< research
 
science is organised knowledge. wisdom is organised life. /Immanuel Kant/


Research: International and labour economics (macro and global perspectives). Spatial econometrics and panel data methods. Spillovers. Economic policy. Global economy

PUBLICATIONS // ACADEMIC

Paper  

Outlet

Supplementary Materials

Abstract

 

Bilateral Capital Flows to Developing Countries at Intensive and Extensive Margins PDF (with C. Papageorgiou and J. D. Araujo)    

 Bank of Lithuania Working Paper Series No 37, 2016
Journal of Money, Credit and Banking
Vol 49, Issue 7, Oct 2017, p. 1517–1554
Motivated by the rise in capital flows to low‐income countries (LICs), we examine the nature of these flows and the factors affecting foreign investors' decision. Recognizing the presence of fixed investment costs, we analyze capital flows at both intensive and extensive margins. To fix ideas, we resort to the gravity literature for the estimating relationships which we embed into a two‐tier econometric framework with cross‐sectional dependence. Our main finding is that market entry costs are statistically and economically very detrimental to LICs. We also obtain the gravity‐type relationship for the destination income unconditionally but not after conditioning on relevant variables, as well as establish labor productivity as a robust attractor of capital inflows. 
 
 PUBLICATIONS // POLICY

Paper  

Outlet

Supplementary Materials

 

Abstract

Openness and Structural Labour Market Reforms: Ex-Ante CounterfactualsBank of Lithuania, 2016. PDF (with J. Stakenas)     Bank of Lithuania Discussion Paper Series No 12016 
Contemporary Economic PolicyVol 36, Issue 4, Oct 2018, p. 723-757
  • Data
  • Codes 
In this paper we examine plausible macroeconomic responses to the ex ante (planned but not implemented yet) reforms in the labor market, taking a currently proposed Social Model in Lithuania as an example. We contribute not only to the current debate on the efficacy of announced structural reforms, but also to the literature on policy evaluation, by assessing reforms from a global perspective. Taking trade linkages and openness into account, we demonstrate macroeconomic reactions to shocks in unemployment benefits, active labor market policies, and tax wedge on the reforming economy. In particular, we show that the omission of an international dimension could lead to seriously biased results on policy effects for any open and small economy. Using a satellite model for the intermediate trade, we link the global framework with the sectoral extensive margin, which changes some of the results derived from the aggregate data. 
 Structural Labour Market Reforms in the EU-15: Single-country vs. Coordinated Counterfactuals, 2017. (with J. Stakenas)  Structural Change and Economic Dynamics, Vol 44, Issue C, Mar 2018, p. 88-99Recent turbulent times have spurred a response by policy-makers to engage in a number of labour market reforms to enhance economic resilience and flexibility. Amid discussions about the most efficient ways to conduct such reforms, whether individually or simultaneously, we still lack evidence on the cross-country interactions and international interdependencies that may strengthen or weaken economic responses within an economic union. This paper deals with three policy tools – unemployment benefits, activation policies and the tax wedge, and demonstrates that they dissipate across open economies. We document evidence of both positive and negative policy spillovers among European economies and carry out a counterfactual of coordinated policies which prove to be needed for some but not other policy variables. We find that coordination strengthens macroeconomic responses to labour market policies. 
Knotty Interplay Between Credit and HousingBank of Lithuania, 2017 (with M. Constantinescu)Bank of Lithuania Working Paper Series No 45, 2017 
The Quarterly Review of Economics and Finance, In Press
We employ the recent Jordà, Schularick, and Taylor (2016) and Knoll, Schularick, and Steger (2017) datasets to investigate the long-run relationship between house prices and credit volume, allowing for interest rate, real exchange rate and real gross domestic product (GDP). We refine the analysis using data at the quarterly-level to define relevant co-integrating relationships across a number of European economies. Housing, GDP and credit cross-sectional averages are included in the analysis to detect the effects of common factors. Empirical results indicate the presence of cross-country heterogeneities and an uneven feedback mechanism between credit and housing – the full loop is established only for several countries in the dataset. Grouping countries for panel-like econometric exercises may lead to spurious regression results, poor inference and misleading policy implications. Short-run dynamics, compared to the long-run may often lead to contradicting policy advice if the order of integration of the house price series is not properly accounted for. Furthermore, the presence of spatial patterns of house prices and credit highlight the need to consider global housing and credit developments for national policy making. 

SELECTED WORKING PAPERS

Paper  

Outlet

Supplementary Materials

Abstract 

 Labour Market Institutions in Open EconomyBank of Lithuania, 2016. PDF (with J. Stakenas)  Bank of Lithuania Working Paper Series No 332016
  • Codes
This paper builds a theoretical model that introduces frictional unemployment in a two-sector multi-worker heterogeneous firms model with a dynamic matching process. In doing so, we have a rich environment that combines product, labour, and international markets. A change in labour market policies (unemployment benefits and employment contingent subsidies) transforms the share of exporters and affects average productivity. Empirical evidence confirms a robust positive effect of employment subsidies on openness, little, if any, impact of subsidies and a positive effect of replacement rate on unemployment. Closure of equilibrium plays an important role to explain data facts about employment subsidies: using sectoral arbitrage condition, subsidies cease affecting unemployment and make openness grow, consistently with the empirical evidence. Unemployment benefits, on the other hand, make unemployment and openness rise, independently of sectoral reallocations. In addition, we find that unemployment benefits bear different policy implications with regards to international coordination than employment subsidies.
Spatial Nexus in Crime and Unemployment in Times of Crisis, 2017. PDF (with E. Tatsi Cambridge Working Papers in Economics 1359Faculty of Economics, University of Cambridge
University of Southern California-INET Research Paper No. 17-08 (updated)
Slides   
Space is important. In this paper we use the global financial crisis as an exogenous shock to the German labor market to elucidate the spatial nexus between crime and unemployment. Our contribution is twofold: first, we lay down a parsimonious spatial labor market model with search frictions, criminal opportunities, and, unlike earlier analyses, productivity shocks which link criminal engagement with employment status. Second, we seek empirical support using data on the 402 German regions and years 2009−2010, in a setting that not only allows for crime spatial multipliers but also circumvents reverse causality by exploiting exogenous changes in unemployment due to the crisis. As predicted by our theory, the destruction of the lowest productivity matches, measured by increases in unemployment rates, has a significant impact on pure property crime (housing burglary and theft of/from motor vehicles) and street crime. The analysis offers important implications for local government policy. 
Global Perspective on the Structural Labour Market Reforms in EuropeBank of Lithuania and University of Cambridge, 2015. PDF (with J. Stakenas) 
New version with the updated model, input-output structure, and different weighting schemes is coming soon
Recent turbulent times have once again demonstrated how important flexible product and labour markets are to dampen the effects of adverse economic shocks. A number of labour market reforms have been implemented to enhance economic resilience and flexibility. However, accounting for the efficacy of policy interventions requires going beyond national boundaries and evaluating international interactions and global interdependencies, which may strengthen or weaken economic responses. Concentrating on open European economies, this paper deals with labour market institutions and structural reforms in a general equilibrium framework, which allows to analyse the intricate connections between labour policy choices and international trade (openness), paying special attention to labour market policy shocks. Amid discussions about a fiscal union in Europe, we empirically demonstrate that labour market policies can have positive and negative spillovers to trading partners, thereby calling for coordinated policies within a trading bloc. We answer three types of questions: what would have happened had all economies implemented structural labour market reforms simultaneously? How heterogeneous are responses in a single economy to shocks conducted in every other country? Relatedly, how heterogeneous are responses by all economies to a reform in one given economy?
Fiscal Policy and Trade Margins: An Educational ChannelUniversity of Cambridge, 2015. PDF (with R. Guadarrama-Baena) Cambridge Working Papers in Economics 1533Faculty of Economics, University of Cambridge, 2015 This paper combines current literature on the heterogeneous firms in international trade with the public economics of fiscal policy. We study the nexus between the intensive and extensive margins of trade, and their relationship with fiscal policy. When taxes are collected through the fixed per-period production payments, borne by all active firms, they impact firm partitioning and exporting decisions, but are nevertheless left unmodelled and treated as a pure loss in the literature. Instead, we show theoretically how such taxes can be channelled back into an open economy through spending on education (thereby affecting workers' skill distribution in non-trivial ways), and contrast the result with the standard trade liberalisation exercise and a wasteful channel, which are prevalent in the literature. We estimate the model's predictions using a novel data set covering 40 countries from 1995 to 2011. Employing the instrumental-variable panel techniques, we find support to our main testable predictions: fixed production taxes, used as the source to fund education, create an educational channel on the aggregate expenditure and the extensive margin of trade. A decrease in expenditure and an increase in the extensive margin are both amplified once an educational channel is allowed for.
  
OLDER WORKS


CHAPTERS/CONTRIBUTIONS/ETC.

Title  

Details

Structural policies in the euro area (ed.by K. Masuch et al.)Part of the Task Force of the Monetary Policy Committee the European System of Central Banks  
 Impact of labour market reforms on Lithuania’s economy (EN)Annex at the Lithuanian Economic Review (June 2016)
(with J. Stakėnas)
Essays on international trade, labour, and technologyUniversity of Cambridge, Cambridge: United Kingdom
PhD Manuscript, 2014