macroeconomic equilibrium and reform in a transitional economy we build a general equilibrium macro model of a transitional economy to reflect four stylized facts among these are that central planning has left a legacy of highly concentrated industry and a residue of price controls and rationing an almost classical dichotomy obtains in the model monetary expansion leaves output and employment unchanged despite the existence of unemployment though leisure time declines however the economy displays a high degree of complementarity between the state controlled and private sectors giving rise to keynesian multiplier effects we also analyse the effects of price liberalization and privatization on the properties of the economy

consumption and equilibrium interest rates in stochastic production economies in this paper we analyze the behavior of equilibrium real interest rates in an identical consumer economy in which the preferences are represented by time additive logarithmic utility functions and production technologies are cobb douglas with stochastic constant returns to scale the following main results are established i when there is no relative price uncertainty it is shown that the equilibrium interest rate exhibits a mean reverting tendency a nontrivial steady state distribution is found to exist for the equilibrium interest rate the properties of the equilibrium interest rate are also derived and discussed ii in a multigood economy even with additive preferences across goods the equilibrium interest rates depend explicitly on relative prices the substitution possibilities in production technologies induce this result this is in contrast to the findings of richard and sundaresan 11 who show that the analytical general equilibrium term structure of interest rates formula of cox ingersoll and ross 5 is unaffected by the introduction of relative price uncertainty when the technologies are linear and hence involve no substitution furthermore we relate our results to those of cox ingersoll and ross 5 breeden 3 and richard and sundaresan 11 with special emphasis on stochastic production and realtive price uncertainty

evaluating the economic impact of international remittances on developing countries using household surveys a literature review abstract this literature review covers 50 recent empirical studies of the economic impact of international remittances on the developing world that are based on household survey data it begins by reviewing the considerable methodological problems confronting economic work on international remittances and then examines the strengths and weaknesses of various economic studies of the impact of remittances in the developing world on such outcomes as poverty and inequality health and education investment and savings labour supply and participation and economic growth it finds that while international remittances generally have a positive impact on poverty and health in the developing world remittances can have negative effects on labour supply education and economic growth

the purchasing power of money and nominal interest rates a re examination while it has been known for some time that under uncertainty the original version of the fisher hypothesis is not precisely correct empirical researchers have largely ignored this fact such an omission has possibly resulted in erroneous conclusions concerning other hypotheses most notably the impact of prices on the real economy this paper clarifies some of the previous interpretations of the existing empirical literature and provides a theoretical version of the relation between prices and interest rates empirical tests based on both the livingston survey data and data from time series forecasting models provide support for the fisher effect and the hypothesis that only covariance risk is priced in the treasury bill market one of the basic hypotheses concerning rationality in financial markets is based on statements generally attributed to fisher 18 fisher argued that the nominal or money rate of return on an asset should compensate an investor for his or her required real rate of return and changes in the purchasing power of money for the uncertainty case fisher replaced known purchasing power changes with the expected inflation rate whereas the fisher relationship under certainty is well defined his basic theorem under uncertainty is not precise as fama 15 has argued it is changes in the purchasing power of money not the inflation rate that should concern investors under uncertainty the expected value of one is not by jensen s inequality the inverse of the expected value of the other moreover fama and farber 16 grauer and litzenberger 20 and benninga and protopapadakis 3 have shown that when investors are risk averse the fisher relationship will generally not hold even after adjustment has been made for the distinction between purchasing power changes and the inflation rate in particular these authors show that an adjustment must be made for the fact that the real rate of return on nominal bonds is random while these issues have been discussed in the theoretical literature they have largely been ignored in the empirical work on this topic given the fact that nominal rates do not seem to adjust as rapidly to price changes as fisher hypothesized numerous empirical researchers have expanded the basic fisher model in an attempt to explain this empirical anomaly these extensions include the incorporation of a inflation rate variability and the growth in real output

forward and futures prices with markovian interest rate processes the authors derive a closed form expression for the differences between forward and futures prices in the framework of a lucas equilibrium model they calculate this difference for fixed income securities in two ways using historic interest rate data to calibrate the matrix of nominal state prices and testing a large sample of randomly generated state price matrices in both cases the authors find few meaningful differences between forward and futures prices larger differences are generated from highly diagonal state price matrices the authors conclude that in economically relevant circumstances the costs of marking to market for fixed income securities are negligible copyright 1994 by university of chicago press

the term structure of interest rates in a partially observable economy this paper investigates the term structure of interest rates in a multiperiod production and exchange economy with incomplete information unable to observe their stochastic investment opportunities investors engage in dynamic bayesian inference this results in the endogenous identification of a more complex production function which generates a richer term structure resembling the one that actual market prices imply in addition this paper introduces a characteristic function of the term structure and demonstrates that in contrast with a fully observable economy the widely investigated expectations hypothesis holds true only if interest rates are nonstochastic this paper investigates the term structure of interest rates in a dynamic production and exchange economy with an unobservable productivity factor in order to estimate the unobservable stochastic investment opportunities rational investors engage in dynamic bayesian inference anticipated changes in investors quality of information about the fluctuations of the economic state variable affect equilibrium demands and prices this results in the endogenous identification of a more complex production function which induces a richer term structure term structures of interest rates in a partially observable economy resemble term structure curves that actual market prices imply this paper also introduces a characteristic function of the term structure and demonstrates that in contrast with a fully observable economy the widely investigated expectations

remittances investment and rural asset accumulation in pakistan internal and external migration can have a profound impact on rural asset accumulation in most third world countries in many african asian and latin american countries the bulk of the labor force still lives in the countryside in these countries the large difference between expected rural and urban or foreign incomes coupled with the risk reducing functions of migration causes workers to migrate either to urban centers or abroad the remittances defined as the money or goods sent home by migrant workers can have a large effect on the accumulation of assets in these rural areas for example an inflow of external remittances to rural households at the upper end of the income distribution could increase land accumulation by the rich in general terms the effect of remittances on asset accumulation in a rural third world economy depends on answers to three questions a who migrates b how much net income do migrants remit and c what are the marginal effects of these remittances on household consumption and investment because of data limitations in this article i propose to examine only the first and the third questions other researchers have addressed the second issue in the past surprisingly little attention has been focused on the question of the marginal effects of remittances on household consumption and investment in the rural third world this inattention has been due to three considerable methodological problems the first is fungibility because remittances are like any other form of cash income it is difficult to associate this income source with any particular changes in household expenditure behavior the second problem relates to the multiple round effects of remittances on the local economy for example an inflow of remittances into a rural area may lead to a surge in expenditures in housing which may in turn create new income and employment opportunities for the poor and unskilled unfortunately however few studies have

evaluating unemployment policies what do the underlying theories tell us the paper surveys unemployment policies for advanced market economies and evaluates them by examining the predictions of the underlying macroeconomic theories the basic idea is that for the most part different unemployment policy prescriptions rest on different macroeconomic theories and our confidence in the prescriptions should depend at least in part on theories ability to predict some salient stylized facts about unemployment behavior the paper considers four types of policies laissez faire demand management policies supply side policies and structural policies copyright 1995 by oxford university press

savings and stabilization policy in a pre post socialist economy a simple macroeconomic model of a reforming socialist economy is presented with queuing in period one but market clearing prices in period two if queues grow longer each household chooses to save more not because it is forced but to economize on queuing effort for the benchmark case perfect foresight immediate price liberalization is the government s optimal policy it raises welfare the more so the greater is the monetary overhang and in terms of full prices it is deflationary at least eventually the model then is modified to allow for indexation a resale market adaptive expectations and limited credibility copyright 1995 by ohio state university press

term structure inflation and real activity this paper estimates an internally consistent structural model that imposes cross sectional restrictions on the dynamics of the term structure of interest rates inflation and output growth distinct from previous term structure settings this model introduces both time varying central tendencies and a stochastic conditional mean of output growth the estimation of the model which is based on u s data over a 1960 to 2005 sample period provides reliable estimates for the implicit term structures of real interest rates expected inflation rates and inflation risk premia as well as for expectations of macroeconomic variables the model has better out of sample forecasting properties than a number of alternative models and it contradicts the puzzling evidence that during the great moderation in inflation subsequent to the mid 1980s the forecasting ability of structural models deteriorated with respect to atheoretic statistical models

inflation forecast errors and time variation in term premia the expectations theory of the term strueture is well known to give wrong signals as to the future course of long term interest rates one explanation involves rational time varying term premia however the anomaly may also be due to inflation forecast errors we study survey forecasts of inflation it seems that the respondents forecasts are insufficiently adaptive interest rates reflect expectations similar to the inflation forecasts as a result past survey forecast errors reliably predict premia on u s government bonds

tax disturbances and real economic activity in the postwar united states abstract this paper investigates the macroeconomic effects of cyclical fluctuations in marginal tax rates it finds that systematically including tax variables in a standard real business cycle model substantially improves the model s ability to reproduce basic facts about postwar u s business cycle fluctuations in particular modeling fluctuations in personal and corporate income tax rates increases the model s predicted relative variability of hours and decreases its predicted correlation between hours and average productivity fluctuations in tax rates produce large substitution effects that alter the leisure labor supply decision

international debt and world business fluctuations abstract the international transmission of real productivity disturbances is examined in an optimizing model with two countries each inhabited by an infinitely lived representative consumer producer we analyze the dynamics of output consumption investment interest rates and net external debt foreign productivity shocks can have positive or negative impacts on domestic output and international debt depending on the intertemporal distribution of the shocks transient foreign shocks are shown to be positively transmitted and lead to increased domestic indebtedness while permanent foreign shocks are negatively transmitted and lead to a decline in domestic indebtedness

fiscal policy and the term structure of interest rates abstract this paper examines the impact of fiscal policy in a non monetary one factor multi period neoclassical model with uncertainty it shows that a countercyclical change in fiscal policy tends to reduce the instability in the economy and in so doing lowers the premium of long term over short term interest rates the term structure premium when the policy goes into effect at the time of the initial shock if the policy does not go into effect until the period after the initial shock has occured however it will tend to raise the term structure premium

russian voting and the initial economic shock of hyperinflation this paper addresses the issue of economicvoting in transitional democracies using data from the russianfederal elections it argues that the shock of inflation thatfollowed the fundamental economic reform has a lastinginfluence on voters specifically it shows that in russia where inflationary policy led to hyperinflation and thewidespread loss of personal savings the magnitude of savingslost at that time continues to explain a significant portionof the variation in the regional support for the communistparty in parliamentary and presidential elections

inflation expectations real rates and risk premia evidence from inflation swaps this paper develops a model of the term structures of nominal and real interest rates driven by state variables representing the short term real interest rate expected inflation inflation s central tendency and four volatility factors that follow garch processes we derive analytical solutions for nominal bond yields yields on inflation indexed bonds that have an indexation lag and the term structure of expected inflation unlike prior studies the model s parameters are estimated using data on inflation swap rates as well as nominal yields and survey forecasts of inflation the volatility state variables fully determine bonds time varying risk premia and allow for stochastic volatility and correlation between bond yields yet they have small effects on the cross section of nominal yields allowing for time varying volatility is particularly important for real interest rate and expected inflation processes but long horizon real and inflation risk premia are relatively stable

does real interest parity hold at longer maturities abstract this paper investigates the validity of real interest parity rip for long maturities across the us britain and germany a standard view commonly referred to as the fisher hypothesis is that over long horizons movements in expected inflation dominate movements in nominal interest rates or that real interest rates are equal over the 1973 1991 sample period however rejections of conditional rip occur at all horizons extending from a quarter to five years the evidence indicates that there appears to be no tendency for expected real interest rates to be equalized over longer maturities

return migration and occupational choice evidence from albania this paper explores the impact of return migration on the albanian economy by analyzing the occupational choice of return migrants while explicitly differentiating between self employment as either own account work or entrepreneurship we find that the own account workers have characteristics closer to non participants in the labor market i e lower education levels while entrepreneurship is positively related to schooling foreign language proficiency and savings accumulated abroad furthermore compared to having not migrated return migrants are significantly more likely to be entrepreneurs showing the positive impact of migration on job creating activities in albania

an estimate of a sectoral model of labor mobility this paper develops a model of sectoral labor mobility and tests its main implications the model nests two distinct hypotheses on the origin of mobility a sectoral shocks and b worker employer mismatch we estimate the relative importance of each hypothesis and find that the bulk of labor mobility is caused by mismatch rather than by sectoral shift we then try to put a value on society s match specific information that is we ask to what extent the availability of the option to change jobs raises gnp we find that the mobility option raises expected earnings by roughly between 8 5 percent and 13 percent of labor earnings which translates to an increase in gnp of between 6 percent and 9 percent

risk aversion and the term structure of real interest rates abstract the term structure of real interest rates is studied in the context of a consumption based general equilibrium model it is shown that the expectations hypothesis is approximately satisfied for low interest rate volatility otherwise the term premia are generally positive

agricultural land use and asset accumulation in migrant households the case of el salvador abstract this paper examines the effect that international migration and remittances have on agricultural outcomes at the household level in el salvador panel data are used to examine land use allocations agricultural asset accumulation and agricultural input use and returns findings suggest that migration and remittances cause a household to reallocate land away from commercial cash crops toward the production of subsistence food crops there is weak evidence that migration and remittances contribute positively to agricultural asset accumulation in the form of land and livestock holdings further results suggest that migration and remittance do not affect agricultural input use and may decrease the returns to land and labour on farm as migrant households farm their land less intensively than non migrant households

inflation the level of investment and interest rates using a microeconomic model the paper examines the impact of inflation on the level of investment in the framework of the loanable funds market the behavior of a typical risk averse borrower and a risk averse lender is investigated it is shown how inflation depresses the level of activity in the loanable funds market and under what conditions the fisherian rule for the relation between inflation and the interest rale holds

the term structure of interest rates over the business cycle abstract whether real gnp is assumed to be trend stationary or difference stationary which implies that shocks have transitory or permanent effects is critically important in explaining the behavior of the forward risk premium the term risk premium and changes in the yield curve over the business cycle while this is the main result there are two additional results of interest first although movements in the nominal yield spread are useful in predicting future economic activity these movements are not enough to separate real from nominal shocks the source of the shock can be determined if movements in the spread and shifts in the nominal yield curve are used jointly second the yield differential which is defined as the difference between the yields on inflation indexed bonds and nominal bonds is generally a biased predictor of expected inflation and may signal the wrong information about changes in expected inflation

network effects and the dynamics of migration and inequality theory and evidence from mexico international migration is costly and initially only the middle class of the wealth distribution may have both the means and incentives to migrate which can increase inequality in the sending community however the migration networks formed lower the costs for future migrants which can in turn lower inequality this paper shows both theoretically and empirically that wealth has a nonlinear effect on migration and then examines the empirical evidence for an inverse u shaped relationship between emigration and inequality in rural sending communities in mexico after instrumenting we find that the overall impact of migration is to reduce inequality across communities with relatively high levels of past migration we also find some suggestive evidence for an inverse u shaped relationship among communities with a wider range of migration experiences

migration networks and microenterprises in mexico are migration networks associated with lower capital costs or the alleviation of capital constraints we examine these questions with data measuring access to remittance flows among small scale entrepreneurs in mexico using a survey of more than 6000 self employed workers and small firm owners located in 44 urban areas of mexico we estimate the impact of attachment to migration networks on the level of capital investment the capital output ratio sales and profits of microenterprises the impact is identified from the geographic pattern of migration from mexico driven by the completion of rail lines in the early 1900s for the full sample of firms we find that migration is associated with higher investment levels and higher profits but not higher sales the strongest effects on investment are in the categories of automobiles tools and inventories when the sample is limited to firms in high capital sectors investment sales and profits all increase with attachment to the migration networks suggesting that attachment to the migration network alleviates capital constraints in those sectors

commodity own rates real interest rates and money supply announcements abstract this paper develops a measure of the real interest rate that is based on commodity own rates the rate at which one can contract to exchange units of a commodity today for units of the commodity in the future we use this measure to study the impact of money supply announcements on the real interest rate we find that money shocks have little effect on one and three month real interest rates however there is a strong positive relation between money shocks and six and twelve month real interest rates

remittances and financial inclusion evidence from el salvador this paper investigates the impact of remittances on financial inclusion this is an important issue given recent studies showing that financial inclusion can have significant beneficial effects on households using household level survey data for el salvador the authors examine the impact of remittances on households use of savings and credit instruments from formal financial institutions they find that although remittances have a positive impact on financial inclusion by promoting the use of deposit accounts they do not have a significant and robust effect on the demand for and use of credit from formal institutions if anything by relaxing credit constraints remittances might reduce the need for external financing from financial institutions while at the same time increasing the demand for savings instruments

the optimal migration duration and activity choice after re migration if migrants return to their origin countries two questions arise which are of immediate economic interest for both immigration and emigration country what determines their optimal migration duration and what are the activities migrants choose after a return little research has been devoted to these two issues this paper utilises a unique survey data set which records activities of returned migrants we first illustrate the activities of immigrants after returning we show that more than half of the returning migrants are economically active after return and most of them engage in entrepreneurial activities we then develop a model where migrants decide simultaneously about the optimal migration duration and their after return activities guided by this model we specify and estimate an empirical model where the after return activity and the optimal migration duration are simultaneously chosen

the gilts market as an on line window on expected inflation it is argued that government policy could be greatly improved by the existence of a gilts market window on expected inflation the indexed gilts method for measuring expected inflation developed by levin and copeland 1993 is described and extended this extended method is applied to the 41 market days between 20 august 1992 and 15 october 1992 in order to observe how the developing crisis associated with britain s departure from the european exchange rate mechanism affected real interest rates expected inflation and the inflation uncertainty premium the estimates for this period demonstrate that it is technically possible with the indexed gilts method to read the financial markets forecast of the future path of inflation in the uk in addition the estimates show quite clearly that the expected inflation path alters in response to external shocks and to subsequent policy reactions

international migration remittances and household investment evidence from philippine migrants exchange rate shocks how do households respond to overseas members economic shocks overseas filipinos in dozens of countries experienced sudden heterogeneous changes in exchange rates during the 1997 asian financial crisis appreciation of a migrant s currency against the philippine peso leads to increases in household remittances from overseas the estimated elasticity of philippine peso remittances with respect to the exchange rate is 0 60 positive migrant shocks lead to enhanced human capital accumulation and entrepreneurship in origin households child schooling and educational expenditure rise while child labour falls households also work more hours in self employment and become more likely to start relatively capital intensive household enterprises

interpreting the movements in short term interest rates this article uses modern asset pricing theory to examine the behavior of short term nominal interest rates over the past twenty five years the analysis investigates whether variation in the stochastic behavior of consumption growth and inflation can explain movements in the rate of interest the model estimated allows for taste shocks to utility the authors results reveal that much of the month to month movement in nominal interest rates reflects changes in the real rate and the risk premia in addition to inflationary expectations copyright 1992 by university of chicago press

the aggregate effects of sectoral reallocations abstract can a one time permanent change in the fundamentals behind the sectoral composition of the economy prompt an aggregate downturn can this downturn be non negligible even if one uses us data to determine the relative size of gross vs net job flows and the importance of job creation costs can one consider the military build down of the 1990s as a plausible cause for the 1990 1991 recession do sectoral reallocations generate responses that are qualitatively similar to productivity shocks we use a variant of the mortensen pissarides 1994 review of economic studies 61 397 415 job creation destruction model calibrate it to us labor market data and run experiments that suggest one can answer yes to all these questions

a test of the cox ingersoll and ross model of the term structure we test the theory of the term structure of indexed bond prices due to cox ingersoll and ross cir the econometric method uses hansen s generalized method of moments and exploits the probability distribution of the single state variable in cir s model thus avoiding the use of aggregate consumption data it enables us to estimate a continuous time model based on discretely sampled data the tests indicate that cir s model for index bonds performs reasonably well when confronted with short term treasury bill returns the estimates indicate that term premiums are positive and that yield curves can take several shapes however the fitted model does poorly in explaining the serial correlation in real treasury bill returns article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

sticker shocks using vat changes to estimate upper level elasticities of substitution we estimate the upper level elasticity of substitution between goods and services of a nested aggregate ces preference specification we show how this elasticity can be derived from the long run response of the relative price of a good to a change in its vat rate we estimate this elasticity using new data on changes in vat rates across 74 goods and services for 25 european union countries from 1996 through 2015 depending on the level of aggregation we find a vat pass through rate between 0 4 and 0 7 this implies an upper level elasticity of 3 at the lowest level of aggregation with 74 categories and 1 cobb douglas preferences at a high level of aggregation that distinguishes 10 categories of goods and services

migration remittances and male and female employment patterns little is known about the labor market impacts of workers remittances despite their magnitude in countries with considerable outmigration reports that families receiving international remittances severely curtail their work efforts are fairly common in the popular press e g robert frank 2001 yet we lack rigorous analyses of how male and female labor supplies respond to increases in remittance income to either support or refute these anecdotal observations according to the neoclassical model of labor leisure choice mark r killingsworth 1983 remittances a source of nonlabor income may lift budget constraints raise reservation wages and through an income effect reduce the employment likelihood and hours worked by remittance receiving individuals the receipt of remittances is usually preceded by the out migration of working aged household members however which may induce changes in the labor supply of nonmigrating household members in order to compensate for forgone income or to defray migration related expenses distinguishing the disruptive effect from the income effect of remittance inflows is problematic as most surveys do not contain detailed information on household outmigration and remittance receipt to the extent that these two effects are expected to have opposite impacts on labor supply however we can assess which effect dominates the impact of remittances on the decision to work has been previously examined by edgard rodriguez and erwin r tiongson 2001 in manila and by edward funkhouser 1992 in managua without accounting for the endogeneity of remittances with respect to labor supply they conclude that remittances reduce employment funkhouser also finds that remittances slightly increase self employment while informative these studies focus on the decision to work and do not consider that without altering employment rates remittances may change the hours worked and or the type of work performed in the receiving economy furthermore the impact may be different on male and female labor supplies and responsiveness to remittance income may vary from rural to urban areas using data from mexico a country with a large and growing remittance inflow we address the following questions how does the employment status and hours worked by men and women vary owing to international remittances do male and female labor supplies differ across various types of employment in rural versus urban areas due to higher remittance inflows

the term structure of interest rates in a model with heterogeneous agents abstract this paper examines the term structure of interest rates in a stochastic overlapping generations model several discrete time discrete state models show that the term structure premium is generally positive this paper demonstrates that these results hinge upon the assumption of a single representative agent and if heterogeneous agents are introduced a negative term structure premium cannot be ruled out

remittances and labor force participation in mexico an analysis using propensity score matching summary about 2 5 million mexicans migrated to the united states during 1997 2002 and 1 6 million of them sent remittances to their families did recipients change their labor force status in response to these remittances this question has been examined before unlike the previous studies we separate persistent from sporadic remittances and we use propensity score matching to measure differences in behavior we find limited evidence of labor force participation effects of persistent remittances which is broadly consistent with remittances being an integral part of household s income generation strategy

a re examination of the predictability of economic activity using the yield spread this paper revisits the yield spread s usefulness for predicting future real gdp growth we show that the contribution of the spread can be decomposed into the effect of expected future changes in short rates and the effect of the term premium we find that both factors are relevant for predicting real gdp growth but the respective contributions differ we investigate whether the cyclical behavior of interest rate volatility could account for either or both effects we find that while volatility displays important correlations with both the term structure of interest rates and gdp it does not appear to account for the yield spread s usefulness for predicting gdp growth

general equilibrium properties of the term structure of interest rates abstract the paper examines the allocation of consumption and investment in a three date binomial model in order to determine the sign of the real term structure premium in general equilibrium when production functions are concave markets are complete and future production possibilities are the same irrespective of which state of the world occurs the term structure premium will be positive in incomplete markets constant or increasing absolute risk aversion is sufficient to guarantee a positive term structure premium although in the more likely case of decreasing absolute risk aversion a negative premium cannot be ruled out

the saving collapse during the transition in eastern europe almost all of the transition economies in eastern europe and the former soviet union experienced a severe decline in their national saving rates the saving collapse could be explained by the elimination of involuntary saving a feature of central planning or by a change in equilibrium saving reflecting the new economic circumstances following the end of socialism the predicted saving rates of market economies with the same fundamentals as the transition economies before the transition are computed to test for the presence of involuntary saving the results provide some support for the hypothesis of consumption smoothing also considered is whether differences m the extent of liberalization affected saving rates in the cross section of transition economies this is found to be the case greater liberalization is association with lower saving with a one year lag to the extent that liberalization is associated with future growth this finding is consistent with smoothing m the face of output evolving along j curve

business cycles and labor market search the quantitative implications of labor market search for economic fluctuations are evaluated in the context of a real business cycle model incorporating labor market search into the model is found to improve its empirical performance along several dimensions in particular hours now fluctuate substantially more than wages and the contemporaneous correlation between hours and productivity falls in addition the model replicates the observation that output growth displays positive autocorrelation at short horizons overall the empirical results suggest that the labor market search environment embodies a quantitatively important propagation mechanism copyright 1996 by american economic association

real interest rates and inflation an ex ante empirical analysis we develop a method of measuring ex ante real interest rates using prices of index and nominal bonds employing this method and newly available data we directly test the fisher hypothesis that the real rate of interest is independent of inflation expectations we find a negative correlation between ex ante real interest rates and expected inflation this contradicts the fisher hypothesis but is consistent with the theories of mundell and tobin darby and feldstein and stulz we also find that nominal interest rates include an inflation risk premium that is positively related to a proxy for inflation uncertainty

real and nominal interest rates under uncertainty the fisher theorem and the term structure this paper examines the relation between nominal and real interest rates and the nominal and real term structure under uncertainty we show that two separate risk terms cause the fisher theorem to fail one risk term is related only to the variability of money prices while the other is related to the purchasing power riskiness of the nominal bond monetary policy can affect the value of both these risk terms we also show that the pure expectations hypothesis of the term structure fails for both real and nominal bonds because of risk premia even if the economy is neutral with respect to monetary policy monetary policy can alter the nominal term structure

remittances labour supply and activity of household members left behind abstractthis paper analyses the role of remittances on labour supply and activity of household members left behind by explicitly distinguishing between different types of self employment contrary to the existing evidence we find no dependency effect of remittances our results show that remittances received by households in tajikistan decrease the probability of wage employment and increase that of small scale self employment activities of men staying behind without affecting the number of job specific hours worked any positive effect on economic development would be however limited as self employment is in rather small scale activities that do not generate a regular income stream

nominal prices and interest rates in general equilibrium endowment shocks the outstanding problem of neoclassical monetary theory has been to determine the effect of changes in the money stock on nominal prices and interest rates the classic result is that in the absence of money illusion contracts fixed in nominal terms and other such impedimenta money is neutral thus a doubling of the money stock results in a doubling of the nominal price level and in no change in nominal interest rates except at most for a temporary liquidity effect while the price level is rising to its new level during the adjustment period the nominal interest rate might temporarily drop this neutrality result has conventionally been proved in a static framework in intertemporal models it is necessary to distinguish between static neutrality and dynamic neutrality if a model displays dynamic neutrality fluctuations in the money stock immediately induce a proportional change in the nominal price level and no change in nominal interest rates or any real variable this property is different from and stronger than static neutrality which in dynamic models states only that if the money stock at all dates is doubled so will be the price level at all dates the effects of exogenous shocks in the monetary growth rate on nominal prices and interest rates are analyzed a representative individual rational expectations framework is adopted and a demand for money is generated by entering money in the utility function the effects of monetary shocks on inflation and interest rates are shown to depend on the autocorrelation of the monetary growth rate for example under serial independence the inflation rate equals the monetary growth rate and the nominal interest rate is nonrandom while under positive negative autocorrelation the nominal interest rate is affected positively negatively by positive growth rate shocks i am grateful to the staff of the federal reserve bank of philadelphia to the finance groups at the university of southem california and virginia polytechnic institute and to c j lacivita dan peled john seater and jon sonstelie for valuable comments on earlier drafts

inflation risk premia and the expectations hypothesis abstract we study the properties of the nominal and real risk premia of the term structure of interest rates we develop and solve the bond pricing implications of a structural monetary version of a real business cycle model with taxes and endogenous monetary policy we show the relation of this model with the class of essentially affine models that incorporate an endogenous state dependent market price of risk we characterize and estimate the inflation risk premium and find that over the last 40 years the ten year inflation risk premium has been has averaged 70 basis points it is time varying ranging from 20 to 140 basis points over the business cycle and its term structure is sharply upward sloping the inflation risk premium explains 23 42 of the time variation in the five ten year forward risk premium and it plays an important role in help explain deviations from the expectations hypothesis of interest rates

productivity shocks and business cycles this note uses two measures of productivity growth the solow residual and the dual residual from the cost function to test competing theories of the cycle in a number of oecd countries the empirical results indicate that both demand and supply shocks play a role in driving economic cycles and therefore refute the stronger real business cycle hypothesis

what does the term structure tell us about future inflation abstract this empirical analysis indicates that for maturities of six months or less the term structure of nominal interest rates provides almost no information about the future path of inflation but does provide information about the term structure of real interest rates however as maturities lengthen to nine and twelve months the nominal term structure begins to contain information about future inflation but ceases to provide information about the real term structure these results are explained by differences in the relative variability of expected future inflation changes and real term structure slopes at different points in the term structure

monetary regime changes and the behavior of ex ante real interest rates a multi country study abstract previous research has found that u s monetary regime changes are related to changes in the behavior of ex ante real interest rates this paper examines monetary regime changes in other countries to test whether changes in expected real interest rates are related to monetary regime changes in a systematic manner the results show that while real rates have not been constant across monetary regimes the characteristics of the real rate process shifts differ across countries this evidence is consistent with theories that predict the neutrality of monetary regime changes with respect to real variables

technical progress and aggregate fluctuations abstract we compare the cyclical fluctuations exhibited by a stochastic growth model under various stochastic processes governing technical change all of which are highly autocorrelated the results obtained are quite sensitive to the precise form of this stochastic process in particular the results depend on whether growth is deterministic or stochastic and in each case are quite sensitive to the persistence of an innovation the model does a relatively poor job of accounting for features of observed business cycles when technical change is difference stationary and does a better job when technical change is trend stationary but highly autocorrelated

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

real and nominal interest rates a discrete time model and its continuous time limit i provide a general equilibrium theory of the term structure of real interest rates in a discrete time economy i derive the prices for one period and two period real bonds and a simple recursive formula for general k period bonds and prove that the price formula with appropriately specified parameters converges to that of the cox ingersoll and ross model 1985 in addition i consider the behavior of nominal bond prices in a partial equilibrium setting in which an exogenous price level process is correlated with the real economy finally i provide an illustrative empirical investigation of the model the results indicate a significant correlation between the price level and the growth rate of consumption which does not support the money nuetrality assumption underlying cox ingersoll and ross s nominal bond prices and related empirical studies such as gibbons and ramaswamyu 1992 heston 1991 and pearson and sun 1991 article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies