central bank constitutions for federal monetary unions abstract in a monetary union the central bank constitution must distribute the power over monetary policy between the members and the administrative center of the union we compare alternative distributions and evaluate their performance dominance of regional interests always leads to inefficient monetary stabilization policies whether or not dominance of regional interests leads to a higher long run rate of inflation depends on the union s political constitution

carbon tax and opec s rents under a ceiling constraint we study the markov perfect nash equilibrium mpne of a game between oil importing countries who seek to maintain the atmospheric carbon concentration under a given ceiling and oil exporting countries the oil importing countries set a carbon tax and the oil exporting countries control the producer price we obtain implicit feedback rules and explicit non linear time paths of extraction carbon tax and producer price consumers are always able to reap some share of the scarcity and monopoly rents whereas producers partially pre empt the carbon tax only if the marginal damage under the ceiling is small we compare the mpne to the efficient open loop and cartel without tax equilibria

quality competition with motivated providers and sluggish demand we study incentives for quality provision in markets where providers are motivated semi altruistic prices are regulated and firms are funded by a combination of block grants and unit prices competition is based on quality and demand adjusts sluggishly health or education are sectors in which the mentioned features are the rule we show that the presence of motivated providers makes dynamic competition tougher resulting in higher steady state levels of quality in the closed loop solution than in the benchmark open loop solution if the price is sufficiently high however this result is reversed if the price is sufficiently low and below unit costs sufficiently low prices also imply that a reduction in demand sluggishness will lead to lower steady state quality prices below unit costs will nevertheless be welfare optimal if the providers are sufficiently motivated

capacity constraints and voluntary output cutback in dynamic cournot competition abstract this paper considers cournot competition in which duopolists play a quantity setting game with sticky prices and capacity constraints a feedback subgame perfect equilibrium is derived and analyzed with sufficient differentiability the paper shows the existence and the uniqueness of symmetric feedback equilibrium we show that there arises a range of constraints defined by two threshold values in which the firms outputs are below the constraint level in the steady state yet the outputs depend nontrivially on the constraint for outside observers the constraint does not seem to be binding but the constraint is binding in that a marginal change in the level of capacity constraint affects firms steady state outputs the result implies that under this constraint the firms cut back their steady state outputs voluntarily more than stipulated by the constraint we also show that the procedure to construct a constrained solution from an unconstrained solution by truncation may not always be appropriate this paper s analysis utilizes the concept of connectable points associated with the solutions to the auxiliary equation of the hamilton jacobi bellman equation since the concept of connectable points and their characterization does not directly rely upon the linear quadratic structure of this game the method can be modified and applied to other differential games with restrictions on the control space s

capital taxation and accumulation in a life cycle growth model almost all of the serious economic work on savings decisions within the past decade has relied on some variant of the life cycle hypothesis in which savings arise out of individual choices of an optimum lifetime consumption path this paper reexamines the incidence and welfare consequences of capital income taxes within a realistic life cycle model the results suggest that the elimination of capital income taxation would have very substantial economic effects for example a complete shift to consumption taxation might raise steady state output by as much as 18 percent and consumption by 16 percent the long run welfare gain from such a shift would for plausible parameter values exceed 150 billion annually stated somewhat differently shifting to consumption taxation would raise the lifetime utility of the representative consumer by the equivalent of about six years income in the new steady state these estimates dwarf estimates of the static welfare cost of taxation and significantly exceed even extreme previous estimates of the dynamic loss this study departs from earlier analyses of the effects of taxes on capital income in several respects probably the most important difference between this treatment and most preceding ones lies in the assumptions about the interest elasticity of saving it is shown below that the common two period formulation of saving decisions yields quite misleading results a more realistic model of life cycle savings demonstrates that for a wide variety of plausible parameter values savings are very interest elastic this implies that shifting away from capital income taxation would significantly increase capital formation making possible long run increases in consumption many studies of the welfare effects of capital income taxation have ignored the general equilibrium effects of increased capital formation in an economy with life cycle savings there is no presumption that the undistorted growth path corresponds to any sort of social optimum as peter diamond has shown life cycle savings can lead to a steady state capital intensity either greater or less than the golden rule level more generally it is clear that there is no reason to believe that a life cycle economy will maximize any particular intertemporal social welfare function a fundamental tenet of welfare evaluation is that preexisting distortions must be considered in evaluating the consequences of tax changes the results presented in this paper take explicit account of the nonoptimal character of the no tax steady state this explains in large part why such a sizeable welfare effect of capital taxes is found in an economy far from the golden rule level of capital intensity there are substantial gains in steady state consumption achievable through increased capital formation section i of the paper examines the aggregate savings function in a continuous time life cycle framework the second section clarifies the differences between wage and consumption taxes an aggregate production function is added to complete the model in the third section the effects of changes in capital taxes on both steady state incidence and welfare are considered within a general equilibrium framework the final section of the paper discusses some implications of the results and suggests areas which appear to warrant further study assistant professor of economics massachusetts institute of technology and research analyst national bureau of economic research i am grateful to alan auerbach martin feldstein laurence kotlikoff to the participants in the nber workshop on business taxation and to the harvard public finance seminar for useful discussions james poterba and james buchal performed the numerical calculations

regional climate change policy under positive feedbacks and strategic interactions the surface albedo feedback along with heat and moisture transport from the equator to the poles is associated with polar amplification which is a well established scientific fact the present paper extends brock and xepapadeas in eur econ rev 94 263 282 2017 to a non cooperative framework with polar amplification where regions decide emissions by maximizing own welfare this can be regarded as a case of regional non cooperation regarding climate change open loop and feedback solutions are derived and compared in terms of temperature paths and welfare with the cooperative solution carbon taxes which could bridge the gap between cooperative and non cooperative emissions path are also derived finally the framework is extended to a ramsey set up in which it is shown how the regional climate model can be coupled with standard optimal growth models numerical simulations confirm the theoretical results and provide insights about the size and the direction of deviations between the cooperative and the non cooperative solutions

german dominance in the ems evidence from interest rates abstract the paper presents an empirical analysis of german dominance and asymmetries in the ems based on a dynamic system of equations explaining national money market interest rates the hypothesis of strict german dominance of the ems is rejected however there are some noticeable asymmetries in the ems germany is a relatively strong player and has been the least dependent country in the early phase of the system since 1983 german independence has diminished in contrast france throughout and italy in the early phase of the ems have been relatively weak players in the system

asymmetric pass through and risk of interest rate an empirical exploration of taiwan and hong kong this study employs the asymmetric threshold cointegration test suggested by enders and siklos 2001 and creates asymmetric ec egarch 1 1 m model to investigate the pass through of money market rate to banking retail rates in taiwan and hong kong it further explores the impact of interest volatility on interest rates over the period of february 1988 to december 2004 we find that the interest pass through mechanism of these two markets is noncomplete in addition based on the asymmetric threshold cointegration test we discover the existence of asymmetric cointegration relationship between retail rates and market rate in both markets in particular while employing asymmetric ec egarch 1 1 m model to test for the influence of money market rate adjustment and volatility on retail rates in short run we find robust evidence that there exist the upward rigidity in deposit rate and the downward rigidity in lending rate in both taiwan and hong kong this finding supports the hypothesis of the collusiv

secular changes in wealth inequality and inheritance data suggest that the distribution of wealth among households in the usa and uk has become more equal over the last century though at least for the usa the pattern may have reversed recently this paper shows that a model in which all households save for life cycle reasons and some for dynastic purposes as well offers a possible or partial explanation the model predicts rising cross sectional equality of wealth when longevity increases there may also be implications about very recent changes expansion of social security programmes and government deficits can lead toward more wealth inequality slower growth may do the same

second best taxation for a polluting monopoly with abatement investment abstract this paper characterizes the optimal tax rule to regulate a polluting monopoly when the firm has the possibility of investing in an abatement technology and the environmental damages are caused by a stock pollutant the optimal policy is given by the stagewise feedback stackelberg equilibrium of a dynamic policy game between a regulator and a monopolist the regulator playing as the leader chooses an emission tax to maximize net social welfare and the monopolist acting as the follower selects the output and the investment in abatement technology to maximize profits we find that the optimal tax has two components the first component is negative and equal to the gap between the marginal revenue and the price caused by the firm market power the second component is given by the difference between the social and private shadow prices of the pollution stock considering a linear quadratic model we show that if marginal environmental damages are constant the difference between social and private shadow prices is positive and the optimal policy consists of taxing emissions at a constant rate if the marginal damages are large enough however if the marginal environmental damages are increasing the numerical exercises carried out show that this difference is negative at the steady state and the optimal policy gives the firm a subsidy when approaching the steady state regardless of the importance of the environmental damages this result is explained by the negative effect that abatement technology accumulation has on the tax finally it can be pointed out that although both models yield different predictions about the sign of the optimal policy the dynamics is globally stable for both cases

the definition of stability in models with perfect foresight abstract frequently the stationary states of decentralized models with perfect foresight and more than one asset are saddlepoints in this note we develop a distinction between historical and nonhistorical variables then we use the distinction to define economic concepts of weak and strong local asymptotic stability which apply even for some saddlepoints we conclude with three examples

international pollution control cooperative versus noncooperative strategies abstract international pollution control involving two neighboring countries is modeled as a simple two player dynamic game each country produces a good that is consumed by domestic households production of each consumption good results in emissions of pollutants households in each country derive utility from the consumption of the domestically produced good but incur costs through the total stock of pollution stock externality in this setting we characterize cooperative as well as noncooperative pollution control strategies of the governments of the two countries that maximize the discounted stream of net benefits of a representative consumer it turns out that when the governments are restricted to use linear strategies noncooperative behavior results in overall losses for both countries if on the contrary governments use nonlinear markov perfect strategies and the discount rate is small enough a pareto efficient steady state pollution stock can be supported as a differentiable subgame perfect equilibrium thus the emergence of first best solutions cooperative outcomes does not require any institutional arrangements threats retaliation etc but can be brought about through the use of nonlinear markov perfect equilibrium strategies

a dynamic model of conflict and appropriation abstract this paper presents an extension of a static model of economic conflict analyzed by hirshleifer 1991 1995 and skaperdas 1992 to an infinite horizon differential game our aim is to highlight the strategic role of appropriation among a smaller group of agents in an intertemporal context the model yields the conclusion that there exists a unique linear nonlinear markov perfect equilibrium strategy even when strategies are defined over the entire state space we demonstrate that partial cooperation can be seen as a long run response to conflict moreover a decrease in the effectiveness of appropriation the depreciation rate of a common pool stock the rate of time preferences or an increase in the degree of noise improves the degree of partial cooperation and thus welfare in an anarchic society

asymmetries in housing and financial market institutions and emu despite convergence pressures differences in housing and financial market institutions across the 15 member states of the european union are still enormous this paper argues that they have profound effects on the responsiveness of output and inflation in the different countries to changes in short term interest rates as well as to asset market shocks of external origin the economic reasoning behind this claim is set out and the institutional differences are described the paper assesses the sometimes conflicting empirical evidence on this issue barriers to convergence and implications for labour market flexibility are discussed the uk ireland finland and sweden tend to cluster at one extreme of the relevant institutional characteristics the paper concludes with a set of proposals for institutional reforms which would significantly reduce the tensions within emu and the potential for instability in these economies entailed by emu membership

nonlinear strategies in dynamic duopolistic competition with sticky prices abstract we discuss nonlinear strategies in an infinite horizon duopoly game with sticky prices where firms maximize their discounted sum of profit we construct a stationary feedback equilibrium without guessing value functions and feedback strategies that solve the hamilton jacobi equation for this purpose we study the auxiliary equation that is derived from the hamilton jacobi equation we show that the domain of the state space plays an crucial role in characterizing feedback equilibria and discuss several implications of this observation in particular we find that when the upper bound of the state space is not very high previously unknown feedback equilibria emerge

social security reform and national wealth recent trends in common stock prices suggest a distinction between increases in national net worth and flows of physical investment in this paper we present a simple overlapping generations model in which such differences can arise technological progress occurs exogenously yet firms own new technologies for a time we examine possible consequences for social security reform reform which increases private saving depletes part of its force raising the capitalized price of proprietary technologies a calibrated example suggests an increase in physical capital one third smaller than without inelastic factors both steady states and transition paths are considered

efficient tax reform in a dynamic model of general equilibrium the welfare gain of a shift from capital to a labor income tax is determined in a model of intertemporal optimization with infinite horizon and variable labor supply the welfare impact of small tax changes is computed by an approximation method around the steady state when the difference between the growth rate and the discount rate is small the welfare impact of tax reform depends mainly on the parameters of the production function

the nonequivalence between deficits and distortionary taxation abstract this paper examines how relaxing the assumption of lump sum taxation affects the ricardian equivalence theorem in a model with income taxation instead of lump sum taxation structural deficit finance causes keynesian like effects even though government bonds are not perceived as net wealth a temporary substitution of debt for taxation significantly increases consumption work and output initially the same effects as in the keynesian case where the implied future tax liability is not perceived but in contrast to the keynesian case investment also increases initially in the long run however deficit finance significantly reduces investment work output and consumption

trend reverting fluctuations in the life cycle model abstract aggregate time series provide evidence of short term dynamic adjustment that appears to be governed by complex or negative real eigenvalues this finding is at odds with the predictions of reasonably parameterized convex one sector growth models with complete markets we study life cycle economies in which aggregate saving depends non trivially on the distribution of wealth among cohorts if consumption goods are weak gross substitutes near the steady state price vector we prove that the unique equilibrium of a life cycle exchange economy converges to the unique non monetary steady state via damped oscillations we also discuss examples and extensions

sustainable management of renewable resources an experimental investigation in continuous time abstractthis study addresses one of the most basic questions in renewable resource management the ability of economic agents to exploit a renewable resource in an efficient and sustainable manner in a laboratory experiment subjects are presented with renewable resource extraction problems where optimal management will lead to a stable steady state a test of sustainability of the extraction practices shows that extraction behaviour results in steady states only 56 of the time the mode of the steady state distribution coincides with the optimal steady state extraction the trade off between accruing a higher payoff in the present and sustaining the resource for future exploitation leads to suboptimal behaviours such as initial overextraction of the resource compared to the optimal extraction policy costly downward adjustment of the extraction later in time and settling down for lower long run resource and extraction the suboptimal behaviours lead to 17 loss in efficiency on average in terms of th

inflation targeting as a monetary policy rule the purpose of the paper is to survey and discuss in ation targeting in the context of monetary policy rules the paper provides a general conceptual discussion of monetary policy rules attempts to clarify the essential characteristics of in ation targeting compares in ation targeting to other monetary policy rules and draws some conclusions for the monetary policy of the european system of central banks jel classi cation e42 e52

the effect of taxation on human capital this study finds a significant negative effect of proportional income taxation on human capital of the few earlier studies to address this issue most suggested a negligible effect of taxation on investment in human capital this earlier conclusion is shown to be incorrect by using a model that is more general in several respects than the models used previously

what does the bundesbank target abstract although its primary ultimate objective is price stability the bundesbank has drawn a distinction between its money focused strategy and the inflation targeting approach recently adopted by a number of central banks we show that holding constant the current forecast of inflation german monetary policy responds very little to changes in forecasted money growth we conclude that the bundesbank is much better described as an inflation targeter than as a money targeter an additional contribution of the paper is to apply the structural var methods of b bernanke and i mihov measuring monetary policy working paper no 5145 national bureau of economic research cambridge ma june 1995 to determine the optimal indicator of german monetary policy we find that the lombard rate has historically been a good policy indicator although the use of the call rate as an indicator cannot be statistically rejected

the un importance of forward looking behavior in price specifications the seminal work of edmund s phelps 1978 john b taylor 1980 and guillermo a calvo 1983 developed forward looking models of price determination that imparted inertia to the price level these models incorporate expectations of future prices and excess demand by imposing constraints typically lag lead symmetry constraints that force future variables to enter the specification in this paper the author tests the empirical significance of future prices in specifications like those of taylor he finds that expectations of future prices are empirically unimportant in explaining price and inflation behavior however the dynamics of a model that includes a purely backward looking inflation specification differ substantially and not altogether pleasingly from those with a forward looking specification copyright 1997 by ohio state university press

do asymmetries matter for european monetary policy in this paper we analyze the impact of economic and institutional ecb decision rules asymmetries on the effectiveness of monetary policy in euroland we consider a model where asymmetric shocks and divergent propagation of shocks in output and inflation are potential causes of tensions within the ecb concerning the conduct of common monetary interest rate policy welfare implications of the alternative decision procedures are discussed

comparative statics and perfect foresight in infinite horizon economies does a pure exchange economy with an infinite time horizon have determinate perfect foresight equilibria when there is a finite number of infinitely lived agents equilibria are generically determinate this is not true with overlapping generations of finitely lived agents we ask whether the initial conditions together with the requirement of convergence to a steady state locally determine an equilibrium price path in this framework there are many economies with isolated equilibria many with continua of equilibria and many with no equilibria at all with two or more goods in every period not only can the price level be indeterminate but relative prices as well furthermore such indeterminacy can occur whether or not there is fiat money and whether or not the equilibria are pareto efficient this paper considers whether infinite horizon economies have determinate perfect foresight equilibria this question is of crucial importance if instead equilibria are locally indeterminate not only are we unable to make comparative static predictions but the agents in the model are unable to determine the consequences of unanticipated shocks the idea underlying perfect foresight is that agents expectations should be the actual future sequence predicted by the model if the model does not make determinate predictions the concept of perfect foresight is meaningless we consider two extreme cases the first with a finite number of infinitely lived consumers and the second with an infinite number of finitely lived consumers an overlapping generations model both are models of stationary pure exchange economies no production including the storage of goods between periods can occur these models are unrealistic but are the easiest to study extensions of the results of this paper to models with production infinitely lived assets and mixtures of the two types of consumers are presented by muller and woodford 29 when there is a finite number of infinitely lived consumers we argue that equilibria are generically determinate this is because the effective number of equations determining equilibria is not infinite but equal to the number of agents minus one and must determine the marginal utility of income for all but one agent generically near an equilibrium these equations are independent and exactly determine the unknowns when there are infinitely many overlapping generations this reasoning breaks down an infinite number of equations is not necessarily sufficient to determine

leviathan governments and carbon taxes costs and potential benefits abstract this paper addresses positive aspects of the global warming debate that so far has been concerned by and large with normative issues the paper considers a consumers government that appreciates tax revenues as such leviathan in addition to conventional measures of welfare i e carbon taxes serve the dual purpose of correcting for externalities here global warming or more generally a stock externality from energy use and of raising revenues this government faces either a competitive or a perfectly cartelized supply the major findings are 1 i consumers may benefit from a leviathan government that appropriates some of the monopoly rent by deterring preemption to some extent 2 ii the leviathan motive raises initial taxes and thereby lowers initial emissions but increases the long run stock externality in a play with linear strategies 3 iii there exists a continuum of equilibria in nonlinear markov strategies which are however pareto inefficient compared with the linear strategies 4 iv but in case of a binding resource constraint nonlinear strategies are the only feasible ones

indeterminacy and history dependence of strategically interacting players this paper considers a finite number of agents populating krugman s 1991 labor market the objective is to investigate whether the much emphasized indeterminate outcome is due to the assumption of uncountable many agents each of measure 0 it is shown that this result extends to n players each with strategic leverage if the social reference includes the own action this multiplicity results in an open loop setting which renders in almost all other cases a unique intertemporal nash equilibrium finally the cooperative solution exhibits non standard features the possibility of converging to the stationary inferior agricultural equilibrium and that is due to an unstable node while an unstable spiral can render the unique outcome of full industrialization

tax changes and phase diagrams for an overlapping generations model the literature evaluating tax changes within an intertemporal general equilibrium framework subdivides into representative agent and overlapping generations formulations papers in the former class have developed techniques analogous to those routine for static analyses i show that the same general approach works for the overlapping generations model the context is the system from auerbach and kotlikoff s dynamic fiscal policy the proposed methodology allows one to examine stability and determinancy issues for the model it deals precisely with small policy changes and it can easily handle bundles of changes i present comparative static results for comparison with existing work

non linear strategies in a linear quadratic differential game abstract we study non linear markov perfect equilibria in a two agent linear quadratic differential game in contrast to the literature owing to tsutsui and mino 1990 nonlinear strategies in dynamic duopolistic competition with sticky prices journal of economic theory 52 136 161 we do not associate endogenous subsets of the state space with candidate solutions instead we use the catching up optimality criterion to address the possibility of infinitely valued value functions applying sufficiency conditions for existence based on those in dockner et al 2000 differential games in economics and management science cambridge university press cambridge yields the familiar linear mpe and a condition under which a continuum of non linear mpes exists these include as their limit a previously unreported piecewise linear mpe the condition relaxes with increasing patience allowing more efficient steady states thus suggesting a folk theorem for differential games as the lower state and control bounds go to the non linear strategies are eliminated

depreciation erodes the coase conjecture if a durable good monopolist produces at constant marginal costs and the good depreciates there exists a family of strong markov perfect equilibrium smpe one member of this family entails instantaneous production of the level of stock produced in a competitive equilibrium this is consistent with the coase conjecture other smpe in the family entail steady state production at a stock level lower than in the competitive equilibrium there may be a jump to these steady states or they may be approached asymptotically monopoly profits are positive in these equilibria and the coase conjecture fails

duopoly can be more anti competitive than monopoly abstract we prove two results on feedback equilibria under dynamic renewable resource duopoly the linear feedback output is smallest which sharply contrasts to the existing literature where it is largest moreover prices in two feedback equilibria are higher than under monopoly

costly information transmission in continuous time with implications for credit rating announcements abstract this paper formulates a continuous time information transmission model in which an altruistic sender privately observes a stochastic state variable and incurs a communication cost when she broadcasts a message we characterize the sender s optimal announcement strategy using an ordinary differential equation we prove the optimality of the sender s strategies using a martingale verification argument and show that the sender s optimal strategy involves sending discrete messages furthermore we apply the model to the timing decision of credit rating announcements and provide a framework to study various aspects of rating announcements such as the probability of rating reversals and the expected time before a rating change

capital income taxation and perfect foresight abstract this paper develops a perfect foresight model of capital income taxation in a representative household neoclassical one sector framework the household sector is based on intertemporal utility maximization the main result is the equivalence of a perfect foresight solution and an artificial central planning solution if there is no tax this is the equivalence of a market equilibrium and social optinum the equivalence result is used to deduce the implications of a partial tax reform policy it is shown that a partial reform increases capital at each time following the initial period of the program

the immediate effect of monetary union on eu 15 sovereign debt yield spreads yield spreads corrected for exchange rate risk over 10 year german securities of european union eu countries that did not join economic and monetary union emu experienced an average decrease of 14 20 basis points during the first 3 years after the beginning of currency union conversely euro area countries adjusted spreads registered an average rise of 11 98 basis points in the same period this article examines the elements a possible change in the relative importance of domestic or international risk factors behind these results using both panel estimations in the two groups of countries and a country by country specification in each of them

the immediate challenges for the european central bank immediate challenges for the ecb issues in formulating a single monetary policy this paper discusses a number of issues that the newly constituted board of the ecb will face early on conducting a european monetary policy will be very different from living under the protective umbrella of the bundesbank we discuss voting on the ecb board and argue that the ability to communicate with the public will be critical for the success of the new institution we also ask how a single monetary policy a common change in the interest rate controlled by the ecb is transmitted to the economy of each member country we show that the monetary process differs significantly inside emu initially at least the cost of a disinflation episode could fall disproportionately on a few member countries those with both a financial structure that spreads a monetary contraction widely and a wage price structure that is relatively inflexible this process moreover is sure to evolve in part as a result of financial industry restructuring already under way but in part accentuated by the common money furthermore as the lucas principle suggests the wage price process itself will adapt to the changing focus of european monetary policy rudi dornbusch carlo favero and francesco giavazzi

the taylor rule and interest rates in the emu area abstract we demonstrate that average interest rates in the emu countries in 1990 98 with the exception of the period of exchange market turmoil in 1992 93 moved very closely with average output gaps and inflation as suggested by the taylor rule

monetary and fiscal policies interaction in monetary unions in this paper the literature on the interaction between monetary and fiscal policies in a monetary union is surveyed by adopting the concept of symbiosis as a starting point the paper highlights the importance of uncertainty policy makers preferences and targets then the role of commitment to policy rules and coordination is addressed the analysis also focuses on the importance of the data considered for the generation of the policy mix as a final step the paper discusses the main results in the literature on public debt management in a monetary union all the reported theoretical results are then adopted to retrieve policy and institutional implications for the european monetary union

do multiple nash equilibria in markov strategies mitigate the tragedy of the commons abstract in a seminal paper dockner and van long 1993 international pollution control cooperative versus non cooperative strategies journal of environmental economics and management 25 13 29 argue that nonlinear strategies allow to protect the commons compared with the linear and singular strategy this paper shows that the existence of multiple equilibria depends on preference characteristics and that multiple equilibria need not foster conservation in particular if the absolute elasticity of marginal utility is decreasing then multiple equilibria aggravate the tragedy of the commons compared with the singular or saddlepoint strategy

measuring regional effects of monetary policy in canada this article measures monetary policy shocks and examines whether the effects of such shocks have differential regional effects in canada we identify three possible sources of regional effects differences in the importance of interest sensitive industries differences in the contribution of exports to output and differences in the proportion of small relative to large firms using the overnight interest rate as the instrument of monetary policy we present impulse responses of industry output from a recursive vector autoregression which incorporates a cointegrating relation the results show that manufacturing and primary industries are the most interest sensitive we conduct impulse responses of provincial employment from a monetary contraction the results show that newfoundland and prince edward island pei primary industry based provinces are strongly and adversely affected by a monetary contraction manitoba saskatchewan and alberta also primary based are also affected ontario which is man

asymmetric monetary policy effects in emu this paper develops a semi structural modelling approach to study asymmetric monetary transmission in europe a system of dynamic equations containing reaction functions for monetary policy as well as output gap and inflation equations is simultaneously estimated for france germany and italy we find asymmetries on the demand side in the strength of interest rate transmission and on the supply side in the effects of the output gap on inflation the responses are similar in germany and italy and generally stronger than in france out of sample tests do not find a structural break in the transmission mechanisms prior to the establishment of the european monetary union

transboundary pollution game with potential shift in damages abstract complex systems exposed to pollution may suddenly and permanently shift to a dangerous regime this paper studies a dynamic game among countries that face the prospect of such a shift each country derives some flow utility from its own emissions which are chosen unilaterally but flow emissions by all countries increase the pollution stock in the world in addition to generating global damages such as global warming the pollution stock may trigger an irreversible and abrupt jump in global damages or catastrophe at an unknown date in the future we ask whether endogenous and exogenous threats of such a jump in damages or catastrophe mitigate the tragedy of the commons and examine their implications on welfare our analysis yields different emission responses to these threats as compared to the related literature that focuses only on the single polluter case for example when the hazard rate is exogenous and countries commit to nonlinear strategies we find that the threat of a possible jump in damages or catastrophe may induce a lower or larger emission level and initial welfare due to multiple equilibria these results are maintained when the hazard rate endogenously depends on emission decisions

the welfare cost of factor taxation in a perfect foresight model this paper examines the marginal efficiency cost of various factor taxes in a dynamic general equilibrium model the au thor solves for the excess burden of anticipated and unanticipated t emporary and permanent tax policies using a range of estimates for taste and technology parameters he finds excess burdens larger than those indicated by previous studies that use static models these exc ess burdens are sensitive to parameter values and timing however th e rankings of alternative tax policies turn out to be insensitive to structural parameter values copyright 1987 by university of chicago press

existence and properties of equilibria for a dynamic game on productive assets abstract we consider a model in which two agents share access to the same stock of a productive asset and study the implications of non cooperative consumption behavior over time under standard assumptions on the production function we construct infinitely many nash equilibria all of which consist of stationary markovian strategies these equilibria result in overconsumption so that the uniquely determined long run asset stock is too low as compared to the cooperative solution however in the limit as the discount rate becomes sufficiently small the stead states generated by the markovian nash equilibria converge to the efficient steady state journal of economic literatureclassification numbers c73 o41 q22

the cross country impact of ecb policies asymmetries in asymmetries out abstract since its inception the adequacy of the eurozone to be an optimal currency area has been questioned and along with it the homogeneous transmission and impact of the monetary impulses across the member countries we provide a comprehensive assessment of the transmission mechanism s functioning its symmetry impact on target variables and evolution addressing all the questions which have remained unanswered in the previous literature while adding evidence on the impact of non standard policy measures we do so by adopting a bayesian time varying parameters favar model that fixes the flaws present in past research the empirical analysis shows that the occurrence of the two crises significantly altered policy transmission with both the interest rate and credit channel being consistently affected it also shows that while they provided effective stimuli to the economies the unconventional measures implemented were not able to fix those asymmetries policy wise our findings suggest that authorities must push towards consistent innovation on the fiscal side while gaining more confidence with regards to the new monetary toolkit

global warming with green and brown consumers in this paper i investigate how much green polluters mitigate the familiar dynamic tragedy of the commons global warming green consumers feel penalized pain for any consumption in excess of the social optimum this can arise for example from kant s categorical moral imperative interplays among and between green and brown consumers are investigated as differential games green preferences the heterogeneity of consumers and the irreversibility of emissions lead to discontinuous strategies associated with these are a number of non trivial and even puzzling features e g the possibility of another green paradox

dynamic demand and noncompetitive intertemporal output adjustments abstract this paper integrates dynamics on the demand and on the supply side which are characteristic for many goods in particular fuels due to costly adjustments furthermore firms often pursue a quantity strategy and decide on output adjustments additional capacities etc instead of fixing prices e g opec moved from posting prices to adjusting output in 1986 this paper provides a corresponding framework surprisingly ignored in the literature and derives intertemporal market equilibria cooperative and noncooperative in open loop and in markov strategies the equilibrium in markov strategies is different mostly opposite to the much discussed sticky price models the qualitative properties are non trivial and some of them are even surprising e g increased demand sluggishness can raise supply

inflation differentials in the euro area did the ecb care compared to inflation differentials among regions in the united states european monetary union emu inflation differentials are larger and more persistent based on augmented monetary policy reactions functions this article addresses the question whether the presence of pronounced inflation differentials in combination with low average inflation rates has influenced monetary policy decisions of the ecb the article finds statistical evidence that the ecb took inflation differentials into account which may reflect the fear of deflation in low inflation countries like germany

reducing co2 emissions under fiscal retrenchment a multi cohort cge model for austria the stabilization of budget deficit and budget debt ratios by fiscal retrenchment in order to fulfill the maastricht criteria for the emu is of central focus in most eu countries at the same time the national policy dimension of acute environmental problems such as global warming has receded in the public eye the environmental dimension nonetheless remains urgent and a re evaluation of the prospects of co2 policy is needed against the background of fiscal retrenchment required by supranational obligations we shall do this for the small open austrian economy by constructing a dynamic multi cohort cge model enabling us to assess quantitatively the lifetime welfare impacts on the cohorts affected by three different options for using co2 permit revenues the distribution of welfare costs of toronto co2 policy across cohorts significantly differs with use this is explained by income inheritance and price effects

the economic consequences of euro area macro modelling shortcuts should euro area economies be modelled in an aggregate area wide fashion or in a disaggregate multi country one this article tackles that question from both statistical and economic viewpoint from a statistical viewpoint aggregation bias criteria are found to signal that the degree of structural heterogeneity among euro area economies is such that the loss of information entailed by an aggregate modelling approach may be far from trifling from an economic viewpoint we investigate the following issue are those statistically detectable heterogeneities of any practical relevance when it comes to supporting monetary policy decision making to provide an answer to this question we compute simple optimal monetary policy reaction functions on the basis of either an aggregate model or a disaggregate one and compare the associated welfare losses the results suggest that the welfare under performance of an area wide model based rule is not only nonnegligible but also robust with respect to a number of

an intertemporal model of saving and investment this paper characterizes a market economy with infinitely long lived consumers and value maximizing firms which face costs of adjustment for capital the temporary equilibrium of this economy is similar to the short run equilibrium of standard macroeconomic models consumption is a function of wealth investment is related to the value of firms equilibrium between aggregate demand and aggregate supply is achieved by the endogenous adjustment of the sequence of current and future interest rates the dynamic behavior of output consumption and investment in this economy is the same as in an optimal growth model with adjustment costs the paper shows this equivalence and then uses it together with the equivalence of taxes to technological shocks to study the dynamic effects of fiscal policy

why environmentalists resist trade liberalization we build a two country differential game model of polluting oligopoly to consider the effects of trade liberalization as in static models the opening of trade promotes competition but expands global pollution characterizing open loop and feedback strategies we derive a sufficient condition for losses from trade this losses from trade proposition could provide a rationale for persistent resistance to globalization by environmentalists