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Browsing by discipline "Kansantaloustiede"

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  • Feumo, Ludovic Christian (2016)
    I have introduced the notion of absorptive capacity into an innovation-driven growth model. The model features firms with heterogeneous size and innovation capability. The economy`s aggregate output growth rate is driven by the growth of the productivity index of firm`s intermediate goods. There are firms already operating at least one active product line and potential entrants not owning a product line, but engaged in research in order to innovate and enter the economy. Each firm engages in R&D activities to improve upon existing intermediate good or to discover a completely new one. An incumbent firm may exit the economy exogenously and more importantly endogenously due to creative destruction or due to obsolescence. The consideration of the firm`sabsorptive capacity in Cohen and Levinthal`s sense shaped the specifications of the innovation production functions for entrants and incumbents. I have set a proxy for the firm`s absorptive capacity that considers the quality level of active product lines owned by the firm, their number and their closeness. Then, incumbent firm`s absorptive capacity confers to the it an innovation efficiency advantage compared to potential entrant, in improving upon its own product lines or in innovating in a product line not existing in its portfolio. For potential entrants, the average quality level of intermediate good in the economy acts as an extra difficulty they must overcome since the did not participate in building that economy`s average level of quality, and lack then the absorptive capacity that an average incumbent firm in the economy would possess. Although the general structure of the equilibrium growth rate obtained is the same as in the basis model (Acemoglu et al. 2013), however, the content of incumbents` rate of innovation and the rate of entry for potential entrants is different and more likely to deliver different values in equilibrium. This framework may be useful in studying empirically the effects of R&D subsidies on economic growth and lead to different results obtained by the main reference article, that found that subsidies to incumbents`R&D are pervasive for the growth of the economy.
  • Beniard, Henry (2010)
    This thesis researches empirically, whether variables that are able to reliably predict Finnish economic activity can be found. The aim of this thesis is to find and combine several variables with predictive ability into a composite leading indicator of the Finnish economy. The target variable it attempts to predict, and thus the measure of the business cycle used, is Finnish industrial production growth. Different economic theories suggest several potential predictor variables in categories, such as consumption data, data on orders in industry, survey data, interest rates and stock price indices. Reviewing a large amount of empirical literature on economic forecasting, it is found that particularly interest rate spreads, such as the term spread on government bonds, have been useful predictors of future economic growth. However, the literature surveyed suggests that the variables found to be good predictors seem to differ depending on the economy being forecast, the model used and the forecast horizon. Based on the literature reviewed, a pool of over a hundred candidate variables is gathered. A procedure, involving both in-sample and pseudo out-of-sample forecast methods, is then developed to find the variables with the best predictive ability from this set. This procedure yields a composite leading indicator of the Finnish economy comprising of seven component series. These series are very much in line with the types of variables found useful in previous empirical research. When using the developed composite leading indicator to forecast in a sample from 2007 to 2009, a time span including the latest recession, its forecasting ability is far poorer. The same occurs when forecasting a real-time data set. It would seem, however, that individual very large forecast errors are the main reason for the poor performance of the composite leading indicator in these forecast exercises. The findings in this thesis suggest several developments to the methods adopted in order to produce more accurate forecasts. Other intriguing topics for further research are also explored.
  • Helander, Aleksi (2011)
    An extensive electricity transmission network facilitates electricity trading between Finland, Sweden, Norway and Denmark. Currently most of the areas power generation is traded at NordPool, where the trading volumes have steadily increased since the early 1990s, when the exchange was founded. The Nordic electricity is expected to follow the current trend and further integrate with the other European electricity markets. Hydro power is the source for roughly a half of the supply in the Nordic electricity market and most of the hydro is generated in Norway. The dominating role of hydro power distinguishes the Nordic electricity market from most of the other market places. Production of hydro power varies mainly due to hydro reservoirs and demand for electricity. Hydro reservoirs are affected by water inflows that differ each year. The hydro reservoirs explain remarkably the behaviour of the Nordic electricity markets. Therefore among others, Kauppi and Liski (2008) have developed a model that analyzes the behaviour of the markets using hydro reservoirs as explanatory factors. Their model includes, for example, welfare loss due to socially suboptimal hydro reservoir usage, socially optimal electricity price, hydro reservoir storage and thermal reservoir storage; that are referred as outcomes. However, the model does not explain the real market condition but rather an ideal situation. In the model the market is controlled by one agent, i.e. one agent controls all the power generation reserves; it is referred to as a socially optimal strategy. Article by Kauppi and Liski (2008) includes an assumption where an individual agent has a certain fraction of market power, e.g. 20 % or 30 %. In order to maintain the focus of this thesis, this part of their paper is omitted. The goal of this thesis is two-fold. Firstly we expand the results from the socially optimal strategy for years 2006-08, as the earlier study finishes in 2005. The second objective is to improve on the methods from the previous study. This thesis results several outcomes (SPOT-price and welfare loss, etc.) due to socially optimal actions. Welfare loss is interesting as it describes the inefficiency of the market. SPOT-price is an important output for the market participants as it often has an effect on end users electricity bills. Another function is to modify and try to improve the model by means of using more accurate input data, e.g. by considering pollution trade rights effect on input data. After modifications to the model, new welfare losses are calculated and compared with the same results before the modifications. The hydro reservoir has the higher explanatory significance in the model followed by thermal power. In Nordic markets, thermal power reserves are mostly nuclear power and other thermal sources (coal, natural gas, oil, peat). It can be argued that hydro and thermal reservoirs determine electricity supply. Roughly speaking, the model takes into account electricity demand and supply, and several parameters related to them (water inflow, oil price, etc.), yielding finally the socially optimal outcomes. The author of this thesis is not aware of any similar model being tested before. There have been some other studies that are close to the Kauppi and Liski (2008) model, but those have a somewhat different focus. For example, a specific feature in the model is the focus on long-run capacity usage that differs from the previous studies on short-run market power. The closest study to the model is from Californias wholesale electricity markets that, however, uses different methodology. Work is constructed as follows.
  • Wichmann, Ira Anna Katariina (2011)
    Modern-day economics is increasingly biased towards believing that institutions matter for growth, an argument that has been further enforced by the recent economic crisis. There is also a wide consensus on what these growth-promoting institutions should look like, and countries are periodically ranked depending on how their institutional structure compares with the best-practice institutions, mostly in place in the developing world. In this paper, it is argued that 'non-desirable' or 'second-best' institutions can be beneficial for fostering investment and thus providing a starting point for sustained growth, and that what matters is the appropriateness of institutions to the economy’s distance to the frontier or current phase of development. Anecdotal evidence from Japan and South-Korea is used as a motivation for studying the subject and a model is presented to describe this phenomenon. In the model, the rigidity or non-rigidity of the institutions is described by entrepreneurial selection. It is assumed that entrepreneurs are the ones taking part in the imitation and innovation of technologies, and that decisions on whether or not their projects are refinanced comes from capitalists. The capitalists in turn have no entrepreneurial skills and act merely as financers of projects. The model has two periods, and two kinds of entrepreneurs: those with high skills and those with low skills. The society’s choice of whether an imitation or innovation – based strategy is chosen is modeled as the trade-off between refinancing a low-skill entrepreneur or investing in the selection of the entrepreneurs resulting in a larger fraction of high-skill entrepreneurs with the ability to innovate but less total investment. Finally, a real-world example from India is presented as an initial attempt to test the theory. The data from the example is not included in this paper. It is noted that the model may be lacking explanatory power due to difficulties in testing the predictions, but that this should not be seen as a reason to disregard the theory – the solution might lie in developing better tools, not better just better theories. The conclusion presented is that institutions do matter. There is no one-size-fits-all-solution when it comes to institutional arrangements in different countries, and developing countries should be given space to develop their own institutional structures that cater to their specific needs.
  • Acharya, Abha (2014)
    This thesis examines the potential fungibility of foreign assistance to the Government of Nepal using two methods: an econometric model and a modified ORANI-G, a Computable General Equilibrium (CGE) model. I use the econometric model to corroborate the findings of the CGE model and to determine whether such a model can produce credible empirical evidence on aid fungibility. Both models indicate presence of general and categorical fungibility, and non-additionality in the use of aid in Nepal. I begin with a partial equilibrium econometric model to estimate government expenditures using a Seemingly Unrelated Regression (SUR). At the sectoral level, categorical aid is prone to reshuffling generating overall negative development investments in most of the sectors. At the aggregate level, a unit of aid produces a meagre 0.33 units of additional development expenditures in the Nepalese government budget. In addition, aid partially finances non-development expenditures, but only slightly enhances the governments’ own revenue effort. Next, I utilize the ORANI-G model with a Klein-Rubin functional form for government behaviour, rigidities in the labour market, and some additional parameters to study aid fungibility in Nepal. This produces results that are analogous to the econometric model. Foreign assistance to Nepal exhibits a high level of general and categorical fungibility, with an insignificant increase in revenue collection. Overall, a unit of aid stimulates only a 0.45 units of additional development expenditures in the Nepalese government budget. In using the CGE model to study fungibility, this thesis develops a new method of analyzing the research question whereas, previous studies use models in a partial equilibrium setting, failing to account for decision-making processes of the government. This thesis is an attempt to expand on the existing literature by introducing CGE models in the study of aid fungibility and to motivate further study into fungibility using CGE modelling.
  • Wilkman, Maria (2015)
    The aim of this empirical study is to analyse whether announcements by Moody’s, Standard and Poor’s and Fitch Ratings regarding the credit rating of Ukraine and Russia can explain the movements in the yield spreads on their government bonds during 1st January 2010 – 6th February 2015. The motivation for this research question derives from the results of previous empirical studies, which have found that announcements by the three credit rating agencies regarding the sovereign rating of a country impact the country’s borrowing costs. Particularly negative rating news, concerning either a downgrade or the assignment of a negative outlook to the rating, have been found to impact yield spreads, leading to increased borrowing costs for the country. Against this background, this study analyses whether the many negative announcements from the credit rating agencies regarding the Ukrainian and Russian sovereign ratings can explain the large increases in the countries’ government bond yield spreads since 2010. The methodology used in the empirical study is based on regression analysis, which incorporates an event study through the use of dummy variables. The overall findings indicate that announcements from the rating agencies affect the government borrowing costs of the country concerned, as the results show a statistically significant impact of the announcement events on the country’s bond yield spreads. However, as the impact of the events on the yield spreads is considerably smaller in magnitude than the movements in the spreads, the results indicate that factors other than the rating agency announcements are driving the large increases in the Ukrainian and Russian borrowing costs. The conclusion of the study is therefore that although some of the announcements are found to be statistically significant, the rating events alone cannot explain the movements in the yield spreads on the countries’ government bonds during 1st January 2010 – 6th February 2015. Contrary to previous studies, the results show no clear evidence that negative events affect yield spreads to a greater extent than positive events. There is also no considerable difference in the impact on the yield spreads between announcements by the different agencies. In terms of the magnitude of the impact of rating events on yield spreads, the results of this study are largely in line with previous findings in the literature. The analysis of the relationship between credit rating announcements and government bond yield spreads for Ukraine and Russia since 2010 presented in this paper is divided into five chapters, which approach the research question from different perspectives. Chapter one provides the necessary background for the analysis and offers a theoretical explanation for why announcements by the rating agencies may impact the yield spreads on a country’s government bonds. Chapter two presents an overview of the empirical literature on the topic; three previous papers which use event study analysis to investigate the impact of rating agency announcements on government yield spreads are discussed and evaluated. Against this background, chapter three describes the empirical methodology used in this paper to study the relationship between Ukrainian and Russian credit rating announcements and yield spreads; the data set on which the analysis is based is introduced in chapter four. The results of the analysis are discussed in chapter five, followed by concluding remarks.
  • Tschamurov, Viveka (2013)
    A model is been built where two countries compete for a multinational enterprise’s (MNE’s) foreign direct investment (FDI) provided that its arrival will increase the host country’s social welfare. Both potential host countries have unionised labour markets where monopoly labour unions determine the level of the wage setting to be either decentralised, intermediate level, or centralised. The governments may influence the unions’ decision by setting a lump-sum tax on them. Both countries have two sectors, a non-sheltered and sheltered sector. The MNE will enter in the non-sheltered sector and is assumed to be more productive than the incumbent firms there. Product market competition between the MNE and domestic incumbent firms is ruled out to isolate the effect of product market competition from the effect of pure wage compression. The game evolves in five stages: (1) the governments set taxes, (2) the monopoly unions choose the level of the wage setting, (3) the MNE chooses its investment location, (4) the monopoly unions set wages, and (5) the firms set output. The purpose of the model is to learn whether the degree of centralisation of wage setting can be used as a strategic choice to attract foreign direct investment. The main results of the paper are the following. It was found that the MNE’s (incumbent unions’) most preferred choice is always centralised (decentralised) wage setting. It was shown that the governments’ most preferred choice is either decentralised or centralised wage setting – depending on the relative sizes of the two sectors. If the social welfare in country 1 is the highest under decentralised wage setting, then the optimal policy of government 1 is to set zero income taxes. If the social welfare in country 2 is the highest under centralised wage setting, then the optimal policy of government 2 is to set positive taxes slightly over that required to make the domestic incumbent labour unions prefer centralised wage setting. Given this, the MNE will always invest in country 2. The exact expressions for the stage-contingent lump-sum taxes were derived. To my best knowledge, this is a novel contribution that cannot be found elsewhere.
  • Nurmi, Aleksi (2016)
    The aim of this study is to understand the fundamental features of China’s economic transition since 1992. In order to do so, the central features of China’s transition are reviewed, most notably the main economic reforms, the firm-level resource reallocation, productivity differences between state-owned and private enterprises, moderate wage growth and rising income inequality, financial market imperfections and the central macroeconomic indicators: accumulation of foreign surplus and high aggregate investment and savings rates. A growth model consistent with China’s growth experience is built to give a clear qualitative explanation to China’s puzzling phenomena: Why does a country accumulate a foreign surplus despite of high domestic rate of return to capital? Why does a country’s rate of return to capital remain high in spite of a high investment rate? The cornerstones of the model are heterogeneity in productivity, reallocation of resources and asymmetric financial imperfections. The enterprise sector is divided into private and state-owned enterprises. Private enterprises are more productive, but due to the discrimination by the financial sector they must rely on internal savings, while state-owned enterprises are less productive, but survive in equilibrium due to better access to external financing. If the entrepreneurial savings are large enough, private enterprises gradually outgrow state-owned enterprises. Financial integration of state-owned firms and labor mobility sustains the rate of return for both types of firms during the transition. Moreover, the aggregate rate of return to capital increases due to the composition effect. The accumulation of foreign surplus originates from the financial imperfections. The wage earners deposit their savings to the banks, which in turn, can either invest to domestic enterprises or in foreign bonds. As the transition progresses the volume of high-productive financially constrained enterprises increase while the volume of low-productive externally financed enterprises decrease. Hence as the volume of state-owned enterprises decrease, a higher amount of domestic savings is invested into foreign assets by the financial intermediaries causing the foreign surplus to increase. After the transition is over, the economy is dominated by private enterprises and capital accumulation is subject to diminishing return to capital. The main contradictions with China’s experience are frictionless labor market, financial market laissez-faire environment and the prediction that state-owned enterprises fully fades from the economy. Despite of these simplifications, the model gives a clear qualitative explanation to China’s puzzling phenomena of sustained return to capital and growing foreign surplus. The simplifications allow the model to focus on the main differences between E and F firms, that is to say the heterogeneity in productivity and asymmetric financial imperfections.
  • Koponen, Kristine (2013)
    The cross-country co-movements of economic variables have been documented in the macroeconomic research. This phenomenon has puzzled researchers in the field of dynamic stochastic general equilibrium (DSGE) models because the early DSGE models have had challenges in replicating the co-movements of outputs. The thesis approaches the cross-country co-movements of output cycles in DSGE models by introducing correlation to technology shocks. The objective is to study if the correlation in the technology shocks enhances the model's ability to capture the cross-country correlations of empirical data. The thesis presents a two-country DSGE model that is constructed using the results of Galí and Monacelli (2005). The original model of Galí and Monacelli is a small-country model, and in the thesis it is demonstrated how the model is re-constructed as consisting of two large economic regions. Another important modification to the original model is that the thesis presents a distinctive shock process that allows the technology shocks to correlate. This is done by adding a foreign technology shock variable to the domestic technology shock process. The final model is presented as a system of thirteen equations and, as a solution to the system, the dynamics of the model are observed. The results from the model show that the two-country model with correlated shock processes is able to replicate the cross-country correlations of empirical data well. This result is compared to the benchmark model with no shock correlations and the comparison reveals that although the benchmark model succeeds in replicating the cross-country correlations between inflations and nominal interest rates, it does not produce as high output gap correlation as the model with correlated shock processes. The difference between these models is caused by the distinctive shock processes. The technology shocks affect directly the potential output and the real output adjusts slowly as a response to the changes in the expectations. This causes the dynamics in the output cycle. The results of the thesis show evidence that introducing correlation between country-specific technology shocks can enhance the models ability to produce realistic cross-country output co-movements. This result should apply to other models that follow the framework of Galí and Monacelli. The generalization of the results could still be studied further. In addition, including new features to the model would allow for examination of wider variety of shocks.
  • Mytty, Tuukka (2013)
    Does carbon dioxide predict temperature? No it does not, in the time period of 1880-2004 with the carbon dioxide and temperature data used in this thesis. According to the Inter Governmental Panel on Climate Change(IPCC) carbon dioxide is the most important factor in raising the global temperature. Therefore, it is reasonable to assume that carbon dioxide truly predicts temperature. Because this paper uses observational data it has to be kept in mind that no causality interpretation can be made, only predictive inferences. The data is from the years 1880-2004 and consists of carbon dioxide emissions and temperature anomalies, the base period for the anomalies is 1961-1990. The main analysis method is the cointegrated VAR model but also the standard VAR model is used. The variables were tested for possible unit roots and it was found that there were unit roots present. Then the variables were tested for the cointegrating rank and here the analysis divided into three parts. One, with the assumptions that the variables are integrated of order one, a constant as a deterministic term and one cointegrating relation. Two, variables are allowed to be integrated of order two, a linear trend as a deterministic term and one cointegrating relation. Three, based on some weak evidence there was a result that variables weren’t cointegrated and the analysis could be done in differences. In the first the case it the result was that carbon dioxide doesn’t predict temperature but actually temperature predicted carbon dioxide, the second version gave the same result. In the third case neither one of the variables predicted the other one. These results go against the what is considered as the common consensus in the subject matter of climate change.
  • Silvo, Aino (2011)
    Ever since its initial introduction some fifty years ago, the rational expectations paradigm has dominated the way economic theory handles uncertainty. The main assertion made by John F. Muth (1961), seen by many as the father of the paradigm, is that expectations of rational economic agents should essentially be equal to the predictions of relevant economic theory, since rational agents should use information available to them in an optimal way. This assumption often has important consequences on the results and interpretations of the models where it is applied. Although the rational expectations assumption can be applied to virtually any economic theory, the focus in this thesis is on macroeconomic theories of consumption, especially the Rational Expectations–Permanent Income Hypothesis proposed by Robert E. Hall in 1978. The much-debated theory suggests that, assuming that agents have rational expectations on their future income, consumption decisions should follow a random walk, and the best forecast of future consumption level is the current consumption level. Then, changes in consumption are unforecastable. This thesis constructs an empirical test for the Rational Expectations–Permanent Income Hypothesis using Finnish Consumer Survey data as well as various Finnish macroeconomic data. The data sample covers the years 1995–2010. Consumer survey data may be interpreted to directly represent household expectations, which makes it an interesting tool for this particular test. The variable to be predicted is the growth of total household consumption expenditure. The main empirical result is that the Consumer Confidence Index (CCI), a balance figure computed from the most important consumer survey responses, does have statistically significant predictive power over the change in total consumption expenditure. The history of consumption expenditure growth itself, however, fails to predict its own future values. This indicates that the CCI contains some information that the history of consumption decisions does not, and that the consumption decisions are not optimal in the theoretical context. However, when conditioned on various macroeconomic variables, the CCI loses its predictive ability. This finding suggests that the index is merely a (partial) summary of macroeconomic information, and does not contain any significant private information on consumption intentions of households not directly deductible from the objective economic variables. In conclusion, the Rational Expectations–Permanent Income Hypothesis is strongly rejected by the empirical results in this thesis. This result is in accordance with most earlier studies conducted on the topic.
  • Kaukoranta, Ilkka (2009)
    This thesis studies empirically whether measurement errors in aggregate production statistics affect sentiment and future output. Initial announcements of aggregate production are subject to measurement error, because many of the data required to compile the statistics are produced with a lag. This measurement error can be gauged as the difference between the latest revised statistic and its initial announcement. Assuming aggregate production statistics help forecast future aggregate production, these measurement errors are expected to affect macroeconomic forecasts. Assuming agents’ macroeconomic forecasts affect their production choices, these measurement errors should affect future output through sentiment. This thesis is primarily empirical, so the theoretical basis, strategic complementarity, is discussed quite briefly. However, it is a model in which higher aggregate production increases each agent’s incentive to produce. In this circumstance a statistical announcement which suggests aggregate production is high would increase each agent’s incentive to produce, thus resulting in higher aggregate production. In this way the existence of strategic complementarity provides the theoretical basis for output fluctuations caused by measurement mistakes in aggregate production statistics. Previous empirical studies suggest that measurement errors in gross national product affect future aggregate production in the United States. Additionally it has been demonstrated that measurement errors in the Index of Leading Indicators affect forecasts by professional economists as well as future industrial production in the United States. This thesis aims to verify the applicability of these findings to other countries, as well as study the link between measurement errors in gross domestic product and sentiment. This thesis explores the relationship between measurement errors in gross domestic production and sentiment and future output. Professional forecasts and consumer sentiment in the United States and Finland, as well as producer sentiment in Finland, are used as the measures of sentiment. Using statistical techniques it is found that measurement errors in gross domestic product affect forecasts and producer sentiment. The effect on consumer sentiment is ambiguous. The relationship between measurement errors and future output is explored using data from Finland, United States, United Kingdom, New Zealand and Sweden. It is found that measurement errors have affected aggregate production or investment in Finland, United States, United Kingdom and Sweden. Specifically, it was found that overly optimistic statistics announcements are associated with higher output and vice versa.
  • Meriläinen, Jaakko (2013)
    The largest party holds more than half of the seats in every third Finnish local council and, thus, is likely to govern alone. It is namely the absolute majority that makes the decisions. In this study, I investigate, if single-party and coalition governed municipalities differ in economic outcomes. Theoretical considerations often rely on so-called common pool problem. Common pool models suggest that when there is a governing coalition, all parties want to target some spending to their core constituents, while costs are shared equally across all parties. This results in higher spending than in the case that one party would be governing. However, also contradictory arguments have been proposed. It has been suggested that, for instance, strategic use of debt or role of swing voters in elections could lead to higher spending under single-party government. In this study, I show evidence from Finnish municipalities that is consistent with the idea of common pool models. Following the recent development lines in empirical political economics, I exploit close elections as a source of exogenous variation using regression discontinuity design (RDD) adjusted to proportional system. It is assumed that close elections are as good as if they were random. Estimates suggest that single-party control decreases, on average, total expenditures and revenues by around 200 euros per capita. However, it seems that the effect gets smaller year by year. It could be that re-electoral incentives affect the behavior of parties that govern councils alone. I also analyze the effect in several areas of spending and revenues. The data set that I use in this study includes data from 445 municipalities for a varying number of years between 1980–2010, which makes 13,104 observations in total. These data cover results of 3,778 elections. This study develops a simple though new way of analyzing the research question. I use seat division rules to compute the running variable for the regression discontinuity design. Moreover, most previous studies on the topic compare outcomes in different countries. In this study, the outcomes are compared within the same system, i.e. all units share the same institutional background. Last, the topic has not been studied in the Finnish context before, even though single-party control is common phenomenon and municipalities have an important role in the Finnish system.
  • David, Leticia Screta (2014)
    This thesis studies the consumers’ willingness to pay for renewable electricity. Green electricity consumption induced by improved information on electricity sources appears as an additional alternative to renewable energy support policies in practice today. It is believed that a shift of the demand towards green sources can stimulate renewable generation and have a positive impact on the environment. However, this voluntary initiative will only work if it is perceived worth paying a premium for green electricity. This work aims to examine the drivers of consumers’ behaviour towards green electricity and to develop economic models that embrace these findings. The analysis also elucidates how the demand for renewable electricity is affected by market prices and by consumers’ income and how information and advertising campaigns can stimulate the behaviour towards green electricity so that the voluntary demand system can fully achieve its goals.
  • Fornaro, Paolo (2011)
    In recent years, thanks to developments in information technology, large-dimensional datasets have been increasingly available. Researchers now have access to thousands of economic series and the information contained in them can be used to create accurate forecasts and to test economic theories. To exploit this large amount of information, researchers and policymakers need an appropriate econometric model.Usual time series models, vector autoregression for example, cannot incorporate more than a few variables. There are two ways to solve this problem: use variable selection procedures or gather the information contained in the series to create an index model. This thesis focuses on one of the most widespread index model, the dynamic factor model (the theory behind this model, based on previous literature, is the core of the first part of this study), and its use in forecasting Finnish macroeconomic indicators (which is the focus of the second part of the thesis). In particular, I forecast economic activity indicators (e.g. GDP) and price indicators (e.g. consumer price index), from 3 large Finnish datasets. The first dataset contains a large series of aggregated data obtained from the Statistics Finland database. The second dataset is composed by economic indicators from Bank of Finland. The last dataset is formed by disaggregated data from Statistic Finland, which I call micro dataset. The forecasts are computed following a two steps procedure: in the first step I estimate a set of common factors from the original dataset. The second step consists in formulating forecasting equations including the factors extracted previously. The predictions are evaluated using relative mean squared forecast error, where the benchmark model is a univariate autoregressive model. The results are dataset-dependent. The forecasts based on factor models are very accurate for the first dataset (the Statistics Finland one), while they are considerably worse for the Bank of Finland dataset. The forecasts derived from the micro dataset are still good, but less accurate than the ones obtained in the first case. This work leads to multiple research developments. The results here obtained can be replicated for longer datasets. The non-aggregated data can be represented in an even more disaggregated form (firm level). Finally, the use of the micro data, one of the major contributions of this thesis, can be useful in the imputation of missing values and the creation of flash estimates of macroeconomic indicator (nowcasting).
  • Antipina, Dina (2013)
    The subject of our research is the behavior of the economy in response to monetary and technology shocks. To understand these issues we use a Dynamic Money-in-the-Utility-Function framework. We implement a non-separable property of the utility function that implies non-neutrality of real money balances. We construct a toy theoretic model with two representative agents who maximize their functions subject to constraints. We analytically solve the model using a method of log-linearization around the steady state and obtain the system of linear equations. We analyze the response of economic equilibrium with respect to implemented shocks using a method of undetermined coefficients and solve a system of linear difference expectation equations. In addition to analytical solution we also present Impulse Response Functions of the model. We compute the impacts of monetary and technology shocks on the model and find that in case of a positive monetary shock expected inflation effect dominates the liquidity effect, while in case of a positive productivity shock income effect dominates substitution effect. The findings regarding the impact of a technology shock contradict the theory of real business cycles that predicts the domination of substitution effect over the income effect
  • Hohenthal, Louise (2018)
    The thesis examines the effects of tax progressivity on the stability of a growing economy. This is done based on the AK growth model. My interest in this topic regarding progressive taxation comes from two articles by Shu-Hua Chen and Jang-Ting Guo, published in 2013 and 2016. The articles do not include detailed mathematical proofs contrary to my thesis. The contribution of my paper is therefore the complete mathematical proofs. In this way I show that the conclusions of the papers really are based on mathematical facts, therefore increasing the value of the results. Two different externalities in the production structure are considered. Either the government expenditures are productive, contributing positively to the level of production, or there are productivity spillovers with the level of production depending on the average size of the capital stock as different producers may use different amounts of capital. In the presence of productive government expenditures, the effects of progressivity depend on the degree to which the expenditures impact the demand as well as the supply of the final good. If the government expenditures affect the supply of goods more than the demand, a sharp progressivity of taxation, as well as any degree of regressive taxation, creates instability in the economy. On the other hand, a moderate progressivity creates stability in the economy. However, if the government expenditures affect the demand of goods more than the supply, any degree of progressivity creates instability in the economy and any degree of regressivity creates stability. In the presence of productivity spillovers, any degree of progressive taxation results in an unstable economic development. However, any degree of regressive taxation results in a stable economy. Finally, regardless of type of production externality, a proportional taxation results in a stable economy and a stable growth path.
  • Mancera Hernandez, Fabian Alejandro (2014)
    This thesis studies the implications of quality of education in the steady state of an endogenous growth model for optimal spending allocation decisions with educated labor, mandatory schooling, congestion costs and infrastructure spillovers. Education quality is characterized by the past knowledge taught to the students, and the degree of congestion in schools. Congestion costs are defined as the ratio of teachers to students in the population, and as the proportion of government spending on education to the teaching capacity given the public infrastructure. The transitional dynamics associated with an increase in the degree of congestion, and the spending share on education, are analyzed in the balanced-growth path. It is shown that a revenue-neutral spending reallocation has an ambiguous effect in the final consumption and human capital accumulation levels. A growth-maximizing share of government spending on education is required to avoid ambiguous results. This is shown to depend either on the production function parameters only or on a combination of these with education parameters and a negatively related congestion parameter, accordingly to the congestion cost considered. Implications for increasing the years of mandatory schooling are also discussed.
  • Skakun, Yuliya (2018)
    Conducted research on the relationships between oil shocks and macroeconomic variables has evolved a lot over the past years. Developed empirical and theoretical models triggered the need to recall different types of shocks and its effect on certain macroeconomic variables. In this thesis, Structural Vector Autoregressive Model (SVAR) has been used in order to analyse the extent to which crude oil supply, aggregate oil demand and oil market-specific demand shocks can affect GDP growth rate, consumer price index and short-term interest rates of analysed oil-exporting countries: Norway and United Kingdom and oil-importing ones: Germany and USA. The results have shown that the strength of the oil market-specific demand shock is the strongest among the rest of the shocks analysed. There is observed a clear positive effect for oil-exporting countries and negative impact for oil-importing ones. However, when analysing crude oil supply and aggregate demand shocks of oil-exporting countries, I have found out that the direction of the shock depends on the extend of the disruptions either from supply or demand side. Oil-dependency in the industrial structure of the oil-importing economies is also a significant factor affecting the vulnerability of the country and explosiveness to any shock. Also, I have discovered that short-term interest rates tend to fluctuate in the same direction as the inflation when oil production levels are changing. In addition, the direction of the effect depends on the monetary authorities' targets and policies implemented. These vary with no regard whether the country is oil-importing or oil-exporting.
  • Kivimäki, Marja Katriina (2011)
    Tässä työssä kysymystä kouluttamattoman maahanmuuton mahdollisesta vaikutuksesta eläkkeiden rahoitettavuuteen ja sitä kautta maahanmuuttopolitiikkaan lähestytään poliittisen taloustieteen näkökulmasta. Tarkastellaan siis sitä, mitkä ikä- ja tuloryhmät hyötyvät kouluttamattomasta maahanmuutosta sen mahdollisesti helpottaessa eläkkeiden maksua ja mitkä eivät ja millaiseen poliittiseen tasapainoon tämä johtaa. Äänestettäessä maahanmuuttopolitiikasta yksilö perustaisi mielipiteensä maahanmuuttopolitiikan liberalisoinnista tai tiukentamisesta siihen, miten maahanmuutto vaikuttaisi hänen omaan etuunsa. Maan väestö jaetaan eläkeläisiin sekä koulutettuihin ja kouluttamattomiin työntekijöihin ja tarkastellaan miten maahanmuutto vaikuttaa näiden ryhmien taloudelliseen hyötyyn. Aluksi tarkastellaan lyhyesti millaisia malleja maahanmuutosta ja eläkejärjestelmän olemassaolon vaikutuksista siihen suhtautumiseen on olemassa. Ensimmäisen johdantoluvun jälkeen käsitellään sitä, miten äänestystulos maahanmuuttopolitiikasta muuttuu mallin oletusten muuttuessa. Työssä tarkastellaan Razinin ja Sadkan (1999) hyvin yksinkertaista mallia, joka sisältää yksinkertaisuutensa takia joitain hyvin rajoittavia oletuksia. Sitten käydään läpi Kriegerin (2004) sekä Razinin ja Sadkan (2000) tekemiä laajennuksia, joissa osasta rajoittavia oletuksia luovutaan ja katsotaan millaisiin muutoksiin tämä johtaa. Työssä tarkastellaan myös Kriegerin (2003) mallia äänestystuloksesta neljässä erilaisessa eläkejärjestelmässä. Tamuran (2006) mallia tarkastellaan näkökulman laajentamiseksi edelleen. Tarkastelun kohteena ei enää ole vain eläkejärjestelmä, vaan myös tulonsiirrot matalapalkka-alojen työntekijöille. Työssä tarkasteltujen artikkeleiden pohjalta näyttää siltä, että erilaisissa eläkejärjestelmissä ja erilaisissa talouksissa elävät yksilöt suhtautuvat maahanmuuttoon eri tavoin sen mukaan, minkä verran he saavat hyötyä siitä. Hyödyn määrään vaikuttavat myös maahanmuuttajien ominaisuudet ja eläkejärjestelmän ominaisuudet, varsinkin se, onko eläkemaksu vai eläke-etuus vakio. Koska maahanmuutto vaikuttaa talouden eri ryhmiin eli kouluttamattomiin ja koulutettuihin työntekijöihin sekä eläkeläisiin eri tavoin, useimmiten yksimielisyyttä maahanmuuttopolitiikasta ei synny.