some macroeconomic implications of alternative compensation systems a basic theme of this paper is the idea that some structural reform of employee compensation arrangements is necessary to make reasonable price stability compatible with reasonably full employment in this view even the best designed macroeconomic policies are much too aggregative to get at the heart of the stagflation problem the ultimate solution involves going inside the workings of a modern capitalist economy and correcting the underlying structural flaw directly on the level of the individual firm stagflation represents an especially intractable policy dilemma for macroeconomics without a decisive tendency of the economic system to remain near full employment there is a strong prima facie case for fighting recessions by exogenously stimulating aggregate demand but the usual keynesian expansionary policies tend to impart an inflationary inertia that is difficult to choke off and of course the basic strategy for fighting inflation is to cool down the economy by restrictive monetary and fiscal policy thereby increasing unemployment and closing the viscous circle because the practical macroeconomic policies for dealing with unemployment and inflation are so diametrically opposed stagflation is a pervasive structural problem when for whatever reason there is basically an unfavourable short run tradeoff between unemployment and inflation economic policy tends to vacillate between expansion of demand to fight unemployment and restriction of demand to fight inflation polarising the electorate and distracting society from dealing effectively with its underlying real economic problems even the difficulty of attaining external balance in foreign accounts is largely a spillover into the international payments arena of an inability to achieve an acceptable internal balance between full employment and price stability this paper takes what might be called a comparative systems approach to the problem of stagflation at the heart of modern industrial capitalism is an incredibly complicated system of overlapping monopolistic competitors 2 a starting point for the paper is the realisation that the coordination difficulty which can cause some systems to suffer involuntary unemployment is not inherent in laissez faire private enterprise per se it is closely tied to one particular property of a conventional wage payment system namely compensation of each firm s employees is stuck to an outside numeraire whether money or a cost of

policy watch infrastructure investment and economic growth in the late 1980s david aschauer 1989 triggered a long overdue dialogue among economists and political leaders when he published a study arguing that much of the decline in u s productivity that occurred in the 1970s was precipitated by declining rates of public capital investment my own work confirmed these results munnell 1990a spending advocates seized on these findings as support for increased public investment the enthusiasm among policymakers for the early aschauer results was matched if not surpassed by skepticism on the part of many economists critics of these studies charged that the methodology was flawed that the direction of causation between public investment and output growth is unclear and that even if the historical empirical relationships were estimated correctly they provide no clear indications for current policy who s right what do we know and not know about the link between public infrastructure and productivity and what are the implications of these results for policy

imperfect competition and the keynesian cross abstract this paper presents a simple general equilibrium model in which the only non walrasian feature is imperfect competition in the goods market the model is shown to exhibit various keynesian characteristics in particular as competition in the goods market becomes less perfect the fiscal policy multipliers approach the values implied by the textbook keynesian cross

price dispersion and the role of stores in this paper we study price dispersion in the norwegian retail market for 766 products across 4 297 stores over 60 months price dispersion for homogeneous products is significant and persistent with a coefficient of variation of 37 percent for the median product price dispersion differs between product categories and over time store heterogeneity accounts for 30 percent of the observed variation in prices for the median product month and for around 50 percent for the sample as a whole price dispersion is still prevalent after correcting for store heterogeneity

producer s dilemma experiments abstract embedding profit motivated producers in a simple macroeconomic model creates a system where expansion by one producer is unprofitable but coordinated expansions are profitable in this system any level of aggregate demand is a potential equilibrium the ruling equilibrium is determined by expectations rather than close the model with behavioral assumptions behavioral observations are made of subjects in this incentive environment

the big push natural resource booms and growth a simple application of big push reasoning suggests that natural resource booms can be important catalysts for development in poorer countries in this paper we present evidence from seven latin american countries that natural resource booms are sometimes accompa nied by declining per capita gdp we present a model with natural resources increasing returns in the spirit of big push models and expectations to clarify some of the reasons this may happen q 1999 elsevier science b v all rights reserved

limited rationality and strategic interaction the impact of the strategic environment on nominal inertia much evidence suggests that people are heterogeneous with regard to their abilities to make rational forward looking decisions this raises the question as to when the rational types are decisive for aggregate outcomes and when the boundedly rational types shape aggregate results we examine this question in the context of a long standing and important economic problem the adjustment of nominal prices after an anticipated monetary shock our experiments suggest that two types of bounded rationality money illusion and anchoring are important behavioral forces behind nominal inertia however depending on the strategic environment bounded rationality has vastly different effects on aggregate price adjustment if agents actions are strategic substitutes adjustment to the new equilibrium is extremely quick whereas under strategic complementarity adjustment is both very slow and associated with relatively large real effects this adjustment difference is driven by price expectations which are very flexible and forward looking under substitutability but adaptive and sticky under complementarity moreover subjects expectations are also considerably more rational under substitutability

on monopolistic competition and involuntary unemployment in a simple temporary general equilibrium model it is shown that if the number of firms is small imperfect price competition in the markets for goods may be responsible for the existence of unemployment at any given positive wage in our examples involving two firms facing their true demand curves total monopolistic labor demand remains bounded as the wage rate goes to zero and unemployment prevails for a sufficiently large inelastic labor supply in the competitive case total labor demand would go to infinity and intersect labor supply at a positive wage

behavioural tax microsimulation with finite hours choices abstract it is often argued that institutional factors constrain the labour supply choices open to the individual in this paper we present an alternative to the standard neoclassical model of labour supply under the presumption that the number of hours choices are discrete and finite we explore alternative specifications of discrete models of labour supply which are appropriate for the microsimulation of the behavioural impact of tax policy reform policy simulations are carried out for a basic income reform

product differentiation and endogenous disutility abstract this paper models the choice of degree of focus or general purposeness available to firms by endogenizing transportation costs in an address model of horizontal differentiation the formulation is in three stages entry focus or design competition and price competition the strategic effect of product design is analyzed the equilibrium level of general purposeness is shown to depend critically on neighbor exclusivity the latter and more generally market structure and product diversity are shown to depend on the cost of producing general purpose products if general purposeness is free to design and produce only two firms enter the market and set large transportation costs underproviding product diversity

segmented trends and non stationary time series since the influential work of charles r nelson and charles plosser 1982 many empirical studies have concluded that macroeconomic time series are difference stationary this paper proposes the segmented trend model as an alternative in which the series is the sum of a nonstationary trend and a stationary cycle and where the trend shows infrequent shifts the paper proposes tests between the difference stationary and segmented trends models and applies these to the data of nelson and plosser in general the results indicate that prices are difference stationary but quantities follow segmented trend processes copyright 1989 by royal economic society

monopolistic competition with endogenous specialization in the familiar spatial model of monopolistic competition on the circle a product is identified by a single locational characteristic representing its brand or variety the ability of a variety to compete with other varieties a given distance away its specialization as quantified by transportation losses or how rapidly the melting iceberg melts is exogenously given in the standard model here specialization is a choice variable selected by the firm a monopolistically competitive general equilibrium is derived where the degree of specialization is endogenously determined along with other variables implications are noted the central contribution is to show that the effect of endogenizing specialization is to make the hotelling lancaster chamberlin model of monopolistic competition isomorphic to the analytically much more tractable dixit stiglitz ethier formulation without sacrificing the appealing concept of product distance

james tobin an appreciation of his contribution to economics jim tobin who died on march 11 2002 at the age of 84 was one of giants of economics of the second half of the twentieth century and the greatest macroeconomist of his generation tobin s influence on macroeconomic theory is so pervasive so much part of our professional acquis that many younger economists often are not even aware that it is his ideas they are elaborating testing criticising refuting or re inventing in this appreciation i consider tobin s scholarly contributions made over a period of more than 50 years tobin received the 1981 nobel memorial prize for his analysis of financial markets and their relations to expenditure decisions employment production and prices i consider his contributions to mean variance portfolio demand and asset pricing theory especially the portfolio separation theorem pitfalls in financial model building portfolio balance and flow of funds models and the credit channel the life cycle model and social security econometric methodology including the tobit estimator and his pioneering work using both time series and cross sectional data to estimate food demand functions economic growth tobin s q the tobin tax the monetary and fiscal policy effectiveness debate first with milton friedman and then with the new classical macroeconomics and real business cycle schools and tobin s approach to methodological questions including microfoundations and aggregation

a life cycle consistent empirical model of family labour supply using cross section data this paper estimates a utility maximising model of the joint determination of male and female labour supplies using a sample of married couples from the u k family expenditure survey the emphasis is on the estimation of within period preferences that are consistent with intertemporal two stage budgeting under uncertainty however the approach we adopt provides an alternative method of estimating certain aspects of life cycle behaviour to the fixed effects constant approach of heckman and macurdy 1980 macurdy 1981 and browning deaton and irish 1985 moreover it relaxes some of the underlying restrictions that are implicit in these constant models under uncertainty

monopolistic competition risk aversion and equilibrium recessions this paper considers a model with monopolistic competition and multiple equilibria rankable by output employment and the pareto criterion while papers in the literature assume a linear production technology and derive a continuum of equilibria we assume a standard diminishing returns production function and find a finite set of equilibria our new feature is the assumption that firms behave in a risk averse manner a low level equilibrium is sustainable because firms at the low profits level associated with the equilibrium become extremely cautious in their employment decisions

collective learning effective demand loss of work and loss of direction the growing regional divide within the uk mackay r r and davies r collective learning effective demand loss of work and loss of direction the growing regional divide within the uk regional studies the local economy relies on a division of labour that develops highly specialized skills in searching for an understanding of the growing work gap within the united kingdom emphasis is placed on recessions that connect to loss and redundancy of physical and human capital high levels of regional unemployment following deindustrialization convert into high levels of regional non work in later years the loss of an economic base leaves a gap in the community and economy that people struggle to bridge market forces work strongly against certain groups in society including those at some disadvantage in the labour market mackay r r and davies r

labour supply incentives and recent family credit reforms in july i995 a fi o per week increment to family credit was introduced for recipients working full time this reform announced in the november i994 budget was a response to concerns that family credit created labour market inflexibility among those eligible for the benefit specifically it was designed to mitigate the effects of the high marginal withdrawal rates associated with the reduction of family credit as hours and gross income rise the secretary of state for social security stated

recursos naturales diversificacion y crecimiento regional en el peru based upon the export product space this paper shows the main features of the export product composition of peru and its regions with respect to export baskets these include a high con centration in few commodities a relatively low degree of similarity between products relatively high levels of productivity at the international level and enormous undiscovered or untapped export potential in addition this paper analyzes the hypothesis that the natural resource curse affects regional growth employment and export diversification subject to the limitations of the data and the heterogeneous panel methods employed estimation results indicate that the share of natural capital out of the total tangible wealth and natural capital per capita seems on average and in a relatively statistically robust way to spur growth primary employment and export concentration in a few products consequently the natural resource curse for the peruvian regions is not about growth but about low regional development since such resources do not have a significant impact on secondary and tertiary employment or on export product diversification

complementary credit networks and macroeconomic stability switzerland s wirtschaftsring abstract the swiss wirtschaftsring economic circle credit network founded in 1934 provides residual spending power that is highly counter cyclical individuals are cash short in a recession and economize by greater use of wir credits a money in the production function mipf specification implies that transactions in wir form a stabilizing balance that makes up for the lack of ordinary currency thus unlike the ordinary money wir money is negatively correlated with gdp in the short run this implication is confirmed by empirical estimates such credit networks play a stabilizing role that should be considered in monetary policy

measuring product diversity abstract the diversity of a set of products can be defined as a function of the bilateral distances between its elements we show how these bilateral distances can be represented by parameters in a utility function and measured from observable data

growth in global materials use gdp and population during the 20th century the growing industrial metabolism is a major driver of global environmental change we present an assessment of the global use of materials since the beginning of the 20th century based on the conceptual and methodological principles of material flow accounting mfa on the grounds of published statistical data data compilations and estimation procedures for material flows not covered by international statistical sources we compiled a quantitative estimate of annual global extraction of biomass fossil energy carriers metal ores industrial minerals and construction minerals for the period 1900 to 2005 this period covers important phases of global industrialisation and economic growth the paper analyses the observed changes in the overall size and composition of global material flows in relation to the global economy population growth and primary energy consumption we show that during the last century global materials use increased 8 fold humanity currently uses almost 60 billion tons gt of materials per year in particular the period after wwii was characterized by rapid physical growth driven by both population and economic growth within this period there was a shift from the dominance of renewable biomass towards mineral materials materials use increased at a slower pace than the global economy but faster than world population as a consequence material intensity i e the amount of materials required per unit of gdp declined while materials use per capita doubled from 4 6 to 10 3 t cap yr the main material groups show different trajectories while biomass use hardly keeps up with population growth the mineral fractions grow at a rapid pace we show that increases in material productivity are mostly due to the slow growth of biomass use while they are much less pronounced for the mineral fractions so far there is no evidence that growth of global materials use is slowing down or might eventually decline and our results indicate that an increase in material productivity is a general feature of economic development

stages of diversification this paper studies the evolution of sectoral concentration in relation to the level of per capita income we show that various measures of sectoral concentration follow a u shaped pattern across a wide variety of data sources countries first diversify in the sense that economic activity is spread more equally across sectors but there exists relatively late in the development process a point at which they start specializing again we discuss this finding in light of existing theories of trade and growth which generally predict a monotonic relationship between income and diversification

least squares learning and the stability of equilibria with externalities this paper studies the stability of competitive equilibria in a model of aggregate employment when the representative agent uses a least squares forecasting procedure it is shown that the pareto inferior low employment steady state is always unstable under least squares learning even if it is stable under perfect foresight the high employment steady state is stable under learning if and only if it is saddle point stable under perfect foresight this weakens multiple equilibrium theories of coordination failure that purport to explain persistently high unemployment the pareto superior high employment steady state will be the focal point of individual forecasting

corporate debt overhang and macroeconomic expectations one way in which corporate financial structure affects macroeconomic performance is by creating debt overhang debt overhang occurs when existing debt deters new investment because the benefits from new investment will go to the existing creditors not to the new investors if the economy is booming debt overhang will not bind because the returns to investing are high if the economy is stagnant debt overhang will bind because the returns to investing are low as a result high levels of debt can create multiple expectational equilibria in which animal spirits determine economy activity copyright 1995 by american economic association

export specialisation and local economic growth this paper aims to provide empirical evidence on whether export specialization or diversification is better for local economic growth using export data from 354 magisterial districts of south africa for 1996 and 2001 we estimate spatial growth regressions that include measures of the degree of export specialization and diversification overall exporting regions outperform other less or non exporting regions also we find that export specialisation rather than export diversification has been associated with local economic growth with specialization in mining and agriculture being especially beneficial our results support the view that specialization in a locality s area of comparative advantage is good for local economic development we also find that localities with higher initial levels of human capital and higher subsequent population growth performed better this is consistent with the belief that policies aimed at strengthening human capital and improving agglomeration economies will enhance local economic development

the sensitivity of an empirical model of married women s hours of work to economic and statistical assumptions this study undertakes a systematic analysis of several theoretic and statistical assumption s used in many empirical models of female labor supply using a singl e data set psid 1975 labor supply data the author is able to replic ate most of the range of estimated income and substitution effects fo und in previous studies in this field he undertakes extensive specif ication tests and finds that most of this range should be rejected du e to statistical and model misspecifications the two most important assumptions appear to be the tobit assumption used to control for sel f selection into the labor force and exogeneity assumptions on the wi fe s wage rate and her labor market experience copyright 1987 by the econometric society

hysteresis in unemployment unemployment has risen sharply in a number of countries and it appears to be becoming more persistent the experience of the 1970s and 1980s showed that adverse unemployment shocks could have long lasting effects with very serious economic and social consequences a key mechanism producing these adverse consequences was hysteresis in unemployment whereby temporary rises in unemployment generated by supply and or demand shocks had permanent or at least very persistent effects clearly it is important to understand how hysteresis mechanisms might operate in order to avoid such adverse outcomes on the other hand experience during the subsequent two decades showed that under more favourable macroeconomic conditions it is possible to observe good hysteresis effects now is a very appropriate time to re visit the issue of hysteresis in unemployment in order to avoid the errors of the 1970s and 1980s and if possible to get hysteresis effects working in a positive direction copyright 2011 oxford university press

booming sector and de industrialisation in a small open economy this paper presents a theoretical analysis of the dutch disease the phenomenon whereby a boom in one traded goods sector squeezes porfitability in other traded goods sectors both by directly bi

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

costs prices and profitablity in uk manufacturing the 1984 input output tables make it possible to estimate directly the cost structure of any industrial sector the results of this calculation are presented for the non food manufacturing sector for the period 1970 87 this cost estimate is found to be part of a co integrating set with output prices in contrast to the specification implied by a cobb douglas production function the other elements of the equilibrium vector are an index of capacity utilization positively related to the mark up and the variance of inflation proxying inflation uncertainty which is negatively related import prices have an indirect effect on the mark up via demand

natural resources and economic growth the role of investment is it possible that excessive reliance on natural resources affects saving and investment in a way that retards economic growth and thus in the long run the level of output per capita this paper reviews the literature explores the data and compares and contrasts the explanatory power and interplay of natural resources and civil liberties our proxy for institutional variables currently under scrutiny in the literature we propose that natural resource dependence may be viewed as an exogenous factor that impedes economic growth and investment as well as institutions even if we stress that natural resource abundance may be good for growth

fiscal policy multipliers the role of monopolistic competition scale economies and intertemporal substitution in labour supply a dynamic macroeconomic model of monopolistic competition is developed for the closed economy forward looking consumers demand differentiated goods supply labour and save part of their income in the form of shares producers manufacture the differentiated goods by using labour and capital we study the short run transition and long run effects of fiscal policy comparisons with the new classical case of perfect competition are made simple expressions far multipliers are derived the sensitivity of the multipliers for diversity preference and ethier productivity effects intratemporal and intertemporal substitution effects and markup effects under free and restricted entry are also studied

imperfect competition and the suboptimality of rational expectations abstract this paper investigates whether nonrational expectations can lead to outcomes which other things being equal pareto dominate rational expectations outcomes in order to carry out this investigation we construct an intertemporal micro based macroeconomic model with the two following strong points a it accommodates both rational and non rational expectations b both prices and quantities are determined by optimizing agents in particular prices are determined by explicit price setters using objective demand curves in this model the first theorem of welfare holds so that the walrasian equilibrium with rational expectations cannot be pareto dominated this conclusion is extremely fragile however and we show that as soon as some degree of imperfect competition is present rational expectations are suboptimal in the sense that they are dominated by irrational expectations

theoretical foundations for sticky wages abstract the paper compares three different types of theoretical explanation of sticky wages they are implicit contracts efficiency wage models and insider outsider models it then reconsiders keynes rationale for sticky wages which focuses on relative wage issues finally the paper considers possible directions for future research

public investment and economic growth this article uses an extension of mankiw romer and weil s augmented solow swan growth model to examine whether public investment has a distinct role as a determinant of economic growth it considers both the predictions of the model in steady state and in transition to steady state for the steady state model there is no significant effect from public investment on the level of output per worker using standard ordinary least squares ols methods for the transition model it observes a significant contribution to economic growth from public investment when instrumental variables methods are used however the associated standard errors are much larger and the contribution of public investment is statistically insignificant

a simple macroeconomic model with monopolistic firms this paper presents a simple macroeconomic model in which firms outputs are imperfect substitutes and explores the macroeconomic implications of monopolistic competition the model is classical in some respects but keynesian in others multiple or unstable equilibria are not unlikely permanent price controls will in principle be desirable since they allow a permanent and efficient increase in aggregate output small costs of price adjustment may induce large deviations of output from the natural rate fiscal policy will generally affect aggregate output but the sign and magnitude of the government expenditure multiplier cannot be determined a priori

competition with targeted product design price variety and welfare abstract we consider the price and welfare effects of competition in targeted product design in the context of the salop circle model changes in product design lead to demand rotations that set the stage for our analysis with an exogenous number of firms we show that the degree of targeted product design tends to increase with the number of firms moreover under reasonable conditions price increasing competition takes place for intermediate levels of the number of firms this effect is associated with the possibility of lower consumer welfare with endogenous firm entry an interesting insight from our analysis is that in some situations an increase in market size or a technological progress that reduces entry costs both might reduce consumers welfare

modeling employment dynamics with state dependence and unobserved heterogeneity this study extends existing work on the dynamics of labor force participation by distinguishing between full time and part time employment and by allowing unobserved heterogeneity in the effects of previous employment outcomes children and education on labor supply behavior in addition unobserved heterogeneity may feature autocorrelation and correlated random effects the results reveal significant variation in the effects of children and education on labor supply behavior moreover the omission of random coefficients and autocorrelation biases estimates of state dependencies on average temporary shocks that increase the rate of part time employment lead subsequently to lower rates of nonemployment than do shocks that temporarily increase the rate of full time work the article has additional online supplementary material

sectoral balance in development a survey abstract this paper surveys the literature on sectoral balance to see how sectoral imbalances can retard economic development it examines definitions of sectors and balance provides background facts theories and planning tools reviews the debate on balanced growth and surveys two sector models of agriculture industry consumption investment and luxury basics interaction the open economy and the role of service nonmarket and unproductive sectors it argues that the examination of important development issues requires multisectoral analysis incorporating the insights of several of these models and that alternative models with different structural characteristics deserve attention

monopolistic competition and general purpose products most models of monopolistic competition study the question of the optimal degree of product differentiation by looking at the number of firms that will locate in characteristics space this is somewhat restrictive the development of general purpose products means that the needs of quite heterogenous consumers can be satisfied with the same homogenous product the private and social incentives to produce general purpose products are studied in this paper within the circular road model of monopolistic competition the degree of general purposeness of a product is approximated by its per unit distance transport costs it is shown that there are strong forces leading the market to supply products whose transport costs are excessively low

increasing returns and the foundations of unemployment theory current approaches to macroeconomic theory divide roughly into two basic schools of thought one approach typically associated with rational expectations views the economy as basically at or near walrasian market clearing equilibrium in which case it becomes very difficult to explain away convincingly the undeniable persistence at times of involuntary unemployment another approach views the underemployed economy as being in a state of temporary fixed price disequilibrium in which case aside from having to repress suspicions that the essence of effective demand failure might not have to do with prices fixed at wrong values there is a lot of rationalising to be done about why profitable adjustments are so slow this paper argues that something like an internally consistent theory of steady state involuntary unemployment is possible and even plausible the cornerstone of this third approach is increasing returns to scale which blocks unemployed agents from breaking out of a low level equilibrium trap unless there is overall coordination or stimulation a simple model is presented which contains the basic ideas

export diversification what s behind the hump hy should export diversification be taken as a policy objective per se there are two reasons that it should not first according to ricardo countries should specialize not diversify second the heckscher ohlin model implies that export patterns are largely determined by endowments so if anything we should worry about factor accumulation not diversification yet export diversification is a constant preoccupation of policymakers in developing countries as de ferranti et al 2002 note a recurrent preoccupation of latin american policymakers is that their natural riches produce a highly concentrated structure of export revenues which then leads to economic volatility and lower growth p 38 the notion that export patterns are fully determined by endowments is of course naive the relationship of endowments trade and growth is a complex and imperfectly understood one intra industry trade models showed long ago that many factors other than endowments including market failures and policies can affect trade patterns more recently hausmann hwang and rodrik 2007 argued that export patterns can display path dependence in the presence of externalities

volatility and development why is gdp growth so much more volatile in poor countries than in rich ones we identify four possible reasons i poor countries specialize in more volatile sectors ii poor countries specialize in fewer sectors iii poor countries experience more frequent and more severe aggregate shocks e g from macroeconomic policy and iv poor countries macroeconomic fluctuations are more highly correlated with the shocks of the sectors they specialize in we show how to decompose volatility into these four sources quantify their contribution to aggregate volatility and study how they relate to the stage of development we document the following regularities first as countries develop their productive structure moves from more volatile to less volatile sectors second the level of specialization declines with development at early stages and slowly increases at later stages of development third the volatility of country specific macroeconomic shocks falls with development fourth the covariance between sector specific and country specific shocks does not vary systematically with the level of development we argue that many theories linking volatility and development are not consistent with these findings and suggest new directions for future theoretical work

taxation in empirical labour supply models lone mothers in the uk taxation has become an integral part of the empirical specification of labour supply models the opportunity set available to workers is made significantly non linear by the workings of the tax and benefit system and this in turn complicates an individual s optimal choice of labour supply in such a framework the relationship between hours of work gross wages and other income is necessarily non linear moreover the marginal wage and virtual income at any chosen hours of work are an implicit function of the hours choice itself to guarantee a unique solution to this choice problem consumer theory places integrability conditions on the form of wage and income derivatives of labour supply similarly once the problem is made stochastic and econometric methods are utilised to recover unknown parameters a coherency condition is required to define a well behaved econometric model see heckman i 978 and gourieroux et al i980 in the labour supply and taxation framework these two conditions are quite naturally closely related they do however have implications for labour supply specification and the reliability of tax reform simulations based on empirical labour supply models for the case of the linear labour supply model macurdy et al i990 document the potential for misleading results that may occur once a linear model is utilised in a framework with non linear taxation such a specification all but guarantees a global forward sloping labour supply function which is not a requirement of economic theory and is empirically often too restrictive in this paper we focus on two issues the first relates to the specification of a flexible model allowing backward bending labour supply the second issue relates to the statistical coherency of such a model in the presence of non linear taxation the empirical application in this paper concerns the labour supply behaviour of lone mothers in the uk this group face a highly non linear budget constraint the analysis of their labour supply responses is crucial for the design of effective policy reforms we use a labour supply specification suggested by

macroeconomic issues for latin america abstract recent macroeconomic issues in latin america are reviewed with an emphasis on theory topics covered include multiple equilibria from hysteresis or increasing returns exchange rate management and the output and asset market effects of devaluation speculation interest rate management and financial reform government behavior income distribution and growth inertial inflation and heterodox policy shocks and disequilibrium theories

implementing the share economy in a recent series of papers and books weitzman 11 12 13 has put forward a new policy prescription for the macroeconomy in weitzman s view significant improvements in the performance of the macroeconomy can be achieved by altering key structural relationships specifically the wage contract between workers and firms weitzman labels this approach the share economy because workers wages are no longer contracted for in nominal terms but vary with an index of the firm s performance usually profits that is the workers share in the firm s success or failure the point of weitzman s work is not that participation increases worker s motivation or productivity in weitzman s view share contract wage agreements create a pool of latent excess demand for labor within firms firms then behave in the labor markets as buyers who would expand employment at the going wage if they could this contrasts with the more familiar case where firms are willing to expand employment only if the wage is reduced weitzman s claims for economies implementing share contracts are impressive lower natural unemployment rates less susceptibility to layoffs caused by macroeconomic shocks and reduced inflation in weitzman s world firms are monopolistic competitors operating under increasing returns to scale it is these two features that lead to wage and price inflexibility and therefore to potential unemployment 10 weitzman makes his case for the share economy by examining a transition economy where conversion from a wage system to an equivalent profit sharing system yields the same pay 13 945 even in this case where total payments to workers are identical weitzman shows that the share economy expands output and employment while lowering price 13 945 although conversion to a share economy may seem desirable from a macroeconomic view

the overvaluation of purchasing power parity abstract recent panel studies of purchasing power parity have reported strong evidence of mean reversion in real exchange rates however these studies fail to control for cross sectional dependence in the data this failure has dramatic consequences raising the significance level of tests with a nominal size of 5 percent to as much as 50 percent it is shown in this paper that controlling for cross sectional dependence no evidence against the random walk null can be found in panels of up to 64 real exchange rates this finding cannot be attributed to low power as there is ample power in panels of this size to reject the unit root null