natural resources national income and economic growth in africa abstract because standard measures of aggregate income such as gross domestic product gdp do not account for natural resource depletion their use as gauges of economic performance tends to exaggerate the benefits of resource extraction accounting for natural resource depletion in 18 african countries indicates different patterns of growth than those suggested by gdp figures use of the revised measures in analyses of the link between exports and growth suggests that export expansion may generate increases in measured gdp without stimulating increased production in contrast real exchange rate alignment is correlated with growth in both conventional gdp and the revised accounts

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

optimal income taxation with adverse selection in the labour market this article studies optimal linear and non linear redistributive income taxation when there is adverse selection in the labour market unlike in standard taxation models firms do not know workers abilities and competitively screen them through non linear compensation contracts unobservable to the government in a miyazaki wilson spence equilibrium adverse selection leads to different optimal tax formulas than in the standard mirrlees 1971 model because of the use of work hours as a screening tool by firms which for higher talent workers results in a rat race and for lower talent workers in informational rents and cross subsidies the most surprising result is that if the government has sufficiently strong redistributive goals welfare is higher when there is adverse selection than when there is not policies that endogenously affect adverse selection are discussed the model has practical implications for the interpretation estimation and use of taxable income elasticities which are central to optimal tax design

consequences of bank distress during the great depression the consequences of bank distress for the economy during the depression remain an area of unresolved controversy since john m keynes 1931 and irving fisher 1933 macroeconomists have argued that bank distress magnified the extent of the economic decline during the depression as the intermediaries controlling money and credit banks were in a special position to transmit their distress to other sectors but the mechanism through which banking distress mattered for the economy has been hotly contested milton friedman and anna j schwartz 1963 saw the contraction in the money multiplier driven in their view by panicked depositors withdrawals of deposits as the primary mechanism through which banking distress affected the real economy they described the mechanism transmitting banking distress to the real sector as operating at the national level through changes in the aggregate supply of money and interest rates bank distress reduced the money supply available to the public either through the closure of banks and the consequent freezing of bank deposits or the withdrawals of deposits by depositors that feared bank failure ben s bernanke 1983 building on fisher 1933 emphasized the transmission of monetary shocks via their effects on the balance sheets of borrowers and on the supply of credit by banks borrowers balance sheets were worsened by debt deflation as the result of fixed dollar debt obligations borrowers net worth and cash flow declined with the rising value of debt service costs relative to income borrowers with positive net present value projects but weak balance sheets had less internally generated retained earnings to invest and could not qualify for credit furthermore bernanke argued that the contraction of the money supply produced contraction of nominal income and prices relative to fixed debt service which weakened borrowers balance sheets and in turn weakened banks not only did firms financial distress reduce the number of qualified borrowers the contraction in banks net worth forced a reduction in the supply of bank loans to qualified borrowers many firms and individuals relied on banks for credit and as those banks suffered losses of capital due to asset value declines and contractions in deposits as depositors reacted to bank weakness by withdrawing their funds even borrowers with viable projects and strong balance sheets experienced a decrease in the effective supply of loanable funds bernanke termed the combined weakening of borrowers balance sheets and the contraction in bank credit supply a rise in the cost of credit intermediation the scarcity of perfect substitutes for the positive net present value investments of firms with weak balance sheets and for the credit supplied by existing banks implies that the weakening of firms and banks balance sheets the disappearance of banks and the contraction in surviving banks lending made it more difficult for the economy to channel funds to their best use thus what began as a contraction in aggregate demand became a contraction in aggregate supply which magnified adverse economic shocks and prolonged and deepened the depression the financial distress of firms and banks and the decline in bank lending were not only symptoms of the depression but means for magnifying the shocks that caused the depression bernanke s statistical evidence in support of this story is derived from time series analysis at the national level in calomiris graduate school of business 601 uris hall columbia university 3022 broadway new york ny 10027 and national bureau of economic research e mail cc374 columbia edu mason department of finance drexel university 3141 chestnut street philadelphia pa 19104 e mail joe mason drexel edu we thank valerie ramey david wheelock charles himmelberg steve zeldes gary gorton two referees and seminar participants at columbia university wharton northwestern university and the 2001 economic history association meetings for helpful comments on an earlier draft we gratefully acknowledge support from the national science foundation the university of illinois and the federal reserve bank of st louis

pollution control and the ramsey problem pollution is an inevitable by product of production and is only gradually dissolved by the environment it can be reduced by producing less and by cleaning up the environment but neither occur when they are left to the market cleaning activities and the optimal emission charges increase with the stock of pollutants when one allows for pollution of the environment in the classical ramsey problem the capital stock is less than in the market outcome and a fortiori less than under the golden rule the analysis distinguishes between stock and flow externalities arising from pollution an increase in impatience can lead to more capital accumulation even though this leaves less room for current consumption

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

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

the behavior of the currency deposit ratio during the great depression comment in the coefficient of assets from 1 14 or 1 22 to 0 66 is not entirely due to economies of scale or a change in the mix of activities our results agree with revell 1980 in identifying the source of efficiency improvement as productivity gains proper second the sample group uses its offices more intensively than do the top 150 in either 1967 or 1979 this sample group has 14 29 employees per office versus 9 81 in 1967 and 7 69 in 1979 for the top 150 banks finally it is noteworthy that the smaller banks used fewer branches and employees relative to their assets than did the 1979 top 150 this is consistent with some recent evidence in tschoegl 1982 suggesting the possible existence of diseconomies of scale it is also consistent with the findings of benston et al 1982 for a sample of united states banks that where possible the banks expanded output by opening more offices as well as through output growth in each office and that this results in operating cost scale diseconomies

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

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

social insurance with competitive insurance markets and risk misperception this paper considers an economy where individuals differ in productivity and in risk rochet 1991 has shown that when private insurance markets offer full coverage at fair rates social insurance is desirable if and only if risk and productivity are negatively correlated this condition is usually shown to be satisfied for many health risks but it appears to be violated for the old age dependency risk mainly because longevity in turn is positively correlated with productivity we examine the role of uniform and nonuniform social insurance to supplement a general income tax when neither public nor private insurers can observe individual risk and when it is positively correlated with wages consequently a rothschild and stiglitz 1971 equilibrium emerges in the private insurance market and low wage low risk individuals are not fully insured we show that even when social insurance provided to the poor has a negative incentive effect it also increases their otherwise insuficient insurance coverage social insurance to the rich produces exactly the opposite effects whichever of these effects dominates some social insurance is always desirable finally we introduce risk misperception which exacerbates the failure of private markets the insurance term now reflects the combined failure brought about by adverse selection and misperception now the low risk individuals are not only underinsured but also pay a higher than fair rate however and rather surprisingly it turns out that this does not necessarily strengthen the case for public insurance

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

flight to quality in banking and economic activity abstract recent explanations of the transmission mechanism of monetary policy have emphasized that riskier lower net worth borrowers are more dependent on bank lending than larger less risky borrowers evidence from the federal reserve s survey on terms of bank lending indicates that the proportion of relatively high quality new loans safe moves countercyclically and granger causes gdp and inventory investment in the aftermath of a tightening of monetary policy the safe variable increases and in turn policy tends to relax once safe has risen

rat race redux adverse selection in the determination of work hours in law firms this paper describes an organizational setting in which professional employees are required to work inefficiently long hours the focus of the authors investigation is large law firms the income sharing that characterizes legal partnerships creates incentives to promote associates who have a propensity to work very hard law firms use indicators of this propensity especially an associate s record of billable hours in promotion decisions reliance upon work hours as an indicator leads to a rat race equilibrium in which associates work too many hours the authors find evidence in support of this conclusion with data they collected from two large law firms copyright 1996 by american economic association

optimal wage redistribution in the presence of adverse selection in the labor market in this paper we highlight a novel role played by the non linear income tax in the presence of adverse selection in the labor market due to asymmetric information between workers and firms relying on the rothschild and stiglitz equilibrium concept we show that an appropriate choice of the tax schedule enables the government to affect the wage distribution by controlling the transmission of information in the labor market this represents an additional channel through which the government can foster the pursuit of its redistributive goals

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

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

sustainable development with extractive and non extractive use of the environment in production this paper considers an economy in which the environment plays a role both in welfare and production an endogenous growth model which allows for abatement activities is formulated in order to study the impact of pollution on welfare and long term growth conditions for optimal and balanced economic growth are discussed and a numerical example is given to provide some insight in the mechanisms at work in the model

how capital regulation and other factors drive the role of shadow banking in funding short term business credit abstract this paper empirically analyzes how capital regulation risk and other factors altered the relative use of shadow banking funded short term business debt since the early 1960s results indicate that the share was affected over the long run not only by changing information and reserve requirement costs but also by shifts in relative regulation of bank versus nonbank credit sources such as basel i in 1990 and reregulation in 2010 in the short run the shadow bank share rose when deposit interest rate ceilings were binding on traditional banks the economic outlook improved or risk premia declined and fell when event risks arose

optimal taxation when people do not maximize well being abstract i derive the optimal nonlinear income tax when individuals do not necessarily maximize their own well being this generates a corrective argument for taxation optimal marginal taxes are higher lower if individuals work too much too little from a well being point of view i allow for multidimensional heterogeneity and derive the optimal tax schedule in terms of measurable sufficient statistics one of these statistics measures the degree to which individuals fail to optimize their labor supply i empirically estimate this by using british life satisfaction data as a measure of well being i find that low income workers tend to work too little and high income workers too much providing a motive for lower marginal tax rates at the bottom and higher marginal tax rates at the top of the income distribution

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

member bank borrowing and the fed s contractionary monetary policy during the great depression this paper examines the causes of federal reserve policy errors during the great depression it finds compelling evidence that the fed developed a flawed strategy during the 1920s and continued to use that strategy during the depression the fed s strategy relied on the behavior of member bank borrowing and interest rates as policy indicators a detailed empirical examination of borrowed reserve demand reveals the errors in the fed s strategy and helps to explain why the fed did not undertake vigorous countercyclical policy during the depression copyright 1990 by ohio state university press

national accounts and environmental resources in the paper optimal growth theory is used to derive the appropriate definition of the net national product concept when there are environmental resources and environmental damage to take into account the basic conclusions are that conventional defined np should be corrected by deducting environmental damage and adding the value of the net change of all resources

why do firms train theory and evidence this paper offers a theory of training whereby workers do not pay for the general training they receive the superior information of the current employer regarding its employees abilities relative to other firms creates ex post monopsony power and encourages this employer to provide and pay for training even if these skills are general the model can lead to multiple equlibria in one equilibrium quits are endogenously high and as a result employers have limited monopsony power and provide little training while in another equilibrium quits are low and training is high using microdata on german apprentices we show that the predictions of our model receive some support from the data

a reexamination of the optimal nonlinear income tax abstract this paper investigates mirrlees model of optimal income taxation it provides a concrete example of utility and density functions for which the solution to the usual first order model is not implementable i e and example where the first order approach does not work adding second order conditions leads to an extended model and to implementable solutions if these conditions are binding one gets a kink in the optimal net income schedule and bunching of individuals occurs the properties of an optimal nonlinear income tax are reexamined within the extended model

redistributive taxation in the roy model we consider optimal redistribution in a model where individuals can self select into one of several possible sectors based on heterogeneity in a multidimensional skill vector we show that when the government does not observe the sectoral choice or underlying skills of its citizens the constrained pareto frontier can be implemented with a single non linear income tax we derive formulas for this optimal tax schedule if sectoral inputs are complements a many sector model with self selection leads to optimal income taxes that are less progressive than the corresponding taxes in a standard single sector model under natural conditions however they are more progressive than in a multi sector model without occupational choice or without overlapping wage distributions as in stiglitz 1982

measuring the trade off between economic growth and a clean environment this article surveys various aspects of the measurement of environmental quality from the view point of national accounting and welfare economics it focuses on the question whether gnp or nnp should be corrected for environmental change green or eco gnp or whether physical accounts provide sufficient information for an assessment of the trade off mentioned above we conclude that valuation of services from environmental capital cannot be avoided for such assessment but can only be made using a model based approach statistical agencies should continue to collect data on environmental quality and to value changes in environmental capital in the context of national resource accounting however official statisticians should refrain from correcting gnp or nnp for environmental change as this correction implicitly contains a political judgment and cannot be based on mere technical knowledge

optimal growth with renewable resources and pollution abstract this paper presents three models which combine the optimal dynamics of economic growth renewable resource harvesting and pollution we investigate growth pollution and renewable resources as a three state variable problem the economy has three inputs man made capital renewable resources and emissions endogenous pollution affects both the growth of the renewable resource stock and the social welfare it is shown that the existence of the steady state depends in a complicated manner and in addition to preferences on the production technology growth of the renewable resource and the rate of decay of pollution the sufficient conditions for the existence of a global saddle point are given conditions under which the market solution equals the optimal solution of the social planner and the consequences of a too low externality tax on emissions or on common property resource harvesting are discussed

monetary factors in the great depression this paper examines the role of monetary policy in the early stages of the great depression and considers the mechanism whereby this policy may have affected real activity i conclude that the depression was preceded by a dramatic shift towards a highly contractionary monetary policy the economic impact of this policy seems unlikely to have come through the conventional keynesian channels of a shortage of liquidity and high ex ante real interest rates but instead may have operated through unanticipated deflation and after 1930 through the disruption of financial intermediation as a consequence of the banking panics

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

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

self selection and pareto efficient taxation abstract this paper analyses the set of pareto efficient tax structures the formulation of the problem as one of self selection not only shows more clearly the similarity between this problem and a number of other problems such as the optimal pricing of a monopolist which have recently been the subject of extensive research but also allows the derivation of a number of new results we establish i under fairly weak conditions randomization of tax structures is desirable ii if different individuals are not perfect substitutes for one another in production then the general equilibrium effects until now largely ignored in the literature of changes in the tax structure may be dominant in determining the optimal tax structure in particular if the relative wage of high ability and low ability individuals depends on the relative supplies of labor the optimal tax structure entails a negative marginal tax rate on the high ability individuals and a positive marginal tax rate on the low ability individuals the marnitude of which depends on the elasticity of substitution iii if individuals differ in their preferences pareto efficient taxation may entail negative marginal tax rates for high incomes while iv if wage income is stochastic the marginal tax rate at the upper end may be 100 our analysis thus makes clear that the main qualitative properties of the optimal tax structure to which earlier studies called attention are not robust to these attempts to make the theory more realistic