forest incomes and rural livelihoods in chiradzulu district malawi abstract this paper examines forest income among rural dwellers in one of malawi s most densely populated districts chiradzulu 160 households were interviewed in two sites only 20 km apart purposely selected on the basis of access to a forest reserve people are extremely poor with 97 having incomes of less than 1 usd day forest income constitutes around 15 of total income only non farm income 47 and agriculture 28 rank higher the poorest segment depends more on forest income than the least poor group but the medium income group exhibits the highest dependence fuelwood constitutes the major source of such income followed by fodder the incomes mainly support current consumption people with better access to the forest reserve have higher total income forest income and relative forest income as revealed through a gini coefficient analysis forest resources have an important income equalizing effect across rural households a particular group of resource poor farmers 8 1 of sample with little access to agricultural land and a high representation of female heads derives an average of 65 of their income from the forest an important policy lesson is that restricting people s access to forest resources can have substantial effects on household livelihoods and welfare and would serve to increase income inequalities in the area livelihood researchers should now recognize the substantial income from forest resources

what accounts for the changes in u s fiscal policy transmission using vector autoregressions on u s time series for 1957 79 and 1983 2004 we find government spending shocks to have stronger effects on output consumption and wages in the earlier period we try to account for this observation within a dsge model featuring price rigidities and limited asset market participation specifically we estimate the structural parameters of the model for both periods by matching impulse responses model based counterfactual experiments suggest that most of the changes in fiscal policy transmission are accounted for by increased asset market participation and the more active monetary policy of the volcker greenspan period

transactions costs and the optimal quantity of money this paper models a physical environment in which agents rationally choose to hold both fiat money and higher return capital this occurs because information barriers permit bona fide capital to be distinguished from bogus titles to capital and bogus ious only at a cost one implication is that the holding period for capital is greater than that for fiat money the information barriers also limit the government interventions that are feasible and in so doing overturn standard notions concerning the optimal quantity of money in this paper i model a physical environment in which agents rationally choose to hold both fiat money and a productive asset with a greater rate of return moreover the fiat money in this model circulates with a greater velocity than does the productive asset in this model agents live 3 period lives and are members of generations that overlap they receive an endowment of the model s single consumption good only in the first period of life and must therefore hold assets to provide for consumption in other periods of life when the consumption good is stored it only yields a return 2 periods after it was stored as a result storage can be used to provide for consumption in the third period of life the crucial assumptions of the model are restrictions on the infor

corruption trade and resource conversion abstract recent evidence suggests that special interest groups significantly affect tropical deforestation through lobbying we develop an open economy model in which resource conversion is determined by a self interested government that is susceptible to the influences of the political contributions it receives from the profit maximizing economic agent responsible for land conversion we investigate the effects of lobbying on the cumulative level of resource conversion and examine how trade policy influences the distortions created by political corruption we derive testable predictions that are analyzed through a panel analysis of cumulative agricultural land expansion over 1960 99 for low and middle income tropical countries our findings suggest that increased corruption and resource dependency directly promote land conversion whereas rising terms of trade reduce conversion

a model of debit card as a means of payment abstract this paper provides an explanation for both the rapid growth in the use of a debit card over time and the cross sectional difference in the use of a debit card using a search theoretic model the trade off between cash and a debit card as means of payment is incorporated such that a buyer incurs disutility cost proportional to the amount of cash holdings while a seller accepting a debit card bears a fixed record keeping cost regardless of transaction amount as record keeping cost decreases with the development of information technology over time disutility cost of cash holdings required for pairwise trade eventually exceeds record keeping cost so that all the agents with different wealth levels choose to use a debit card as a means of payment also disutility cost of cash holdings required for pairwise trade would be higher for the rich than for the poor implying the cross sectional feature of payment pattern that the rich use a debit card more frequently than the poor there are two distinct mechanisms that improve welfare as record keeping cost decreases one is to reduce deadweight loss from holding cash and the other is to reduce its distortionary effect on output produced in pairwise trade

the limits of central bank policy economic crisis and the challenge of effective solutions the paper examines the development of central bank policy prior to and during the recent financial crisis the argument is made that it contained multiple failures that not only generated constraints on adequately identifying and addressing the crisis but also contributed to that crisis those failures derived from a combination of theory and institutional practice specifically the use of forms of inflationary targeting based on broad adherence to the taylor rule framework and the use of versions of a conventional theoretical macro model ctmm were both problematic this was particularly so in the way policy was focused through issues of the primacy of price stability the institutional arrangements of the central banks were also problematic the division of labour between the central banks and other regulatory bodies and the limited information available within a liberalised finance system hampered efforts to fully appreciate the gravity of the situation partly due to the constraints imposed by the thinking and strategies that had been developed the central banks never got to grips with the fundamental problems of the crisis interest rate policy and liquidity provision were undertaken in ways that steadily radicalised the approaches of the banks but always in a way that was event led and always in ways that could not resolve those fundamental problems the nature of the crisis highlights the importance of transforming the approach and institutional framework of the central banks relatedly it highlights the need for a more keynesian and heterodox approach to economics within decision making bodies at central banks

liquidity effects and the monetary transmission mechanism several recent papers provide strong empirical support for the view that an expansionary monetary policy disturbance generates a persistent decrease in interest rates and a persistent increase in output and employment existing quantitative general equilibrium models which allow for capital accumulation are inconsistent with this view there does exist a recently developed class of general equilibrium models which can rationalize the contemporaneous response of interest rates output and employment to a money supply shock however a key shortcoming of these models is that they cannot rationalize persistent liquidity effects this paper discusses the basic frictions and mechanisms underlying this new class of models and investigates one avenue for generating persistence we argue that once a simplified version of the model in christiano and eichenbaum 1991 is modified to allow for extremely small costs of adjusting sectoral flow of funds positive money shocks generate long lasting quantitatively significant liquidity effects as well as persistent increases in aggregate economic activity

monetary aggregates and liquidity in a neo wicksellian framework woodford 2003 describes a popular class of neo wicksellian models in which monetary policy is characterized by an interest rate rule and the money market and financial institutions are typically not even modeled critics contend that these models are incomplete and unsuitable for monetary policy evaluation our banks and bonds model starts with a standard neo wicksellian model and then adds banks and a role for bonds in the liquidity management of households and banks the banks and bonds model gives a more complete description of the economy but the neo wicksellian model has the virtue of simplicity our purpose here is to see if the neo wicksellian model gives a reasonably accurate account of macroeconomic behavior in the more complete banks and bonds model we do this by comparing the models second moments variance decompositions and impulse response functions we also study the role of monetary aggregates in predicting inflation in the two models

optimal disinflation in new keynesian models abstract central bankers conventional wisdom suggests that nominal interest rates should be raised to attain a lower inflation target in contrast i show that the standard new keynesian monetary model with rational expectations and full credibility predicts that nominal interest rates should be decreased to attain this goal real interest rates however are virtually unchanged these results also hold in recent vintages of new keynesian models with sticky wages price and wage indexation and habit formation in consumption

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

growth deforestation and the efficiency of the redd mechanism this paper assesses the long term impacts of an international transfer called the reduced emissions from deforestation and degradation redd mechanism which aims at preserving tropical forests of the recipient economy this two sector economy faces a dilemma between economic growth and deforestation the rural sector can substitute reproducible capital for agricultural land whereas the manufacturing sector only requires capital the model shows that the redd mechanism has a non monotonic effect on steady state welfares for low transfer schemes the agricultural output increases with the transfer even though less land is under cultivation for high transfer schemes the increase in the transfer may not offset the decrease in the agricultural output the open loop symmetric nash equilibrium in a dynamic deforestation game predicts that redistributing the transfer among a finite number of producers is less efficient in reducing deforestation than in the social optimum

financial market segmentation and choice of exchange rate regimes we study the choice of exchange rate regime in a small open economy with segmented asset markets subjected to financial sector shocks we show that the state contingent optimal policy facilitates risk sharing between asset market participants and non participants and is countercyclical our results establish that contrary to existing literature flexible exchange rates mimic optimal policy and welfare dominates fixed exchange rates

money interest rates and exchange rates with endogenously segmented markets we analyze the effects of money injections on interest rates and exchange rates when agents must pay a baumol tobin style fixed cost to exchange bonds and money asset markets are endogenously segmented because this fixed cost leads agents to trade bonds and money infrequently when the government injects money through an open market operation only those agents that are currently trading absorb these injections through their impact on these agents consumption these money injections affect real interest rates and real exchange rates the model generates the observed negative relation between expected inflation and real interest rates as well as persistent liquidity effects in interest rates and volatile and persistent exchange rates

the impacts of trade on the brazilian labor market a cge model approach abstract the paper assesses the impacts of trade liberalization on macroeconomic variables and labor market indicators in brazil the discussion comes out of an earlier debate on the role of trade liberalization in shaping labor market outcomes in the well known heckscher ohlin and stolper samuelson hos theorems to address these issues we use a computable general equilibrium cge modeling approach to model the patterns of export growth by sector and their effects on macroeconomic and labor market indicators overall our results show that trade liberalization contributes to improve economic welfare by means of greater output lower domestic prices and higher labor demand the benefits of this economic improvement tend however to be appropriated by the most skilled workers in the most trade oriented sectors contradicting the predictions of the hos theorems

the optimal choice of monetary policy instruments in a small open economy this paper studies how the nature of shocks affects the optimal choice of monetary policy instruments in a small open economy three classic rules fixed exchange rates monetary targeting and inflation targeting are studied and ranked by comparing with the optimal monetary policy under commitment we find that the ranking of the simple rules can be mapped to the terms of trade variability that the rule allows relative to what a particular shock optimally calls for it turns out that inflation targeting dominates the other two rules under productivity or velocity shocks whereas monetary targeting is the best performer under fiscal shocks ce memoire etudie comment la nature des chocs affecte le choix des instruments de politique monetaire dans une petite economie ouverte on etudie trois regles classiques taux de change fixes cibles monetaires cibles d inflation et on cherche laquelle semble preferable dans differentes conditions on decouvre que le rang de ces regles simples est reliea la variabilite des termes d echange que la regle permet par rapport a ce qu un choc particulier commanderait optimalement les cibles d inflation dominent les deux autres regles quand il s agit de chocs de productivite et de velocite alors que les cibles monetaires sont preferables quand il s agit de chocs fiscaux

on the coexistence of money and higher return assets and its social role this paper adopts mechanism design to investigate the coexistence of at money and higherreturn assets we consider an economy with pairwise meetings where at money and riskfree capital compete as means of payment as in lagos and rocheteau 2008 the trading mechanism in pairwise meetings is chosen among all individually rational renegotiation proof mechanisms to maximize society s welfare we show that in any stationary monetary equilibrium capital commands a higher rate of return than at money

existence of a monetary steady state in a matching model indivisible money abstract existence of a monetary steady state is established for a random matching model with divisible goods indivisible money an arbitrary bound on individual money holdings and take it or leave it offers by consumers the background environment is that in papers by shi and by trejos and wright the monetary steady state shown to exist has nice properties the value function defined on money holdings is strictly increasing and strictly concave and the measure over money holdings has full support

forest conservation in costa rica when nonuse benefits are uncertain but rising stochastic dynamic programming is used to investigate optimal holding of primary tropical forest in humid costa rica when future nonuse benefits of forest conservation are uncertain and increasing the quasi option value of maintaining primary forests is included as a component of investment in natural capital although the impact of uncertainty on conservation incentives is substantial our results indicate that a rising trend in future benefits and compensation by the international community for beneficial spillovers are more important factors in determining optimal holdings of forest stocks without compensatory payments however further deforestation may be warranted

wealth distribution inflation tax and societal benefits of illiquid bonds illiquid nominal government bonds are shown to have two opposing effects on welfare first the relatively poor choose to top up money balances for future consumption by purchasing nominal bonds at a discount the wealth distribution becomes more centered with a smaller consumption deviation from the first best second the higher inflation tax on monetary wealth to finance interest payments makes money less valuable so that the quantity of output produced in exchange for money decreases the trade off between the welfare enhancing effect on wealth distribution and the distortionary effect on output implies the socially optimal discount rate and liquidity

optimal monetary policy and financial stability in a non ricardian economy this paper develops a model with discontinuous asset market participation in which all agents are infinitely lived and non ricardian and where heterogeneity among market participants implies financial wealth effects on aggregate consumption derivation of a welfare based loss function shows that financial stability arises as an additional and independent target besides infl ation and output stability evaluation of optimal policy under discretion and commitment reveals that price stability may no longer be optimal even absent inefficient supply shocks some fluctuations in output and infl ation are optimal as long as they reduce financial instability ignoring the heterogeneity among market participants in this economy may lead monetary policy to induce substantially higher welfare losses

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

coexistence of money and interest bearing securities abstract a random matching model with money is used to study the nominal yield on small denomination bearer safe discount securities issued by the government there is always one steady state with matured securities circulating at par and for some parameters another with them circulating at a discount in the former a necessary and sufficient condition for a positive nominal yield on not yet matured securities is exogenous discriminatory treatment of them by the government in the latter the post maturity discount on securities induces a deeper pre maturity discount even without such discriminatory treatment

interest rates and inflation a consensus has emerged among practitioners that the instrument of monetary policy ought to be the short term interest rate that policy should be focused on the control of inflation and that inflation can be reduced by increasing short term interest rates at the center of this consensus is a rejection of the quantity theory such a rejection is a difficult step to take given the mass of evidence linking money growth inflation and interest rates increases in average rates of money growth are associated with equal increases in average inflation rates and interest rates these observations need not rule out a constructive role for the use of short term interest rates as a monetary instrument one possibility is that increasing short term rates in the face of increases in inflation is just an indirect way of reducing money growth sell bonds and take money out of the system another possibility is that while control of monetary aggregates is the key to low long run average inflation rates an interest rate policy can improve the short run behavior of interest rates and prices the shortrun connections among money growth inflation and interest rates are very unreliable so there is much room for improvement these possibilities are surely worth exploring but doing so requires new theory the analysis needed to reconcile interest rate policies with the evidence on which the quantity theory of money is grounded cannot be found in old textbook diagrams

monetary policy and asset prices a mechanism design approach we investigate the eects of monetary policy on asset prices in economies where assets are traded periodically in over the counter otc markets with bilateral meetings between buyers and sellers the trading mechanism in pairwise meetings is designed to maximize social welfare taking as given the frictions in the environment e g lack of commitment and limited enforcement and monetary policy we show that asset price bubbles emerge in a constrained e cient monetary equilibrium only if liquidity is abundant and the rst best allocation is implementable in contrast if liquidity is scarce assets are priced at their fundamental value in any constrained e cient monetary equilibrium in which case an increase in in ation has no eect on asset prices but it reduces output and welfare finally for low in ation rates the bursting of an asset price bubble can be an optimal response to a shock that reduces assets resalability

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

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

asset prices and liquidity in an exchange economy i develop an asset pricing model in which financial assets are valued for their liquidity the extent to which they are useful in facilitating exchange as well as for being claims to streams of consumption goods the implications for average asset returns the equity premium puzzle and the risk free rate puzzle are explored in a version of the model that nests the work of mehra and prescott 1985

intermediary cost and coexistence puzzle abstract the coexistence puzzle is explained via an interaction between intermediary cost and uncertainty with regards to consumption trade if a trade opportunity as a buyer is more likely to arise ex ante net return on bond at the margin would be negative up to a certain amount of transactions and therefore agents are willing to hold money in the presence of an interest bearing bond

nonneutrality of money in dispersion hume revisited for a class of standard and widely used preferences a one shot money injection in a standard matching model can induce a significant and persistent output response by dispersing the distribution of wealth decentralized trade matters for both persistence and significance in the presence of government bonds the injection has a liquidity effect and the inflation rate right following the injection may be below the steady state rate level

some anecdotal evidence relating to the legal restrictions theory of the demand for money according to the legal restrictions theory of the demand for money characteristics such as denomination and negotiability of interest bearing debt are what prevents it from being employed as a transactions medium during the years 1915 27 the government of france used as a financing instrument securities that by the legal restrictions theory should have circulated in exchange an experience by eleanor lansing dulles attempting to use one of these securities in a purchase as well as other evidence suggests that they did not

comment on moneyspots extraneous attributes and the coexistence of money and interest bearing nominal bonds by ricardo lagos in this article the author discusses aspects of the article moneyspots extraneous attributes and the coexistence of money and interest bearing nominal bonds by ricardo lagos within the issue the author explains why he would not add the ideas outlined in lagos study to his list of topics for discussion in his monetary economics class the alternating endowments model and why the value of bank notes depends on their serial numbers not their colors

equilibria under monetary and fiscal policy interactions in a portfolio choice model abstract this paper studies how the presence of income taxes changes the properties of general equilibrium models with monetary and fiscal policy interactions it is found that from a global perspective the only policy regime that leads to a unique equilibrium is one where fiscal policy is active i e the fiscal theory of the price level regime in sims 1994 from a local perspective there are three regimes in particular and relative to the previous literature following leeper 1991 a new third regime exists where a passive fiscal rule combined with a passive monetary rule can still deliver determinacy where the same area of the parameter space would lead to multiple solutions if taxes were lump sum to obtain the size of the new regime the paper characterizes analytically the extent to which tax cuts are self financing and how the distortionary tax laffer curve looks near the steady state in the new regime monetary and fiscal backstops are brought into play so as to rule out off equilibrium dynamics and inflation can temporarily increase in order to increase seigniorage revenues with this flexibility the monetary policy is consistent with the real debt remaining bounded and the arithmetic that follows is monetarist and unpleasant in the sense of sargent and wallace 1981

monetary policy and endowment risk in a limited participation model i introduction an asset market segmentation model is constructed in this paper to study the risk sharing role of monetary policy economic agents face uninsurable endowment risk when there is limited asset market participation because an initial money injection goes first to those who can access the asset market money is nonneutral and monetary policy redistributes consumption across agents thus monetary policy plays a risk sharing role that provides crude insurance limited participation models that capture nonneutralities of money were initially developed by grossman and weiss 1983 and rotemberg 1984 and followed by lucas 1990 fuerst 1992 and chatterjee and corbae 1992 recently alvarez and atkeson 1997 alvarez lucas and weber 2001 and alvarez atkeson and kehoe 2002 have made important contributions but they focus on the implications of liquidity effects asset prices and the exchange rate instead of the risk sharing implications of monetary policy my model is built on alvarez lucas and weber 2001 there are two types of households traders who participate in the asset market and nontraders who do not these types are determined exogenously in each period traders receive constant endowments whereas nontraders face uninsurable endowment shocks in the asset market the government injects money through open market operations and traders initially receive the money injection in equilibrium money is nonneutral and monetary policy redistributes consumption between traders and nontraders the government money injection increases traders consumption and decreases nontraders consumption because traders get the money injection through the asset market whereas nontraders suffer from inflation if nontraders all receive the same endowment shock then monetary policy is a perfect risk sharing tool that can smooth out consumption across traders and nontraders however if nontraders receive idiosyncratic endowment shocks then monetary policy is not enough to perfectly insure nontraders although monetary policy does not achieve a pareto optimal allocation it can mitigate the dispersion of consumption across nontraders the optimal money growth rate can be positive or negative depending on the endowment distribution the friedman rule is not optimal in general there is a set of limited participation literature where the asset market is endogenously segmented chatterjee and corbae 1992 alavarez atkeson and kehoe 2002 chiu 2004 and chiu and molico 2007 although endogenous asset market segmentation is useful in some contexts for this paper nothing is lost by assuming exogenous segmentation and much is gained in simplicity models of the redistributional effects of monetary policy include levine 1991 shi 1999 berentsen camera and waller 2005 and molico 2006 the models studied by levine 1991 and mollico 2006 are particularly relevant levine 1991 studies an incomplete markets environment where positive money growth implemented through lump sum transfers can be optimal molico 2006 studies a search environment and shows similarly that positive inflation with lump sum transfers can be welfare enhancing but not at high rates of inflation in both the levine 1991 and molico 2006 environments there is an insurance role for monetary policy much as in the environment studied in this paper the model here has the virtue of being much more tractable than either the levine 1991 or molico 2006 models furthermore a novelty here is to study an insurance role for monetary policy in the context of market segmentation where the agents who received the first round effects of monetary policy do not wish to share risk among themselves the key risk sharing problem has to do with risk sharing between asset market participants and nonparticipants the remainder of the paper is organized as follows

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

the economics of tropical forest land use options tropical deforestation is generally characterized as conversion of forest land to alternative uses notably agriculture this would suggest the need for rational decision making concerning the optimal allocation of tropical forest land between competing uses the following paper explores this problem by devising rules for determining optimal land use allocation between timber and agriculture at the stand and forest levels a complementary intertemporal model for optimal allocation of forest land to agricultural conversion at the forest level is also developed and used to derive a demand relationship for agricultural conversion which is then approximated through empirical estimation

foreign transfers and tropical deforestation what terms of conditionality the purpose of this paper is to propose a nonparametric interest rate term structure model and investigate its implications on term structure dynamics and prices of interest rate derivative securities the nonparametric spot interest rate process is estimated from the observed short term interest rates following a robust estimation procedure and the market price of interest rate risk is estimated as implied from the historical term structure data that is instead of imposing a priori restrictions on the model data are allowed to speak for themselves and at the same time the model retains a parsimonious structure and the computational tractability the model is implemented using historical canadian interest rate term structure data the parametric models with closed form solutions for bond and bond option prices namely the vasicek 1977 and cir 1985 models are also estimated for comparison purpose the empirical results not only provide strong evidence that the traditional spot interest rate models and market prices of interest rate risk are severely misspecified but also suggest that different model specifications have significant impact on term structure dynamics and prices of interest rate derivative securities

limited commitment and the legal restrictions theory of the demand for money this paper addresses the rate of return puzzle of monetary theory similarly to the legal restrictions theory of the demand for money we assume that government bonds are subject to a minimum purchase requirement differently from this theory however we assume that intermediaries when issuing private notes cannot commit to always redeem them first we study an environment with legal restrictions to intermediation and show that cash and interest bearing bonds both circulate in the economy then we drop the legal restrictions and show that also with active intermediation under limited commitment there is an equilibrium with rate of return dominance a positive interest rate provides the intermediaries with the incentive to issue and redeem their notes

measuring the sustainability and economic viability of tropical farming systems a model from sub saharan africa abstract new technologies must be developed in sub saharan africa which are sustainable and economically viable this paper discusses a methodology for measuring the agricultural sustainability and economic viability of tropical farming systems for new technology evaluation the approach is based on the concept of interspatial and intertemporal total factor productivity paying particular attention to valuation of natural resource stock and flows agriculture is a sector which utilizes natural resources e g soil nutrients and the stock and flows of these resources affect the production environment however in many cases the stock of these resources is beyond the control of the farmer and must be accounted for in an agricultural sustainability and economic viability measurement for example soil nutrients are removed by crops erosion or leaching beyond the crop root zone or other processes such as volatilization of nitrogen agricultural production can also contribute to the stock of some nutrients by leguminous plants such as agroforestry systems using a data set available at the international institute of tropical agriculture we compute the intertemporal and interspatial total factor productivity indices for four cropping systems in southwestern nigeria using stock of major soil nutrients as the natural resource stock results show that the sustainability and economic viability measures are sensitive to changes in the stock and flow of soil nutrients as well as the material inputs and outputs where the contribution of natural resource stock and flows are important such as in the case of alley cropping the measures provide markedly different results from conventional tfp approaches the advantage of this approach is that interspatial and intertemporal total factor productivity measures are computed using only price and quantity data thus eliminating the need for econometric estimation

return on commodity money small change problems and fiat money we construct a search theoretic model of commodity money where a penny is an indivisible silver coin that can be either melted into a silver bar yielding a positive return or used as a medium of exchange in equilibria where the rate of return on silver is sufficiently high small change problems arise in the form of too much trade inefficiency because of a too high value of a penny and no trade inefficiency because of a shortage of coins in circulation in the fiat money system however trades are not affected at all by the rate of return on silver and the value of a penny is determined by its medium of exchange role without incurring the loss in efficiency due to small change problems

unemployment questions and some answers in more or less every country in the oecd unemployment was lower in the decades following the second world war than in any other period of comparable length either before or since for example in britain unemployment has exceeded 5 in every peacetime decade from 1850 onwards except for the 1950s and 1960s alternatively as we can see in table 1 p 779 average unemployment in the 1980s and 90s is higher generally much higher than in the 1960s in every country considered why this is so is one of the questions which underlies this paper a second question which is also illustrated in the unemployment numbers presented in table 1 p 779 concerns the causes of the enormous variation in unemployment rates across the oecd countries as we shall see these are difficult questions the first in particular is one for which we do not have a complete answer by this i do not mean that we do not have theories which are broadly consistent with these numbers in fact we have theories consistent with more or less any numbers what we lack is a satisfactory empirical explanation of the time series pattern of oecd unemployment in what follows we remain focused on these two questions first considering the theoretical background and then looking at some possible answers we finish with some speculative conjectures on the first question

asset market participation monetary policy rules and the great inflation this paper argues that limited asset market participation is crucial in explaining u s macroeconomic performance and monetary policy before the 1980s and their changes thereafter in an otherwise conventional sticky price model standard aggregate demand logic is inverted at low enough asset market participation interest rate increases become expansionary passive monetary policy ensures equilibrium determinacy and maximizes welfare this suggests that federal reserve policy in the pre volcker era was better than conventional wisdom implies we provide empirical evidence consistent with this hypothesis and study the relative merits of changes in structure and shocks for reproducing the conquest of the great inflation and the great moderation

principles of stochastic dynamic optimization in resource management the continuous time case abstract a wide range of problems in economics agriculture and natural resource management have been analyzed using continuous time optimal control models where the state variables change over time in a stochastic manner using a firm level investment model and a model of environmental degradation this paper provides a concise introduction to continuous time stochastic control techniques the process used to derive the differential of a stochastic process is stressed and in turn is used to explain ito s lemma bellman s equation the hamilton jacobi equation the maximum principle and the expected dynamics of choice variables a basic extension of the dynamic duality literature is also provided where the hamilton jacobi equation is used to derive a stochastic and dynamic analogue of hotelling s lemma

money and interest in a cash in advance economy the authors analyze an aggregative general equilibrium model in which the use of money is motivated by a cash in advance constraint applied to purchases of a subset of consumption goods the system is subject to both real and monetary shocks which are economy wide and observed by all they develop methods for verifying the existence of characterizing and explicitly calculating equilibria copyright 1987 by the econometric society

relative prices and expenditure switching effect this study examines the impact of a monetary shock on a two country asymmetrical size general equilibrium model it is assumed that prices are sticky in the producer s currency and find that the expenditure switching effect is not significant

financial market segmentation stock market volatility and the role of monetary policy we explore the role of monetary policy in a world of segmented nancial markets where the agents who trade stocks encounter nancial income risk although the rest do not in such an economy we ask the question of how the monetary authority operates when it aims to maximize total welfare we nd that optimal monetary policy has the novel role of sharing the nancial market risk traders face among all agents in the economy this nding holds for any concave utility function and is not sensitive to the degree of market segmentation when risk is shared perfectly in this way consumption is equalized between the two groups and agents if given the choice would be indierent between participating or not in the nancial markets we also explore the implications that this policy has for the volatility of stock prices and of ination when compared to the policies of constant money supply ination targeting and nominal interest rate pegging we nd that optimal monetary policy is not necessarily associated either with minimal stock price volatility or with minimal ination volatility

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

limited asset markets participation monetary policy and inverted aggregate demand logic abstract this paper incorporates limited asset markets participation in dynamic general equilibrium and develops a simple analytical framework for monetary policy analysis aggregate dynamics and stability properties of an otherwise standard business cycle model depend nonlinearly on the degree of asset market participation while moderate participation rates strengthen the role of monetary policy low enough participation causes an inversion of results dictated by conventional wisdom the slope of the is curve changes sign the taylor principle is inverted optimal welfare maximizing discretionary monetary policy requires a passive policy rule and the effects and propagation of shocks are changed however a targeting rule implementing optimal policy under commitment delivers equilibrium determinacy regardless of the degree of asset market participation our results may justify fed s behavior during the great inflation period

segmented asset markets and optimal exchange rate regimes abstract this paper revisits the issue of the optimal exchange rate regime in a flexible price environment the key innovation is that we analyze this question in the context of environments where only a fraction of agents participate in asset market transactions i e asset markets are segmented under this friction alternative exchange rate regimes have different implications for real allocations in the economy in the context of this environment we show that flexible exchange rates are optimal under monetary shocks and fixed exchange rates are optimal under real shocks

debt enforcement and the value of money this paper presents a framework in which fiat money has value in equilibrium even though a risk free higher return asset can be equally used as a medium of exchange in a limited commitment environment agents may prefer to borrow a low return asset because that results in a larger borrowing capacity thus a monetary equilibrium in which money is dominated in rate of return exists

the future of monetary aggregates in monetary policy analysis this paper considers the role of monetary aggregates in modern macroeconomic models of the new keynesian type the focus is on possible developments of these models that are suggested by the monetarist literature and that in addition seem justified empirically both the relation between money and inflation and between money and aggregate demand are considered regarding the first relation it is argued that both the mean and the dynamics of inflation in present day models are governed by money growth this relationship arises from a conventional aggregate demand channel claims that an emphasis on the link between monetary aggregates and inflation requires a direct channel connecting money and inflation are wide of the mark the relevance of money for aggregate demand in turn lies not via real balance effects or any other justification for money in the is equation but on money s ability to serve as a proxy for the various substitution effects of monetary policy that exist when many asset prices matter for aggregate demand this role for monetary aggregates which is supported by empirical evidence enhances the value of money to monetary policy

moneyspots extraneous attributes and the coexistence of money and interest bearing nominal bonds it is folklore among monetary theorists that under laissez faire without ad hoc assumptions that favor money over bonds there do not exist equilibria in which government issued fiat money coexists with nominal default free interest bearing government bonds with similar physical characteristics this proposition is the basis for the strongest version of the rate of return dominance puzzle in this paper i show that if as has been the case throughout monetary history the physical object used as fiat money is heterogeneous in an extraneous attribute then there exist equilibria in which money coexists with interest bearing bonds

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

the role of amenities and quality of life in rural economic growth a structural model of regional economic growth is estimated using data for 2243 rural u s counties five indices designed to capture specific amenity and quality of life characteristics are constructed using fifty four separate indicators results suggest that amenity characteristics can be organized into consistent and meaningful empirical measures that move beyond ad hoc descriptions of amenities in addition to insights into the influence of local characteristics ranging from tax burdens to income distribution on regional economic growth results suggest that predictable relationships between amenities quality of life and local economic performance exist

depletion of forest resources in sudan intervention options for optimal control agricultural expansion and over cutting of trees for fuelwood are important causes of deforestation in arid and semi arid countries such as sudan the consequence is increased desertification and high erosion and loss of soil nutrients leading to declining agricultural productivity however the social costs of the deforestation externality are not taken into account in present forest management and land use planning in sudan leading to under pricing and over exploitation of the country s forest resources this study evaluated the suitability of approaches commonly used by most forest resource management agencies for prediction of the state and control of harvesting of forest resources against alternative empirical simulation models using relevant information about economic behaviour of trading agents in the fuelwood market results showed the clear superiority of models integrating market behaviour over current approaches in the ability to better simulate real trends of wood consumption and hence depletion rates the study also adopted an optimal control model to derive socially optimal forest harvesting regimes the results showed that current rates of forest resource rent recovery and reforestation efforts are very far from optimal results also suggest that in addition to optimal pricing and higher reforestation efforts promotion and availability of fuel substitutes and investment in wood energy conversion efficiencies have a strong potential for curbing the problem of deforestation in sudan

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

a noncooperative view of coalition formation and the core a noncooperative implementation of the core is provided for games with transferable utility the implementation obtained here is meant to reflect the standard motivation for the core as closely as possible in the model proposed time is continuous this idealized treatment of time is most amenable for capturing an essential feature of the core there is always time to reject a noncore proposal before it is consumated

capital accumulation and unemployment a tale of two continents in contrast to much recent work regarding the causes of european unemployment in this paper we emphasize the importance of capital accumulation but unlike the few previous studies which have examined the relationship between capital accumulation and unemployment we argue that what matters for the evolution of employment and the unemployment rate is not the absolute growth rate of a country s capital stock but its evolution relative to other countries capital stock the empirical validity of the above statement is demonstrated for almost all oecd countries using quarterly time series data for the period 1961 1995 more detailed evidence is also presented for germany japan and the united kingdom

a new suggestion for simplifying the theory of money we propose a new search theoretic model of monetary exchange with indivisible assets based on price posting instead of bargaining and incorporating noisy search this yields some familiar results plus a lot more the model admits multiple steady states due to the self referential nature of liquidity it admits cyclic chaotic and stochastic equilibria and compared to bargaining versions the dynamics are more general and have better microfoundations it generates price dispersion with interesting efficiency implications plus sticky prices and rational inattention parametric examples yield closed form solutions based on these results we suggest this should become a benchmark model in monetary economics

search based models of money and finance an integrated approach many applications in monetary economics of search and bargaining theory use shi trejos wright hereafter stw many applications in finance use duffie g rleanu pedersen hereafter dgp these models share several features and both concern liquidity yet they also differ in stw agents use assets as payment instruments when trading goods in dgp they pay with goods or transferable utility when trading assets we integrate the two this clarifies connections between the literatures and generates novel insights several new results are provided for the baseline stw and dgp models while the integrated structure generates even more interesting outcomes including endogenous transactions patterns and belief based dynamics

sluggish responses of prices and inflation to monetary shocks in an inventory model of money demand we examine the responses of prices and inflation to monetary shocks in an inventory theoretic model of money demand we show that the price level responds sluggishly to an exogenous increase in the money stock because the dynamics of households money inventories leads to a partially offsetting endogenous reduction in velocity we also show that inflation responds sluggishly to an exogenous increase in the nominal interest rate because changes in monetary policy affect the real interest rate in a quantitative example we show that this nominal sluggishness is substantial and persistent if inventories in the model are calibrated to match u s households holdings of m2

an overlapping generations model with search abstract search is embedded in an overlapping generations model the young participate in a centralized market and then are matched in pairs in a decentralized market the old only participate in the centralized market if the buyer s bargaining power in pairwise trade is close to unity and if the old are risk averse then the golden rule rate of money transfer is positive such risk aversion the pairwise meetings and dependence of the young s saving on the rate of return are necessary for this result

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

pairwise trade asset prices and monetary policy abstract we construct a search theoretic model where fiat money coexists with real assets and all assets can be used as a media of exchange the terms of trade in bilateral matches are determined by a pairwise pareto efficient pricing mechanism we do not have to appeal to exogenous liquidity constraints to generate asset prices that are consistent with the following facts i fiat money can be valued despite being dominated in its rate of return ii real assets with identical dividend flows can have different rates of return and iii an increase in inflation raises asset prices lowers their returns and widens the rate of return differences between assets on the normative side we show that there is a range of inflation rates that implement the first best allocation

essential interest bearing money i examine optimal monetary policy in a lagos and wright a unified framework for monetary theory and policy analysis j polit econ 113 2005 463 484 model where trade is centralized and all exchange is voluntary i identify a class of incentivefeasible policies that improve welfare beyond what is achievable with zero intervention any policy in this class necessarily entails a non negative inflation rate and a strictly positive nominal interest rate despite the absence of a lump sum tax instrument there exists an incentive feasible policy that implements the first best allocation

liquidity provision interest rates and unemployment abstract the effective liquidity supply of the economy the weighted sum of all assets that serve as media of exchange matters for interest rates and unemployment we formalize this idea by adding an over the counter market with collateralized trades to the mortensen pissarides model an increase in public liquidity through a higher supply of real government bonds raises the real interest rate crowding out private liquidity and increasing unemployment if unemployment is inefficiently high keeping liquidity scarce can be socially optimal a liquidity crisis affecting the acceptability of private assets as collateral widens the rate of return difference between private and public liquidity also increasing unemployment

deforestation and agricultural productivity in the cote d ivoire an optimal control model is used to determine the optimal steady state forest stock in the cote d ivoire this stock is shown to increase with increases in the forestry returns relative to those in agriculture technological progress in agriculture and increases in the social discount rate serve to lower the optimal steady state forest stock based on an estimated aggregate yield function the optimal forest stock is shown to be most sensitive to changes in the social rate of discount assuming current 1985 technology deforestation appears socially optimal only for values of the discount rate greater than 8

managing tropical forests reflections on the rent distribution discussion commercial forest extraction is one component of the tropical deforestation issue discussions about commercial extraction focus on choices among alternate rents and royalties these discussions often confuse measures of short and long run efficiency and equate distributive issues with efficiency they also overlook 1 potential lump sum charges 2 administrative costs and 3 previous public forestry agency experience this paper develops a simple analytical construct for clarifying these issues and examines each in turn