Leo Michelis | Toronto Metropolitan University (original) (raw)
Papers by Leo Michelis
The B.E. Journal of Macroeconomics, 2022
In this paper we extend the Hicksian compensating variation welfare measure in two directions. Fi... more In this paper we extend the Hicksian compensating variation welfare measure in two directions. First, we adjust the size of the compensating variation in order to account for the fact that the compensating transfers will result in changes in output, as well as in prices, because labor and, in dynamic models, capital will adjust in response to these transfers. Second, we extend the measure to a dynamic setting with possibly time non-separable preferences. We find that these considerations become more significant for the welfare cost of higher labor income taxes as one moves from static to dynamic models, to models with time non-separable preferences, and finally to models with uncertainty.
Canadian Journal of Economics/Revue canadienne d'économique, 2016
In this paper, we measure the contribution of durable goods to the welfare cost of inflation, in ... more In this paper, we measure the contribution of durable goods to the welfare cost of inflation, in the context of an endogenous growth model with durable and nondurable goods, where purchases of the latter require only a partial cash payment compared with the former. Unlike existing measures, our proposed welfare measure is computationally efficient and relatively easy to implement.We find that durability adds a significant component to the welfare costs of inflation. Résumé. Mesurer la contribution des biens durables aux coûts de bien-être de l'inflation. Dans ce texte, on mesure la contribution des biens durables aux coûts de bien-être de l'inflation. Dans le contexte d'un modèle de croissance endogène avec des biens durables et non-durables, où l'achat de ces derniers requiert seulement un paiement comptant partiel par rapportà ce qui est le cas pour les biens durables. Contrairement aux mesures en vogue, la mesure proposée est computationnellement efficiente et relativement facileà mettre en place. On découvre que la durabilité ajoute une composante significative aux coûts de bien-être de l'inflation.
Macroeconomic Dynamics, 2010
The effects of inflation are studied for a small open economy with a cash-in-advance constraint o... more The effects of inflation are studied for a small open economy with a cash-in-advance constraint on consumption in which the representative agent has preferences with habit persistence. An increase in the inflation rate requires a fall in the steady state living standards. On impact, to maintain living standards, the representative agent reduces his savings and labor supply. Investment falls and the current account turns into a deficit. In support of this model, we provide evidence from eight high-inflation countries suggesting that after an increase in the inflation rate, output and investment fall, and the net foreign asset position deteriorates over time.
Canadian Journal of Economics/Revue Canadienne d`Economique, 2005
The money in utility model is reconsidered in the presence of endogenous labour and habits. With ... more The money in utility model is reconsidered in the presence of endogenous labour and habits. With standard assumptions about preferences and a policy rule that sets the nominal interest rate by adjusting the growth rate of money, the model exhibits superneutrality in the steady state. Nevertheless, habits give rise to real liquidity effects in the short run. After an increase in the nominal interest rate, employment falls, resulting in a fall in capital accumulation and in the short-and long-term real interest rates. The adjustment of the capital stock is non-monotonic. Employment and the short-and long-term real interest rates may also adjust non-monotonically. JEL classification: E22, E52, E58 Monnaie, capital, et effets re´els de liquidite´quand il y a formation d'habitudes. On re´examine le roˆle de la monnaie dans un mode`le d'utilite´quand travail et formation d'habitudes sont endoge`nes. Dans le cadre des postulats usuels a`propos des pre´fe´rences, et d'une re`gle de politique qui de´finit le taux d'inte´reˆt en ajustant le rythme de croissance de la monnaie, le mode`le fait preuve de super-neutralite´en re´gime permanent. Ne´anmoins, les habitudes entraıˆnent des effets re´els de liquidite´a`court terme. Apre`s un accroissement dans le taux d'inte´reˆt nominal, l'emploi chute, ce qui entraıˆne un ralentissement dans l'accumulation du capital et une chute des taux d'inte´reˆt re´els ac ourt et a`long terme. L'ajustement dans le stock de capital n'est pas monotone. L'emploi et les taux d'inte´reˆt re´els a`court et a`long terme peuvent aussi ne pas s'ajuster de fac¸on monotone. We would like to thank two anonymous referees and David Love for very helpful comments and the Social Sciences and Humanities Research Council of Canada for financial support. All the remaining errors are our own.
Journal of Applied Econometrics, 1999
This research w as supported, in part, by g r a n ts from the Social Sciences and Humanities Rese... more This research w as supported, in part, by g r a n ts from the Social Sciences and Humanities Research Council of Canada to the rst two authors. We are grateful to S ren Johansen and Bent Nielsen for comments on an earlier draft.
Journal of Econometrics, 1999
This paper examines the asymptotic null distributions of the J and Cox non-nested tests in the fr... more This paper examines the asymptotic null distributions of the J and Cox non-nested tests in the framework of two linear regression models with nearly orthogonal non-nested regressors. The analysis is based on the concept of near population orthogonality (NPO), according to which the non-nested regressors in the two models are nearly uncorrelated in the population distribution from which they are drawn. New distributional results emerge under NPO. The J and Cox tests tend to two di!erent random variables asymptotically, each of which is expressible as a function of a nuisance parameter, c, a N(0, 1) variate and a (q) variate, where q is the number of non-nested regressors in the alternative model. The Monte Carlo method is used to show the relevance of the new results in "nite samples and to compute alternative critical values for the two tests under NPO by plugging consistent estimates of c into the relevant asymptotic expressions. An empirical example illustrates the &plug in' procedure.
Economics Letters, 2010
We consider the effects of inflation in a small open economy when expenditures on non-durables ar... more We consider the effects of inflation in a small open economy when expenditures on non-durables are more heavily financed with money than expenditures on durables. The distinctions between non-durables and durables, and asymmetric cash-in-advance constraints give rise to important dynamics.
Economics Letters, 2006
The money in utility model is reconsidered to allow for habit forming preferences, in which habit... more The money in utility model is reconsidered to allow for habit forming preferences, in which habits develop over instantaneous utility from consumption and real money holdings. An increase in the inflation rate does not affect the steady state level of capital or consumption, but reduces the steady state levels of real money holdings and habits. The model has important off steady state dynamics.
Journal of Economic Integration, 2003
Starting with the Treaty of Rome (1957), the European Union adopted common policies to promote "h... more Starting with the Treaty of Rome (1957), the European Union adopted common policies to promote "harmonious economic development and balanced expansion." The paper investigates how successful such policies were, by examining whether there was economic convergence of the real per capita GDP in the EU. Two measures of convergence are employed. The first is σ, which is based on the cross standard deviation of the real per capita GDPs of the EU countries; the second is β convergence based on the neoclassical growth model. Both σ and β were estimated using EU data for the period 1960-1995. The empirical findings
Journal of Economic Integration, 2004
This paper uses the concepts of σ-convergence and β-convergence to evaluate empirically the hypot... more This paper uses the concepts of σ-convergence and β-convergence to evaluate empirically the hypothesis of income convergence in the Asia-Pacific region, and its subsets of East Asia and ASEAN during the period 1960-1999. Because of the East Asian financial crisis in the late 1990s, the analysis is carried out sequentially, first for the period 1960-1990 and then for the period 1960-1999. For the former period, we find evidence of conditional β-convergence in a group of 17 APEC countries and in 10 EASTASIA countries. No evidence of income convergence is found for the ASEAN group of countries. For the latter period, there is weak evidence of conditional βconvergence in a group of 16 APEC countries, and much weaker evidence of income convergence in EASTASIA. We attribute this finding to the damaging effects of the financial crisis in the second half of the 1990s. Also, the empirical evidence shows that openness to international trade is statistically the most important variable for sustaining economic growth in the Asia-Pacific region. Of the other variables macroeconomic stability has a positive impact on growth, while government spending and population growth have a negative effect in general.
Journal of Economic Integration, 2004
This paper uses the concepts of σ-convergence and β-convergence to evaluate empirically the hypot... more This paper uses the concepts of σ-convergence and β-convergence to evaluate empirically the hypothesis of income convergence in the Asia-Pacific region, and its subsets of East Asia and ASEAN during the period 1960-1999. Because of the East Asian financial crisis in the late 1990s, the analysis is carried out sequentially, first for the period 1960-1990 and then for the period 1960-1999. For the former period, we find evidence of conditional β-convergence in a group of 17 APEC countries and in 10 EASTASIA countries. No evidence of income convergence is found for the ASEAN group of countries. For the latter period, there is weak evidence of conditional βconvergence in a group of 16 APEC countries, and much weaker evidence of income convergence in EASTASIA. We attribute this finding to the damaging effects of the financial crisis in the second half of the 1990s. Also, the empirical evidence shows that openness to international trade is statistically the most important variable for sustaining economic growth in the Asia-Pacific region. Of the other variables macroeconomic stability has a positive impact on growth, while government spending and population growth have a negative effect in general.
Economics Letters, 2010
JEL classification: E22 E52 E58
The B.E. Journal of Macroeconomics, 2022
In this paper we extend the Hicksian compensating variation welfare measure in two directions. Fi... more In this paper we extend the Hicksian compensating variation welfare measure in two directions. First, we adjust the size of the compensating variation in order to account for the fact that the compensating transfers will result in changes in output, as well as in prices, because labor and, in dynamic models, capital will adjust in response to these transfers. Second, we extend the measure to a dynamic setting with possibly time non-separable preferences. We find that these considerations become more significant for the welfare cost of higher labor income taxes as one moves from static to dynamic models, to models with time non-separable preferences, and finally to models with uncertainty.
Canadian Journal of Economics/Revue canadienne d'économique, 2016
In this paper, we measure the contribution of durable goods to the welfare cost of inflation, in ... more In this paper, we measure the contribution of durable goods to the welfare cost of inflation, in the context of an endogenous growth model with durable and nondurable goods, where purchases of the latter require only a partial cash payment compared with the former. Unlike existing measures, our proposed welfare measure is computationally efficient and relatively easy to implement.We find that durability adds a significant component to the welfare costs of inflation. Résumé. Mesurer la contribution des biens durables aux coûts de bien-être de l'inflation. Dans ce texte, on mesure la contribution des biens durables aux coûts de bien-être de l'inflation. Dans le contexte d'un modèle de croissance endogène avec des biens durables et non-durables, où l'achat de ces derniers requiert seulement un paiement comptant partiel par rapportà ce qui est le cas pour les biens durables. Contrairement aux mesures en vogue, la mesure proposée est computationnellement efficiente et relativement facileà mettre en place. On découvre que la durabilité ajoute une composante significative aux coûts de bien-être de l'inflation.
Macroeconomic Dynamics, 2010
The effects of inflation are studied for a small open economy with a cash-in-advance constraint o... more The effects of inflation are studied for a small open economy with a cash-in-advance constraint on consumption in which the representative agent has preferences with habit persistence. An increase in the inflation rate requires a fall in the steady state living standards. On impact, to maintain living standards, the representative agent reduces his savings and labor supply. Investment falls and the current account turns into a deficit. In support of this model, we provide evidence from eight high-inflation countries suggesting that after an increase in the inflation rate, output and investment fall, and the net foreign asset position deteriorates over time.
Canadian Journal of Economics/Revue Canadienne d`Economique, 2005
The money in utility model is reconsidered in the presence of endogenous labour and habits. With ... more The money in utility model is reconsidered in the presence of endogenous labour and habits. With standard assumptions about preferences and a policy rule that sets the nominal interest rate by adjusting the growth rate of money, the model exhibits superneutrality in the steady state. Nevertheless, habits give rise to real liquidity effects in the short run. After an increase in the nominal interest rate, employment falls, resulting in a fall in capital accumulation and in the short-and long-term real interest rates. The adjustment of the capital stock is non-monotonic. Employment and the short-and long-term real interest rates may also adjust non-monotonically. JEL classification: E22, E52, E58 Monnaie, capital, et effets re´els de liquidite´quand il y a formation d'habitudes. On re´examine le roˆle de la monnaie dans un mode`le d'utilite´quand travail et formation d'habitudes sont endoge`nes. Dans le cadre des postulats usuels a`propos des pre´fe´rences, et d'une re`gle de politique qui de´finit le taux d'inte´reˆt en ajustant le rythme de croissance de la monnaie, le mode`le fait preuve de super-neutralite´en re´gime permanent. Ne´anmoins, les habitudes entraıˆnent des effets re´els de liquidite´a`court terme. Apre`s un accroissement dans le taux d'inte´reˆt nominal, l'emploi chute, ce qui entraıˆne un ralentissement dans l'accumulation du capital et une chute des taux d'inte´reˆt re´els ac ourt et a`long terme. L'ajustement dans le stock de capital n'est pas monotone. L'emploi et les taux d'inte´reˆt re´els a`court et a`long terme peuvent aussi ne pas s'ajuster de fac¸on monotone. We would like to thank two anonymous referees and David Love for very helpful comments and the Social Sciences and Humanities Research Council of Canada for financial support. All the remaining errors are our own.
Journal of Applied Econometrics, 1999
This research w as supported, in part, by g r a n ts from the Social Sciences and Humanities Rese... more This research w as supported, in part, by g r a n ts from the Social Sciences and Humanities Research Council of Canada to the rst two authors. We are grateful to S ren Johansen and Bent Nielsen for comments on an earlier draft.
Journal of Econometrics, 1999
This paper examines the asymptotic null distributions of the J and Cox non-nested tests in the fr... more This paper examines the asymptotic null distributions of the J and Cox non-nested tests in the framework of two linear regression models with nearly orthogonal non-nested regressors. The analysis is based on the concept of near population orthogonality (NPO), according to which the non-nested regressors in the two models are nearly uncorrelated in the population distribution from which they are drawn. New distributional results emerge under NPO. The J and Cox tests tend to two di!erent random variables asymptotically, each of which is expressible as a function of a nuisance parameter, c, a N(0, 1) variate and a (q) variate, where q is the number of non-nested regressors in the alternative model. The Monte Carlo method is used to show the relevance of the new results in "nite samples and to compute alternative critical values for the two tests under NPO by plugging consistent estimates of c into the relevant asymptotic expressions. An empirical example illustrates the &plug in' procedure.
Economics Letters, 2010
We consider the effects of inflation in a small open economy when expenditures on non-durables ar... more We consider the effects of inflation in a small open economy when expenditures on non-durables are more heavily financed with money than expenditures on durables. The distinctions between non-durables and durables, and asymmetric cash-in-advance constraints give rise to important dynamics.
Economics Letters, 2006
The money in utility model is reconsidered to allow for habit forming preferences, in which habit... more The money in utility model is reconsidered to allow for habit forming preferences, in which habits develop over instantaneous utility from consumption and real money holdings. An increase in the inflation rate does not affect the steady state level of capital or consumption, but reduces the steady state levels of real money holdings and habits. The model has important off steady state dynamics.
Journal of Economic Integration, 2003
Starting with the Treaty of Rome (1957), the European Union adopted common policies to promote "h... more Starting with the Treaty of Rome (1957), the European Union adopted common policies to promote "harmonious economic development and balanced expansion." The paper investigates how successful such policies were, by examining whether there was economic convergence of the real per capita GDP in the EU. Two measures of convergence are employed. The first is σ, which is based on the cross standard deviation of the real per capita GDPs of the EU countries; the second is β convergence based on the neoclassical growth model. Both σ and β were estimated using EU data for the period 1960-1995. The empirical findings
Journal of Economic Integration, 2004
This paper uses the concepts of σ-convergence and β-convergence to evaluate empirically the hypot... more This paper uses the concepts of σ-convergence and β-convergence to evaluate empirically the hypothesis of income convergence in the Asia-Pacific region, and its subsets of East Asia and ASEAN during the period 1960-1999. Because of the East Asian financial crisis in the late 1990s, the analysis is carried out sequentially, first for the period 1960-1990 and then for the period 1960-1999. For the former period, we find evidence of conditional β-convergence in a group of 17 APEC countries and in 10 EASTASIA countries. No evidence of income convergence is found for the ASEAN group of countries. For the latter period, there is weak evidence of conditional βconvergence in a group of 16 APEC countries, and much weaker evidence of income convergence in EASTASIA. We attribute this finding to the damaging effects of the financial crisis in the second half of the 1990s. Also, the empirical evidence shows that openness to international trade is statistically the most important variable for sustaining economic growth in the Asia-Pacific region. Of the other variables macroeconomic stability has a positive impact on growth, while government spending and population growth have a negative effect in general.
Journal of Economic Integration, 2004
This paper uses the concepts of σ-convergence and β-convergence to evaluate empirically the hypot... more This paper uses the concepts of σ-convergence and β-convergence to evaluate empirically the hypothesis of income convergence in the Asia-Pacific region, and its subsets of East Asia and ASEAN during the period 1960-1999. Because of the East Asian financial crisis in the late 1990s, the analysis is carried out sequentially, first for the period 1960-1990 and then for the period 1960-1999. For the former period, we find evidence of conditional β-convergence in a group of 17 APEC countries and in 10 EASTASIA countries. No evidence of income convergence is found for the ASEAN group of countries. For the latter period, there is weak evidence of conditional βconvergence in a group of 16 APEC countries, and much weaker evidence of income convergence in EASTASIA. We attribute this finding to the damaging effects of the financial crisis in the second half of the 1990s. Also, the empirical evidence shows that openness to international trade is statistically the most important variable for sustaining economic growth in the Asia-Pacific region. Of the other variables macroeconomic stability has a positive impact on growth, while government spending and population growth have a negative effect in general.
Economics Letters, 2010
JEL classification: E22 E52 E58