bipolarity multipolarity and free trade recent literature typically attributes the relative scarcity of open international markets to the prisoner s dilemma structure of state preferences with respect to trade i argue that the prisoner s dilemma representation does not reflect the most critical aspect of free trade agreements in an anarchic international system security externalities explicit consideration of these effects suggests that a bipolar international political system has an advantage relative to its multipolar counterpart with respect to the opening of markets among states less credible exit threats and stronger incentives to engage in altruism within its alliances explain the advantage of a two power system the real income gains that motivate free trade are also the source of the security externalities that impede it their ability to internalize these effects makes military alliances the natural basis of agreements to open international markets the evolutionary prospects of alliances vary however ones that are the products of bipolar systems are more likely to evolve into free trade coalitions than are their multipolar counterparts i argue that less credible exit threats and stronger incentives to engage in alliance altruism explain the advantage of a two power system several important limits of the argument should be made clear immediately i argue at the systemic level i attempt to isolate the political and economic incentives for free trade that occur at the level of the international system i do not therefore consider the impact of unitlevel factors on the pursuit of these incentives for example neither the role of special interest groups nor the organization of domestic exchange via hierarchies instead of markets is considered doyle 1986 frieden 1988 ruggie 1982 the conditions i assume are those of standard international trade theory ethier 1983 and illustrative rather than systematic empirical referents are used these restrictions are appropriate given my purpose to demonstrate analytically the advantage of a bipolar international political system with respect to free trade

multiple solution indeterminacies in monetary policy analysis abstract a sizeable fraction of recent research on monetary policy has been concerned with issues relating to analytical indeterminacies i e multiple solutions in rational expectations re models most of the literature features sophisticated re analysis conducted within dynamic models that reflect optimizing behavior by individual agents and incorporate taylor style policy rules a few papers have suggested that some of the particular indeterminacy arguments are misleading or irrelevant for the most part however there has been little dissent from the position that these indeterminacies present a genuine problem for monetary policy makers the purpose of the present paper by contrast is to argue that conclusions based on multiple solution indeterminacy findings are of dubious merit rather generally

learnability and equilibrium selection under indeterminacy abstract this paper presents an equilibrium selection procedure for linear rational expectations models under equilibrium indeterminacy in the procedure a specific equilibrium is chosen such that the perceived law of motion for agents with adaptive learning rules converges to the particular solution the procedure is applicable only under empirically implausible parameter settings if the agents perceive fundamental shock processes completely however if they misperceive the fundamental shocks in some degree the procedure works under plausible parameters it is also demonstrated that the selected particular solution exhibits different dynamics from that under the assumption often made in the literature

ppp exchange rate rules macroeconomic in stability and learning in order to maintain competitiveness governments in developing economies seem to have pursued purchasing power parity ppp exchange rate rules by adjusting the nominal devaluation rate in response to real exchange rate deviations from an intermediate target this article shows that these rules are likely to induce macroeconomic instability as they generate sunspot driven fluctuations that are in fact learnable by agents in the expectational stability sense it finds that the existence of these learnable sunspots depends among others on open economy features including the degree of openness and the degree of exchange rate pass through to consumer s import prices

dynamic predictor selection in a new keynesian model with heterogeneous expectations abstract this paper introduces dynamic predictor selection into a new keynesian model with heterogeneous expectations and examines its implications for monetary policy we extend branch and mcgough 2009 by incorporating endogenous time varying predictor proportions along the lines of brock and hommes 1997 we find that periodic orbits and complex dynamics may arise even if the model under rational expectations has a unique stationary solution the qualitative nature of the non linear dynamics turns on the interaction between hawkishness of the government s policy and the extrapolative behavior of non rational agents

optimal constrained interest rate rules we show that if policymakers compute the optimal unconstrained interest rate rule within a taylor type class they may be led to rules that generate indeterminacy and or instability under learning this problem is compounded by uncertainty about structural parameters since an optimal rule that is determinate and stable under learning for one calibration may be indeterminate or unstable under learning under a different calibration we advocate a procedure in which policymakers restrict attention to rules constrained to lie in the determinate learnable region for all plausible calibrations and that minimize the expected loss computed using structural parameter priors subject to this constraint

chaotic interest rate rules a growing empirical and theoretical literature argues in favor of specifying monetary policy in the form of taylor type interest rate feedback rules that is rules whereby the nominal interest rate is set as an increasing function of inflation with a slope greater than one around an intended inflation target this paper shows that such rules can easily lead to chaotic dynamics the result is obtained for feedback rules that depend on contemporaneous or expected future inflation the existence of chaotic dynamics is established analytically and numerically in the context of calibrated economies the battery of fiscal policies that has recently been advocated for avoiding global indeterminacy induced by taylor type interest rate rules such as liquidity traps are shown to be unlikely to provide a remedy for the complex dynamics characterized in this paper

performance of monetary policy with internal central bank forecasting abstract recent models of monetary policy have analyzed the desirability of different optimal and ad hoc interest rules under the restrictive assumption that forecasts of the private sector and the central bank are homogeneous this paper studies the implications of heterogeneity in forecasting by the central bank and private agents for the performance of interest rules in a framework of econometric learning

impacts of instrumental versus relational centered logic on cause related marketing decision making the purpose of cause related marketing is to capitalise on a firm s social engagement initiatives to achieve a positive return on a firm s social investment this article discusses two strategic perspectives of cause related marketing and their impact on a firm s decision making regarding campaign development the instrumental dominant logic of cause related marketing focuses on attracting customers attention in order to generate sales the relational dominant logic of cause related marketing focuses on building relationships with the target stakeholders through the enhancement of a firm s legitimacy the combination of these two types of logic gives rise to four types of cause related marketing altruistic commercial social and integrative this paper uses the qualitative method to explore a firm s marketing decision choices regarding campaign related decision dimensions campaign duration geographical scope cause selection and implementation strategy for each type of cause related marketing the finding provides theoretical managerial and public policy implications

learning convergence and stability with multiple rational expectations equilibria abstract for a linear model with multiple rational expectations equilibria ree we discuss the set of possible ree solutions include i locally unique minimal state variable solutions taking an ar 1 form and ii continua of solutions which may depend on sunspots we analyze the convergence of econometric learning to the different ree there exist cases with more than one stable ar 1 solution it is also possible for a continuum of solutions to be stable but this property is not robust to overparametrization an application is developed and it is suggested that the exhibited phenomena may arise in applied macroeconomic models

power politics and international trade r recent literature attributes the relative scarcity of open international markets to the prisoner s dilemma structure of state preferences with respect to trade we argue that the prisoner s dilemma representation does not reflect the most critical aspect of free trade agreements in an anarchic international system namely their security externalities we consider these external effects explicitly doing so leads us to two conclusions 1 free trade is more likely within rather than across political military alliances and 2 alliances are more likely to evolve into free trade coalitions if they are embedded in bipolar systems than in multipolar systems using data drawn from an 80 year period beginning in 1905 we test these hypotheses the results of the analysis make it clear that alliances do have a direct statistically significant and large impact on bilateral trade flows and that this relationship is stronger in bipolar rather than in multipolar systems in the early 1970s students of international relations began what would become a long and heated debate about the political correlates of open international markets recently however an important element of consensus has begun to emerge most contributors to this debate now seem to agree that the prisoner s dilemma structure of state preferences with respect to trade explains the relative dearth of open international markets here we argue that what has become the standard prisoner s dilemma representation neglects the most critical aspect of free trade agreements in the anarchic international system namely their security externalities we consider these external effects explicitly in order to do so we construct and analyze a simple game theoretic model the results of this analysis demonstrate that tariff games between allies differ systematically from those played between actual or potential adversaries these differences imply that free trade is more likely within rather than across political military alliances however our analysis also suggests that the evolutionary prospects of alliances vary those that are the products of bipolar systems are more likely to evolve into free trade coalitions than are their multipolar counterparts less credible exit threats and clearer responsibilities for alliance stability explain the advantage of a bipolar system we test this argument using data drawn from an 80 year period beginning in 1905 the empirical analysis supports our argument it demonstrates that alliances have a direct statistically significant and large effect upon bilateral trade moreover it shows that on average alliances have a much stronger effect on trade in a bipolar than in a multipolar world 2

the second face of hegemony britain s repeal of the corn laws and the american walker tariff of 1846 one challenge facing hegemonic stability theory is to specify the processes by which hegemonic countries construct and maintain a liberal international economic order earlier studies have focused on direct coercion or ideological manipulation by the hegemon as a principal technique for manipulating the trade policies of other countries this article explores a different face of hegemony specifically we contend that by altering relative prices through the exercise of their international market power hegemonic leaders influence the trade policy preferences of their foreign trading partners we examine this argument in the case of the american walker tariff of 1846 american tariff liberalization was intimately related to britain s repeal of its corn laws in the antebellum united states northern protectionist and southern free trade proclivities were fixed western grain growers held the balance of power by allowing access to its lucrative grain market britain altered the economic and political incentives of western agriculturalists and facilitated the emergence of the free trade coalition essential to the passage of the walker tariff

the fragility of sunspots and bubbles abstract expectational stability e stability is used to examine the multiplicity of solutions in a range of rational expectations models of interest including muth s inventory model and an overlapping generations model in these model it is found that sunspot and other rational bubble solutions are either e unstable or weakly but not strongly e stable

hegemonic stability theory and 19th century tariff levels in europe although the theory of hegemonic stability has attracted an impressive array of adherents current formulations leave many conceptual issues unresolved existing formulations also fail to draw from the theory any implications concerning the process by which a hegemonic state creates and maintains a regime as an example great britain is generally agreed to have been hegemonic in the nineteenth century but britain s behavior was generally inconsistent with that implied by a theory of hegemonic stability i advance an alternative set of explanations for changes in international tariff levels based on the notion of a political business cycle

the gatt in historical perspective the transformation of the general agreement on tariffs and trade gatt into the world trade organization wto on january 1 1995 provides an opportune moment to take stock of the gatt s achievements and shortcomings alongside those of its 50 year old sister international institutions set up at bretton woods it is temptingly easy to attribute the astounding postwar economic expansion particularly when set against the turbulent interwar period when multilateral efforts to contain protectionist pressures failed miserably to the economic policies embodied in the gatt and to the initial stability provided by the bretton woods institutions yet a closer look at precisely what the gatt accomplished in its first decade suggests that trade liberalization under its auspices alone is far from sufficient to explain the postwar economic boom

how well have social economy financial institutions performed during the crisis period exploring financial and social efficiency in spanish credit unions as social economy financial institutions credit unions have traditionally been considered less efficient than traditional banking entities however like banks and savings banks they have to be as efficient and competitive as possible to survive in today s business environment especially at times of crisis to date there have been very few studies on their efficiency and practically none for the crisis period moreover almost all the existing studies assess only financial efficiency without considering their social function this study examines the levels of both financial and social efficiency in spanish credit unions as well as their main determinants during the recent crisis we apply the two stage double bootstrap data envelopment analysis dea methodology based on panel data corresponding to all the credit unions active in spain between 2008 and 2013 the empirical results indicate that financial and social efficiency achieved an acceptable level although on average the former was slightly greater than the latter we also find that both age and merger and acquisition activity were positively influential on the financial efficiency of credit unions but had a significant negative effect on their social efficiency moreover the regional location of such entities and the financial crisis were also crucial determinants of both types of efficiency our findings are therefore useful for all the stakeholders of credit unions to know if these entities have been efficient according to a double bottom line accounting in the crisis period and hence to maintain successful social management that is compatible with satisfactory financial efficiency

expectations and the stability problem for optimal monetary policies eine auf den fundamentaldaten beruhende regelbindung der geldpolitik ohne selbstverpflichtung die bei vollkommen rationalen erwartungen der privaten akteure optimal ware ist instabil wenn diese akteure de facto den ublichen regeln des adaptiven lernens folgen dieses problem lasst sich dadurch beheben dass die erwartungen privater akteure berucksichtigt und in geeigneter weise in die optimale geldpolitik einbezogen werden diese eindeutige schlusfolgerung gilt auch dann wenn sich der geldpolitische entscheidungstrager und die privaten akteure in einem simultanen lernprozess befinden unsere ergebnisse zeigen wie wichtig es ist die geldpolitik angemessen zu gestalten und dabei nicht nur die fundamentaldaten sondern auch direkt die beobachteten erwartungen privater haushalte und unternehmen zu berucksichtigen

investment interest rate policy and equilibrium stability abstract carlstrom and fuerst 2005 investment and interest rate policy a discrete time analysis journal of economic theory 123 4 20 show that in the presence of investment activity and price stickiness indeterminacy of equilibrium is induced by forward looking monetary policy that sets the interest rate in response only to future inflation in a stochastic version of their model we find that this indeterminacy problem is due to a cost channel of monetary policy whereby inflation expectations become self fulfilling and the problem can be overcome once the forward looking policy responds also to current output or contains sufficiently strong interest rate smoothing since this prevents the self fulfilling expectations we also show that when e stability is adopted as the selection criterion from multiple equilibria even the forward looking policy generates a locally unique non explosive e stable fundamental rational expectations equilibrium as long as the policy response to expected future inflation is sufficiently strong

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

the value of interest rate stabilization policies when agents are learning we examine the expectational stability e stability of rational expectations equilibrium under optimal interest rate rules in the context of the standard new keynesian model of the monetary transmission mechanism we focus on the case where the monetary authority adds interest rate stabilization to its other objectives of inflation and output stabilization we consider both the case where the monetary authority lacks a commitment technology and as well as the case of full commitment we show that for both cases optimal interest rate rules yield rational expectations equilibria that are e stable for a wide range of empirically plausible parameter values this finding stands in contrast to the findings of evans and honkapohja 2002 2003ab for optimal monetary policy rules in environments where interest rate stabilization is not part of the central bank s objective function

performance of inflation targeting based on constant interest rate projections monetary policy is sometimes formulated in terms of a target level of inflation a fixed time horizon and a constant interest rate that is anticipated to achieve the target at the specified horizon these requirements lead to constant interest rate cir instrument rules using the standard new keynesian model it is shown that some forms of cir policy lead to both indeterminacy of equilibria and instability under adaptive learning however some other forms of cir policy perform better we also examine the properties of the different policy rules in the presence of inertial demand and price behaviour

worldwide macroeconomic stability and monetary policy rules we study the interaction of multiple large economies in dynamic stochastic general equilibrium each economy has a monetary policymaker that attempts to control the economy through the use of a linear nominal interest rate feedback rule we show how the determinacy of worldwide equilibrium depends on the joint behavior of policymakers worldwide we also show how indeterminacy exposes all economies to endogenous volatility even ones where monetary policy may be judged appropriate from a closed economy perspective we construct and discuss two quantitative cases in the 1970s worldwide equilibrium was characterized by a two dimensional indeterminacy despite u s adherence to a version of the taylor principle in the last 15 years worldwide equilibrium was still characterized by a one dimensional indeterminacy leaving all economies exposed to endogenous volatility our analysis provides a rationale for a type of international policy coordination and the gains to coordination in the sense of avoiding indeterminacy may be large

the free trade epidemic of the 1860s and other outbreaks of economic discrimination why was there an abrupt increase in economic openness in europe in the 1860s this increase may have been the result of a contagion process in which the cobden chevalier treaty between britain and france threatened to displace third party exports to fra nce with british exports as a result most european states signed similar treaties with france which had further ripple effects this article outlines a formal model of this process based on the assumption that an agreement between two states incre ases the desirability of similar treaties to third parties propositions regarding the rate and pattern of spread of treaties are derived from this model this article then discusses the insights these propositions may offer into the rise and fall of the most favored nation network of treaties between 1860 and 1929 at a theoretical level the model aims to link the microlevel processes underlying state preferences to system level phenomena at a substantive level this analysis offers insight into the current explosion of regionalism

the rational design of international institutions international institutions are central features of modern international relations this is true of trade international debt and financial restructuring and even national security once the exclusive realm of pure state action it was certainly true of the two major military engagements of the 1990s the wars in kosovo and the persian gulf as international institutions have gained prominence in the political landscape they have increasingly become prominent topics for study the sharpest debate among researchers has been theoretical do international institutions really matter missing from this debate is a sustained inquiry into how these institutions actually work we shift the focus by posing researchable questions about how they operate and how they relate to the problems states face we begin with a simple observation major institutions are organized in radically different ways some are global essentially open to all states others are regional with restricted memberships some institutions give each state an equal vote whereas others have weighted voting and sometimes require supermajorities institutions may have relatively strong central authorities and significant operating responsibilities or be little more than forums for consultation some arrangements for example most bilateral treaties have no formal organizational structure these are plentiful because states have a striking tendency to codify their relationships in formal legal arrangements why do these differences exist do they really matter both for members and for international politics more generally do they affect what the institutions themselves can do we focus on these large questions of institutional design

the quest for prosperity without inflation abstract in recent years activist monetary policy rules responding to inflation and the level of economic activity have been advanced as a means of achieving effective output stabilization without inflation advocates of such policies suggest that their flexibility may yield substantial stabilization benefits while avoiding the excesses of overzealous discretionary fine tuning such as is thought to characterize the experience of the 1960s and 1970s in this study i present evidence suggesting that these conclusions are misguided using an estimated model i show that when informational limitations are properly accounted for activist policies would not have averted the great inflation but instead would have resulted in worse macroeconomic performance than the actual historical experience the problem can be attributed in large part to the counterproductive reliance of these policies on the output gap the analysis suggests that the dismal economic outcomes of the great inflation may have resulted from an unfortunate pursuit of activist policies in the face of bad measurement specifically overoptimistic assessments of the output gap associated with the productivity slowdown of the late 1960s and early 1970s

adjustment costs learning and indeterminacy abstract i compare the adjustment cost and learning approaches to resolving indeterminacy of perfect foresight equilibrium in a continuous time model with local indeterminacy rapid learning tends to select different perfect foresight equilibria of the original model than does the inclusion of vanishing adjustment costs this difference has implications for the dynamic response of the economy to unanticipated shocks

learning about monetary policy rules abstract we study macroeconomic systems with forward looking private sector agents and a monetary authority that is trying to control the economy through the use of a linear policy feedback rule we use stability under recursive learning a la evans and honkapohja learning and expectations in macroeconomics princeton university press princeton new jersey 2001 as a criterion for evaluating monetary policy rules in this context we find that considering learning can alter the evaluation of alternative policy rules

chain gangs and passed bucks predicting alliance patterns in multipolarity contemporary balance of power theory has become too parsimonious to yield determinate predictions about state alliance strategies in multipolarity kenneth waltz s theory predicts only that multipolarity predisposes states to either of two opposite errors which this article characterizes as chain ganging and buck passing to predict which of these two policies will prevail it is necessary to complicate waltz s theory by adding a variable from robert jervis s theory of the security dilemma the variable of whether offense or defense is perceived to have the advantage at least under the checkerboard geographical conditions in europe before world wars i and ii perceived offensive advantage bred unconditional alliances whereas perceived defensive advantage bred free riding on the balancing efforts of others

international law and domestic institutions reconciling north american unfair trade laws while scholars have written much about the role played by international institutions in cooperative behavior among nations they have not examined the domestic political motives that may lie behind nations decisions to join such organizations two level games analysis provides a framework for studying domestic politics not as a constraint upon nations that enter into international agreements but as a catalyst for nations to enter into agreements the dispute settlement procedures of the north american free trade agreement and its predecessor the canada u s free trade agreement offer an empirical illustration of this point

interests power and multilateralism multilateralism characterizes to varying degrees patterns of interaction among states and the formal organizations they construct the utility of multilateral norms or organizations varies with the type of cooperation problem states confront thus the functional logic of international cooperation leads to hypotheses about the conditions under which the institution of multilateralism may be a feasible and efficient solution as in coordination problems and those under which it will not as in collaboration problems within these constraints powerful states choose institutions that will serve their interests with multilateral arrangements becoming more attractive as the future is valued more highly multilateral institutions should be stable in circumstances of changing distributions of power relative to more hierarchical institutions the vulnerability of patterns of international cooperation to various exogenous changes depends on the type of strategic interaction underlying state behavior

inflation forecasts and monetary policy proposals for inflation targeting as a strategy for monetary policy leave open the important operational question of how to determine whether current policies are consistent with the long run inflation target an interesting possibility is that the central bank might target current private sector forecasts of inflation either those made explicitly by professional forecasters or those implicit in asset prices we address the issue of existence and uniqueness of rational expectations equilibria when the central bank uses private sector forecasts as a guide to policy actions in a dynamic model which incorporates both sluggish price adjustment and shocks to aggregate demand and aggregate supply we show that strict targeting of inflation forecasts is typically inconsistent with the existence of rational expectations equilibrium and that policies approximating strict inflation forecast targeting are likely to have undesirable properties we also show that economies with more general forecast based policy rules are particularly susceptible to indeterminacy of rational expectations equilibria we conclude that although private sector forecasts may contain information useful to the central bank ultimately the monetary authorities must rely on an explicit structural model of the economy to guide their policy decisions this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

inflation determination with taylor rules is new keynesian analysis critically flawed abstract cochrane 2007 has strongly questioned the basic economic logic of current monetary policy analysis arguing that new keynesian nk models imply rational expectations paths with explosive inflation that do not imply explosions in real variables relevant for transversality conditions consequently the usual logic does not rule out solutions with explosive inflation that result does not however justify negative conclusions about nk analysis for a different criterion is logically satisfactory it is that to be plausible a re solution must satisfy the property of least squares learnability adoption of this criterion serves to justify in principle the bulk of current mainstream analysis

the international organization of third world debt third world debt grew very rapidly in the 1970s many states faced with sharply higher costs for energy and manufactured imports borrowed aggressively in unregulated offshore capital markets but what constrains sovereign states to repay this debt to commercial banks creditors do not turn to their home states to enforce payment rather the supervision of sovereign debt is largely a function of commercial banking arrangements especially lenders syndicates and the international monetary fund s conditional lending this political structure which involves unified private sanctions has ensured that no state defaults unless it is insolvent or is willing to accept a radical rupture in its international commercial relationships when the problem is insolvency creditors routinely convene ad hoc conferences in conjunction with an imfapproved stabilization program creditors can renegotiate debt service schedules and provide new financing if necessary these arrangements are distinctive among international economic regimes because they rely on nonstate actors as the primary source of rules norms and procedures

the institutional foundations of hegemony explaining the reciprocal trade agreements act of 1934 in 1930 congress approved the highly restrictive smoot hawley tariff the textbook case of pressure group politics run amok four years later congress passed the reciprocal trade agreements act rtaa surrendering much of its tariff making authority to a policy process in which internationalists had increasing influence while the united states had used reciprocity to expand exports before the stick of discriminatory treatment took precedence over the carrot of liberalizing concessions with the transfer of tariff making authority to the executive the united states could make credible commitments and thus exploit its market power to liberalize international trade despite later modifications the rtaa set the fundamental institutional framework for trade politics

learning in a misspecified multivariate self referential linear stochastic model this paper introduces a general method to study stability under learning of equilibria resulting from agents with misspeci ed perceptions of the law of motion of the economy this is done by transforming the actual and perceived laws of motion into the form of seemingly unrelated regressions and then linearly projecting the actual law of motion into the same class as the perceived law of motion i study the new keynesian is lm model with inertia under all possible classes of restricted perceptions it turns out that the results found in bullard and mitra 2002 2003 are robust under misspeci ed expectations

social enterprises and the performance advantages of a vincentian marketing orientation this study focuses on the managerial issue of should social enterprises ses become more marketing oriented it adapts the kohli et al j mark res 30 467 477 1993 markor marketing orientation scale to measure the adoption of marketing by ses the items capture vincentian based values to leverage business in service to the poor as a measure of a vincentian marketing orientation vmo a vmo is an organisational wide value driven philosophy of management that focuses a se on meeting its objectives by adopting a more marketing orientated approach to serve the needy and poor in a just and sustainable manner ses that exhibit a vmo seek to understand and respond to both the needs of their beneficiaries and stakeholders they are constantly generating disseminating and responding to environmental beneficiary and stakeholder information and develop their business propositions to more effectively and efficiently meet the needs of the poor while guided by a philosophy of leveraging business for social good this study of ses in australia found that a vmo is strongly and positively correlated with social economic and environmental performance these findings suggest that ses may benefit by leveraging marketing capabilities to better serve their beneficiaries and stakeholders

situation structure and institutional design reciprocity coercion and exchange states experiencing negative externalities caused by other states behaviors have incentives to devise international institutions to change those behaviors the institutions states create to counter incentives to defect vary in whether and how they expand institutional scope to accomplish that goal when facing symmetric externalities states tend to devise narrow institutions based on issue specific reciprocity when facing asymmetric externalities or upstream downstream problems states tend to broaden institutional scope using linkage strategies when victims of an externality are stronger than its perpetrators the resulting institutions if any are devised are likely to incorporate the negative linkage of sanctions or coercion when victims are weaker exchange institutions relying on the positive linkage of rewards are more likely we illustrate the influence of situation structure on institutional design with three cases international whaling ozone layer depletion and rhine river pollution

desirability of nominal gdp targeting under adaptive learning nominal gdp targeting has been advocated by a number of authors since it produces relative stability of inflation and output however all of the papers assume rational expectations on the part of private agents in this paper i provide an analysis of this assumption i use stability under recursive learning as a criterion for evaluating nominal gdp targeting in the context of a model with explicit micro foundations which is currently the workhorse for the analysis of monetary policy

trend inflation sticky prices and expectational stability abstract micro evidence indicates that each period a fraction of prices is kept unchanged under a positive trend inflation rate in a sticky price model based on this evidence recent research shows that high trend inflation is a serious cause for indeterminacy of rational expectations equilibrium under the taylor rule this paper examines implications of trend inflation for expectational stability of the equilibrium an empirically plausible calibration of the model demonstrates that a fundamental rational expectations equilibrium is likely to be expectationally stable even in cases of indeterminacy induced by high trend inflation

monetary policy and stable indeterminacy with inertia abstract we examine existence and stability under learning of sunspot equilibria in a new keynesian model incorporating inertia indeterminacy remains prevalent stable sunspots abound and inertia in is and aggregate supply as relations do not significantly impact the policy region containing stable sunspots

learning about monetary policy rules when the housing market matters abstract in this paper we study a general equilibrium model with a housing market and use stability under adaptive learning as a criterion to evaluate monetary policy rules an important feature of the model is that there exist credit constrained borrowers who use their housing assets as collateral to finance purchases we evaluate both conventional taylor rules and rules that incorporate other targets such as housing prices we find that the effect of responding to housing prices in addition to output and inflation depends critically on the assumed information structure of the economy

fundamentalists vs chartists learning and predictor choice dynamics abstract in a simple forward looking univariate model of price determination we investigate the evolution of expectations dynamics in the presence of two types of agents fundamentalists and chartists in particular we combine evolutionary selection among heterogeneous classes of models through predictor choice dynamics based on a logit model with adaptive learning in the form of parameters updating within each class of rules we find that for different parameterizations it can happen that fundamentalists drive chartists completely out of the market or vice versa and also that heterogeneous equilibria in which fundamentalists and chartists coexist are possible interestingly though only equilibria in which fundamentalists outperform chartists turn out to be adaptively learnable by agents

monetary policy indeterminacy and learning abstract forward looking monetary models with taylor type interest rate rules are known to generate indeterminacies with a potential dependence on extraneous sunspots for some structural and policy parameters we investigate the stability of these solutions under adaptive learning focusing on common factor or resonance frequency representations in which the observed sunspot has a suitable time series structure we consider specifications incorporating both lagged and expected inflation in the phillips curve and both expected and inertial elements in the policy rule we find that some policy rules can indeed lead to learnable sunspot solutions and we investigate the conditions under which this phenomenon arises

multiple equilibria in dynamic rational expectations models a critical review abstract multiple equilibria are a ubiquitous feature of dynamic rational expectations models researchers have been divided on the implications of this phenomenon some have viewed this as a reflection of reality and a possible explanation of a wide range of economic phenomena others have suggested various selection criteria for choosing one among the many equilibria this paper reviews the major selection criteria that have been proposed and through application to three well known models shows under what circumstances one might expect them to choose the same or different equilibria in addition this paper proposes a new criteria based on the limit of finite horizon equilibria and investigates its relation to the other criteria

learning and the central bank abstract it is well known that sunspot equilibria may arise under an interest rate operating procedure in which the central bank varies the nominal rate with movements in future inflation a forward looking taylor rule this paper demonstrates that these sunspot equilibria may be learnable in the sense of e stability

social learning and monetary policy rules we analyse the effects of social learning in a monetary policy context social learning might be viewed as more descriptive of actual learning behaviour in complex market economies in our model taylor principle governs uniqueness and expectational stability of rational expectations equilibrium ree under homogeneous recursive algorithms we find that the taylor principle is not necessary for convergence to ree minimum state variable msv equilibrium under social learning sunspot equilibria exist in the indeterminate region our agents cannot co ordinate on a sunspot equilibrium in general form specification however they can co ordinate on common factor specification we contribute to the use of genetic algorithm learning in stochastic environments

democracy and international trade britain france and the united states daniel verdier 1860 1990 princeton university press princeton 1994 pp xx 387 45 00

are sunspots learnable an experimental investigation in a simple macroeconomic model abstract we conduct experiments with human subjects in a model with a positive production externality in which productivity is a nondecreasing function of the average level of employment of other firms the model has three steady states and a sunspot equilibrium that fluctuates between the high and low steady states steady states are payoff ranked low values give lower profits than higher values we investigate whether subjects can learn a sunspot equilibrium we observe coordination on the extrinsic announcements in our experimental economies cases of apparent convergence to the low and high steady states are also observed

are non fundamental equilibria learnable in models of monetary policy abstract recent models of monetary policy can have indeterminacy of equilibria which is often viewed as a difficulty of these models we consider the significance of indeterminacy using the learning approach to expectations formation we employ expectational stability as a selection criterion for different equilibria and derive the expectational stability and instability conditions for forward looking multivariate models both without and with lags the results are applied to several monetary policies

learnability of an equilibrium with private information abstract this paper investigates the learnability of an equilibrium with private information agents of each type have their own private information about an exogenous variable and conduct adaptive learning with a heterogeneously misspecified perceived laws of motion plm that includes only this variable the paper shows that the existence of private information has a nonnegative impact on the learnability of the equilibrium that is the condition for learnability is unaffected or relaxed by heterogeneity and or misspecification in plms caused by private information in a new keynesian model with private information about fundamental shocks the learnability of the equilibrium is ensured by the taylor principle of monetary policy the paper also confirms that these results hold true not only in the presence of private information but also in a variety of informational structures

investment and monetary policy learning and determinacy of equilibrium we explore determinacy and expectational stability learnability of rational expectations equilibrium ree in new keynesian nk models that include capital using a consistent calibration across three different models labor only firm specific capital or an economy wide rental market for capital we provide a clear picture of when ree is determinate and learnable and when it is not under a variety of monetary policy rules our findings make a case for greater optimism concerning the use of such rules in nk models with capital while bullard and mitra s 2002 2007 findings for the labor only nk model do not always extend to models with capital we show that determinate and learnable ree can be achieved in nk models with capital if there is i plausible capital adjustment costs ii some weight given to output in the policy rule and or iii a policy of interest rate smoothing

the unconditional most favored nation clause and the maintenance of the liberal trade regime in the postwar 1870s international institutions within the past thirty years become the subject of renewed interest as scholars vigorously dispute their utility neorealists draw on the post world war ii era to advance sweeping general claims of institutional inefficacy this study by contrast deploys the same hard test method grieco applied to the 1970s tokyo round negotiations to the crisis rife 1870s to construct a unique methodological objective a rigorous hard test of nineteenth century institutional autonomy three principal findings emerged first the maintenance of a liberal world economy in the turbulent 1870s is explained by an unlikely commercial instrument and the unprecedented regime design of an unexplored international institution respectively the unconditional most favored nation mfn clause and the informal conventional tariff system cts regime it underpinned not british hegemony second the international trade regime was not a public good unilaterally provisioned by hegemonic britain via the 1846 corn laws repeal the regime was instead a private good that was collectively provisioned by all its constituent member states via the unprecedented interstate practices institutionalized in the 1860 cobden chevalier treaty and then autonomously maintained by a negarchical and self enforcing sanctioning mechanism finally the informal cts regime s enforcement mechanism autonomously altered the interests and behaviors of states in directions incongruent with executive preferences solely through the brute force of rational calculations imposed by decentralized international institutional constraints both the french and british executives in the 1870s believed the regime was normatively inappropriate and unsuccessfully attempted to exit amid eight system threatening crises nonetheless the mfn based regime s self enforcing sanctioning mechanism autonomously induced compliance conceptualized as unitary states behavior deviating from executives first order preference the extraordinarily turbulent 1870s therefore provide an unexplored historical vantage point to make strong institutionalist claims in an era issue area and under conditions that they are least likely to be validated

monetary policy expectations and commitment commitment in monetary policy leads to equilibria that are superior to those from optimal discretionary policies a number of interest rate reaction functions and instrument rules have been proposed to implement or approximate commitment policy we assess these rules in terms of whether they lead to a rational expectations equilibrium that is both locally determinate and stable under adaptive learning by private agents a reaction function that appropriately depends explicitly on private sector expectations performs particularly well on both counts

trade wars a comparative study of anglo hanse franco italian and hawley smoot conflicts three trade wars are examined using variable sum game theory the anglo hanse trade wars 1300 1700 are explained as an iterated prisoners dilemma that failed to evolve into cooperation due to transaction costs rent seeking and economic recession the late igthcentury tariff war between france and italy is a case of an asymmetric trade war that illustrates the danger to a weak country of provoking a trade war with a strong country with the result that the former is forced to make major concessions the hawley smoot conflicts of the 1930s are cited as an example of the cooperation inhibiting effect of publicness in trade negotiations