2013. Working papers

Abstract
This paper presents a method to construct a sequence of approximate policy functions of increasing accuracy on non-local domains. The method is based upon the notion of stable manifold originated from dynamical systems theory. The approximate policy functions are constructed employing the contraction mapping theorem and the fact that solutions to rational expectations models converge to a steady state. The approach allows us to derive the accuracy of the approximations and their domain of definition. The method is applied to the neoclassical growth model and compared with the perturbation method. Just the second approximation of the proposed approach yields very high accuracy of the approximate solution on a global domain. In contrast to the Taylor series expansions, the solutions of the method inherit globally the properties of the true solution such as monotonicity and concavity.

Keywords: dynamic equilibrium, rational expectations, non-linear perfect foresight models, stable manifold, perturbation method, extended path, neoclassical growth model
JEL classification: C62, C63, D9, D58

Abstract
This research gives an overview of labour market internal and occupational mobility in Latvia comparing periods before, during and after the crisis. It uses both the labour flow analysis and the survival analysis to evaluate labour mobility and to determine factors influencing it. The analysis is based on labour force survey (LFS) longitudinal data for 2005–2011.

The paper investigates possible asymmetric responses of the labour market during the extreme period of economic boom and bust, provides detailed information on the aspects of labour market mobility (e.g. changes in the types of labour contract, sector and region of work) and factors determining changes in the status of economic activity (employed or unemployed). We also propose a new way for calculating labour market flows to provide information on quarterly changes.

Keywords: labour flows, labour force survey, labour mobility, occupational mobility, unemployment
JEL classification: J23, J61, J62, J64

Abstract
This paper evaluates the inflation effect of recent VAT rate changes in Latvia by using CPI micro data. Our findings suggest that the pass-through of the tax rate to consumer prices is strong in case of upward tax adjustments, especially when there are no demand restrictions, while the pass-through is weaker for tax reductions. The frequency of price changes peaks at the moment of VAT adjustment, which, however, is partially compensated by lower average size of price revisions. The level of pass-through exhibits a high degree of heterogeneity with higher pass-through for goods, especially food, and lower for services.

Keywords: VAT, inflation, sample selection model, CPI micro data, Latvia
JEL classification: C24, D40, E31, H20