclical and magni es underlying market conditions. Moreover, biased incentives of credit rating agencies are ultimately self-defeating a bias toward issuers makes sovereign debt more risky.
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In most European countries, money wages are given in collective agreements or individual employment contracts, and the employer cannot unilaterally cut wages, even after the expiration of a collective agreement. Ceteris paribus, workers... more
In most European countries, money wages are given in collective agreements or individual employment contracts, and the employer cannot unilaterally cut wages, even after the expiration of a collective agreement. Ceteris paribus, workers have a stronger bargaining position when they try to prevent a cut in money wages. If inflation is so low that some money wages have to be cut, workers' stronger bargaining position requires higher unemployment in equilibrium. However, inflation is more stable when money wage rigidity binds, providing an incentive for monetary policy makers to choose a low target for inflation, which is easier to fulfil.
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This paper analyzes the relationship between the budget balance and the cyclical situation of the economy. There are two main purposes. In the first analysis, we develop a method for economic policy, and induced changes that arise due to... more
This paper analyzes the relationship between the budget balance and the cyclical situation of the economy. There are two main purposes. In the first analysis, we develop a method for economic policy, and induced changes that arise due to changes in the economy. The discretionary component of the change in the budget balance measure changes in fiscal stance and can be used as a fiscal policy indicator. As a measure of changes in fiscal policy, the proposed indicator has two advantages over existing indicators used by international organizations. First, the adjustment of changes in the economy is attached to important tax bases, rather than to the GDP, leading to higher accuracy when tax bases are not perfectly component does not include the effect on the budget balance of structural changes in the economy (as measured by potential output), that are not directly related to fiscal policy. The induced change component can be used to evaluate the cyclical sensitivity of public finances w...
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RÉSUMÉ ............................................................................................................................ 2 THE UNEMPLOYMENT PROBLEM A NORWEGIAN PERSPECTIVE................................ .......... 5
This paper establishes a new fact about the compositional changes in the pool of unemployed over the U.S. business cycle and evaluates a number of theories that can potentially explain it. Using micro-data from the Current Population... more
This paper establishes a new fact about the compositional changes in the pool of unemployed over the U.S. business cycle and evaluates a number of theories that can potentially explain it. Using micro-data from the Current Population Survey for the years 1962-2011, it documents that in recessions the pool of unemployed shifts towards workers with high wages in their previous job. Moreover, it shows that these changes in the composition of the unemployed are mainly due to the higher cyclicality of separations for high-wage workers, and not driven by differences in the cyclicality of job-finding rates. A search-matching model with endogenous separations and worker heterogeneity in terms of ability has difficulty in explaining these patterns, but an extension of the model with creditconstraint shocks does much better in accounting for the new facts.
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We provide a new explanation for why firms pay for general training in a competitive labor market. If firms are unable to tailor individual wages to ability, for informational or institutional reasons, they will pay for general training... more
We provide a new explanation for why firms pay for general training in a competitive labor market. If firms are unable to tailor individual wages to ability, for informational or institutional reasons, they will pay for general training in order to attract better quality workers. The market provision of training may well exceed the first best level. Our explanation relies on wage compression within skill categories, while imperfect competition based explanations for firm subsidised general training rely on wage compression across skill categories. JEL Classification: J31, D82. V. Bhaskar Department of Economics University of Essex Wivenhoe Park Colchester CO4 3SQ United Kingdom vbhas@essex.ac.uk Steinar Holden Department of Economics University of Oslo Box 1095 Blindern 0317 Oslo Norway steinar.holden@econ.uio.no Thanks to Alison Booth, Espen Moen and seminar participants at Essex for useful comments. V. Bhaskar thanks the Economic and Social Research Council, UK for its support und...
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This paper explores the existence of downward real wage rigidity (DRWR) in 19 OECD countries, over the period 1973-1999, using data for hourly nominal earnings at industry level. Based on a nonparametric statistical method, which allows... more
This paper explores the existence of downward real wage rigidity (DRWR) in 19 OECD countries, over the period 1973-1999, using data for hourly nominal earnings at industry level. Based on a nonparametric statistical method, which allows for country and year specific variation in both the median and the dispersion of industry wage changes, we find evidence of some downward rigidity of real wages in OECD countries overall, as well as for regions and time periods. There is some evidence that real wage cuts are less prevalent under strict employment protection legislation and high union density. Generally, we find stronger evidence for downward nominal than for downward real wage rigidity.
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What is the economic role of credit rating agencies (CRAs), and how should they be paid? We study how credit rating agencies (CRAs) can serve as coordination device, and thereby prevent or cause ineffi cient liquidation of projects with a... more
What is the economic role of credit rating agencies (CRAs), and how should they be paid? We study how credit rating agencies (CRAs) can serve as coordination device, and thereby prevent or cause ineffi cient liquidation of projects with a long horizon. We show that if CRAs can impact real outcomes, then their reputation concerns hamper truthful revelation of information, and, as a consequence, limit their ratings’informational content. We then show that equilibrium behavior is shaped by two prominent regimes: (i) an ‘optimistic’regime in which CRAs tend to give good ratings, and (ii) a ‘pessimistic’regime in which CRAs tend to give bad ratings. But both regimes are self-defeating: (i) only bad ratings do affect investors’ behavior in an optimistic regime while (ii) only good ratings affect investors’ behavior in a pessimistic regime. Existing evidence on the environment preceding the financial turmoil starting in 2007-2008 fits with our characterization of an optimistic regime. Henc...
This paper treats the oil market as an oligopoly with a competitive fringe. The oligopoly is assumed to consist of Egypt, Oman, Mexico, Malaysia and Norway plus all OPEC members. The remaining oil producing countries are included in a... more
This paper treats the oil market as an oligopoly with a competitive fringe. The oligopoly is assumed to consist of Egypt, Oman, Mexico, Malaysia and Norway plus all OPEC members. The remaining oil producing countries are included in a fringe which by assumption takes the oil price development as exogenously given. Outcomes with varying degrees of collusion within the oligopoly are specified. Intermediate cases are also studied, such as complete or partial cooperation within OPEC, but no cooperation between OPEC and any other countries in the oligopoly. The model is implemented in the PCbased MODLER software, and empirical results from the simulations on the different model versions are presented. Not to be quoted without permission from author(s). Comments welcome. THE OIL MARKET AS AN OLIGOPOLY Kjell Berger, Michael Hoel, Steinar Holden and . Øystein Olsen *
Inflation can “grease” the wheels of economic adjustment in the labor market by relieving the constraint imposed by downward nominal wage rigidity, but not if there is also substantial downward real wage rigidity. At the same time,... more
Inflation can “grease” the wheels of economic adjustment in the labor market by relieving the constraint imposed by downward nominal wage rigidity, but not if there is also substantial downward real wage rigidity. At the same time, inflation can throw “sand” in the wheels of economic adjustment by degrading the value of price signals. A number of recent studies suggest that wage rigidity is much more important for business cycles and monetary policy than previously believed (see Erceg, Henderson and Levin, 2000, Smets and Wouters, 2003, and Hall, 2005). Thus, our results on how wage rigidity and other labor market imperfections vary between countries and how they are affected by the rate of inflation should be of considerable value in formulating monetary policy and conducting related research.
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We provide a new explanation for why firms pay for general training in a competitive labor market. If firms are unable to tailor individual wages to ability, for informational or institutional reasons, they will pay for general training... more
We provide a new explanation for why firms pay for general training in a competitive labor market. If firms are unable to tailor individual wages to ability, for informational or institutional reasons, they will pay for general training in order to attract better quality workers. The market provision of training may well exceed the first best level. Our explanation relies on wage compression within skill categories, while imperfect competition based explanations for firm subsidised general training rely on wage compression across skill categories.
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We study a search model with employment protection legislation. We show that if the output from the match is uncertain at the hiring stage, a discriminatory equilibrium may exist in which workers with the same productive characteristics... more
We study a search model with employment protection legislation. We show that if the output from the match is uncertain at the hiring stage, a discriminatory equilibrium may exist in which workers with the same productive characteristics are subject to different hiring standards. If a bad match takes place, discriminated workers will take longer to find another job, prolonging the costly period for the firm. This makes it less profitable for firms to hire discriminated workers, thus sustaining the discrimination. In contrast to Becker’s model, the existence of employers with a taste for discrimination may make it more profitable to discriminate, even for firms without discriminatory preferences.
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Iceland is recovering after a severe crisis, which is an impressive turnaround by any standard. However, the improvement of the economy has led to a rising wage growth, which, if it continues, may lead to another boom-bust cycle.... more
Iceland is recovering after a severe crisis, which is an impressive turnaround by any standard. However, the improvement of the economy has led to a rising wage growth, which, if it continues, may lead to another boom-bust cycle. Persistent high wage growth is likely to induce the central bank to raise the interest rate, so as to prevent inflation from exceeding the inflation target. A combination of high wage growth and a monetary tightening would likely lead to appreciation of the Icelandic krona, which would weaken the competitive position of Icelandic firms. To ensure that wage growth is reduced down to sustainable levels, Iceland would benefit from adopting a wage leadership model, also referred to as a pattern bargaining model, like the Norwegian “frontfag-model”. Establishing a wage leadership model requires three steps. - Develop a common understanding among the labour market parties about the challenges and the need for sustainable wage growth. - Establish a wage leader whi...
Most wage-contracting models with rational expectations fail to replicate the persistence in inflation observed in the data. We argue that coordination problems and multiple equilibria are the keys to explaining inflation persistence. We... more
Most wage-contracting models with rational expectations fail to replicate the persistence in inflation observed in the data. We argue that coordination problems and multiple equilibria are the keys to explaining inflation persistence. We develop a wage-contracting model in which workers are concerned about being treated fairly. This model generates a continuum of equilibria (consistent with a range for the rate of unemployment), where workers want to match the wage set by other workers. If workers’ expectations are based on the past behavior of wage growth, these beliefs will be self-fulfilling and thus rational. Based on quarterly U.S. data over the period 1955-2000, we find evidence that inflation is more persistent between unemployment rates of 4.7 and 6.5 percent, than outside these bounds, as predicted by our model.
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... no/sholden/. Fredrik Wulfsberg: Norges Bank, Box Sentrum, Oslo, Norway. Email:fredrik. wulfsberg@norges-bank.no, url: www.norges-bank.no/research/wulfsberg. ... zero. There could also be mechanisms working in the opposite... more
... no/sholden/. Fredrik Wulfsberg: Norges Bank, Box Sentrum, Oslo, Norway. Email:fredrik. wulfsberg@norges-bank.no, url: www.norges-bank.no/research/wulfsberg. ... zero. There could also be mechanisms working in the opposite direction. Tobin, and ...
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Hallvard Bakke, Klassekampen 20. oktober 2006: «Edmund Phelps fortjener ikke nobelprisen i økonomi ... Han (Phelps) hevdet at det finnes en «naturlig arbeidsløshet» ... Dette er naturligvis en teori som appellerer til høyresiden. Derfor... more
Hallvard Bakke, Klassekampen 20. oktober 2006: «Edmund Phelps fortjener ikke nobelprisen i økonomi ... Han (Phelps) hevdet at det finnes en «naturlig arbeidsløshet» ... Dette er naturligvis en teori som appellerer til høyresiden. Derfor har den holdt seg populær, enda det for lengst er klart at det finnes ingen slik naturlig ledighet ... Den svenske tildelingskomiteen har rett i at teorien til Phelps har hatt stor politisk betydning. Og dessverre ført til en langt høyere ledighet i mange land enn den behøvde å være. .... Mange økonomer, også i Norge, er gått på limpinnen.....»
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... We assume that the outcome of the wage negotiations is given by the Nash bargaining solution. ... the Nash maximand, and taking into consideration the non-differentiability of the payoff function of the union, the first order... more
... We assume that the outcome of the wage negotiations is given by the Nash bargaining solution. ... the Nash maximand, and taking into consideration the non-differentiability of the payoff function of the union, the first order conditions for the Nash bargain require that the left-...
Page 1. Nominal Wage Rigidity in Europe Steinar Holden and Fredrik Wulfsberg June 11, 2003 ... employment protection and strong labour unions. ■ Tobin (1972) hypothesis: At low inflation, nominal wage rigidity pushes up real wages... more
Page 1. Nominal Wage Rigidity in Europe Steinar Holden and Fredrik Wulfsberg June 11, 2003 ... employment protection and strong labour unions. ■ Tobin (1972) hypothesis: At low inflation, nominal wage rigidity pushes up real wages implying higher unemployment. ...
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Sammendrag En utbredt oppfatning er at sentralisert lønnsfastsettelse har gunstige virkninger ved å bidra til lav arbeidsledighet og mindre lønnsforskjeller, men at det til gjengjeld er uheldig for økonomiens effektivitet. Denne... more
Sammendrag En utbredt oppfatning er at sentralisert lønnsfastsettelse har gunstige virkninger ved å bidra til lav arbeidsledighet og mindre lønnsforskjeller, men at det til gjengjeld er uheldig for økonomiens effektivitet. Denne artikkelen drøfter om sentrale lønnsforhandlinger og mindre lønnsspredning har en negativ virkning på økonomiens effektivitet. Med utgangspunkt i vanlige sosialøkonomiske teorier for lønnsfastsettelse, argumenteres det for at det finnes flere motstridende virkninger på økonomiens effektivitet. Lønnsforskjeller mellom ulike typer arbeidskraft som reflekterer tilbudsog etterspørselsforhold i arbeidsmarkedet, har en gunstig effektivitetsmessig virkning. Derimot vil lønnsforskjeller mellom bedrifter og bransjer med bakgrunn i ulik forhandlingsposisjon ofte kunne ha negative virkninger på effektiviteten.
I nesten alle land er det store forskjeller mellom ulike grupper i arbeidsmarkedet, og mange studier finner at forskjellene er storre enn det som kan forklares med objektive kriterier. F.eks. finner OECD (2008) at annen generasjons... more
I nesten alle land er det store forskjeller mellom ulike grupper i arbeidsmarkedet, og mange studier finner at forskjellene er storre enn det som kan forklares med objektive kriterier. F.eks. finner OECD (2008) at annen generasjons innvandrere gjerne har 15–20 prosent lavere sysselsettingsrater enn resten av befolkningen, og at bare omtrent halvparten kan forklares med forskjeller i utdanningsniva. Tilsvarende viser en rekke studier der «falske» jobbsoknader sendes til ulike arbeidsgivere, at et utenlandsk navn pa ellers identiske soknader kan redusere sannsynligheten for a bli innkalt til intervju med 40–50 prosent. Slike forskjeller kan skyldes diskriminering, og det finnes en omfattende litteratur om ulike forklaringer pa slik diskriminering.
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The literature on downward nominal wage rigidity is mainly empirical, often with a reference to casual or survey evidence that workers and employers find nominal wage cuts unfair. There is rarely a link to the mainly theoretical... more
The literature on downward nominal wage rigidity is mainly empirical, often with a reference to casual or survey evidence that workers and employers find nominal wage cuts unfair. There is rarely a link to the mainly theoretical literature explaining nominal wage rigidity as the result of efficient nominal wage contracts. This paper explores the empirical implications of standard models of nominal wage rigidity, based on both fairness considerations and contracts, and compares them with existing empirical evidence. None of the models is fully consistent with the existing empirical evidence. However, an extended theory where fairness considerations are added to a contract model, seems more consistent with empirical evidence.