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Leveraging Firm Entry Policy to Drive Innovation, Growth, and Reduce Income Inequality, in the Presence of Entry Threats and Rent-Seeking
Get PDFThis paper presents an analytical model that investigates the dynamics of rent-seeking, innovation, and entry policies in a two-sector economy characterized by skilled and unskilled labor. The model explores how incumbent firms in an intermediate goods sector react to the threat of new entrants and how rent-seeking behavior influences innovation and economic productivity. A key feature of the model is the role of a policymaker who sets firm entry policies and responds to bribes offered by incumbent firms seeking to restrict market entry.
The analysis distinguishes between advanced and backward incumbent firms. Advanced firms, which operate at the frontier of technological productivity, choose to innovate to retain their competitive position in response to entry threats. In contrast, backward firms face higher barriers to innovation and are more likely to bribe policymakers to deter new competition. The magnitude of the bribes depends on the difference in profits with and without entry threats, as well as the costs of innovation.
The model highlights how rent-seeking by backward firms distorts market competition, leading to suboptimal innovation and lower aggregate productivity in the skilled sector. Policymakers, balancing between maximizing bribes and addressing wage inequality, face conflicting incentives. If a policymaker prioritizes welfare, they may restrict entry to reduce wage inequality, thereby lowering competitive pressures and innovation. Alternatively, a policymaker focused on maximizing bribes may encourage higher entry threats, fostering innovation but exacerbating income inequality.
This paper contributes to the literature on rent-seeking and economic growth by providing a nuanced understanding of how firm behavior, entry policies, and innovation are interlinked, with important implications for labor markets and income inequality. The model provides insights into the broader economic consequences of rent-seeking behavior and entry regulation, emphasizing the need for balanced policies that encourage innovation while minimizing economic distortions caused by rent-seeking activities
Comparing two simulation approaches of an energy-emissions model: Debating analytical depth with policymakers’ expectations
Get PDFAs global commitments to decarbonization intensify, energy-emission models are becoming increasingly vital for policymaking, offering data-driven insights to evaluate the feasibility and impact of climate strategies. These models help governments design evidence-based policies, assess mitigation pathways, and ensure alignment with national and international targets, such as the Paris Agreement and the EU Green Deal. Researchers often spend a lot of time considering their modelling choices to develop the best possible tools in terms of data-requirements, accuracy, computational demand, while there is always a ‘debate’ of complexity versus explicability and ready-to-use models for policymaking. Especially for energy-emissions models, given their increasing policy-relevance, and the need to provide insights fast for short-term policies (e.g. 2030, or 2050 net-zero goals), such considerations become increasingly pressing. In this paper, we present two different versions of the same energy-emissions model, and we run them for the same study area, planning horizon, and scenario analysis. The two versions differ only in how they approach complexity: Version1 is a more ‘detailed’, complex model, while Version2 is a ‘simpler’ and less data-hungry one. A set of evaluation criteria was then used to qualitatively compare these two versions, based on modelling- and policymaking-related considerations, debating modelers’ and policymakers’ expectations and preferences. We reflect on best modelling practices, discuss different goal-dependent approaches, providing useful guidance for modelers and policymaker
US-China Tensions, US Partisan Conflict and Global Oil Prices: Scapegoating or Following the Flag or both?
Get PDFI explore the relationship between US-China tensions, US partisan conflict and global oil prices over the last 20 years. Using lag-augmented local projections, I find empirical support for both the scapegoating hypothesis and the “following the flag” hypothesis. For the scapegoating hypothesis, a rise of US partisan conflict lead to an increase in US-China tension and a reduction of the global prices of oil in the medium run. For the “following the flag” hypothesis, a rise in US-China tension lead to a reduction of US partisan conflict and a reduction of the global prices of oil in the short run. Overall, I underline a new channel through which the domestic economy can be influenced by geopolitical tensions
Quantifying data revisions using real-time data in South Africa
No full textNon-random revisions in macroeconomic statistics has important implications for forecasting and risk management and well as policy making. This policy paper evaluates the magnitude and historical dynamics of South African macroeconomic data revisions using a detailed true real-time dataset. We show that there is a lot of uncertainty around macroeconomic data in South Africa. In the case of GDP, estimates have tended to be revised upwards, by about 0.4 percentage point, on average. Investment, on the other hand, experienced larger revisions that GDP, with revisions tending to be negative. We show that the Reserve Bank's business cycle indicators have experienced the largest revisions of the series considered, raising concerns over their usefulness for nowcasting economic growth
Estimating the New Keynesian Phillips Curve (NKPC) with Fat-tailed Events
No full textThis paper provides estimation of the New Keynesian Phillips curve accounting for the unexpected large shocks such as Covid-19. The recent pandemic distorted the estimates of the output gap derived using the regular trend cycle decomposition of GDP (HP Filter, BP Filter, Kalman Filter). We propose a modified unobserved components model (UCM) by introducing an additional Student-t distributed irregular component in the trend cycle decomposition of GDP, which successfully isolates transitory shocks like COVID-19 from trend and cycle estimates. We also construct a model-based measure of inflation expectations that captures adaptive learning from a long inflation history and real-time updating during the pandemic. For India, we find a stable linear NKPC. Our results demonstrate that accounting for fat-tailed events is crucial for obtaining reliable Phillips curve estimates in emerging markets
Revisiting Friedman's Extended Monetary Framework. The Monetary Theory of Nominal Income
Get PDFThis document revisits Milton Friedman's extended monetary framework, specifically focusing on his Monetary Theory of Nominal Income. Friedman’s extended monetary framework remains robust in explaining the dynamic relationship between money supply changes and nominal income fluctuations over more than 150 years of U.S. data. Despite major economic events, this relationship has been stable and significant. The empirical analysis with more recent data continues supporting Friedman's contention that money plays a special role in macroeconomic dynamics, stronger than fiscal variables or interest rates. The methodological debate between Friedman and his critics underscores the importance of empirical causality and practical explanatory power in economic theory. The document concludes that Friedman’s Marshallian approach offers valuable insights that have endured and continue to inform monetary economics
Founding India’s Barefoot Unicorns: A Policy Framework for MSME Incubation, Acceleration, and Massive Job Creation
Get PDFIn India, entrepreneurship is often reduced to skilling combined with nano-finance. Public programs largely wash their hands after budgeting for short-term training, linking to microfinance, and creating shared infrastructure — all designed to serve large numbers of mass entrepreneurs at subsistence levels. This paper takes a 180-degree sharp reversal of that approach. It argues that by ignoring the more aspirational, growth-ready entrepreneurs — those sitting at the top of the local entrepreneurial networks — current policies are actually promoting enterprises sub-optimally, and failing to unlock the real potential of India’s unincorporated sector. The paper proposes an Acceleration Model focused on identifying and backing Barefoot Unicorns — the high-aspiration HWEs and αHWEs strategically positioned at the top of local entrepreneurial networks — through adaptive incubation, behavioral conditioning, flexible finance (revenue-based financing, micro-equity), and network-driven scale, aligned to the unpredictable, non-linear journey toward Product–Market Fit (PMF). Even a modest shift could unlock 18 crore new jobs. This paper offers a strategic blueprint for governments, catalysts, CSR, incubators, investors, lenders, and DPI ecosystem actors to move beyond outcome-poor schemes towards high-leverage, ROI-maximizing entrepreneurship models
Regulatorische Agenda 2025+ und deren Ausblick: Zwischen Komplexität und Notwendigkeit – Eine kritische Analyse des europäischen Bankensektors
Get PDFThe 2025+ regulatory agenda presents the European banking sector with a significant convergence of complex requirements, including the finalisation of Basel III (CRR III/CRD VI), the Digital Operational Resilience Act (DORA), the Markets in Crypto-Assets Regulation (MiCAR), the new Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) package with the establishment of the AMLA, and the ongoing implementation of ESG regulations (CSRD/ESRS, EU Taxonomy).
The results of this work show that, despite the undeniable need to strengthen the resilience and integrity of the sector, the aggregated regulatory complexity, the considerable implementation costs and potential normative inconsistencies constitute substantial challenges for the competitiveness and innovative capacity of institutions. In particular, interactions in the context of digital transformation, ensuring regulatory proportionality and handling large volumes of data in compliance with data protection regulations require precise calibration in the sense of differentiated and coherent (‘smarter’) regulation. The supervisory priorities of the European Central Bank (ECB) and the European Banking Authority (EBA) reflect these challenges and require far-reaching.
The outlook points to a persistently high regulatory dynamic that will be increasingly characterised by the need to systematically manage the complex interactions between financial stability-related objectives, technological innovation capability and sustainability-oriented requirements
Balancing Act or Policy Pitfall? The Effects of Central Bank Dual Mandates
Get PDFCentral banks are often tasked with steering economies toward goals that exceed price stability, but the consequences of broader mandates are understudied. This paper focuses the case of central banks that have the explicit mandate of promoting both price stability and full employment (“dual mandates”). We explain how dual mandate adop- tion generates institutional constraints that increase inflation without delivering meaningful gains in employment. We test our theory using original data on central bank mandates in 176 countries from 1985 to 2023. The empirical analysis addresses challenges of staggered adoption and treatment heterogeneity through entropy balancing, and generalized synthetic control approaches focusing on countries with clean adoption patterns. We find that dual mandate adoption raises inflation by about eight percentage points relative to inflation-only mandates, with effects persisting over time. In contrast, we do not find systematic long-term employment benefits. These results suggest that broader central bank mandates may weaken the effectiveness of monetary policy and increase the risk of politicization. This has im- plications for debates over institutional design, delegation, and the limits of technocratic governance
Duration Structure of Unemployment Hazards and the Trend Unemployment Rate
Get PDFThis paper investigates the duration structure of unemployment hazards and the trend unemployment rate using micro-level labor market data. We analyze how the probability of exiting unemployment varies over time and explore the implications for the natural rate of unemployment. The findings contribute to understanding unemployment dynamics and inform labor market policies