Vol. 21, No. 1

Erkki Koskela, Markku Ollikainen and Mikko Puhakka:
Saddles and Bifurcations in an Overlapping Generations Economy with a Renewable Resource (pp. 3–21)


We incorporate a renewable resource as a factor of production and store of value into an overlapping generations model. We characterize dynamics and stability of steady state equilibria by introducing the concave resource growth function. The nature of equilibria in the presence of ‘well-behaved’ resource stock growth depends on the size of the intertemporal elasticity of substitution in consumption. If it is at least half, but not exactly one, steady states are saddle points. For intertemporal elasticity less than one half we use a parametric example with logistic growth to demonstrate the existence of stable equilibria (indeterminacy) and a subcritical bifurcation.

(JEL: D90, Q20, C62)

Tuukka Saarimaa:
Owner-Occupied Housing and Demand for Risky Financial Assets: Some Finnish Evidence (pp. 22–38)


This paper studies the linkage between owner-occupied housing and portfolio choice. Using a theoretical simulation model with Finnish asset return data we find that a leveraged position in housing has a clear negative effect on the share of stocks in a mean-variance efficient portfolio. The second part of the paper studies how owner-occupied housing actually affects households’ financial portfolios using Finnish household data. The main result indicates that the more valuable house a homeowner resides in, at a given level of net wealth, the less likely it is to own stocks. However, it seems that housing has only a small effect if any on the share of financial assets a household invests in stocks conditional on stockholding.

(JEL: D14, D91, G11, R21)

Martin Menner and Hugo Rodríguez Mendizábal:
On the Identification of Monetary (and Other) Shocks (pp. 39–56)


The present DSGE model spells out explicitly the instrumentation of monetary policy. The interest rate is determined depending on supply and demand for reserves which are affected by fundamental shocks. Unexpected changes in the monetary conditions of the economy are interpreted as monetary shocks and have the usual effects on economic activity. This view of monetary policy may have important consequences for empirical research: In the model, contemporaneous correlations between interest rates, prices and output are due to the simultaneous effect of all fundamental shocks. We provide an example where these contemporaneous correlations may be misinterpreted as a Taylor rule.

(JEL: C32, E13, E51, E52, E58)

Marja Riihelä, Risto Sullström and Matti Tuomala:
Economic Poverty in Finland 1971–2004 (pp. 57–77)


We examined trends in the economic poverty in Finland using two data sources, the Income Distribution Survey and the Consumption Expenditure Survey. We drew on the recent literature on poverty analysis to analyse a range of poverty measures, using dominance conditions to rank the distributions of living standards. Whilst the total numbers in poverty during the 1987–2004 on various definitions rose markedly, the composition of the poor also changed significantly. There is little doubt that unemployed households are the most vulnerable group of the population. Another vulnerable group is families with youngest children less than seven years.

(JEL: I32)

Finnish Economic Papers 1/2008