firm strategies and path dependencies an emerging economic geography of industrial data this paper analyses how firms engaged in industrial data production in the power generation industry operating within the us energy sector produce collect store aggregate analyse and ultimatel

generating real persistent effects of monetary shocks how much nominal rigidity do we really need abstract this paper attempts to assess whether money can generate persistent economic fluctuations in dynamic general equilibrium models of the business cycle we show that a small nominal friction in the goods market can make the response of output to monetary shocks large and persistent if it is amplified by real wage rigidity in the labor market we also argue that for plausible levels of real wage rigidity a small degree of nominal stickiness is sufficient for money to produce economic fluctuations as persistent as those observed in the data

the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

output dynamics in real business cycles models the time series literature reports two stylized facts about output dynamics in the united states gnp growth is positively autocorrelated and gnp appears to have an important trend reverting component this paper investigates whether current real business cycle rbc models are consistent with these stylized facts many rbc models have weak internal propagation mechanisms and must rely on external sources of dynamics to replicate both facts models that incorporate labor adjustment costs are partially successful they endogenously generate positive autocorrelation in output growth but they need implausibly large transitory shocks to match the trend reverting component in output

social absorption capability systems of innovation and manufactured export response to preferential trade incentives abstract in many extant analyses of the impact of non reciprocal system of trade preferences it is typical to focus on the details of market access value of tariff concessions as explanation for why export of beneficiaries may or may not respond to incentives very often the role that supply related factors can and do play in the process is relegated to the background this paper argues that the social absorption capability of a beneficiary s economy as expressed in her incumbent systems of innovation is a crucial determinant of export performance response the experience of sub sahara african countries under the us african growth and opportunity act apparel trade incentive is used as a classical illustration of this proposition it is shown that the comparative efficiency of lesotho despite emerging from a relatively weak trade performance potential background in recording the highest level of export success among beneficiaries of the scheme is a function of the relative efficiency of her systems of innovation

the quantitative analytics of the basic neomonetarist model this paper constructs a dynamic macroeconomic model with less than perfect price flexibility which has a classical side consistent with real business cycle theory augmented by investment adjustment costs increasing returns to scale and a new flexible formalization of imperfect competition something akin to the classical dichotomy is justified by a mode of approximation appropriate for a model in which one state variable adjusts quickly while another state variable adjusts slowly even with investment adjustment costs monetary expansions are found to raise the real interest rate the determinants of real rigidity and the macroeconomic rate of price adjustment are investigated copyright 1995 by ohio state university press

the ir relevance of real wage rigidity in the new keynesian model with search frictions we explore the role of real wage dynamics in a new keynesian business cycle model with search and matching frictions in the labor market both job creation and destruction are endogenous we show that the model generates counterfactual inflation and labor market dynamics in particular it fails to generate a beveridge curve vacancies and unemployment are positively correlated introducing real wage rigidity leads to a negative correlation and increases the magnitude of labor market flows to more realistic values however inflation dynamics are only weakly affected by real wage rigidity this is because of the presence of labor market frictions which generate long run employment relationships the measure of real marginal cost that is relevant for inflation dynamics via the phillips curve contains a dynamic component that does not necessarily move with real wages

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

the behavior of prices and inflation an empirical analysis of disaggregat price data this paper analyzes the effects of inflation on the dispersion of prices as well as other aspects of price behavior using disaggregated data on prices of foodstuffs in israel during 1978 84 we find that the effect of expected inflation on intramarket price variability is stronger than the effect of unexpected inflation we show that even in times of high inflation price quotations are not trivially short and price changes are not synchronized across firms these facts taken together confirm that there is some staggering in the setting of prices we find that the distribution of real prices is far from being uniform as many menu cost based models assume or conclude in fact as inflation increases to very high levels this distribution is not even symmetric when the annual inflation rate reaches 130 percent there are equal chances of finding real prices above or below the market average but upward deviations in the real price are further away from zero than downward ones furthermore as the annu

collective learning tacit knowledge and regional innovative capacity lawson c and lorenz e 1999 collective learning tacit knowledge and regional innovative capacity reg studies 33 305 317 the paper reviews key ideas in the firm capabilities literature and shows how they can be usefully extended to develop a conception of collective learning among regionally clustered enterprises the paper also explores the relationship between codifiable and tacit knowledge in the innovation process and investigates the claim that tacit knowledge because it is difficult to transfer in the absence of labour mobility may constitute a basis for sustained regional competitive advantage the closing section uses case study material based on minneapolis and cambridge to illustrate the importance for innovation of a regional capability for combining and integrating diverse knowledge and of the sources of such capabilities as pre conditions for successful high technology regions lawson c et lorenz e 1999 l apprentissage collectif la connaissance implicite et la capacite regio

labor contracts and business cycles this paper investigates the claim often put forth by real business cycle proponents that the poor performance of their models in matching real world aggregate labor market behavior is due to the fact that observed real wage payments do not correspond to the actual marginal productivity of labor but contain an insurance component that cannot be accounted for by the walrasian pricing mechanism to test this idea we dispense with the walrasian description of the labor market and introduce contractual arrangements between employees and employers assuming that employees are prevented from accessing capital markets and are more risk averse than employers we use the theory of optimal contracts to derive an equilibrium relation between aggregate states of the economy and wage labor outcomes this contractual arrangement is then embedded into a standard one sector stochastic neoclassical growth model in order to look at the business cycle implications of the contractual hypothesis the resulting dynamic equi

efficiency wages and the business cycle puzzle abstract the main thrust of this work is to open the real business cycle rbc methodology to non walrasian considerations and reciprocally to submit some non walrasian models to the discipline of the rbc approach in doing so we provide a first rbc model with involuntary unemployment and a suboptimal equilibrium path we also demonstrate the promise and difficulty of resolving the business cycle puzzle by appealing to quantity rationing in the labor market

technological capabilities and industrialization abstract this paper reviews the implications for industrial strategy of recent research on technological capabilities at the firm and national levels after exploring the nature and determinants of microlevel technological development a simple framework for explaining the growth of national capabilities is set out based on the interplay of incentives capabilities and institutions each may suffer market failure and so require corrective intervention the experience of some industrializing countries is described to assess the validity of this framework it is concluded that interventions carefully and selectively applied are necessary for industrial success

money new keynesian macroeconomics and the business cycle abstract we show in this paper that the typical modern business cycle cannot be reduced to the real business cycles archetype a monopolistic competition model with price adjustment costs affected by technological and monetary shocks better mimics the economic fluctuations in two countries with very different cyclical properties namely france and the united states in our model monetary shocks are necessary to reproduce the standard deviation of output the money output correlation the labour productivity worked hours relative standard deviation the labour productivity worked hours correlation and the mark up output correlation with two independent shocks one real more specifically defined than the solow residual and one nominal the model gives an answer to some empirical puzzles which were left unexplained by traditional rbc models

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

african economic development in a comparative perspective conventional explanations of poor african economic performance generally fail to pay adequate attention to causal mechanisms of growth decline and stagnation many african countries experienced investment booms after independence but in contrast to east asian newly industrialising economies these were not sustained owing to failure to establish a virtuous growth circle involving complementary increases in savings and exports structural adjustment programmes dismantled stat mediated mechanisms of accumulation without putting viable alternatives in place and failed to tackle the structural constraints which impede productivity growth in agriculture a new policy approach drawing on the experience of both post colonial and adjustment periods is necessary copyright 2001 by oxford university press

structural adjustment and african industry over the years many analysts have despaired of the effects of structural adjustment on the economies of sub saharan africa the ability of these economies to respond positively to exposure to market liberalisation has been weak and faltering the weakness of the african supply response has been particularly marked in manufacturing industry and manufactured export performance even the world bank the main architect of adjustment programmes has at times shown disappointment with the failure of its recipes though it has remained doggedly optimistic however its latest report on adjustment in africa world bank 1994 comes to rather optimistic conclusions on the impact of adjustment especially on industry thus adjustment in africa starts as follows in the african countries that have undertaken and sustained major policy reform adjustment is working 2 it finds that the countries that had the most improvements in policies had the strongest increases in gdp growth and that the increase in their industrial and export growth rates was even more striking in view of the past debate on the effects of structural adjustment in africa3 following the established convention the discussion of africa covers sub saharan africa excluding south africa these findings are important and deserve scrutiny

money and the business cycle with one period nominal contracts a modified version of the nominal contract developed by j a gray 1976 and s fischer 1977 is introduced in a general equilibrium model with money which has been used in the real business cycle literature money is introduced in the model through cash in advance constraint two kinds of contracts are examined namely a nominal wage contract and a nominal price contract the nominal wage contract improves the fit of the model in many respects the nominal price contract increases the output volatility enormously but it has some unrealistic features

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

predetermined prices and the persistent effects of money on output this note illustrates a model of predetermined pricing where firms set a fixed schedule of nominal prices at the time of price readjustment based on the work of fischer 1977 this contrasts with the model of fixed pricing the specification underlying most recent dynamic sticky price models it is well known that predetermined pricing cannot generate substantial persistence in the real effects of monetary shocks when prices are set via fixed duration contracts unless the contracts are of long duration however we show that with a probabilistic model of price adjustment a predetermined pricing specification can produce almost as much persistence as the more conventional model of fixed prices without the assumption of long average contract duration

real wages over the business cycle evidence from panel data one topic on which keynes did not disagree with classical economists was the cyclical behavior of real wages keynes 1936 as well as various classical writers predicted that real wages should move countercyclically quoting the general theory p 17 in general an increase in employment can only occur through the accompaniment of a decline in real wages thus i am not disputing this vital fact which the classical economists have rightly asserted as indefeasible this prediction is based on the premise of competition and a given short run capital stock increases in employment then correspond to more intensive use of capital and through diminishing product lower real wages for this reason evidence by dunlop 1938 and tarshis 1939 that real wages move procyclically was viewed as paradoxical both dunlop and tarshis based their findings on an observed positive correlation between real and money wages which given the procyclical movement of money wages implies a positive correlation between

assessing the impact of unilateral trade policies eba and agoa on african beneficiaries exports using matching econometrics the existing literature studying the impact of non reciprocal preferential trade agreements nrptas assumes implicitly nrptas are non randomly assigned without showing the evidence of that using a matching methodology this paper investigates whether the african growth and opportunity act agoa and the everything but arms eba unilateral trade concessions have had an impact and in what magnitude on the exports of african beneficiary countries in the light of the evidence of the non random nature endogeneity of nrptas methodologically previous studies using the matching procedure focused on bi or multilateral trade agreements our work focuses on nrptas that depend only on donors conditions accordingly we show that for nrptas gravity covariates cannot be used for the matching procedure we propose to use political variables as determinants for obtaining non reciprocal trade preferences in order to address the endogenous nature of nrpta assignment our main results confirm that a country becomes eligible for a nrpta only when it meets certain conditions defined by their donors such as political stability and economic regulation for agoa and freedom of expression and human development for eba results also show that both agoa and eba policies have had a positive impact on african beneficiary countries exports to nrpta s providers even if the magnitude impact of eba is significantly lower than that of agoa

the politics of foreign direct investment into developing countries increasing fdi through international trade agreements the flow of foreign direct investment into developing countries varies greatly across countries and over time the political factors that affect these flows are not well understood focusing on the relationship between trade and investment we argue that international trade agreements gatt wto and preferential trade agreements ptas provide mechanisms for making commitments to foreign investors about the treatment of their assets thus reassuring investors and increasing investment these international commitments are more credible than domestic policy choices because reneging on them is more costly statistical analyses for 122 developing countries from 1970 to 2000 support this argument developing countries that belong to the wto and participate in more ptas experience greater fdi inflows than otherwise controlling for many factors including domestic policy preferences and taking into account possible endogeneity joining international trade agreements allows developing countries to attract more fdi and thus increase economic growth

competitiveness of regions from an evolutionary perspective boschma r a 2004 competitiveness of regions from an evolutionary perspective regional studies38 993 1006 do regions compete as firms do how does one deal with the fact that regions unlike organizations are entities that do not act does it make sense to talk about the ability of regions to generate new variety this paper aims to address these questions from an evolutionary perspective it is meaningful to talk about regional competitiveness when the region affects the performances of local firms to a considerable degree this is especially true when the competitiveness of a region depends on intangible non tradable assets based on a knowledge and competence base embedded in a particular institutional setting that are reproduced and modified through the actions and repeated interactions of actors although regions are increasingly becoming collective players actively responding to an increasing exposure to extra regional competition the paper explains why there are serious limits in enhancin

current real business cycle theories and aggregate labor market fluctuations hours worked and the return to working are weakly correlated traditionally the ability to account for this fact has been a litmus test for macroeconomic models existing real business cycle models fail this test dramatically we modify prototypical real business cycle models by allowing government consumption shocks to influence labor market dynamics this modification can in principle bring the models into closer conformity with the data our empirical results indicate that it does

geographical linkages in the financial services industry a dialogue with organizational studies geographical linkages in the financial services industry a dialogue with organizational studies regional studies this article proposes a conceptualization of the geographical linkages in the fin

exports of manufactures by developing countries emerging patterns of trade and location developing countries are rapidly increasing their shares of manufactured trade not just in labour intensive products but also in capital and skill intensive ones their shares are rising particularly rapidly in the high technology area however manufactured exports remain highly concentrated in the developing world with a few countries dominating all forms of export within the successful exporting countries there are significant differences in the technology content of exports these trends are difficult to explain with received trade theory even taking human capital into account or with reference to broad economic policies it is useful to bring in learning along with scale economies increasing returns and agglomeration as determinants of comparative advantage these factors imply market failures and so a role for policy in developing genuine comparative advantages this article suggests that emerging trade and location patterns in the developing work are explained by market imperfections and government policies to overcome them

rethinking trade preferences how africa can diversify its exports this paper argues that the contribution of trade preferences to economic development needs to be reappraised in light of the growth of globalised trade in manufactures trade preferences may be able to act as a catalyst for manufacturing exports leading to rapid growth in exports and employment to do so preferences need to be designed to be consistent with international trade in fragmented tasks as opposed to complete products and need to be open to countries with sufficient levels of complementary inputs such as skills and infrastructure recent experience with the african growth and opportunities act shows that in the right conditions sub saharan african countries have had large manufacturing export supply response to trade preferences

deindustrialization adjustment the world bank and the imf in africa abstract to date most of the analysis of structural adjustment has focused on the agricultural sector comparatively little has been written on the relationship between structural adjustment and industry yet arguably given the limitations of an agriculturally based economy africa requires some form of industrialization to augment living standards in the long run the paper attempts to sketch out and analyze the world bank imf model of industrial adjustment a number of serious deficiencies are found in the model including weaknesses in its methodological foundation inconsistencies in the components and impediments linked to structure and class that will constrain the adjustment process overall it is suggested that the world bank imf model is likely to deindustrialize the existing manufacturing base without encouraging any significant replacement

time to build and aggregate fluctuations abstract this paper studies the contribution of time to build to the explanation of business cycle phenomena using a simple version of the neoclassical model the analysis shows that it is not evident that multiperiod construction is crucial to the theory of fluctuations

catching up with the joneses in a sticky price model this paper examines the effect of introducing external habit formation into calvo type and taylor type sticky price models the paper shows that external habit formation improves the performance of sticky price models in explaining the selected variables at nearly all frequencies while each model has diverse successes and failures the taylor type sticky price model seems to capture more closely the hump shaped spectra of the selected real variables of the data than the calvo type sticky price model

real and nominal propagation of nominal shocks the role of real and nominal propagation mechanisms in generating persistent real effects of nominal shocks is analysed analytically in a fully specified intertemporal general equilibrium model while neither a real propagation mechanism capital acccumulation with one period nominal contracts nor nominal propagation staggered nominal contracts in the absence of any real propagation can generate plausible impulse responses with strong persistence it is shown that the two mechanisms interact so as to strengthen persistence possibly unit roots and generate more plausible impulse responses

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

price stickiness trend inflation and output dynamics a cross country analysis the sticky price model of aggregate fluctuations implies that countries with high trend inflation rates should exhibit less persistent output fluctuations than countries with low trend inflation

integrating finance into global production networks coe n m lai k p y and wojcik d integrating finance into global production networks regional studies while successful in its aim of globalizing regional development the global production network gpn approach has thus far paid less attention to the role of finance in the dynamics of the global economy and regional development this lacuna is significant as finance is arguably even more globalized and networked than production to address this gap the paper distils the concept of the global financial network gfn from financial geography and related scholarship with advanced business services world cities and offshore jurisdictions at the core interactions between the gpn and the gfn are discussed focusing on the financing and financializing of gpns and the co evolution of globalization and financialization integrating finance into gpn research entails more than a simple extension of the approach it would also enrich it conceptually and enable it methodologically and empirically

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

relating external support business growth creating strategies for survival a comparative case study analyses of small manufacturing firms smfs and entrepreneurs using a comparative case study approach this paper presents three of thirty two findings on small plastic manufacturing firms spmfs and entrepreneurs in nigeria the selected firms represent performance differences between firms that have received external support and those that did not due to lack of support some entrepreneurs had to independently sustain themselves through their creativeabilities findings from the study revealed that small plastic manufacturing entrepreneurs in nigeria are constrained by certain external and internal factors ironically these constraints seem to have challenged some entrepreneurs to invent original strategies on their own to cope survive and to remain in business lack of financial capital especially foreign exchange needed to import vital operating inputs from abroad has been the most serious constraint other serious external constraints identified are inadequate infrastructure facilities competition from large firms unfavorable government policies dearth of machines and spare parts and paucity of raw materials internal obstacles like incompetent planning poor organizational skills and limited knowledge among others were common obstacles faced by the entrepreneurs in addition another discovery is that funding assistance to entrepreneurs by relevant institutions concerned is not free from bias on the basis of favoritism it is therefore recommended that funding institutions should give due consideration and encouragement to promising talents two have especially been identified from the study as typical examples of potential avant garde entrepreneurs and such should not be neglected or wasted guidance for further progress through training is another helpful approach to take and give succor to such admirable talents entrepreneurs who qualify for grants from institutions should completely be decided on compliance to standard selection procedures rules and evidence of superior entrepreneurial qualities in addition those who qualify for support should be determined only after feasible business plans have been presented

partial adjustment and staggered price setting this paper compares taylor style staggered price setting to partial adjustment of prices or calvo staggering in a small optimizing is lm model in contrast to the overwhelming perception in the literature the models are not similar for most parameterizations in particular the dynamic response of the economy to shocks is quite different in the two models and the welfare cost of price rigidity is eight or more times larger in the calvo model than in the taylor model for typical calibrations suggestions for calibrations under which the models are more similar are also presented

has recovery begun africa s adjustment in the 1980s revisited this article reviews the 1989 debate between the world bank and the economic commission for africa over africa s adjustment and on the basis of most recent statistics concludes that there is little evidence that the region is in throes of a recovery some countries however did relatively better than others in the 1980s and an attempt is made to account for differences in performance it is concluded that success in adjustment results not from world bank international monetary fund programs as such but rather from policy coherence accompanied by healthy movement in key variables namely the real exchange rate and public development expenditure

the imf the world bank and africa s adjustment and external debt problems an unofficial view abstract sub saharan african development in the 1990s will require significant increases in transfers and debt relief from external official sources negotiation of conditions for assistance imposes heavy costs upon recipients once gross macroeconomic distortions are overcome the risk of program failure from uncertainty and underfunding typically excceds that from absence of further policy reforms the effects of which are unproven the relative influence of the international monetary fund imf and world bank in african programs has grown too large the imf transferring resources out of the region should retreat to a technical advisory role the world bank should develop contingency financing and cooperation with other sources of advice and finance

sticky prices new evidence from retail catalogs this paper presents new results on the size frequency and synchronization of price changes for twelve selected retail goods over the past 35 years three basic facts about the data are uncovered first nominal prices are typically fixed for more than one year although the time between changes is very irregular second prices change more often during periods of high overall inflation third when prices do change the sizes of the changes are widely dispersed both large and small changes occur for the same item and the sizes of these changes do not closely depend on overall inflation

fdi agoa and manufactured exports by a landlocked least developed african economy lesotho lesotho a resource poor country located inside south africa is now africa s largest exporter of apparel to the us its performance very unusual for africa relies heavily on asian investors and trade privileges this article traces the origins of fdi in lesotho and the determinants of its export competitiveness showing that apparel production suffers from low productivity poor skills and weak local links its prospects after agoa the african growth and opportunities act remain uncertain unless the government addresses these structural problems lesotho holds important lessons for industrial development in africa going beyond creating a good investment environment

state dependent pricing and business cycle asymmetries we present a tractable dynamic general equilibrium model of state dependent pricing and study the response of output and prices to monetary policy shocks we find important non linearities in these responses for empirically relevant shocks this generates substantially different predictions from time dependent pricing we also find a distinct asymmetry with state dependent pricing prices respond more to positive shocks than they do to negative shocks this is due to a strategic linkage between firms in the incentive for price adjustment our state dependent model can account for business cycle asymmetries in output of the magnitude found in empirical studies

new keynesian economics and the phillips curve models with sticky prices are an important part of new keynesian economics the author shows that several of the new keynesian models imply a formulation that is similar to the expectations augmented phillips curve of milton friedman and edmund phelps he then presents new estimates of the new keynesian phillips curve the author uses two proxies for price expectations survey based measures and an econometric based measure originally developed by bennett mccallum 1976 overall the results are consistent with the model but the survey based results are more precise suggesting that the surveys may be better measures of actual expectations copyright 1995 by ohio state university press

theories of institutions and economic reform in africa abstract the paper presents and critically examines the theories of institutions that can be used as a guide to economic reform in africa three approaches to institutions are initially discussed the model of structural adjustment new institutional economics and the old institutionalist tradition five institutions related to the development of markets in africa are examined from the three perspectives the institutions include property rights including their role in agriculture money and financial institutions prices and markets firms and industrial organization and markets and states the main conclusion of the paper is that structural adjustment due to its neoclassical roots is basically ainstitutional and therefore ill equipped to promote the development of markets in africa while new institutionalism provides interesting insights it is also limited by its neoclassical economic foundations thus if african governments desire to promote market reform they would be best advised to consult the old institutionalist literature particularly the very interesting recent work of proponents of this tradition

money prices interest rates and the business cycle the mechanisms governing the relationship of money prices and interest rates to the business cycle are the most studied and most disputed topics in macroeconomics in this paper we first document key empirical aspects of this relationship we then ask how well three benchmark rational expectations macroeconomic models a real business cycle model a sticky price model and a liquidity effect model account for these central facts while the models have diverse successses and failures none can account for the fact that real and nom inal interest rates are inverted leading indicators of real economic activity that is none of the models captures the post war u s business cycle fact that a high real or nominal interest rate in the current quarter predicts a low level of real economic activity two to four quarters in the future i introduction the positive correlation of monetary aggregates and real economic activity over the course of many business cycles is a key empirical fact about the u s economy indeed the dynamic dimension of this covariation is so strong and stable that a monetary variable has long been included in the commerce department s index of leading economic indica tors while this pattern of cyclical comovement is widely agreed upon its interpretation is not some macroeconomists view money as purely passive with a positive response to varying levels of economic activity producing the positive correlation others view changes in the quantity of money as an important perhaps dominant source of economic fluctua tions frequently the real effects of monetary changes are suggested to arise from frictions in commodity labor or financial markets in economic theories that describe the influence of these frictions the transmission mechanism from monetary changes to real activity is typically viewed as involving interest rates and the price level the primary goal of this paper is to evaluate three models that explain the link between money prices interest rates and the business cycle we do this in three steps first we docu ment the cyclical behavior of these variables in the united states over the postwar period second we construct three quantitative rational expectations models of macroeconomic activity i a real business cycle model with endogenous money ii a model of commodity market frictions with mon etary non neutralities arising from gradual adjustment of goods prices and iii a model of financial market frictions with monetary non neutralities arising from gradual adjust ments of portfolios finally we compare the models predic tion for the business cycle behavior of money prices and interest rates with the data in exploring the predictions of these models we take the stock of money to be one of several exogenous variables in the system all of our models are capable of generating a forecasting role for money relative to real economic activity similar to that found in the u s data in the real business model monetary changes can forecast real activity because productivity is related to many underlying sources of shocks and because these real shocks also affect the money stock in the models with sticky prices and liquidity effects short hand names for the models with frictions in the com modity and financial markets monetary changes have an additional direct positive effect on aggregate output the outline of the paper is as follows section ii describes the data and documents its business cycle characteristics section iii outlines the three macroeconomic models and develops the particular quantitative versions of the models used in our analysis our main empirical results are pre sented in section iv and section v summarizes our results and concludes

an optimizing is lm specification for monetary policy and business cycle analysis we ask whether relations of the is lm type can sensibly be used for the aggregate demand portion of a dynamic optimizing general equilibrium model intended for analysis of issues regarding monetary policy and cyclical fluctuations the main result is that only one change the addition of a term regarding expected future income is needed to make the is function match a fully optimizing model whereas no changes are needed for the lm function this modification leads to a dynamic forward looking model of aggregate demand that is tractable and usable with a wide variety of aggregate supply specifications theoretical applications concerning price level determinacy and gradual price adjustment are included

regionalism within multilateralism the wto trade policy review of canada the world trade organisation published a trade policy review of canada in 2003 in this paper we discuss the wto review and augment the discussion by presenting original data and reviewing the empirical literature the wto concludes that canada s trade regime is open and transparent but maintains barriers in a few important sectors we subject this claim to empirical scrutiny comparing canada s actual imports to a multilateral benchmark based on the gravity equation we show that canada imports about what should be expected given the size of its economy and its location in a second benchmarking exercise we show that canada s anti dumping initiations are in proportion to its imports and that canada s exports are targeted less by other countries anti dumping investigations than what might be expected based on canadian export levels like many other countries canada has pursued trade liberalisation through the world trade organisation while simultaneously signing multiple regional trade agreements our summary of the recent literature indicates that canada s regional trade agreements have generated more trade creation than trade diversion canada has also spurred imports from the least developed countries by unilaterally eliminating tariffs and quota barriers on 48 of the world s poorest countries in january 2003 we also discuss canadian progress in opening its agriculture and clothing industries overall we conclude that canada appears committed to advancing globalisation through multilateral trade liberalisation supplemented by unilateral and bilateral initiatives

is knowledge power knowledge flows subsidiary power and rent seeking within mncs in recent years as multinational corporation mnc subsidiaries have become more closely linked to international networks their knowledge intensity has risen and some of their r d has gained a more creative role simultaneously and often connectedly many subsidiaries have acquired considerable strategic independence in all aspects of their operations and therefore are able to exercise considerable intra firm bargaining power to influence the distribution of the firm s resources in this context we suggest that intra mnc knowledge flows are a key determinant of subsidiary bargaining power we argue that subsidiary managers can exploit such power to pursue their own ends such rent seeking behavior is implicit in much of the literature on managerialism but our analysis suggests that such behavior can now occur in headquarters subsidiary and subsidiary subsidiary relations thus subsidiary strategic independence designed to enhance the competitiveness of outputs market knowledge and inputs asset seeking and learning can be corroded when the pursuit of subsidiary objectives encourages rent seeking empirical analysis of a sample of high technology subsidiaries in the uk provides strong support for the theory we examine several avenues whereby the incentives of units within the mnc can be aligned

broken chain agoa and foreign direct investment in the kenyan clothing industry drawing upon survey and interview research covering 23 of an estimated total of 35 clothing manufacturing establishments operating in kenya as well as interviews with the policy community this paper examines the local economic development impacts associated with the recent agoa prompted re birth of the clothing industry in kenya just after its recent high watermark in 2003 it provides evidence of the characteristics of these manufacturing establishments as well as evidence of the multiple and interconnected failures on the part of government parent companies agents and customers to promote the longer term sustainability of the industry as such it provides further case study evidence of africa s uniquely problematic incorporation into global commodity chains

export supply capacity and relative prices in the neoclassical approach to specifying an export supply equation relative prices and capacity are assumed to play a crucial role in domestic firms decisions to supply exports in the keynesian approach the willingness of domestic firms to supply foreign markets is considered to be largely a function of domestic demand pressure keynesian analyses do not allow for the impact of relative prices this paper blends the two approaches in a model in which a firm is assumed to choose first the level of productive capacity and then one period later to determine production and allocation between foreign and domestic markets on the basis of realized prices demand conditions and installed capacity the conclusion both prices and capacity are significant determinants of export supply

the employment real wage relationship an international study the neoclassical and keynesian theories of employment both predict an inverse relationship between employment and real wages in the short run the observed correlation between employment and real wages however has usually failed to conform to this prediction dunlop 1938 and tarshis 1939 reported a positive correlation between real and money wages which given procyclical movement of money wages was interpreted as evidence against the theoretical prediction the statistical significance of these results was however challenged by ruggles 1940 and tobin 1948 more recent studies by kuh 1966 and bodkin 1969 failed to detect a significant relationship between real wages and employment these findings stimulated a series of contributions by solow and stiglitz 1968 barro and grossman 1971 1976 and others developing alternative models not apparently refuted by the evidence barro and grossman recast macro theory under the assumption that markets did not clear modigliani 1977 argued that the observed relationship between employment and real wages could be accounted for in an oligopolistic model of firm behavior thus both the competitive and equilibrium assumptions of the classical model were diagnosed as the sources of its apparent empirical refutation

the new open economy macroeconomics a survey since the 1995 publication of obsteld and rogoff s redux model there has been an outpouring of research on open economy dynamic general equilibrium models that incorporate imperfect competition and nominal rigidities this paper offers an interim survey of this recent literature 2001 elsevier science b v all rights reserved

the africa growth and opportunity act and its rules of origin generosity undermined the african growth and opportunity act agoa signed into american law on may 18 2000 is a major plank of u s initiatives toward the african continent the act aims broadly at improving economic policymaking in africa enabling countries to embrace globalization and securing durable political and economic stability as an incentive for africa to adopt the necessary policy reform agoa offers increased preferential access for african exports to the united states this paper describes the provisions of agoa and assesses its quantitative impact on african exports particularly in the apparel sector its main conclusions are 1 agoa will provide real opportunities to africa even on conservative estimates about africa s supply response africa s non oil exports could be increased by about 8 11 percent 2 however the medium term gains could have been much greater if agoa had not imposed certain conditions and not excluded certain items from its coverage the most important condition is the stringent rule of origin that is the requirement that exporters source certain inputs from within africa or the united states estimates suggest that the absence of these conditions would have magnified the impact nearly five fold resulting in an overall increase in non oil exports of us 0 54 billion compared with the us 100 us 140 million increase that is expected in the presence of these restrictions these restrictions particularly on apparel will come at a particularly inopportune time as africa will be exposed to competition from other developing countries when the quotas maintained on the latters exports under the multi fiber arrangement mfa are eliminated africa s apparel exports will be lower by over 30 percent with the dismantling of the mfa if on the other hand agoa had provided unrestricted access the negative impact of the dismantling could be nearly fully offset

export processing zones in madagascar a success story under threat summary the success of export processing zones or the zone franche in madagascar since 1990 is with the exception of mauritius an isolated and unknown case in africa this paper based on first hand data explains that the zone franche has had a highly significant macroeconomic impact in terms of exports and jobs we show that average wages in the zone franche are equivalent to the other formal activity sectors other things being equal and that labor standards there are higher than average the zone franche quickly recovered from the 2002 crisis and has benefited a great deal from agoa the final phase out of the multi fibre arrangement in 2005 is expected to have a negative impact on the zone franche

the rigidity of prices this paper uses evidence on individual transaction prices to analyze price behavior the evidence shows that for many transactions pricesremain rigid for periods exceeding one year the rigidity of price ispositively correlated with industry concentration for several productsthe correlation of price changes across buyers is low the paper alsoinvestigates the relationship between price rigidity price change andthe length of time a buyer and seller have been doing business together the author interprets the evidence as emphasizing the importance of nonprice rationing and the inadequacy of models in whichprice movements alone clear markets copyright 1986 by american economic association

interactions of monetary and fiscal policy via open market operations we examine interactions of monetary and fiscal policy in a sticky price model where public debt is non neutral as it provides transaction services this property is brought about by a legal restriction on open market operations by which only government bonds are eligible debt creation eases access to money and can therefore induce households to increase purchases of goods government expenditures which are not completely tax financed and deficit financed tax cuts then tend to stimulate private consumption however for these fiscal impulses to raise real activity monetary policy should not too aggressively aim at stabilising the economy

making eu trade agreements work the role of rules of origin a key element of the eu s free trade and preferential trade agreements is the extent to which they deliver improved market access and so contribute to the eu s foreign policy objectives towards developing countries and neighbouring countries in europe including the countries of the balkans previous preferential trade schemes have been ineffective in delivering improved access to the eu market since only a small proportion of the available preferences have actually been utilised the main reason for this is probably the very restrictive rules of origin that the eu imposes coupled with the costs of proving consistency with these rules if the eu wants the everything but arms agreement and free trade agreements with countries in the balkans to generate substantial improvements in access to the eu market for products from these countries then it will have to reconsider the current rules of origin and implement less restrictive rules backed up by a careful safeguards policy

the role of countercyclical monetary policy when firms set nominal prices in advance optimal monetary policy insulates aggregate output against shocks to demand it can do so however by following the constant money growth rule advocated by milton friedman it need not respond to the shocks in an actively countercyclical way in addition to the extent that output fluctuations are driven by shocks to supply money growth should be procyclical

inflation dynamics marginal cost and the output gap evidence from three countries recent studies have argued that the new keynesian phillips curve calvo pricing model is empirically valid provided that real marginal cost rather than detrended output is used as the variable driving inflation one interpretation of this result is that real marginal cost is not closely related to the output gap and so models for monetary policy need to include labormarket rigidities an alternative interpretation is that marginal cost and the output gap are closely related but that the latter needs to be measured in a manner consistent with dynamic general equilibrium models to date there has been little econometric investigation of this alternative interpretation this paper provides estimates of the new keynesian phillips curve for the u s the u k and australia using theory consistent estimates of the output gap using this theory to measure the output gap leads to a considerable improvement in the empirical performance of output gapbased phillips curves

posterior predictive evidence on us inflation using extended new keynesian phillips curve models with non filtered data changing time series properties of us inflation and economic activity measured as marginal costs are modeled within a set of extended new keynesian phillips curve nkpc models it is shown that mechanical removal or modeling of simple low frequency movements in the data may yield poor predictive results which depend on the model specification used basic nkpc models are extended to include structural time series models that describe typical time varying patterns in levels and volatilities forward and backward looking expectation components for inflation are incorporated and their relative importance is evaluated survey data on expected inflation are introduced to strengthen the information in the likelihood use is made of simulation based bayesian techniques for the empirical analysis no credible evidence is found on endogeneity and long run stability between inflation and marginal costs backward looking inflation appears stronger than forward looking inflation levels and volatilities of inflation are estimated more precisely using rich nkpc models the extended nkpc structures compare favorably with existing basic bayesian vector autoregressive and stochastic volatility models in terms of fit and prediction tails of the complete predictive distributions indicate an increase in the probability of deflation in recent years

drivers of structural transformation the case of the manufacturing sector in africa abstract this paper analyzes the driving factors of manufacturing development in africa using the system gmm technique with four year average panel data over the period 1995 2014 including 53 african countries the paper finds four main results 1 there is a u shaped relationship between the manufacturing share of gdp and per capita gdp 2 exchange rate depreciation stimulates africa s manufacturing sector 3 good governance especially a low level of corruption and better government effectiveness contribute to africa s manufacturing development 4 the size of domestic market positively affects the manufacturing share of gdp on the other hand the paper finds no significant effects of fdi and urbanization on manufacturing development the implication of these findings is that improving the level of competitiveness expanding the size of domestic market combating corruption as well as improving government effectiveness are key for africa s manufacturing sector development moreover the u shaped relationship between the manufacturing share of gdp and per capita gdp implies that african countries should not expect industrialization to automatically happen with income increase but rather they should proactively tackle key obstacles to the development of the manufacturing sector

reference norms staggered wages and wage leadership theoretical implications and empirical evidence this article presents an extension of the taylor model with staggered wages in which wage setting is also influenced by reference norms we show that reference norms can considerably increase the persistence of inflation but that the size of this effect depends on the exact definition e g external vs internal symmetric vs asymmetric norms using data on collectively bargained wages in austria from 1980 to 2006 we show that wage setting is strongly influenced by reference norms that external norms seem to matter more than internal norms and that there is a clear indication for the existence of wage leadership asymmetric norms

can africa industrialize by processing primary commodities the case of mozambican cashew nuts abstract industrialization strategies based on vertical diversification into processing of primary commodities have long been appealing to low income countries the performance of such strategies is mixed an aggregate level literature is divided on the advisability of low income countries processing commodities for export especially for countries relatively poor in human capital while this general literature usefully illuminates the policy debate over processing cashew nuts in mozambique commodity and country specific factors reveal the weaknesses of conducting debate at too aggregated a level it may be that the most significant constraints on processing industrialization are political rather than purely technical or economic

open economy macroeconomics developments in theory and policy this paper views developments in open economy macroeconomics through the lens of the debate over european monetary unification the empirical tendency for nominal exchange rate regimes to affect the variability of nominal and real exchange rates alike can be rationalized by sticky price theories or models of asset market liquidity effects but plausible liquidity models have difficulty generating enough persistence to match the data thus the macroeconomic stabilization costs of forgoing the exchange rate realignment option seem pertinent it is argued that our theories of efficiencies due to a common currency remain unsatisfactory despite recent advances the paper concludes by reviewing theories of currency crisis

globalisation power and integration the political economy of regional and bilateral trade agreements in the americas this article explores the dynamics of regional economic integration in the americas economic globalisation or an increased volume of trade and investment and increased mobility of capital presents developing countries with new opportunities and challenges in particular the emergence of south east asia as a major site for the production and export of manufactured goods has generated intense competition among developing countries for foreign investment and export market shares in this article globalisation and ensuing competition is linked to the process of economic integration between the united states and countries of latin america and the caribbean fundamental changes in global patterns of investment and trade in combination with international and domestic power asymmetries contribute to the spread and proliferation of regional and bilateral trade agreements rbtas between the united states and its hemispheric neighbours

the effects of real and monetary shocks in a business cycle model with some sticky prices an established characteristic of macroeconomic fluctuations is the strong positive correlation between variations in the money stock and variations in production income and employment at business cycle frequencies this finding has motivated an enormous literature that has studied the effects of monetary policy disturbances on the real economy and in particular the role of money in business cycles several classes of monetary business cycle models have been developed that feature different channels through which monetary policy can have real effects one model that has been used widely is the keynesian model in which monetary shocks can have important effects on allocations because there are nominal rigidities in prices and or wages the keynesian assumption of sticky nominal prices is often motivated by reference to studies that have analyzed the frequency of nominal price changes the broad conclusion that emerges from this literature is that there are a number of goods that have prices that appear to change infrequently for example carlton 1989 has reported slow changes in nominal transactions prices for producers goods even without long term relationships between buyers and sellers and has documented that delivery lags and other product characteristics frequently change before nominal prces change similarly blinder s survey 1991 of firms shows that prices for many goods change only about once per year while this evidence