exchange rates and the fiscal theory of the price level abstract this paper addresses exchange rate determination under a nominal interest peg in a two country cash in advance model under two types of cash in advance constraints if both governments peg the nominal interest rate on domestic bonds there is a continuum of equilibria each consistent with different nominal exchange rates and real resource allocations the well known finding of equilibrium uniqueness under a nominal interest rate peg in a closed economy does not survive in a multi country multi currency setting

the contingent governance of teams analysis of institutional complementarity the first purpose of this paper is to design a model of governance structure called the contingent governance which can control the free riding problem in teams in the second best manner the second is to show by a new method of comparative static analysis that the effectiveness of the contingent governance may be enhanced by complementary institutional arrangements of the imperfect labor market and bank centered financial system the paper discusses the implications of such institutional complementarity for the dynamic change of the japanese main bank system and financial system design of transitional economies copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the fiscal theory of the price level in a world of low interest rates abstract a central equation for the fiscal theory of the price level ftpl is the government budget constraint or government valuation equation which equates the real value of government debt to the present value of fiscal surpluses in the past decade the governments of most developed economies have paid very low interest rates and there are many other periods in the past in which this has been the case in this paper we revisit the implications of the ftpl in a world where the rate of return on government debt may be below the growth rate of the economy considering different sources for the low returns dynamic inefficiency the liquidity premium of government debt or its favorable risk profile this article is part of a special issue entitled fiscal and monetary policies

the ins and outs of unemployment in canada 1976 2008 this paper studies the flows into and out of unemployment in canada at an aggregate and a number of disaggregated levels i find that inflows into unemployment are countercyclical and outflows are procyclical at an aggregate level changes in the rate at which individuals leave unemployment account for most of the changes in unemployment rates in canada between 1976 and 2008 however flows into unemployment matter more at some disaggregated levels there are also some differences in the contributions of flows into and out of unemployment to changes in unemployment rates across the 1981 82 and 1990 92 recessions ce texte etudie les entrees et sorties du chomage au canada au niveau agrege et a un certain nombre de niveaux de desagregation on decouvre que les entrees en chomage sont contre cycliques et les sorties pro cycliques au niveau agrege les changements dans le taux de sorties du chomage expliquent le gros des changements dans les taux de chomage au canada entre 1976 et 2008 cependant les flux a l entree sont plus importants a certains niveaux de desagregation on note aussi des differences dans la contribution des flux a l entree et a la sortie du chomage aux changements dans les taux de chomage au cours des recessions de 1981 82 et de 1990 92

the new pattern of regional unemployment causes and policy significance in common with most oecd countries unemployment in britain has differed significantly between regions but the persistence of relative regional unemployment rates in britain has been until recently particularly striking however during the i990 93 recession the relative regional unemployment pattern changed significantly for the first time in seventy years our primary purpose here is to understand these recent changes and to examine what might be learned about the contribution of economic policies to the amelioration of both regional unemployment rate differentials and the amplitude of regional unemployment cycles finally we ask whether there are any policy lessons to be drawn from the recent cycles in regional unemployment patterns which might provide insight into the amplitude of macro economic cycles

a game theoretic view of the fiscal theory of the price level the goal of this paper is to probe the validity of the fiscal theory of the price level by modelling explicitly the market structure in which households and the government make their decisions i describe the economy as a game and i am thus able to state precisely the consequences of actions that are out of the equilibrium path i show that there exist government strategies that lead to a version of the fiscal theory in which the price level is determined by fiscal variables alone these strategies are however more complex than the simple budgetary rules usually associated with the fiscal theory and the government budget constraint cannot be merely viewed as an equilibrium condition

monetary and fiscal theories of the price level the irreconcilable differences the fiscal theory of the price level ftpl has attracted much attention but disagreement remains concerning its defining characteristics some writers have emphasized implications regarding interest rate pegging and determinacy of rational expectations solutions whereas others have stressed its capacity to generate equilibria in which price level trajectories mimic those of bonds and differ drastically from those of money supplies we argue that the ftpl attained prominence precisely because it appeared to provide a theory whose implications differ greatly from conventional monetary analysis accordingly we review monetarist writings to identify the primary distinctions in addition we review recent findings concerning learnability and therefore plausibility of competing rational expectations equilibria these indicate that when ftpl and monetarist equilibria differ the latter are more plausible in the vast majority of cases under ricardian assumptions necessary for clear distinctions theoretical analysis indicates that fiscal and monetary coordination is not necessary for macroeconomic stability copyright 2005 oxford university press

fiscal consequences for mexico of adopting the dollar dollarization implies a reduction in the menu of assets available to the government and to the private sector in managing risk whatever the gains from dollarization the costs of reducing the asset menu need to be weighed against them this paper presents models one a simple generalization of a well known model of tax smoothing by ba1ao in which these costs are explicit along the way it suggests that there is likely to be no reduction in interest costs to the government from dollarization recently economists have been paying increasing attention to a dynamic general equilibrium approach to the theory of the price level that is often called the fiscal theory of the price level or ftpl this way of thinking emphasizes the role of fiscal and monetary policy in determining the risk and return properties of government liabilities it is particularly useful in analyzing proposals for large scale institutional changes that imply shifts in monetary and fiscal policies when dollarization is considered from this perspective some disadvantages are brought to light that may not be so apparent from other points of view section 1 below lays out the main ideas of ftpl section 2 displays a model that extends an earlier one of barro s to argue that optimal fiscal policy will use surprise inflation to achieve lower deadweight tax loss than would otherwise be possible section 3 considers the composition of government liabilities along the lines of the theory of corporate finance asking if dollarization will reduce the cost of funds section 4 presents annual estimates of the unanticipated returns to holders of u s government debt to show that these are substantial and are to some extent timed to match legitimate periods of fiscal stress as the optimality theory of section 2 would suggest section s discusses the lendel of last resort function and its connection to these fiscal issues section 6 briefly discusses some alternatives to pure dollarization in our concluding section 7 we sum up finding much to worry about in the prospect of dollarization

consumer confidence and rational expectations are agents beliefs consistent with the theory consumer confidence is found to have predictive content for a wide range of macroeconomic variables including consumption growth contrary to standard repih we find that on uk data the repih is rejected due to the predictive content of consumer confidence and not labour income we explain this finding in terms of precautionary behaviour extending the hansen and singleton consumption capm model to allow a conditional variance we find a high level of confidence is associated with both greater optimism about the level of consumption and greater uncertainty about the forecaster variance once allowance is made for time aggregation the over identifying restrictions implied by this model are accepted we estimate a small but statistically significant intertemporal elasticity of substitution

fiscal solvency and price level determination in a monetary union abstract this paper applies the fiscal theory of price level determination to the case of a monetary union a fiscal perspective suggests first that the focus of past studies on seigniorage per se may be misplaced second a rise in the level of debt by one member government can raise the common price level throughout the union suggesting a role for fiscal rules third conditions are discussed under which fiscal solvency is not necessary for each member government in a monetary union

the political economy of the neoliberal transformation of french industrial relations the author advances the literature on the role of the state in the decentralization of industrial relations in france by providing a political economic analysis of right and left backed governments in recent decades while both have pursued reforms to reduce regulation and to increase labor market flexibility they have used the state apparatus in different ways to achieve these goals the right has reformed labor law by obtaining partial support from employers associations and unions the social partners the left by contrast has relied on decentralized bargaining with the social partners because its political base would not have accepted flexibility increasing legal reforms the author examines critical episodes of reform in collective bargaining unemployment insurance and employment protection laws to show how the state has intervened in different ways depending on the political identity of the governing coalition

welfare state retrenchment the partisan effect revisited this paper aims to shed light on the role of the ideology of political parties in shaping the evolution of the welfare state in 18 developed democracies by providing empirical findings on the determinants of social programs entitlements and social spending over the period 1981 1999 the paper shows that structural change is a major determinant of the extent of social protection our results suggest that overall spending is driven up by structural change on the other hand strong structural change has a negative influence on welfare entitlements measured by net replacement rates of sickness insurance or unemployment benefits partisan influence plays an important role in the dynamics of the welfare state left wing governments strengthen the positive effect of shocks on aggregate social expenditure while right wing governments undertake even stronger cutbacks in replacement rates as a reaction to structural change

time variation in the dynamics of worker flows evidence from north america and europe vector autoregressive methods have been used to model the interrelationships between job vacancy rates job separation rates and job finding rates using tools such as impulse response analysis we investigate whether such impulse responses change across the business cycle or over time by estimating time varying parameter vector autoregressions for data from north america the usa and canada and europe france spain and the uk while the adjustment process of the labour market to shocks in canada and the usa is similar we find the adjustment process differs much more across the european countries with greater persistence in shocks relative to the usa and canada

dynamics of worker flows and vacancies evidence from the sign restriction approach this paper establishes robust dynamic features of the worker reallocation process in the us labor market i use structural vars with sign restrictions which take the form of restricting the short run negative relationship between vacancies and unemployment i e beveridge curve despite the weakness of these restrictions they reveal a clear unambiguous pattern that when unemployment increases and vacancies drop i both the separation rate and gross separations rise quickly and remain persistently high ii the job finding rate and vacancies drop in a hump shaped manner and iii gross hires respond little initially but eventually rise these results point to the importance of job loss in understanding us labor market dynamics this pattern also holds with respect to different kinds of shocks that induce the same beveridge curve relationship this paper also considers the disaggregate model which uses data disaggregated into six demographic groups and incorporates transitions into and out of the labor force i show that the separation rate continues to play a dominant role among prime age male workers while for other groups changes in the job finding rate are more important copyright 2009 john wiley sons ltd

unemployment and the inter regional mobility of labour the relationship between unemployment and interregional labor migration in the united kingdom is explored using data from the labour force survey for 1984 and 1977 the authors conclude that the experience of unemployment increases the likelihood of migration and that households in areas of high unemployment are more likely to move they also find that during periods of higher overall unemployment migration propensities are reduced annotation

indeterminacy bubbles and the fiscal theory of price level determination abstract the recently developed fiscal theory of price level determination contends that there is an important class of policy rules in which there exists a unique rational expectations solution that shows the price level to be dependent upon fiscal policy and independent of monetary variables the present paper argues however that there is an alternative solution to these models that has entirely traditional or monetarist properties this latter solution is arguably more plausible since it is the solution that is typically regarded as the bubble free fundamentals solution the paper s analysis involves the specification of feasible instrument variables

labor and product market reforms questioning policy complementarity this article proposes a dynamic efficiency wages model with imperfect competition on labor and product markets in this framework job insecurity generates a perverse effect on workers incentives which shifts up the real wages schedule and may yield employment losses product market regulation and redundancy payments contribute to reducing labor turnover thus easing the workers incentive constraint consequently and against conventional wisdom regulations may have a positive impact on employment and a substitution effect may emerge across deregulation policies moreover in some cases a complementarity arises between regulations in product and labor markets both interacting to ensure more stable labor relations

asymmetric volatility spillovers between uk regional worker flows and vacancies this paper investigates volatility spillovers between uk regional job finding job separation and vacancy rates employing a large bayesian logistic smooth transition vector autoregression var model we find high volatility spillovers between uk regional labour markets analyses of net spillovers show that in general shocks to job separation rates tend to spread into job finding and vacancy rates while vacancy rates are usually at the receiving end of shocks transmitted from the job separations and job findings to shed further light on the shock propagation mechanism we also look into more detailed matters such as the differences in spillovers between regions within the same regime and that of the same region but in different regimes

international business cycles world region and country specific factors the paper investigates the common dynamic properties of business cycle fluctuations across countries regions and the world we employ a bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates output consumption and investment in a 60 country sample covering seven regions of the world the results indicate that a common world factor is an important source of volatility for aggregates in most countries providing evidence for a world business cycle we find that region specific factors play only a minor role in explaining fluctuations in economic activity we also document similarities and differences across regions countries and aggregates jel f41 e32 c11 c32

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

money and asset prices in a cash in advance economy an asset pricing model with money introduced via a cash in advance constraint is presented the monetary velocity is variable hence money demand does not obey the trivial quantity equation the effects of disturbances in output and money growth on real balances the price level and interest rates are examined monetary policy has effects on real asset prices the fisher relation and the premium on nominal bonds are discussed the precise role of the timing of information and transactions for properties of price levels and interest rates are clarified

intertemporal substitution exogeneity and surprises estimating life cycle models for canada the authors estimate consumption and labor supply models for canada using u s variables as instruments instead of lagged canadian variables the results suggest that the endogeneity of lagged variables has not been a serious problem in previous studies they also develop estimation methods for use when the agents information sets are unknown and the model contains the realization and the innovation of an endogenous variable the authors use the approach to estimate a labor supply model combining intertemporal substitution and job search and to estimate the labor supply and consumption responses to marginal utility of income changes induced by wage price and interest rate surprises

mobility and innovation a cross country comparison in the video games industry open labour markets are often seen as a precondition for innovation particularly for new industries however this view ignores two core findings of the economic systems literature first that mobility patterns are institutional microsystems that need to be complementary to other institutions in the labour market and second that new industries may be characterised by incremental and complex innovation based on these considerations we ask how mobility affects innovation in the video games industry in the us and japan we find that inter firm mobility is beneficial for innovation in the us but has negative effects in japan we further find that inter functional mobility is beneficial for innovation in both countries our analysis is based on career histories from the video games industry in the us and japan we present an empirical study based on the game development of 815 video games and the careers of 28 426 video game developers who were involved in the development of games released between 1999 and 2009

regional unemployment disparities and their dynamics martin r 1997 regional unemployment disparities and their dynamics reg studies 31 237 252 unemployment in the united kingdom has doubled every decade since the 1960s regional unemployment trends during this period are shown to have been characterized by a high degree of synchronicity and regional unemployment disparities by a remarkable persistence this persistence or stability of the regional unemployment structure or what can be termed co integration of the regional labour market system is argued to be an equilibrium phenomenon although the unusual recession of the early 1990s appears to have disturbed this stable pattern of regional disparities whether this change represents a temporary shock or marks a shift to a new equilibrium geography of unemployment is as yet unclear martin r 1997 les ecarts du chomage regional et leur dynamique reg studies 31 237 252 au royaume uni le chomage a doubletoutes les decennies depuis les annees 60 pendant cette periode ce qui caracterise les

the ins and outs of unemployment an analysis conditional on technology shocks we analyze how unemployment job finding and job separation rates react to neutral and investment specific technology shocks neutral shocks increase unemployment and explain a substantial portion of it volatility investmentspecific shocks expand employment and hours worked and contribute to hours worked volatility movements in the job separation rates are responsible for the impact response of unemployment while job finding rates for movements along its adjustment path the evidence warns against using models with exogenous separation rates and challenges the conventional way of modelling technology shocks in search and sticky price models

forecasting with medium and large bayesian vars this paper is motivated by the recent interest in the use of bayesian vars for forecasting even in cases where the number of dependent variables is large in such cases factor methods have been traditionally used but recent work using a particular prior suggests that bayesian var methods can forecast better in this paper we consider a range of alternative priors which have been used with small vars discuss the issues which arise when they are used with medium and large vars and examine their forecast performance using a us macroeconomic dataset containing 168 variables we find that bayesian vars do tend to forecast better than factor methods and provide an extensive comparison of the strengths and weaknesses of various approaches typically we find that the simple minnesota prior forecasts well in medium and large vars which makes this prior attractive relative to computationally more demanding alternatives our empirical results show the importance of using forecast metrics based on the entire predictive density instead of relying solely on those based on point forecasts

field experiments of discrimination in the market place controlled experiments using matched pairs of bogus transactors to test for discrimination in the marketplace have been conducted for over 30 years and have extended across 10 countries significant persistent and pervasive levels of discrimination have been found against non whites and women in labour housing and product markets rates of employment discrimination against non whites in excess of 25 have been measured in australia europe and north america a small number of experiments have also investigated employment discrimination against the disabled in britain and the netherlands and against older applicants in the united states

capitalist economies and wage inequality this article presents new stylized facts on the incidence of low pay and mobility out of low pay for 13 european countries and the usa women the young the less skilled and part timers are generally most at risk as are those who work in retail hotels catering and personal services however the relative importance of these characteristics can vary from country to country the incidence of low pay varies considerably across countries as does its trend no direct link is found to aggregate employment or to the employment rate of the less skilled nor does the industrial structure of employment have much effect however differences between the low wage production of goods and of services are important inclusive labour relations are central in containing the incidence of low pay by inclusiveness is meant the existence of mechanisms formal or informal to extend terms and conditions negotiated by workers with strong bargaining power to workers with less bargaining power in some countries a national minimum wage is an essential accompaniment the article considers the extent to which countries can maintain the more benign institutions that limit low pay copyright 2009 oxford university press

the fiscal myth of the price level i examine the fiscal theory of the price level according to which non ricardian policy and predetermined nominal government debt fiscally determine prices i argue that the non ricardian policy

new developments in monetary economics two ghosts two eccentricities a fallacy a mirage and a mythos monetary theory and policy are part of intertemporal public finance the two ghosts are the liquidity trap and the real balance effect the eccentricities are negative nominal interest rates and the helicopter drop of money the fallacy is the fiscal theory of the price level a logically inconsistent theory of the link between the government s intertemporal budget constraint and the general price level the mirage is the prediction that financial deregulation and technical change in the payments and settlements technology will cause monetary policy to lose its capacity to influence even nominal economic variables mythos refers to the independent central bank

the fiscal theory of the price level in an open economy abstract recent work loyo e going international with the fiscal theory of the price level manuscript john f kennedy school of government harvard university 1998 dupor b exchange rates and the fiscal theory of the price level journal of monetary economics 45 613 630 has shown that extension of the fiscal theory of the price level to an open economy yields indeterminate prices and exchange rates calling into question the usefulness of the theory this paper shows that by carefully tailoring policies in an independent fashion governments can eliminate price and exchange rate indeterminacy specifically governments are assumed to care about the welfare of their agents so that they never set policy to yield an intertemporal government budget surplus

a new look at variation in employment growth in canada the role of industry provincial national and external factors we examine fluctuations in employment growth using canadian data from 1976 to 2010 we consider a wide range of models and examine the sensitivity of our findings to modelling assumptions the results from our most preferred model which we selected using the bayesian information criteria indicate that most of the variance in employment growth that is not due to the idiosyncratic error comes from domestic sources with most of this coming from industry and provincial factors overall we find that external and national factors play a much smaller role in employment fluctuations than in earlier research we provide some possible explanations for these differences and discuss the implications of our findings for public policy and theory

structural reforms in europe and the in coherence of institutions the aim of this paper is to analyse the consequences of some structural reforms on the institutional coherence of oecd countries particularly in continental europe and on their economic performance particularly as regards employment because institutions in developed political economies are interrelated through a complex network of complementarities institutional change has consequences beyond the area concerned in a reform this also implies that there are complementarity effects in reforms themselves a challenge of reform programmes is therefore to achieve a new type of complementarity between reformed institutions the paper presents empirical evidence questioning the compatibility of the ongoing structural reforms in product and labour markets with the existing institutional structures in some oecd countries the coherence of the flexicurity strategy i e a combination of labour market flexibility and a generous welfare state is also questioned from the point of view of both economic efficiency and political economy

the indeterminacy of prices under interest rate pegging the non ricardian case abstract this paper investigates the issue of price level indeterminacy under a pure interest rate peg in models that depart from standard ricardian assumptions using a monetary version of blanchard s finite horizons model i find wealth effects operating on government bonds are not sufficient to determine a unique price level next i consider price determination under a non ricardian fiscal authority i show that if agents rationally perceive the possibility of fiscal default the price level is again indeterminate i conclude that departures from ricardian equivalence are not sufficient to ensure a unique price level under a monetary policy of pure interest rate pegging

the dynamics of spillover effects during the european sovereign debt turmoil abstract in this paper we modify and extend the framework of diebold and yilmaz 2011 to quantify spillovers between sovereign credit markets and banks in the euro area spillovers are estimated recursively from a vector autoregressive model of daily changes in credit default swap cds spreads with exogenous common factors we account for interdependencies between sovereign and bank cds spreads and derive generalized impulse response functions specifically we assess the systemic effect of an unexpected shock to the creditworthiness of a sovereign or country specific bank index on other sovereigns and bank cdss between october 2009 and july 2012 channels of shock transmission from or to sovereigns and banks are summarized in a contagion index and its four components i among sovereigns ii among banks iii from sovereigns to banks and iv from banks to sovereigns we also highlight the impact of policy related events on the contagion index