the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

liquidity effects and the monetary transmission mechanism several recent papers provide strong empirical support for the view that an expansionary monetary policy disturbance generates a persistent decrease in interest rates and a persistent increase in output and employment existing quantitative general equilibrium models which allow for capital accumulation are inconsistent with this view there does exist a recently developed class of general equilibrium models which can rationalize the contemporaneous response of interest rates output and employment to a money supply shock however a key shortcoming of these models is that they cannot rationalize persistent liquidity effects this paper discusses the basic frictions and mechanisms underlying this new class of models and investigates one avenue for generating persistence we argue that once a simplified version of the model in christiano and eichenbaum 1991 is modified to allow for extremely small costs of adjusting sectoral flow of funds positive money shocks generate long lasting quantitatively significant liquidity effects as well as persistent increases in aggregate economic activity

real exchange rates trade balances and nominal shocks evidence for the g 7 abstract to identify nominal shocks in structural var models of open economies it is common practice to use purchasing power parity as a long run identifying restriction so that there are no long run effects of nominal shocks on real exchange rates however in some recent open economy intertemporal models with sticky prices nominal shocks can have long run effects on both real exchange rates and trade balances in this paper structural var models for the g 7 are identified in such a way that nominal shocks at least potentially can have long run effects on a country s real exchange rate for the g 7 nominal shocks are found to have a significant long run effect on each country s trade balance over the post bretton woods period we do not have to appeal to hysteresis effects to explain this finding for trade balances since nominal shocks are found to have a significant long run effect on each country s real exchange rate

terms of trade shocks and the balance of trade there is a harberger laursen metzler effect abstract according to the harberger laursen metzler hlm effect an exogenous increase in the terms of trade faced by a small open economy leads to an improvement in that country s trade balance in this paper structural vector autoregression techniques are used to investigate whether there is any systematic pattern in the responses of the trade balance to terms of trade shocks for a large number of small open economies two important results emerge first there is strong support in the data for the existence of an hlm effect second the response of the trade balance and real income to a terms of trade shock implied by the structural vector autoregression model are strongly consistent with those reported by mendoza 1995 from simulating a particular dynamic stochastic equilibrium model of a small open economy

a managerial decision model of international cooperative venture formation this paper develops a model of international cooperative venture formation that is centered on the decisionmaking process of mne executives central issues for managerial decisions are developed from the organizational studies literature a framework delineating the sequence and criteria used in the decision to form international cooperative ventures is developed from these defined issues and from existing models propositions pertaining to the venture formation decision process are outlined

multiple equilibria and persistence in aggregate fluctuations this paper explores the impact of incomplete markets and strong complementarities on the time series properties of aggregate activity we consider an economy which consists of a large number of industries whose production functions both are nonconvex and exhibit localized technological complementarities the productivity of each industry at t is determined by the production decisions of technologically similar industries at t 1 no markets exist to coordinate production decisions this feature implies that aggregate output dynamics for the model are quite different from those predicted by the associated arrow debreu economy first multiple stochastic equilibria exist in aggregate activity these equilibria are distinguished by differences in the mean and the variance of output second output movements are persistent as aggregate productivity shocks indefinitely affect real activity by shifting the economy across equilibria as a result the model can exhibit periods of boom and depression this abstract was borrowed from another version of this item

production function regressions returns to scale and externalities a number of recent papers have used simple linear regressions in an attempt to identify market structure the extent of returns to scale and possible external effects in u s manufacturing industries the results obtained from these regressions have important implications for several branches of modern macroeconomics as a result the macro literature frequently cites specific numerical evidence from caballero and lyons 1992 and hall 1990 which suggests that there are quantitatively significant increasing returns to scale or external effects in u s manufacturing in contrast it is the argument of this paper that this evidence is not convincing the most robust evidence suggests that the typical u s manufacturing industry displays constant returns with no external effects on the other hand there is significant heterogeneity across industries

decomposing learning by doing in new plants the paper examines learning by doing in the context of a production function in which the other arguments are labor human capital physical capital and vintage as a proxy for embodied technical c

wage stickiness and the non neutrality of money a cross industry analysis abstract the paper provides an empirical test of sticky wage models of business fluctuations by focusing on industry level cross sectional implications that emerge this breaks the observational equivalence existing at the aggregate level between rational expectations long term contracting and imperfect information models the specific implication tested is whether output responses to nominal disturbances industry phillips curve slopes are inversely related to wage indexation elasticities the phillips curve slopes are found to vary across industries for the canadian economy but bear no relationship to indexation elasticities casting doubt on the role of nominal wage rigidity in generating the observed non neutrality of money

the liquidity effect and money demand abstract i suggest a liquidity effect model in which financial intermediation costs are determined by aggregate economic activity an expansionary monetary shock leads to a persistent contraction in the loan deposit rate spread a persistent liquidity effect and a persistent real expansion a feature of this expansion is that nominal prices respond sluggishly to monetary shocks as an equilibrium outcome

delay and cycles when the profitability of investment depends on the general level of economic activity entrepreneurs have an incentive to delay investments during a recession endogenous delay thus prolongs the recovery from a recession and heightens the effect of the boom this paper describes a dynamic model that exhibits both delay and cycles and develops methods for analysing the role of delay in propogating business cycles a number of interesting characteristics of the cycle are revealed first the effect of delay is asymmetric it lengthens the recovery but not the downturn second delay can increase the amplitude and typically reduces the frequency of the cycle third it can reduce the average level of activity but it achieves this effect by prolonging the recession rather than by reducing the amplitude of the cycle the welfare effects of delay are ambiguous however

the long run relationship between inflation and output in postwar economies abstract we investigate the relationship between inflation and real output in a large sample of postwar economies our methodology is to use a structural vector autoregression to estimate the response of the level of real output to permanent inflation shocks separately for each country we find that a permanent shock to inflation is not associated with a permanent movement in the level of real output for most countries in our sample the main exceptions are certain low inflation countries in which permanent inflation shocks permanently increase the level of output we also find that permanent inflation shocks do not permanently influence real output growth rates in our sample

labour markets liquidity and monetary policy regimes dans leur etude les auteurs elaborent un modele d equilibre du mecanisme de transmission de la politique monetaire qui fait ressortir les elements de friction relatifs a l acquisition d information sur le marche de la monnaie et a la recherche d emploi

energy consumption real income and temporal causality results from a multi country study based on cointegration and error correction modelling techniques abstract unlike previous studies on the causal relationship between energy consumption and economic growth this paper illustrates how the finding of cointegration i e long term equilibrium relationship between these variables may be used in testing granger causality based on the most recent johansen s multivariate cointegration tests preceded by various unit root or non stationarity tests we test for cointegration between total energy consumption and real income of six asian economies india pakistan malaysia singapore indonesia and the philippines non rejection of cointegration between variables rules out granger non causality and imples at least one way of granger causality either unidirectional or bidirectionial secondly by using a dynamic vector error correction model we then analyse the direction of granger causation and hence the within sample granger exogeneity or endogeneity of each of the variables thirdly the relative strength of the causality is gauged through the dynamic variance decomposition technique by decomposing the total impact of an unanticipated shock to each of the variables beyond the sample period into proportions attributable to shocks in the other variables including its own in the bivariate system results based on these tools of methodology indicate that while all pair wise relationships shared common univariate integrational properties only relationships for three countries india pakistan and indonesia were cointegrated for these countries temporal causality results were mixed with unidirectional causality from energy to income for india exactly the reverse for indonesia and mutual causality for pakistan the vdcs were not inconsistent with these results and provided us with an additional insight as to the relatively more dominant direction of causation in pakistan simple bivariate vector autoregressive models for the three non cointegrated systems did not indicate any direction of causality significantly in either direction

strategic complementarity in business formation aggregate fluctuations and sunspot equilibria the extent to which changes in beliefs can be important factors in initiating economic fluctuations has been a prominent area of investigation for macroeconomists the notion that beliefs about the future influence current decisions is a property of almost all dynamic economic systems the more challenging task is identifying economic environments in which changes in beliefs alone influence current choices in such a way that the variations in beliefs are self fulfilling because the resulting fluctuations arise in the absence of variations in fundamental variables such as preferences and technology they are often termed sunspot equilibria apart from suggesting that instability of expectations may be a distinct source of cyclical volatility sunspot equilibria may also explain why apparently small disturbances in fundamentals lead to large change in macroeconomic aggregates in this study we demonstrate the possibility of sunspot equilibria in an overlappinggenerations economy characterized by a plausible form of strategic complementarity as more agents enter as producers in any particular sector of the economy they create an incentive for agents to enter as producers into other sectors as well 2 the basis for this

monetary and financial interactions in the business cycle this paper develops a computable general equilibrium model in which endogenous agency costs can potentially alter business cycle dynamics the model resembles the influential theoretical work of ben bernanke and mark gertler 1989 two sources of shocks are considered productivity shocks and monetary shocks the model is parametrized to match key features of u s aggregate activity the principal result of the analysis is that agency costs add very little to the basic business cycle dynamics copyright 1995 by ohio state university press

the hump shaped behavior of inflation and a dynamic externality we propose a general equilibrium model that explains the empirical evidence of the hump shaped response of inflation to a monetary policy shock the model replaces backward looking indexation a la christiano et al 2005 nominal rigidities and the dynamic effect of a shock to monetary policy journal of political economy 113 1 1 45 with a dynamic externality into the production function of firms the model armed with sticky wages and variable capital utilization has two offsetting effects on real marginal cost over the business cycle first increasing factor prices raise real marginal cost in response to an expansionary monetary policy shock in the intermediate run second a dynamic externality reduces real marginal cost in the short run because it raises productivity in response to an increase in output following the shock overall the resulting short run decrease and intermediate run increase in marginal cost replicate the hump shaped behavior of inflation under purely forward looking price and wage phillips curves

the distribution of money balances and the nonneutrality of money recent monetary models with explicit microfoundations are made tractable by assuming that agents have access to centralized markets after one round of decentralized trade given quasi linear preferences this makes the distribution of money degenerate which keeps the models simple but precludes the discussion of distributional effects of monetary policy we generalize these models by assuming two rounds of trade before agents can readjust their money holdings to study a range of new distributional effects analytically we show that unexpected symmetric lump sum money injections may increase short run output and welfare whereas asymmetric injections may increase long run output and welfare

risk aversion learning spillovers and path dependent economic growth abstract each agent j 1 n receives an independent shock influencing her degree of risk aversion then undertakes a risky or safe investment prior investment in related industries reduces the uncertainty the shock history and this intertemporal interaction determine the long run growth rate

dynamic complementarities a quantitative analysis abstract this paper considers the importance of dynamic complementarities as an endogenous source of propagation in a dynamic stochastic economy dynamic complementarities link the stocks of human and organizational capital which are influenced by past levels of economic activity to current levels of productivity we supplement an otherwise standard dynamic business cycle model with both contemporaneous and dynamic complementarities the model is calibrated using estimates of these effects from both micro and aggregate data our quantitative analysis identifies empirically relevant dynamic complementarities as a source of propagation for both technology and taste shocks

complementarity growth and trade we consider an endogenous growth model with international trade in complemen tary capital goods the model possesses several distinct balanced growth solutions which we classify using stability under adaptive learning some of the equilibria can involve growth rates much higher than others we show that in addition to a small usually positive effect on a given equilibrium an expansion in trade may sometimes yield a much larger sudden jump in growth the small effect on the initial equilibrium may reduce growth if the oppor tunity cost of capital rises very fast as growth accelerates jel classification f12 f1 5 041 complementarit croissance et commerce international les auteurs utilisent un modele de croissance endogene en presence de commerce international de biens capitaux complemen taires le modele possede plusieurs solutions de croissance equilibree distinctes que les auteurs classifient en utilisant des mesures de stabilite avec apprentissage adaptatif certains de ces equilibres peuvent impliquer des taux de croissance plus eleves que d autres ii appert qu une expansion du commerce international en plus d avoir un petit effet habituellement positif sur un equilibre donne peut parfois engendrer une augmentation plus forte et sou daine de la croissance le petit effet sur l equilibre initial peut reduire la croissance si le couit d opportunite du capital augmente rapidement a proportion que la croissance accelere

search financial market frictions and monetary transmission this paper evaluates the implications of search and matching frictions in the financial market for the bank lending channel of monetary policy borrowers and lenders participate in a decentralized loan market for the purpose of establishing long term credit relationships and the provision of loanable funds to productive firms locating credit relationships is costly in terms of time and real resources and the interest rate is negotiated via a bargaining mechanism this structure is incorporated into an otherwise standard monetary business cycle framework and used to study how such frictions in the credit market contribute to explaining the contemporaneous impact and propagation of monetary growth shocks and inflation while anticipated inflation negatively impacts real activity it can also increase loan market participation and the inflow of newly established credit relationships it is shown that i bargaining and costly search mitigates the traditional inflation tax effect of monetary injections and ii the existence of long term lending relations tends to dampen liquidity effects monetary shocks in this environment lead to larger liquidity effects relative to the frictionless case and are capable of generating persistence in the nominal interest rate labor consumption and output it can also explain the excess volatility of credit creation relative to output and the observation that overall credit creation can lead output over the business cycle

business cycle models with endogenous technology this paper compares real and monetary business cycle models with and without endogenous technical change if technology is endogenous the properties of these models change significantly in particular both real and monetary models yield very similar output processes if growth is endogenous and changes in aggregate demand can result in permanent changes in productivity employment and output the effect of depreciation of technology is examined and the pattern of real wage movements over the cycle when money wages are fixed but technology is changing is briefly considered copyright 1990 by american economic association

exports investments and economic development of pre accession countries of the european union an empirical investigation of bulgaria and romania this paper attempts to analyse the relationship between exports investments and economic development in two pre accession countries of the european union bulgaria and romania for investigation of this relationship a multivariate autoregressive var model is used the results of cointegration analysis showed that there is one cointegrated vector among exports investments and economic growth for the two countries granger causality tests based on error correction models ecm indicated that there is a strong granger causal relation between economic growth and exports as well as between investments and exports for the two countries in addition economic development and capital accumulation in an economy seem to have just as much of an influence on exports as exports have on capital accumulation and economic development

external effects in u s procyclical productivity abstract in this paper we highlight a new dimension of the aggregate procyclical productivity phenomenon we show that estimates of the degree of returns to scale are larger for manufacturing as a whole than for two digit industries since this difference must be due to factors that are only internalized at the most aggregate level we term it an external effect this result rules out explanations based on own input variation such as true increasing returns and unmeasured factor utilization tied to own activity as the sole explanations for aggregate procyclical productivity we explore several potential explanations of this external effect

inward technology transfer and competitiveness the role of national innovation systems this paper examines the role of national innovation systems in the inward transfer of technology that has underpinned the transformation of japan and other east asian economies since 1945 the economies that have benefited most from inward technology transfer have national innovation systems that have strengthened their national absorptive capacity this capacity relies primarily on investments in scientific and technical training and on economic policies that enforce competition among domestic firms the particular channels for inward technology transfer the identity of any strategic industries targeted for public intervention and the overall level of a nation s trade restrictions are ail of secondary importance a central theme of global economic change during the postwar period has been the application in less developed countries of technologies developed within economically advanced regions this phenomenon underpinned the post 1945 transformation of japan and other east asian economies and influenced the reconstruction of western european economies after world war ii the application of externally developed technologies within latecomer economies is hardly unique to the postwar period however samuel slater s introduction of british textile manufacturing is but one example of inward technology transfer in the nineteenth century us economy and david 1992 traces the origins of patent monopolies to efforts by medieval european city states and nations to attract experts in industrial arts to practice their craft within these jurisdictions both international technology flows and government efforts to influence them for national competitive advantage thus have ample historical precedent several characteristics nevertheless distinguish the post 1945 era from earlier historical periods the influence of international technology transfer on national economic development has increased as the postwar development of such economies as taiwan and south korea has relied much less on natural resource endowments than nineteenth

indivisible labor lotteries and equilibrium abstract this paper considers an economy where labor is indivisible and agents are identical although the discontinuity in labor supply at the individual level disappears as a result of aggregation it is shown that indivisible labor has strong consequences for the aggregate bahavior of the economy it is also shown that optimal allocations involve lotteries over employment and consumption

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

the welfare costs of moderate inflations in the recent past the view that a little bit of inflation was good for the economy was widely held the phillips curve in its earlier incarnations implied that moderate inflation was worth tolerating because it would permit lower unemployment this justification for tolerating inflation has long since been abandoned by economists and policymakers because both theory and experience showed it to be false nevertheless one legacy of this era seems to be a fairly widespread tolerance for moderate inflation recently there has been much discussion of removing this inflationary bias by passing legislation that would require the federal reserve to target zero inflation in this paper we examine some of the consequences of achieving that goal we appraise the revenue and welfare costs of policies designed to reduce moderate inflation rates to zero much has been written about why government policies may have an inflationary bias in this paper we don t address the issue of what motivates governments to inflate implicit in our analysis however is the notion that one important motive for inflation is the revenue raising potential of the inflation tax it would be difficult to argue that the inflation tax constitutes an important revenue source for the united states one indirect and very imperfect measure of this would be contributions by the federal lleserve to the treasury in recent years those rebates have amounted to

choosing organizational modes of strategic technology partnering international and sectoral differences this paper focuses on international strategic technology partnerships and the choice that companies have in terms of the organizational mode either through complex inter organizational modes involving equity sharing or contractual non equity alliances the empirical results show that the choice of particular mode of cooperation varies with the technological characteristics of sectors of industry joint ventures are disproportionately represented in relatively mature industries contractual alliances dominate strategic technology partnering in so called high tech industries

indeterminacy and increasing returns abstract we investigate properties of the one sector growth model with increasing returns under two organizational structures capable of reconciling the existence of aggregate increasing returns with competitive behavior by firms the first involves input externalities the second involves monopolistic competition we show for parameters in close accord with recent literature on real business cycles that the model displays an indeterminate steady state that can be exploited to generate a model of business fluctuations driven by self fulfilling beliefs in our first class of models growth is generated by exogenous increases in factor productivity in the second class the marginal product of capital is large enough for endogenous growth journal of economic literature classification numbers e00 e3 o40

endogenous business cycle propagation and the persistence problem the role of labor market frictions contrasting sharply with a recent trend in dsge modeling we propose a business cycle model where frictions and shocks are chosen with parsimony the model emphasizes a few labor market frictions and shocks to monetary policy and technology the model estimated from u s quarterly postwar data accounts well for important differences in the serial correlation of the growth rates of aggregate quantities the size of aggregate fluctuations and key comovements including the correlation between hours and labor productivity despite its simplicity the model offers an answer to the persistence problem chari et al 2000 that does not rely on multiple frictions and adjustment lags or ad hoc backward looking components we conclude modern dsge models need not embed large batteries of frictions and shocks to account for the salient features of postwar business cycles

the federal funds market excess reserves and unconventional monetary policy abstract following the bankruptcy of lehman brothers interbank borrowing and lending dropped whereas reserve holdings of depository institutions skyrocketed as the fed injected liquidity into the u s banking sector this paper introduces bank liquidity risk and limited market participation into a real business cycle model with ex ante identical financial intermediaries and shows in an analytically tractable way how interbank trade and excess reserves emerge in general equilibrium investigating the role of the federal funds market and unconventional monetary policy for the propagation of aggregate real and financial shocks i find that federal funds market participation is irrelevant in response to standard supply and demand shocks whereas it matters for uncertainty shocks i e mean preserving spreads in the cross section of liquidity risk liquidity injections by the central bank can absorb the effects of financial shocks on the real economy although excess reserves might increase and federal funds might be crowded out as a side effect

the cross industry effects of unanticipated money in an equilibrium business cycle model abstract this paper examines the differential real effects of monetary policy across industries the purpose is to test whether these differential effects can be accounted for by an incomplete information rational expectations model of the business cycle in the lucas barro tradition such a model implies a positive relation across markets between the variability of market specific shocks and the reduced form output effect of a monetary shock this proposition is tested using industry level post war u s data and support is found the exploration also uncovers other interesting industry level and aggregate results

monetary policy regimes and beliefs this paper investigates the role of beliefs over monetary policy in propagating the effects of monetary policy shocks within the context of a dynamic stochastic general equilibrium model in this model monetary policy periodically switches between low and high money growth regimes when individuals cannot observe the regime directly they must draw inferences over regime type based on historical money growth rates the authors show that for an empirically plausible money growth process beliefs evolve slowly in the wake of a regime change as a result their model is able to capture some of the observed persistence of real and nominal variables following such a regime change

liquidity loanable funds and real activity abstract this paper develops a general equilibrium model of two traditional explanations of the monetary black box linking money and real activity the liquidity effect and the loanable funds effect these effects are modeled with a monetary production economy in which central bank injections of cash are funnelled into the economy through the credit market since only borrowers have direct access to the newly injected cash monetary injections cause nominal interest rates to fall if firms are borrowers then monetary injections also increase current and future real activity

supportability sustainability and subsidy free prices this article studies the relationships among the concepts of subsidy free prices anonymously equitable prices supportability and sustainability in particular we set out conditions under which these concepts are not vacuous several new sets of conditions under which a subsidy free price vector is sustainable are also presented for general nonseparable demands we establish the existence of an aumann shapley price vector that is anonymously equitable and sustainable

the effects of budget deficit on national saving in the oecd abstract in this paper we estimate a structural var using a panel of oecd countries which includes national saving and budget deficit both as the ratio to gdp to test the ricardian equivalence hypothesis in this framework we separate saving and deficit movements into two types of shocks associated with structural parameters of these economies our results suggest that ricardian equivalence did not work in our sample of oecd countries since private saving compensated only a small fraction budget deficit this supports the interpretation that the large budget deficits have been a very important factor behind the significant increase in real interest rates in the eighties and early nineties

partnerships in transition economies international strategic technology alliances in russia abstract this paper explores general patterns and particularities of international strategic technology alliances of western companies with russian companies and other organizations the objective of this paper is to examine whether alliances with russian companies follow the general pattern of international inter firm collaboration given the very different investment climate in russia in particular this paper focuses on a range of specific issues at the heart of debates in the current literature it considers the choice between equity and contractual forms of alliances this is followed by an examination of the particular organizational configuration of post socialist firms in that context it analyses alliances with new or older partner companies in different technological settings

the economics of organization the transaction cost approach the transaction cost approach to the study of economic organization regards the transaction as the basic unit of analysis and holds that an understanding of transaction cost economizing is central to the study of organizations applications of this approach require that transactions be dimensionalized and that alternative governance structures be described economizing is accomplished by assigning transactions to governance structures in a discriminating way the approach applies both to the determination of efficient boundaries as between firms and markets and to the organization of internal transactions including the design of employment relations the approach is compared and contrasted with selected parts of the organization theory literature

production growth and business cycles ii new directions abstract this paper outlines new directions for investigations of real business cycle models consideration of stochastic growth of exogenous and endogenous forms analysis of suboptimal outcomes arising due to externalities of distorting taxes and implications of labor market heterogeneity

the relation between price and marginal cost in u s industry an examination of data on output and labor input reveals that some u s industries have marginal cost well below price the conclusion rests on the finding that cyclical variations in labor input are small compared with variations in output in booms firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs the paper documents the disparity between price and marginal cost where marginal cost is estimated from annual variations in cost it considers a variety of explanations of the findings that are consistent with competition but none is found to be completely plausible

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

sticky price and limited participation models of money a comparison abstract we provide new evidence that models of the monetary transmission mechanism should be consistent with at least the following facts after a contractionary monetary policy shock the aggregate price level responds very little aggregate output falls interest rates initially rise real wages decline by a modest amount and profits fall we compare the ability of sticky price and limited participation models with frictionless labor markets to account for these facts the key failing of the sticky price model lies in its counterfactual implications for profits the limited participation model can account for all the above facts but only if one is willing to assume a high labor supply elasticity 2 percent and a high markup 40 percent the shortcomings of both models reflect the absence of labor market frictions such as wage contracts or factor hoarding which dampen movements in the marginal cost of production after a monetary policy shock 1997 elsevier science b v

armen alchian s contribution to macroeconomics i introduction this essay examines alchian s contribution to the theory and practice of macroeconomics we have the task of reviewing alchian s contributions in an area that represents only a tiny fraction of his body of work citations to his work on the theory of the firm greatly outnumber those on money and inflation nevertheless we find that many of the major developments in macroeconomics in the last two decades follow paths that were pointed out in the late 1950s and early 1960s by armen alchian much of it in collaboration with reuben kessel alchian s ideas about macroeconomics were developed in a fertile environment at ucla in conversations with colleagues such as karl brunner and jack hirshleifer as well as with graduate students such as allan meltzer and rachael and ted balbach a signature of alchian s work was his great ability to clarify the issues he was careful to distinguish the effects of money versus real shocks of anticipated versus unanticipated inflation and to work through the impact of an event to the general equilibrium consequences he understood that real world problems such as incomplete information might explain apparently noneconomic behavior but unlike many macroeconomists of that time he did not abandon microeconomic principles when explaining nominal real interactions alchian s views were a clear contrast to those of prominent macroeconomists of the day who argued that aggregate monetary policies could not be used to stabilize the price level at full employment because of asymmetric rigidities in markets that prevented the downward adjustment of any nominal price as part of the process of adjusting relative prices 1 the conventional wisdom of the day led to policies that ultimately caused two decades of accelerating and costly inflation both the rational expectations revolution and developments in modeling the microfoundations of business cycles were a reaction to this experience and to the apparent failure of standard macroeconomic analysis alchian s 1970 work on the effect of private information was one of the original articles in this microfoundation literature although he used a narrative approach rather than the highly structured mathematical models available to researchers today alchian was more than two decades ahead of the real business cycle economists in asking researchers to explore economic explanations fully before adopting explanations based on market failure money illusion and irrational behavior this paper is organized in four parts the first part describes alchian s work involving the fundamental role of money in society king and plosser 1986 93 wrote but in the explosion of formal modeling of monetary economies in the postwar period brunner and meltzer 1971 and alchian 1977 stand nearly alone in stressing the idea that monetary arrangements economize on the information production that would otherwise be necessary to mitigate problems of moral hazard in the exchange of commodities the second part discusses alchian and klein s work on the measurement of inflation this measurement problem appears to be more obvious when inflation is low and the variance of price indexes is dominated by real factors this work was generally neglected at the time it was written perhaps because inflation accelerated so rapidly that the real factors became less important now that inflation has declined to moderate levels the measurement problems are resurfacing the third part of the paper documents alchian s insight into the problems and intellectual developments that followed the erratic inflation policies of the u s government in the 1960s and 1970s in a 1962 journal of political economy article he and reuben kessel set forth a description of the events that occur as an economy shifts from one steady state inflation regime to another this work revealed an understanding of the importance of credibility for the policymaker that was missing from much of the writing about macro policymaking in the subsequent three decades

multiproduct monopoly a queueing approach using queuing theory to model traditional market structures can provide interesting insights into the underlying mechanisms many characteristics of markets are well known but queuing models often illustrate these in a novel manner a stochastic model of multiproduct monopoly with impatient consumers is developed the model explicitly allows for congestion effects a monopoly that offers two services distinguished only by a time element that is where two distinct service rates apply is considered two different classes of consumer are considered according to their waiting time tolerances given assumptions about dynamic consumer choice behaviour queuing theory techniques are used to derive market share and effective demand details for each class of consumer in terms of the firm s pricing quality and processing speed policy economic analysis is performed allowing for the possibility of offering a reward when the consumer has to face a long queue the economic summary provided forms the basis of a

evidence on macroeconomic complementarities this paper provides empirical evidence on macroeconomic complementarities a restriction on the nature of interaction between individuals in a multiagent setting these models imply that activities across agents will be positively correlated that discrete decisions will be synchronized and that disturbances will be magnified and propagated the paper shows that these implications are consistent with aggregate observations as well as some microeconomic evidence further looking at certain historical episodes such as the national industrial recovery act as well as seasonal fluctuations provides additional support for models with macroeconomic complementarities copyright 1996 by mit press

the relationship of industry evolution to patterns of technological linkages joint ventures and direct investment between u s and japan although economic activity between the u s and japan has skyrocketed in the last decade there are few large sample cross industry studies analyzing multiple forms of investment by the japanese in the u s this study analyzes the key characteristics of each stage of industry evolution and the costs and benefits of each form of resource investment to predict the patterns of technological linkages joint ventures and direct investment of japanese companies in the u s the results find support for a model predicting a predominance of technological linkages in emerging industries joint ventures in growing industries and direct investment in maturing industries technological linkages are most attractive in emerging industries as firms struggle to acquire technology information and expertise and share cost and risk yet retain flexibility joint ventures proliferate in growing industries because they offer a means of acquiring and expanding customer bases yet reducing vulnerability in maturing industries where firms key competencies are more developed direct investment allows the company to generate demand in new markets without the disadvantage of joint governance

oil price shocks and employment the case of ohio coal mining economic theory suggests that oil price shocks will have an impact on employment in local coal markets however theory is silent on both the absolute and relative magnitudes based on vector autoregressive models we find that oil price shocks and therefore opec policies have significant impacts on ohio coal mining employment our study indicates that oil price shocks have larger impacts on ohio coal mining employment than do shocks to coal prices or coal wages our study is unusual in that we have examined the impact of oil price shocks on employment in a specific industry

anticipated inflation and the capital stock in a cash in advance economy abstract an economy is constructed in which the steady state capital stock is inversely related to the rate of inflation as a result that is directly opposite the usual conclusion

demand and supply shocks in italy an application to industrial output abstract we investigate the impact of three different kinds of disturbances on industrial output in italy they originate respectively in aggregate demand technology and the labour supply we first illustrate the theoretical restrictions which permit identification of the three shocks then econometric identification is achieved by extending the blanchard and quah 1989 the american economic review 79 pp 655 673 procedure to a multivariate case our main conclusion is that output variability is significantly affected by technological shocks at all frequencies labour supply disturbances are also relevant while demand shocks have a minor impact on the series although they act in the expected direction therefore the short run behaviour of industrial production is largely explained by supply side shocks

on measuring the welfare cost of business cycles lucas 1987 argues that the gain from eliminating aggregate fluctuations is trivial following lucas a number of researchers have altered assumptions on preferences and found that the gain from eliminating business cycles are potentially very large however in these exercises little discipline is placed on preference parameters this paper estimates the welfare cost of business cycles allowing for potential time non separabilities in preferences where discipline is placed on the choice of preference parameters by requiring that the preferences be consistent with observed fluctuations in a model of business cycles that is a theoretical real business cycle world is constructed and the representative agent is then placed in this world the agent responds optimally to exogenous shocks given the frictions in the economy the agent s preference parameters along with other structural parameters are estimated using a bayesian procedure involving markov chain monte carlo methods two main results emerge from the paper first the form for the time non separability estimated in this paper is very different than the forms suggested and used elsewhere in the literature second the welfare cost of business cycles is close to lucas s estimate

scale economies and existence of sustainable monopoly prices abstract the size of the firm relative to market demand is crucial to a determination of whether there exist sustainable monopoly prices in the one product case the size of the firm is its minimum efficient scale in the multiproduct case size is defined by a set of outputs at which cost complementarities are present the analysis shows that when the size of the firm is sufficiently large there exist anonymously equitable aumann shapley prices further at these prices natural monopoly is sustainable against rival entry the aumann shapley price are also shown to be quantity sustainable in the sense of brock and scheinkman

is rising rts a figment of poor data abstract while using detailed firm level data from the private business sector this study identifies two empirical puzzles i returns to scale rts parameter estimates rise at higher levels of data aggregation and ii estimates from the firm level suggest decreasing returns to scale the analysis shows that although consistent with rising estimates neither entry exit nor the basu fernald returns to scale in u s production estimates and implications journal of political economy 105 249 283 aggregation bias effect drives this result rather rising and too low rts estimates seem to reflect a mixture of random errors in factor inputs at the firm level it turns out in fact that a 7 5 10 percent error in labor hours worked can explain both puzzles

the determination of marginal cost prices under a set of axioms the main purpose of this paper is to provide an axiomatic approach to marginal cost mc pricing and to point out its similarity with aumann shapley a s pricing the latter is a cost sharing price mechanism discussed in 3 and 6 that is derived from a set of five natural axioms in this paper we consider models in which there is one producer with a given technology who faces fixed input prices and produces a finite number of consumption goods thus we can uniquely derive the cost function that describes the minimal cost of producing a given vector of consumption goods by a price mechanism p we mean a rule or a function that associates with each cost function f and vector a of quantities a vector of prices

what do residuals from first order conditions reveal about dge models the first order condition foc associated with labour in many dynamic general equilibrium models involves only current period variables residuals constructed from this foc are inconsistent with aggregate us data in that they are very large and highly persistent the persistence suggests that models which introduce dynamic terms in the labour foc may be more consistent with the data three such models one with learning by doing one with habit formation and one with labour adjustment costs confirm that they can reduce the persistence in the residuals making the models more consistent with the joint dynamics of consumption output and hours

the theory and measure of cross subsidies an application to the telecommunications industry abstract the paper is made of two sections the first one dealing with cross subsidies in general and the second one referring specifically to the telecommunications industry in the first section we attempt to clarify the relationship between the theoretical approach to cross subsidies as it derives on the one hand from faulhaber s seminal definition and the corpus of cooperative game theory and from the accounting approach on the other hand which consists in computing revenue trade offs across types of products or types of customers we emphasize the conditions under which a revenue trade off signals a cross subsidy in faulhaber s sense we finally show how revenue trade offs across consumers during a price transition are first order approximations of welfare variations in the second section telecommunications are chosen as an application case we first show that most of the issues presently at stake in this industry can helpfully be analysed in terms of cross subsidies we then examine the principles and methods which are utilized for costing and pricing by telecommunications companies in canada and the united states finally we present the results of a study assessing the revenue trade offs across categories of services and across customer segments in the french telecommunications market

production inflexibilities and the cost channel of monetary policy this article shows how the existence of production inflexibilities in the form of capacity utilization constraints conditions the magnitude of the response of macroeconomic variables to a money supply stimulus capacity is modeled under explicit microfoundations where the existence of idiosyncratic demand uncertainty generates variable utilization rates across firms in this context money has real effects due to non fisherian effects stemming from limitations in households access to the financial market firms capacity constraints generate a convex aggregate supply curve which is a feature of the economy that has important implications for the conduct of monetary policy

learning by doing and aggregate fluctuations abstract an unresolved issue in business cycle theory is the endogenous propagation of shocks yielding allocations that exhibit the persistence displayed in the data this paper explores the quantitative implications of one propagation mechanism learning by doing whose parameters are estimated using sectoral and plant level observations in the u s which are then integrated into a stochastic growth model with technology shocks we conclude that learning by doing can be a powerful mechanism for generating endogenous persistence moreover learning by doing implies that the employment decision of the representative agent is dynamic which allows a re interpretation of taste shocks or cyclical labor utilization as endogenous labor supply shifts

multiple expectational equilibria under monopolistic competition this paper shows that a monopolistically competitive economy with real investment can have multiple rational expectations equilibria one is associated with entrepreneurs optimistic expectations about future demand another with entrepreneurs pessimism it also shows that an optimistic expectational equilibrium pareto dominates a pessimistic equilibrium an investment subsidy can be beneficial both by reducing the original underinvestment distortion and by changing firms expectations from pessimistic to optimistic the most important assumption is increasing returns to scale and monopolistic competition makes increasing returns consistent with each producer s optimization

regional and sectoral evidence of the macroeconomic effects of labor reallocation a panel data analysis this paper revisits the sectoral shifts hypothesis by examining unemployment fluctuations for 48 u s states over the period 1990 01 2011 12 we develop a panel approach that incorporates dynamics parameter heterogeneity aggregate factors and cross sectional dependence our findings provide support for a positive and significant effect of the employment dispersion index on unemployment this outcome is robust under alternative specifications and measures of employment dispersion the empirical evidence corroborates the presence and relevance of cross sectional dependence and heterogeneity among states the results show that once unobserved common factors and cross state heterogeneity are taken into account labor reallocation has a significant effect on unemployment that is half the size of the estimate when cross sectional dependence is not taken into account

the effects of macroeconomic shocks on sector specific returns the reliance on market and sector specific indexes to evaluate managed portfolios and the popularity of index investing has increased the importance of understanding what leads to market movements how long they may last and how different sectors respond to macroeconomic shocks this research is concerned with how shocks to macroeconomic variables affect five major s p sector specific stock market indexes the paper employs the newly developed econometric technique of generalized impulse response analysis the results identify the various responses of the sectors to unanticipated changes in some key macroeconomic variables asset prices are commonly believed to react sensitively to economic news daily experience seems to support the view that individual asset prices are influenced by a wide variety of unanticipated events and that some events have a more pervasive effect on asset prices than do others chen et al 1986 p 386

common currencies vs monetary independence we study the optimal monetary policy in a two country open economy model under two monetary arrangements a multiple currencies controlled by independent policy makers b common currencies with a centralized policy maker our findings suggest that i monetary policy competition leads to higher long term inflation and interest rates with large welfare losses ii the inflation bias and the consequent losses are larger when countries are unable to commit to future policies iii the welfare losses from higher long term inflation dominates the welfare costs of losing the ability to react optimally to shocks

ramsey prices average cost prices and price sustainability abstract we study the relationship between sustainable and average cost prices in the multiproduct case it is shown that for the case where costs are separable only average cost prices can be sustainable even if demands are interdependent as for the non separable cost case the notion of average cost prices is axiomatically defined as an extension of the average cost concept of the single product case we then use this extension to derive necessary as well as sufficient conditions for the extended average cost prices to be sustainable

liquidity and real activity in a simple open economy model abstract this paper analyzes the ability of an open economy version of lucas s 1990 liquidity model to account for properties of international data the focus is on the model s ability to account for exchange rate dynamics and measured effects of monetary policy shocks on exchange rates interest rates and real activities across countries the model generates a prediction that a positive domestic monetary innovation is associated with nominal and real currency depreciations however the model s predictions with respect to nominal and real exchange rate volatilities are low

real business cycles and the animal spirits hypothesis abstract we calibrate a quantitative equilibrium macroeconomic model with an aggregate technology that is subject to increasing returns and show that this model may display fluctuations at business cycle frequencies even when there are no shocks to the fundamentals of the economy these fluctuations are due to the self fulfilling beliefs of investors which we call animal spirits we compare the impulse response functions predicted by our model and by two other more standard models with a four variable vector autoregression on u s data our animal spirits economy is the most successful of the three at matching broad features of the dynamic responses in the data journal of economic literature classification numbers e00 e3 e32

monetary policy in a financial crisis what are the economic effects of an interest rate cut when an economy is in the midst of a financial crisis under what conditions will a cut stimulate output and employment and raise welfare under what conditions will a cut have the opposite effects we answer these questions in a general class of open economy models where a financial crisis is modeled as a time when collateral constraints are suddenly binding we find that when there are frictions in adjusting the level of output in the traded good sector and in adjusting the rate at which that output can be used in other parts of the economy then a cut in the interest rate is most likely to result in a welfare reducing fall in output and employment when these frictions are absent a cut in the interest rate improves asset positions and promotes a welfare increasing economic expansion