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This paper demonstrates that the adaptive learning approach to modelling private sector expectations can be used as an equilibrium selection mechanism in a natural-rate monetary model with unemployment persistence. In particular, it is shown that only one of the two rational expectations equilibria is stable under least-squares learning, and that it is always the low-inflation equilibrium with intuitive comparative statics properties that is the learnable equilibrium. Hence, this paper provides a basic theoretical justification for focusing on the low-inflation equilibrium. Earlier contributions, in which the high-inflation equilibrium was ignored, mainly because of its unpleasant characteristics, are not theoretically satisfactory.

Sufficiently flexible labour markets are considered an important precondition for countries to benefit from membership in the monetary union. Economic policy coordination within the European Community is extensive and includes issues related to labour market structures. In this paper we study the determination of flexibility of the labour market and, ultimately, of wages in a member country of the monetary union. As a starting point, the analysis assumes that each country's government, in formulating its labour market policy, decides the degree of nominal wage flexibility in light of the fact that this involves political costs that increase with the degree of wage flexibility. The study then focuses on the effects of monetary union membership on each country's prospects for coordination of economic policies - specifically labour market policies. The study shows that coordination of labour market policies contributes to greater nominal wage flexibility in member countries. However, coordination of labour market policies will be effective only if unemployment is persistent or under discretionary monetary policy. From the perspective of macroeconomic stability, there is no particular need for coordinating labour market policies among member countries if the common central bank can credibly precommit to a low inflation target or if fluctuations in unemployment are white noise.

We use a two-country monetary model with unionized labor markets and open-economy spillovers to study the macroeconomic consequences of the formation of a monetary union. It is shown that the monetary regime affects the trade-off between real consumer wages and employment faced by the unions. Consequently, the equilibrium employment is endogenous and depends on the monetary regime. In particular, a switch from a floating exchange rate regime to a monetary union improves employment, provided that the degree of central bank conservatism is sufficiently high, whereas with low degrees of conservatism employment falls. Inflation is higher in a monetary union with all finite degrees of central bank conservatism. In addition, we consider an asymmetric fixed exchange rate regime as an alternative starting position for a monetary union. All results are derived assuming that labor unions are only interested in employment and real wages (not directly inflation) and that all structural parameters of the model remain unchanged when a monetary union is established.

Household Survey data is used to study income differences between and within regions in Finland during 1966-1996. We have five major (NUTS2) regions and apply four income concepts: factor income, gross income, disposable income and final income, and consider how per capita incomes have evolved regionally relative to the respective national averages. There has been regional convergence especially in disposable and final income per capita. Regional Gini-coefficients based on respective income concepts, both per capita and per Atkinson?s equivalent unit, indicate that there are no big differences in income inequality across regions. Although inequality has increased over time when factor income is considered, it has remained much the same in case of disposable income and final income, until an increase occurs in mid-1990s, after the deep depression years in Finland. We also study how changes in earned and unearned income, direct taxes and transfers, affect income inequality.

This report analyses the financial position of non-financial enterprises in the euro area, in particular the amount of external financing, the choice between debt and equity and the composition and maturity structure of debt. It aims at identifying the main features of the euro area, as well as the peculiarities that depend on the country of origin and the sector of activity. Attention is also devoted to assessing whether a country's institutional features are correlated with different financial structures by firms. In light of the particular interest in the access of small and medium-sized enterprises (SMEs) to financing, the report also analyses how financing patterns differ across large, medium-sized and small enterprises. Finally, the report discusses the recent trends observed in the corporate finance landscape of the euro area over the past few years. Although it is still too early to pass final judgement, vast structural changes are underway that could have already influenced in a positive way in the availability of external funds for firms. All in all, a comprehensive understanding of corporate finance in the euro area is important from a monetary policy perspective, given its impact on the transmission mechanism and for productivity and economic growth. Moreover, such an understanding is also relevant from a financial stability perspective. A first assessment is now possible eight years into the third stage of Economic and Monetary Union (EMU), given that sufficient data have been accumulated during this period. This assessment is particularly important as the introduction of the single currency has had significant structural effects on the working of financial markets, increasing their size and liquidity, and fostering cross-border competition. The data available for this report generally cover the period 1995-2005, and the cut-off date for the statistics included is 10 March 2007. JEL Classification: D92, G30, G10, O16, K40

The immunocompetence handicap hypothesis postulates that secondary sexual traits are honest signals of mate quality because the hormones (e.g. testosterone) needed to develop secondary sexual traits have immunosuppressive effects. The best support for predictions arising from the immunocompetence handicap hypothesis so far comes from studies of insects, although they lack male-specific hormones such as testosterone. In our previous studies, we found that female mealworm beetles prefer pheromones of immunocompetent males. Here, we tested how juvenile hormone (JH) affects male investment in secondary sexual characteristics and immune functions in the mealworm beetle, Tenebrio molitor . We injected male mealworm beetles with JH (type III) and found that injection increased the attractiveness of male pheromones but simultaneously suppressed immune functions (phenoloxidase activity and encapsulation). Our results suggest that JH, which is involved in the control of reproduction and morphogenesis, also plays a central role in the regulation of a trade-off between the immune system and sexual advertisement in insects. Thus, the results reflect a general mechanism by which the immunocompetence handicap hypothesis may work in insects.

1. Pheromones are chemical signals that function not only as mate attractors, but may also relay important information to prospective mates. In order for the information to be reliable, the signal must be costly to produce and this is likely to result in condition dependent expression of the signal. 2. We present results from two experiments on the grain beetle Tenebrio molitor examining phenotypic condition dependence of pheromones and patterns of female preference for pheromones. We also analysed condition dependence of two measures of immunocompetence: encapsulation response and phenoloxidase activity. 3. By manipulating the nutritional condition of the males we found that the attractiveness of the male pheromones to virgin females was condition-dependent, indicating that the production of the pheromones is affected by the condition of the male. We also found that the phenoloxidase activity of the males was affected by the nutritional condition of the male but that encapsulation rate was not. 4. Our results show that pheromones are condition-dependent signals, the quantity of which females use in their mate choice.

Pheromones function not only as mate attractors, but they may also relay important information to prospective mates. It has been shown that vertebrates can distinguish, via olfactory mechanisms, major histocompatibility complex types in their prospective mates. However, whether pheromones can transmit information about immunocompetence is unknown. Here, we show that female mealworm beetles (Tenebrio molitor) prefer pheromones from males with better immunocompetence, indicated by a faster encapsulation rate against a novel antigen, and higher levels of phenoloxidase in haemolymph. Thus, the present study indicates that pheromones could transmit information about male's parasite resistance ability and may work as a reliable sexual ornament for female choice.

Emerging diseases, such as the crayfish plague, are a worldwide problem with serious ecological and economic impacts. Under the framework of ecological immunology, we investigated whether variation in crayfish plague resistance, the indicators of immune defence (encapsulation response, phenoloxidase and lytic activity), and the exploration behaviour among four subpopulations of noble crayfish is explained by potential local adaptation through differences in crayfish plague history, or alternatively by geographical divergence in a large watershed. We examined whether the strength of immune defence is associated with survival and exploration behaviour. Survival time after experimental crayfish plague infection and phenoloxidase activity differed among the subpopulations of the watershed but did not reveal local adaptation to the disease. Increased investment in immune defence (i.e. encapsulation response) compromised survival time after infection, suggesting the self-reactivity costs of mounting a strong immune response. Exploration behaviour was negatively associated with phenoloxidase activity before and after immune challenge.

Seasonality in the immune defence of invertebrates can coincide with environmental variation but whether it is endogenously regulated, via biological clocks, or affected by previous immune challenges remains unclear. Using the native noble crayfish (Astacus astacus) held under constant laboratory conditions for a year, we explored (1) potential endogenous seasonal variation in immune defence, i.e. the encapsulation response, (2) the potential positive effect of repeated challenges with a standardized immune insult in subsequent seasons, i.e. long-lasting immune priming, and (3) whether long-lasting immune priming is dependent on endogenous seasonality. Independent measurements of the encapsulation response in different seasons revealed significant variation and a decrease in autumn. This result indicates previously undetected endogenous seasonal variation in invertebrate immunity. The weaker immune defence observed in autumn, i.e. the reproductive season of crayfish, might be caused by a circannual clock. When corrected for endogenous seasonality, we found no evidence for long-lasting immune priming.