growth and unemployment this paper analyses the effects of growth on long run unemployment using a search model of equilibrium unemployment where growth arises explicitly from the introduction of new technologies that require labour reallocation for their implementation the analysis uncovers and compares between two competing effects of growth on unemployment the first is a capitalisation effect whereby an increase in growth raises the capitalised returns from creating jobs and consequently reduces the equilibrium rate of unemployment the second is a creative destruction effect whereby an increase in growth reduces the duration of a job match thereby raising the equilibrium level of unemployment both directly by raising the job separation rate and indirectly by discouraging the creation of job vacancies this paper asks the question of how the rate of economic growth affects unemployment in the long run the main consideration that leads us to think that this is an interesting question has to do with the re allocative aspect of growth in the long run faster economic growth must come from a faster increase in knowledge to the extent that the advancement of knowledge is embodied in industrial innovations it is likely to raise the job destruction rate through automation skill obsolescence and the bankruptcy associated with the process of creative destruction in short increased growth is likely to produce an increased rate of job turnover and the search theories of lucas and prescott 1974 and pissarides 1990 imply that an increased rate of job turnover will result in a higher natural rate of unemployment this conclusion is also consistent with the empirical results of davis and haltiwanger 1990 which show that periods of high unemployment tend to be periods of high job turnover at the establishment level it suggests the possibility of a positive longrun tradeoff between growth and unemployment at least over some range there has been relatively little attention paid to our question in the literature on longrun determinants of unemployment for example the recent empirical examination by layard nickell and jackman 1991 of unemployment rates among oecd countries did not even consider the rate of economic growth as a possible explanatory variable this is consistent with the seminal theoretical work of phelps 1968 which implies that the natural rate of unemployment is independent of the rate of productivity growth the only

learning by doing vs learning from others in a principal agent model abstract we introduce learning in a principal agent model of output sharing under moral hazard we use social evolutionary learning to represent social learning and reinforcement experience weighted attraction ewa and individual evolutionary learning iel to represent individual learning learning in the principal agent model is difficult due to the stochastic environment the discontinuity in payoffs at the optimal contract and the incorrect evaluation of foregone payoffs for iel and ewa social learning is much more successful in adapting to the optimal contract than standard individual learning algorithms a modified iel using realized payoffs evaluation performs better but still falls short of social learning

skill differentiation and wage disparity in a decentralized matching model of north south trade this paper develops a north south trade model in which the south produces food and the north produces both food and a high tech good food production is undertaken by unskilled workers while the high tech product is made only by horizontally differentiated skilled workers due to the possibility of a peergroup effect we allow the unskilled workers in the north to be equally or more productive than in the south horizontal matching of skilled workers is generally imperfect and the skilled wages are determined by a symmetric nash bargain we characterize two different types of equilibrium a closed economy equilibrium without trade and a free trade equilibrium without labor mobility we then extend the benchmark framework to consider the presence of transport costs in all cases with trade the equilibrium properties of goods pricing the volume of trade and wage disparities are examined

crime and poverty a search theoretic approach numerous studies document that criminal activity is positively related to unemployment and negatively related to educational attainment levels within given communities we study this phenomenon in the context of a search equilibrium model in which agents choose between formal employment and pursuing crimerelated activities theft prior to their occupational choices agents undertake costly schooling raising their productivity crime acts in essence as a tax on human capital by affecting the probability that a worker s earnings possessions are subsequently appropriated there are multiple equilibria high crime low levels of educational attainment long spells of unemployment and poverty are correlated across them

pioneering price level targeting the swedish experience 1931 1937 in september 1931 sweden became the first country to make the stabilization of the domestic price level the official goal of its monetary policy actually the only country that so far has adopted such an explicit price level target starting from the issues and concepts familiar from research and policy experience of inflation targeting as contrasted to price level targeting this paper examines the evolution of the swedish price level targeting in the 1930s we bring out a number of similarities and differences between price stabilization in the 1930s and in the 1990s

money still makes the world go round the zonal view many leading monetary economists have come to regard the monetary aggregates as obsolete measures of the monetary policy stance this critique has led some to view money as having lost its central role in the conduct of monetary policy we say to those advocating excising money from monetary policy not so fast to better understand the potential role for money we develop a zonal view of monetary policy which reflects the historical regularity for the relative informativeness of the quantitative measures of monetary policy such as the monetary aggregates and real interest rates to depend on the inflation zone in which a central bank finds itself the zones range from high inflation zone 1 to deep deflation zone 5 with intermediate zones of moderate inflation zone 2 low inflation zone 3 and low deflation zone 4 we find considerable support for this view in the historical data which stretches back to the 19 th century seen from this perspective the past experience of central banks casts doubt on the singular importance often attributed to the short term real interest rate as an indicator of the stance of monetary policy this applies especially in the current low inflation environment in which many central banks find themselves the zonal view has far reaching implications for monetary policy frameworks for the analytical efforts to understand the monetary policy transmission mechanism and for central bank communication strategies this paper was prepared for the 21 st congress of the european economic association held in vienna on august 27 2006 the views expressed in the paper are solely those of the authors

a search equilibrium approach to the effects of immigration on labor market outcomes we analyze the impact of the skill biased immigration inux that took place during the years 2000 2009 in the united states within a search and matching model that allows for skill heterogeneity dierential search cost between immigrants and natives capital skill complementarity and possibly endogenous skill acquisition within such a framework we nd that although the skill biased immigration raised the overall net income to natives it may have had distributional eects specically unskilled native workers gained in terms of both employment and wages skilled native workers on the other hand gained in terms of employment but may have lost in terms of wages nevertheless in one extension of the model where skilled workers and immigrants are imperfect substitutes we nd that even the skilled wage may have risen

financial intermediation and endogenous growth an endogenous growth model with multiple assets is developed agents who face random future liquidity needs accumulate capital and a liquid but unproductive asset the effects of introducing financial intermediation into this environment are considered conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital causing intermediation to be growth promoting in addition intermediaries generally reduce socially unnecessary capital liquidation again tending to promote growth

learning by doing and the introduction of new goods a dynamic general equilibrium model is developed in which goods are valued according to the characteristics they contain the set of goods produced in any period is endogenously determined and learning by doing is the force behind sustained growth it is shown that the set of produced goods changes in a systematic way over time with goods of higher quality entering each period and those of lower quality dropping out the model is then used to study the effect of introducing a traditional sector in which there is no learning

labor market frictions human capital accumulation and long run growth positive analysis and policy evaluation we construct a search model with endogenous human capital and labor participation to study the growth effects of short run frictions and the effectiveness of human capital policies employment learning effort and output growth increase with more effective learning better labor market matching lower job separation or less costly vacancy creation although output growth employment vacancy creation and learning and search effort are most responsive to changes in a human capital policy that directly affects learning effort such a policy need not be more beneficial for welfare the effects of human capital policies become larger as the severity of labor market frictions rises

a structuralist perspective on the role of technology in economic growth and development abstract this paper presents an integrated view of what is termed a structuralist perspective to economic growth and development that stands in contrast to the mainstream orthodox or neoclassical view in the structuralist view structural changes are causes of growth rather than outcomes of a process of capital accumulation and of rising per capita incomes moreover the growth process may be punctuated by periods of discrete shifts in resource allocation creative destruction and growth acceleration rather than being smooth throughout structural changes need not be automatic they require a skill specific infrastructure of new capabilities which when established generate new comparative advantages market failures may be pervasive due to problems of human capital accumulation critical mass and discrete choice among alternative growth paths thus in addition to creating a favorable environment for business and assuring through macroeconomic policy adequate investment successful growth may require an adequate industrial and technological policy particularly at nodes of structural change the paper surveys the structuralist insights appearing in the literature starting with the early postwar economic development literature and including recently developed formal models it also proposes a kinked or scalloped aggregate production function as a simple tool for structuralist analysis

search theoretic models of the labor market a survey we survey the literature on search theoretic models of the labor market we show how this approach addresses many issues including the following why do workers sometimes choose to remain unemployed what determines the lengths of employment and unemployment spells how can there simultaneously exist unemployed workers and unfilled vacancies what determines aggregate unemployment and vacancies how can homogeneous workers earn different wages what are the tradeoffs firms face from different wages how do wages and turnover interact what determines efficient turnover we discuss various modeling choices concerning wage determination and the meeting process including recent models of directed search

managerial skills acquisition and the theory of economic development micro level studies suggest managerial skills play a key role in the adoption of modern technologies in this paper we model the interactive process between on the job managerial skill acquisition and the adoption of modern technology we use the model to illustrate why some countries develop managerial skills quickly and adopt best practice technologies while others stay backwards the model also explains why managers will not migrate from rich countries to poor countries as would be needed to generate convergence finally we show why standard growth accounting exercises will incorrectly attribute a large proportion of managerial skills contribution to tfp and we quantify the importance of this bias aq2

price level targeting with evolving credibility abstract global learning dynamics for price level targeting plt monetary policy are analyzed and compared to inflation targeting in a nonlinear new keynesian model domain of attraction of target steady state is a new robustness criterion for policy regimes robustness of plt depends on whether a known target path is incorporated into learning credibility is measured by accuracy of this forecasting method relative to simple statistical forecasts evolving through reinforcement learning initial credibility and target price are key factors influencing performance model results are in line with the swedish experience of price stabilization in1930 s

competition and environmental policies in an electricity sector abstract we study the impact of competition and environmental policy feed in tariff vs the eu ets on investment co 2 emissions and welfare in an electricity sector we consider different market structures a planner who maximises social welfare vs duopoly and two types of consumers those whose behaviour depends on the weather vs those whose behaviour does not the demand specification is innovative and takes incompressible consumption into account given the costs and demand functions we find that competition can increase co 2 emissions as is highlighted by mansur 2007 in duopoly the eu ets seems to be the only efficient policy for reducing co 2 emissions but also to increase the share of production based on renewable energy sources the retained feed in tariff policy seems to be the most expensive policy in terms of social welfare even if this policy seems to increase social welfare feed in tariffs increase the cspe which is paid for by consumers in the form of higher electricity prices and only benefits new entrants it is also less effective in terms of emission reduction

the precious bane abstract are natural resources harmful to growth we address this question using a two sector endogenous growth model in which human capital is the engine of growth by increasing the rewards to unskilled labor natural resources make schooling more expensive as long as the intertemporal elasticity of consumption substitution is not too high this slows down human capital accumulation and growth the presence of production spillovers from human capital however implies that a planner could react to a resource boom by increasing human capital accumulation even though the decentralized solution yields the exact opposite the paper also shows that as the production complementarity between natural resources and unskilled labor declines the growth effects of natural resources become increasingly sensitive to whether or not there is free trade in goods the empirical evidence lends support to the main channel natural resources to human capital to growth that is suggested in the paper

price level targeting vs inflation targeting a free lunch price level targeting without base drift and inflation targeting with base drift are compared under commitment and discretion with persistence in unemployment price level targeting is often said to imply more short run inflation variability and thereby more employment variability than inflation targeting counter to this conventional wisdom under discretion a price level target results in lower inflation variability than an inflation target if unemployment is at least moderately persistent a price level target also eliminates the inflation bias under discretion and as is well known reduces long term price variability society may be better off assigning a price level target to the central bank even if its preferences correspond to inflation targeting a price level target thus appears to have more advantages than commonly acknowledged

inflation targeting as a monetary policy rule the purpose of the paper is to survey and discuss in ation targeting in the context of monetary policy rules the paper provides a general conceptual discussion of monetary policy rules attempts to clarify the essential characteristics of in ation targeting compares in ation targeting to other monetary policy rules and draws some conclusions for the monetary policy of the european system of central banks jel classi cation e42 e52

turnover externalities with marketplace trading this article considers equilibrium decentralized trade when there is a marketplace where buyers and sellers meet costlessly since buyers have idiosyncratic match payoffs for each seller s good some buyers rather than trade with the current stock of sellers wait for new sellers to enter the marketplace to obtain a good they like a turnover externality exists where all traders are better off with higher entry rates of new traders furthermore this turnover externality supports multiple pareto rankable equilibria this provides new insights into similar results obtained in the random matching literature

inflation forecast targeting implementing and monitoring inflation targets abstract inflation targeting is shown to imply inflation forecast targeting the central bank s inflation forecast becomes an explicit intermediate target inflation forecast targeting simplifies both implementation and monitoring of monetary policy the weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability commitment to target rules may be better than commitment to instrument rules

wicksellian rules and the taylor principle some practical implications in this paper we derive and compare the determinacy regions of price level targeting rules wicksellian rules and taylor rules in a standard new keynesian model we conclude that wicksellian rules do not require the taylor principle to hold in order to induce determinacy our results have two implications first in a univariate setting the estimation of simple taylor rules when the true rule is wicksellian can lead to the erroneous conclusion that the equilibrium is indeterminate second indeterminacy is ruled out when using system based methods but it can be concluded that the central bank is less averse to inflation movements than it actually is

the macroeconomics of the great depression a comparative approach recently research on the causes of the great depression has shifted from a heavy emphasis on events in the united states to a broader more comparative approach that examines the interwar experiences of many countries simultaneously in this lecture i survey the current state of our knowledge about the depression from a comparative perspective on the aggregate demand side of the economy comparative analysis has greatly strengthened the empirical case for monetary shocks as a major driving force of the depression an interesting possibility suggested by this analysis is that the worldwide monetary collapse that began in 1931 may be interpreted as a jump from one nash equilibrium to another on the aggregate supply side comparative empirical studies provide support for both induced financial crisis and sticky nominal wages as mechanisms by which nominal shocks had real effects still unresolved is why nominal wages did not adjust more quickly in the face of mass unemployment this abstract was borrowed from another version of this item

learning matching and growth we examine an endogenous growth model in which market frictions are an integral part of the economic environment workers invest in education when young which raises their productivity onice employed the level of schooling also acts as a key determinant of the rate of economic growth by influencing workers ability to accumulate additional human capital on the job once schooling is completed workers search for employment the division of the surplus between vacancies and searching workers is characterized as is the optimal level of education the economy may display multiple steady state growth paths

retraining and long term unemployment in a model of unlearning by not doing this paper develops a dynamically consistent model of search matching and bargaining when worker skills decline while unemployed long term unemployment emerges as an endogenous phenomenon even with constant returns to matching multiple pareto rankable equilibria are possible policies to address long term unemployment are best directed toward prevention e g vacancy creation subsidies rather than cure e g retraining subsidies

price level versus inflation targeting abstract this paper shows that price level targeting outperforms inflation targeting in the standard new keynesian model under the assumption that the central bank is forced to operate in an environment characterized by discretion in the benchmark case with no persistence in the shocks the commitment solution can be fully replicated intuitively price level targeting introduces history dependence and a stationary level of prices both of which are prominent features of the commitment solution

protection of property rights and growth as political equilibria abstract this paper presents a survey of the literature on property rights and economic growth different theoretical mechanisms that relate property rights to economic development are discussed lack of protection of property rights can result in slow economic growth through different channels expropriation of private wealth corruption of civil servants excessive taxation and barriers to adoption of new technologies the origins of property rights are also considered different theories are illustrated but more attention is paid to the social conflict view and its success and limitations the second part of the paper illustrates relevant empirical works on property rights and growth

market frictions technology adoption and economic growth this paper develops an endogenous growth model with labor market matching and technology adoption while labor market search and entry frictions lengthen technology diffusion exogenous technology arrival may creatively destruct jobs in the short run such interrelationships give rise to multiple equilibria global and local indeterminacy under which a small autonomous technological improvement may create a large growth effect we characterize the effects of exogenous technology arrival on equilibrium matching adoption effort wage and the overall dispersion of wages social inefficiency arises as a result of individuals failure to account for free rider thick matching job destruction effects in making technology adoption decision

information technology and the changing workplace in canada firm level evidence recent advances in information and communication technology ict have had dramatic effects on both individual and workplace performance use of computers and the internet as general purpose technologies has spread rapidly across all sectors of the economy transforming business organization increasing competition and fostering innovation understanding the influence of ict on the dynamics of the workplace requires information on both demand and supply sides of the labor market but it is only recently that the study of both sides of the market has become feasible using linked employer employee data in this article we investigate the effects of new technology on firm productivity using the rich canadian workplace and employee survey for the period 1999 2003 we apply a mixed regression model which includes both firm and employee characteristics as well as their interactions with computer use our model allows us to control for unobserved heterogeneity at higher levels along many dimensions our findings indicate that computer use by employees has a positive and significant effect on the productivity of firms that the effect has not lost its momentum and that spillover effects are not significant moreover human capital enhances the effect of computer use on productivity but organizational changes do not interact with computer use in our sample period copyright 2011 the author 2011 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

human capital accumulation and endogenous public expenditures in this paper we present an overlapping generations model where individuals accu mulate human capital through formal schooling we model the role of the public sector in schooling as one of collecting taxes from households and providing inputs to the learning technology public expenditures on schools are determined endogenously under plausible restrictions our model s predictions qualitatively match the observations on schooling pub lic expenditures on education and student teacher ratios jel classification el 3 e62 accumulation de capital humain et depenses publiques endogenes dans ce memoire les auteurs presentent un modele de generations qui se chevauchent ofu les individus accumulent du capital humain via l education formelle le r6le du secteur public dans l education est defini comme celui de collecteur d imp6ts aupres des menages et de fournisseur d intrants dans la technologie d apprentissage les depenses publiques en education sont determinees de maniere endogene a partir de restrictions plausibles les predictions du modele s arriment qualitativement aux observations sur le monde scolaire aux depenses publiques en educa tion et aux ratios 6leves enseignants

immigration skill heterogeneity and qualification mismatch we investigate the effects of us immigration on native workers in a search and matching environment that allows for skill heterogeneity differential search cost cross skill matching and imperfect transferability of human capital across borders we find that cross skill matching benefits the unskilled and hurts the skilled native workers similarly new unskilled immigration benefits the low skilled native workers and hurts the high skilled on the other hand new skilled immigration benefits both skilled and unskilled natives moreover when we simulate the effects of the actual us immigration influx that took place between the years 2000 and 2009 we find that both skilled and unskilled native workers gain we also find that initially an improvement in the transferability of human capital benefits the high skilled natives at the expense of the low skilled nevertheless below a certain overeducation ratio further improvements in the transferability of human capital make both types of native workers worse off

an explanation of international differences in education and workplace training abstract we develop a simple search equilibrium model of workplace training and education based on two features first investment in education improves job related learning skills and reduces training costs by firms second firms with vacant skilled job slots can choose between recruitment from the market and training compared to germany and japan the us has both a higher inflow rate into unemployment and a higher efficiency of the matching process while the combined effect of these differences on the share of educated labor is ambiguous the effect on the percentage of firms undertaking workplace training is to unambiguously reduce it

returns to scale productive efficiency and optimal firm size evidence from taiwan s firm data by using taiwan s census firm data this paper estimates and tests the variable returns to scale hypothesis for aggregate manufacturing and two digit industries an efficiency measure is constructed to further examine the size efficiency relations among two digit industries analysis indicates that increasing returns exist at the aggregate manufacturing level and its magnitude is higher for exporting firms than for non exporting firms moreover trade is beneficial only for small firms however the property of increasing returns diminishes for most of the industries at the two digit level particularly for the exporting firms this sharp comparison between aggregate and two digit level results suggests that trade is conducive to productivity and provides an indication of the specific form of technology spillovers among firms and across industries further investigation of the relationship between productive efficiency and firm size renders the result that optimal firm size is small for exporting firms i

a real options evaluation model for the diffusion prospects of new renewable power generation technologies this study presents a policy planning model that integrates learning curve information on renewable power generation technologies into a dynamic programming formulation featuring real options analysis the model recursively evaluates a set of investment alternatives on a year by year basis thereby taking into account that the flexibility to delay an irreversible investment expenditure can profoundly affect the diffusion prospects of renewable power generation technologies price uncertainty is introduced through stochastic processes for the average wholesale price of electricity and for input fuel prices demand for electricity is assumed to be increasingly price sensitive as the electricity market deregulation proceeds reflecting new options of consumers to react to electricity price changes such as time of use pricing unbundled electricity services and choice of supplier the empirical analysis is based on data for the turkish electricity supply industry apart from general implications for policy making it provides some interesting insights about the impact of uncertainty and technical change on the diffusion of various emerging renewable energy technologies

the production life cycle tasks in production have different dynamics in comparison with individual products we build a general equilibrium model where three forces offshoring learning and wage interact to determine how production fragmentation evolves over time we show that the production process follows a life cycle its fragmentation emerges deepens and converges our model is stylized and versatile which can be used to tractably characterize the loci of global output productivity welfare and value added distribution as production fragmentation progresses this article is protected by copyright all rights reserved

price and output stability under price level targeting it is commonly believed that a monetary policy that targets the price level reduces the long term variability of the price level but only at the cost of increased variability of both inflation and output we develop a model in which the one step ahead variance of output and the price level are lower under price level targeting than under inflation targeting this increased stability under price level targeting works through an interest rate channel that to our knowledge has not previously been emphasized in the literature surprisingly if the sensitivity of demand to the real rate of interest is high enough then the variance of inflation can also be lower under price level targeting than under inflation targeting

finite lifetimes and growth abstract in this paper we study the long run growth property of overlapping generations models it is shown that in one sector models with convex technologies the asymptotic growth rate must be zero this results because the young do not have sufficient income to purchase a large capital stock thus a policy of income redistribution to the young can generate growth even if financed by income taxation additionaly it is shown that two sector models and one sector models with nonconvex technologies are consistent with growth

increasing returns in infinite horizon economies this paper shows that in a general equilibrium model with an infiniite holizonl in whichi productionl may exhibit increasing returns to scale or non conivexities marginal cost pricing equilibria exist anid are essential that is stable witlh respect to small perturbationis of the economily as in many important models of mairket imperfections marginal cost pricinig equilibria need not be pareto optimal in the presence of noni convexities so the systematic approaches to equilibrium analysis in infinite dimenisionial commodity spaces which rely crucially oln the first welfare theorem cainnot be used instead this paper introduces leray schauder degree theory the extension of degree theor y to banacih and locally convex spaces as the natural methodology for showinlg that equilibria exist and for anialyzing qualitative features of equilibria such as local uniqueness or essentiality

who anticipated the great depression gustav cassel versus keynes and hayek on the interwar gold standard the intellectual response to the great depression is often portrayed as a battle between the ideas of friedrich hayek and john maynard keynes yet both the austrian and the keynesian interpretations of the depression were incomplete austrians could explain how a country might get into a depression bust following a credit fueled investment boom but not how to get out of one liquidation keynesians could explain how a country might get out of a depression government spending on public works but not how it got into one animal spirits by contrast the monetary approach of gustav cassel has been ignored as early as 1920 cassel warned that mismanagement of the gold standard could lead to a severe depression cassel not only explained how this could occur but his explanation anticipates the way that scholars today describe how the great depression actually occurred unlike keynes or hayek cassel analyzed both how a country could get into a depression deflation due to tight monetary policies and how it could get out of one monetary expansion

electricity consumption in g7 countries a panel cointegration analysis of residential demand elasticities this article applies recently developed panel unit root and panel cointegration techniques to estimate the long run and short run income and price elasticities for residential demand for electricity in g7 countries the panel results indicate that in the long run residential demand for electricity is price elastic and income inelastic the study concludes that from an environmental perspective there is potential to use pricing policies in the g7 countries to curtail residential electricity demand and thus curb carbon emissions in the long run

catch up in turn in a multi country international trade model with learning by doing and invention abstract we consider how the world income distribution evolves over time when both learning by doing and invention are the engines of economic growth and when countries interact with each other through international trade the main findings are i catch up is possible ii in the three country model transitional dynamics are much richer than in the two country model in particular catch up may occur in turn there may be a first stage in which the middle income country grows fastest closing the gap with the richest country but increasing the income difference with the poorest followed by a second stage where the poorest country catches up

overvalued swedish monetary policy in the 1930s the article discusses sweden s monetary policy in the 1930s which has been hailed as the first and only example of successful price level targeting our contribution is twofold first we argue that the crucial measure that immediately ended deflationary expectations and enabled a swift recovery was a strong and involuntary devaluation of the currency not the adoption of a new monetary policy framework second starting from the recent literature on monetary policy at the zero lower bound we conclude that sweden s exchange rate policy is more relevant for the current discussion than its tentative experience with price level targeting

irving fisher and price level targeting in austria was silver the answer the question of price level versus inflation targeting remains controversial disagreement concerns not so much the desirability of price stability but rather the means of achieving it irving fisher argued for a commodity dollar standard where the purchasing power of money was fixed by indexing it to a basket of commodities we show that movements in the price of silver closely track the movements in overall prices during the classical gold standard era the one to one relationship between paper and silver bonds suggests that a simple silver rule could have sufficed to fix the purchasing power of money

the economics of product variety a survey demand for variety may arise from a taste for diversity in individual consumption and or from diversity in tastes even when each consumer chooses a single variant the full degree of variety potentially demanded will not in general be supplied because scale economies even to a small degree mean that the potential welfare or revenue gain from greater variety must be balanced against the lower unit production costs with fewer variants the economics of product variety consists essentially in analysing the effect of this balance in different situations and comparing the degree of product variety for different market structures with each other and with the optimum the survey commences with the work on market structures with single product firms generalized monopolistic competition tracing modern developments in both the chamberlinian and hotelling traditions the latter has been particularly fruitful due to the expansion of the original locational ideas into virtual spaces in product characteristics the emphasis in recent work on product variety has been on multiproduct firms in both monopolistic and oligopolistic structures including strategic market preemption although most work has been in a full information context there have been advances in product variety under imperfect information either by consumers to properties of the firms products or firms as to consumers demands

modeling technology adoption as an irreversible investment under uncertainty the case of the turkish electricity supply industry this paper studies energy conversion technology adoption in the electricity supply sector from the perspective of irreversible investments under uncertainty and with a particular interest in environmental sustainability we develop a dynamic technology adoption model that is firmly rooted in economic theory and that takes important determinants of optimal investment in available technologies e g life cycle capital and operation cost explicitly into account uncertainty is introduced for the demand for peak load capacity unit generation costs and for the average electricity price we test the model empirically by applying it to data for the turkish power supply industry the model guided optimal investment schedule based on net present value considerations exhibits significant deviations from the actual investment outcome we find that the increased adoption of natural gas fired power generation technologies in turkey in recent years while contributing to environmental sustainability has had doubtful merits from an investor s perspective

inflation targeting a new framework for monetary policy he world s central bankers and their staffs meet regularly in venues from basle to washington to share ideas and discuss common problems perhaps these frequent meetings help explain why changes in the tactics and strategy of monetary policymaking such as the adoption of money growth targets in the 1970s the intensification of efforts to reduce inflation in the 1980s and the recent push for increased institutional independence for central banks tend to occur in many countries more or less simultaneously whatever their source major changes in the theory and practice of central banking are of great importance for both individual countries and the international economy in this article we discuss a new strategy for monetary policy known as inflation targeting which has sparked much interest and debate among central bankers and monetary economists in recent years this approach is characterized as the name suggests by the announcement of official target ranges for the inflation rate at one or more horizons and by explicit acknowledgment that low and stable inflation is the overriding goal of monetary policy other important features of inflation targeting include increased communication with the public about the plans and objectives of the monetary policymakers and in many cases increased accountability of the central bank

inflation inertia and the optimal hybrid inflation price level target a hybrid inflation price level target combines elements of both inflation and price level targets the paper derives an optimal hybrid target within a new keynesian model with inflation persistence due to price indexation the result generalizes a result by vestin forthcoming that the optimal policy could be implemented with a price level targeting regime we show that the optimal price level drift in the hybrid target is equal to the degree of price indexation if there is complete indexation the optimal monetary regime is inflation targeting

heterogeneous borrowers liquidity and the search for credit abstract we develop a general equilibrium model of credit formation where borrowers and lenders must search for matches and where the composition of borrowers adjusts to satisfy equilibrium entry conditions when market liquidity dries up as a result of fundamental shocks to the system fewer borrowers will participate in the credit market with low quality borrowers suffering disproportionately because of a flight to quality however less liquid credit markets need not be associated with lower social output because the effect of higher average quality may outweigh that of reduced market participation depending crucially on the source of the liquidity shock

endogenous growth in multisector ramsey models in this paper i give sufficient conditions for the existence of endogenously growing optimal paths in a general multisector ramsey model of optimal capital accumulation the key assumption involves the existence of a positive vector of capital stocks which admits strictly positive consumption and expansibility in inverse proportion to the utility discount factor if the technology set contains the ray through such a point in addition to standard convexity and interiority assumptions then optimal paths grow without bound from any strictly positive initial stocks the result unifies a number of existing models in the growth theory literature within both capital theory and macroeconomics there has been a resurgence of interest in models of capital accumulation which display endogenous growth models without time dependent technologies which nonetheless have the property that the optimal or equilibrium paths of capital and consumption which they generate grow without bound it is thus surprising that little work has been done in establishing conditions which guarantee this property a recent exception is jones and manuelli 1990 working in a variant of the standard one sector ramsey model of optimal growth earlier gale and sutherland 1968 also proved a growth result for an undiscounted one sector ramsey model by and large though this research program has been carried out in a series of particular examples with little suggestion of a general framework for achieving endogenous growth this essay attempts to fill that gap at least for models which may be cast in the convex ramsey optimal growth framework 2 the results below provide sufficient conditions for the existence of endogenously growing optimal paths in a convex multisector ramsey model of optimal capital accumulation thus unifying a number of particular examples in the growth literature as well as providing simple conditions for guaranteeing growth in more complex models by way of motivation consider the simplest of all endogenous growth models the one sector linear model or a k model used by rebelo 1991 there is a single all purpose consumption investment good an infinitely lived representative con

the macroeconomics of dr strangelove the cold war has ended and president george bush has declared the beginning of a 4 new world order this new world order has so far been characterized by the intensification of regional disputes civil strife and civil war its implications for arms proliferation and arms control are still unclear this paper considers both superpower conflict and the transition to international cooperation in the context of a model that emphasizes intergenerational linkages specifically we explore the weapons accumulation decisions of two adversarial countries in the context of a deterrence conflict initiation game embedded in an overlapping generations model the demographic structure of the overlapping generations model allows the analysis of both between and withincountry intergenerational external effects caused by past weapons accumulation decisions while the two country setting permits consideration of international external effects caused by the adversary country s current weapons accumulation decision we analyze the noncooperative equilibrium and then consider the effects of a regime change characterized by international cooperation but where the intergenerational externali

r d in a model of search and growth just how important a determinant of economic growth is the efficacy with which markets are organized it is clear that in order to answer this question it is necessary to have both a well articulated theory of economic growth and a precise notion of what it means for one market to be better organized than another the newly developed theory of endogenous growth pioneered by among others paul m romer 1986 robert e lucas 1988 nancy stokey 1988 and gene grossman and elhanan helpman 1991 has equipped economists with a rigorous microeconomic foundation of the growth process since its original inception research in this area has bifurcated one strand of work has continued to emphasize the importance of capital accumulation both physical and human in environments in which agents are competitive price takers the other strand has a distinctly neo schumpeterian flavor in which firms are price setters and purposive innovative activity leads to technological advancement but what of the role played by market organization the growth literature has remained relatively silent on this issue the reason is that the canonical growth model is one in which trade either competitive or monopolisticly competitive is coordinated by the walrasian auctioneer given that ex hypothesi trade is frictionless it is meaningless to use this framework to discuss issues pertaining to improvements in market organization however beginning with the seminal contributions of peter diamond 1982 dale t mortensen 1982 and christopher pissarides 1985 economists have begun to construct models that dispense with the auctioneer s coordinating function in this setting it is possible to make precise the notion of an improvement in market efficacy since search and bargaining frictions are explicitly incorporated as an integral part of the trading environment yet it is only very recently that this literature has begun to explore the consequences for perpetual economic growth

learning by doing and the choice of technology the role of patience if agents learn by doing and are myopic less advanced firms might adopt new technologies while more advanced firms would stick with the old technology this kind of overtaking can also occur if agents are forward looking and have high discount rates however overtaking never occurs if agents are sufficiently patient a finite discount rate increases the set of states at which agents adopt new technologies so more patient agents tend to upgrade their technology more frequently journal of economic literature classification numbers d92 o14 o33

real effects of money growth and optimal rate of inflation in a cash in advance economy with labor market frictions this paper studies the consequences of labor market frictions for the real effects of steady inflation when cash is required for households consumption purchases and firms wage payments money growth may generate a positive real effect by encouraging vacancy creation and raising job matches this may result in a positive optimal rate of inflation particularly in an economy with moderate money injections to firms and with nonnegligible labor market frictions in which wage bargains are not efficient this main finding holds for a wide range of money injection schemes with alternative cash constraints and in a second best world with pre existing distortionary taxes

learning by doing changes in industrial structure and trade patterns and economic growth in a small open economy abstract this paper presents a simple dynamic model which allows for changes in both industrial structure and trade patterns during the process of economic growth learning by doing in the producer service sector is the source of endogenous growth interesting interdependences between economic growth and the structure of the economy are obtained economic growth is accompanied by changes in industrial structure and comparative advantage while changes in industrial composition of the manufacturing sector accelerate economic growth furthermore this paper analyzes the relationship between economic growth and the endowment structure and the effects of two types of technology transfers on economic growth

decentralized international exchange traditional models of international trade take place within trading environments in which trade is coordinated by a walrasian auctioneer who instantly matches buyers and sellers in world markets this assertion seems inconsistent with evidence suggesting that trading arrangements seem to economize on transactions costs associated with international trade recognizing these insights we depart from standard models of international trade by incorporating the difficulties in the coordination of exchange within a two country random matching model of international trade we capture a motivation for trade through comparative advantage and interpret trade across economies to be associated with an agent s endogenous choice to participate in foreign markets although an individual may decide to search abroad to obtain additional gains from trade resulting from comparative advantage she is less likely to meet trading partners abroad as search frictions are higher in the foreign country than in the domestic market using this framework we show that international trade is associated with convergence in relative prices across countries we also show that the extent of market frictions in the foreign country affects relative prices the volume of international trade and welfare levels due to market participation externalities associated with international trade we show that a movement from autarky to free trade may actually lower welfare levels we conclude by examining the possible inefficiencies associated with international trade due to the decentralized nature of exchange and the policy implications of our model

social welfare and income inequality in a system of cities abstract this paper develops a general equilibrium model of a system of core periphery cities to examine the main determinants of intra and inter regional income disparities the economy is populated by a continuum of homogeneous unskilled and heterogeneous skilled workers unskilled workers whose wages are determined competitively specialize in food production in local cities skilled workers whose wages are determined according to a nash bargain manufacture a high tech commodity in the metropolis we establish conditions under which this core periphery equilibrium spatial configuration emerges we show that both intra and inter regional income disparities are present the determinants of each type of disparity and the social welfare implications are fully investigated our results suggest that public policy programs that improve income equality may not be necessarily welfare enhancing

financial matching asymmetric information and entrepreneurial risk taking we study financial matching in credit markets when entrepreneurs have private information about their success potential entrepreneurs can search for financing for either a risky or a safe investment and only the risky project is sensitive to entrepreneurs intrinsic types there is excess risk taking in the sense that entrepreneurs with inefficiently low success probabilities choose the risky investment however steady states featuring greater market liquidity are associated with higher efficiency as market liquidity also reflects the intensity of competition among financiers earlier results which indicate a negative relationship between competition and allocative efficiency do not hold in our setup

spatial mismatch in search equilibrium we construct a search equilibrium model for a city with central and suburban labor markets that is consistent with the set of empirical regularities commonly associated with the spatial mismatch hypothesis a higher rate of unemployment for central city residents than suburban residents a higher job vacancy rate for suburban firms and reverse commuting and higher suburban wages the effectiveness and welfare implications of public policy programs that might be used to remedy the underlying mismatch are examined

educational policy in a credit constrained economy with skill heterogeneity an overlapping generations model where agents choose whether to become educated when young is presented education enhances productivity but needs to be financed by borrowing because of the possibility of default lenders may ration credit we characterize the steady state equilibrium with and without credit constraints and show that credit constraints are associated with lower education and a lower real interest rate we then study the role of public policy in remedying the inefficiency which occurs with credit market imperfections and examine whether public education can improve on the constrained equilibrium

escaping from a liquidity trap and deflation the foolproof way and others existing proposals to escape from a liquidity trap and deflation including my foolproof way are discussed in the light of the optimal way to escape the optimal way involves three elements 1 an explicit central bank commitment to a higher future price level 2 a concrete action that demonstrates the central bank s commitment induces expectations of a higher future price level and jump starts the economy and 3 an exit strategy that specifies when and how to get back to normal a currency depreciation is a direct consequence of expectations of a higher future price level and hence an excellent indicator of those expectations furthermore an intentional currency depreciation and a crawling peg as in the foolproof way can implement the optimal way and in particular induce the desired expectations of a higher future price level i conclude that the foolproof way is likely to work well for japan which is in a liquidity trap now as well as for the euro area and the united states in case either would fall into a liquidity trap in the future

monetary policy in a forward looking input output economy this paper examines the implications for monetary policy of sticky prices in both final and intermediate goods in a new keynesian model both optimal policy under commitment and discretionary policy under simple loss functions are studied household utility losses under alternative loss functions are compared additionally the robustness of policy performance to model and shock misperceptions and parameter uncertainty is examined targeting inflation in both consumer and intermediate goods performs better than targeting inflation in one sector targeting price levels of both final and intermediate goods performs significantly better moreover targeting price levels in both sectors yields superior robustness properties

production experiences and market structure in r d competition abstract in the rd and ii the likelihood of persistent leadership increases with the value of being the winner and the value of being a loser but decreases with expected waiting time of r d innovation and the flow of monopoly profits however destructive innovations may still occur even when production experiences are allowed to play an important role in the r d competition

the perils of nominal targets a monetary authority can be committed to pursuing an inflation price level or nominal gdp target yet systematically fail to achieve the prescribed goal constrained by the zero lower bound on the policy rate the monetary authority is unable to implement its objectives when private sector expectations stray far enough from the target low inflation expectations become self fulfilling resulting in an additional markov equilibrium in which the monetary authority falls short of the nominal target average output is below its efficient level and the policy rate is typically low introducing a stabilization goal for long term nominal rates can implement a unique markov equilibrium without fully compromising stabilization policy

adaptability productivity and educational incentives in a matching model abstract we study the connections between the labour market and the education sector in a matching framework with ex post wage bargaining workers have multidimensional skills and the search market is segmented by technology education is a time consuming activity and determines jointly the scope or adaptability and intensity or productivity of individual skills we establish three main results first unemployment provides incentives to schooling by raising the need for adaptability second private returns to productivity are below social returns but no hold up phenomenon is involved third due to wage and congestion externalities private returns to adaptability exceed social returns as a consequence both over and under education may take place in equilibrium

liquidity risk economic development and the effects of monetary policy abstract empirical evidence indicates that monetary policy is not super neutral in many countries in particular in high inflation economies inflation is negatively related to economic activity by comparison inflation may be positively correlated with output in low inflation countries we present a neoclassical growth model with money in which the incidence of liquidity risk is inversely related to aggregate capital formation interestingly there may be multiple monetary steady states where the effects of monetary policy vary in poor economies the financial system is highly distorted and higher rates of money growth are associated with less capital formation in contrast in advanced economies a tobin effect is observed since inflation exacerbates distortions from a coordination failure in the low capital steady state individuals become much more exposed to liquidity risk consequently optimal monetary policy depends on the level of development

the economics of new blood abstract we construct a dynamic general equilibrium model of search and matching where public knowledge grows through time and workers accumulate a fraction of this knowledge through education retraining due to search delays the unemployment pool is populated by vintages of workers of differing productivities through intergenerational rivalry the human capital of older generations is rendered obsolete relative to that of the new blood higher knowledge growth exacerbates intergenerational competition thereby lowering education and growth while raising unemployment and inequality these findings help explain wage compression expansion and the hump shaped wage tenure profile across cohorts

search frictions market power and long run growth abstract this paper embeds product market search in an ak growth model to study the effects of search frictions on market structure capital accumulation and long run growth the basic hypothesis is that search frictions in giving rise to market power result in higher prices and lower output levels the falling demand for capital stemming from firms cutting back output then lowers the interest rate dampening capital accumulation and slowing down growth a decline in search frictions sets the process in reverse eventually speeding up growth through the change in market structure in the meantime the stock market values of firms could fall

on endogenizing long run growth this assessment of recent theoretical work on endogenous growth identifies three different engines of long run growth i the asymptotic average product of capital is positive ii labor productivity increases as an external effect of capital accumulation iii there are feedback effects on the cost of accumulating knowledge or innovating a general model encompassing all three is considered and then used to review different proposed determinants of long run growth rates the contribution of endogenous growth theory has been to create a framework in which to explain why economic institutions and policies can have long run effects on growth rates

search wage bargains and cycles in this paper i describe an equilibrium model of job matchings with perfect foresight that has the following property the number of people looking for work changes temporarily when there is a temporary shock to the value of labour s marginal product it does not change when the shock is permanent by contrast real wages change temporarily by a small amount when the shock is temporary but change permanently and by a bigger amount when the shock is permanent thus the model offers an explanation for the observation that over the cycle small wage changes are associated with changes in unemployment whereas secularly wage growth does not seem to affect the rate of unemployment the two most common explanations for this observation in the literature the phelps lucas misperceptions model and the lucas rapping intertemporal substitution model are well grounded in equilibrium theory but they have not stood up well to empirical testing the misperceptions model requires more ignorance of aggregate changes than can be reasonably assumed whereas the intertemporal substitution model requires bigger wage elasticities of labour supply than those estimated in the model of this paper neither misperceptions nor changes in the supply of labour play a role in generating the unemployment cycle all agents observe the shocks when they occur and they anticipate correctly the economy s adjustment path but like the new classical explanations of the cycle the model is an equilibrium one in the sense that all private gains from trade are fully exploited at all phases of the cycle although the social gains from trade may not be fully exploited because of search externalities the cycle i derive here is not due to externalities unlike other related perfect foresight models such as diamond s 1982a the structure of the model is such that the externalities do not give rise to multiple equilibria the key element of the model which is responsible for the transmission of output shocks to unemployment is the equation for wages in markets where the allocation of jobs takes place through search both firms and workers have some monopoly power a point emphasised by mortensen 1970 though he attributed only temporary monopoly power and only to firms i use the nash bargaining solution to solve for the equilibrium wage rate and show that the firm s and worker s alternative returns threat points or

worker financed versus firm sponsored training how are skilled workers supplied to the economy a search and matching model of general human capital is developed to contrast worker financed training with firm sponsored training to evaluate which type of training might prevail in the economy it will be shown that firm sponsored training is more likely to occur when there is greater friction in the labour market whereas worker financed training prevails in a less frictional market moreover the model has multiple equilibria in labour markets with intermediate friction comparative statistics exercises tell us that reductions in labour market friction result in less firm sponsored training in the economy but encourage worker financed training

an overlapping generations model of growth and the environment this article analyzes the potential conflict between economic growth and the maintenance of environmental quality in an overlapping generations model short lived individuals make decisions which have long lasting effects on both factor productivity and the environment the model provides a theoretical explanation of observed correlations between environmental quality and income whereby economic growth is associated first with declines then improvements in environmental quality it suggests circumstances in which multiple pareto ranked steady state equilibria may arise and in which sustained growth of both capital and environmental quality may occur overmaintenance of the environment analogous to dynamically inefficient overaccumulation of capital may emerge copyright 1994 by royal economic society

stabilisation policy rational expectations and price level versus inflation targeting a survey we survey literature comparing inflation targeting it and price level targeting pt as macroeconomic stabilisation policies our focus is on new keynesian models and areas that have seen significant developments since ambler s 2009 price level targeting and stabilisation policy a survey journal of economic surveys 23 5 974 997 survey optimal monetary policy the zero lower bound financial frictions and transition costs of adopting a pt regime ambler s conclusion that pt improves social welfare in new keynesian models is fairly robust but we note an interesting split in the literature pt consistently outperforms it in models where policymakers commit to simple taylor type rules but results in favour of pt when policymakers minimise loss functions are overturned with small deviations from the baseline model since the beneficial effects of pt appear to hang on the joint assumption that agents are rational and the economy new keynesian we discuss survey and experimental evidence on rational expectations and the applied macro literature on the empirical performance of new keynesian models overall the evidence is not clear cut but we note that new keynesian models can pass formal statistical tests against macro data and that models with rational expectations outperform those with behavioural expectations i e heuristics in direct statistical tests we therefore argue that policymakers should continue to pay attention to pt

how the european central bank decided its early monetary policy the main goal of this paper is to detect the mechanisms that should rationally stimulate the decision making policies of the european central bank ecb this is carried out under the framework of theoretical principles of interest rate rules firstly we deduce a set of logically advisable guidelines for the strategy actually developed by this central bank then we contrast a wide set of hypotheses with reference to those variables the ecb takes into account on deciding its monetary policy with a flexible treatment regarding the number of months of advance or delay in the explanatory variables the results lead us to the conclusion that the ecb besides adopting a smooth strategy especially bears in mind the expected core inflation rate with a reaction coefficient adjusted to that initially proposed by taylor the economic growth rate though it has a significant positive coefficient matters relatively little and is backward looking finally we evaluate up to what point the behaviour of the ecb is a

price expectations capital accumulation and employment lindahl s macroeconomics from the 1920s to the 1950s erik lindahl s approach to macroeconomics focused on the non neutrality of monetary policy in the short and the long run and on the denial of the existence of natural rates of interest and unemployment from the 1920s until his death in 1960 lindahl advocated the use of norms for monetary policy to fight inflation and deflation precisely because he would not rely on the market system s return to natural rates making use of hitherto unexplored material this paper analyses the development of lindahl s thinking about price level changes investment and employment from the 1920s to the 1950s copyright 2006 oxford university press