E13 - General Aggregative Models: NeoclassicalReturn

Economic convergence has become a European research topic of interest during recent decades, particularly since new member countries joined the EU in 2004. Measuring cross-country convergence focuses on real convergence, taking per capita income as a measure of living standards based on the convergence criteria defined by Sala-i-Martin (1996). The objective of this paper is to bring together supply-side (real convergence) and demand-side (BoP-constrained approach) concepts of economic growth aimed at identification of convergence sources in the emerging economies of the Visegrad Group. The sustainability of convergence in this study utilizes the BoP-constrained growth theory developed by A. Thirlwall (1979). Our results show that all the countries in the Visegrad Group exhibit relatively instant convergence, which could continue considering the intensity and direction of structural changes that affect the export demand elasticities and labour productivity.

The aim of this paper is to evaluate relative over-investment or under-investment of economies. To achieve this, we build a panel regression for 122 countries, where rates of investment and capital-output ratios are explained by key fundamental variables stemming from the theory in Chapter 1. We present implied-equilibrium values for both variables and all the countries in the sample. Countries of the former Soviet Union, the USA and Germany, for example, were identified as relatively underinvested. Large Asian economies such as China, India and Indonesia, and some countries of Latin America and Africa appeared to be overinvested. No significant imbalance was identified for Czechia, Slovakia and Hungary, while Poland showed to be rela- tively underinvested.

This paper investigates the optimum saving rate from the perspective of the receivers of interest. The first part lists major contributions detected in the literature on the optimum saving rate and differential games of capitalism. The second part explores the socially optimal saving rate connected to the maximum sustainable consumption per person. A new graphical method is used to show the distribution of consumption goods between wage earners and receivers of interest. The optimum saving rate of the receivers of interest is derived in the third section. The mathematical formula indicates that this rate is lower than the golden rule, and it coincides with the optimum of the Ramsey-Cass-Koopmans model only under specific circumstances.

Paper deals with an important area of monetary economics, the demand for money. Concretely we propose results from an empirical investigation of determinants of the demand for real money balances in the Czech Republic. From the methodological point of view we use models of multivariate time series analysis in the co-integrated context, the VAR and VEC models, and the generalized impulse response functions for an estimation of trajectories of adjustment processes. Based on the results, we can say that the real money balances in the broader definition (in the sense of M2 monetary aggregate) are demanded by economic agents in relation to a long-run evolution of their needs, and during this, they are not systematically influenced by economic shocks. This also implies stability and simple predictability of the demand. Demand in the narrow sense, including currency and demand deposits, exhibits a greater volatility due to different shocks. Therefore this narrow demand is continuously adjusted to arising disequilibriums, going from both inside and outside of the economy. Nevertheless in the long run there exists an equilibrium relationship among the demand for real money balances in the narrow sense, the interest rate, the real effective exchange rate and the rate of unemployment. Majority of observed relationships is consistent with a priori assumptions, which are formulated through a theoretical model. Finally, it is possible to show, that direct long-run equilibrium relationship between the demand for real money balances in the narrow sense and the volume of transactions (or real production) does not exist. On the contrary, we have also found that a transactions demand is influenced by the business cycle. However the elasticity of transactions demand with respect to the business cycle is relatively small and hence we conclude that a considerable part of this demand is constant over time and a speculative demand is more important for the description of the demand for real money balances development. The difference between a behavior of the demand for real money balances in the narrow and in the broader definition, we are explaining by a portfolio re-optimization effect.

The paper presents the optimal control theory and the maximum principle technique that is suitable for solving dynamic optimalization problems in continuous time. Modern mainstream macroeconomics stresses microeconomics principles of solved problems. However, the application of the standard microeconomic approach - the static optimalization - needs to be replaced in macroeconomics by more sophisticated methods. The maximum principle is one of the possible tools. This text briefly introduces the basics of this method to Czech readers. More detailed treatment can be found in the original literature. The maximum principle method can be applied not only in solving macroeconomic problems, but also in many different areas that deal with the optimalization in continuous time, e.g. finance or engineering.

Macroeconomic policy is often evaluated solely on the basis of empirical evidence, such as observing the behavior of macroaggregates. This paper argues that this approach bears a shortcoming: "improvement" of macroaggregates can be socially undesirable under certain circumstances. Thus the sole exploration of macroaggregates is not sufficient to evaluate the macroeconomic policy -axiomatic economic theory must be used as well to determine whether the outcomes of macroeconomic policy are beneficial to society or not. The paper first offers a precise definition of a social welfare function (based as much as possible on microfoundations). Then it considers the possibility that macroaggregates might not always correlate with society's welfare. Some illustrations are covered too.