Browsing by Author "Koskela, Erkki"

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  • Holm, Pasi; Honkapohja, Seppo; Koskela, Erkki (1990)
    Bank of Finland Research Discussion Papers 24/1990
    The paper formulates a model of wage determination in accordance with the notion of a monopoly union determining wages after which the firm decides on employment. The novelty is to incorporate investment and capital decisions by firms. In the theoretical part the subgame-perfect Nash equilibrium and its comparative statics for wages, capital stock and employment are characterized in various cases.
  • Koskela, Erkki; Stenbacka, Rune (2000)
    Suomen Pankin keskustelualoitteita 12/2000
    We address the question of how lending market competition, measured by the bargaining power of banks, affects the agency costs of debt finance.It is shown that intensified lending market competition will lead to lower lending rates and investment return distributions which are shifted towards lower, but less risky returns.Consequently, it follows that increased lending market competition will reduce the agency cost of debt financing.Hence, our analysis does not lend support to the commonly held view that there would be a trade-off between more intensive lending market competition and higher agency costs of debt finance.
  • Koskela, Erkki; Stenbacka, Rune (2000)
    Suomen Pankin keskustelualoitteita 16/2000
    We offer a unified framework to analyze the determination of employment, employee effort, wages, profit sharing and capital structure when firms face stochastic revenue shocks.We apply a generalized Nash bargaining solution, which extends the wage bargaining literature by incorporating efficiency wage considerations, profit sharing and capital structure.The profit sharing instrument is demonstrated to have positive effort-augmenting and wage-moderating effects, which exactly offset the negative dilution effect in equilibrium.Leverage is shown to reduce employment and to have a strategic commitment value as a wage-moderating mechanism for firms facing unions in bilateral wage negotiations.Finally, some implications for equilibrium unemployment are discussed.Key words: wage bargaining, profit sharing, capital structure, employment
  • Koskela, Erkki; Virén, Matti (1988)
    Bank of Finland Research Discussion Papers 4/1988
    "Monetary Policy: A Theoretical and Econometric Approach", Patrick Artus and Yves Sarroux (eds.), Kluwer Press.
    The purpose of the paper is to revisit the demand for money specifiections by using U.S. quarterly data over the sample period 1951:1 - 1983:4. Utilizing the so-called threshold models suggested by Tong and Lim (1980) we first demonstrate the unsatisfactory performance of standard linear partial adjustment type specifications. Then we turn to compare error correetion type models; the generalized error correetion type demand for money model seems to outperform other specifications, but suffer from heteroscedasticity of residuals. Finally, an attempt is made with some success to account for this heteroscedasticity by augmented variables - variance of nominal interest rate and inflation and covariance between nominal interestrate and inflation - which attempt to measure changes in uncertainty over time. The resulting specification passes all standard diagnostic checks and shows also otherwise reasonable properties.
  • Kauppi, Heikki; Koskela, Erkki; Stenbacka, Rune (2004)
    Suomen Pankin keskustelualoitteita 11/2004
    The study looks at the implications of product market competition and investment for price setting, wage bargaining and thereby for equilibrium unemployment in an economy with product and labour market imperfections.We show that intensified product market competition will reduce equilibrium unemployment, whereas the effect of increased capital intensity is more complex.Higher capital intensity will decrease the equilibrium unemployment when the elasticity of substitution between capital and labour is less than one, while the reverse happens when this elasticity is higher than one, but smaller than the elasticity of substitution between products.Finally, we demonstrate how labour and product market imperfections, characterised by the wage and price setting mark-ups, affect the optimal capital stock.Our findings raise important questions for future empirical research.Key words: equilibrium unemployment, product market imperfections, investment, wage bargaining JEL classification numbers: E22, E24, J51, L11
  • Koskela, Erkki; Stenbacka, Rune (2003)
    Suomen Pankin keskustelualoitteita 19/2003
    We study employment, employee effort, wages and profit sharing when firms face stochastic revenue shocks and when base wages and profit shares are determined through collective bargaining.The negotiated profit share depends positively on the relative bargaining power of the trade union and has effort-enhancing and wage-moderating effects.We show that higher profit sharing reduces equilibrium unemployment under circumstances with sufficiently rigid labour market institutions, ie sufficiently high benefit- replacement ratios and relative bargaining powers of trade unions.Conversely, profit sharing seems to be destructive from the point of view of employment when the labour market rigidities are sufficiently small. Key words: wage bargaining, profit sharing, efficiency wages, equilibrium unemployment JEL classification numbers: J51, J41, G32
  • Koskela, Erkki; Stenbacka, Rune (2001)
    Suomen Pankin keskustelualoitteita 5/2001
    We study the role of labour and credit market imperfections for the determination of equilibrium unemployment.In the credit market loan contracts are negotiated between financiers and firms, both possessing bargaining power, while the firms and organized labour bargain over the base wage.The sequential labour and credit market negotiations are assumed to take place conditional on the firm having committed itself to use performance related profit sharing in addition to the negotiated base wage.It is shown that in the presence of profit sharing intensified credit market competition will raise equilibrium unemployment, because it induces wage-enhancing effects causing an increase in the outside option available to union members.Equilibrium unemployment is also an increasing function of firms' bankruptcy risks.It is, however, independent of the degree credit market imperfections if the compensation system is unrelated to firms' profits or if there is a monopoly union in the labour market.Keywords: wage and loan bargaining, compensation systems, equilibrium unemployment.
  • Koskela, Erkki; Virén, Matti (1990)
    Bank of Finland Research Discussion Papers 12/1990
    This paper presents a simple model of aggregate demand in current market prices, in which public sector employment affects aggregate (and private) demand via the total output, the lump-sum taxes and the valuation of public sector production. Whlle the last effect is positive for aggregate demand, the other two effects are ambiguous a priori so that the total effect remains indeterminate. On the other hand, the relationshi'p between public sector employment and private output (and demand) is quite likely sensitive to and might depend inversely on the size of the public sector. Empirical results using data from 19 OECD countries over the period 1960 - 1987 indicate that there is practically no within-country relationship between public sector employment and private sector output over time, while there seems to be some, though weak, evidence in favour of the hypothesis that the effect of the public sector employment on private sector output depends inversely on the size of the publie sector across countries.
  • Koskela, Erkki; Loikkanen, Heikki A.; Virén, Matti (1991)
    Bank of Finland Research Discussion Papers 22/1991
    This paper describes some institutional aspects of housing, markets and analyzes the price development of owner-occupied housing and its interaction with the household saving ratio in Finland during the last two decades. In Finland the volatility of house prices in relation to income can to a large extent be traced to the major changes in financial market conditions. Two other factors have also contributed to the house price volatility, namely the favourable tax treatment of housing (and othe.r) loans and the "thin" rental markets. The former has increased the rate of retum on housing, while the "thin" rental markets have resulted from rent regulation, which has decreased the supply of rental housing. The evidence suggests that in addition to the financial market conditions - measured by the households' indebtedness rate - both the after-tax rate of return and housing and the "thinness" of rental markets have all had a positive effect on house prices. Finally, demographic factors seym to have some, though relatively minor, role in house price development, while the real income variable cannot be estimated precisely. As for the linkages between housing markets and saving behaviour, our analysis lies in conformity with the view that the rate of change of real house prices has affected negatively and the after-tax nominal interest rate positively the household saving ratio. We are tempted to interpret these findings as suggesting that financial market conditions, and particularly.the financial market liberalization after the mid-1980 also explains the de cline in the household saving ratio during the housing market booms.
  • Koskela, Erkki (1992)
    Bank of Finland. Bulletin 66 ; 9 ; September
  • Koskela, Erkki; Virén, Matti (1991)
    Bank of Finland Research Discussion Papers 10/1991
  • Koskela, Erkki; Virén, Matti (1992)
    Bank of Finland Research Discussion Papers 4/1992
    Household saving ratios in the Nordie eountries are very low by intemational standards and have declined markedly during the 1980s. Aggregate quarterly time-series data for the period 1970-1989 are used to study the development of household saving behavior over time. The evidenee suggests that the household saving ratio responds positively to both the infiation rate and real ineome growth. There is also some weak evidenee to support the view that the rate of ehange in real housing priees has a negative effeet on household saving ratios.
  • Koskela, Erkki; Virén, Matti (1989)
    Bank of Finland Research Discussion Papers 3/1989
    In a recent paper, John Graham (1987) has argued that the life cycle approach. performs rather well in accounting for intercountry differences in household saving rates so that the negative evidence sometimes reported i s not warranted. This comment presents pieces of evidence against this view. Some new evidence from a somewhat larger data set casts considerable doubt on the ability of the conventional life cycle and demographic variables to explain intercountry. differences in household saving rates. Graham's results, though taken at face value, are robust neither to data sample nor to time period.
  • Alvarez, Luis H. R.; Koskela, Erkki (2003)
    Suomen Pankin keskustelualoitteita 29/2003
    Published in Journal of Business, 79, 2, March 2006: 623-644
    The current literature on irreversible investment decisions usually makes the assumption of a constant interest rate.We study the impact of interest rate and revenue variability on the decision to carry out an irreversible investment project.Given the generality of the valuation problem considered, we first provide a thorough mathematical characterization of the two-dimensional optimal stopping problem and develop some new results.We establish that interest rate variability has a profound decelerating or accelerating impact on investment demand depending on whether the current interest rate is below or above the long run steady state interest rate, and that its quantitative size may be very large. Allowing for interest rate uncertainty is shown to decelerate rational investment demand by raising both the required exercise premium of the irreversible investment opportunity and the value of waiting.Finally, we demonstrate that increased revenue volatility strengthens the negative impact of interest rate uncertainty and vice versa. Key words: irreversible investment, variable interest rates, free boundary problems JEL classification numbers: Q23, G31, C61 AMS classification numbers: 91B76, 49K15, 49J15
  • Koskela, Erkki (1990)
    Bank of Finland Research Discussion Papers 16/1990
    Kirjoituksessa tarkastellaan vaihtotasealijäämän syntyyn vaikuttaneita tekijöitä sekä analysoidaan - osittain empiirisen evidenssin valossa - eräiden budjetti- ja veropolitiikan keinojen tehokkuutta kotimai~en säästämisen edistämisen kannalta. Lopuksi käsitellään asumisen verotuskohtelun vaikutuksia asuntomarkkinoiden eri osapuolten kannalta ja rahamarkkinoiden säännöstelyn purkamisen seurauksia.
  • Koskela, Erkki (2001)
    Suomen Pankin keskustelualoitteita; Bank of Finland. Discussion papers 19/2001
    This paper uses a union bargaining framework, where the wage rate is negotiated between the representatives of employees and employers and firms unilaterally determine employment, to discuss the relationship between labour taxation and employment.In imperfectly competitive labour markets higher labour taxes income and payroll taxes will increase labour costs and have negative effects on employment.Tax progression tends to moderate wages and boost employment.Moreover, if labour tax bases are unequal due to tax exemptions, the structure of labour taxation matters so that the tax wedge may not be a sufficient statistic to describe the channel of influence of labour taxation.Finally, distortionary effects of labour taxes in more corporatist economies should be smaller than in economies with more decentralised wage bargaining. Empirical evidence though not always very strong supports these notions. Keywords: union bargaining, labour taxation, tax progression
  • Koskela, Erkki; Virén, Matti (1990)
    Bank of Finland Research Discussion Papers 11/1990
    Keeping the finding of Feldstein and Horioka (1980) - that countries investment rates are highly correlated with their national saving rates - as a starting point this paper examines the possibility that . monetary policy reactions to target the current account mi.ght explain saving-investment correlations. The OLS, robust and variable-parameter estimates of the linear reaction functions with quarterly data from Germany, Italy, Japan and the United States suggest - the United States being an exception - that the current account deficit leads to tighter money, ceteris paribus. The threshold estimation results indicate, howeyer, that the reaction functions are non-linear in terms of the current account variable; monetary policy reacts stronger to deficits than to surpluses. Moreover, allowing for asymmetricity makes the performance of the reaction functions better and parameter estimates more preci se. We are tempted to i nterpret ·fi-ndi ngs as gi vi ng considerable support for the notion that current account has been a significant target for monetary policy in Germany, Italy and Japan. This in turn might explain the high saving-investment correlations even in the presence of highly mobile international capital movements.
  • Koskela, Erkki; Vilmunen, Jouko (1994)
    Suomen Pankin keskustelualoitteita 17/1994
    According to the conventional theory of competitive labour markets formal incidence of income and payroll taxes is irrelevant in the sense that it does not matter in terms of welfare effects which side the tax is levied on.In this paper this issue is re-examined under imperfectly competitive labour markets by using monopoly union model of wage and a employment determination adjusted for corporatism as the vehicle for analysis.The irrelevance of the structure of labour taxation holds under equal tax bases if there is no uncertainty.Trade unions create a distortion in the labour market by setting the wage rate too high a level; with only one distortion it does not matter which instrument income or payroll taxation is used to eliminate that.In the first best case unions should be subsidized and the more so the higher is the degree of corporatism.The structure of labour taxation matters even under certainty if tax bases are unequal and there is some degree of corporatism.Finally, if tax bases are equal, there is idiosyncratic stochastic component in the wage rate and unions are risk-averse, it is desirable to use both income and payroll taxation; trade unions create a distortion and risk is inefficiently allocated so that one needs two instruments to deal with the two inefficiencies.Given the positive income tax it is desirable to introduce a subsidy to employers.Roughly, the income tax serves as social insurance to decrease risk associated with the wage rate and the payroll subsidy is assigned to deal with labour market distortion.Under full corporatism the tax structure is irrelevant even under uncertainty.
  • Koskela, Erkki; Virén, Matti (1982)
    Bank of Finland. Monthly Bulletin 56 ; 10 ; October
  • Koskela, Erkki; Vilmunen, Jouko (1994)
    Bank of Finland Research Discussion Papers 3/1994
    It is a widely held popular belief that the more progressive is the tax system, the greater is the disincentive to work effort. This belief can be justified within the context of conventional labour supply analysis. Increased progression with unchanged tax revenues decreases work effort and is thus bad for employment But does it hold in unionized economies, where trade unions play their role in wage and employment determination? Using three popular models of trade union behaviour - the monopoly union, the 'right-to-manage' and the efficient bargain model - as the framework for analysis this paper provides an unambiguously negative answer; under plausible assumptions an increased tax progression lowers wages and is good for employment in all three popular models of trade union behaviour. This means that effects of taxation appear to be very sensitive to the structure of labour markets.