state dependent exchange rate pass through behavior abstract we estimate a bayesian threshold vector autoregression tvar to study the relationship between exchange rate pass through and economic activity in canada and mexico both the model comparison and the analysis of impulse response functions provide strong evidence of a nonlinear relationship and suggest that the exchange rate pass through is dependent on the state of the economy in particular the pass through coefficient is higher when the growth rate of output is large and this difference is statistically significant across regimes for both countries furthermore the results show that the degree of pass through is complete in the case of import prices and that it falls along the distribution chain of goods

a model based indicator of the fiscal stance we argue that the conventional approach to assessing the fiscal stance based on econometric tests of the government present value budget constraint pvbc is of limited practical use we propose an alternative measure that focuses on short run fluctuations in the fiscal stance namely a model based indicator that compares a target level of the debt gdp ratio at a given point in the future with a forecast based on the government budget constraint gbc where the forecasts are obtained using a recursively estimated var by log linearising the gbc the index can be decomposed into the various different components of which it is comprised using data from 1970 to 2011 we conduct a detailed time series study of the fiscal stances of four countries the united states the united kingdom germany and greece and we calculate the index for 11 other eu countries for most countries the index shows that their fiscal stances vary from being too loose to too tight almost without exception the index drops sharply from 2007 showing the harmful effect on their fiscal stances of the recent recession

nonlinear effects of exchange rate volatility on the volume of bilateral exports in this paper we investigate empirically the impact of exchange rate volatility on real international trade flows utilizing a 13 country data set of monthly bilateral real exports for 1980 1998 we compute one month ahead exchange rate volatility from the intra monthly variations in the exchange rate to better quantify this latent variable we find that the effect of exchange rate volatility on trade flows is nonlinear depending on its interaction with the importing country s volatility of economic activity and that it varies considerably over the set of country pairs considered copyright 2003 john wiley sons ltd

criteria of external sustainability abstract this paper examines the problem of assessing external sustainability that is determining whether present paths of external imbalance can continue indefinitely conditional on present policies being maintained the main contribution of the analysis is to show how conditional forecasts of external imbalance may be generated in a consistent way that explicitly incorporates a mechanism for achieving sustainability an index of external unsustainability is derived that reflects the probability of future changes in policy expected by private agents over time

u s bilateral trade flows and exchange risk during the floating period abstract this paper tests for real exchange rate risk effects on u s bilateral trade flows during the floating period using several new as well as previously used risk measures significant negative effects occur in five of six u s import flows and in two of six u s export flows with one export flow showing a significant positive effect these results are consistent with several previous findings for aggregate u s trade two risk measures using the forward exchange rate and assuming a time varying risk premium provide marginally more significant results than the others

the ins and outs of european unemployment in this paper we study the contribution of inflows and outflows to the dynamics of unemployment in three european countries the united kingdom france and spain all countries are interesting in their own right and in the comparison with each other britain s labour markets were strictly regulated up to the mid 1980s but they have been liberalized since then france is still a regulated economy compared with britain with unemployment averaging about 8 spain has had the biggest rise in unemployment in europe reaching 24 in the mid 1990s but policy reforms and fast growth since then brought it down to a level below france s we compare performance in these three countries making use of both administrative and labor force survey data we find that the impact of the 1980s reforms in britain is evident in the contributions of the inflow and outflow rates the inflow rate became a bigger contributor after the mid 1980s although its significance subsided again in the late 1990s and 2000s in france the dynamics of unemployment are driven by the outflow rate virtually entirely which is consistent with a regime with strict employment protection legislation in spain however both rates contribute significantly to the dynamics perhaps as a consequence of the prominence of fixed term contracts since the late 1980s

time preference and international lending and borrowing in an overlapping generations model two economies represented by diamond type overlapping generations models and differing only in their pure rates of time preference are joined together capital formation balance of payments behavior and welfare are compared under autarky and openness with a positive natural rate of growth the low time preference country runs a current account surplus in the steady state but not necessarily outside it if preexisting capital is not shiftable between countries integration in the world economy makes the high time preference country worse off in the short run the ranking of stationary utility levels under autarky and openness is ambiguous

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

compatibility and bundling of complementary goods in a duopoly this paper presents a simple model of compatibility and bundling in industries where consumers assemble several necessary components into a system that is close to their ideal the authors show that for a wide range of parameters firms will choose to produce compatible components but will offer discounts to consumers who purchase all components from the same firm however firms would be better off if they could commit not to provide such discounts furthermore the equilibrium tends to involve socially excessive bundling finally mixed bundling strategies tend to increase the range of parameters over which socially excessive standardization occurs copyright 1992 by blackwell publishing ltd

on measuring competitive viability and monopoly power in cable an empirical cost approach this study provides empirical evidence concerning the economic feasibility of competition in the local market for video delivery services using responses from the fcc s 1995 cost survey we jointly estimate a translog cost function with factor share equations to evaluate subadditivity the fitted total cost of each firm is compared with the cost of two firms providing the same total output in eleven different market scenarios although costs were mildly superadditive in the vast majority of cases they were lower when one firm provided the output average cost savings with respect to a monopoly were fairly small ranging from 1 37 with a 10 market overlap to 5 05 with a complete overbuild we also calculated marginal cost from the fitted total cost equation and a price for cable services derived from the fcc survey data using these results and rubinovitz s price elasticity of 1 46 we estimated that reregulation had a regulatory effectiveness of 0 3251 and held prices to 40 5 of the monopoly level

optimal bundling of technological products with network externality for many high tech and internet related products utility to consumers depends in part on the size of the user base a phenomenon called network externality a firm with a portfolio of these and other products that are often asymmetric in their degree of network externality or marginal cost may have to look beyond the traditional strategies of pure components pure bundling and mixed bundling one such strategic alternative in a two product case would be a so called mixed bundling 1 under which the bundle and product 1 are offered but the other product can only be purchased in a bundled form the purpose of this study is to compare and contrast the impact of such asymmetry or symmetry in direct network externality and cost on the choice of bundling strategies we model a monopolist firm that has a product in each of two categories and faces heterogeneous consumers results suggest that pure bundling is more profitable when both products have low marginal costs or high network externality whereas pure components or mixed bundling 1 is more profitable when the products diverge in their costs and network externality e g only one product has network externality traditional mixed bundling is optimal in other instances

job destruction and propagation of shocks this paper considers propagation of aggregate shocks in a dynamic general equilibrium model with labor market matching and endogenous job destruction cyclical fluctuations in the job destruction rate magnify the output effects of shocks as well as making them much more persistent interactions between capital adjustment and the job destruction rate play an important role in generating persistence propagation effects are shown to be quantitatively substantial when the model is calibrated using job flow data incorporating costly capital adjustment leads to significantly greater propagation

exchange rate volatility international trade and resource allocation a perspective on recent research abstract recent research on the effects of exchange rate volatility is discussed and directions for future research are explored the need to pay more attention to the effects of diversification and firms characteristic is emphasized it is suggested that while international risk has risen substantially since floating the differential between international and domestic risk may not this could help explain the failure of international trade to fall drastically and suggests that exchange rate volatility has been more a reflection than an independent cause of underlying instability

macroeconomic forecasting and structural change the aim of this paper is to assess whether explicitly modeling structural change increases the accuracy of macroeconomic forecasts we produce real time out of sample forecasts for inflation the unemployment rate and the interest rate using a time varying coefficients var with stochastic volatility tv var for the us the model generates accurate predictions for the three variables in particular for inflation the tv var outperforms in terms of mean square forecast error all the competing models fixed coefficients vars time varying ars and the na ove random walk model these results are also shown to hold over the period commonly referred to as the great moderation

the current account in the macroeconomic adjustment process macroeconomic adjustments to changes in the economic environment are to a large extent conditioned by the intertemporal choices of economic agents when agents face an intertemporal budget constraint a decision to alter current indebtedness implies changes in future consumption possibilities and will be based on expectations of the entire future path of key variables and not only current variables a formal model to show how today s current account is a function of both current and future economic variables is presented the determination of the current account under classical assumptions of market clearing and continuous full employment is emphasized

managing channel profits a channel of distribution consists of different channel members each having his own decision variables however each channel member s decisions do affect the other channel members profits and as a consequence actions a lack of coordination of these decisions can lead to undesirable consequences for example in the simple manufacturer retailer consumer channel uncoordinated and independent channel members decisions over margins result in a higher price paid by the consumer than if those decisions were coordinated in addition the ensuing suboptimal volume leads to lower profits for both the manufacturer and the retailer this paper explores the problems inherent in channel coordination we address the following questions what is the effect of channel coordination what causes a lack of coordination in the channel how difficult is it to achieve channel coordination what mechanisms exist which can achieve channel coordination what are the strengths and weaknesses of these mechanism what is the role of nonprice variables e g manufacturer advertising retailer shelf space in coordination does the lack of coordination affect normative implications from in store experimentation can quantity discounts be a coordination mechanism are some marketing practices actually disguised quantity discounts we review the literature and present a simple formulation illustrating the roots of the coordination problem we then derive the form of the quantity discount schedule that results in optimum channel profits this article was originally published in marketing science volume 2 issue 3 pages 239 272 in 1983

the resource reallocation costs of fixed and flexible exchange rates a multi country extension abstract for a sample of nineteen countries for 1972 79 we test the hypothesis that reallocation costs associated with temporary disturbances to the export sector of an economy are equal under fixed and flexible exchange rates this test is an extension of earlier work indicating that in the special case of canada reallocation costs do not differ significantly under fixed and flexible rates the degree of industrialization and openness of the countries included in the sample varies greatly so it is interesting that the canadian result generalizes to all but two cases these results suggest that even during periods of considerable exchange rate variability unnecessary resource reallocation costs may not be a significant disadvantage of a flexible exchange rate system

the cyclicality of separation and job finding rates this paper uses cps gross flow data to analyze the business cycle dynamics of separation and job finding rates and to quantify their contributions to overall unemployment variability cyclical changes in the separation rate are negatively correlated with changes in productivity and move contemporaneously with them while the job finding rate is positively correlated with and tends to lag productivity contemporaneous fluctuations in the separation rate explain between 40 and 50 percent of fluctuations in unemployment depending on how the data are detrended this figure becomes larger when dynamic interactions between the separation and job finding rates are considered

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

technology shocks and job flows we consider a version of the solow growth model where technological progress can be investment specific or investment neutral the labour market is subject to search frictions and the existing productive units may fail to adopt the most recent technological advances technological progress can lead to the destruction of technologically obsolete jobs and cause unemployment we calibrate the model to replicate the high persistence that characterizes the dynamics of firms neutral technology and the frequency of firms capital adjustment we find that neutral technological advances increase job destruction and job reallocation and reduce aggregate employment investment specific technological advances reduce job destruction have mild effects on job creation and are expansionary hence neutral technological progress prompts schumpeterian creative destruction while investment specific technological progress operates essentially as in the standard neoclassical growth model using structural var models we provide support to the key dynamic implications of the model copyright 2007 wiley blackwell

financial interdependence and the state international monetary relations at century s end as the twentieth century draws to a close one can find sharply contrasting views among leading scholars on almost every key issue in positive international political economy how strong are international as opposed to domestic influences on policy how important are issues of national security high politics versus economic considerations low politics what role do institutions international and domestic play in influencing and constraining the behavior of governments why is international cooperation rare but not unheard of the list goes on and on

on the evolution of the monetary policy transmission mechanism this paper investigates whether the monetary transmission mechanism has changed or whether apparent changes are due to changes in the volatility of exogenous shocks also the question of whether any changes have been gradual or abrupt is considered a mixture innovation model is used which extends the class of time varying vector autoregressive models with stochastic volatility the advantage of our extension is that it allows us to estimate whether where when and how parameter change is occurring our empirical results indicate that the transmission mechanism the volatility of exogenous shocks and the correlations between exogenous shocks are all changing

coordinating channels under price and nonprice competition this paper analyzes how manufacturers should coordinate distribution channels when retailers compete in price as well as important nonprice factors such as the provision of product information free repair faster check out or after sales service differentiation among retailers in price and nonprice service factors is a central feature of markets ranging from automobiles and appliances to gasoline and is especially observed in the coexistence of high service retailers and lower price discount retailers therefore how a manufacturer should manage retail differentiation is an important channel management question yet the approach in the existing literature has been to examine channel coordination under the standard symmetric contracting assumption that offering a uniform contract to all the retailers in a market will be sufficient for coordination i bring this assumption into question and ask when is it optimal for the manufacturer to use the channel contract to deliberately induce retail differentiation even if the retailers were ex ante identical in their cost and other characteristics the paper identifies the type of channel contracts that can endogenously induce symmetry as opposed to differentiation among retailers next the paper highlights a type of channel conflict that arises from the very nature of retail price service competition a manufacturer might find the retailers to be excessively biased towards price competition at the cost of service provision or vice versa the paper establishes when a manufacturer is likely to stimulate greater price as opposed to greater service competition among the retailers the framework that i develop to address these issues highlights the role of two basic types of consumer heterogeneity consumers are heterogeneous in their locations as in the spatial models of horizontal differentiation and in their willingness to pay for retail services as in the models of vertical differentiation the model also uses a natural relationship in retail markets between the travel time cost incurred by a consumer and her willingness to pay the more affluent consumers who have a higher willingness to pay for retail services also have a higher cost for their personal time given these market features the paper analyzes the problem faced by a manufacturer who sells to competing retailers the paper shows that the standard notion in the literature of offering similar contracts to all the retailers is sufficient only in markets with substantial locational differentiation relative to the differences in the willingness to pay effective channel management in these markets simply requires mechanisms that ensure that retailer interests are aligned so that they compete by offering a mix of price and service that is desirable from the manufacturer s point of view however in markets with small locational differentiation and substantial diversity in consumer willingness to pay the manufacturer s problem is not just to align retailer interests but to also use the channel contract to induce the correct level of retail differentiation this helps the manufacturer to better cater to the diversity in consumer willingness to pay and to prevent the cut throat competition that the retailers would otherwise have indulged in the manufacturer can achieve this through the use of menu based contracts menu based contracts induce differentiated retailer behavior despite the fact that the retailers are not forced into accepting different terms of trade this aspect can be useful in shielding manufacturers from litigation under the robinson patman act the paper also shows that for relatively high ticket items retailers tend to be excessively biased towards competing in the provision of retail services the correlation between consumer willingness to pay for service and travel costs implies that for high ticket products the competing retailers will focus on the more service sensitive customers at the cost of ignoring the price sensitive consumers in the market the manufacturer is therefore likely to encourage greater price competition among the retailers in contrast for low ticket items the manufacturer prefers to reduce price competition and encourage greater provision of services this provides an endogenous rationale for the use of price ceilings versus floors the basic model is also extended to consider the effect of upstream competition between manufacturers under upstream competition coordinating retail price and service decisions is not always optimal for an individual manufacturer this extension to manufacturer competition provides a basis for understanding the role of retail price service differentiation in the context of a channel duopoly it also shows that a mixed distribution channel a channel in which one manufacturer chooses to be coordinated while the other chooses to be noncoordinated can be an equilibrium in markets with weak brand loyalty

on the driving forces behind cyclical movements in employment and job reallocation theory restricts short run job creation and destruction responses and cumulative employment and job reallocation responses to allocative and aggregate shocks we formulate these restrictions and implement them for postwar data on u s manufacturing allocative shocks are the main driving force behind cyclical movements in job reallocation but their contribution to employment fluctuations varies greatly across alternative identification assumptions also the data compel one or both of the following inferences aggregate shocks greatly alter the shape and not just the mean of the cross sectional density of employment growth rates allocative shocks cause short run reductions in aggregate employment

protectionist pressures and aggregate economic conditions comment on takacs this paper explores the influence of u s macroeconomic conditions and the international trade position on protectionist pressures as measured by escape clause cases brought before the international trade commission several possible difficulties with takacs pioneering empirical study of this topic are considered it is argued that while further support is found for her principal conclusion that the state of the domestic economy is a significant determinant of such protectionist pressures the quantitative strength of such aggregate factors is less than was suggested by takacs original study

equilibrium unemployment job flows and inflation dynamics this paper develops a general equilibrium model to explain a set of facts regarding job flows unemployment and inflation dynamics it integrates a theory of equilibrium unemployment into a monetary model with nominal price rigidities the labor market displays matching frictions and endogenous job destruction the model can explain the cyclical behavior of unemployment job creation job destruction and the joint fluctuations of the labor input along both the extensive and the intensive margin conditional on a shock to monetary policy allowing for variation of the labor input at the extensive margin leads to a significantly lower elasticity of marginal costs with respect to output this helps to explain the sluggishness of inflation and the persistence of output after a monetary policy shock

entry by foreign firms in the united states under exchange rate uncertainty this paper tests the effects that real exchange rate fluctuations had on foreign direct investment into the united states during the 1980s using a sample of foreign investments in sixty one four digit sic u s wholesale industries this paper finds exchange rate volatility to be negatively correlated with the number of foreign investments that occur in these industries this negative effect is most pronounced for industries where sunk investments in physical and intangible assets are relatively high although exchange rate volatility deters investment from all countries its effect was most significant for investments by japanese companies copyright 1993 by mit press

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

research note consumer addressability and customized pricing the increasing availability of customer information is giving many firms the ability to reach and customize price and other marketing efforts to the tastes of the individual consumer this ability is labeled as consumer addressability consumer addressability through sophisticated databases is particularly important for direct marketing firms catalog retailers such as l l bean and land s end credit card issuing banks and firms in the long distance telephone market we examine the strategic implications of consumer addressability on competition between database direct marketing firms we address questions such as in a competitive environment how should firms invest in addressability will future improvements in the degree of addressability increase or mitigate the intensity of competition between the firms will greater addressability always be beneficial for firms we model competition between two firms in a market where consumers differ on a horizontal attribute of product differentiation the market comprises consumers located on a linear attribute space and firms located at the ends of the line we represent the degree of addressability or the reach of a firm s database as the proportion of consumers at each point in the market who are in the firm s database consequently the firm can offer these consumers customized prices consumer addressability creates two effects that govern the competition between firms a surplus extraction effect because a firm might address a consumer who is not reached by its competitor and a competitive effect that is created by the set of consumers who can be addressed by both firms the key results of the paper pertain to when the addressability decision is endogenous when the extent of market differentiation or consumer heterogeneity in preferences for a product brand attribute as well as the incremental cost of addressability are sufficiently large firms make symmetric investments in equilibrium given high costs firms choose sufficiently low levels of addressability low addressability and high levels of market differentiation both help reduce price competition which facilitates symmetric choice of addressability by the firms in equilibrium however when market differentiation and the cost of incremental addressability become small firms face the prospect of destructive competition as a result they strategically differentiate in their choice of addressability to mitigate this competition interestingly even in the extreme case when incremental addressability is costless not every firm chooses full addressability in equilibrium this has useful implications for direct marketing given that the advances in information technology should improve the ability of firms to address their consumers it might indeed not be desirable for all direct marketing firms to indefinitely pursue greater addressability as costs of doing so decline the analysis also shows an interesting effect of market differentiation in addressable markets equilibrium profits can decrease with an increase in market differentiation when the marginal cost of addressability is sufficiently high finally we discuss the competitive outcome that would result when firms compete with addressable as well as uniform posted prices

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

job matching and propagation in the u s labor market the vacancy unemployment ratio and employment react sluggishly to productivity shocks we show that the job matching model in its standard form cannot reproduce these patterns due to excessively rapid vacancy responses extending the model to incorporate sunk costs for vacancy creation yields highly realistic dynamics creation costs induce entrant firms to smooth the adjustment of new openings following a shock leading the stock of vacancies to react sluggishly

dynamic asymmetries in u s unemployment we examine dynamic asymmetries in u s unemployment using nonlinear time series models and bayesian methods we find strong statistical evidence in favor of a two regime threshold auto regressive model empirical results indicate that once we take into account both parameter and model uncertainty there are economically interesting asymmetries in the unemployment rate one finding of particular interest is that shocks that lower the unemployment rate tend to have a smaller effect than shocks that raise the unemployment rate this finding is consistent with unemployment rises being sudden and falls gradual

exchange rate effects on the volume and variability of trade flows abstract this paper investigates the effects of exchange rate uncertainty on the volume and variability of trade flows employing a signal extraction framework we show that the direction and magnitude of importers and exporters optimal trading activities depend upon the source of the uncertainty general microstructure shocks fundamental factors driving the exchange rate process or a noisy signal of policy innovations providing a rationale for the contradictory empirical evidence in the literature we also show that exchange rate uncertainty emanating from general microstructure shocks and the fundamental factors reduces the variability of trade flows while that related to a noisy signal of policy innovations increases variability

unemployment dynamics across oecd countries abstract the european community and the us have experienced vastly different unemployment dynamics over the last two decades this paper investigates whether these differences are due to exposure to different shocks or reacting differently to the same shocks with the premise of a search theoretic framework and a structural var methodology the paper robustly identifies aggregate versus reallocative shocks with the exception of spain where most of the dynamics seem to be driven by reallocation it is found that most differences in unemployment dynamics arise because of differences in responses to shocks in particular the us labour market is quicker to adjust than the european community this implies that eec economies might be dynamically sclerotic even if the size of the steady state labour market flows give the impression that european labour markets are quite active various identifying assumptions additional labour supply shocks and different variables are used yet the results appear robust

a probabilistic approach to pricing a bundle of products or services the authors propose a probabilistic approach to optimally price a bundle of products or services that maximizes seller s profits their focus is on situations in which consumer decision making is o

exchange rate uncertainty and foreign trade abstract this paper starts with reviewing the existing literature on exchange rate uncertainty and trade flows it then argues that potential costs of medium term uncertainty in exchange rates and competitiveness are likely to be much larger than that of exchange risk which has been the focus of the existing literature two measures of medium term exchange rate uncertainty are constructed one is a weighted function of the magnitude of past movements in nominal exchange rates and the current deviation of the exchange rate from equilibrium while the second depends on both the duration and the amplitude of misalignment from equilibrium exchange rates the empirical evidence reported in the paper suggests that when exchange rate uncertainty is defined over a medium term period it does affect adversely trade flows of the industrial countries under review with the notable exception of the united states

the role of shocks and institutions in the rise of european unemployment the aggregate evidence two key facts about european unemployment must be explained the rise in unemployment since the 1960s and the heterogeneity of individual country experiences while adverse shocks can potentially explain much of the rise in unemployment there is insufficient heterogeneity in these shocks to explain cross country differences alternatively while explanations focusing on labour market institutions explain current heterogeneity well many of these institutions pre date the rise in unemployment based on a panel of institutions and shocks for 20 oecd nations since 1960 we find that the interaction between shocks and institutions is crucial to explaining both stylised facts

a test for cross subsidies in local telephone rates do business customers subsidize residential customers recent regulatory and technological changes suggest that the local telecommunications market may soon present opportunities for profitable entry bypass activity by businesses combined with the generally higher business rates suggests that business service revenues may be subsidizing residential access to the local network before regulators allow wide scale entry into local telecommunications they need to know if local phone service rates exhibit cross subsidies using data supplied by new england telephone this article tests a new set of sufficient conditions for cross subsidization that do not require observations on stand alone cost the results indicate that business service revenues subsidize residential service provision at nearly 65 of the suburban central offices the sufficient conditions for a residential to business cross subsidy fail for all central offices in the sample

what caused the early millennium slowdown evidence based on vector autoregressions this paper uses a simple var for the usa and euro area to analyse the underlying shocks of the early millennium slowdown i e supply demand monetary policy and oil price shocks the results of two identification strategies are compared one is based on traditional zero restrictions and as an alternative an identification scheme based on more recent sign restrictions is proposed the main conclusion is that the recent slowdown is caused by a combination of several shocks negative aggregate supply and aggregate spending shocks the increase of oil prices in 1999 and restrictive monetary policy in 2000 these shocks are more pronounced in the usa than the euro area the results are somewhat different depending on the identification strategy it is illustrated that traditional zero restrictions can have an influence on the estimated impact of certain shocks copyright 2005 john wiley sons ltd

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

research note competitive bundling and counterbundling with generalist and specialist firms bundling which is the practice of selling two or more products or services in a package is a pervasive marketing practice and is often used as a strategic competitive tool however there has not been enough consideration of competitive bundling situations in which exit of a competitor is not a concern in this paper we address this issue by identifying conditions under which strategic competitors may or may not resort to bundling when competitor exit considerations are absent we study competition between a multiproduct generalist firm and two single product specialist firms in two product categories one of which has undifferentiated products and the other has differentiated products in our model the specialist firms can form an alliance to bundle their products in competing with the generalist firm in contrast to the previous literature we find that concurrent bundling by competitors if it occurs in equilibrium is profitable we also find that when one competitor bundles and the other does not the bundling firm gains a greater share of customers and makes a higher profit however when conditions favor counterbundling by a competitor such counterbundling helps the competitor retain its customers finally we note that under other market conditions concurrent bundling by competitors escalates price competition to the extent that retaining customers through bundling is not profitable in such a case we show that strategic competitors are better off having asymmetric product lines with one competitor bundling and the other selling unbundled

optimal bundling and pricing under a monopoly contrasting complements and substitutes from independently valued products we develop an analytical model of contingent valuations and address two questions of import to a monopolist i should a given pair of complements or substitutes be sold separately pure components together pure bundling or both mixed bundling and at what prices ii how do optimal bundling and pricing strategies for complements and substitutes differ from those for independently valued products we find that the combination of marginal cost levels and the degree of complementarity or substitutability determines which of the three bundling strategies is optimal complements and substitutes should typically be priced higher than independently valued products

assessing the fiscal stance in the european union and the united states 1970 2011 the huge increases in debt gdp ratios following the 2007 2009 global financial crisis which are unprecedented except in times of war has focused attention on the viability of the fiscal positions of eu countries and the us how to assess this and the likely future evolution of these positions this paper proposes an indicator of the fiscal stance which computes the fiscal adjustment required to reach a specific debt gdp targeted given the forecasts of future deficit and interest rates obtained from an unrestricted recursively estimated var model the index is easy to compute and can be decomposed to disclose the different contribution of revenue expenditure nominal yields inflation and growth to the fiscal stance for this reason it provides a transparent and detailed measure of the fiscal stance particularly suitable for multi country surveillance as a result the index improves on the tax gap indicators widely used by governments and international agencies and is far more informative than formal econometric tests of fiscal sustainability the time series of the indicator for individual eu countries and the us show that their fiscal position has fluctuated considerably over the last 40 years and has particularly deteriorated since 2007 the index predicts that the adjustment required to restore pre crisis debt gdp levels are higher for high debt countries like greece italy and portugal they become more severe the shorter is the time horizon for the adjustment as a large degree of uncertainty surrounds the assessment of the fiscal stance in the medium and long run we argue that policy makers should inform their policy based on the worst case scenario predicted by the indicator

a neoclassical model of the phillips curve relation this paper integrates the modern theory of unemployment with a limited participation model of money and asks whether such a framework can produce correlations like those associated with the phillips curve as well as realistic labor market dynamics the model incorporates both monetary and real shocks the response of the economy to monetary policy shocks is consistent with recent evidence about the impact of these shocks on the economy

tying foreclosure and exclusion in recent years the leverage theory of tied good sales has faced heavy and influential criticism in an important sense though the models used by its critics are actually incapable of addressing the leverage theory s central concerns here the author reconsiders the leverage hypothesis and argues that tying can indeed serve as a mechanism for leveraging market power the mechanism through which this leverage occurs its profitability and its welfare implications are discussed in detail copyright 1990 by american economic association

gaussian demand and commodity bundling in an important and widely cited essay adams and yellen 1976 examine the use of package selling as a price discrimination device they consider a monopolist producing two goods with constant unit costs and facing buyers with diverse tastes the marginal utility of a second unit of either good is assumed to be zero for all buyers the two goods are independent in demand for all buyers so that any buyer s reservation price for the first unit of either good is independent of the market price of the other thus the maximum amount any buyer would pay for a bundle consisting of one unit of each good is the sum of the two reservation prices and buyers are completely described by the values of those two prices 2 resale markets are assumed away in order to obtain comparative results for alternative pricing strategies the distribution of reservation prices in the adams yellen framework is assumed to be bivariate normal implications of gaussian demand are explored pure bundling is shown to operate by reducing buyer diversity thus facilitating the capture of consumers surplus it generally makes buyers worse off than unbundled sales it is more profitable if average reservation prices are high enough mixed bundling combines advantages of both pure bundling and unbundled sales and it is generally strictly more profitable than either bundling which treats goods symmetrically seems most attractive under symmetric reservation price distributions i am indebted to severin borenstein for superb research assistance to the ford motor company for research support through a grant to m i t and to the harvard economics department for housing me as a visiting scholar while most of this research was performed of course only i can be held responsible for this essay s shortcomings 1 the first clear recognition of this possibility seems to have been by stigler 1968 but also see burstein 1960 2 paroush and peles 1981 relax the assumption that consumers purchase at most one unit of each good but they consider only two types of buyers both with linear demand functions they retain the assumption that demands are independent for all buyers telser 1979 and phillips 1981 use different frameworks to analyze bundling policies spence 1980 explores the relation between bundling across commodities as here and bundling multiple units of the same

the decline of job loss and why it matters there is considerable evidence that american workers face lower risks of job loss in recent years than 10 20 or 30 years earlier i summarize some of the evidence for this claim and explain why the decline of job loss matters my attention centers on unwelcome job loss employer initiated separations that lead to unemployment temporary or persistent drops in earnings and other significant costs for job losers since there is no fully satisfactory statistic for the incidence of job loss i consider several measures and data sources

heterogeneity and unemployment dynamics many previous articles have studied the contribution of inflows and outflows to the cyclical variation in unemployment but ignored the critical role of unobserved heterogeneity across workers thi

commentary managing channel profits channel coordination and more generally coordination of activities between interdependent economic agents is even more important today than when the paper was published more than 20 years ago one reason is the trend toward globalization and outsourcing caused in part by the development of increasingly complex products and services that integrate many different competencies coordination today involves all the aspects of the marketing mix product design coordination price and service coordination the focus of managing channel profits coordination of availability in highly hybrid distribution systems to better reach an increasingly complex and fragmented market and coordination of communication with the target market managing channel profits argues a tendency toward a lack of coordination without explicit institutional arrangements and coordination mechanisms such as quantity discounts and contracts to solve the problem the price and service coordination ideas of managing channel profits have been successfully applied for 25 years of developments in marketing of revenue and cost sharing arrangements between increasingly interdependent market participants

an industry equilibrium analysis of downstream vertical integration this paper investigates the effect of product substitutability on nash equilibrium distribution structures in a duopoly where each manufacturer distributes its goods through a single exclusive retailer which may be either a franchised outlet or a factory store static linear demand and cost functions are assumed and a number of rules about players expectations of competitors behavior are examined it is found that for most specifications product substitutability does influence the equilibrium distribution structure for low degrees of substitutability each manufacturer will distribute its product through a company store for more highly competitive goods manufacturers will be more likely to use a decentralized distribution system this article was originally published in marketing science volume 2 issue 2 pages 161 191 in 1983

building a composite help wanted index abstract this paper builds a measure of vacancy posting over 1951 2009 that captures the behavior of total print and online help wanted advertising and can be used for time series analysis of the us labor market

real exchange rate variability and the choice of exchange rate regime by developing countries abstract this paper draws together two distinct strands of the exchange rate literature it proposes that real exchange rate variability and the choice of exchange rate regime are jointly determined i test this claim by estimating a simultaneous limited dependent variable model with data from a cross section of developing countries during the recent floating period drawing on the relevant exchange rate literature the paper examines a number of exogenous determinants of exchange rate variability and the choice of exchange rate regime

unemployment and vacancies with sectoral shifts recent analyses of unemployment vacancy series suggest that aggregate shocks rather than sectoral shocks are the primary factors responsible for unemployment fluctuations this inference follows from two widely held beliefs sectoral shocks induce only positive unemployment vacancy comovements while negative comovements are necessarily the result of aggregate demand shocks this paper describes an equilibrium matching model that identifies plausible circumstances in which neither assumption is correct thus suggesting that unemployment vacancy data are inconclusive interestingly this model s novel results are due to standard features in the contracting literature firms experience relative price shocks and negotiate contracts that prescribe temporary layoffs copyright 1994 by american economic association

exchange rate volatility and international trading strategy abstract it is usually argued that an increase in exchange rate volatility reduces the volume of international trade as trading firms are risk averse this paper shows that exporting firms benefit under fairly general conditions from an increase in exchange rate volatility firms optimally adjust their export volumes to the level of the exchange rate exporting is an option which is exercised if profitable in addition the paper presents conditions under which the volume of international trade grows with exchange rate volatility

what does a technology shock do a var analysis with model based sign restrictions abstract this paper estimates the effects of technology shocks in var models of the u s identified by imposing restrictions on the sign of impulse responses these restrictions are consistent with the implications of a popular class of dsge models with both real and nominal frictions and with sufficiently wide ranges for their parameters this identification strategy thus substitutes theoretically motivated restrictions for the atheoretical assumptions on the time series properties of the data that are key to long run restrictions stochastic technology improvements persistently increase real wages consumption investment and output in the data hours worked are very likely to increase displaying a hump shaped pattern contrary to most of the related var evidence results are not sensitive to a number of specification assumptions including those on the stationarity properties of variables

would international currency taxation and currency stabilisation in developing countries completely flexible exchange rates may be excessively volatile with the implied currency misalignments leading to real inefficiencies in resource allocation and detrimental effects on economic growth this paper analyses whether international currency taxation would be effective in calming exchange rate volatility and avoiding currency crises within the context of a simple model of exchange rate determination it is found that the effects of a tax on foreign exchange volatility depend on the nature of speculation and whether the focus is on capital inflows or outflows

a strategic motivation for commodity bundling the analytical literature on commodity bundling explains the practice of selling two or more differentiated products in a single package as a surrogate for direct price discrimination in contrast this paper shows that imperfect competition creates a strategic incentive to bundle the profitability of bundling whether it adversely affects rival producers and whether it yields an overall efficiency gain depends inter alia on the nature of product market competition the role of complementarity in explaining why firms bundle is also explored copyright 1990 by blackwell publishing ltd

the unemployment volatility puzzle is wage stickiness the answer i discuss the failure of the canonical search and matching model to match the cyclical volatility in the job finding rate i show that job creation in the model is influenced by wages in new matches i summarize microeconometric evidence and find that wages in new matches are volatile and consistent with the model s key predictions therefore explanations of the unemployment volatility puzzle have to preserve the cyclical volatility of wages i discuss a modification of the model based on fixed matching costs that can increase cyclical unemployment volatility and is consistent with wage flexibility in new matches

u s labor market dynamics revisited the picture of u s labor market dynamics is opaque empirical studies have yielded contradictory findings and debates have emerged regarding their implications this paper aims at clarifying the picture which is important for the understanding of the operation of the labor market for the study of business cycles for the explanation of wage behavior and for the formulation of policy the paper determines what facts can be established what are their implications and what remains to be further investigated the main contributions made here are i listing of data facts that can be agreed upon these indicate that there is considerable cyclicality and volatility of both accessions to employment and separations from it hence both are important for the understanding of the business cycle ii presenting the business cycle facts of key series iii pointing to specific gaps in the data picture disparities in the measurement of the sizeable flows between employment and the pool of workers out of the labor force disagreements about the relative volatility of job finding and separation rates across data sets and the fact that the fit of the gross flows data with net employment growth data differs across studies and is not high the definite characterization of labor market dynamics depends upon the closing of these data gaps

on the timing and efficiency of creative destruction we analyze the timing pace and efficiency of ongoing job reallocation that results from product and process innovation there are strong reasons why an efficient economy ought to concentrate both job creation and destruction during recessions when the opportunity cost of reallocation is lowest incomplete contracting between labor and capital can disrupt this synchronized pattern and decouple creation and destruction transactional difficulties also lead to technological sclerosis characterized by excessively slow renovation government incentives to production may alleviate high unemployment but exacerbate sclerosis in contrast creation incentives increase the pace of reallocation an optimal combination of both policies restores economic efficiency

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

equilibrium product bundling this article offers an equilibrium theory of product bundling by rival firms in several models where a primary good is produced in a duopoly market and one or more other goods is produced under perfectly competitive conditions bundling is shown to emerge as an equilibrium strategy of one or both of the duopolists for its role as a product differentiation device when the rival firms can commit to bundling sales their profits are higher but social welfare is reduced copyright 1997 by university of chicago press

conjoint analysis of price premiums for hotel amenities over the past decade or so conjoint analysis green and rao 1971 johnson 1974 appears to have become one of industry s most widely applied marketing research techniques for estimating consumer s multi attribute utility functions cattin and wittink 1982 however a continuing problem in application of conjoint analysis is how to handle the price attribute in the construction of stimulus profiles for presentation to respondents in many cases of practical interest the price level will be highly correlated with other product attribute levels if the researcher ignores this correlation by allowing the price levels to vary independently of other attributes the resulting profiles may appear sufficiently unrealistic to result in respondents discounting each profile s attractiveness thus reducing the validity of the results a related problem which adds to the complexity of new product pricing research is the bundling issue in the context of conjoint analysis the question is whether one can predict a respondent s evaluation of a bundle of product attributes and price as a simple linear function of the summed part worths of the entities making up the bundle when each entity is presented with its actual price metric hybrid conjoint models have received a fair amount of industry application to date the purpose of these models is to reduce data collection time while still retaining individual differences in part worth functions the present paper extends this class of models to include categorical conjoint analysis in which the criterion variable is classificatory this model is applied to an extremely large conjoint problem involving over 40 attributes and over 100 attribute levels the study results support the viability of the model for dealing with extremely large conjoint problems the study also shows evidence of the inability of simple functions of self explicated utilities for components of a bundle of hotel amenities to predict respondents preferences for the total bundle journal of business 1984 vol 57 no 1 pt 2 1984 by the university of chicago all rights reserved 0021 9398 84 5712 0019 0 1 50

add on pricing by asymmetric firms this paper uses an analytical model to examine the consequences of add on pricing when firms are both horizontally and vertically differentiated and there is a segment of boundedly rational consumers who are unaware of the add on fees at the time of initial purchase we find that consumers who know the add on fees can be penalized and increasingly so by the existence of boundedly rational consumers our consideration of quality asymmetries on base goods and add ons plus the inclusion of boundedly rational consumers leads to several novel findings regarding firm profits when quality asymmetry is on base goods only and with boundedly rational consumers add on pricing can diminish profit for a qualitatively superior firm and increase profit for an inferior firm i e a lose win result compared to when add on pricing is prohibited or infeasible when quality asymmetries exist on both base goods and add ons and without boundedly rational consumers the opposite win lose result prevails when quality asymmetries exist on both base goods and add ons and with boundedly rational consumers the result can be win win win lose or lose win depending on the magnitude of quality differentiation on add ons this paper was accepted by j miguel villas boas marketing

collapsing exchange rate regimes some linear examples abstract we construct a pair of linear examples to study the collapse time of a fixed exchange rate regime the first example is a perfect foresight continuous time model which allows calculation of the exact collapse time and the tracking of reserves the second example is a discrete time stochastic model which yields an endogenous probability distribution over the collapse time and produces a forward discount of the exchange rate

exchange rate policy options for post crisis southeast asia is there a case for currency baskets following the recent financial crises in southeast asia and elsewhere the perennial issue of the exchange rate policy options for small and open developing countries has resurfaced there seems to be an emerging consensus that the frequency with which soft pegs have been susceptible to speculative attacks in this era of escalating global capital flows has increased pressure for developing countries to adopt corner exchange rate regimes this paper takes issue with this popular one size fits all prescription of exchange rate arrangements for developing countries and explores exchange rate policy options for post crisis southeast asia the principal purpose of this paper is to discuss the case for currency baskets as a general regime in its own right for southeast asia as opposed to being a compromise between the two corner solutions

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

has exchange risk depressed international trade the impact of third country exchange risk abstract this paper argues that the effect of exchange risk on bilateral and aggregate trade flows should be analyzed by including the impact of third country exchange risk factors in addition to direct bilateral or multilateral risk after a theoretical examination of these effects us bilateral export flow to its six largest trading partners are analyzed empirically i find individuality and jointly significant third country risk effects in most cases in contrast to some recent bilateral efforts i find a steadily growing negative impact on trade flows from exchange risk during floating and in contrast to recent aggregate trade flow studies i conclude that there was no temporary decline in exchange risk during the late 1970s

the effect of exchange rate variability on trade the case of the west african monetary union s imports abstract the west african monetary union during the period of this study 1976 1982 comprised six countries benin burkina faso co te d ivoire niger senegal and togo since their common currency the cfa franc has been pegged to the french franc at an unchanged rate since 1948 the entire nominal exchange rate variability that traders in the region face is due to movements in the french franc with respect to other currencies in the face of exchange rate risk that is not always coverable trade should be adversely affected using three measures of variability in the nominal effective exchange rate index this paper finds that exchange rate variability has not affected the union s real imports or the diversification of trade away from the franc zone

the cleansing effect of recessions the authors investigate industry response to cyclical variations in demand production units that embody the newest process and product innovations are continuously being created and outdated units are being destroyed although outdated units are the most likely to turn unprofitable and be scrapped in a recession they can be insulated from the fall in demand by a reduction in creation the structure of adjustment costs plays a determinant role in the responsiveness of those two margins the calibrated model matches the relative volatilities of the observed manufacturing job creation and destruction series and their asymmetries over the cycle copyright 1994 by american economic association

employment efficiency and sticky wages evidence from flows in the labor market i consider three views of the labor market in the first wages are flexible and employment follows the principle of bilateral efficiency workers never lose their jobs because of sticky wages in the second wages are sticky and inefficient layoffs do occur in the third wages are also sticky but employment governance is efficient i show that the behavior of flows in the labor market strongly favors the third view in the modern u s economy recessions do not begin with a burst of layoffs unemployment rises because jobs are hard to find not because an unusual number of people are thrown into unemployment

what role for imf surveillance abstract this paper reviews two recent reports on the international monetary system one by the group of 10 industrial countries and the other by the group of 24 developing countries it contrasts their recommendations for improving policy surveillance by the international monetary fund its own recommendations include the strengthening of enhanced surveillance to make it more formal without making it more onerous the introduction of shadow conditionality to give guidance to governments about their eligibility to draw on the fund and the further development of multilateral surveillance along lines proposed at the tokyo summit it would broaden that process however by shifting the focus from policy compatibility defined with reference to exchange rate behavior to policy quality defined with reference to the behavior of global aggregates such as the growth rate of world trade the paper examines the use of target zones to manage exchange rates and argues that it would not weaken the case for multilateral surveillance which is needed not only in setting the zones but also to make sure that policies adopted by participating countries do not impart an inflationary or deflationary bias to the international economy