Abstract. A new test is proposed for cointegration in a single equation framework where the regressors are weakly exogenous for the parameters of interest. The test is denoted as an error correction mechanism (ECM) test and is based upon the ordinary least squares coef®cient of the lagged dependent variable in an autoregressive distributed lag model augmented with leads of the regressors. The limit distributions of the standardized coef®cient and t ratio versions of the ECM tests are obtained and critical values are provided. These limit distributions do not depend upon nuisance parameters but they depend on the number of regressors. Finally, we compare their power properties with those of other cointegration tests available in the literature and ®nd the circumstances under which the ECM tests have a better performance.

We review some lessons from the Spanish experience of using temporary employment contracts for regular jobs since 1984. The focus is on the role of fixed-term contracts with low severance pay, which have substituted for reform of employment protection legislation for permanent contracts. We consider the main findings about this reform on the Spanish labour market in the light of the main theoretical implications derived from models dealing with dual labour markets, and address why the incidence of temporary work has remained highly persistent, around 33% of salaried employment, in the 1990s, despite several reforms aimed at reducing it.If one looks for a country to test for the different effects of temporary work contracts on the labour market, Spain provides a fascinating case study. Up to the early 1980s, permanent work contracts open ended contracts subject to man datory severance payments represented more than 90% of all contracts, with the remaining temporary contracts being mainly of seasonal nature which employers could only use to hire workers performing non regular productive activities, for example, in agriculture or in the tourist industry. In 1984, with the unemploy ment rate at 20.1%, the Spanish government tried to implement a significant change in Employment Protection Legislation (EPL) by liberalising temporary contracts in two main respects: first, their use was extended to hire employees performing regular activities; and, second, they entailed much lower dismissal costs than the regular permanent contracts. As a result, the proportion of tem porary employees in total (salaried) employment surged in the second half of the 1980s, staying above 30% since 1990 (Fig. 1). A clear sign that employers took full advantage of the newly available flexibility device is that a large fraction of tem porary workers have been hired under fixed term contracts while other types of temporary contracts (probationary, seasonal, etc.), which are more representative in other European labour markets, have remained relatively unimportant (Fig. 2).During the 1990s, despite a series of countervailing labour market reforms in 1994, 1997 and, more recently, in 2001, which provided a less stringent EPL for permanent contracts and considerable restrictions for the use of fixed term contracts, the share of temporary employees has only marginally declined from 35.4% in 1995 to 32.0% in 2001. Over this period, more than 90% of new hires have been signed under temporary contracts, and the duration of employment spells has very much decreased. Thus, in just a decade, a fairly regulated labour * We are grateful to Alison Booth, Ignacio Conde, Jeff Frank, Miguel A. Malo, Barbara Petrongolo, Donald Storrie, Luis Toharia, participants in seminars at Amsterdam, Bocconi, Essex, Montreal and Southampton universities, three anonymous referees and an editor, for very helpful comments and suggestions. Special thanks to Virginia Hernánz and Mario Izquierdo for their research assistance, and to Luis Sauto for providing us with the data abou...

A cointegration test statistic based upon estimation of an error correction model can be approximately normally distributed when no cointegration is present. By contrast, the equivalent Dickey-Fuller statistic applied to residuals from a static relationship has a non-standard asymptotic distribution. When cointegration exists, the error-correction test generally is more powerful than the Dickey-Fuller test. These differences arise because the latter imposes a possibly invalid common factor restriction. The issue is general and has ramifications for system-based cointegration tests. Monte Carlo analysis and an empirical study of U.K. money demand demonstrate the differences in power.

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France and Spain have similar labour market institutions and their unemployment rates were both around 8% just before the Great Recession but subsequently that rate has increased to 10% in France and to 23% in Spain. In this article, we assess the part of this differential that is due to the larger gap between the firing costs of permanent and temporary contracts, and the laxer rules on the use of the latter in Spain. A calibrated search and matching model indicates that Spain could have avoided about 45% of its unemployment surge had it adopted the French employment protection legislation.

This paper investigates the implications of a nonlinear Phillips curve for the derivation of optimal monetary policy rules. Combined with a quadratic loss function, the optimal policy is also nonlinear, with the policy-maker increasing interest rates by a larger amount when in ation or output are above target than the amount it will reduce them when they are below target. Speciÿcally, the main prediction of our model is that such a source of nonlinearity leads to the inclusion of the interaction between expected in ation and the output gap in an otherwise linear Taylor rule. We ÿnd empirical support for this type of asymmetries in the interest rate-setting behaviour of four European central banks but none for the US Fed.

This paper provides an updated survey of a burgeoning literature on testing, estimation and model specification in the presence of integrated variables. Integrated variables are a specific class of non-stationary variables which seem to characterise faithfully the properties of many macroeconomic time series. The analysis of cointegration develops out of the existence of unit roots and offers a generic route to test the validity of the equilibrium predictions of economic theories. Special emphasis is put on the empirical researcher's point of view.

This paper analyses the gender gap throughout the wage distribution in Spain using data from the ECHP. Quantile regression and panel data techniques are used to estimate wage equations at relevant percentiles in a given representative year (1999), and over time (1994)(1995)(1996)(1997)(1998)(1999)(2000)(2001). In contrast with the steep increasing pattern found in other countries, the flatter evolution of the Spanish gender gap hides an intriguing composition effect when the sample of workers is split by education. For high-educated workers, in line with the conventional glass ceiling hypothesis, the gap increases as we move up the distribution. However, for less-educated workers the gap decreases. This declining pattern is even more acute when we correct for selection and remains similarly shaped when differences in characteristics are accounted for. We label this novel fact as a floor pattern and argue that it can be explained by statistical discrimination exerted by employers in countries where less-educated women have low participation rates. Such a hypothesis is further confirmed when the panel structure of the ECHP is exploited. JEL Classification: J16 and J71.