low inflation the behavior of financial markets and institutions this paper provides a broad overview of the potential impact of low inflation deflation on u s financial markets and institutions it is argued that the contemporary experience of japan and the historical experience of the united states in the 1920s and 1930s offer only limited insights into the potential impact of low inflation deflation on today s u s financial system a number of potential implications are discussed including a decline in secondary market trading and a trend towards reintermediation in addition low inflation deflation is likely to have a material effect on bank duration and convexity exposures

was debt deflation operative during the great depression i introduction important questions remain regarding the transmission mechanism that linked falling prices and falling output during the great depression despite recent analysis suggesting that the worldwide deflation was initiated and propagated internationally by negative impulses associated with the interwar gold standard 1 a key issue is whether the deflation during the early 1930s was unanticipated prior to the onset of the depression if it was at least largely unanticipated then when combined with rapidly rising nominal debt issuance bernanke s 1983 credit view explanation and extension of fisher s 1933 original debt deflation hypothesis helps explain the persistent monetary nonneutralities present during the depression these nonmonetary financial theories hold that events in the financial markets other than shocks to the money supply can account for the paths of output and prices without invoking irrational behavior on the part of agents in his debt deflation hypothesis fisher asserted that nominal overindebtedness and deflation are the dominant forces that account for great depressions specifically he argued that given nominally denominated debt contracts a protracted fall in prices and nominal incomes substantially increased real debt burdens led to debtor insolvency and lowered aggregate demand in a continuing spiral this fall in demand contributed to a further decline in the price level and thus further increases in the real burden of debt bernanke 1983 provided additional details to help explain fisher s debt deflation hypothesis he argued that in normal circumstances an initial decline in prices merely reallocates wealth from debtors to creditors such as banks usually such wealth redistribution has no first order impact on the economy however in the face of large shocks deflation in the prices of assets forfeited to banks by debtor bankruptcies leads to a decline in the nominal value of assets on bank balance sheets for a given value of bank liabilities also denominated in nominal terms this deterioration in bank assets threatens insolvency as banks reallocate assets away from loans to safer government securities some borrowers particularly small ones are unable to obtain funds often at any price furthermore if bank portfolio reallocation is long lived the shortage of credit for these borrowers helps explain the persistence of the downturn as the disappearance of bank financing forces lower expenditure plans aggregate demand declines which again contributes to the downward deflationary spiral 2 analyses such as cecchetti 1992 which carefully demonstrate that the deflation was anticipated at short horizons once it started do not bear directly on our discussion 3 instead to show that debt deflation was an important part of the contraction of the early 1930s it is important to document the accumulation of substantial medium and long term debt prior to 1929 in addition the finding that deflation could have been anticipated at horizons of 3 6 months does suggest that simple debt deflation theories for the propagation of the great depression must rely on the failure of agents to anticipate deflation several years in advance not several quarters in advance cecchetti 1992 note 26 we will argue that debt deflation was operative both because of a rise in nominally denominated debt and because the deflation in the early 1930s was unanticipated when this debt was being incurred we demonstrate three facts consistent with this statement of the debt deflation credit view explanation of the depression first we document that private medium and long term nominal debt during the 1920s exhibited a combination of a high initial value relative to income and a rapid growth rate that is unparalleled in a consistent data set covering more than half a century 4 second following the seminal work of evans and wachtel 1993 estimation results from a markov switching model of the price process during the entire interwar period suggest that the debt issued during the decade preceding the downturn occurred in a stable price regime and that the probability of remaining in this stable price regime was 0

unionization and input flexibility in u s manufacturing 1973 1996 input flexibility as measured by the ability of firms to vary input demand in the face of changes in input prices is an important dimension of labor market flexibility using a new dataset the authors analyze the impact of unionization on input flexibility in u s manufacturing from 1973 to 1996 a period in which production was arguably becoming more flexible due to deep changes in the u s industrial relations system and in the broad macroeconomic environment the authors quantify the effects of unionization on input flexibility by estimating elasticities of substitution between a broad range of labor and non labor inputs controlling for unionization the pattern that emerges is more complex than that suggested by other research in particular low unionization apparently is associated with greater flexibility in the use of labor inputs but less flexibility in the use of non labor inputs

nonmonetary effects of the financial crisis in propagation of the great depression this paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period our approach is complementary to that of friedman and schwartz who emphasized the monetary impact of the bank failures we focus on non monetary primarily credit related aspects of the financial sector output link and consider the problems of debtors as well as those of the banking system we argue that the financial disruptions of 1930 33 reduced the efficiency of the credit allocation process and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand evidence suggests that effects of this type can help explain the unusual length and depth of the great depression this abstract was borrowed from another version of this item

nash implementation a complete characterization the authors extend e maskin s results on nash implementation first they establish a condition that is both necessary and sufficient for nash implementability if there are three or more agents the case covered by maskin s sufficiency result second and more important they examine the two agent case for which there existed no general sufficiency results the two agent model is the leading case for applications to contracting and bargaining for this case too they establish a condition that is both necessary and sufficient the authors use their theorems to derive simpler sufficiency conditions that are applicable in a wide variety of economic environments copyright 1990 by the econometric society

the effects of military spending on economic activity evidence from state procurement spending the authors use state data from the period 1963 94 to estimate the response of employment growth to military procurement spending the state year panel provides greater variation in both variables than aggregate data there are two main findings first military procurement spending does explain a statistically significant degree of the variation in employment growth across states even in the presence of fixed effects for time and state and other controls second the authors find evidence in support of a nonlinear relationship between procurement spending and employment growth in particular large adverse state procurement shocks have proportionately larger effects on state employment growth rates copyright 1997 by ohio state university press

back to the futures an assessment of market performance on the early winnipeg grain exchange in this paper i offer a quantitatively rich historical perspective with which to consider western canada s recent return to private grain marketing i assess how futures markets on the winnipeg grain exchange wge performed before the canadian wheat board and i consider the extent to which this performance contributed to the canadian government s decision to create the board i conclude despite significant agrarian dissatisfaction with private grain marketing on the wge the canadian government ultimately proscribed futures trading because it was incompatible with the cwb model which the canadian government needed in order to stabilize farm incomes particularly in the aftermath of the great depression resume retour aux contrats a terme une evaluation de la performance du marche au temps du winnipeg grain exchange l auteur offre une perspective historique qui s appuie sur de riches donnees quantitatives qu il utilise pour evaluer le recent retour de la mise en marche privee dans l ouest canadien il evalue la performance des marches a terme sur le winnipeg grain exchange wge avant l arrivee de la commission canadienne du ble cwb et jusqu a quel point cette performance a contribue a la decision du gouvernement du canada de mettre sur pied la cwb il conclut que malgre le mecontentement significatif du monde agricole quant a la mise en marche privee sur le wge le gouvernement du canada mit fin a ses pratiques parce que celles ci etaient incompatibles avec le modele de la cwb dont le canada avait besoin pour stabiliser les revenus des fermiers surtout dans la periode qui a suivi la grande crise

two remarks on the property rights literature we first point out that the recent property rights literature is based on three assumptions 1 that contracts are always subject to renegotiation 2 that the exercise of a property right confers a private benefit and 3 that parties are risk neutral building on hart moore 1999 we provide conditions under which an optimal contract consists of nothing more than an assignment of property rights we also examine the robustness of some of the literature s standard predictions about asset ownership to the introduction of mechanisms for eliciting parties ex post willingness to pay for the assets such as options or financial markets to illustrate the issue we revisit the hart moore 1990 proposition that joint ownership is suboptimal and argue that ownership by a single party is dominated by joint ownership with put options

inventory behavior with permanent sales shocks abstract empirically adf tests fail to reject the null hypothesis that sales are i 1 we build a model of inventory behavior that incorporates permanent sales shocks analytically the model with i 1 sales implies that the variance ratio of log production to log sales is one in the long run regardless of the strength of production smoothing stockout avoidance or cost shocks but that at business cycle horizons the conditional variance ratio conditional on past production and sales is greater than one we explain analytically using our model and intuitively four traditional inventory puzzles and three puzzles about inventories and monetary policy

a financial portfolio approach to inventory behaviour japan and the uk abstract the paper analyses the determinants of the inventory to assets ratio in panel data sets of japanese and uk firms in the period 1960 1985 the analytical framework sets inventory decisions in the context of decisions by the firm about other assets and liabilities in contrast to traditional models of inventories investment in inventories in japan is found to be particularly related to sector specific inflation rates and expected sales negatively to expected profits and not much affected by interest rates by contrast uk inventories are generally positively related to profit rates and respond to short term interest rates once other variables are taken into account the coefficient on a time trend is positive for japan negative for britain which casts some doubt on the widely held view of japanese innovation in inventory holding

implementing a surplus division rule we show that in the class of surplus division problems where the size of the surplus may be dependent on how it is shared the nash bargaining solution is the unique symmetric and nash implementable division rule d 2005 published by elsevier b v

remittances and the dutch disease phenomenon evidence from the bounds error correction modelling and a panel space remittances have grown in size and importance they are also among the most stable inflows of scarce foreign exchange for the developing world while such inflows can boost economic growth they ca

unforeseen contingencies and incomplete contracts we scrutinize the conceptual framework commonly used in the incomplete contract literature this literature usually assumes that contractual incompleteness is due to the transaction costs of describing or of even foreseeing the possible states of nature in advance we argue however that such transaction costs need not interfere with optimal contracting i e transaction costs need not be relevant provided that agents can probabilistically forecast their possible future payoffs even if other aspects of the state of the nature cannot be forecast in other words all that is required for optimality is that agents be able to perform dynamic programming an assumption always invoked by the incomplete contract literature the foregoing optimality result holds very generally provided that parties can commit themselves not to renegotiate moreover we point out that renegotiation may be hard to reconcile with a framework that otherwise presumes perfect rationality however even if renegotiation is allowed the result still remains valid provided that parties are risk averse

could a monetary base rule have prevented the great depression abstract this paper continues an ongoing investigation of the properties of a policy rule that specifies settings of the monetary base that are designed to keep nominal gnp growing smoothly at a noninflationary rate counterfactual historical simulations for 1923 1941 are conducted with the rule and a small model of nominal gnp determination estimated with u s quarterly data with residuals fed in as estimates of the behavioral shocks that occurred the simulation results indicate that nominal gnp would have been kept reasonably close to a steady three percent path over 1923 1941 if the rule had been in effect

was the deflation during the great depression anticipated evidence from the commodity futures market futures prices were well above spot prices for most commodities during most of the great depression evidently the spectacular declines in agricultural prices caught many people by surprise based on the historical correlations between commodity prices and consumer prices commodity markets anticipated stable consumer prices during the first year of the great depression the dramatic drop in nominal treasury bill yields thus should be read as a drop in ex ante real rates later in the great depression markets anticipated deflation but not as severe as actually occurred copyright 1992 by american economic association

remittances and the dutch disease abstract using data for el salvador and bayesian techniques we develop and estimate a two sector dynamic stochastic general equilibrium model to analyze the effects of remittances on emerging market economies we find that whether altruistically motivated or otherwise an increase in remittance flows leads to a decline in labor supply and an increase in consumption demand that is biased toward non tradables the higher non tradable prices serve as incentive for an expansion of that sector culminating in reallocation of labor away from the tradable sector a phenomenon known as the dutch disease quantitative results also indicate that remittances improve the welfare of households because they smooth income flows and increase consumption and leisure levels a bvar analysis provides results that are consistent with the dynamics of the model

were price changes during the great depression anticipated abstract this paper reassesses whether the large swings in prices during the 1930 s were anticipated we argue that uncertainty about monetary fiscal and exchange rate policies induced systematic differences between the rate of price change expected by economic agents at the time and the time series forecasts of inflation our analysis of nominal interest rates and ex post inflation strongly supports this view in fact our results suggest that the deflation of the early depression years and the inflation that followed were both largely unanticipated

markups aggregation and inventory adjustment in this paper i suggest a unified explanation for two puzzles in the inventory literature first estimates of inventory speeds of adjustment in aggregate data are very small relative to the apparent rapid reaction of stocks to unanticipated variations in sales second estimates of inventory speeds of adjustment in firm level data are significantly higher than in aggregate data the paper develops a multisector model where inventories are held to avoid stockouts and price markups vary along the business cycle the omission of countercyclical markup variations from inventory targets introduces a downward bias in estimates of adjustment speeds obtained from partial adjustment models when the cyclicality of markups differs across sectors this downward bias is shown to be more severe with aggregate rather than firm level data similar results apply not only to inventories but also to labor and prices montercarlo simulations of a calibrated version of the model suggest that these biases are quantitatively significant

detecting spot price forecasts in futures prices futures markets are often described as having two important social functions first they facilitate the transfer of commodity price risk and second they provide forecasts of commodity prices the evidence that futures markets transfer price risk is irrefutable however there is some debate about the markets forecasting ability in particular forecasts based on the current spot price are often as good as those based on the futures price some economists cite a failure to detect superior forecast power in futures prices as evidence of market inefficiency see e g leuthold 1974 and martin and garcia 1981 there are at least two other explanations first there may be nothing for the futures market to forecast if the current spot price equals the true expectation of the future spot price the futures market cannot provide a better forecast second a superior futures market forecast may be obscured by the unexpected component of the realized spot price the true expectation of the future spot price is unobservable one must approximate this expectation with the actual future spot price

input and output inventories in the uk what is the role of inventories in uk manufacturing we present and estimate a model of inventories that considers separately finished goods and input i e the sum of raw materials and work in process inventories our results suggest that both types of inventories are used for production level and production cost smoothing we identify a small but significant negative relationship between inventories and the real interest rate thus providing support for one of the textbook channels of the monetary policy transmission mechanism variance decompositions indicate that technology shocks are the dominant driving factor behind cyclical changes in inventories

potential pitfalls for the purchasing power parity puzzle sampling and specification biases in mean reversion tests of the law of one price the ppp puzzle is based on empirical evidence that international price differences for individual goods loop or baskets of goods ppp appear highly persistent or even nonstationary the present consensus is these price differences have a half life that is of the order of five years at best and infinity at worst this seems unreasonable in a world where transportation and transaction costs appear so low as to encourage arbitrage and the convergence of price gaps over much shorter horizons typically days or weeks however current empirics rely on a particular choice of methodology involving i relatively low frequency monthly quarterly or annual data and ii a linear model specification in fact these methodological choices are not innocent and they can be shown to bias analysis towards findings of slow convergence and a random walk intuitively if we suspect that the actual adjustment horizon is of the order of days then monthly and annual data cannot be expected to reveal it if we suspect arbitrage costs are high enough to produce a substantial band of inaction then a linear model will fail to support convergence if the process spends considerable time random walking in that band thus when testing for ppp or loop model specification and data sampling should not proceed without consideration of the actual institutional context and logistical framework of markets

the value of corporate risk management we model and estimate the value of corporate risk management we show how risk management can add value when revenues and costs are nonlinearly related to prices and estimate the model by regressing quarterly firm sales and costs on the second and higher moments of output and input prices for a sample of 34 oil refiners we find that hedging concave revenues and leaving concave costs exposed each represent between 2 and 3 of firm value we validate our approach by regressing tobin s q on the estimated value and level of risk management and find results consistent with the model

financing constraints irreversibility and investment dynamics abstract we develop a model of an industry with many heterogeneous firms that face both financing constraints and irreversibility constraints we use this model to examine the cyclical behavior of aggregate fixed investment variable capital investment and output in the presence of persistent idiosyncratic and aggregate shocks our model yields three main results first the effect of the irreversibility constraint on fixed capital investment is reinforced by the financing constraint second the effect of the financing constraint on variable capital investment is reinforced by the irreversibility constraint finally the interaction between the two constraints is key for explaining why input inventories and material deliveries of us manufacturing firms are so volatile and procyclical and also why they are highly asymmetrical over the business cycle

financial factors in the great depression eginning with irving fisher 1933 and john maynard keynes 1931 b 1963 macroeconomists have argued that financial markets were important sources and propagators of decline during the great depression turning points during the depression often coincided with or were preceded by dramatic events in financial markets stock market collapse waves of bankruptcy and bank failure and contractions in the money stock but the mechanism through which financial factors contributed to the depression has been a source of controversy as has been the relative importance of financial factors in explaining the origins and persistence of the depression this essay reviews the literature on the role of financial factors in the depression and draws some lessons that have more general relevance for the study of the depression and for macroeconomics i argue that much of the recent progress that has been made in understanding some of the most important and puzzling aspects of financial real links in the depression followed a paradigm shift in economics a central neglected theoretical piece of the story for financial factors was the allocative effects of imperfections in capital markets which can imply links between disruptions in financial markets and subsequent economic activity also the increasing emphasis on learning and path dependence in economics has helped to explain why financial shocks during the 1930s were so severe and why policy makers failed to prevent the depression

does remittance fuel labour productivity in bangladesh the application of an asymmetric non linear ardl approach abstractbangladesh a labour abundant country is finally learning to reap gains from her labour abundance the historical under optimized capital labour ratio of bangladesh is slowly moving towards its optimum as the migration of its labour force and consequent inflow of remittance strategically converts its abundant labour into capital though the fear that remittance as an alternative source of earning may result in dutch disease for existing family members annual data for 1982 2013 and through applying standard testing methodologies our empirical findings suggest that such a fear is not valid since remittance flow significantly improves domestic labour productivity in bangladesh in the long run

can futures market data be used to understand the behavior of real interest rates this paper examines whether futures market data can be used to understand the behavior of real interest rates several ways of examining the data indicate that futures market data are not particularly informative about real interest rates not only does this evidence cast some doubt on results in previous research that make use of futures market data to draw inferences about real interest rates but it also indicates that future research on real interest rates may need to turn to a different line of attack understanding the behavior of real interest rates is a central issue in financial economics in previous research on this topic several approaches have been used to measure real interest rates in one approach real interest rates have been calculated by subtracting survey data on inflation expectations such as the livingston data from nominal interest rates the problem with survey based measures of real interest rates is that they are only as good as the survey measure of inflation expectations and there may be little incentive for the survey respondents to answer accurately an even more telling criticism of survey based measures often ignored in the literature is that the behavior of market expectations in driven by economic agents ai the margin who are eliminating unexploited profit opportunities market expectations are unlikely therefore to be well measured by the average expectations of survey respondents 2 because of doubts about survey based measures of real interest rates other

input and output inventories abstract this paper presents a new stage of fabrication inventory model with delivery usage and stocks of input materials that distinguishes between gross production and value added it extends the linear quadratic model of output inventories by adding the joint determination of input inventories empirically input inventories are more important than output inventories maximum likelihood estimation of the decision rules yields correctly signed and significant parameter estimates using data for nondurable and durable goods industries but the overidentifying restrictions of the model are rejected the value added specification dominates because adjustment costs on materials usage are critical to fitting the data

outsourcing and unionization a tale of misallocated resistance resources while many believe the growth in outsourcing contributed to the decline in u s unionization up to the 1990s this argument has never been investigated systematically in this article we analyze the effect of outsourcing on unionization between 1973 and 1993 instrumental variables estimation shows outsourcing contributes to higher quasirents and industry productivity we find the union wage premium increases with the extent of outsourcing both for workers that are substitutable by outsourcing services and workers in jobs that are not substitutes of the tasks being outsourced finally we find no support for the claim that outsourcing reduces unionization jel j5 l2 l6

nash equilibrium and welfare optimality if is a set of social alternatives a social choice rule scr assigns a subset of a to each potential profile of individuals preferences over a where the subset is interpreted as the set of welfare optima a game form or mechanism implements the social choice rule if for any potential profile of preferences 1 any welfare optimum can arise as a nash equilibrium of the game form implying in particular that a nash equilibrium exists and 2 all nash equilibria are welfare optimal the main result of this paper establishes that any scr that satisfies two properties monotonicity and no veto power can be implemented by a game form if there are three or more individuals the proof is constructive

inventories and asymmetric business cycle fluctuations in the uk a structural approach this paper investigates the movement of manufacturing inventories and production over the business cycle to arrive at an asymmetric structural equilibrium correction model initially cross correlation coefficients and deepness and steepness tests for skewness are utilized to present descriptive statistics of the time series cointegration analysis is performed on each disaggregate inventory by stage of production finished goods work in progress and raw materials with a set of explantory variables restricted cointegration vectors are added to the symmetric and non symmetric specifications of the structural equilibrium correction model these are compared by parameter constancy tests and one step ahead forecasts

brain drain and human capital formation in developing countries winners and losers using new data on emigration rates by education level we examine the impact of brain drain migration on human capital formation in developing countries we find evidence of a positive effect of skilled migration prospects on gross human capital formation in a cross section of 127 countries for each country of the sample we then estimate the net effect of the brain drain using counterfactual simulations countries combining relatively low levels of human capital and low emigration rates are shown to experience a beneficial brain drain and conversely there are more losers than winners and the former tend to lose relatively more than what the latter gain

great expectations and the end of the depression what ended the great depression in the united states this paper suggests that the recovery was driven by a shift in expectations this shift was triggered by president franklin delano roosevelt s fdr policy actions on the monetary policy side roosevelt abolished the gold standard and announced an explicit policy objective of inflating the price level to pre depression levels on the fiscal policy side roosevelt expanded real and deficit spending which helped make his policy objective credible the key to the recovery was the successful management of expecta tions about future policy roosevelt s rise to power is modeled as a policy regime change as in thomas sargent 1983 and peter temin and barry wigmore 1990 this paper formalizes temin and wigmore s argu ment in a repeated game setting using a dynamic stochastic general equilibrium dsge model and argues that the regime change can account for the recovery in the model a regime change means the elimination of certain policy dogmas that constrain the actions of the government the regime change generates an endogenous shift in expectations due to a coordination of mon etary and fiscal policy this coordination ended the great depression by engineering a shift in expectations from contractionary i e the private sector expected future economic contrac tion and deflation to expansionary i e the public expected future economic expansion and inflation the expectation of higher future inflation lowered real interest rates thus stimulating demand while the expectation of higher future income stimulated demand by raising permanent income

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

inventories under joint production an empirical analysis of petroleum refining this study examines the determinants of inventory investment under joint production we simultaneously estimate a set of optimal sales relations variable input demands and a set of euler equations for capital and inventories of raw materials work in process and final products in the petroleum refining industry the euler conditions provide a model for the convenience yield discussed in the returns to storage literature the cost savings from holding inventories and expected changes in marginal production costs are important components of the convenience yield we also find significant cost and stock interactions that may affect short run price and inventory dynamics in petroleum product markets

remittances liquidity constraints and human capital investments in ecuador summary over the last decade ecuador has experienced a strong increase in financial transfers from migrated workers this paper investigates how remittances via trans national networks affect human capital investments through relaxing resource constraints and facilitate households in consumption smoothing by reducing vulnerability to economic shocks our results show that remittances increase school enrollment and decrease incidence of child work especially for girls and in rural areas furthermore we find that aggregate shocks are associated with increased work activities while remittances are used to finance education when households are faced with these shocks 2008 elsevier ltd all rights reserved

private foreign asset accumulation not just capital flight evidence from the philippines external debt problems have been accompanied in many developing countries with large private capital outflows the latter phenomenon is usually identified in the literature as capital flight this article argues that private foreign asset accumulation is a more appropriate term and compares a great variety of definitions and measurement methods and applies these to philippine data for 1971 88 outcomes show striking differences in assessment of the magnitude of the phenomenon in the preferred definition of this study applied to the philippines unrecorded workers remittances from abroad a factor omitted in other studies represent a major source of foreign exchange earnings which indirectly support private foreign asset accumulation other definitions appear to severely underestimate private capital outflows econometric evidence on the causes of private foreign asset acquisition shows a strong sensitivity to the applied definition regression analysis for six alternative definitions shows that the ex

identifying the macroeconomic effect of loan supply shocks the inability to clearly distinguish the effects of shocks to loan supply from those to loan demand has made it difficult to quantify the economic importance of the credit channel in the transmission mechanism of monetary policy this study provides an innovative approach to identifying loan supply shocks three different results confirm that loan supply shocks have been successfully isolated from shifts in loan demand our measure is particularly important for explaining inventory movements the component of gdp most dependent on bank lending the effect is present even during periods with strong loan demand and the effect remains even when the unpredictable part of the loan supply shock is isolated this identification enables us to show that loan supply shocks have had economically important effects on the u s economy

elite competition and state capacity development theory and evidence from post revolutionary mexico international wars and interstate rivalry have been at the center of our understanding of the origin and expansion of state capacity this article describes an alternative path to the development of state capacity rooted in domestic political conflict under conditions of intra elite conflict political rulers seize upon the temporary weakness of their rivals expropriate their assets and consolidate authority because this political consolidation increases rulers chances of surviving an economic elite s challenge it enhances their incentives to develop state capacity these ideas are evaluated in post revolutionary mexico where commodity price shocks induced by the great depression affected the local economic elite differentially negative shocks lead to increased asset expropriation and substantially higher investments in state capacity which persist to the present

convenience yield without the convenience a spatial temporal interpretation of storage under backwardation a mathematical programming model of the wheat marketing system of western australia manifests a typical pattern of regionwide stocks held at a negative intertemporal spread measured at the port no stocks are held at a monetary loss in terms of local prices any apparent loss is an illusion from spatial aggregation of stocks and attribution of incentives at one locality to storers at all locations moreover as the premium for immediate delivery at the port rises stocks increase at relatively inaccessible inconvenient locations where prices are low allowing more to be shipped from locations more convenient to the port

the production and inventory behavior of the american automobile industry understanding inventory movements is central to an understanding of business cycles this paper presents an empirical study of the behavior of inventories in the automobile industry it finds that inventory behavior is well explained by the assumption of intertemporal optimization with rational expectations the underlying cost structure appears to have substantial costs of changing production as well as substantial costs of being away from target inventory thelatter being a function of current sales given this cost structure whether inventory behavior is stabilizing or destabilizing depends on the characteristics of the demand process in the automobile industry inventory behavior is destabilizing the variance of production is larger than the variance of sales

the spectre of deflation a review of empirical evidence what explains the widespread fear of deflation this article reviews the history of thought economic history and empirical evidence on deflation with a view to answering this question it also outlines informally the main effects of deflation in applied monetary models the main finding is that for both historical and contemporary deflations there are many open empirical questions that could be answered using the tools economists use to study inflation and monetary policy more generally qu est ce qui explique la peur tres repandue de la deflation ce memoire fait un tour d horizon de l histoire de la pensee economique de l histoire economique et des resultats empiriques quant aux effets de la deflation en vue de repondre a cette question on fait aussi echo informellement aux effets principaux de la deflation dans les modeles monetaires appliques ce qui ressort principalement de ce travail est que tant pour les deflations dans l histoire que dans le monde contemporain il y a bien des questions empiriques encore irresolues auxquelles on pourrait donner une reponse en utilisant l outillage mental que les economistes utilisent pour etudier l inflation et la politique monetaire plus generalement sp c tre n thing that is thought to be seen but has no material existence haunting presentiment of ruin war madness etc

pre harvest price expectations for corn the information content of usda reports and new crop futures this article examines the puzzle of why futures prices continue to react to usda crop reports despite the fact that reports appear to be no longer newsworthy that is provide no better production estimates than private forecasts the information value of reports is measured in terms of their influence on rational agents harvest time corn price expectations which are uncovered using a hamilton type modeling approach results show that reports are still newsworthy as they would contribute to agents price expectations if released a day early thus futures price reactions which closely reflect price expectations are rational and consistent with efficient markets hypothesis copyright 2008 oxford university press

the missing transmission mechanism in the monetary explanation of the great depression for many friedman and schwartz s monetary history of the united states 1963 is synonymous with the notion that monetary contraction and errors by the federal reserve caused the great depression but this quick summary both sells the book short and oversells its findings about the 1930s it sells the book short because the contributions of the monetary history extend far beyond the depression friedman and schwartz use an extensive reading of the historical record over nearly a century to identify times when the money supply moved for reasons unrelated to current or prospective macroeconomic conditions that output moved in the same direction as money following these crucial experiments remains some of the strongest evidence we have that monetary shocks have real effects but saying the book proves that monetary shocks caused the depression is a stretch of the monetary shocks friedman and schwartz identify those early in the depression are arguably the most tenuous and crucially the book provides scant discussion of how monetary shocks affect the economy this weakness is most pressing in the analysis of the depression because nominal interest rates fell precipitously early in the depression and remained low throughout it is hard to appeal to the standard transmission mechanism operating through the nominal cost of credit this paper seeks to fill in the missing transmission mechanism in friedman and schwartz s explanation of the depression in section i we describe previous work showing that falling

workers remittances and the real exchange rate a paradox of gifts abstract we test the impact of workers remittances on the real exchange rate using a panel of 13 latin american and caribbean countries the analysis reveals that workers remittances have the potential to inflict economic costs on the export sector of receiving countries by reducing its international competitiveness our findings raise concerns parallel to those raised by dutch disease or resource boom models where resource discoveries result in real exchange rate appreciation and shifting of resources from the traded to the nontraded sectors of the economy

did lower unionization in the united states result in more flexible industries do unions really impede manufacturers output flexibility if so in what ways the authors propose a methodology for quantifying george stigler s concept of output flexibility and for decomposing the effects of unionization on average cost differences between union and non union plants using a recently compiled data set on u s three digit manufacturing industries from 1973 to 1996 they adapt this methodology to simulate the effects of unionization on flexibility and average costs for average size plants simulation results indicate that higher unionization was associated with higher average costs and lower flexibility than low unionization higher average costs appear to have been primarily due to higher fixed costs such as higher benefits

determinants of workers remittances an empirical investigation for a panel of eleven developing asian economies we explore the key motives of migrant workers remittances from abroad for 11 major asian migrant sending countries using panel regressions we find that relative higher growth rate interest rate and capital market returns of home over the host investment financial deepening at home have significant impact on remittance inflows into asia along with higher per capita incomes and international crude oil prices with incorporation of per capita incomes and lagged impact of remittances we observe an emergence of consumption motives to remit therefore we conclude that both investment and altruistic motives are the driving forces for remittances inflows into the asian economies

joint production quasi fixed factors of production and investment in finished goods inventories inventory investment has long been an important area of inquiry for empirical work in macroeconomics this is due in large measure to the fact that inventory investment is a major source of fluctuations in aggregate output empirical work on inventories however has been dominated by the use of simple univariate flexible accelerators 1 the major objective of this paper is to propose and test a multivariate flexible accelerator model for inventory investment the model is tested with data on finished goods inventories from the manufacturing sector of the u s economy there are two reasons for undertaking such a task first at a theoretical level a univariate flexible accelerator model asserts that investment in say finished goods inventories is proportional to the gap between the desired and actual stocks of finished goods such a model presumes that decisions by firms on finished goods inventories are made independently of decisions on other stocks but theory suggests that when firms make simultaneous decisions on a variety of stocks which includes not only finished goods but also goods in process inventories the size of the work force etc decisions on finished goods will interact with decisions on

inventories as factors of production and economic fluctuations this paper presents a theory of inventory investment by stage of processing and uses it to examine the role of inventory investment in economic fluctuations the model in which inventories are treated as factors of production is estimated for four durable goods industries three conclusions emerge from the estimation first the estimates generally satisfy the theoretical restrictions second the elasticity of inventory demand with respect to output is high indicating an important accelerator effect finally the estimates suggest that shifts in the demand for inventories are an important source of economic fluctuations copyright 1989 by american economic association

the great depression versus the great recession in the u s how fiscal monetary and financial polices compare abstract this study reviews the financial distress that triggered and amplified the financial crises of the great depression and great recession and compares macroeconomic and financial policy responses shadow banking funded the build up of the financial excesses that preceded both the quicker and forceful response of monetary and fiscal policy during the great recession and stronger action to restore market functionality mitigated the downturn and aided recovery nevertheless actions to address the mortgage debt overhang were slower post depression reforms focused on preventing deposit runs and post great recession reforms on preventing runs on bank debt and shadow banks while boosting capital buffers

overseas employment and remittances to a dual economy overseas employment has become more commonplace and remittances have increased in similar proportions for poor countries remittances often substantially influence domestic expenditures and real exchange rates we study overseas employment remittances and domestic underemployment in a simple general equilibrium model with a non traded good and minimum wage the influence of population growth rural productivity and family altruism are examined if remittances per migrant exceed domestic productivity then multiple equilibria may occur exhibiting high or low overseas employment we discuss how the equilibrium with highest overseas employment conditionally pareto dominates the other equilibria and analyse policy co ordination

remittances and competitiveness the case of the philippines summary the paper looks at the impact of migration and workers remittances on the competitiveness of the home economy it extends existing research that concentrated on the exchange rate effects of remittances the so called dutch disease effect by adding labor market effects the results show that the labor market effects of emigration and remittances have a significant impact on competitiveness that goes beyond the traditional exchange rate effect

inflationary expectations and the fisher effect prior to world war i we use univariate and multivariate techniques to estimate the expected price level changes for the u s during the pre world war i period we also examine contemporaneous evidence from agricultural commodity futures markets to measure inflationary expectations using previously neglected data on consumer prices and a variety of techniques we draw three main conclusions not traditionally found for this period 1 price level changes were not white noise 2 a significant portion of deflationary and inflationary episodes was indeed expected and 3 expected inflation is positively and significantly correlated with nominal interest rates thus providing support for a short run fisher effect

rational expectations and the smoothing properties of inventories of finished goods abstract this paper formulates and estimates a dynamic rational expectations equilibrium model of inventories of finished goods and employment of labor the view that the primary role of inventories of finished goods is to act as a buffer stock in the face of fluctuating demand is examined both the model and estimation results indicate that this is the case because of differences in the costs involved for firms in changing their inventory stocks and labor force in addition to providing some new evidence on the behavior of inventories of finished goods and employment the paper illustrates a technology for maximum likelihood estimation of structural parameters under the hypothesis of rational expectations

international migration remittances and household investment evidence from philippine migrants exchange rate shocks how do households respond to overseas members economic shocks overseas filipinos in dozens of countries experienced sudden heterogeneous changes in exchange rates during the 1997 asian financial crisis appreciation of a migrant s currency against the philippine peso leads to increases in household remittances from overseas the estimated elasticity of philippine peso remittances with respect to the exchange rate is 0 60 positive migrant shocks lead to enhanced human capital accumulation and entrepreneurship in origin households child schooling and educational expenditure rise while child labour falls households also work more hours in self employment and become more likely to start relatively capital intensive household enterprises

who anticipated the great depression gustav cassel versus keynes and hayek on the interwar gold standard the intellectual response to the great depression is often portrayed as a battle between the ideas of friedrich hayek and john maynard keynes yet both the austrian and the keynesian interpretations of the depression were incomplete austrians could explain how a country might get into a depression bust following a credit fueled investment boom but not how to get out of one liquidation keynesians could explain how a country might get out of a depression government spending on public works but not how it got into one animal spirits by contrast the monetary approach of gustav cassel has been ignored as early as 1920 cassel warned that mismanagement of the gold standard could lead to a severe depression cassel not only explained how this could occur but his explanation anticipates the way that scholars today describe how the great depression actually occurred unlike keynes or hayek cassel analyzed both how a country could get into a depression deflation due to tight monetary policies and how it could get out of one monetary expansion

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

using mixed frequency data to improve macroeconomic forecasts of inventory investment this paper briefly reviews and extends the evidence on the importance of inventory investment in business cycles a method for combining high frequency observations with forecasts of a conventional quarterly econometric model is then proposed the method is applied to the michigan quarterly econometric model of the u s economy to see if improved forecasts of inventory investment can be obtained the use of a small set of monthly indicators is found to yield improved forecasts of real gnp but are of little help in forecasting inventory investment a more comprehensive set of monthly indicators including inventory and sales may be needed to obtain improved estimates of quarterly inventory investment

the interest rate learning and inventory investment this paper presents a model that provides an explanation based on regime switching in the real interest rate and learning of why tests based on stock adjustment models euler equations or decision rules which emphasize short run fluctuations in inventories and the interest rate are unlikely to uncover a negative relationship between inventories and the real interest rate the model however predicts that inventories will respond to long run movements that is to regime shifts in the real interest rate tests emphasizing cointegration techniques confirm this prediction and show a significant long run relationship between inventories and the real interest rate

inventory investment over the business cycle in the eu and the us abstract this paper investigates the business cycle properties of aggregate inventory investment in the countries of the european union eu and the us given the experience of the latest recessions this issue becomes particularly interesting for the study of the propagation mechanism of business cycles the kydland prescott methodology was used to derive and organize the business cycle features the results showed that business cycle fluctuations in the eu are more volatile than those in the us the contribution of the declines of inventory investment in recessions has also been greater in the eu important similarities though were identified as to the extent of the destabilizing effect of inventory investment cycles in the overall economic activity

a compound option model of production and intermediate inventories this article extends the option approach to valuing real assets by modeling the firm as a two stage process with bounded output rates in which the output of the first stage may be held as work in process in this setting the real asset becomes a compound option which if exercised gives the option to finish the work in process and sell the output as its final payoff the existence of intermediate inventories may arise as an optimal investment strategy for exploiting possible future price increases the framework allows us to analyze the effect of uncertainty on output rates and the effect of interest rates changes on inventory levels copyright 1993 by university of chicago press

the eurozone expected inflation an option s eyes view abstract we estimate inflation risk neutral densities rnds in the euro area using inflation swaps and caps floors options and introduce a parsimonious approach to jointly estimate the rnds across horizons thus we obtain daily implicit rnds for forward measures such as the 5 year on 5 year inflation rate which although not directly traded in the market is a key reference for monetary policy then we discuss several indicators derived from the information content of those historical rnds that are relevant for policy makers and compare them in light of the ecb s decisions and communication since 2009 specifically we study the evolution of tail risks associated with deflation and high inflation the balance of inflation risks risk aversion and how forward inflation rates react to the ecb s non conventional monetary policies longer term refinancing operations ltro securities market programme smp asset purchase programme app and its variants and extensions

dynamic factor demands and the effects of energy price shocks a dynamic model is used to understand how sharp changes in energy prices affect investment behavior employment and energy use the authors discuss the theory behind their model selection model specifications estimation methods and data list parameter estimates and elasticities for the selected model and describe the simulations they conclude that 1 the data strongly reject the hypothesis of constant returns to scale within their specification of aggregate production 2 the data indicate adjustment costs on labor are small and 3 their results help reconcile some of the conflicting estimates of energy demand elasticities appearing in recent literature 23 references 3 figures 3 tables

a panel data study on spanish firms inventory investment this paper raises several questions about inventory investment of a sample of 172 big nonfinancial spanish companies inventory investment has been usually explained by two alternative theories the production smoothing model and the s s model first we provide a descriptive analysis based on industry level data to show some shortcomings of the first model then we test a flexible accelerator model using firm level data the results seem to show that inventory investment previous period inventories and sales are closely and significantly related this evidence although not conclusive rejects both the pure production smoothing model and the s s model at the same time our results confirm the view of a target inventory level and the plausibility of the so called stock adjustment model so that the optimal inventory holding buffers sales volatility

the behavior of manufacturers inventories evidence from us industry level data abstract recent empirical research on inventory behavior makes extensive use of disaggregated data both from the 20 two digit manufacturing industries identified in the standard industrial classification sic system and physical product data from lower levels of aggregation economists have traditionally grouped these industries by durability of final product or by the presence or absence of unfilled orders for comparison recent research by mattey and strongin economic review federal reserve bank of san francisco 2 1997 3 17 suggests that production technology affects the flow of material through the production process and the use of labor and capital in manufacturing a review of the empirical inventory literature reveals patterns that can be explained by differences in production technology in studies that use both two digit industry data and disaggregated physical product data from four and five digit industries thus there may be more heterogeneity in disaggregated inventory data than was previously thought

the money market meltdown of the great depression consistent with theories of financial frictions this study finds that higher corporate risk premia and flight to quality events contributed to the increased use of a collateralized form of business lending bankers acceptances in real levels and relative to that of noncollateralized commercial paper which plunged during the great depression these short lived instruments are more timely measures of credit availability than are bank business failures and bank loan outstandings these shifts in the composition of external finance were large supporting the view that financial frictions rose and credit availability fell during the great depression

interwar inflation unexpected inflation and output growth interwar macroeconomic history is a natural place to look for evidence on the correlation between output growth and inflation or unexpected inflation we apply time series methods to measure unexpected inflation for more than 20 countries using both retail and wholesale prices there is a significant positive correlation between output growth and inflation for the entire period there is little evidence that this correlation is caused by an underlying role for unexpected inflation for wholesale price inflation in particular the output declines associated with deflations were larger than the output increases associated with inflations of the same scale

dynamic factor demands under rational expectations we model the industrial demands for structures equipment and blue and white collar labor in a manner consistent with rational expectations and stochastic dynamic optimization in the presence of adjustment costs but allowing generality of functional form we represent the technology by a translog input requirement function that specifies the amount of blue collar labor needed to produce an output level given quantities of three quasi fixed factors nonproduction workers equipment and structures a complete description of the production structure is obtained by simultaneously estimating the input requirement function and three stochastic euler equations we find adjustment costs are small in total but large on the margin and differ considerably across factors

working capital and fixed investment new evidence on financing constraints this article presents new tests for finance constraints on investment by emphasizing the often neglected role of working capital as both a use and a source of funds the coefficient of endogenous working capital investment is negative in a fixed investment regression as expected if working capital competes with fixed investment for a limited pool of finance this finding addresses a criticism of previous research on finance constraints that cash flows may simply proxy shifts in investment demand in addition previous studies may have underestimated the impact of finance constraints on growth and investment because firms smooth fixed investment in the short run with working capital

quasi rational and ex ante price expectations in commodity supply models an empirical analysis of the us broiler market a statistically optimal inference about agents ex ante price expectations within the us broiler market is derived using futures prices of related commodities along with a quasi rational forecasting regression equation the modelling approach which builds on a hamilton type framework includes endogenous production and allows expected cash price to be decomposed into anticipated and unanticipated components we therefore infer the relative importance of various informational sources in expectation formation results show that in addition to the quasi rational forecast the true supply shock future prices and ex post commodity price forecast errors have at times been influential in broiler producers price expectations copyright 2003 john wiley sons ltd

the stylized facts about the behavior of manufacturers inventories and backorders over the business cycle 1959 1980 recent theoretical work has highlighted the role of inventories in propagating business cycles this paper attempts to provide an empirical foundation for current and future research on the role inventories play in business cycles the evidence presented here indicates that inventories and backorders are major variables in predicting output fluctuations further the evidence is that disaggregating inventories by stage of fabrication is important in predicting output in concert with previous findings our results suggest that disaggregated inventories ought to be a component of models of the business cycle

inventories and risk in african manufacturing using a panel data set for zimbabwe which includes firm specific measures of contractual risk we show that contractual risk has a major effect on the holding input stocks and to a lesser extent the constitution of cash reserves this is consistent with inventories being a hedge against stockout risk by contrast firms facing more inter annual market risk hold less inventories this suggests that african manufacturers prefer adapting to long term market fluctuations as they materialise rather than building up inventories this interpretation is consistent with the finding that high market risk firms also have a low capacity utilisation rate

an examination of the asymmetric effects of money supply shocks in the pre world war i and interwar periods we test whether monetary shocks had asymmetric output effects before world war ii ball and mankiw 1994 show that expectations of persistent inflation under fiat money can explain why negative monetary shocks had larger effects than positive shocks after world war ii consistent with this explanation we find such asymmetry in the interwar period following the abandonment of the gold standard and before it when agents arguably anticipated this development we find no monetary asymmetry before world war i which is consistent with ball and mankiw 1994 because under a credible gold standard agents do not expect persistent inflation jel e31 es2

can the production smoothing model of inventory behavior be saved the production smoothing model of inventory behavior has a long and venerable history and theoretical foundations that seem very strong yet certain overwhelming facts seem not only to defy explanation within the production smoothing framework but actually to argue that the basic idea of production smoothing is all wrong most prominent among these is the fact that the variance of detrended production exceeds the variance of detrended sales this paper first documents the stylized facts then it derives the production smoothing model rigorously and explains how the model can be amended to make it consistent with the facts finally it reviews the theoretical and empirical evidence and tries to draw some tentative conclusions

multinational companies technology spillovers and plant survival how does the presence of multinational companies affect plant survival in the host country we postulate that multinational companies can impact positively on plant survival through technology spillovers we examine the nature of the effect of multinationals using a cox proportional hazard model which we estimate using plant level data for irish manufacturing industries our results show that the presence of multinationals has a life enhancing effect only on indigenous plants in high tech industries suggesting the presence of technology spillovers in contrast multinationals compete with each other in low tech sectors in the host country

the case of the negative nominal interest rates new estimates of the term structure of interest rates during the great depression throughout the 1930s and early 1940s u s treasury bonds and notes appeared to have negative nominal yields as they approached maturity but negative nominal interest rates are impossible in a world in which one can always hold cash the resolution to this puzzle is that treasury securities in addition to making coupon payments gave the owner the right to buy a new security on a future date this paper describes the institutional environment that led to the apparent negative nominal interest rates develops a method for valuing the exchange privilege and computes accurate measures of the yield to the coupon bearing component of these composite bond options these corrected bond and not yields are then used to calculate new estimates of the term structure of interest rates from 1929 to 1949

was the new deal contractionary can government policies that increase the monopoly power of firms and the militancy of unions increase output this paper shows that the answer is yes under certain emergency conditions these emergency conditions zero interest rates and deflation were satisfied during the great depression in the united states the new deal which facilitated monopolies and union militancy was therefore expansionary in the model presented this conclusion is contrary to a large previous literature the main reason for this divergence is that this paper incorporates rigid prices and the zero bound on the short term interest rate jel e23 e32 e52 e62 j51 n12 n42