In this article we analyse the relationship between uncertainty and economic activity. For this purpose, we use a firm-level panel data set from Turkey to form proxies for uncertainty by using expectation errors of firms about their production volumes. The identifying assumption is that the probability of making an expectation error increases when the uncertainty faced increases. An analysis o…

Has inflation targeting (IT) conferred benefits in terms of economic growth on countries that followed this particular monetary policy strategy during the crisis period 2007�13? We answer this question in the affirmative. Countries with an IT monetary regime weathered the crisis much better than did countries with other monetary regimes, particularly countries with fixed exchange rates.

This article addresses the existence of a wide range of estimated government spending multipliers in a dynamic stochastic general equilibrium model of the euro area. Our estimation results and counter-factual exercises provide evidence that omitting the interactions of key ingredients at the estimation stage (such as Edgeworth complementarity/substitutability between private consumption and go…

This article explores the optimal privatization policy for industries with network externalities in consumption, such as the telecommunications industry. The optimal degree of privatization depends crucially on the scale of network externality, the degree of compatibility (which, in the telecommunications industry, corresponds to the level of standardization that facilitates compatibility acro…

This article clarifies the reasons for the recent rapid growth of foreign direct investment (FDI) in developing countries, particularly Asian countries. For this purpose, we theoretically and empirically examine the mechanics of both horizontal FDI and vertical FDI (VFDI) to shed light on the role of trade costs. Our empirical analysis using a logit or multinomial logit model of Japanese firms�…

This article incorporates tax evasion and sales tax rebates to consumers into Ramsey�s optimal taxation problem. Consumers may act as tax enforcers by requesting sales receipts, forcing firms to remit taxes to the government. Consumer auditing is costly, and the government offers buyers a tax rebate. This policy modifies the traditional �Ramsey equation� due to a non-trivial inco…

The Mirrlees Review recommends that commodity taxation should in general be uniform, but with some goods consumed in conjunction with labour supply (such as child care) left untaxed. This article examines the validity of this claim in an optimal income tax framework. Contrary to the recommendation of the review, our theoretical results imply that even if all goods other than the good needed for…

We examine whether the information contained in social media (Twitter, Facebook, and Google blogs) and web search intensity (Google) influences financial markets. Using a multivariate system and focussing on Eurozone�s peripheral countries, the GIIPS (Greece, Ireland, Italy, Portugal, and Spain) as well as two of Eurozone�s core countries (France and the Nethelands), we show that soc…

This article studies the stabilization effect of monetary policy reacting to asset price, accounting for the expectations formation effect of policy regime shift, in a DSGE model calibrated to the US economy. In contrast to the linear policy rule that generates negligible stabilization effect from responding to asset prices, the regime switching policy rule can significantly stabilize inflation…

A large literature links currency crashes and reversals in a country�s net external borrowing to output losses. In this article, we find that contractions in the stock of gross foreign claims on a country�a phenomenon we call gross foreign investment reversals (GIRs)�are also associated with output declines. GIRs are specially harmful during currency, current account, and sudden …