risk sharing and contagion in networks we investigate the socially optimal design of financial networks that allows to tackle the trade off between risk sharing and contagion we identify conditions on the shock distribution under which full integration or maximal segmentation is optimal we also show that under different conditions the optimal network displays different levels of strength of linkages to other firms or intermediate degrees of segmentation in the latter case the individual and social incentives to establish linkages are not necessarily aligned when firms face heterogeneous distributions of risks they should optimally form linkages only with firms facing risks of the same kind

inflation targeting in emerging market and transition economies lessons after a decade abstract starting in the early 1990s several emerging market and transition economies adopted inflation targeting it in this paper we discuss a number of issues that arise in this context a the definition of it b the role of preconditions for it c the use of intermediate exchange rate targets and d the specification of inflation targets our overall conclusion is that suitably modified it is a useful policy strategy for emes

platform competition in two sided markets many if not most markets with network externalities are two sided to succeed platforms in industries such as software portals and media payment systems and the internet must get both sides of the market on board accordingly platforms devote much attention to their business model that is to how they court each side while making money overall this paper builds a model of platform competition with two sided markets it unveils the determinants of price allocation and end user surplus for different governance structures profit maximizing platforms and not for profit joint undertakings and compares the outcomes with those under an integrated monopolist and a ramsey planner jel l5 l82 l86 l96

money growth targeting by the bundesbank abstract the recent debate over monetary strategies concludes that monetary and inflation targeting lead to very similar patterns of central bank behavior why then do central banks insist on the strategies they use in this paper we develop an answer from political economy arguing that monetary strategies are helpful in solving internal and external coordination problems for the central bank we illustrate the point by reviewing the bundesbank s experience with money growth targeting in the mid 1970s monetary targeting was a signal that the previous monetary regime had been overcome and a means to define the role of monetary policy vis a vis other players in the macroeconomic policy game and to structure the internal monetary policy debate

interest rate smoothing and price level trend stationarity abstract this paper discusses the definition and mechanics of central bank interest rate smoothing under rational expectations a tension arising between interest rate smoothing and macroeconomic stabilization objectives induces non trend stationary price level and money stock behavior the paper thereby helps explain why such nominal non stationarities are widely observed further implications are drawn for base drift distribution of real returns on long term fixed rate nominal debt and operating characteristics of interest rate pegs and policy instruments

bargaining in a network of buyers and sellers abstract we analyze bargaining between buyers and sellers who are connected by an exogenously given network players can make repeated alternating public offers that may be accepted by any of the responders linked to each specific proposer our purpose is to find the conditions of the network which drive the price distribution in equilibrium this paper uses graph theory tools to provide necessary and sufficient conditions regarding the architecture of networks for the subgame perfect equilibrium of the bargaining game to coincide with the walrasian outcome

the role of networks in antitrust investigations antitrust investigations typically focus on the competitive pressures coming from within the defined markets of interest however competitive pressures can also come from other markets even when individually these markets place only weak constraints on one another collectively they may matter a networks approach to modelling competition permits a systemic view of competition that can sometimes paint a more accurate picture we demonstrate this through some simple examples and show more generally how tools from the networks literature can be applied to capture competition across a system of interrelated markets as a leading example we consider antitrust investigations into supermarkets where local geographic markets have been used as the basis of investigation

bilateral bargaining in networks abstract each connected pair of nodes in a network can jointly produce one unit of surplus a maximum number of linked nodes is selected in every period to bargain bilaterally over the division of the surplus according to the protocol proposed by rubinstein and wollinsky equilibrium in a market with sequential bargaining econometrica 53 1985 1133 1150 all pairs which reach an agreement obtain the discounted payoffs and are removed from the network this bargaining game has a unique subgame perfect equilibrium that induces the dulmage mendelsohn decomposition partition of the bipartite network of the set of nodes in this network

inflation forecast targeting implementing and monitoring inflation targets abstract inflation targeting is shown to imply inflation forecast targeting the central bank s inflation forecast becomes an explicit intermediate target inflation forecast targeting simplifies both implementation and monitoring of monetary policy the weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability commitment to target rules may be better than commitment to instrument rules

a theory of buyer seller networks this paper introduces a new model of exchange networks rather than markets of buyers and sellers it begins with the empirically motivated premise that a buyer and seller must have a relationship a link to exchange goods networks buyers sellers and the pattern of links connecting them are common exchange environments this paper develops a methodology to study network structures and explains why agents may form networks in a model that captures characteristics of a variety of industries the paper shows that buyers and sellers acting strategically in their own self interests can form the network structures that maximize overall welfare

monetary policy transmission interest rate rules and inflation targeting in three transition countries in 1991 the rate of inflation in the czech republic hungary and poland was between 35 and 70 at the end of 2001 it is below 8 we setup a small structural macro model of these economies to explain the process of disinflation contrary to a widespread skepticism which permeated a large part of previous research on these issues we show that a simple open macroeconomic model along the lines of svensson 2000 journal of international economics with forward looking inflation and exchange rate expectations can adequately characterize the relationship between the output gap inflation the real interest rate and the exchange rate during the course of transition we use the estimated models to interpret the main features of monetary policy in each country and identify the channels of policy transmission we characterize the policy rules and assess the relative importance of the interest rate channel on aggregate demand and the exchange rate channel which affects both aggregate demand and supply in determining the path of dis inflation in the same context we also tentatively analyze the consequences of attempting a faster path of disinflation finally we evaluate the appropriateness of the inflation targeting framework which has been adopted recently in all three countries and discuss to what extent it represents a discontinuity with the past

imperfect labor mobility and unemployment in ldcs comment in a recent paper in this journal parai and beladi 1997 henceforth pb extend the wellknown harris todaro model to consider imperfect labor mobility they find unambiguous support for protection in the case of a small open economy with unemployment and imperfect labor mobility proposition vii we show that the pb conclusion that the optimal tariff is always positive is incorrect furthermore this note contrasts pb s model with the existing literature on the open economy with unemployment we show that in the limiting case of perfect labor mobility their model does not produce results that economic intuition and the existing literature would lead us to expect we believe that their specification of the elasticity of labor mobility has no economic rationale within the context of the harris todaro framework we briefly explore a simple alternative specification

supermarket choice and supermarket competition in market equilibrium multi store firms are common in the retailing industry theory suggests that cross elasticities between stores of the same firm enhance market power to evaluate the importance of this effect in the u k supermarket industry we estimate a model of consumer choice and expenditure using three data sources profit margins for each chain a survey of consumer choices and a data set of store characteristics to permit plausible substitution patterns the utility model interacts consumer and store characteristics we measure market power by calculating the effect of merger and demerger on nash equilibrium prices demerger reduces the prices of the largest firms by between 2 and 3 8 depending on local concentration mergers between the largest firms lead to price increases up to 7 4

bargaining in stationary networks we study an infinite horizon game in which pairs of players con nected in a network are randomly matched to bargain players who reach agreement are replaced by new players at the same positions in the network we show that all equilibria are payoff equivalent the payoffs and the set of agreement links converge as players become patient several new concepts mutually estranged sets partners and shortage ratios provide insights into the relative strengths of the positions in the network we develop a procedure to deter mine the limit equilibrium payoffs for all players characterizations of equitable and nondiscriminatory networks are also obtained jel c78 d85 competitive equilibrium theory assumes large and anonymous markets in which every buyer can trade with every seller underlying these assumptions are standard goods and services that may be traded at low transaction costs by agents who are not in specific relationships with one another however in many markets goods and services are heterogeneous e g cars apartments or need to be tailored to particular needs e g manufacturing inputs technical support furthermore trad ing opportunities may depend on transportation costs social relationships infor mation advertising trust technological compatibility joint business opportunities free trade agreements etc in such cases it is natural to model the market using a network where only pairs of connected agents may engage in exchange new theories are needed to explore the influence of the network structure on market outcomes many questions arise how does an agent s position in the net work determine his bargaining power and the local prices he faces who trades with whom and on what terms when are prices uniform in the network one possible conjecture is that an agent s bargaining power is determined by his relative number of connections in the network however this simple theory is implausible consider the network of four sellers located at the top nodes and nine buyers located at the bottom nodes depicted in figure 1 assume that each seller supplies one unit of a homogeneous indivisible good each buyer demands one unit of the good and all buyers have identical values for the good the buyer located in the middle has the largest number of links in the network as he is connected to each

using extraneous information to analyze monetary policy in transition economies abstract empirical macroeconomics is plagued by small sample size and large idiosyncratic variation this problem is especially severe in the case of the transition economies we utilize a mixed estimation method incorporating prior information from oecd country data to estimate the parameters of a reduced form transition economy model an exactly identified structural var model is constructed to analyze monetary policy in the transition economies the oecd information increases the precision of the impulse response functions in the transition economies the method provides a systematic way to analyze monetary policy in the transition economies where data availability is limited

trading networks with price setting agents abstract in a wide range of markets individual buyers and sellers trade through intermediaries who determine prices via strategic considerations typically not all buyers and sellers have access to the same intermediaries and they trade at correspondingly different prices that reflect their relative amounts of power in the market we model this phenomenon using a game in which buyers sellers and traders engage in trade on a graph that represents the access each buyer and seller has to the traders we show that the resulting game always has a subgame perfect nash equilibrium and that all equilibria lead to an efficient allocation of goods finally we analyze trader profits in terms of the graph structure roughly a trader can command a positive profit if and only if it has an essential connection in the network thus providing a graph theoretic basis for quantifying the amount of competition among traders

networks versus vertical integration we construct a theory to compare vertically integrated firms to networks of manufacturers and suppliers vertically integrated firms make their own specialized inputs in networks manufacturers procure specialized inputs from suppliers that in turn sell to several manufacturers the analysis shows that networks can yield greater social welfare when manufacturers experience large idiosyncratic demand shocks individual firms may also have the incentive to form networks despite the lack of long term contracts the analysis is supported by existing evidence and provides predictions as to the shape of different industries

efficiency in decentralized oligopolistic markets the paper analyzes quantity competition in economies in which a network describes the set of feasible trades a model is presented in which the identity of buyers of sellers and of intermediaries is endogenously determined by the trade flows in the economy the analysis first considers small economies and provides sufficient conditions for equilibrium existence a characterization of prices and flows and some negative results relating welfare to network structure the second and central part of the analysis considers behavior in large markets and presents necessary and sufficient conditions on the network structure for equilibria to be approximately efficient when the number of players is large

macroeconomic stability and the preferences of the fed a formal analysis 1961 98 the rate of inflation in the u s has declined from an average of 4 5 in the period 1960 79 to an average of 3 6 in 1980 98 between those two periods the standard deviations of inflation and the output gap have also declined these facts can be attributed to the interaction of three possible factors a shift in central bank preferences a reduction in the variability of aggregate supply shocks and a more efficient conduct of monetary policy in this paper we identify the relative roles of these factors our framework is based on the estimation of a small structural macro model for the u s economy jointly with the first order conditions which solve the intertemporal optimization problem faced by the fed overall our results indicate that the policy preferences of the fed and in particular the implicit inflation target have changed drastically with the advent of the volcker greenspan era in addition we find that the variance of supply shocks has been lower and monetary policy has been conducted more efficiently during this period