stabilization policy a reconsideration i introduction in 1936 keynes s general theory explained how fiscal and monetary policy could be used to end depressions since that time no developed country has ever seen a downturn on the scale of the 1930s the general theory was not just a how to book on the avoidance of depressions it was an argument for stabilization policy itself the years since the general theory have seen a revolt against keynesian economics in a revisionist mode milton friedman argued that countercyclical policy cannot affect the average level of unemployment and output robert lucas and thomas sargent 1979 went further contending that it is not only impossible to increase average output it is also impossible to stabilize it more recently lucas 1987 2003 has argued that policies to stabilize output even if effective would yield negligible welfare gains thus stabilization policy should not be a macroeconomic priority lucas s conclusion notwithstanding stabilization policy has long been an explicit or implicit objective of monetary policy in most industrial countries even including those countries with inflation targets the volatility of output has in fact declined in most major industrial countries since the mid 1980s and monetary policy arguably deserves at least partial credit see bernanke 2004 mirroring practice monetary policy research commonly takes it as given that along with price stability stabilization policy the minimization of squared deviations of output around potential is an appropriate policy objective see for example clarida et al 1999 in this article we explore the economic rationale for stabilization as a policy goal concluding that it does in fact deserve high policy priority we survey a large body of literature that critiques the validity of key assumptions in lucas s argument we also offer suggestive evidence that stabilization policy can significantly reduce average levels of unemployment by providing stimulus to demand in circumstances where unemployment is high but underutilization of labor and capital does little to lower inflation a monetary policy that vigorously fights high unemployment should however also be complemented by a policy that equally vigorously fights inflation when it rises above a modest target level the federal reserve act thus wisely enunciated price stability and maximum employment as twin goals for monetary policy ii the case against stabilization policy macroeconomic analysis typically assumes that social welfare depends negatively on both inflation above a modest target level here assumed zero and unemployment above some minimum socially efficient level for example a standard social welfare function is the discounted sum of period losses l sub t of the form see among others barro and gordon 1983 pp 592 93 1 l sub t a u sub t 1 k u sup 2 b pi sup 2 sub t where u sub t and pi sub t are the unemployment and inflation rates in period t and u sup is the natural rate of unemployment the coefficient k is positive reflecting the desirability of unemployment below the natural rate because real economies deviate in many respects from perfect competition the natural rate of unemployment is likely to exceed the socially optimal unemployment rate for example with monopolistic competition goods are underproduced because they are priced above marginal cost so potential output is inefficiently low and equilibrium unemployment is too high standard macroeconomic analysis additionally assumes that inflation is determined by an expectations augmented accelerationist phillips curve of the form 2 pi sub t pi sup e sub t f u sub t u sup epsilon sub t where pi sup e sub t is the expected inflation rate at time t with expectations formed at t 1 and epsilon sub t captures supply shocks to the phillips curve at t

edgeworth price cycles cost based pricing and sticky pricing in retail gasoline markets abstract this paper examines dynamic pricing behavior in canadian retail gasoline markets i find three distinct pricing patterns cost based pricing sticky pricing and sharp asymmetric retail price cycles that resemble the edgeworth cycles of maskin and tirole 1988 i use a markov switching regression to estimate the prevalence of the regimes and the structural characteristics of the cycles themselves i find cycles are more prevalent when there are more small firms and are accelerated and amplified with very many small firms in markets with few small firms sticky pricing dominates the findings are consistent with the theory of edgeworth cycles

unemployment in the soviet union evidence from the soviet interview project an unemployment rate for the urban population living in the european u s s r for the late 1970s is calculated from a survey of 2 793 former sovi et citizens residing in the united states patterns of unemployment i ncidence frequency of multiple spells and unemployment duration by demographic characteristics are compared with u s patterns in contr ast similar unemployment rates for soviet men and women and a posit ive relation between education and unemployment are found the sovie t unemployment rate is low compared to western rates for the 1970s b ut has been matched by west germany and japan in high employment year s copyright 1988 by american economic association

price discrimination in broadway theater a common thread in the theory literature on price discrimination has been the ambiguous welfare effects for consumers and the rise in profit for firms relative to uniform pricing in this study i resolve the ambiguity for consumers and quantify the benefit for a firm i describe a model of price discrimination that includes both second degree and third degree price discrimination using data from a broadway play i estimate the structural model and conduct various experiments to investigate the implications of alternative pricing policies the observed price discrimination may improve the firm s profit by approximately 5 relative to uniform pricing while the difference for aggregate consumer welfare is negligible also i show that the gain from changing prices in the face of fluctuating demand is small under the observed price discrimination

do the russians really save that much alternate estimates from the russian longitudinal monitoring survey we use a new independent survey of 4000 russian households the russian longitudinal monitoring survey or rlms to study their saving behavior the rlms household saving rate 12 is less than half the official figure 29 despite the massive changes of the transition the russian household saving rate of 1994 cannot be shown to be different from that of 1976 the patterns of russian household saving differ from international experience its paradoxical u shaped saving age relationship may be explained by the dramatic deterioration of life expectancies of middle aged russians

the phillips curve macroeconomic policy and the welfare of canadians a review of the two competing paradigms explaining inflation and unemployment fluctuations singles out the keynesian phillips curve as the clear empirical winner over its classic competitors reestimation of the canadian phillips curve for 1957 90 identifies a sharp structural shift toward a high degree of unemployment hysteresis after 1972 the recent attempt of macropolicy to flatten the aggregate demand curve and limit supply side shock accommodation which aims at lower and more stable inflation is then shown to make unemployment higher and more unstable on average to an extent that is an increasing function of the degree of hysteresis understanding and reducing hysteresis and developing a consensus based incomes policy that has a chance of alleviating the dismal trade off should therefore to top research and policy priorities

money demand and quantity constraints evidence from the soviet interview project i introduction there are more than 500 studies of money demand that use time series or pooled data but less than twenty studies that use cross section data time series studies use a limited number of aggregate variables such as income and wealth cross section studies supplement income and wealth with socioeconomic and demographic variables to provide insights that cannot be detected in aggregate data most studies of money demand are for capitalist countries only a few studies exist for socialist countries there are no cross section studies of the demand for money for socialist countries due to lack of data population censuses of the former soviet union did not provide information on household money and wealth pickersgill 1970 and millar 1987 however the soviet interview project sip survey conducted in 1983 provides a large cross section data set of former soviet citizens sip is a retrospective survey of 2793 former soviet citizens who left the soviet union for the united states during the late 1970s and early 1980s the sip survey asked respondents about their last normal period of life in the soviet union for most respondents this was in the late 1970s a period of normal functioning of the administrative command system sip provides a rich database of conventional variables and includes information on rationing eiar variables and other soviet specific variables eiar variables measure shortages participation in the underground economy and access to privileges we examine the effects of eiar factors on the demand for money in addition to conventional variables to obtain a picture of money demand near the end of the administrative command era this paper makes two contributions it is the first to examine the demand for money in a centrally planned economy using cross section data which tests variables other than income and interest rates second this study empirically investigates the effects of income on the marginal utility of income under rationing by studying how quantity constrained respondents may use trade in convertible foreign currencies or barter when income increases thereby lessening money s role as the medium of exchange the ongoing transformation of the former soviet union to a market economy and political pluralism is not an easy process for policymakers the findings of this study of the behavior of households may be useful in setting monetary policies see also collier and mokhtari 1989 ofer and vinokur 1992 mokhtari and gregory 1993 and mokhtari and asgary 1993 policymakers must know the responses of households to changes in quantity constraints underground economic activity and privileges and to other factors during the transition period and beyond moreover our findings may be useful for researchers who investigate the behavioral differences in the money demand of households in two different economic systems ii past research in the administrative command economy money is held for transaction and precautionary purposes private capital markets are absent investment decisions are made by the government money serves as a medium of exchange and income should be the prime determinant of the demand for money under these conditions money should be a necessity and the income elasticity of demand for money should be positive and less than or equal to one other than income we would expect the demand for money in the soviet union to have different determinants than in capitalist countries first capital markets are absent the interest rate is not the opportunity cost of money second consumer good shortages quantity constraints should affect the transaction and the precautionary demand for money 1 households may substitute money for goods to be able to purchase goods in the future at state prices purchase goods from the underground economy at higher prices or reduce their labor supply barro and grossman 1971 1974 1976

gasoline price volatility and the elasticity of demand for gasoline abstract we examine how gasoline price volatility impacts consumers price elasticity of demand for gasoline results show that volatility in prices decreases consumer demand for gasoline in the intermediate run we also find that consumers appear to be less elastic in response to changes in gasoline price when gasoline price volatility is medium or high compared to when it is low moreover we find that when we control for variance in our econometric model gasoline price elasticity of demand is lower in magnitude in the long run

the changing relationship between aggregate price and output the british experience over the past two and a half decades great britain has exhibited the most noticeable increase in inflation variability among the ten major noncommunist industrialized countries in addition there has been an apparent worsening in the output inflation tradeoff this paper attempts to identify and empirically assess possible causes of the deterioration in the british output inflation tradeoff in the context of a new classical type model supply side shocks can cause an increase in the inflation rate and a decrease in real output and it is estimatedthat such shocks interacted with inflation variability to reduce real output roughly 3 3 percent between the period 1957 1968 and the period 1969 1980 also contributing to the deterioration in the output inflation tradeoff it is estimated that the decline in the natural rate of real output due to inflation variability as hypothesized by milton friedman amounted to about 2 3 to 2 5 percent between these two subperiods this abstract was borrowed from another version of this item

on the neutrality of fiscal policy abstract the paper explores the relationships between fiscal policy and real economic activity and prices for the six largest industrialized economies fiscal policy variables are shown to be consistent and rational functions of the behaviour of the economy it is also confirmed that fiscal policy seems to have a consistent impact on subsequent real economic activity and prices when multivariate time series analysis is used to breakdown overall fiscal policy into anticipated and unanticipated components the anticipated components are shown generally to have just as much forecasting ability for subsequently realized economic variables as the unanticipated components this does not appear to be consistent with the implications of pure rational expectations models

an examination of aggregate price uncertainty in four countries and someimplications for real output this stu dy constructs measures of aggregate price uncertainty for four countries canada west germany great britain and the united states and examines the relationship across countries and through time between the inflation rate inflation variability and measures of price uncertainty the results suggest that the higher and more variable inflation of the 1970s increased uncertainty about the aggregate price level in canada great britain and the united states but not west ge rmany and there was a significant negative output effect of aggregate price uncertainty for canada and the united kingdom but not for the united states or west germany copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

wage rigidity in canadian collective bargaining agreements the authors search information on the provisions of 10 947 wage contracts signed in the canadian unionized sector between 1976 and 1999 for evidence of downward nominal wage rigidity the disinclination of wages to fall in nominal dollars below their established level over the sample period real wage reductions were common but nominal wage reductions were rare the probability of downward nominal wage rigidity increased substantially during low inflation periods during such periods apparently there was no reduction in the incidence of real wage cuts but the magnitude of those cuts was modest suggesting a lesser ability of wages to adjust to labor market conditions than at other times

price discrimination and retail configuration the hypothesis that price discrimination based on willingness to pay for quality can occur in multifirm markets is confirmed using microdata on gasoline retailing a test that discriminates between price structures associated with discrimination and with cost driven competitive differentials is developed and implemented with controls for variation in outlet and market characteristics a second test based on profitability variation rejects a competitive peak load pricing explanation for the observed price dispersion the data suggest that price discrimination at the retail level adds at least 9 a gallon to the average price of full service gasoline

product and process innovation the implication of making comparisons between uniform pricing monopolist and second degree price discriminating monopolist the question of simultaneous product and process innovation price discrimination is crucial for technologically evolving industries in this paper we assume that there are two different kinds of

escalators and elevators a phillips curve for keynesians the negatively sloped long run phillips curve remains an issue of contention this paper presents a theoretical model of the phillips curve in which nominal demand growth reduces unemployment caused by stochastic shifts of demand between sectors the model can be understood through the following metaphor keynesian economies are escalator economies in which markets adjust back to equilibrium slowly so that nominal demand growth presents a means of speeding up the escalator process contrastingly new classical economies as set forth by e g lucas 1973 are elevator economies in which adjustment is instantaneous consequently there is no role for nominal demand growth in the adjustment process and to the extent that policy sponsored nominal demand growth is uncertain it may actually disrupt the economy by sending the elevator to the wrong floor

the reform of unemployment compensation choices for east and west abstract the rapid emergence of open unemployment is accompanying moves towards market economies in eastern european countries governments are responding with unemployment benefit schemes which may be seen as a natural and positive complement to economic reform at the same time compensation for the unemployed is often viewed in a negative light in western europe with the 1980s having been a period of retrenchment in the face of higher levels of unemployment this contrast between east and west is used in the paper to stimulate reconsideration of principles of income support for the unemployed given that any civilised society would wish to provide for the unemployed what form should compensation for unemployment take the paper considers the choice between contributory unemployment insurance and means tested unemployment assistance stressing the positive aspects for labour markets of the former how should schemes in western europea be revised do the schemes currently emerging in eastern europe make sense in the light of both the particular circumstances of the change occuring in eastern european economies and the experience with the operation of different schemes in western europe and other oecd countries

interest rates and the fisher effect in india an empirical study abstract this study throws light on the importance of adjustment lags variability of inflation changes in real income etc in the empirical estimation of fisher hypothesis variability of inflation has a significant negative impact on both short and long term interest rates in a developing economy like india the philips curve effect has not been operative in a developing country

competitive price discrimination we model firms as supplying utility directly to consumers the equilibrium outcome of competition in utility space depends on the relationship u between profit and average utility per consumer public policy constraints on the deals firms may offer affect equilibrium outcomes via their effect on u f rom this perspective we examine the profit utility and welfare implications of price discrimination policies in an oligopolistic framework we also show that an equilibrium outcome of competitive nonlinear pricing when consumers have private information about their tastes is for firms to offer efficient two part tariffs

low inflation targeting and long run unemployment the model of akerlof dickens and perry 2000 adp predicts that low inflation may cause unemployment to persist at high levels when applied to u s data their results strongly rejected the conventional nairu model we apply the adp model to swedish data the fact that our swedish data also reject the nairu model has a number of interesting implications for the swedish economy and potentially for other european countries as well the results indicate that raising the swedish inflation target from 2 to 4 percent would bring longrun unemployment down by several percentage points the possibility of adp type long run phillips curves also across the euro countries may raise some concern about the emu project while detailed studies on other countries are needed there is nothing to suggest that these non vertical phillips curves would not differ considerably across the euro countries any single inflation level targeted by the ecb would then generate excess unemployment in individual member states

another perspective on the effects of inflation uncertainty this paper examines the effects of inflation uncertainty on real economic activity by utilizing a flexible dynamic multivariate framework that accommodates possible interaction between the conditional means and variances the empirical model is based on a familiar identified vector autoregressive framework modified to accommodate multivariate generalized autoregressive conditional heteroskedasticity our empirical model is preferred to the baseline var by likelihood based information criteria and it retains the important dynamics of the underlying var we find that an average shock to inflation uncertainty has tended to reduce output growth over three months by about 22 basis points

how much redistribution is possible through commodity taxes abstract this paper aims to quantify the redistribution which can be attained as the outcome of indirect taxation this question is of crucial relevance to many countries which are constrained to depend primarily on indirect taxes i assess the maximum possible redistribution by imposing the most redistributive indirect taxation the public budget is balanced and the real income gain to the worst off is taken as the metric of redistribution ceilings on this metric are first obtained within a general set up and then in a number of specific models the resulting redistribution is found to be meager as this is the outcome of the most redistributive taxation redistribution from any real world indirect taxation will be even smaller

explaining the fame of friedman s presidential address it is noted that although in fact it lacks the revolutionary content commonly ascribed to it friedman s presidential address to the american economic association is very highly regarded as an original and formative contribution it is argued that close attention to the literature shows that it was not initially seen as original and only after an interval of five years did the idea of its revolutionary status retrospectively but suddenly become widely accepted the explanation of this change of view is considered four explanations are suggested one involving terminological confusion one involving a change in theoretical priorities and two involving debates of the 1970s which although they did not in fact do so appeared to build on friedman s presentation and by this appearance gave it an undeserved stature

book value intertemporal pricing and quality discrimination in the us market for books abstract publishers produce books in hardcover and paperback versions with different prices and time of market introduction analysis of detailed book level data reveals that i price cost differentials cannot be explained by cost differences making this an example of quality discrimination ii market introduction time strongly affects sales suggesting that time is the crucial dimension of discrimination and iii there is substantial price rigidity across books and over time prices depend on cost shifters but not on demand shifters i discuss an explanation for this last finding in terms of the nature of demand in this market

selling costs and switching costs explaining retail gasoline margins recent theoretical work has shown that price discrimination can take place in imperfectly competitive as well as monopoly markets the persistence of higher retail margins on unleaded than on leaded gasoline during the 1980s suggests that discrimination may occur even in very competitive markets this article studies a number of cost based explanations for such gasoline pricing as well as the possibility of price discrimination the analysis indicates that gas stations discriminate against groups of customers who are less likely to switch to another station the conclusions highlight the influence of shopping or search costs on pricing decisions even in markets thought to be quite competitive

can the electricity market be characterised by asymmetric behaviour in this paper we test for asymmetric behaviour of industrial and residential electricity demand for the g7 countries using the entropy based test for symmetry suggested by racine j and maasoumi e 2007 a versatile and robust metric entropy test of time reversibility and other hypotheses journal of econometrics 138 2 547 567 racine j and maasoumi e 2008 a robust entropy based test of asymmetry for discrete and continuous processes econometric reviews 28 246 261 the triples test of randles r flinger m policello g and wolfe d 1980 an asymptotically distribution free test for symmetry versus asymmetry journal of the american statistical association 75 168 172 and the bai j and ng s 2001 a consistent test for conditional symmetry in time series models journal of econometrics 103 225 258 test for conditional symmetry using data that spans over three decades we find overwhelming evidence of conditional symmetry of residential and industrial electricity consumption this finding implies that the use of econometric tests based on linear data generating processes is credible

implementation in economies with a continuum of agents we study a general implementation problem for exchange economies with a continuum of players and private information and test the robustness of the results for sequences of approximating finite economies assuming that the designer knows the distribution of the characteristics in the economy we consider continuous and unique implementation in both its equilibrium and dominant strategies versions and obtain results for general self selective first and second best allocations an upper hemicontinuity property of bayesian equilibria of approximating economies for continuous mechanisms is demonstrated using this we can for example conclude that if a given continuous mechanism implements uniquely a walrasian allocation in the continuum economy then all bayesian equilibria of large approximation economies will with probability close to one yield an allocation which is almost ex post pareto optimal

number of sellers average prices and price dispersion abstract a variety of models provide differing predictions regarding the effect of an increase in the number of competitors in a market seller density on prices and price dispersion we review different approaches to generating equilibrium price dispersion and then empirically estimate the relationship between seller density average product price and price dispersion in the retail gasoline industry using four unique gasoline price data sets controlling for station level characteristics we find that an increase in station density consistently decreases both price levels and price dispersion across four geographical areas

inflation and unemployment the world economy today is vastly different from the 1930s when seymour harris the chairman of this meeting infected me with his boundless enthusiasm for economics and his steadfast confidence in its capacity for good works economics is very different too both the science and its subject have changed and for the better since world war ii but there are some notable constants unemployment and inflation still preoccupy and perplex economists statesmen journalists housewives and everyone else the connection between them is the principal domestic economic burden of presidents and prime ministers and the major area of controversy and ignorance in macroeconomics i have chosen to review economic thought on this topic on this occasion partly because of its inevitable timeliness partly because of a personal interest reaching back to my first published work in 1941

a model of the political economy of the united states we develop and test a model of joint determination of economic growth and national election results in the united states the formal model which combines developments in the rational choice analysis of the behavior of economic agents and voters leads to a system of equations in which the dependent variables are the growth rate and the vote shares in presidential and congressional elections our estimates support the theoretical claims that growth responds to unanticipated policy shifts and that voters use both on year and midterm elections to balance the two parties on the other hand we find no support for rational retrospective voting we do reconfirm in a fully simultaneous framework the naive retrospective voting literature s finding that the economy has a strong effect on presidential voting we find congressional elections unaffected by the economy except as transmitted by presidential coattails

on the optimal inflation rate abstract in our incomplete markets economy households choose portfolios consisting of risky uninsurable capital and money money is a bubble it has positive value even though it yields no payoff the market outcome is constrained pareto inefficient due to a pecuniary externality each individual agent takes the real interest rate as given while in the aggregate it is driven by the economic growth rate which in turn depends on individual portfolio decisions higher inflation due to higher money growth lowers the real interest rate on money and tilts the portfolio choice towards physical capital investment modest inflation boosts growth rate and welfare

the optimality of boiteux ramsey pricing consider an economy with one public enterprise that is subject to a budgetary constraint and charges prices according to the first order necessary conditions suggested by boiteux 1956 or in another context by ramsey 1972 we state restrictive conditions sufficient to ensure that the resulting allocation is second best author s abstract

on marginal cost pricing with given tax subsidy rules we provide an existence proof for generalized marginal cost pricing with given tax subsidy rules the novelty is that our approach allows for economic environments where all the generalized marginal cost pricing equilibria are inefficient in the aggregate an example is recalled in order to suggest how non pathological these environments are

nonlinear pricing with random participation the canonical selection contracting programme takes the agent s participation decision as deterministic and finds the optimal contract typically satisfying this constraint for the worst type upon weakening this assumption of known reservation values by introducing independent randomness into the agents outside options we find that some of the received wisdom from mechanism design and nonlinear pricing is not robust and the richer model which allows for stochastic participation affords a more general empirical specification we develop a multidimensional methodology for addressing this class of problems providing two important applications to nonlinear pricing first with nonlinear pricing by a monopolist the familiar nodistortion at the top result persists but in tandem with the surprising conclusion that there is either no distortion at the bottom or bunching second in a simple model of product differentiated duopolists competing with nonlinear pricing we show that generally the duopoly outcome is qualitatively similar to the monopoly outcome however when marginal costs are symmetric and competition is sufficiently intense distortions disappear and the equilibrium outcome takes a remarkably simple form efficient quality allocations with cost plus fee pricing

facts and challenges from the great recession for forecasting and macroeconomic modeling this paper provides a survey of business cycle facts updated to take account of recent data emphasis is given to the great recession which was unlike most other postwar recessions in the united states in being driven by deleveraging and financial market factors we document how recessions with financial market origins are different from those driven by supply or monetary policy shocks this helps explain why economic models and predictors that work well at some times do poorly at other times we discuss challenges for forecasters and empirical researchers in light of the updated business cycle facts

wage inflation in the united kingdom in britain there is little agreement on what determines the growth of wages or indeed on whether a stable wage equation exists in this paper i try to clarify matters in two ways first i aim to represent the data generation process as faithfully and accurately as possible while using with a few modifications the criteria for model selection advanced in davidson et al 1978 second i use five different measures of the pressure of demand rather than just picking on one particular measure 2 it may be helpful at this stage to summarize very crudely the argument and results in section ii having first set out the framework for the rest of the analysis which relates to the period 1961 i 1980 iv i modify the standard real wage model by proxying the desired level of real wages by a moving average of the past level of real wages it is found that the coefficient on the prevailing real wage is equal but of opposite sign to that on the desired wage thus in the long run inflation is independent of the level of real wages the pressure of demand and incomes policy dummies are both found to be significant one would have expected that in the long run the rate of growth of earnings at given price inflation and pressure of demand would respond to differences in the rate of growth of productivity but over the sample period there was no evidence of this once we allowed for incomes policy which implies considerable rigidity in the target rate of growth of wages the analysis so far includes no specifically expectational variables in section iii i use some survey data on wage expectations which have the advantage of being based on quantitative responses one rationale for having wage expectations in a wage equation might be that in a world of staggered contracts where workers care about relative wages they will take into account what they expect to happen to the wages of other workers when settling now a two equation model for wages and wage expectations is presented in the subsequent section and in most respects the results confirm our conclusions from the previous sections however the preferred specification obtained here which encompasses much of the earlier work and probably constitutes progress is one that we have some doubts about and will it is hoped form the basis for future research in this area

opening a can of worms the pitfalls of time series regression analyses of income inequality this paper argues that time series regression analysis is of only very limited use for understanding the determinants of income inequality the argument is based on a combination of results from the time series econometrics literature and several characteristics of inequality itself principally nonstationarity of the data in most inequality regression models and the weak theoretical foundations underlying the models a sample of postwar us data is used to illustrate the problems involved

wage dispersion and inflation we specify a model relating wage dispersion across 16 sectors of uk manufacturing to a rich array of sector specific and macroeconomic variables we find sectoral vacancy dispersion a trade union power proxy short run unemployment and inflation affect wage dispersion in particular we find a strong negative relation between wage dispersion and inflation surprises within a well specified model reinforcing similar findings for the us and israel

the reincarnation of keynesian economics this paper discusses the reemergence of keynesian economics during the past decade it highlights the substantial differences between new keynesian economics and the convictions of early keynesians in particular it points out that new keynesians have adopted many views that were once considered monetarist or classical it concludes that the term keynesian may have outlived its usefulness this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

the genealogy of modern theoretical public economics from first best to second best abstract the development of second best modelling in the seventies has shaped modern theoretical economics the paper discusses some key changes in the economists conceptions the first two sections examine the efficiency equity dilemma the study of non convexities has shown that counterintuitive efficiency enhancing income redistribution might occur the introduction of asymmetric information has shed doubts on virtues of lump sum compensation the last sections focus on the intricate geometry of second best optimisation and the ambiguous value of the signals provided by the price system outside a first best world

consumer and competitor reactions evidence from a field experiment abstract in response to a price change by a single seller it is common for the density of sellers in the market to influence both the quantity response of consumers and the price response of other sellers using field experiment data collected around a series of exogenously imposed price changes we find that an individual retailer with a larger number of competitors faces a more responsive demand this finding is fundamental to a predicted inverse relationship between market prices and the number of competitors we also examine the reaction of rival stations to exogenous price changes and find that the magnitude of a competitor s response is inversely related to the density of stations in the market

management versus ownership ii two fields in economics have developed without much interaction in the past the theory of the firm and mathematical economics the former has accumulated a wealth of thoughts observations on the firm activities without analytical scrutiny the latter has raised the standard of analytical rigor only within simple frameworks which do not fit the nature of the firm activities in the preceding paper ichiishi 1982 a mathematical model of a capitalistic economy was constructed and a rigorous analysis was given to the model this paper presents the economic interpretations implications of the formal study in ichiishi 1982 and shows how the gap between the two fields is bridged it is also intended to serve as a survey article

an ethanol blend wall shift is prone to increase petroleum gasoline demand abstract in 2010 the u s environmental protection agency announced a waiver allowing an increase in the fuel ethanol blend limit the blend wall from 10 e10 to 15 e15 justifications for the waiver are reduced vehicle fuel prices and less consumption of petroleum gasoline leading to greater energy security empirical investigations of this waiver using monte carlo simulations reveal an anomaly where a relaxation of this blend wall elicits a demand response under a wide range of elasticities this demand response can actually increase the consumption of petroleum gasoline and thus lead to greater energy insecurity the economics supporting this result and associated policy implications are developed and discussed

the history of the phillips curve consensus and bifurcation while the early history of the phillips curve up to 1975 is well known less well understood is the post 1975 fork in the road the left fork developed a theory of policy responses to supply shocks in the context of price stickiness in the non shocked sector its econometric implementation interacts shocks with backward looking inertia the right fork approach emphasizes forward looking expectations that can jump in response to anticipated policy changes the left fork approach is better suited to explaining the postwar us inflation process while the right fork approach is essential for understanding behaviour in economies with unstable macroeconomic environments the history of the phillips curve pc has evolved in two phases before and after 1975 with a widespread consensus about the pre 1975 evolution which is well understood bifurcation begins in 1975 when the pc literature split down two forks of the road with little communication or interaction between the two forks the major contribution of this paper and hence the source of bifurcation in its subtitle is to examine contrast and test the contributions of the two post 1975 forks the pre 1975 history is straightforward and is covered in section i the initial discovery of the negative inflation unemployment relation by phillips popularized by samuelson and solow was followed by a brief period in which policy makers assumed that they could exploit the trade off to reduce unemployment at a small cost of additional inflation then the natural rate revolution of friedman phelps and lucas overturned the policy exploitable trade off in favour of long run monetary neutrality those who had implemented the econometric version of the trade off pc in the 1960s reeled in disbelief when sargent demonstrated the logical failure of their test of neutrality and finally were condemned to the wreckage of keynesian economics by lucas and sargent following the twist of the inflation unemployment correlation from negative in the 1960s to positive in the 1970s the architects of neutrality and the opponents of the keynesian trade off emerged triumphant with two major caveats that their own models based on information barriers were unconvincing and that their core result that business cycles were driven by monetary or price surprises floundered without supporting evidence after 1975 the evolution of the pc literature split in two directions each of which has largely failed to recognize the other s contributions section ii reviews the left fork of the road the revival of the pc trade off in a coherent and integrated dynamic aggregate supply and demand framework that emerged in the late 1970s in econometric tests in theoretical contributions and in intermediate macro textbooks this approach which i have called mainstream is resolutely keynesian because the inflation rate is dominated by persistence and inertia in the form of long lags on past inflation an important difference between the mainstream approach and other post 1975 developments is that the role of past inflation is not limited to the formation of expectations but also includes a pure persistence effect due to fixed duration wage and price contracts and lags between

earnings unemployment and the allocation of time over time since an individual s labour market history can be described by a markov chain in state space it is possible to calculate the steady states it is natural to interpret the steady state proportion in unemployment for a group of identical workers as the natural rate of unemployment for this group i e it is the expected proportion that would be employed if the environment were to remain constant it is shown how the natural rate of unemployment is different for different groups the model is estimated using data from a large u s income maintenance experiment the predictions of the model with some exceptions bear up well to confrontation by data the empirical findings also accord well with existing evidence on cross section studies of labour supply we find that labour force participation rates implied by the estimated models are positively related to earnings for all age sex and race groups as expected we demonstrate that the elasticities of the unemployment rates for all groups with respect to expected wage rates are negative and large in absolute value in the case of adults while the role of the wage in allocation of time is not novel the existing neoclassical labour literature uses static labour supply models to interpret participation rate studies

unions wages and the common interest three models have dominated recent research on the relationship between labor unions wage behavior and national economic performance a simple linear model a parabolic model and a political model this article argues that an unemployment mediated linear model is theoretically preferable in a context of low unemployment encompassing labor movements can be expected to restrain wage demands whereas localized unions have much less incentive to do so in a context of high unemployment localized unions should exhibit wage moderation and the pressure on encompassing unions to restrain wage demands is further accentuated these four models are assessed as predictors of wage changes inflation and misery index levels for 15 industrialized nations over the periods 1960 1973 1974 1979 and 1980 1990 the linear models outperform the parabolic and political models in each of the latter two time periods for the mid to late 1970s the simple linear model performs best but for the 1980s the unemployment medi

banks net interest margin in the 2000s a macro accounting international perspective this paper re examines the determinants of net interest margin nim in the banking industries of 15 developed and emerging economies it presents three main contributions with respect to previous studies first we analyze the determinants of nim in the years leading to the 2008 financial crisis second we account for the role of different accounting standards across countries third we use multi way cluster estimation methodologies which control for cross sectional and time series dependence in macroeconomic and banking variables we find that the introduction of international financial reporting standards ifrss contributed to lower nim variations unexplained by standard accounting variables interest rate volatility is found to be positively and strongly related to nim dynamics whereas inflation risk is often found to be a relevant driver of nim cross country differences

taxation as a social choice problem the scope of the laffer argument abstract this paper studies the form of the tax equilibrium set in simple diamond mirrlees models and characterizes the corresponding laffer curves the curves need not ever slope downward and can have multiple local maxima local information about them is thus not sufficient to place restrictions on optimal choice among tax systems in this simple framework the problem of choice among tax systems is shown to have no more structure than an abstract social choice problem

on inflation and real price variability this paper studies the consequences of costly price adjustments for the variability of real prices accompanying inflation for constant elasticity demand and cost of production it is shown that a higher demand a lower cost of production or a lower cost of price adjustment leads to less intertemporal variability of real prices if the marginal cost of production does not increase too fast then the average real price is less than the real price that would prevail in the absence of inflation additionally a higher demand a lower cost of production or a lower cost of price adjustment leads to a higher level of real prices

the relationship between inflation and inflation uncertainty in the uk 1885 1998 abstract using a long series of uk inflation data i have provided strong evidence in favour of the hypothesis that inflationary periods are associated with high inflation uncertainty this result supports the friedman ball hypothesis and has important implications for the inflation output relationship provided that more inflation uncertainty leads to lower output

externalities in economies with imperfect information and incomplete markets this paper presents a simple general framework for analyzing externalities in economies with incomplete markets and imperfect infonnation by identifying the pecuniary effects of these externalities that net out the paper simplifies the problem of determining when tax interventions are pareto improving the approach indicates that such tax interventions almost always exist and that equilibria in situations of imperfect information are rarely constrained pareto optima it can also lead to simple tests based on readily observable indicators of the efficacy of particular tax policies in situations involving adverse selection signaling moral hazard incomplete contingent claims markets and queue rationing equilibria traditional discussions of externalities have emphasized the distinction between technological externalities in which the action of one individual or firm directly affects the utility or profit ofanother and pecuniary externalities in which one individual s or firm s actions affect another only through effects on prices while the presence of technological externalities imply in general that a competitive equilibrium may not be pareto efficient pecuniary externalities hy themselves are not a source of inefficiency the fact that prices change has of course important consequences there are both distributional and allocational effects but the distribution effects net out gains for example hy firms whose prices increase are precisely offset by losses e g to individuals who must pay higher prices and there are no welfare losses from the allocation effects as long as the price changes involved are small if firms are maximizing profits and individuals are maximizing utility both facing prices that correctly refiect opportunity costs then standard envelope theorem arguments imply that changes in profits or utility induced by changes in allocations resulting from any small change in prices are negligible

minimum wage legislation as a second best policy mass unemployment is a striking phenomenon of the present economic situation of european market economies although the profession of economists has been criticized for not providing satisfactory cures it has produced a number of different explanations either complementary or contradictory for the occurrence of mass unemployment in this paper we examine the argument that unemployment is the consequence of minimum wage legislation which is socially desirable the observation of current wage legislations suggests that the above argument is broadly at least partly accepted by policy makers curiously enough a defence of this argument meeting the rigorous requirements of modern theory seems to be missing symmetrically attacks against minimum wage legislation often rely upon reasonings of dubious relevance i e the obvious remark that unemployment is a waste with first best efficiency criteria the present paper proposes a second best analysis where second best stems from informational asymmetries which prevent the implementation of lump sum transfers needed for a first best redistribution policy the question under scrutiny can be reformulated in a more precise way as follows does a second best optimal redistribution policy lead to minimum wage legislation and unemployment our elements of answer are gathered in 3 sections in section 2 the principles of the analysis of the desirability of quantity controls and existing results are recalled in section 3 the analysis of section 2 is specified to a simple prototype model for the study of linear income taxation in section 4

the optimal inflation rate in new keynesian models should central banks raise their inflation targets in light of the zero lower bound we study the effects of positive steady state inflation in new keynesian models subject to the zero bound on interest rates we derive the utility based welfare loss function taking into account the effects of positive steady state inflation and solve for the optimal level of inflation in the model for plausible calibrations with costly but infrequent episodes at the zero lower bound the optimal inflation rate is low typically less than two percent even after considering a variety of extensions including optimal stabilization policy price indexation endogenous and statedependent price stickiness capital formation model uncertainty and downward nominal wage rigidities on the normative side price level targeting delivers large welfare gains and a very low optimal inflation rate consistent with price stability these results suggest that raising the inflation target is too blunt an instrument to efficiently reduce the severe costs of zero bound episodes

public inflation aversion and the political economy of macroeconomic policymaking do the macroeconomic priorities of citizens differ across countries if so what accounts for this variation and what are its consequences for explanations of the choice of monetary institutions macroeconomic policy and international monetary cooperation this article uses survey data from twenty advanced economies to examine individual preferences about macroeconomic priorities the analysis establishes three key findings first the results suggest that economic context defined by inflation and unemployment performance has a substantial impact on the public s economic objectives in a way that is broadly consistent with the specification of utility loss functions in the theoretical political economy literature second the results suggest that there is significant cross country variation in inflation aversion controlling for economic context third some of this variation is accounted for by national level factors affecting the aggregate costs of inflation and unemployment these results have significant implications for optimal monetary policymaking the explanation of variation in economic outcomes and for accounts of the choice of institutional frameworks for policymaking i thank the bank of england the center for basic research in the social sciences and the institution for social and policy studies for research support and jim alt andrew bailey bill bernhard lawrence broz john freeman jeff frieden jim granato shigeo hirano david lake jeff lax simon price rose razaghian ron rogowski david stasavage gabriel sterne mike tomz jim vreeland the editor and two anonymous reviewers for helpful comments all views expressed are those of the author and do not represent those of the bank of england

on the asymmetric u shaped relationship between inflation inflation uncertainty and relative price skewness in the uk we investigate the asymmetric relationships between aggregate inflation and the second and third moments of the cross sectional distribution of relative prices using a modified calvo pricing model with regime dependent price rigidities calibration experiments reveal that the inflation standard deviation and inflation skewness relationships exhibit u shaped asymmetries around the historical mean inflation rate uk sectoral data support our results we conclude that monetary policy should target an inflation rate proximate to the common minima of these nonlinear relationships and that core inflation measures should not be used for policy purposes as they exclude much of the information contained in the higher moments

price discrimination with differentiated products definition and identification i introduction price discrimination is said to exist when the same product is sold to different consumers at different prices most economists also agree that price discrimination is at work when similar but not identical products are sold at prices that do not reflect differences in costs economics textbooks are rife with examples such as student or senior citizen discounts hardcover and paperback versions of books dinner versus lunch prices at restaurants airfares with various restrictions and price spreads of retail gasoline products on the other hand some economists have criticized the identification of such apparent price anomalies as price discrimination for example lott and roberts 1991 argue that there are usually cost based explanations for these phenomena and propose such explanations for the cases of airfare gasoline and restaurant prices nevertheless the authors do not challenge the conventional wisdom that price differences that cannot be explained by cost differences are discriminatory in recent years a number of papers have set out to empirically assess instances of alleged price discrimination the literature goes to great lengths to control for potential sources of cost variation among different products and thus to the extent that it is successful is not subject to the lott roberts critique almost all studies conclude that price discrimination is practiced in the particular market they analyze a skeptic of course could always argue that some sources of cost variation have not been accounted for and thus dismiss the results as erroneous despite the mild controversy over the methodology and its effectiveness the basic premise seems universally accepted the existence of price variation that cannot be explained by cost differences constitutes price discrimination this is not however a formal definition in fact there is no single widely accepted definition of price discrimination when products are not homogeneous some authors define price discrimination to exist when price cost margins absolute differences between differentiated products are unequal whereas others prefer to compare price cost markups percentage differences few authors have discussed the relative merits of one measure over the other 1 the relationship between the two has never been spelled out and the choice among them remains arbitrary in this article i aim to shed some light on this issue and provide some guidelines to empirical researchers interested in price discrimination i start by providing an overview of the current state of the literature in section ii i introduce the two competing definitions of price discrimination and briefly discuss the justification that has been provided for each i then review the empirical literature that uses one or the other definition as the basis of testing for price discrimination i present the basic methodology and discuss the definitional choices made by researchers investigating different market environments the picture that emerges from this overview is murky and provides little guidance to the empirical practitioner the absence of controversy on the choice of definition might simply reflect the fact that the two commonly used definitions are equivalent in section iii i show that this is not the case specifically it is possible for one definition to indicate the presence of price discrimination and for the other one to reject it it is also possible for the two measures to take opposite signs that is one product may have a higher markup and a lower margin than the other i also show that in general the margin criterion is more likely to indicate the presence of price discrimination i conclude that the choice of definition has important implications and should be given careful consideration the challenge is to come up with a consistent way of thinking about price discrimination that can easily be applied in a variety of settings

downward wage rigidities and optimal monetary policy in a monetary union this paper analyses the implications of heterogeneity in the type of downward wage rigidity nominal or real for optimal monetary policy in a monetary union with asymmetric wage adjustment costs indexation in one region of the union reduces optimal grease inflation in the presence of common productivity shocks large common shocks may have sizeable and persistent effects on the intra union terms of trade whereby the region characterized by downward real wage rigidity adjusts with a persistent loss of competitiveness in response to asymmetric productivity shocks there is no role for grease inflation because relative price changes facilitating the real wage changes dominate the adjustment mechanism

a meta analysis of the price elasticity of gasoline demand a sur approach abstract automobile gasoline demand can be expressed as a multiplicative function of fuel efficiency mileage per car and car ownership this implies a linear relationship between the price elasticity of total fuel demand and the price elasticities of fuel efficiency mileage per car and car ownership in this meta analytical study we aim to investigate and explain the variation in empirical estimates of the price elasticity of gasoline demand a methodological novelty is that we use the linear relationship between the elasticities to develop a meta analytical estimation approach based on a seemingly unrelated regression sur model with cross equation restrictions this approach enables us to combine observations of different elasticities and thus increase our sample size furthermore it allows for a more detailed interpretation of our meta regression results the empirical results of the study demonstrate that the sur approach leads to more precise results i e lower standard errors than a standard meta analytical approach we find that with mean short run and long run price elasticities of 0 34 and 0 84 respectively the demand for gasoline is not very price sensitive both in the short and the long run the impact of a change in the gasoline price on demand is mainly driven by responses in fuel efficiency and mileage per car and to a slightly lesser degree by changes in car ownership furthermore we find that study characteristics relating to the geographic area studied the year of the study the type of data used the time horizon and the functional specification of the demand equation have a significant impact on the estimated value of the price elasticity of gasoline demand

regulated and unregulated substitutes aversion effects of an ethanol mandate i introduction regulation is a tool policymakers can use to steer markets away from private outcomes deemed to be socially suboptimal or inefficient regulations work either by altering market incentives or changing consumers choice sets as they attempt to reshape or restrict private market equilibria they can sometimes lead to unexpected consumer reactions and unanticipated consequences such as higher consumer costs or reduced effectiveness in meeting goals the extent to which a regulation can have adverse and unanticipated consequences depends on the nature and design of the regulation in this article we highlight a case where the design of an unpopular and hurried regulation led to especially adverse consequences the case is that of the recent ethanol mandate in the state of new south wales nsw australia ethanol mandates have become popular with legislators over the past decade and currently 62 countries have some form of one grfa 2014 a typical mandate requires producers to blend a certain percentage or certain volume of ethanol into the overall supply of gasoline the u s mandate for example requires 18 2 billion gallons of renewable fuels primarily ethanol be blended into the gasoline supply in 2014 up from 16 6 billion in 2013 epa 2013 the european union mandate requires 5 75 renewable fuels in gasoline by 2010 and 10 by 2020 eu 2003 2009 ethanol mandates have been controversial however griffin 2013 grafton kompas and van long 2012 rodriguez et al 2009 serra and zilberman 2013 westbrook et al 2014 and others proponents argue they help slow greenhouse gas accumulation promote renewable energy and reduce dependence on foreign oil they also point out benefits to the domestic farming and ethanol production industries which is sometimes a goal in itself critics on the other hand question their environmental value the need for fossil fuel replacement the lower energy yield and potential for food price inflation when crops grown for food are converted to ethanol use carter rausser and smith 2013 1 they also point out that ethanol blends tend to be more expensive for consumers on an energy adjusted basis than unblended gasoline mandates tend to be on net unpopular with consumers 2 an important consideration when transitioning to a new ethanol mandate or a higher ethanol blend under an existing mandate is ensuring compatibility with the vehicle fleet ethanol is an alcohol and in higher concentrations can be corrosive to engine valves seals and gaskets in older vehicles not designed with ethanol s properties in mind an option many jurisdictions have used in implementing ethanol mandates is to limit the ethanol blend to a level tested and widely believed to be compatible with the vast majority of vehicles on the road in the united states and canada for example a 10 blend has been implemented almost universally while a 5 blend has been used universally in many european countries if regulators instead deem that higher blends are desirable another option is to mandate that newly built vehicles be compatible with the new higher blend and then implement the fuel mandate once the vehicle fleet has largely turned over however vehicle turnover can take decades and this approach has not been as popular with regulators a third option that has found some favor is to introduce a higher ethanol blend that a majority of vehicles can use while still making the previous possibly ethanol free blend available as long as there are those who still need it in principle this dual blend approach promises to accommodate more aggressive ethanol mandates and lead to more ethanol in the fuel supply more quickly however we show that this kind of dual blend or selective mandate in its efforts to hurry ethanol blending beyond the capabilities of the vehicle fleet as a whole or beyond the confidence of consumers in its safety can have severe negative consequences

bottlenecks and the phillips curve a disaggregated keynesian model of inflation output and unemployment benchmark macroeconomic models of output and inflation combine the demand side of the economy with aggregate supply equations based upon some version of the phillips curve in contrast to classical and new classical models such as lucas i972 and sargent 1979 chs i xii and xvi in which prices jump instantaneously to market clearing levels the gradual price adjustment approach represented by tobin 1972 laidler and parkin i975 section 4 barro and grossman 1976 ch 5 sargent 1979 ch ii and ch v i okun i98i and perry i983 take wages and or prices to be predetermined at an instant in time while their rates of change depend on the level of aggregate output in the prototype complete macroeconomic model incorporating this approach output is determined by aggregate demand equations while the augmented phillips curve specifies that prices move in a direction which will tend to return output to its equilibrium value this short run keynesian long run monetarist character is typical of many structural macroeconometric models it is the standard textbook account found for example in dornbusch and fischer i98i and is implicit in much current research there are fundamental questions of consistency in the type of model just described the central difficulty is that with wages and prices predetermined the non market clearing analysis ofbarro and grossman i 976 ch 2 and malinvaud i977 is applicable but in this world the aggregate demand equations are decisive only in the keynesian regime in the other regimes which must arise at high levels of aggregate demand the effective supplies of output or labour or both must be modelled indeed at the aggregate level it is difficult to provide a coherent account of how it is possible to have output above its equilibrium value since this would require labour and output in excess of their notional supplies violating barro and grossman s min condition that quantities be determined by the short side of the market an appealing line for addressing this last difficulty is to disaggregate markets an approach taken by hansen i970 tobin i972 and barro and grossman i976 ch 5 however because each market can be in either excess supply or demand a formal fixed price general equilibrium model appears to be intractable due to the resulting multiplicity of regimes and is not attempted by these authors in this paper these problems are overcome in a disaggregated model in which

united kingdom manpower policy against a background of national economic decline the welsh example chakravarty s p jones d r and mackay r r 1983 united kingdom manpower policy against a background of national economic decline the welsh example reg studies 17 91 104 economic policy has been strongly influenced by a theory which emphasises that only one rate of unemployment is consistent with price stability claims that unemployment is either temporary or voluntary and stresses that lasting reductions in unemployment depend on selective policies designed to encourage adjustments within the labour market this paper outlines experience in wales the evidence is not consistent with the view of unemployment provided by the underlying theory moreover there are considerable problems in applying policies which are designed to reduce the obstacles and frictions to labour market adjustment when unemployment is severe and widespread

market power and second degree price discrimination in retail gasoline markets abstract empirical evidence of quality based second degree price discrimination is scarce the co existence of regular grade 10 ethanol blended gasoline e10 and regular grade non blended gasoline e0 in a major metropolitan city allows for second degree price discrimination to be examined while eliminating the issue of endogenous product differentiation because the two blends of gasoline are near perfect substitutes using a unique data set including daily price information for 402 retailers that sell only e0 gasoline only ethanol blended e10 gasoline or both blends simultaneously i find evidence that retailers use second degree price discrimination to segment the population between perceived lower and higher quality gasoline despite the fact that both blends can safely be used in nearly all vehicles additionally i uncover two elasticities of demand for gasoline and discuss the welfare effects of price changes and market segmentation

colonial legacies and economic growth much of the work on colonialism has been theoretical or anecdotal in this paper i close the gap between the literature on development and new growth theory by testing the effect of colonization on subsequent growth and development in a sample of 63 ex colonial states from 1961 1990 i find that colonies that were held for longer periods of time than other countries tend to perform better on average after independence finally i show that the level of education at the time of independence can help to explain much of the development gap between the former british and french colonies in africa

the nature and causes of unemployment in the federal republic of germany since the seventies an empirical investigation the leading economic problem of our time is the high and persistent level of unemployment as of early 1985 there are no signs that the severity of unemployment will weaken within the near future this paper discusses first some basic developments of labour supply and labour demand in the federal republic of germany frg the composition of the labour supply and the structure of the labour demand for persons and hours worked as well as the dynamics of the unemployment pool the next section reviews very briefly some empirical findings explaining the rise in the nairu where we make the distinction between the no shock and the actual nairu following suggestions put by the organizers of the conference we then elaborate on the employment function in the empirically oriented literature most employment functions use labour services i e total hours worked as the dependent variable thus assuming homogeneity of labour demand with respect to jobs and working hours in the german political arena however the distinction between persons employed and hours worked is particularly important first it figures in the employment aims of labour unions who request reductions in weekly working hours in order to induce higher manning second the distinction arises in the context of overtime work for it has been suggested that the reduction in overtime to standard working hours could create more than 1 million new jobs in germany we present some estimated labour demand functions which take into account these two dimensions of labour demand jobs and hours and which are used to elaborate on the direction and magnitude of the employment effects of reductions in wage costs and increases in overtime premia

wait unemployment in europe unemployment michael burda the sustained increase in unemployment rates in western europe is a major policy problem not least because of the increasing significance of long term unemployment a large part of cross country differences in long term unemployment rates can be predicted by a simple model of wait unemployment potential workers may refuse low paying jobs and invest in unemployment if this increases the chance that they will subsequently be offered a higher paying job this investment decision is sensitive both to the level of unemployment benefit and to its duration and coverage of the labour force more generous unemployment benefit will tend to increase average unemployment rates the analysis can also explain how increases in the labour force contribute to unemployment and why service sector employment has grown more slowly in europe than in the us over the past 15 years unemployment benefit is not set in a vacuum the paper also considers forces governing the evolution of benefit rates and entitlements during the period

estimating social effects in matching markets externalities in spousal search this paper investigates the hypothesis that individuals are less willing to marry when there are more potential partners to search amongst and thus when others are also less prone to marry to do this it develops a reduced form method a variation on manski s 1993 model that allows identification of such spillovers in two sided matching markets estimates from this method are internally consistent unbiased robust to different definitions of the marriage market and large enough to warrant attention additional evidence suggests that the effect works via the proposed search mechanism

optimal monetary policy and downward nominal wage rigidity in frictional labor markets empirical evidence suggests that nominal wages in the u s are downwardly rigid this paper studies the optimal long run inflation rate in a labor search and matching framework under the presence of downward nominal wage rigidity dnwr in this environment optimal monetary policy targets a positive inflation rate the annual long run inflation rate for the u s is around 2 percent positive inflation greases the wheels of the labor market by facilitating real wage adjustments and hence it eases job creation and prevents excessive increase in unemployment following recessionary shocks these findings are related to standard ramsey theory of wedge smoothing by following a positive inflation policy under sticky prices the monetary authority manages to reduce the volatility and the size of the intertemporal distortion significantly the intertemporal wedge is completely smoothed when prices are fully flexible since the optimal long run inflation rate predicted by this study is considerably higher than in otherwise neoclassical labor markets the nature of the labor market in which dnwr is studied can be relevant for policy recommendations

money illusion under test abstract we propose a test for the presence of money illusion based on subjective survey information on individual satisfaction with income using data from the german socio economic panel for the period 1993 2003 we cannot reject the null hypothesis of no money illusion

fair allocations in large economies the purpose of this paper is the study of problems of equity in an economy with many agents conditions are given under which every equitable and pareto optimal allocation is a competitive equilibrium with equal incomes for all agents the results are also of potential relevance for the literature on incentive compatibility since the allocations that are obained through incentive mechanisms in large economies turn out to be equitable

the existence of marginal cost pricing equilibria with increasing returns the competitive mechanism fails in economies with nonconvex technologies competitive equilibria do not exist in general and pareto optima are no longer equilibria the search for alternative mechanisms in economies with increasing returns was developed and resulted in the principle of marginal cost pricing modern economic theory has returned to the foundations of marginal cost pricing theory in a general equilibrium framework the existence of equilibria with marginal cost pricing in economies with increasing returns and a more general type of nonconvexities is analyzed in this paper the case of differentiable economies where all production sets are limited by smooth surfaces is developed the principles of the proof are also extended to the nondifferentiable case

quality based price discrimination and tax incidence the market for gasoline and diesel cars in europe the existing tax policies toward gasoline and diesel cars in european countries provide a unique opportunity to analyze quality based price discrimination and the implied tax incidence in my econometric framework consumers choose the type of engine based on their annual mileage prices are set by the manufacturers the relative pricing of gasoline and diesel cars appears to be consistent with monopolistic price discrimination effectively segmenting low mileage from high mileage consumers on average about 75 to 90 of the price differentials between gasoline and diesel cars can be explained by markup differences i draw implications for the effectiveness and the revenue effects of tax policy

pecuniary externalities in economies with downward wage rigidity abstract a pecuniary externality in economies with downward nominal wage rigidity leads firms to hire too many workers in expansions which leads to too much unemployment in recessions when firms hire more workers firms fail to internalize that competition for workers between firms pushes up the aggregate wage which imposes a negative externality over other firms the externality can be resolved by a macroprudential tax on labor in expansions in the calibrated model the tax reduces the welfare cost of downward nominal wage rigidity by up to 90 as it makes the economy significantly less exposed to unemployment crises