- (K1971) + year 1970 = 8:19: Given the quarterly series of gross investment from the INE, and the initial capital to investment ratio for 1970, we aggregate the capital stock using a time-varying depreciation rate such that the growth rates in the quarterly series of capital equal the growth rates obtained in (17) from the EU KLEMS data base. For instance, given the initial capital stock estimated for 1970:4 and the growth rate of capital (K1971) =0.053, the quarterly depreciation rate is selected to match the 29 http://www.upo.es/econ following equation: K1971:4 = (1 )4 K1970:4 + I1971:4 + (1 ) I1971:3 (19) + (1 )2 I1971:2 + (1 )3 I1971:1; with fI1971:qg4 q=1 being the ‡ow of 1971 INE quarterly investment estimates. The time variation in the depreciation rates re‡ects changes in the composition of the portfolio of physical assets.
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- 1. Abiad, Abdul, Enrica Detragiache, and Thierry Tressel (2008) A new database of …nancial reforms. International Monetary Fund Working Paper WP/08/266. 21 http://www.upo.es/econ 2. Ahearne, Alan, Finn Kydland, and Mark A. Wynne (2006) Ireland’ s great depression. The Economic and Social Review 37, 215-243.
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- 3. Allard, Gayle (2005a) Measuring job security over time: in search of a historical indicator for employment protection legislation. Instituto de Empresa Working Paper WP05-17.
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- 4. Allard, Gayle (2005b) Measuring the changing generosity of unemployment bene…ts: beyond existing indicators. Instituto de Empresa Working Paper No. WP-05.
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5. Andrews, D. (1993) Test for Parameter Instability and Structural Change with Unknown Change Point. Econometrica, 821-856.
6. Andrews, D. and Ploberger, W. (1994) Optimal tests when a nuisance parameter is present under the alternative. Econometrica vol. 62, 1383-1414.
7. Blanchard, Olivier and Justin Wolfers (2000) The role of shocks and institutions in the rise of European unemployment: the aggregate evidence. The Economic Journal 110, C1-C33.
8. Bentolila, Samuel, Marcel Jansen, Gabriel Jiménez, and Sonia Ruano (2013) When credit dries up: job losses in the Great Recession. Mimeo.
9. Boldrin, Michele, J. Ignacio Conde-Ruiz, and Javier DÃaz-Giménez (2010) Eppur si muove! Spain: growing without a model. FEDEA Documento de Trabajo No. 2010-11.
- A Dataset National accounts and sample selection We split the analysis into two disjoint samples, 1976:3-1994:4 and 1995:1-2011:2. The reason for this is twofold. First, as Jimeno, Moral, and Saiz (2007) have documented, there is a clear break in Spain’ s productivity that happened around 1994. See also our own break analysis at the end of the current Section.10 We want to avoid having our estimation procedure produce biased parameter values if estimation is done for a sample that overlaps the break.
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- Allard (2005a) extended the OECD methodology for a longer horizon (1950 to 2003) and takes account of other aspects of protection that constrain …rms’hiring and …ring decisions, such as the scope of bargaining in substituting o cial legal protection and the role of private litigation.
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- An analogous method is applied to construct the capital stock series for the second database (1995:1-2011:2). The average depreciation rate over the period is 4.04% on annual terms.
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- Andrews (1993) shows the asymptotic properties of the statistic: sup T2[0:15T;0:85T] FT = sup FT T ; (24) and reports the asymptotic critical values. 32 http://www.upo.es/econ Andrews and Ploberger (1994) propose two additional statistics: exp FT = ln 1 1 + 0:85T 0:15T 0:85T X T=0:15T exp 1 2 FT T ; (25) aveFT = 1 1 + 0:85T 0:15T 0:85T X
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- Apart from the indicators outlined above, we need to mention the important eect of the 1978 Constitution and the 1978 Moncloa Pacts. These institutions promoted the creation of the 18 For comparison purposes, the values of the index for the United States were 0.63 in 1973 and unity in 1998. 19 This analysis lacks an aggregate indicator for the degree of market power in the goods market, as a source of distortions manifesting through the labor wedge. Although the OECD provides some measures, these are limited to a few years or to a small sample of sectors. 44 http://www.upo.es/econ Estatuto de los Trabajadores as a benchmark for labor factors aecting the wage mechanism and the labor supply: a legal minimum wage, weekly rest for at least one day and a half, fourteen holidays during the year, and thirty days of vacations per worked year. Labor unions, the freedom to unionize, and strikes were legalized in 1977. 1975 1980 1985 1990 1995 2000 2005 1 1.5 2 2.5 3 3.5 4 4.5 5
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- For the nominal wage, we use an index of wages negotiated under collective bargaining. The real wage is calculated dividing the nominal wage index by the CPI. In Spain, the fraction of workers whose wages are the result of collective bargaining has grown from 65.0% in 1976 to about 90.0% currently. The source of the wage index is Ministry of Employment (Ministerio de Empleo, SGAM, rea de Mercado Laboral). The source for the consumption price index CPI is INE.
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- Given the steady-state conditions (28)-(31), the …ve targets, a labor income share 0:636, and a Frisch elasticity of labor supply 1=3, we report the equilibrium values of the parameters in Table B.2. Table B.2: Parameters De…nition Parameter Value Subjective discount rate (yearly) 0:9613 Willingness to work 117:7374 Frisch elasticity 0:3333 Depreciation rate (yearly) 0:0422 Capital income share 0:3638 Technology A0 0:8076 C An open economy framework This section presents a robustness check of the BCA methodology. We extend the BCA methodology to consider an open economy speci…cation following Lama (2011).
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- It Kt : (18) with year being the aggregate yearly depreciation rate of capital. We report the geometrical depreciation rates of the eight assets given in the EU KLEMS dataset, year j , in Table A.2. Using the nominal share of investment in 1970, sI j;1970, we obtain an aggregate depreciation rate year 1970 = X j
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- sI j;t year j = 0:069: The annual growth rate of aggregate capital for 1971 ( (K1971)) is 0.053. From expression (18) the initial capital-to-investment ratio for 1970 becomes K1970 I1970 = 1
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- T=0:15T FT T : (26) We use the approach suggested by Hansen (2000) for the p-values associated with these three statistics. The results of the tests are shown in Table A.3. Using the LR test, we identify three lags for the AR order of the complete sample (i.e. p = 3 on (20)), 1976:3-2012:3. When the tests (24), (25), and (26) are applied for the complete period 1976:3-2012:3, a break is identi…ed at 2006:3, as its associated p-values are below the critical value of 0.10. The test for joint signi…cance points out a break in 1995:4.
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- Table B.1: Targets (annual terms) 1976:3-1994:1 1995:1-2012:3 Output growth, y 2.24% 2.24% TFP growth, z 1.48% 0.54% Employment growth, h 0.75% 1.69% The steady-state equilibrium satis…es a system of four equations: l1+1= ss = (1 ) yss css ; (28) (1 + z) (1 + l) = 1 + yss kss ; (29) (1 + z) (1 + l) = 1 + xss kss ; (30) yss = A0kssl1 ss ; (31) that when solved yield the value of the three parameters for our targets of the steady-state values. The targets we choose are: 1. The fraction of time devoted to market activities: lss = 0:31. 2. The steady-state consumption-output ratio: css=yss = 0:585. 3. The steady-state investment-output ratio: xss=yss = 0:225. 4. The capital-output ratio in yearly terms kss=yss = 3:49. 35 http://www.upo.es/econ 5. Steady state output, yss = 1.
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- Taking for granted the break on 2006:3, the tests are again applied within the sample 1976:32006: 2. The null hypothesis is rejected by the three tests, with 1994:4 the identi…ed break point for the joint test (the p- values are below the critical 10% level). An additional break is also identi…ed for 1985:2.
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- This calibration is used for a simulation exercise in Section 5 of the paper. Section C extends the BCA methodology to an open economy framework, following Lama (2011). This complements the standard BCA analysis of Sections 3 and 4 in the paper. Some statistical properties of the wedges can be found in Section D. A detailed description of the variables used in the regression analysis in Section 6 can be seen in Section E. In Section F, …nally, we give a detailed description of the software codes used in the BCA anlaysis.
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- Unionization and collective bargaining Figure E.4 reports union density (aggregate percentage of workers who are members of a union) and union coverage (share of workers whose earnings are aected by collective bargaining agreements between labor unions and employers). The values are borrowed from Nickell’ s (2006) database. Union density slowly increased after the advent of democracy, peaking in 1994; density stands at about 14% in 2003. The union coverage ratio amounts to about 80% in 2003. For Japan and the U.S. the coverage ratio is small (18% and 14%) and meets the density ratio closely, given that unions operate at the plant level. Flanagan (1999) surveys a variety of studies and analyzes correlations between union density and variables such as in‡ation and the unemployment rate. The general …nding points toward no correlation.
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- VAT reforms occurred in 1992 and 1998. 43 http://www.upo.es/econ where Lt denotes the labor income tax rate and Ct denotes the consumption tax rate. The tax wedge expression (34) stands for an overall measure of existing tax pressure. When both Lt and Ct are zero, the tax wedge (34) is nil.
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- We have …ve standard parameters: P = f ; ; ; ; g : We need to add the productivity and the population growth rates, which we choose according to the estimated trends of output and total hours worked, y and n. In annual terms, the growth rates are shown in Table B.1. The growth rates for TFP and labor force meet the requirement (27). As we saw earlier, we estimate an annual GDP growth rate of 2.24% across the entire period. Productivity growth was high and employment growth was weak during the …rst period, 1976:3-1994:4; the opposite scenario happens for the second period, 1995:1-2012:3, where there was high employment growth and low productivity.
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- We set DATASET=1 if we want to estimate the VAR in the …rst episode (1976:3-1994:4) and DATASET=2 if we want to do so for the second episode (1995:1-2011:2). (ZVAR is automatically set based on the value of DATASET.) MLEQ.M, MLESEQ.M, RES_WEDGE.M Auxiliary …les for the RUNMLE.M script. MLEQ.M and MLESEQ.M use the growth rates calculated in SPADATA.M as well as model parameters that have been calibrated previously. These two …les calculate the log-likelihood and are used to directly estimate parameter values and to calculate the standard errors. RES_WEDGE.M contains the residuals from the model’ s equilibrium conditions; it is used to derive the policy functions which are required to calculate the likelihood.
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- World Bank Policy Research Working Paper No. 2944.
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