[Econmaster2012] Seminar by Gerald Willmann on October 24

[Frank Stähler]

Dear all,

we will have another presentation tomorrow by Gerald Willmann from the 
Unversity of Bielefeld which may interest you. The title of his talk is

Global Shocks, costly adjustment, and political overshooting.

You find the abstract below. His seminar will take place in room # E04 
from 6 to 7.30 pm.

Best wishes,
Frank Stähler

Abstract: We examine the influence of costly adjustment on democratic 
political responses, and demonstrate the potential for political 
overshooting, in which unanticipated exogenous shocks generate radical 
policy reactions that gradually diminish over time. Our dynamic 
political economy model features overlapping generations, heterogeneous 
workers, endogenous investment decisions, and costly adjustment to 
shocks. In an application to trade policy, we show that beginning from a 
`political steady state' in which the median voter votes to maintain the 
status quo, an exogenous economic shock - for instance, China's 
accession to the WTO - can induce a dramatic increase in protectionism 
that overshoots the new steady state level before converging to the new 
policy regime. The magnitude of political overshooting increases both 
with economic inequality and with the extent of frictions in workers' 
abilities to adjust to changing economic conditions. In contrast, 
political inequality - democratic disenfranchisement of 
lower-skill/lower-wage workers - reduces the potential for populist 
pressure that leads to political overshooting. Dramatic political swings 
may be a signal, then, of both economic inequality and healthy democracy.

-- 

Frank Stähler
Professor of Economics
Department of Economics
International Economics and Labor Markets
The University of Tübingen
Mohlstr. 36 (V4)
D-72074 Tübingen, Germany
frank.staehler at uni-tuebingen.de

Adjunct Professor of Economics
School of Economics
The University of Adelaide
frank.staehler at adelaide.edu.au

http://www.frank-staehler.de