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The governance of a fragile Eurozone
Paul De Grauwe

[Keywords: Eurozone, European central bank, monetary union, multiple equilibria, government debt crisis, lender of last resort; JEL: F30, F33]

When entering a monetary union, member-countries change the nature of their sovereign debt in a fundamental way, i.e. they cease to have control over the currency in which their debt is issued. As a result, financial markets can force these countries' sovereigns into default. In this sense, member countries of a monetary union are downgraded to the status of emerging economies. This makes the monetary union fragile and vulnerable to changing market sentiments. It also makes it possible that self-fulfilling multiple balances arise. This text analyzes the implications of this fragility for the governance of the Eurozone, and concludes that the new governance structure (ESM) does not sufficiently recognize this fragility. Some of the features of the new financial assistance are likely to increase this fragility. In addition, member-countries may lose the capacity to use automatic stabilizers during a recession. This is surely a step backward. The text suggests a different approach to manage these problems.

Banking crises and the international monetary system in the Great Depression and now
Richhild Moessner and William A. Allen

[Keywords: banking crises, International Monetary System, liquidity, Great Depression, central bank JEL: E58, F33, N1]

We identify similarities and differences in the scale and nature of the banking crises in 2008-2009 and the Great Depression, and analyse differences in the policy response to the two crises in light of the prevailing international monetary systems. We find that the scale of the banking crisis, as measured by falls in international short-term indebtedness and total bank deposits, was smaller in 2008-2009 than in 1931. However, central bank liquidity provision was larger in the flexible exchange rate environment of 2008-2009 than in 1931, when it had been constrained in many countries by the gold standard.

Utilitarianism and Measurements of Poverty
Jorge Iván González

[Keywords: well-being, utilitarianism, capacities approach, poverty measures, Sen, Harsanyi; JEL: I31, I32, D63]

This paper shows the relationship between utilitarianism and measurements of poverty. Despite efforts to construct indexes that overcome utilitarianism's limitations, they are still profoundly influenced by the spirit of Bentham. It has not been possible to break the association between portions of wealth and happiness. Recent measurements of poverty -such as the multidimensional poverty index- are complements rather than substitutes of income-based indexes, such as the poverty line. Since it has not been possible to break away from utilitarianism, the best option is to take up the pertinent contributions of this school of thought, while at the same time taking on the challenge of going beyond utilitarianism. Instead of celebrating victory and proclaiming the end of utilitarianism, it is preferable to retake its central messages and seek that public policy effectively pursue the greatest happiness for the greatest number.

Political business cycle and size of towns: Colombia 1989-2008
Néstor Rubiano Páez [pdf][html]

[Keywords: political economy, political business cycle, political budget cycle, local public finance, Colombia; JEL: H3, H11, H30, H72]

This paper presents an empirical verification of the "political business cycle" hypotheses applied to 547 Colombian municipalities from 1989 to 2008. The econometric study reveals that smaller towns exhibit a cycle in public investment and fiscal deficit: both variables increase before elections and fall after them. These results are placed in the Colombian social context to discuss why the cycle occurs in those municipalities and the coincidence with differences in the efficiency of public expenditure to reduce poverty, as measured by unsatisfied basic needs. Some policies are recommended in order to reduce the adverse effects of this cycle and improve efficiency.

Educational apartheid. Education, inequality and lack of social mobility in Bogotá
Mauricio García Villegas and Laura Quiroz López [pdf][html]

[Keywords: socioeconomic inequality, social discrimination, secondary education; JEL: D63, I21, J16]

This paper presents the results of research on socioeconomic inequality in Bogota's secondary education (year 2009). The results show that socioeconomic student level is significantly associated both to educational access (public or private), and to educational quality (ranking in State test - Icfes). This demonstrates that in Bogotá not only does each social class study separately, but also that rich people have access to a better education than poor people. This situation of social segregation (apartheid) aggravates some of the already pervasive Colombian problems: lack social mobility, economic inequality and illegitimacy of the political system.

Education and quality of employment in the main cities of Colombia
Jhon James Mora and María Paola Ulloa [pdf][html]

[Keywords: quality of employment, multinomial logit models, endogeneity, Murphy-Topel correction; JEL: C01, C13, J23, J81, O17]

This paper analyses the quality of employment in the major cities of Colombia in 2009. 'The results show that, although the quality of employment has improved since 2001, it still continues to be below the necessary level of quality employment. It also demonstrates the endogenous nature of education and proposes a correcting procedure for obtaining consistent and efficient estimators of employment quality. In differentiating between salaried and self-employed workers, the results reveal that if an individual is self-employed, an increase in the number of years of education does not contribute to improving the quality of employment. This effect only occurs in the case of salaried workers.

Performance of companies and institutional arrangements in Colombia, 2002-2007
Andrés Ramírez Hassan, Ramiro Cadavid Montoya and Santiago García Peláez [pdf][html]

[Keywords: neo-institutionalism, economic growth, violence, justice, financial development, industrial organization, dynamic models, generalized method of moments, Blundell-Bond method; JEL: D02, D29, L00]

In this paper, we estimate a dynamic panel data model to determine the effect of various institutional factors on the performance of a sample of Colombian companies during the period 2002-2007. Our results indicate that the analysed companies are affected by these factors. Institutions associated with property rights and contract compliance have significant effects on the growth of the firms. On the other hand, financial development does not have a significant effect.

Information and entropy in economics
Álvaro Montenegro [pdf][html]

[Keywords: information theory, entropy, messages, economics, eco- nometrics; JEL: A12, C00, G17]

This document explores various information theoretical concepts initially developed in physics and engineering and used today in many other fields. Information is defined as a quantity inversely proportional to the probability that an event happens and entropy is defined as the expected value of information. Some information applications in economics include Theil's inequality index, Akaike's information criterion, and the maximum entropy estimation method. Also, information theoretical concepts have been applied to the statistical analysis of financial data. This paper includes an empirical illustration relating to stock market price forecasting.

The institutional emptiness in the rational choice model applied to fertility
Rafael Barrera Gutiérrez [pdf][html]

[Keywords: economic thought, microeconomic behaviour, family economics, institutions; JEL: B25, D01, D02, D10]

This paper present two basic ideas. The first one is that the model of rationality applied to fertility and the interaction between quantity and quality were not originally proposed by Becker, as many of those interested in the subject tend to believe; and even that if this relation could seem clear, it is not obvious. The second one is that from the beginning the analysis of fertility has considered the institutional context. Criticism of Becker's model and more recent work strengthen the importance of institutional analysis for the study of the rationality of families in decisions on the number of children.

Model of public-private partnership: An approach from theory of contracts
Carlos Alberto Barreto Nieto [pdf][html]

[Keywords: contracts theory, public-private partnership, privatization, incentives, investment analysis; JEL: L14, L24, L33, O31, R42]

In contracts for construction of public services infrastructure, the private sector has strong incentives to reduce costs over the life of the project, which affects the quality of service. This paper extends the Hart's model to evaluate the benefits of public-private partnership, examining different types of ownership and introducing a simple mechanism for renegotiation. The exercise shows that government involvement is not justified by its ability to make innovations in quality, but because it internalizes the costs and benefits of investment in cost reduction by the private sector.

New structure of Chilean infrastructure bond's guarantees
Werner Kristjanpoller Rodríguez and John Díaz Antillanca [pdf][html]

[Keywords: concession system, infrastructure bond's guarantees, monoline bond insurers; JEL: H54, H81]

The Chilean concession system has been one of the cornerstones of the country's development, generating a strong relation between public and private sectors in the financing large scale projects. The recent financial crisis destroyed the trust and image of the monoline insurance companies, which insure infrastructure-related Chilean bonds, increasing their international risk classification to AAA. Given this context, it is mandatory to study new guarantee schemes for these Chilean infrastructure bonds, particularly for projects over US$200 millions. Two alternatives proposed are: a guarantee company, and concession contracts guarantees with private coverage.

Corporate control and shareholder wealth in the European power sector, 2000-2007
John García and Francesc Trillas [pdf][html]

[Keywords: corporate control, event study and value of firms; JEL: G14, G34, G38]

This paper analyses how the announcement of changes in corporate control (tender offer) of Endesa, Hidrocantábrico and Scottish Power have affected their stock prices and the impact that these events have on the stock market returns of competitors of the target firm. Using an "event study" methodology we find that takeovers positively and significantly affect, at the 1% level, the stock market return of the target firm. Results are robust across several econometric specifications such as garch and mco models. Also, the results suggest the announcement of a tender offer positively and significantly affects the stock market return of the target firm's competitors.



Revista de Economía Institucional
Universidad Externado de Colombia
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