choosy search and the mismatch of talents this article proposes a multi sector matching model where workers have symmetric sector specific skills and the search market is segmented by sector workers choose the range of markets they are willing to participate in i identify a composition externality workers do not take into account the impact of their choice on sector specific mean productivity among the pools of job seekers consequently workers prospect too many market segments and there is room for public policy even when the so called hosios condition holds

instability of the u s money demand function this paper surveys the two major episodes of instability of the u s money demand function known respectively as the mystery of missing money and the great velocity decline it also assesses the recent literature on open economy money demand models and their usefulness in explaining the puzzling behavior of money demand manifested shortly after the transition to floating exchange rates copyright 1991 by blackwell publishers ltd

a cross country panel analysis of currency substitution and trade attention that has been directed toward the effect of trade on foreigner s holdings of domestic currency comes exclusiely from time series eidence here we extend a model of currency substitution that incorporates a trade motie for foreigners to hold domestic currency it uses time series and cross sectional information for a panel of 17 industrialized countries testing two way fixed effects models against pooled and random effects alternaties the cross sectional information is significant reealing that pooling of data could result in misleading inferences since country specific effects regional group effects and distance are all important determinants of

competitive search equilibrium in this paper i construct an equilibrium for markets with frictions which is competitive in the sense that all agents are price takers and maximize utility subject to a set of market parameters i show that the equilibrium allocation is socially optimal i also show how the competitive search equilibrium can be achieved if employers with vacancies can advertise publicly the wages they pay

trade unions and the efficiency of the natural rate of unemployment decentralized wage setting in search equilibrium models is inefficient because the meeting firm and worker ignore the dependence of job matching probabilities on the number of firms and workers engaged in search this paper investigates whether risk neutral monopolistic unions will have an incentive to internalize this externality i find that the externality will be internalized only if the union s policy is chosen by unemployed persons if employed persons influence union policy both the union wage and unemployment will be too high a tax on the union wage combined with an employment subsidy to firms can correct this inefficiency

help wanted job needed estimates of a matching function from employment service data i estimate a function that matches vacant jobs and unemployed workers to produce new hires israeli law requiring vacancy registration yields unique data quality the literature underestimates matching function coefficients because of a simultaneity bias as the outflow of hires depletes stocks of unemployed and vacancies instruments and a new simulation method address this bias a new test reveals strong evidence of heterogeneity in unemployed and vacancies estimates imply labor market dynamics that absorb shocks completely within only 2 months reductions in the hire rate of referrals can explain a 2 1 percentage point increase in unemployment between 1978 and 1990

currency substitution portfolio diversification and money demand we extend the thomas 1985 dynamic optimising model of money demand and currency substitution to the case in which the individual has no access to bonds denominated in foreign currency we show that in this case the demand for domestic money is influenced by portfolio decisions contrary to what defended by the portfolio balance approach to currency substitution the results obtained in this paper suggest that the significance of an expected exchange rate depreciation term in the demand for domestic money provides a valid test for the presence of currency substitution the results also suggest that in countries facing monetary instability and currency substitution restricting the availability of interest bearing assets denominated in foreign currency may have a destabilising impact on the money demand

variation in the real exchange rate as a source of currency substitution abstract this paper presents a shopping cost money service model in which it is shown that the real exchange rate influences the desired ratio of domestic to foreign currency bank deposits empirically it is found that if the real exchange rate value of the canadian dollar falls then us dollar deposits of canadians rise relative to canadian m2 this relationship is found to be cointegrated dynamic adjustment analyzed using an error correction model indicates a cyclical adjustment the results provide evidence that variation in the real exchange rate is a source of currency substitution and reinforces the argument that demand side factors influence the money stock jel e41

a search theoretic approach to monetary economics the essential function of money is its role as a medium of exchange the authors formalize this idea using a search theoretic equilibrium model of the exchange process that captures the double coincidence of wants problem with pure barter one advantage of the framework described here is that it is very tractable the authors also show that the model can be used to addre ss some substantive issues in monetary economics including the potenti al welfare enhancing role of money the interaction between specializat ion and monetary exchange and the possibility of equilibria with multip le fiat currencies copyright 1993 by american economic association

health behavior health knowledge and schooling the positive correlation between schooling and good health is well documented one explanation is that schooling helps people choose healthier life styles by improving their knowledge of the relationship between health behaviors and health outcomes that is schooling improves the household s allocative efficiency in producing health this empirical study uses direct measures of health knowledge to test this explanation part of the relationship between schooling and the consumption of cigarettes alcohol and exercise is explained by differences in health knowledge however most of schooling s effects on health behavior remain after differences in knowledge are controlled for

money bonds and foreign exchange in the theory of finance capital markets provide securities which allow the ownership of productive assets to be allocated among investors according to their willingness to bear risk in exchange for return and independently of their tastes for the productive services provided by the assets this paper uses the theory of finance to study the role of money as a productive asset and the transformation of money into a portfolio asset true to its purpose the capital market provides securities nominal bonds that allow an allocation of the current services of the money supply according to its current productivity and without regard for its future purchasing power risk and an allocation of the future purchasing power risk of the money supply according to the willingness of investors to bear this risk in exchange for return and without regard for investor needs for the future transactions services of money in open

economic status and health in childhood the origins of the gradient the well known positive association between health and income in adulthood has antecedents in childhood not only is children s health positively related to household income but the relationship between household income and children s health becomes more pronounced as children age part of the relationship can be explained by the arrival and impact of chronic conditions children from lower income households with chronic conditions have worse health than do those from higher income households the adverse health effects of lower income accumulate over children s lives part of the intergenerational transmission of socioeconomic status may work through the impact of parents income on children s health

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

international currency substitution and the income velocity of money abstract this paper presents new empirical evidence on the degree to which international currency substitution destabilizes domestic money demand it also provides an explanation of some apparent discrepancies among previous empirical studies of currency substitution this explanation hinges on the distinction between the elasticity of currency substitution and the cross elasticity of money demand a large small value of one elasticity does not imply a large small value of the other a large cross elasticity is required for currency substitution to destabilize domestic money demand the empirical evidence presented here is consistent with the view that these cross elasticities are typically small

currency substitution and the demand for money some evidence for canada recently the possibility that foreign and domestic currencies are substitutes has received considerable attention see 1 2 3 10 19 21 currency substitution has important implications for the working of flexible exchange rates if the degree of currency substitution is high small changes in the money supply would induce large changes in the exchange rate furthermore currency substitution would transmit the effect of monetary disturbances from one country to another indeed significant currency substitution would seriously undermine the ability of flexible exchange rates to provide monetary independence this paper examines the empirical importance of currency substitution in the framework of the demand function for money if currency substitution is important the expected change in the exchange rate should be a significant determinant of the demand for home currency in section 2 we undertake such a test for the canadian demand for money during the recent flexible exchange rate period there is considerable evidence that the forward exchange rate is a good measure of the expected exchange rate our own tests confirm these results for canadian data since 1970

how to design and use the clean development mechanism under the kyoto protocol a developing country perspective under the kyoto protocol industrialized countries committed to emission reductions may fullfil part of their obligations by implementing emission reduction projects in developing countries in doing so they make use of the so called clean development mechanism cdm two important issues surround the implementation of the cdm first if the cheapest abatement measures are implemented for cdm projects developing countries may be left with only more expensive measures when they have to meet their own commitments in the future the so called low hanging fruits lhf issue second a choice must be made on the type of baseline against which emission reductions are measured an absolute baseline or a relative to output one the baseline issue the purpose of this paper is to study the interactions between these two issues from the point of view of the developing country two major results are obtained first when possible future commitments for developing countries and irreversibility of abatement measures are taken into account we show that the industry where cdm projects are implemented enjoys larger profits under an absolute baseline than under a relative one second concerning the lhf problem the financial compensation required by the developing country for implementing too many cdm projects is larger under the relative baseline

impatience and long run growth abstract this contribution is concerned with the possibility of a perpetual growth path at increasing rates in a nonconvex optimal growth model with endogenous discounting sufficient conditions for the existence of this path can be established when the economy is populated by agents whose impatience does not increase too much along the course of a consumption path in the opposite case the dynamical system is asymptotically described by a steady state however this steady state position need not be uniquely defined saddlepoint equilibria and locally oscillating unstable equilibria may alternate in spite of increasingly impatient agents along the growth process it remains optimal for a government to subsidize the competitive economy under a razor edge assumption on impatience a growing planning solution may coexist with a stationary competitive solution

wealthier is healthier we estimate the effect of income on health using cross country timeseries data on health infant and child mortality and life expectancy and income per capita we use instrumental variables estimates using exogenous determinants of income growth to identify the pure income effect on health isolated from reverse causation or incidental association the long run income elasticity of infant and child mortality in developing countries lies between 0 2 and 0 4 using these estimates we calculate that over a half a million child deaths in the developing world in 1990 alone can be attributed to the poor economic performance in the 1980s

the rate of time preference and dynamic economic analysis strong restrictions on the structure of preferences are a central feature in the received theory of intertemporal allocation in fact most of the modern literature concerned with capital theoretic problems represents preferences by a functional in which an additive utility function is discounted by a constant rate of time preference this specification is attractive because it is analytically tractable in dynamic models and it clearly delineates how tastes and opportunities interact to determine an economy s household s paths of consumption and capital formation however its rigid structure constancy of time preference severely limits the conclusions and explanatory power of the corresponding models this paper considers a class of utility functionals in continuous time which have the appealing feature that the rate of time preference depends systematically on an index of aggregate future consumption the more flexible structure embodied in these functionals leads to important generalizations and

international currency substitution and seigniorage in a simple model of money i introduction currency substitution describes the change in the holdings of domestic and foreign real balances in response to fluctuations in the relative prices of these currencies so far the empirical evidence on the strength of currency substitution has been mixed miles 1978 finds evidence in favor of strong currency substitution between the canadian dollar and the u s dollar bordo and choudhri 1982 criticize miles on the ground that miles has a misspecified model and their estimates of a canadian money demand function indicate little currency substitution in a recent paper rogers 1992 finds that dollarization in a high inflation economy such as mexico s is quite strong and statistically significant imrohoroglu 1994 on the other hand estimates the extent of currency substitution between the canadian dollar and the u s dollar using a gmm approach and finds that the elasticity of currency substitution in canada is quite low between 0 29 and 0 43 depending on the instruments used furthermore the estimate of the share of u s dollar denominated deposits in producing canadian liquidity services is on the order of 1 percent to 3 percent the policy implications of currency substitution have been extensively analyzed most of these studies concentrate on the impact of currency substitution on the volatility of exchange rates and the autonomy of domestic monetary policy under a flexible exchange rate regime 1 recently researchers have started to explore whether currency substitution alters the results in the optimal inflation tax literature for example vegh 1989 shows that it may be optimal to resort to the inflation tax under currency substitution since it reduces the distortion introduced by an exogenously given positive foreign interest rate in his model a positive foreign interest rate creates a distortion because it acts as an indirect consumption tax kimbrough 1991 analyzes a small open economy under currency substitution where domestic agents are required to use domestic real balances to purchase the domestic nontraded good foreign real balances to purchase the imported good and either domestic or foreign real balances to purchase the exportable good he finds that it is optimal to follow the friedman rule of a zero nominal interest rate in this setup since money serves as an intermediate good guidotti and vegh 1993 however argue that kimbrough s 1991 result only applies under very restrictive assumptions on the transactions technology and that in general the optimal inflation rate is positive under currency substitution aizenman 1992 considers a multi country money in the utility function model in a common currency area where there are collection costs associated with income taxation he shows that in the absence of a cartel agreement on how to share the seigniorage revenue the optimal inflation rate for individual countries will exceed the optimal inflation rate under a cooperative solution canzoneri and diba 1992 study the role of currency substitution in a two country money in the utility function model under a flexible exchange rate regime where there are collection costs of lump sum taxes they show that the outcome of a noncooperative seigniorage maximization or welfare maximization game is characterized by the friedman rule the cooperative outcome on the other hand includes the inflation tax as part of an optimal tax package since lump sum taxes are costly to collect the theoretical literature summarized above suggests that currency substitution may have important economic implications most of the attention has been on the role of the elasticity of currency substitution the share of foreign real balances in the residents domestic portfolio has largely been ignored laney radcliffe and willett 1984 and joines 1985 emphasize the distinction between the elasticity of substitution and the cross elasticity of money demand and argue that a high cross elasticity is necessary for currency substitution to have a major destabilizing impact on domestic money demand

optimal growth with decreasing marginal impatience abstract this paper analyses the long run dynamics of a continuous time infinite horizon optimal growth model with identical households where the households rate of time preference is endogenously determined however unlike the existing literature we assume that households have decreasing marginal impatience i e the instantaneous discount rate is negatively related to the current consumption with this assumption we analyse the stability and uniqueness of the long run equilibrium we show that contrary to the general belief a negative relationship between the instantaneous discount rate and the household s current consumption does not necessarily result in instability of the dynamic system however even a stable system may be characterized by multiple equilibria so that the initial condition becomes important in determining the long run behaviour of the economy we derive a set of sufficient conditions for stability and uniqueness in this context

currency substitution and monetary autonomy the foreign demand for us demand deposits abstract this paper presents new evidence of currency substitution using the two step estimator of cointegrated systems developed by engle and granger 1987 we estimate and find cointegration among variables suggested by the money services model of currency substitution following engle et al 1989 we estimate an error correction model for each of five countries allowing isolation of long term from short term influences on the foreign demand for us demand deposits our results suggest that currency substitution is a potentially significant phenomenon influencing long term monetary policy independence

currency substitution and instability in the world dollar standard comment myron ross correctly points out in his comment that u s price inflation is better predicted by the american money supply mlus than by the broader ten country world money supply mlw over the whole statistical time series from 1960 to 1980 provided in mckinnon s 1982 article specifically he showed that american price inflation is more highly correlated with mlus lagged one or two years than with mlw similarly lagged however mckinnon s present tense assertion that in general growth in the world money supply is a better predictor of american price inflation than is american money growth applies only to the weak dollar standard of the 1970 s and early 1980 s as his preceding discussion intended but failed to indicate clearly only in this later period of volatile exchange rates and price level instability in the united states do alternative hard currencies such as the yen and deutsche mark become competitive as international stores of value and units of account hence international currency substitution associated with the ebb and flow of speculation against or for the dollar significantly destabilized the demand for mlus in the 1970 s and 1980 s and only in this later period might one expect the sum of these internationally substitutable monies ml to predict world and perhaps even american price inflation better than does mlus in contrast during the strong dollar standard of the 1950 s and 1960 s the dollar was unchallenged as international money exchange rates were by and large convincingly fixed speculation for or against the dollar was incapable of substantially altering u s interest rates or of directly affecting the demand for mlus because cyclical international influences did not then destabilize the demand for dollars mlus was by itself a fairly efficient predictor of american prices thus ross s statistical results for the period 1960 to 1980 show somewhat greater predictive strength in mlus compared to ml because the 1960 s data outweigh the dissimilar data of the 1970 s let us instead partition the sample of imf data around the year 1970 whence began the transition from fixed to fluctuating exchange rates and the maturation of alternative monetary systems in europe and japan after applying similar statistical correlation procedures to those used by ross we show a striking structural shift in the world s monetary system the explanatory power of mlw increases sharply as that of mlus declines moderately tan 1982 for the early period of 1960 to 1970 table 1 shows simple correlation coefficients between annual percentage changes in money supplies and changes in american and world wholesale price indices the mlus provides a good explanation of u s prices and of world prices one to two years hence whereas the broader definition of mlw in which mlus enters with a 50 percent weight does surprisingly poorly being insignificantly correlated with american or world prices apparently money growth in industrial countries other than the united states was not then an independent source of worldwide inflationary pressure during the strong dollar standard table 2 shows the same simple correlations between percentage changes in prices and money for the weak dollar standard of stanford university please note that a typographical error giving the last word in the original title as market appeared on the cover of the june 1982 issue of this review the title was correct in the table of contents and on the article

why environmental management may yield no regret pollution abatement options empirical evidence supports the existence of pollution abatement possibilities at negative costs the so called no regret options we provide a microeconomic rationale for the existence of such potential at the firm level an econometric application confirms that pollution abatement cost curves with no regret options are compatible with a standard production function as stated in our theoretical model c 2008 elsevier b v all rights reserved

intertemporal dependence impatience and dynamics abstract this paper develops simple geometric methods for analyzing consumer behavior under recursive but intertemporally dependent tastes since the preferences studied need not be time additive they allow the marginal utility of consumption on a given date to vary with consumption on other dates intertemporal dependence is induced by the presence of a variable individual rate of time preference the optimal consumption responses to transitory and anticipated changes in incomes and interest rates are easily derived and are similar in many respects to the responses implied by the standard constant time preference model intuitive explanations of the first order conditions describing optimal paths are provided

evaluating the empirical evidence for currency substitution a case study of the demand for sterling in europe currency substitution has important implications for the cost of european monetary union if it is significant it will help to reduce costs of convergence to a single currency this paper informs the policy debate by testing for its existence on a consistent european database making use of cointegration methods the results demonstrate that in the two types of models tested there is no clear evidence of currency substitution in either the short or the long run and that therefore currency substitution between sterling and ec currencies cannot be relied upon as a mechanism or an aid to reduce the costs of monetary convergence copyright 1994 by royal economic society

a note on clean technology adoption and its influence on tradeable emission permits prices in this paper we give an example in which the price of tradable emission permits increases despite firms adoption of less polluting technology a result that is in contrast with montero j environ econ 44 23 44 2002 and parry j regul econ 14 229 254 1998 among others if two cournot players switch to a cleaner technology the price for permits may increase due to an increase in the net demand for permits and a decrease in the net supply of permits after the clean technology is adopted this is only the case when output demand is quite elastic

impatience pollution and indeterminacy abstract this paper examines an equilibrium growth model in which production activities generate environmental pollution that has a negative welfare effect and in which individual households subjective discount rate is a function of individual consumption which is internal to each household and of total pollution which is an external factor to the individual agents it is shown that there may exist multiple steady states and that the dynamic equilibrium may display indeterminacy depending on the properties of the discount rate function the pollution capital relationship in production technology and the pollution consumption relationship in instantaneous utility the long run effects of tighter environmental policy are subsequently examined and the results are also found to be dependent on the above factors

gmm estimates of currency substitution between the canadian dollar and the u s dollar this paper investigates the empirical strength of currency substitution between the canadian dollar and the u s dollar euler equations implied by a small open economy money in the utility function model are estimated and tested by hansen s generalized method of moments procedure the major empirical finding is that both the elasticity of currency substitution and the share of u s currency in the production of canadian liquidity services are economically small even though the combined domestic and u s real balances appear to provide statistically significant economizing on transactions costs copyright 1994 by ohio state university press

constraining equitable allocations of tradable co2 emission quotas by acceptability since the signing of the kyoto protocol future commitments are likely to be framed in terms of tradable quotas the discussions on the allocation of the quotas among countries will be based at least partly on rules corresponding to a certain conception of equity for instance allocating quotas in direct proportion to population in relation to gdp or according to past emissions has been advocated taking a long term perspective we compute such allocations of tradable quotas with a dynamic closed loop model the total amount of quotas to be distributed at each period corresponds to the world optimal amount of emissions to be realized at each period we observe that most equitable allocation rules do not make the agreement individually rational for every country along the entire time path we then propose a mechanism which determines allocations of quotas that are as close as possible to any equitable allocation while satisfying individual rationality

endogenous discounting via wealth twin peaks and the role of technology we endogenize the discount rate via wealth and provide evidence that wealth affects the discount rate negatively we give a necessary and sufficient condition for endogenous discounting to lead to the twin peaks of economic growth and show that improvements in technology help avoid them

on the evolution of the world income distribution the post world war ii period has seen substantial changes in the distribution of gdp per worker around the world in the upper half of the distribution a number of countries have exhibited large increases in income relative to the richest countries in the bottom half several countries have seen incomes fall relative to the richest countries the net result of these changes is a movement in the shape of the world income distribution from something that looks like a normal distribution in 1960 to a bi modal twin peaks distribution in 1988 projecting these changes into the future suggests a number of interesting ndings first it seems likely that the united states will lose its position as the country with the highest level of gdp per worker second growth miracles have been more common in recent decades than growth disasters if these dynamics continue the future income distribution will involve far more rich countries and far fewer poor countries than currently observed

currency substitution capital mobility and money demand abstract this paper re examines the currency substitution cs issue by specifying a general portfolio balance pb model where domestic residents demand for foreign money is distinguished from their demands for foreign non monetary assets the latter possibility which reflects international capital mobility as opposed to cs per se is already a key feature in the open economy macro literature the inclusion of foreign money leaves the usual asset demand functions unchanged in the pb model that ignores cs at least as far as the appropriate rate of return arguments and their signs are concerned although this suggests that cs is of limited importance in macro modelling it implication for the estimation of money demand functions is pursued an initial attempt is made to empirically isolate the separate efects of high capital mobility and currency substitution for canada germany the united kingdom and the united states the results while not conclusive due to high multicollinearity problems bring into question the empirical as well as the theoretical relevance of currency substitution

hyperbolic discounting and endogenous growth this paper provides the closed form solution for the standard model of endogenous growth when consumers have present biased preferences and make time inconsistent savings plans which they revise continuously it is shown that long run growth is not necessarily lower under present biased preferences in fact a strong equivalence result holds if hyperbolic discounting provides the same present value of a constant infinite income stream as standard exponential discounting then the equilibrium rate of economic growth is also the same under both discounting methods in this sense present bias preferences are harmless for economic growth

currency substitution and exchange rate instability the turkish case abstract in this paper we present evidence for the extent of currency substitution and its effects on exchange rate instability in turkey following the capital account liberalization in 1987 the private sector has responded to the failed stabilization efforts of successive governments by requesting higher real interest rates on government debt and by increasing its holdings of foreign exchange at the expense of domestic currency theoretical models of exchange rate determination indicate that exchange rate instability increases with the degree of currency substitution we use an exponential garch e garch model for exchange rate depreciation and find evidence in support of this hypothesis furthermore we test for the extent of currency substitution in determining short run dynamics of real money balances utilizing the expected depreciation series obtained from the e garch model

patience and prosperity abstract this paper introduces wealth dependent time preference into a simple model of endogenous growth the model generates adjustment dynamics in line with the historical facts on savings and economic growth in europe from the high middle ages to today along a virtuous cycle of development more wealth leads to more patience which leads to more savings and further increasing wealth savings rates and income growth rates are thus jointly increasing during the process of development until they converge towards constants along a balanced growth path during the transition to modern growth an economy in which the association of wealth and patience is stronger overtakes an otherwise identical economy and generates temporarily diverging growth rates

risk bearing and the theory of income distribution this paper develops the stochastic theory of distribution with a dynamic model which focuses on the role of incomplete insurance in generating inequality unlike previous work our approach takes explicit account of the reason for market incompleteness in modeling agents behaviour in particular the amount of risk borne is endogenous using a model of growth with altruism in which agents are risk averse and there is moral hazard we show that lineage wealth follows a markov process which converges globally to an ergodic distribution this also represents the long run population distribution of wealth we discuss the role of particular assumptions such as availability of production loans and unboundedness of utility in yielding the qualitative properties of the distribution of wealth the choice of occupation and the prevention of poverty traps