the optimal taxation of fiat money in search equilibrium this paper investigates the link between welfare and the taxation of money in the context of a general equilibrium search model where decentralized trading motivates the use of fiat money since buyers with money must invest effort or search intensity to contact sellers with goods a natural trading externality arises given a sufficiently productive economy search efforts will be too low relative to social efficiency this provides a welfare improving role for policies which tax money balances the nature of this role is explored and its implications for optimal monetary policy discussed copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

battese coelli estimator with endogenous regressors abstract we provide a framework for dealing with the endogeneity problem in the battese coelli estimator for productive efficiency measurement

a search theoretic model of legal and illegal currency abstract using a search theoretic model of money we explore the conditions under which two currencies domestic and foreign will co exist despite legal restrictions on the use of foreign currency for internal trade we study how changes in government policy i e its enforcement of currency laws through fines or the rate of enforcement affects the acceptability of illegal currency the equilibrium value of both currencies and the implicit exchange rate first we construct a model with indivisible goods to show conditions under which legal currency is fully acceptable but illegal currency circulates with varying acceptability we then introduce bargaining to determine prices in legal and illegal currency we show that some enforcement polices can create multiple equilibria while others will not also some methods of enforcement are capable of driving the illegal currency out of circulation while others are not

a new monetarist model of fiat and e money we develop a dual payment new monetarist model where an electronic money e purse competes with fiat money cash the two payment instruments differ in terms of security cost and acceptability strategic complementarities lead to multiple monetary equilibria we establish the conditions under which e money can coexist with or replace fiat money and explain the reasons for the e purse failure success in a few countries we also compare welfare when one currency or both circulate when the risk of theft of cash is endogenous e money cannot replace cash entirely however low inflation can facilitate the adoption of e money in parallel with fiat money jel d83 e40 e50

coalition proof trade and the friedman rule in the lagos wright model the lagos wright model a monetary model in which pairwise meetings alternate in time with a centralized meeting has been extensively analyzed but always using particular trading protocols here trading protocols are replaced by two alternative notions of implementability one that allows only individual defections and one that also allows cooperative defections in meetings it is shown that the first best allocation is implementable under the stricter notion without taxation if people are sufficiently patient and if people are free to skip the centralized meeting then lump sum taxation used to pay interest on money does not enlarge the set of implementable allocations

money and credit as means of payment a new monetarist approach abstract we study the choice of payment instruments in a model with money and credit where sellers must invest in a record keeping technology to accept credit and buyers have limited commitment our model captures the two sided market interaction between consumers and retailers that can generate multiple equilibria limited commitment yields an endogenous debt limit that depends on monetary policy money and credit coexist for a range of parameters and bargaining related hold up problems can lead to inefficiencies in the adoption of monitoring technologies changes in monetary policy generate multiplier effects in the credit market due to complementarities between consumer borrowing and the adoption of credit by merchants

a walrasian theory of money and barter we study a barter economy in which each good is produced in two qualities and no trader can distinguish between the qualities of those goods he neither consumes nor produces we show that in competitive equilibrium there exists a unique good the one for which the discrepancy between qualities is smallest that serves as the medium of exchange this good mediates every trade equilibrium is inefficient because production of the medium would be lower if it were not for its mediating role introducing fiat money enhances welfare by eliminating this distortion however high inflation drives traders back to the commodity medium

who benefits from aid for trade comparing the effects on recipient versus donor exports recent studies offer an ambiguous picture on the effectiveness of foreign aid in strengthening the export capacity of recipient countries moreover the literature on aid for trade aft has often neglected that exporters in the donor countries may be among the main beneficiaries we hypothesize that aft is as much in the self interest of donor countries as it may have promoted the exports of recipient countries we simultaneously estimate and compare the effects of aft on trade in both directions we find that aft increases recipient exports to donors as well as recipient imports from donors the first effect tends to dominate the latter which contradicts the skeptical view that donors grant aft primarily to promote their own export interests

hysteresis in a simple model of currency substitution abstract a cash in advance model in which the cost of buying goods with a foreign currency is decreasing in the economy s accumulated experience in transacting in the foreign currency is shown to display hysteresis in money velocity that is a temporary increase in expected inflation can cause a permanent increase in velocity in addition the model implies that the domestic currency does not have to dominate the foreign currency in rate of return to induce agents to stop using the foreign currency finally inflation rates that trigger currency substitution need not be associated with steady states in which the domestic currency disappears from circulation

endogeneity in panel stochastic frontier models an application to the japanese cotton spinning industry abstractwe present a panel stochastic frontier model that handles the endogeneity problem this model can treat the endogeneity of both frontier and inefficiency variables we apply our method to examine the technical efficiency of japanese cotton spinning industry our results indicate that market concentration is endogenous and when its endogeneity is properly handled it has a larger negative impact on the technical efficiency of cotton spinning plants we find that the exogenous model substantially overestimates efficiency in concentrated markets

endogenous currency substitution inflationary finance and welfare in some countries a foreign currency has replaced the domestic one to perform the functions of money this phenomenon is known as currency substitution this paper explores the relationship between currency substitution and inflationary finance in an overlapping generations model in which currency substitution is an endogenous equilibrium outcome the author describes when currency substitution may emerge and shows that it may be a purely expectational phenomenon he uses the model to discuss the welfare effects of inflation and the effects of policies that deal directly with currency substitution cs copyright 1994 by ohio state university press

legal restrictions and international currencies an experimental approach abstract this paper integrates theory and experiments to explore how policy rules related to government interventions can affect economic allocations and the international status of a currency using a two country two currency search model we study two types of government interventions 1 legal restrictions impacting a seller s ability to accept a foreign currency and 2 reductions to the cost a seller must pay to accept a foreign currency the first intervention can be viewed as a way to capture a decrease in capital controls while the second can be viewed as a way to explore the impact of reducing information costs associated with using a foreign currency our results indicate that abolishing legal restrictions that impact a seller s ability to accept a foreign currency can increase both quantities traded and the number of trades involving two types of currencies additionally the international status of currencies is significantly enhanced when sellers face very low foreign currency acceptance costs

incentive feasible deflation abstract for competitive economies in which the real rate of return on money is too low the standard prescription is to engineer a deflation that is to operate monetary policy according to the friedman rule implicit in this recommendation is the availability of a lump sum tax instrument in this paper i view lump sum tax obligations as a form of debt subject to default while individuals may want to honor such obligations ex ante a lack of commitment the sine qua non of modern monetary theory may prevent them from the following through on their promises ex post when this is the case there may exist an incentive induced limit to deflationary policy

a search theoretic approach to monetary economics the essential function of money is its role as a medium of exchange the authors formalize this idea using a search theoretic equilibrium model of the exchange process that captures the double coincidence of wants problem with pure barter one advantage of the framework described here is that it is very tractable the authors also show that the model can be used to addre ss some substantive issues in monetary economics including the potenti al welfare enhancing role of money the interaction between specializat ion and monetary exchange and the possibility of equilibria with multip le fiat currencies copyright 1993 by american economic association

dollarization and currency exchange abstract we use a dual currency money search model to study dollarization agents hold portfolios consisting of two currencies one of which is risky we use numerical methods to solve for the steady state distributions of currency portfolios transaction patterns and value functions as risk increases agents increasingly use the safe currency as a medium of exchange dollarization occurs furthermore the safe currency trades for multiple units of the risky currency this type of currency exchange and the corresponding nominal exchange rate are often observed in black market or unofficial currency exchange markets in developing countries due to decentralized trading a distribution of exchange rates arises whose mean and variance change in predictable ways when currency risk increases

does globalization affect growth evidence from a new index of globalization the study develops an index of globalization covering its three main dimensions economic integration social integration and political integration using panel data for 123 countries in 1970 2000 it is analysed empirically whether the overall index of globalization as well as sub indexes constructed to measure the single dimensions affect economic growth as the results show globalization indeed promotes growth the dimensions most robustly related with growth refer to actual economic flows and restrictions in developed countries although less robustly information flows also promote growth whereas political integration has no effect

export performance and trade facilitation reform hard and soft infrastructure summary we estimate the impact of aggregate indicators of soft and hard infrastructure on the export performance of developing countries we derive four new indicators for more than 100 countries over the period 2004 07 estimates show that trade facilitation reforms do improve the export performance of developing countries this is particularly true with investment in physical infrastructure and regulatory reform to improve the business environment the findings provide evidence that the marginal effect of the transport efficiency and business environment improvement on exports appears to be decreasing in per capita income in contrast the impact of physical infrastructure and information and communications technology on exports appears increasingly important the richer a country becomes we also find statistical evidence on the complementarity between hard infrastructure and soft infrastructure as captured by our indicators finally drawing on estimates we compute illustrative ad valorem equivalents of improving each indicator halfway to the level of the top performer in the region

barter and monetary exchange under private information the authors develop a model of production and exchange with uncertainty concerning the quality of commodities and study the role of fiat money in ameliorating frictions caused by private information the model is specified so that without private information only high quality commodities are produced and there is no welfare gain from using money with private information there can be equilibria and sometimes multiple equilibria where low quality commodities are produced and money can increase welfare money works by promoting useful production and exchange in efficient monetary equilibria agents adopt strategies that increase the probability of acquiring high quality output copyright 1994 by american economic association

inside and outside money as alternative media of exchange we study a random matching model of money in which a subset of people called bankers have known histories and the rest called nonbankers have unknown histories earlier we showed that if there are no outside assets then an optimal arrangement has bankers issuing objects banknotes that are used in trades involving nonbankers here the same model is used to compare such exclusive use of inside money to the exclusive use of outside money we show that the set of implementable outcomes using outside money is a strict subset of the set using inside money

estimation of a forward looking monetary policy rule a time varying parameter model using ex post data abstract in this paper we consider estimation of a time varying parameter model for a forward looking monetary policy rule by employing ex post data a heckman type 1976 the common structure of statistical models of truncation sample selection and limited dependent variables and a simple estimator for such models annals of economic and social measurement 5 475 492 two step procedure is employed in order to deal with endogeneity in the regressors this allows us to econometrically take into account changing degrees of uncertainty associated with the fed s forecasts of future inflation and gdp gap when estimating the model even though such uncertainty does not enter the model directly we achieve efficiency in estimation by employing the standardized prediction errors for inflation and gdp gap as bias correction terms in the second step regression we note that no other empirical literature on monetary policy deals with this important issue our empirical results also reveal new aspects not found in the literature previously that is the history of the fed s conduct of monetary policy since the early 1970s can in general be divided into three subperiods the 1970s the 1980s and the 1990s the conventional division of the sample into pre volcker and volcker greenspan periods could mislead the empirical assessment of monetary policy

search bargaining money and prices the goal of this paper is to extend existing search theoretic models of fiat money which until now have assumed that the price level is exogenous by explicitly incorporating bilateral bargaining this allows us to determine the price level endogenously and leads to additional insights concerning the role of money for example we find that monetary equilibria are generally inefficient in the sense that output and prices differ from the solution to a social planner s problem although the difference can become small as the discount rate or search friction vanishes we also find that there exist nonstationary inflationary equilibria

on the estimation of zero inefficiency stochastic frontier models with endogenous regressors in this paper we investigate endogeneity issues in the zero inefficiency stochastic frontier zisf models by mean of simultaneous equation setting specifically we allow for one or more regressors to be correlated with the statistical noise a modified limited information maximum likelihood liml approach is used to estimate the parameters of the model moreover the firm specific inefficiency score is also provided limited monte carlo simulations show that the proposed estimators perform well in finite sample

smuggling and the black market for foreign exchange this paper develops a model of the black market for foreign exchange in which black market currency is demanded and supplied by firms engaged in smuggling it is demonstrated that quotas or foreign exchange rationing are not necessary to induce the coexistence of legal and black foreign exchange markets variants of the model analyze the implications of capital flight unbalanced trade quotas foreign exchange licensing and economies with more than two goods

endogenous multiple currencies in this paper i study a model in which households can decide which currency or currencies they will accept i provide a simple set of assumptions that are sufficient to prevent the indeterminacy of the exchange rate in the sense of kareken and wallace 1981 in a two country model stable equilibria have either a single currency or national currencies i also show currency substitution occurs as an endogenous response to high growth in the stock of a currency

new directions for stochastic open economy models the paper develops a simple stochastic new open economy macroeconomic model based on sticky nominal wages explicit solution of the wage setting problem under uncertainty allows one to analyze the effects of the monetary regime on welfare expected output and the expected terms of trade despite the potential interplay between imperfections due to sticky wages and monopoly the optimal monetary policy rule has a closed form solution to motivate our model we show that observed correlations between terms of trade and exchange rates are more consistent with our traditional assumptions about nominal rigidities than with a popular alternative based on local currency pricing 2000 elsevier science b v all rights reserved

money barter and costly information acquisition abstract endogenous information structure is analyzed in a search model of production and exchange under qualitative uncertainty by allowing agents to invest in an inspection technology at a fixed cost where incurring a higher cost permits quality to be recognized with higher probability in any equilibria where agents acquire information some bad commodities are always produced the information acquisition promotes production and exchange of good commodities as the information problem becomes severe money can improve welfare by economizing on information costs in the optimal monetary equilibrium agents adopt trading strategies which contribute to the saving of information costs

an information based theory of international currency abstract this paper develops an information based theory of international currency based on search frictions private trading histories and imperfect recognizability of assets using an open economy search model with multiple competing currencies the value of each currency is determined without requiring agents to use a particular currency to purchase a country s goods strategic complementarities in portfolio choices and information acquisition decisions generate multiple equilibria with different types of payment arrangements while some inflation can benefit the country issuing an international currency the threat of losing international status puts an inflation discipline on the issuing country when monetary authorities interact in a simple policy game the temptation to inflate can lead optimal policy to deviate from the friedman rule the calibrated model can produce a welfare cost of losing international status for the issuing country larger than previous findings though estimates depend critically on inflation rates and information costs

payments and liquidity under adverse selection informational asymmetries regarding the future value of assets affect their role in exchange i construct a random matching economy composed of two assets a risk free bond and a lucas tree whose terminal value is privately known to its holder no restrictions are imposed on payment arrangements the main finding supports a pecking order theory of payments agents use their risk free bonds first in order to finance their spending shocks and they use their information sensitive assets only if their holdings of bonds are depleted the theory has implications for the optimal provision of risk free bonds the structure of asset returns and liquidity

impacts of tangible and intangible elements of aid for trade on the globalisation of developing countries the aid for trade initiative was launched by the wto in 2005 to help developing countries build their supply side capacity and trade related infrastructure to improve their capacity in the global market this study investigates the impacts of both the tangible and intangible elements of this initiative on the economic social and political globalisation of recipient countries intangible elements of aid for trade aid for trade policy and regulation may be considered as the software of aid for trade while tangible elements aid for economic infrastructure and building productive capacity are the hardware countries that receive aid for trade can use both types of elements to succeed in globalisation this research hypothesises that the tangible elements of aid for trade have a singular effect on the overall level of globalisation since they are expected to only increase the level of economic globalisation moreover we expect that the intangible elements of aid for trade will have multiple effects on the overall level of globalisation as they have an impact on not only economic aspects but also social and political aspects of it using the dataset of aid for trade from 2002 to 2015 we find that the intangible elements of aid for trade have increased the recipients level of overall globalisation

inflation and welfare a search approach this paper extends recent findings in the search theoretic literature on monetary exchange regarding the welfare costs of inflation we present first estimates of the welfare cost of inflation using the welfare triangle methodology of bailey 1958 and lucas 2000 we then derive a money demand function from the search theoretic model of lagos and wright 2005 and we estimate it from u s data over the period 1900 2000 we show that the welfare cost of inflation predicted by the model accords with the welfare triangle measure when pricing mechanisms are such that buyers appropriate the social marginal benefit of their real balances for other mechanisms welfare triangles underestimate the true welfare cost of inflation because of a rent sharing externality we also point out other inefficiencies associated with noncompetitive pricing which matter for estimating the cost of inflation we then illustrate how endogenous participation decisions can mitigate or exacerbate the cost of inflaion and we provide calibrated examples in which a deviation from the friedman rule is optimal finally we discuss distributional effects of inflation

currency exchange in a random search model this paper investigates foreign exchange trading a phenomenon that typically accompanies international trade a search theoretic general equilibrium approach is adopted to study a two country two currency model for some parameter values of the model there exist some pure strategy equilibria in which commodity currency trade is conducted primarily through local currency and in which there is active currency currency exchange the coexistence of valued foreign currency and its local non acceptability conforms largely with the country specific cash in advance constraint that is often assumed exogenously in international finance literature

toward a theory of international currency we use the framework of random matching games and develop a two country model of the world economy in which two national currencies compete and may be circulated as media of exchange there are multiple equilibria which differ in the areas of circulation of the two currencies in one equilibrium the two national currencies are circulated only locally in another one currency is circulated as an international currency there is also an equilibrium in which both currencies are accepted internationally we also find an equilibrium in which the two currencies are directly exchanged we first characterize the existence conditions of these equilibria in terms of the relative country size and the degree of economic integration and then use an evolutionary approach to equilibrium selection to explain the evolution of the international currency as the two economies become more integrated some welfare implications are also discussed for example a country can improve its national welfare by letting its own currency circulate internationally provided the domestic circulation is controlled for when the total supply is fixed however a resulting currency shortage may reduce the national welfare

black markets for foreign exchange real exchange rates and inflation abstract the black market foreign exchange premium is a tax on exports creating a conflict between the financing of government spending and the allocative goal of stimulating exports the premium is solved for in a model that includes private portfolio choice dual exchange markets and money financing of the fiscal deficit the inflationary implications of switching to floats as a means of unifying official and black market rates are then analyzed inflation could rise substantially if the lost revenues from exports are replaced with a higher tax on money the paper is motivated with examples from sub saharan africa

gmm estimation of stochastic frontier model with endogenous regressors a convenient and simple gmm procedure for estimating stochastic frontier models in the presence of endogenous regressors is proposed monte carlo simulations show that the proposed estimator works very well in finite samples we apply the proposed method to panel data of norwegian dairy farms to illustrate the usefulness of the proposed approach

a fundamental theory of exchange rates and direct currency trades in this paper we construct a two country search model to determine the nominal exchange rate between two fiat monies our model allows agents to use any currency to trade for goods in all countries however search frictions restrict agents opportunities for instantaneous arbitrage and hence make the nominal exchange rate determinate the nominal exchange rate depends on the two countries economic fundamentals including the stocks and growth rates of the two monies direct exchanges between currencies are essential and they imply a nominal exchange rate that is different from the relative price between the two currencies in the goods markets there are persistent violations of the law of one price and purchasing power parity in equilibrium despite the fact that prices are perfectly flexible and all goods are tradeable between countries nominal and real exchange rates can move together in the steady state in response to money growth shocks

evaluating aid for trade a survey of recent studies the demand for accountability in aid for trade is increasing but monitoring has focused on case studies and impressionistic narratives the paper reviews recent evidence from a wide range of studies recognizing that a multiplicity of approaches is needed to learn what works and what does not the review concludes that there is some support for the emphasis on reducing trade costs through investments in hard infrastructure like ports and roads and soft infrastructure like customs but failure to implement complementary reform especially the introduction of competition in transport services may erode the benefits of these investments direct support to exporters does seem to lead to diversification across products and destinations but it is not yet clear that these benefits are durable in general it is difficult to rely on cross country studies to direct aid for trade more rigorous impact evaluation is an underutilized alternative but situations of clinical interventions in trade are rare and adverse incentives because of agency problems and costs because of the small size of project are a hurdle in implementation

currency areas and monetary coordination we integrate a monetary search model into open economy macro to analyze the gains from coordinating on inflation search frictions and local congestion lead to a determinate exchange rate between two currencies relative prices deviate from the law of one price because the deviations depend on the cross country differential in money growth each country is tempted to inflate to exploit the deviations policy coordination reduces inflation and improves welfare for all countries in contrast to traditional models the gains from coordination continue to exist even after each country optimally sets a direct tax on the foreign use of the country s currency

nonfundamental uncertainty and exchange rates this paper shows that there can be equilibria in which exchange rates display randomness unrelated to fundamentals this is demonstrated in the context of a two currency one good model with three agent types and cash in advance constraints a crucial feature is that the type i agents for i 1 2 must satisfy a cash in advance constraint by holding currency i while type 3 agents can satisfy it by holding either currency it is shown that real allocations vary across the multiple equilibria if markets for hedging exchange risk do not exist and that the randomness is innocuous if complete markets exist

on the indeterminacy of equilibrium exchange rates in this paper we consider a particular international economic policy regime the laissez faire regime the distinguishing features of which are unrestricted portfolio choice and floating exchange rates and as we show this regime although favored by many economists is not economically feasible it does not have a determinate equilibrium that is an implication of an overlapping generations model more basically it is an implication of the notion that money is wanted only in order to accomplish trades

a liquidity based resolution of the uncovered interest parity puzzle a new monetary theory is set out to resolve the uncovered interest parity puzzle uip puzzle it explores the possibility that liquidity properties of money and nominal bonds can account for the puzzle a key concept in our model is that nominal bonds carry liquidity premium due to their medium of exchange role as either collateral or means of payment in this framework no arbitrage condition ensures a positive comovement of real return on money and nominal bonds thus when inflation in one country becomes relatively lower i e real return on this currency is relatively higher its nominal bonds should also yield higher real return we show that their nominal returns can also become higher under the economic environment where collateral pledgeability and or liquidity of nominal bonds and or collateralized credit based transactions are relatively bigger since a currency with lower inflation is expected to appreciate the high interest currency does indeed appreciate in this case i e the uip puzzle is no longer an anomaly in our model our liquidity based theory in fact has interesting implications on many empirical observations that risk based explanations find difficult to reconcile with

invoice currency puzzling evidence and new questions from brazil abstract this article for the first time uses brazilian trade data to draw conclusions about the invoice currency choice both in general and as it pertains to the brazilian real brl we find that the brazil argentina policy of providing payment orders associated to an exchange transaction between their currencies has had a significant impact on the currency chosen for invoicing establishing a link between the availability of financial instruments and the invoice currency choice moreover the evidence does not confirm some previous international results we identify that in brazil there is no coincidence regarding the use of brl for invoicing and its use for making payments yet we find that the main exports denominated in brl are homogenous goods sugar and tobacco suggesting that some bargaining power might remain even if goods are traded in international markets from the brl specific perspective we categorically move away from the idea that the brl is not used in brazilian international trade although it is used at a limited absolute volume an exceptional ninefold growth between 2007 and 2011 is observed new intriguing questions about brazilian currency usage can therefore be proposed

can openness mitigate the effects of weather shocks evidence from india s famine era transformation of countries throughout history rural citizens in developing countries today however remain highly exposed to fluctua tions in the weather this exposure affects the incomes these citizens earn and the prices of the foods they eat recent work has documented the significant mortality stress that rural house holds face in times of adverse weather robin burgess olivier deschenes dave donaldson and michael greenstone 2009 masayuki kudamatsu torsten persson and david stromberg 2009 famines times of acutely low nominal agricultural income and acutely high food prices are an extreme manifestation of this mapping from weather to death lilian c a knowles 1924 describes these events as agricultural lockouts where both food sup plies and agricultural employment on which the bulk of the rural population depends plummet the result is catastrophic with widespread hun ger and loss of life though now confined to the world s poor est countries food shortages and famines were features of most preindustrial societies over time there has been intense debate over what role openness to trade in food might play in

on money as a medium of exchange we analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo nash equilibria in trading strategies are characterized certain goods emerge endogenously as media of exchange or commodity money depending both on their intrinsic properties and on extrinsic beliefs there are also equilibria with genuine fiat currency circulating as the general medium of exchange we find that equilibria are not generally pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare velocity acceptability and liquidity are discussed

international monetary trade and the law of one price abstract we endogenize circulation of currencies and price formation in a decentralized trading environment with two countries and two currencies in equilibrium sellers of homogeneous goods may post prices in the national or also in the foreign currency given unobservable buyers valuations we prove that under different monetary regimes the absence of well integrated international goods markets doesn t necessarily imply a violation of the law of one price we also illustrate the behavior of prices across regimes characterized by different degrees of monetary integration

aid for trade effectiveness complementarities with economic integration developing countries are increasingly using regional integration as a main policy lever when pursuing a trade led growth strategy and today deep preferential trade agreements go beyond trade policy negotiations and cover trade facilitation issues since aid for trade aft has been recognised as a powerful instrument for increasing developing countries trade capacity by targeting internal trade costs this article tests whether complementarities exist between this type of aid and economic integration using a gravity model on panel data for the period 1995 2005 results indicate that aft when combined with economic integration has been effective in increasing trade flows both south south and north south trade flows have benefited and the combination of the two instruments has been particularly effective in expanding the south s exports to the north finally when breaking down aft into categories assistance to trade related institutions seems to generate the strongest complementarities with economic integration

us banking efficiency 1984 1995 abstract we estimate the time varying average efficiencies of the us banks during 1984 1995 with four different efficiency estimators using these four series of efficiency estimates we make a multivariate kalman filter analysis to examine the efficiency trend in us banks during this period

the globalization of liberalization policy diffusion in the international political economy one of the most important developments over the past three decades has been the spread of liberal economic ideas and policies throughout the world these policies have affected the lives of millions of people yet our most sophisticated political economy models do not adequately capture influences on these policy choices evidence suggests that the adoption of liberal economic practices is highly clustered both temporally and spatially we hypothesize that this clustering might be due to processes of policy diffusion we think of diffusion as resulting from one of two broad sets of forces one in which mounting adoptions of a policy alter the benefits of adopting for others and another in which adoptions provide policy relevant information about the benefits of adopting we develop arguments within these broad classes of mechanisms construct appropriate measures of the relevant concepts and test their effects on liberalization and restriction of the current account the capital account and the exchange rate regime our findings suggest that domestic models of foreign economic policy making are insufficient the evidence shows that policy transitions are influenced by international economic competition as well as the policies of a country s sociocultural peers we interpret the latter influence as a form of channeled learning reflecting governments search for appropriate models for economic policy

the evidence on globalisation globalisation is blamed for many socioeconomic shortcomings i discuss the consequences of globalisation by surveying the empirical globalisation literature my focus is on the kof indices of globalisation that have been used in more than 100 studies early studies using the kof index reported correlations between globalisation and several outcome variables studies published more recently identify causal effects the evidence shows that globalisation has spurred economic growth promoted gender equality and improved human rights moreover globalisation did not erode welfare state activities did not have any significant effect on labour market interaction and hardly influenced market deregulation it increased however within country income inequality the consequences of globalisation thus turn out to be overall much more favourable than often conjectured in the public discourse

decent rural employment and farm production efficiency empirical evidence from tanzania and ethiopia promoting decent rural employment by creating new jobs in rural areas and upgrading the existing ones could be one of the most efficient pathways to reduce rural poverty this article systematically investigates the impact of decent rural employment on agricultural production efficiency in ethiopia and tanzania the analysis applies an output oriented distance function approach with an estimation procedure that accounts for different technological demographic socioeconomic institutional and decent rural employment indicators data of the 2011 round of living standards measurement study integrated surveys on agriculture for the two countries are used and a set of indicators is derived to proxy core dimensions of decent rural employment the findings of our analysis show that decent rural employment contributes to agricultural production efficiency

government transaction policy the medium of exchange and welfare abstract policy regarding what the government accepts in transactions is embedded in a version of the kiyotaki wright model of media of exchange in an example with two goods and one fiat money the policies that are consistent with fiat money as the unique medium of exchange are identified these policies have the government favoring fiat money in its transactions a benefit and a cost accompany any such policy the benefit is that a worse nonmonetary steady state is eliminated the cost is that a better monetary steady state is eliminated journal of economic literatureclassification number e40

gravity in international finance abstract the past decade has witnessed an explosion of papers estimating gravity equations for cross border financial holdings without much of a theoretical foundation in this paper we develop a theory for bilateral asset holdings that takes a gravity form we discuss how to estimate international financial frictions and conduct comparative statics analysis within the context of the theory we also find though that reasonable extensions of the model no longer generate a gravity form while this does not significantly complicate estimation and comparative statics analysis it raises questions about the empirical validity of gravity specifications for cross border financial holdings that need to be addressed in future work

macroeconomic stabilization policy and trade union behaviour as a repeated game lt is unquestionably true that the presence of trade unions in an economy affects its macroeconomic behaviour by attempting to maintain traditional patterns of relative wages among occupations and industries and by resisting cuts in real wages unions slow macroeconomic adjustment and structural change in response to macroeconomic shocks it is often argued that by insulating groups of workers from competitive pressures wage determination is less associated with market clearing than it otherwise would be overlapping contracts and resistance to relative wage changes thus give aggregate wage inflation mo mentum it would not otherwise have taylor 1980 jackman 1983 trade union bargaining may affect the position of the phillips curve jackman and layard 1982 nickell 1982 a popular argument for the increases in the nairu non acceleratinginflation rate of unemployment which have taken place between 1960 and 1980 in many industrialized countries where unions are strong is that trade unions have grown more militant and their bargaining behaviour has changed in some way this argument goes back at least as far as hines 1964

bargaining and the value of money abstract search models of monetary exchange have typically relied on nash 1950 the bargaining problem econometrica 18 155 162 bargaining or strategic games that yield an equivalent outcome to determine the terms of trade by considering alternative axiomatic bargaining solutions in a search model with divisible money we show that the properties of the bargaining solutions do matter both qualitatively and quantitatively for questions of first degree importance in monetary economics such as i the efficiency of monetary equilibrium ii the optimality of the friedman rule and iii the welfare cost of inflation

misspecification in allocative inefficiency a simulation study we make an extensive simulation analysis in order to investigate the consequences of ignoring the potentially complex and data dependent effects of allocative inefficiency on the estimation of stochastic frontier panel data models generally system estimators perform worse than single equation estimators this result holds even when we approximate the allocative inefficiency

a unified framework for monetary theory and policy analysis search theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential however tractable versions of these models typically make strong assumptions that render them ill suited for monetary policy analysis we propose a new framework based on explicit micro foundations within which macro policy can be studied the framework is analytically tractable and easily quantifiable we calibrate the model to standard observations and use it to measure the cost of inflation we find that going from 10 percent to 0 percent inflation is worth between 3 and 5 percent of consumption much higher than previous estimates

bargaining with revoking costs abstract a simple two stage bilateral bargaining game is analyzed the players simultaneously demand shares of a unit size pie if the demands add up to more than one the players simultaneously choose whether to stick to their demand or accept the other s offer while both parties sticking to their offers leads to an impasse accepting a lower share than the original demand is costly for each party the set of pure strategy subgame perfect equilibria of the game is characterized for continuously differentiable payoff and cost functions strictly increasing in the pie share and the amount conceded respectively higher cost functions are shown to improve bargaining power the limit equilibrium prediction of the model as the cost functions are made arbitrarily high selects a unique equilibrium in the nash demand game that corresponds to a proportional bargaining solution of kalai 1977

a distribution free stochastic frontier model with endogenous regressors abstract we provide a guideline for estimating a distribution free panel data stochastic frontier model in the presence of endogenous variables in particular we consider variations of the within estimator of cornwell et al 1990 to allow endogenous regressors

money and prices a model of search and bargaining abstract this paper makes commodities divisible and incorporates bargaining into the search theoretic model of money to determine the purchasing power of money or price it is shown that two monetary equilibria always coexist where fiat money is universally accepted the two equilibria differ in price output welfare and the velocity of money sunspot monetary equilibria exist in which money is universally accepted in all states of the economy multiplicity has novel implications on the effectiveness of currency substitution and exchange market intervention journal of economic literature classification numbers c78 e40

optimal taxation and inflation in an open economy abstract this paper examines the role of the inflation tax in the optimal revenue raising tax package for a small open economy where money is held because it serves to reduce transacttions costs associated with purchasing goods consumers choose whether domestic money or foreign money will serve as the medium of exchange for various goods purchases so as to minimize such costs results are derived regarding the appropriate role of taxes on domestic and foreign money in the optimal tax structure it is demonstrated that with a sufficiently rich tax structure friedman s rule which calls for a monetary policy that drives the nominal interest rate to zero is a component of the optimal tax policy

competing currencies in the laboratory we investigate competition between two intrinsically worthless currencies as a result of decentralized interactions between human subjects we design a laboratory experiment based on a simple two country two currency search model to study factors that affect circulation patterns and equilibrium selection

aid for trade do those countries that need it get it this paper is designed to help both the beneficiary governments and donors of aid for trade identify countries that are under performing in trade and which are receiving less aid for trade than their global performance might otherwise suggest is necessary building on previous work it provides a procedure to assess potential need for spurring trade volume and then looks at country allocations of aid for trade to see which are receiving below average amounts in the supply of aid for trade relative to their potential needs countries as they design national development strategies may wish to consider giving greater attention to trade and requesting that donors allocate to them more aid for trade as part of the analysis the paper provides a conceptual framework for selecting indicators of trade performance and its policy determinants that the wto and its partners might monitor closely as part of the aid for trade initiative

international dimensions of optimal monetary policy abstract this paper provides a baseline general equilibrium model of optimal monetary policy among interdependent economies with monopolistic firms and nominal rigidities an inward looking policy of domestic price stabilization is not optimal when firms markups are exposed to currency fluctuations such a policy raises exchange rate volatility leading foreign exporters to charge higher prices vis a vis increased uncertainty in the export market as higher import prices reduce the purchasing power of domestic consumers optimal monetary rules trade off a larger domestic output gap against lower consumer prices optimal rules in a world nash equilibrium lead to less exchange rate volatility relative to both inward looking rules and discretionary policies even when the latter do not suffer from any inflationary or deflationary bias gains from international monetary cooperation are related in a non monotonic way to the degree of exchange rate pass through

currency competition in a fundamental model of money abstract we study how two fiat monies one safe and one risky compete in a decentralized trading environment the currencies equilibrium values their transaction velocities and agents spending patterns are endogenously determined we derive conditions under which agents holding diversified currency portfolios spend the safe currency first and hold the risky one for later purchases we also examine when the reverse spending pattern is optimal traders generally favor dealing in the safe currency unless trade frictions and the currency risk is low as risk increases or trading becomes more difficult the transaction velocity and value of the safe money increases

does aid for trade enhance export performance investigating on the infrastructure channel today there are few empirical studies assessing the effectiveness of aid for trade on trade pe rformance furthermore existing works do not test channels by which this impact is transiting we address this question using an empirical analysis constructed in two steps following a model of export performance we first test if institutions and infrastructure our two potential channels of transmission are indeed determinants of export performance secondly we test the impact of aid for trade sectoral flows on the determinants that were highlighted in the first part we show that the infrastructure channel appears to be highly significant in the first step whereas the institutional one turns out to have limited impact on developing countries exports furthermore in our second step aid for infrastructure seems once instrumented to have a strong and positive impact on the infrastructure level our results indicate that a 10 increase in aid to infrastructure commitments per capita leads to an average increase of the exports over gdp ratio for a developing country of 2 34 it is also equivalent to a 2 71 reduction of the tariff and non tariff barriers this highlights the very high economic impact of aid for trade throughout the channel of infrastructures

pairwise trade and coexistence of money and higher return assets abstract a new theory of coexistence of money and higher return assets is set out it applies to any setting in which some trade involves an exchange of goods for assets and occurs between two people a buyer and a seller we show that there exists a function mapping the portfolios of the buyer and the seller to the trade that occurs such that i the trade is in the buyer seller core and ii some people are induced to enter the buyer seller meeting with money

money and information this paper investigates the role of money in markets in which producers have private information about the quality of the goods they supply when the fraction of high quality producers in the economy is given money promotes the production of high quality goods which improves the quality mix and welfare unambiguously when this fraction is endogenous however we find that money can decrease welfare relative to the barter equilibrium the origin of this inefficiency is that money provides consumption insurance to low quality producers which can result in a higher fraction of low quality producers in the monetary equilibrium finally we find that most often agents acquire more costly information in the monetary equilibrium than in the barter equilibrium consequently money is welfare enhancing because it promotes useful production and exchange but not because it saves information costs

playing with money abstract experimental work in monetary economics is usually based on theory that incorporates an infinite horizon yet hard constraints on laboratory sessions lead to finite times when the game must with probability 1 end and then simple backward induction implies monetary equilibria cannot exist hence these experiments cannot evaluate subjects ability to settle on the use of money as a medium of exchange that ameliorates trading frictions as an equilibrium outcome to address this we present some finite horizon games where monetary exchange is an equilibrium outcome and report some experimental results using these games

the empirics of international currencies network externalities history and persistence using a new database for the late nineteenth century when the pound sterling was the world s leading international currency this article provides evidence on the empirical determinants of international currency status we report evidence in favour of the search theoretic models to international currencies using a microeconomic model of currency choice we provide empirical support to strategic externalities we find strong confirmation of the existence of persistence but reject the view that the international monetary system was subject to pure path dependency and lock in effects suggesting that even in the absence of wwi the usd was bound to overtake sterling

government transaction policy media of exchange and prices abstract we study government transaction policies in search theoretic models of money we model government as a subset of agents who are subject to the same random matching technology and other constraints as private agents but who behave in an exogenous way regarding which objects they accept in trade and at what price the objective is to see how these policies affect private agents strategies and hence the set of equilibria we analyze how the effects depend on factors like the size of government the intrinsic properties of money and the availability and efficacy of substitutes like barter or foreign currency journal of economic literature classification numbers c78 e31 e42

friedman meets hosios efficiency in search models of money this article studies optimal monetary policy in an economy with endogenous search decisions we show that the same frictions that give fiat money a positive value generate an inefficient quantity of goods in each trade and an inefficient number of trades the friedman rule eliminates the first inefficiency and the hosios rule the second a monetary equilibrium attains the social optimum if and only if both rules are satisfied when they cannot be satisfied simultaneously optimal monetary policy achieves only the second best we analyse the conditions under which the second best monetary policy exceeds the friedman rule

liquidity a new monetarist perspective this essay surveys the new monetarist approach to liquidity work in this literature strives for empirical and policy relevance plus rigorous foundations questions include what is liquidity is money essential in achieving desirable outcomes which objects can or should serve in this capacity when can asset prices differ from fundamentals what are the functions of commitment and collateral in credit markets how does money interact with credit and intermediation what can and should monetary policy do the research summarized emphasizes the micro structure of frictional transactions and studies how institutions like monetary exchange credit arrangements or intermediation facilitate the exchange process

endogeneity in stochastic frontier models copula approach without external instruments this papers considers an alternative estimation procedures for estimating stochastic frontier models with endogenous regressors when no external instruments are available the approach we propose is based on copula function to directly model the correlation between the endogenous regressors and the composed errors estimation of model parameters is done using maximum likelihood monte carlo simulations are used to assess and compare the finite sample performances of the proposed estimation procedures