Review of Economic Analysis <p><em>Review of Economic Analysis</em>&nbsp;is an open access, peer reviewed economic journal. We are committed to open exchange of ideas and information. Unlike many open-access journals, we charge neither submission nor publication fees. We aim to become a leading general interest journal. We accept submissions from all fields of economics and offer rigorous refereeing process&nbsp; and wide dissemination.</p> <p>Papers published in open access journals are read and cited more and have greater impact than those published in fee-based journals.</p> <p>We are published by the&nbsp;Digital Initiatives at the University of Waterloo Library</p> Digital Initiatives at the University of Waterloo Library en-US Review of Economic Analysis 1973-3909 <p>The Review of Economic Analysis is committed to the open exchange of ideas and information.&nbsp;<br><br>Unlike traditional print journals which require the author to relinquish copyright to the publisher, The Review of Economic Analysis requires that authors release their work under Creative Commons Attribution Non-Commercial license. This license allows anyone to copy, distribute and transmit the work provided the use is non-commercial and appropriate attribution is given.&nbsp;<br><br><a href="">A 'human-readable' summary of the licence is&nbsp;here</a> and t<a href="">he full legal text is&nbsp;here</a>.</p> The Nature of Money in a Convertible Currency World <p>In a world where the means of exchange is convertible into the numeraire consumption good at a fixed rate, no one wants to hold money over time – and due to convertibility there is no means by which the Friedman rule can generate deflation. This is the environment we study in this paper in order to demonstrate that there is still a way to reach the first-best: institutionalize the naked shorting of the unit of account, or in other words establish a banking system.</p> <p>To motivate the benefits of a banking system, the environment has real productivity shocks that are constantly changing the optimal level of economic activity, so the optimal quantity of money is inherently stochastic. Efficiency in such an environment requires the capacity to expand the money supply on an “as needed” basis. We show how a debt-based payments system that relies on banks to certify the individual debtors’ IOUs addresses the monetary problem.</p> <p>This model explains (i) central bank monetary policy as a means of stabilizing the banking system and (ii) usury laws as means of promoting equilibria that favor non-banks over those that favor banks. Furthermore, by modeling a commercial bank-based monetary system as an efficient solution to a payments problem this paper develops a theoretic framework that may be used to evaluate central bank digital currency proposals.</p> Carolyn Sissoko ##submission.copyrightStatement## 2021-03-24 2021-03-24 13 1 1 43 Efficient Markets Hypothesis in the time of COVID-19. <p>This paper examines how the largest stock market of the world, the U.S., and particularly the S&amp;P500 index, reacted during the COVID-19 outbreak (02.01.2020-30.04.2020). Using simple financial and corporate analysis (adopting Constant Growth Model) procedures for our theoretical framework, we juxtapose the released news with the respective market performance in order to examine if the stock market always incorporated the available information in time. We show that the market in some sub-periods was not moving as it was expected, and the runs-test statistically confirmed our assumptions that the US stock market was not efficient during the COVID-19 outbreak. We find that in some cases the market does not incorporate the news instantly, is irrational, and non-sensible. All these make the market’s behavior unpredictable for a rational asset pricing model because as this paper shows even the simplest financial theories could explain rational behavior, but the market presented a different performance.&nbsp; &nbsp;</p> Evangelos Vasileiou ##submission.copyrightStatement## 2021-03-24 2021-03-24 13 1 45 63 Forecasting Price Spikes in Electricity Markets <p>Electricity markets are considered to be the most volatile amongst commodity markets. The non-storability of electricity and the need for instantaneous balancing of demand and supply can often cause extreme short-lived fluctuations in electricity prices. These fluctuations are termed price spikes. In this paper, we employ a multiclass Support Vector Machine (SVM) model to forecast the occurrence of price spikes in the German intraday electricity market. As price spikes, we define the prices that lie above the 95th quantile estimated by fitting a Generalized Pareto distribution in the innovation distribution of an AR-EGARCH model. The generalization ability of the model is tested in an out-of-the-sample dataset consisting of 4080 hours. Furthermore, we compare the performance of our best SVM model against Neural Networks (NNs) and Gradient Boosted Machines (GBMs).</p> Efthymios Stathakis Theophilos Papadimitriou Periklis Gogas ##submission.copyrightStatement## 2021-03-24 2021-03-24 13 1 65 87 How do income inequality and fiscal consolidation impact on banking crises? A post-Keynesian view <p>This is the first paper in estimating a population-averaged panel logit probability model to test the importance of the interaction between deficit in the public budgeting and income inequality in banking crises, for 36 developed countries from 1961-2011. New empirical evidence is shown on whether rising inequality is linked with financial crises, corroborating theoretical expectations of post-Keynesian authors. Policy measures are provided and tested empirically: whilst in general terms higher levels of income inequality could be associated with financial crises; countries with high levels of income inequality could reduce the likelihood of a crisis better in a context of fiscal consolidation. One reason could be that governments could use this public surplus for reducing income inequality, which helps to reduce defaults and banking crises. &nbsp;These results could be useful for academics, and policy-makers.</p> Guillermo Peña ##submission.copyrightStatement## 2021-03-24 2021-03-24 13 1 89 114 Import Tariffs and Informal Labour Market: A Computable General Equilibrium (CGE) Analysis for Turkey <p>From the 1980s to onwards trade liberalization policies have been widely used in many countries. This process has significant impacts on many economic aspects one of which is on the labour market.&nbsp; However, the direction of the relationship between trade reforms and the labour market is controversial. This study aims to analyse the effects of a specific trade reform of import tariff changes on the formal and informal labour market for Turkey. For that purpose, we benefit from Computable General Equilibrium (CGE) Model that relies on nonlinear simultaneous equations. We construct an updated Social Accounting Matrix (SAM) which is compatible with our model. Our findings indicate that while there is a positive relationship between formal labour employment in total and import tariff rates, the negative relationship occurs between informal employment and tariff rates.</p> Hale Akbulut Hüseyin Taylan Eğen ##submission.copyrightStatement## 2020-06-12 2020-06-12 13 1 Necessity and Opportunity Entrepreneurship in Canada <p>The present analysis examines the initiation of necessity and opportunity entrepreneurship ventures in Canada from the late 1980s until more recent times, to determine how these activities relate with the business cycle. The definitions of necessity and opportunity entrepreneurship mirror those in Fairlie and Fossen (2018). Unlike previous results for other countries, I find that in Canada, both necessity and opportunity entrepreneurship appear to be procyclical, with new ventures increasing as unemployment declines. These results hold after various robustness tests, including gender stratification are applied. The possibility of using these forms of entrepreneurship as leading or lagged indicators of recessions is also considered.</p> Florence Neymotin ##submission.copyrightStatement## 2020-12-15 2020-12-15 13 1 Cultural Assimilation: Learning and Sorting <p>There are larger productivity gains to migrating from a relatively poor country than a richer one. Due to these productivity differences, immigration from a poor source country is larger. Among poor source country immigrants, their exposure to co-ethnics is larger than those from richer source countries. These immigrants are the least likely to learn the local culture and assimilate. The integration of new immigrants into host country culture is determined by the amount of exposure to co-ethnics and the incentives attached to learning. But exposure to co-ethnics and incentives to learn are dependent on the neighbourhood that immigrants choose to locate within. In this paper the exposure channel through which source country richness affects assimilating immigration is modelled and the implications of sorting and learning are derived. The results of the model are tested using data from the Longitudinal Survey of Immigrants in Canada: Waves 1-3.</p> Stein Monteiro ##submission.copyrightStatement## 2020-08-04 2020-08-04 13 1 Secular stagnation and Google Trends – can we find out what people think? <p>The main aim of the study was to verify the thesis that the US economy is measured against the spectre of secular stagnation by determining the mood of American society using Google Trends. While performing the analysis, the authors used data on the American market for the years 2004-2018. The study comprised 42 entries, including 19 entries from the category “social” and 23 entries from the category “financial”. The analyses do not allow for a clear statement that the US economy is facing the spectre of secular stagnation, but they allow us to formulate the observation that the mood of the society is moderately pessimistic, which undoubtedly translates into economic activity and may be the cause of the persisting economic stagnation.</p> Katarzyna Schmidt Mateusz Gajtkowski ##submission.copyrightStatement## 2021-02-08 2021-02-08 13 1 Factors that affect Students’ performance in Science: An application using Gini-BMA methodology in PISA 2015 dataset <p>Existing theoretical and empirical evidence on the determinants of students’ performance reveals a direct link between pre-primary education and achievement test scores in primary school. Relying on the first-of-its-kind 2015 wave data from the Programme of International Student Assessment (PISA), the present study analyses the associations between students’ performance in science and a broad set of variables, including regressors that proxy pre-primary education. Employing a Gini Regression Bayesian Model Averaging (BMA) approach to account for model uncertainty, it is found that non-attendance in pre-primary education is a robust determinant with a negative impact on students’ performance in science. This result is confirmed both under Gini-BMA and OLS-BMA methodology.</p> Anastasia Dimiski ##submission.copyrightStatement## 2021-02-10 2021-02-10 13 1 A Pure Bureaucratic-Entrepreneurial Theory of Deposit Insurance Adoption <p>Based on Becker, Kane, Niskanen, and Peltzman’s ideas, we develop a model to explain why deposit insurance is adopted even though policymakers are aware of its pitfalls in both theory and practice. In our model, the regulator acts as both a bureaucrat and an entrepreneur to maximize his self-interest through administering a deposit insurance scheme. The theory postulates that adoption of deposit insurance is more likely under the following conditions: the scheme is (i) publicly administered and (ii) privately funded, with (iii) non-risk rated insurance premium and (iv) compulsory membership; and there is (v) a larger deposit market with (vi) at least two groups of banks (good vs. bad), (vii) lower government ownership of banks, and (viii) higher economic freedom, such that one group exerts its political influence and gains from deposit insurance. Empirically our theory is supported by the stylized facts, cross-country binary-choice regression results and a case study of Canada.</p> Kam Hon Chu ##submission.copyrightStatement## 2021-02-15 2021-02-15 13 1 Structural Funds and Regional Economic Growth: the Greek experience <p>The impact of structural funds of the European Union (EU) on regional economic growth is a matter of both political and economic importance. The large and regular payments made across the EU to countries and regions within them were and are meant to promote various aspects of growth and development and to encourage structural changes that foster investments and economic reforms. But how much of these aims have they been achieved? In this paper we provide considerable empirical evidence that Greek regions have, for the most part, benefited by the various disbursements of EU structural funds. We shed partial light on where this funding went to and to how it potentially contributed to Greek growth but we also raise a number of questions about the viability of the current productive structure of the Greek economy and its over-reliance on tourism. Our results provide support on the efficacy of the payments but leave open the problem of where these payments should be allocated, the monitoring of their absorption and the end impact in the economic cycle within a country.</p> Adamantia Kehagia Foteini Kyriazi ##submission.copyrightStatement## 2021-03-24 2021-03-24 13 1 Real Estate Bubbles and Contagion: Evidence from Selected European Countries <p>Using quarterly housing price-to-rent ratios from 1970 to 2018, this paper investigated the presence of real estate bubbles at a national level in eight selected European countries, namely Belgium, France, Germany, Italy, the Netherlands, Portugal, Spain, and the United Kingdom. Then, we analyzed bubbles contagion among these countries. We applied the generalized sup ADF test developed by Phillips et al. (2015) to detect explosive behavior in house prices. Subsequently, we implemented the non-parametric model with time varying coefficients developed by Greenaway-McGrevy and Phillips (2016) to estimate bubbles contagion among European real estate markets. We found evidence of at least one historical bubble in all these countries, with Germany, the Netherlands, Portugal, and Spain currently experiencing a rising bubble. The results also suggest that bubbles are contagious between these real estate markets.</p> Jean-Louis Bago Imad Rherrad Koffi Akakpo Ernest Ouédraogo ##submission.copyrightStatement## 2021-03-24 2021-03-24 13 1 Productivity Convergence and Divergence in Latin America, 1970-2014 <p>The paper examines Latin American countries’ productivity growth levels and their convergence patterns utilizing nonparametric frontier approaches. Utilizing a sample of 17 Latin American countries for the period 1970-2014 it estimates various productivity indexes alongside with their main components. Moreover a convergence analysis is conducted estimating relative productivity convergence paths. The results suggest that over the period examined, countries’ productivity growth levels have contracted. We provide evidence that the implementation of the structural reforms of the 1990s do not appear to have driven Latin American countries to higher productivity levels. Moreover, the results do not render support to the productivity convergence hypothesis. On the other hand, some support was found for countries’ technological change levels, identifying three convergence clubs.</p> Christos Kollias Panayiotis Tzeremes Nickolaos G. Tzeremes ##submission.copyrightStatement## 2021-03-24 2021-03-24 13 1