a reevaluation of the macroeconomic effects of positive trend inflation abstract to date most of the papers which have examined the effects of trend inflation on the properties of new keynesian model were based on relatively simple sticky prices dsge models and whose realism was sometimes questionable in this paper we re evaluate the macroeconomic effects of non zero trend inflation building on the model of ascari 2004 as one of the most cited papers in the literature on the effects of trend inflation we show that the omission of some important theoretical ingredients significantly distorts the results obtained to date we propose a refinement of this model by introducing two theoretical important ingredients namely investment adjustment costs and a roundabout production structure once we add these features to make the model more realistic as commonly for medium scale models we find that the standard new keynesian model without real frictions overestimates the short term macroeconomic effects of a positive trend inflation rate and underestimates those of the long term

the propagation of monetary policy shocks in a heterogeneous production economy abstract realistic heterogeneity in price rigidity interacts with heterogeneity in sectoral size and input output linkages in the transmission of monetary policy shocks quantitatively heterogeneity in price stickiness is the central driver for real effects input output linkages and consumption shares alter the identity of the most important sectors to the transmission reducing the number of sectors decreases monetary non neutrality with a similar impact response of inflation hence the initial response of inflation to monetary shocks is not sufficient to discriminate across models and ignoring heterogeneous consumption shares and input output linkages identifies the wrong sectors from which the real effects originate

real rigidities and the non neutrality of money rigidities in real prices are not sufficient to create rigidities in nominal prices and real effects of nominal shocks and by themselves small frictions in nominal adjustment such as costs of changing prices create only small non neutralities but this paper shows that substantial nominal rigidity can arise from a combination of real rigidities and small nominal frictions the paper shows the connection between real and nominal rigidity given the presence of nominal frictions both in general and for two specific sources of real rigidity one arising from goods market imperfections and the other from labour market imperfections

sectoral shocks and aggregate fluctuations abstract this paper presents a multisector dynamic general equilibrium model of business cycles with a distinctive feature aggregate fluctuations are driven by independent sectoral shocks the model hypothesizes that trade among sectors provides a strong synchronization mechanism for these shocks due to the limited but locally intense interaction that is characteristic of such input trade flows limited interaction characterized by a sparse intermediate input use matrix reduces substitution possibilities among intermediate inputs which strengthens comovement in sectoral value added and leads to a postponement of the law of large numbers in the variance of aggregate value added the chief virtue of this model is that reliance on implausible aggregate shocks is not necessary to capture the qualitative features of macroeconomic fluctuations building on horvath 1998 review of economic dynamics 1 781 808 which establishes the theoretical foundation for the relevance of limited interaction in the context of a stylized multisector model this paper specifies a more general multisector model calibrated to the us 2 digit standard industrial code economy simulations prove the model is able to match empirical reality as closely as standard one sector business cycle models without relying on aggregate shocks

business cycles with staggered prices and international trade in intermediate inputs abstract international trade in intermediate inputs and increasingly in goods produced at multiple stages of processing has been widely studied in the real trade literature we assess the role of this feature of modern world trade in accounting for some stylized facts about international business cycles our model with staggered prices and trade in intermediates across four stages of processing does well in explaining the observed international correlations in aggregate quantities and it performs much better than a single stage model with no trade in intermediates the model in itself does not provide a full account of the cyclical behavior of the real exchange rate but compared to the single stage model it moves in the right direction

agricultural household models extensions applications and policy this book presents the basic model of an agricultural household that underlies most of the case studies undertaken so far the model assumes that households are price takers and is therefore recursive the decisions modeled include those affecting production and the demand for inputs and those affecting consumption and the supply of labor comparative results on selected elasticities are presented for a number of economies the empirical significance of the approach is demonstrated in a comparison of models that treat production and consumption decisions separately and those in which the decisionmaking process is recursive the book summarizes the implications of agricultural pricing policy for the welfare of farm households marketed surplus the demand for nonagricultural goods and services the rural labor market budget revenues and foreign exchange earnings in addition it is shown that the basic model can be extended in order to explore the effects of government policy on crop composition nutritional status health saving and investment and to provide a more comprehensive analysis of the effects on budget revenues and foreign exchange earnings methodological topics primarily the data requirements of the basic model and its extensions along with aggregation market interaction uncertainty and market imperfections are discussed the most important methodological issues the question of the recursive property of these models is also discussed

who is vouching for the input voucher decentralized targeting and elite capture in tanzania input subsidy programs carry support as instruments to increase agricultural productivity provided they are market smart this requires especially proper targeting to contain the fiscal pressure with decentralized targeting of input vouchers currently the instrument of choice nonetheless despite clear advantages in administrative costs the fear of elite capture persists these fears are borne out in the experience from the 2008 input voucher pilot program in kilimanjaro tanzania examined here elected village officials received about 60 percent of the distributed vouchers a factor that significantly reduced the targeting performance of the program especially in more unequal and remote communities when targeting the poor greater coverage and a focus on high trust settings helped mitigate these concerns the findings highlight the continuing need for scrutiny when relying on decentralized targeting a clearer sense of purpose increasing productivity among poorer farmers versus increasing aggregate output could also enhance the targeting performance

another look at sticky prices and output persistence abstract price rigidity is the key mechanism for propagating business cycles in traditional keynesian theory yet the new keynesian literature has failed to show that sticky prices by themselves can effectively propagate business cycles we show that price rigidity in fact can by itself give rise to a strong propagation mechanism in standard models provided that investment is also subject to a cash in advance constraint reasonable price stickiness can generate highly persistent hump shaped movements in output under either monetary or non monetary shocks hence whether or not price rigidity is responsible for output persistence is not a theoretical question but an empirical one

price dynamics and production lags this paper provides a new explanation of why inflation is sluggish in response to aggregate demand shocks and why aggregate output changes as result of such shocks we argue that these phenomena are related to lags between inputs and outputs in the production process production lags for short the broad intuition is that production activities in a modern economy are interconnected through complex input output relations with production lags within individual firms and that it takes considerable time for cost and price changes to penetrate the entire input output system our analysis provides a rationale for a prolonged inverse relation between inflation and unemployment the paper suggests that the interaction of inflation persistence and unemployment persistence may offer a possible explanation of high and prolonged european unemployment this abstract was borrowed from another version of this item

imperfect information and staggered price setting many keynesian macroeconomic models are based on the assumption that firms change prices at different times this paper presents an explanation for this staggered price setting the authors develop a model in which firms have imperfect knowledge of the current state of the economy and gain information by observing the prices set by others this gives each firm an incentive to set its price shortly after other firms set theirs staggering can be the equilibrium outcome in addition the information gains can make staggering socially optimal even though it increases aggregate fluctuations copyright 1988 by american economic association

are some groups more vulnerable to macroeconomic shocks than others hypothesis tests based on panel data from peru abstract which socio economic groups are most vulnerable to welfare declines during a macroeconomic shock after clarifying the difference between poverty and vulnerability this paper presents an analytical framework and applies it to panel data from peru major findings are 1 households with better educated heads are less vulnerable 2 female headed households are no more vulnerable than male headed households 3 households with more children are more vulnerable 4 transfer networks that assist the poor in relatively stable periods do not protect them during a major shock unless they originate from outside peru and 5 peru s social security program is targeted neither to vulnerable nor to poor households but other transfer programs are better targeted

sellers local currency pricing or buyers local currency pricing does it matter for international welfare analysis abstract we study international transmissions and welfare implications of monetary shocks in a two country world with multiple stages of production and multiple border crossings of intermediate goods this empirically relevant feature is important as it has opposite implications for two external spillover effects of a unilateral monetary expansion if all production and trade are assumed to occur in a single stage the conflict of interest terms of trade effect tends to dominate the common interest efficiency improvement effect for reasonable parameter values so that the international welfare effects would depend in general on the underlying assumptions about the currencies of price setting the stretch of production and trade across multiple stages of processing magnifies the efficiency improvement effect and dampens the terms of trade effect thus a monetary expansion can be mutually beneficial regardless of its source or the pricing assumptions

sectoral comovement monetary policy shocks and input output structure the comovement of output across the sector producing nondurables i e nondurable goods and services and the sector producing durables is well established in the monetary business cycle literature however standard sticky price models that incorporate sectoral heterogeneity in price stickiness i e sticky nondurables prices and flexible durables prices cannot generate this feature we argue that an input output i o structure provides a solution to this problem here we develop a two sector model with an i o structure which is calibrated to the u s economy in the model each sector s output affects those of the others by acting as an intermediate input this connection between the sectors provides a channel through which sectoral comovement is induced

nominal price rigidity money supply endogeneity and business cycles abstract this paper investigates the ability of nominal price rigidity to explain the co movement of inflation with the cyclical component of output observed in the post war u s data a dynamic general equilibrium model is constructed with the introduction of monopolistic competition and nominal price rigidity in a standard real business cycle model allowing for an endogenous money supply rule it is then demonstrated that sticky price models can explain the observed associations between movements in inflation and output much better than flexible price models this result depends little on whether money supply is assumed to be endogenous or not

the pros and cons of spot pricing electric utility perspective abstract until recently spot pricing of electrical energy has been an academic curiosity electric utilities by and large do not vary the price of their product by time of day or cost of generation even though such costs vary considerably from peak to off peak periods the primary reason for not using spot or real time pricing has been communication and administrative costs recent advancements in technology have reduced the costs to a level where spot pricing is being considered a viable option for many utilities the remaining obstacles to be resolved are development of hardware and software to administer real time prices customer education to understand and participate in spot pricing programmes and reaching agreements with regulators on appropriate rates

poverty and income distribution during adjustment issues and evidence from the oecd project drawing lessons from country studies the authors examine the effects of adjustment policies on the distribution of income in chile cote d ivoire ecuador indonesia malaysia and morocco after analyzing the issues that must be confronted in designing adjustment programs with a focus on poverty they synthesize the main conclusions of the different country studies with simulation exercises they explore the effects of the design of the adjustment packages on poverty and on the sustainability of the measures undertaken in these countries these exercises show considerable diversity in the evolution of income distribution during adjustment they also expose the fatal flaws of narrowly designed adjustment programs adjustment programs whether focused on efficiency or on welfare will fail when they do not recognize the interdependence of the three criteria of efficiency welfare and political feasibility adjustment programs must be carefully packaged to fit country circumstances taking into account both the political and economic environments

the welfare cost of nominal wage contracting we use a dynamic general equilibrium model to obtain quantitative estimates of the welfare cost of nominal wage contracting we find that the welfare cost of such contracts can vary quite a lot depending on the degree of indexation the size and persistence of monetary shocks and the contract length the size and persistence of technology shocks do not affect the welfare cost significantly the elasticity of labour supply is important for the welfare cost if the labour supply elasticity is small the welfare cost of nominal wage contracts can be substantial

staggered price setting translog preferences and endogenous persistence abstract this paper generates persistent real effects of a monetary disturbance in the context of staggered price setters the model combines two related and reinforcing features a translog demand structure and a particular input output production structure these features offer a rationale why a firm when computing its own optimal contract price is influenced by the prices set in other overlapping contracts practically the two features interact in a positive manner and provide a way to generate significant endogenous persistence

sticky price models of the business cycle can the contract multiplier solve the persistence problem we construct a quantitative equilibrium model with firms setting prices in a staggered fashion and use it to ask whether monetary shocks can generate business cycle fluctuations these fluctuations include persistent movements in output along with the other defining features of business cycles like volatile investment and smooth consumption we assume that prices are exogenously sticky for a short time persistent output fluctuations require endogenous price stickiness in the sense that firms choose not to change prices much when they can do so we find that for a wide range of parameter values the amount of endogenous stickiness is small thus we find that in a standard quantitative model staggered price setting alone does not generate business cycle fluctuations

optimal monetary policy with international trade in intermediate inputs abstract this paper examines optimal monetary policy in a two country new keynesian model with international trade in intermediate inputs we derive the loss function of a cooperative monetary policymaker and find that the optimal monetary policy must target intermediate goods price inflation rates final goods price inflation rates final goods output gaps and relative price gaps we use the welfare loss under the optimal monetary policy as a benchmark to evaluate the welfare implications of three taylor type monetary policy rules a main finding is that the degree of price stickiness at the stage of intermediate goods production is a key factor to determine which policy rule should be followed specifically when the degree of price stickiness at the stage of intermediate goods production is high the policymaker should follow intermediate goods ppi based taylor rule whereas cpi based taylor rule should be followed when the degree of price stickiness at the stage of intermediate goods production is intermediate or low

does the nonfarm economy offer pathways for upward mobility evidence from a panel data study in ethiopia summary empirical studies across many developing countries routinely document a positive correlation between participation in rural nonfarm employment and households wealth or income this paper explores whether nonfarm employment leads to higher consumption expenditure growth in ethiopia we find that 1 households consumption expenditure growth is positively correlated with the initial share of nonfarm income 2 the growth elasticity of nonfarm income share is higher for wealthier households and 3 the main source of growth for nonfarm participants comes from the higher rates of return participants enjoy on their human and physical capital

structural change and poverty in africa a decomposition anakysis for cote d ivoire abstract this paper provides evidence that economic destabilization and the absence of managed structural change in an economy can be more harmful to the welfare of the poor than the process of adjustment itself evidence comes from four consecutive years of household survey data from cote d ivoire spanning both a period of adjustment and destabilization these constitute a unique data base in africa to assess the impact of structural change on the poor the analytic methodology used is that of static and dynamic decomposition of poverty measures along policy relevant dimensions

testing a social safety net abstract standard benefit incidence analysis does not distinguish policy impacts on persistent poverty from transient poverty we offer an alternative approach based on actual and simulated joint distributions of consumption over time which allows us to distinguish the extent of protection against poverty from promotion out of poverty the approach is illustrated by an analysis of the distributional impact of changes in cash benefits introduced to compensate for other policy reforms in hungary cash benefits protected many from poverty but promoted few out of poverty the safety net s impact on poverty was largely due to higher average outlays rather than improved targeting

inflation debt and indexation these twelve essays cover topics on the frontier of indexation and practice an often proposed and debated tool of economic policy they range from highly theoretical discussions to practical experiences in brazil and europe rudiger dombush is ford international professor of economics at mit mario henrique simonsen is director of the postgraduate school of economics getulio vargas foundation rio de janeiro and former minister of finance and planning brazil

production chains and general equilibrium aggregate dynamics abstract recent empirical studies reveal that monetary shocks can cause persistent fluctuations in aggregate output in this paper we propose a mechanism to help generate such persistence our dynamic stochastic general equilibrium model features a vertical input output structure with staggered price contracts at each stage of production working through the input output relations and the timing of firms pricing decisions the model generates persistent fluctuations in aggregate output and the observed patterns of price dynamics following a monetary shock output responses are more persistent the greater the number of stages of production and the larger the share of intermediate inputs with a sufficient number of stages the persistence is arbitrarily large if the share of intermediate inputs is one at all but finitely many stages

ruling out divergent speculative bubbles abstract the growth in the empirical literature on testing for divergent in mean speculative bubbles indicates that existing theoretical arguments for ruling out such price paths are not sufficiently compelling here we strengthen the case for ruling out explosive or implosive bubbles a priori by filling in two gaps first we demonstrate why divergent stochastic bubbles arising from purely extrinsic uncertainty as in blanchard 1979 cannot be equilibria in a monetary optimizing model second we show why existing arguments for ruling out implosive price bubbles are insufficient in some cases and we provide stronger arguments

inventories sticky prices and the persistence of output and inflation post war business cycle fluctuations of output and inflation are remarkably persistent many recent sticky price models however grossly underpredict this persistence we assess whether adding inventories to a standard sticky price model raises the persistence of output and inflation for this addition we consider a shopping cost model in the model consumers find shopping activities costly and the cost of shopping depends on the stock of goods available in this context producers manage inventories to smooth production and to affect the cost of shopping we find that the shopping cost model generates a persistence for output and inflation that matches the persistence observed in the post 1985 us data

spot pricing of electricity arguments and prospects abstract the paper in this issue extend the early literature on spot pricing but differences of opinion still remain between proponents and critics mathematical models designed to prove that spot pricing is socially optimal are unpersuasive regrettably there are no further empirical estimates of the consequences costs and benefits of spot pricing but previous studies suggest that it would be profitable and economic for a significant subset of large industrial users current moves to deregulate and privatize electricity industries are likely to stimulate rather than hinder the adoption of spot pricing

migrant labor markets and the welfare of rural households in the developing world evidence from china in this paper the authors examine the impact of reductions in barriers to migration on the consumption of rural households in china the authors find that increased migration from rural villages leads to significant increases in consumption per capita and that this effect is stronger for poorer households within villages household income per capita and non durable consumption per capita both increase with out migration and increase more for poorer households the authors also establish a causal relationship between increased out migration and investment in housing and durable goods assets and these effects are also stronger for poorer households the authors do not find robust evidence however to support a connection between increased migration and investment in productive activity instead increased migration is associated with two significant changes for poorer households increases both in the total labor supplied to productive activities and in the land per capita managed by the household in examining the effect of migration we pay considerable attention to developing and examining our identification strategy

constructing and estimating a realistic optimizing model of monetary policy abstract a dynamic stochastic general equilibrium dsge model with real and nominal both price and wage rigidities succeeds in capturing some key nominal features of u s business cycles additive technology shocks as well as multiplicative shocks are introduced and shown to be crucial monetary policy is specified as an interest rate targeting rule following developments in the structural vector autoregression var literature the interaction between real and nominal rigidities is essential to reproduce the liquidity effect of monetary policy the model is estimated by maximum likelihood on u s data and its fit is comparable to that of an unrestricted first order var besides producing reasonable impulse responses and second moments this model replicates a feature of u s business cycles never captured by previous research with dsge models that an increase in interest rates predicts a decrease in output two to six quarters in the future

the persistence of subjective poverty in urban ethiopia using panel data spanning 15 years this paper investigates the persistence and correlates of subjective and consumption poverty in urban ethiopia despite the decline in consumption poverty in recent years which has been linked to rapid economic growth subjective poverty has remained largely unchanged dynamic probit regression results show that households with a history of past poverty continue to perceive themselves as poor even if their material consumption improves our results also suggest that the relative economic position of households is a strong determinant of subjective poverty and having at least some type of employment reduces the likelihood that households will perceive themselves as poor even if they remain in objective poverty receiving remittances from abroad on the other hand does not reduce perceived poverty even if it raises material consumption we argue that any analysis to measure the impact of growth on welfare should encompass subjective measures as well

peasant household behaviour with missing markets some paradoxes explained a model of peasant household behavior under varying degrees of household specific food and labor market failures is constructed to show that these structural features can explain several well known patterns of peasant response which have often been attributed to peculiar motives presumed specific to peasants the model explains sluggish response to cash crops prices and high instability in perceived food and labor scarcities the key role of manufactured consumer goods prices in stimulating peasants effort in cash crops production the effectiveness of taxation as opposed to incentives in stimulating cash crops production and the key role of technological change in food production to enhance cash crop production results are obtained analytically in the case of one market failure and by numerical simulation with more than one

prices output and hours an empirical analysis based on a sticky price model abstract i show that a simple sticky price model based on rotemberg 1982 is consistent with a variety of facts concerning the correlation of prices hours and output it is consistent with the negative correlation between forecastable movements in prices and output as well as the smaller negative correlation between forecastable movements in prices and hours it is also consistent with the positive correlations of unexpected movements in prices output and hours these patterns are harder to reconcile with the flexible price version of the model in particular they require that money respond differently to forecastable and to unforecastable real shocks

estimating the new keynesian phillips curve a vertical production chain approach it has become customary to estimate the new keynesian phillips curve nkpc with gmm using a large instrument set that includes lags of variables that are ad hoc to the model researchers have also conventionally used real unit labor cost rulc as the proxy for real marginal cost even though it is difficult to support its significance this paper introduces a new proxy for the real marginal cost term as well as a new instrument set both of which are based on the micro foundations of the vertical chain of production i find that the new proxy based on input prices as opposed to wages provides a more robust and significant fit to the model instruments that are based on the vertical chain of production appear to be both more valid and relevant towards the model

aggregation and irrelevance in multi sector models abstract this paper studies the ability of input output relationships to generate fluctuations in aggregate output in several multi sector models including that of long and plosser 1983 in these models the manufacture of each sector s output depends on other sectors for materials these interconnections provide a mechanism for transmission of shocks across sectors and over time we ask how aggregates from these multi sector models behave relative to single sector models we provide conditions under which the second moment properties of aggregates in these models are the same as their single sector counterparts we further demonstrate that a broad class of input output structures generate aggregates with identical second moment properties and that the input output structures in this class provide a poor amplification mechanism for sector shocks

pricing production and persistence though built with increasingly precise microfoundations modern optimizing sticky price models have displayed a chronic inability to generate large and persistent real responses to monetary shocks as recently stressed by chari kehoe and mcgrattan 2000 this is an ironic finding since taylor 1980 and other researchers were motivated to study sticky price models in part by the objective of generating large and persistent business fluctuations we trace this lack of persistence to a standard view of the cyclical behavior of real marginal cost built into current sticky price macro models using a fully articulated general equilibrium model we show how an alternative view of real marginal cost can lead to substantial persistence this alternative view is based on three features of the supply side of the economy that we believe are realistic an important role for produced inputs variable capacity utilization and labor supply variability through changes in employment importantly these real flexibilities work together to dramatically reduce the elasticity of marginal cost with respect to output from levels much larger than unity in ckm to values much smaller than unity in our analysis these real flexibilities consequently reduce the extent of price adjustments by firms in time dependent pricing economies and the incentives for paying fixed costs of adjustment in state dependent pricing economies the structural features also lead the sticky price model to display volatility and comovement of factor inputs and factor prices that are more closely in line with conventional wisdom about business cycles and various empirical studies of the dynamic effects of monetary shocks federal reserve bank of philadelphia boston university nber and frb richmond this paper builds on earlier joint work with alexander l wolman on this topic we wish to thank brian boike for providing excellent research assistance and also to thank the referees and the editor for making numerous useful suggestions the views expressed in this article are those of the authors and do not necessarily represent those of the federal reserve bank of philadelphia the federal reserve bank of richmond or the federal reserve system

the transmission of monetary policy in a multisector economy this article constructs and estimates a sticky price dynamic stochastic general equilibrium model with heterogeneous production sectors firms in different sectors vary in their price rigidity production technology and the combination of material and investment inputs in particular firms buy inputs from all sectors using the actual input output matrix and capital flow table of the u s economy by relaxing the standard assumption of symmetry this model allows idiosyncratic sectoral dynamics in response to monetary policy shocks the model is estimated by the generalized method of moments using sectoral and aggregate u s time series

inflation targeting what inflation rate to target abstract in an economy with nominal rigidities in both an intermediate good sector and a finished good sector and thus with a natural distinction between cpi and ppi inflation rates a benevolent central bank faces a tradeoff between stabilizing the two measures of inflation a final output gap and unique to our model a real marginal cost gap in the intermediate sector so that optimal monetary policy is second best we discuss how to implement the optimal policy with minimal information requirement and evaluate the robustness of these simple rules when the central bank may not know the exact sources of shocks or nominal rigidities a main finding is that a simple hybrid rule under which the short term interest rate responds to cpi inflation and ppi inflation results in a welfare level close to the optimum whereas policy rules that ignore ppi inflation or ppi sector shocks can result in significant welfare losses

economic costs of electricity supply interruptions us and foreign experience abstract this paper investigates the costs of interruptions in electricity service to customers this information is a key input in planning power system reliability using an economic cost benefit approach the paper reviews the literature from the perspective of identifying alternate methodological approaches used their strengths and weaknesses and potential for bias it presents and compares outage cost estimates found in the literature on a common denominator basis it attempts to explain the sources of the wide range of variation observed in different study estimates and it identifies the need for further work on this important topic

the impact of agricultural extension and roads on poverty and consumption growth in fifteen ethiopian villages this article investigates whether public investments that led to improvements in road quality and increased access to agricultural extension services led to faster consumption growth and lower rates of poverty in rural ethiopia estimating an instrumental variables model using generalized methods of moments and controlling for household fixed effects we find evidence of positive impacts with meaningful magnitudes receiving at least one extension visit reduces headcount poverty by 9 8 percentage points and increases consumption growth by 7 1 percentage points access to all weather roads reduces poverty by 6 9 percentage points and increases consumption growth by 16 3 percentage points these results are robust to changes in model specification and estimation methods

how well does the is lm model fit postwar u s data postwar u s time series for money interest rates prices and gnp are characterized by a multivariate process driven by four exogenous disturbances those disturbances are identified so that they can be interpreted as the four main sources of fluctuations found in the is lm phillips curve model money supply money demand is and aggregate supply shocks the dynamic properties of the estimated model are analyzed and shown to match most of the stylized predictions of the model the estimated decomposition is also used to measure the relative importance of each shock to interpret some macroeconomic episodes and to study sources of permanent shocks to nominal variables

structural adjustment macroeconomic adjustment and poverty a methodology for analysis abstract the object of this paper is to set out a methodology for analyzing the impact on the poor in less developed countries ldcs of adjustment to disturbances arising in the international sectors sectors of these economies the methodology is not based on a detailed general equilibrium model of the whole economy but instead focuses on the effects of the adjustment process on the sectoral composition of national output and expenditure the paper provides a framework for the calculation of quantitative estimates of the impact of adjustment on poverty using household income and expenditure surveys currently available in ldcs it is proposes the use of decomposable poverty indices as a tractable vehicle for calculating the impact of adjustment on overall poverty this framework does require however reasonably disaggregated data on income distribution

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

how robust is a poverty profile comparison of poverty such as when poverty is greatest typically matter far more for policy choices than do aggregate measures of poverty such as how many people are deemed poor the authors examine alternative methods for constructing poverty profiles focusing on their internal consistency and appropriateness for guiding policy none is perfect but some methods appear to be preferable to others when the aim is to inform policies for fighting absolute consumption poverty a case study on indonesia reveals that the country s regional and sectoral poverty profile is highly sensitive to some aspects of measurement but quite robust to others

monetary policy in an era of global supply chains abstract we study the implications of global supply chains for the design of monetary policy using a small open economy new keynesian model with multiple stages of production within the family of simple monetary policy rules with commitment a rule that targets separate producer price inflation at different production stages in addition to output gap and real exchange rate is found to deliver a higher welfare level than alternative policy rules as an economy becomes more open measured by export share the optimal weight on the upstream inflation rises relative to that on the final stage inflation if we have to choose among aggregate price indicators targeting ppi inflation yields a smaller welfare loss than targeting cpi inflation alone as the production chain becomes longer the optimal weight on ppi inflation in the policy rule that targets both ppi and cpi inflation will also rise a trade cost shock such as a rise in the import tariff can alter the optimal weights on different inflation variables

intermediate goods and business cycles implications for productivity and welfare this paper presents an aggregate demand driven model of business cycles that provides a new explanation for the procyclicality of productivity and simultaneously predicts large welfare losses from monetary nonneutrality the key features of the model are an input output production structure imperfect competition countercyclical markups and for some results state dependent price rigidity true technical efficiency is procyclical even though production takes place with constant returns without technology shocks or technological externalities the paper has observable implications that distinguish it empirically from related work these implications are generally supported by data from u s manufacturing industries copyright 1995 by american economic association

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

sticky price models of the business cycle can the roundabout production solve the persistence puzzle abstract this paper considers the persistence puzzle unveiled by chari et al 2000 our findings show that endogenously persistent output dynamics are not a puzzle for the standard sticky price model once roundabout production is taken into account we make this point using a new keynesian framework emphasizing an inertial mechanism called the multiplier for price stickiness in the spirit of basu 1995

the responses of prices at different stages of production to monetary policy shocks this paper examines the responses of prices at different stages of production to monetary policy shocks in aggregate price analysis the var of christiano et al 1996a 1996b is used to identify the policy shock as the federal funds rate innovation and trace out the responses of prices in disaggregate price analysis the adjustment of prices is examined by comparing inflation before and after a recent policy tightening identified by romer and romer 1989 1992 at early stages of production a monetary tightening causes input prices to fall more rapidly and by a larger amount than output prices

the equilibrium and optimal timing of price changes this paper studies the welfare properties of the equilibrium timing of price changes staggered price setting has the advantage that it permits rapid adjustment to firm specific shocks but the disadvantages that it causes unwanted fluctuations in relative prices and that by creating price level inertia it can increase aggregate fluctuations because each firm ignores its contribution to these problems staggering can be a stable equilibrium even if it is highly inefficient in addition there can be multiple equilibria in the timing of prices changes indeed whenever there is an inefficient staggered equilibrium there is also an efficient equilibrium with synchronized price setting

a survey of new keynesian theories of aggregate supply and their relation to industrial organization i survey the recent literature on the phillips curve along the way i will try to relate this literature to topics of interest to industrial organization i will also point out the gaps in our understanding and places where more careful micro economic analysis would be helpful to macroeconomists in the conclusion i summarize what an industrial organization economist might take away from this literature

the lucky few amidst economic decline distributional change in cote d ivoire as seen through panel data sets 1985 88 this article is an exploratory exercise in using panel data sets to investigate distributional change in cote d ivoire during the second half of the 1980s the panels made it possible to highlight and quantify mobility of the same households across poverty classes over time we found that there were a lucky few who improved their standard of living amid general decline detailed investigations revealed that the lucky few were fairly numerous and the probability of escaping poverty was quite high even for the very poorest these lucky few were widespread regionally although in some socio economic groupings the poor had higher chances of escaping poverty

rice prices and income distribution in thailand a non parametric analysis rice is a staple crop in thailand significantly entering both household production and consumption this paper examines the effect of rice prices on the distribution of real income across households taking into account household characteristics and geographical location the data set is a large scale survey of 11 893 households simple nonparametric techniques for regression and density estimation are used these methods depend on few assumptions and generate flexible graphical results that are directly informative about the problem at hand the main results are that higher rice prices should benefit all rural households but the largest benefits accrue to rural households in the middle of the income distribution copyright 1989 by royal economic society

income portfolios in rural ethiopia and tanzania choices and constraints the article analyses the different income portfolios of households using survey data from rural ethiopia and rural tanzania it suggests that the different portfolios held by households cannot be e

information technology and efficient pricing providing a competitive edge for electric utilities abstract electricity has traditionally been generated and sold as a homogeneous commodity with a single price this practice has less to do with the nature of electricity than with the lack of technology to distinguish among each kilwatthour based on what and when it is used this article argues that with the recent advances in information and communication technologies the time has arrived to market electricity as something other than a homogeneous commodity by pricing electricity according to its time of use for example electricity will be more efficiently utilized benefitting both the customers and the electric companies

poverty transition and persistence in ethiopia 1994 2004 summary this study analyzes the persistence of poverty in both rural and urban areas in ethiopia during 1994 2004 the key finding is that households move frequently in and out of poverty but the difficulty of exiting from poverty like the chance of avoiding slipping back increases with the time spent in that state and varies considerably between male and female headed households our results imply that it is important to design anti poverty policies both to hinder households from slipping into extreme poverty and to minimize the length of the poverty spell for households once they have fallen into it

intermediate inputs and sectoral comovement in the business cycle abstract the post war us business cycle is characterized by positive comovement of employment and output across sectors it has been argued that multi sector growth models are inconsistent with this observation when changes in relative productivities are the main source of fluctuations we suggest that the input output structure of an economy in particular the pervasive use of intermediate inputs can induce positive comovement in sectoral employment and output following changes in relative productivities we calibrate a model of the us economy for the durable and nondurable goods producing sectors and show that sectoral employment and output move together if intermediate inputs are used in production the model is also consistent with the observation that the relative price of nondurable goods is procyclical

customer preferences for reliable power supply using data on actual choices of back up equipment this paper empirically examines customer preferences for the reliable sources of electricity using data obtained from a survey of back up systems owned by large computer users in japan the empirical results based on probabilistic discrete choice models indicate that 1 customers face a trade off between the price and the reliability of the power supply and 2 customer characteristics such as types of business and levels of electricity usage have significant impacts on the choice of back up apparatuses the estimates of cost changes that would offset reliability changes imply that the financial and communications sectors are more concerned about reliability than are other sectors copyright 1994 by mit press

price flexibility in channels of distribution evidence from scanner data in this study we empirically examine the extent of price rigidity using a unique store level time series data set consisting of i actual retail transaction prices ii actual wholesale transaction prices which represent both the retailers costs and the prices received by manufacturers and iii a measure of manufacturers costs for 12 goods in two widely used consumer product categories we simultaneously examine the extent of price rigidity for each of the 12 products at both final goods and intermediate goods levels we study two notions of price rigidity employed in the existing literature i the frequency of price changes and ii the response of prices to exogenous cost changes we find that retail prices exhibit remarkable flexibility in terms of both notions of price rigidity i e they change frequently and they seem to respond quickly and fully to cost changes furthermore we find that retail prices respond not just to their direct costs but also to the upstream manufacturers costs which further reinforces the extent of the retail price flexibility at the intermediate goods level of the market in contrast we find relatively more evidence of rigidity in the response of manufacturers prices to cost changes this despite the fact that wholesale prices change frequently and therefore exhibit flexibility according to the first notion of price rigidity

farm nonfarm linkages in rural sub saharan africa this paper is an accumulation over the past 25 years of a body of detailed work examining the structure of africa s rural nonfarm economy first it systematically reviews empirical evidence on the nature and magnitude of the african rural nonfarm economy it then explores differences across locality and size across countries and over time in an effort to assess likely patterns of growth a subsequent review of key production and consumption parameters allows an estimate of the magnitude of the agricultural growth multipliers in africa the paper concludes with a brief discussion of policies and programs that will be necessary if farm nonfarm growth linkages are to achieve their full potential

consumption patterns and self selecting tariffs the authors describe and apply methods for empirically investigating the relation between consumption and tariff choice these methods allow 1 testing of alternative specifications for the relations of tariff choice and consumption patterns 2 estimation of parameters that provide information on the response of customers to marginal prices and fixed fees and 3 a determination of the extent to which the assumptions embodied in welfare results on self selecting tariffs are valid in a particular setting they apply the procedures to residential demand for local telephone service in an area where households are offered a choice among tariffs copyright 1989 by mit press

are there lessons for africa from china s success against poverty at the outset of china s reform period the country had a far higher poverty rate than for africa as a whole within five years that was no longer true this paper tries to explain how china escaped from a situation in which extreme poverty persisted due to failed and unpopular policies while acknowledging that africa faces constraints that china did not and that context matters two lessons stand out the first is the importance of productivity growth in smallholder agriculture which will require both market based incentives and public support the second is the role played by strong leadership and a capable public administration at all levels of government

what is new keynesian economics this research was supported by the national science foundation i am grateful to george williams for help with the data and to steven allen laurence ball olivier j blanchard timothy bresnahan charles calomiris dennis carlton robert chirinko russell cooper stanley fischer herschel grossman r glenn hubbard david laidler john leahy assar lindbeck n gregory mankiw david romer julio rotemberg dennis snower john taylor andrew weiss and two anonymous referees for comments on one or more earlier drafts i am also indebted to michael parkin and edmund s phelps for helping to establish the etymology of the phrase new keynesian

smuggling and supply response coffee in ethiopia abstract during the 1980s substantial smuggling of coffee has been taking place in ethiopia the recent devaluation has raised hopes that substantial quantities of coffee will flow back to the official channels in this study data on the incentives to supply to the different channels are collated a model of official supplies is formulated which nests an empirical test between the smuggling models by bhagwati and hansen 1973 and by pitt 1981 the econometric results favor the latter and show a small but significant effect of the premium in the black market and a positive total supply response relative to the main competing crop chat the results imply that the increases in export earnings from the devaluation will be quite limited

on inflation and output with costly price changes a simple unifying result this paper determines the real effects of credible disinflation when price setting is staggered the results are surprising a fairly quick disinflation causes a boom this finding suggests that nominal price rigidity alone does not explain why disinflation is costly in actual economies this abstract was borrowed from another version of this item

input and output inventories in general equilibrium we build and estimate a two sector goods and services dynamic stochastic general equilibrium model with two types of inventories materials input inventories facilitate the production of nished goods while nished goods output inventories yield utility services the model is estimated using bayesian methods the estimated model replicates the volatility and cyclicality of inventory investment and inventory to target ratios although inventories are an important element of the model s propagation mechanism shocks to inventory e ciency or management are not an important source of business cycles when the model is estimated over two subperiods pre and post 1984 changes in the volatility of inventory shocks or in structural parameters associated with inventories such as the input inventory to output ratio play a small role in reducing the volatility of output

state dependent pricing and the general equilibrium dynamics of money and output economists have long suggested that nominal product prices are changed infrequently because of fixed costs in such a setting optimal price adjustment should depend on the state of the economy yet while widely discussed statedependent pricing has proved difficult to incorporate into macroeconomic models this paper develops a new tractable theoretical state dependent pricing framework we use it to study how optimal pricing depends on the persistence of monetary shocks the elasticities of labor supply and goods demand and the interest sensitivity of money demand

economic reform growth and the poor evidence from rural ethiopia abstract a new decomposition of poverty changes is developed to analyse the determinants of poverty changes during a period of economic reform 1989 1995 in villages in ethiopia poverty fell substantially but with diverse experiences across villages shocks mattered but the main factors driving consumption changes were relative prices changes resulting in changes in the returns to land labour human capital and location the experience of the poor is mixed one group of the poor in 1989 with relatively good land and location outperformed all other households while another group with much poorer endowments and location experienced virtually unchanged and persistent poverty

degrees of processing and changes in the cyclical behavior of prices in the united states 1869 1990 price indices for periods before the second world war place more weight on less processed products than do their postwar counterparts to an extent that exaggerates the change over time in the composition of aggregate output prices of less processed products are especially procyclical in levels and inflation rates thus comparisons between historical and postwar series can give biased measures of changes in the cyclical behavior of the aggregate price level also changes in the behavior of the aggregate price level must be distinguished from changes in the behavior of prices of given products subject to a given degree of processing

the demand for local telephone service a fully discrete model of residential calling patterns and service choices we present an empirical model of households choices among local telephone service options for example between flat rate and measured service and the interrelation of these choices with the number and average duration of local calls households make at each time of day to each geographical zone using a nested logit model with estimation performed on a randomly selected subset of the households calling patterns we calculate elasticities of demand for each local service option number of calls average duration and revenues with respect to the fixed monthly charges and the usage charges for calling under each option we find moderate price elasticities of number of calls with respect to usage charges for households subscribing to measured service nevertheless raising usage charges has a negligible effect on revenues since a sufficient number of households either originally subscribe to flat rate service or convert to flat rate service in response to higher usage charges we find a high elasticity of demandfor each service option with respect to itsfixed monthlyfee this indicates high substitutability among service options the shift among service options induces new calling patterns which wefind to be a small but not negligible indirect effect e most telephone operating companies offer residential customers several options for local service there are two general categories of service flat rate service under which a household can for a fixed monthly charge make an unlimited number of calls within a specified geographical area and measured service for which the household pays a lower fixed monthly fee but can make only a specified number or dollar value of calls at no extra charge after which charges are incurred for additional calls various flat rate services differ in the size of the geographical area in which calling is at no extra charge with higher monthly fees for larger areas measured services differ with respect to the threshold number or dollar value of calls beyond which the customer is charged

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

on market integration and liberalisation method and application to ethiopia the article suggests further improvements in the methodology to analyse market integration it provides corrections to and methodological extensions of recent work in this journal it also presents a way of applying market integration techniques to the analysis of shocks such as market liberalisation and war the method is applied to the effects of liberalisation and the end of the civil war on food markets in ethiopia the conclusion is that liberalisation had important effects on the long run and short run integration of food markets