output dynamics in real business cycles models the time series literature reports two stylized facts about output dynamics in the united states gnp growth is positively autocorrelated and gnp appears to have an important trend reverting component this paper investigates whether current real business cycle rbc models are consistent with these stylized facts many rbc models have weak internal propagation mechanisms and must rely on external sources of dynamics to replicate both facts models that incorporate labor adjustment costs are partially successful they endogenously generate positive autocorrelation in output growth but they need implausibly large transitory shocks to match the trend reverting component in output

the two freedoms economic growth and development an empirical study log linear methods are applied to categorical data containing economic freedom political freedom the level of income and the rate of economic growth for a panel of about 100 countries from 1975 to 1992 the main results are given economic freedom the rate of economic growth is independent of political freedom and the level of income given the level of income political freedom is independent of economic freedom and the growth rate the analysis suggests the fundamental effects of economic freedom in fostering economic growth and a high level of income as the condition of a high degree of political freedom

examining the hayek friedman hypothesis on economic and political freedom abstract this paper examines empirically the hypothesis made famous by nobel laureates friedrich a hayek and milton friedman that societies with high levels of political freedom must also have high levels of economic freedom in our judgment the hayek friedman hypothesis holds up fairly well to historical scrutiny using data on economic and political freedom for a sample of up to 123 nations back as far as 1970 we find relatively few instances of societies combining relatively high political freedom without relatively high levels of economic freedom in addition we find that these cases are diminishing over time finally we examine several cases of countries on different economic and political freedom journeys

monetary and financial interactions in the business cycle this paper develops a computable general equilibrium model in which endogenous agency costs can potentially alter business cycle dynamics the model resembles the influential theoretical work of ben bernanke and mark gertler 1989 two sources of shocks are considered productivity shocks and monetary shocks the model is parametrized to match key features of u s aggregate activity the principal result of the analysis is that agency costs add very little to the basic business cycle dynamics copyright 1995 by ohio state university press

search sticky prices and inflation this paper examines equilibrium in a deflationary environment in a market with free entry where consumers search and firms set prices on individual units of the commodity prices attached to newly produced goods are continuously adjusted prices attached to previously produced goods can only be changed at a cost deflation cuts into the market power created by the need to search for the good thus consumers welfare is inverse u shaped in deflation

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

interpreting the macroeconomic time series facts the effects of monetary policy existing theory and evidence on the effects of monetary policy are reviewed substantial room for disagreement among economists remains new evidence based on multivariate time series studies of several countries is presented while certain patterns in the data consistent with effective monetary policy are strikingly similar across countries others particularly the tendency of interest rate increases to predict high inflation are harder to reconcile with effective monetary policy

new evidence on the relationship between democracy and economic growth it is often maintained that democracy is a luxury which comes at a price in terms of subsequent slower increases in national living standards however various recent cross section studies on economic growth have found evidence that lack of civil and political liberties is negatively correlated with economic growth using a new measure of democracy which is based upon the number of years that a country can be regarded as a democracy the robustness of this relationship is examined both direct and indirect effects of lack of democratic liberties are analysed our main conclusion is that the relationship between democracy and economic growth is not rubust

religion liberty and economic development an empirical investigation the empirical investigations conducted for this paper show that one can not accept the null hypothesis that religion and liberty are not related to development judeo christianity in particular appears to an important determinant of economic development this is explained in part by its fostering of the private ownership of property nations with the judeo christian values are more likely to have political democracies that are conductive to economic development capitalist economies with judeo christian democracy are more likely to have higher levels of economic development

market oriented institutions and policies and economic growth a critical survey this paper surveys recent evidence suggesting that market oriented institutions and policies are strongly related to economic growth focusing on studies using the economic freedom ef indicator of the fraser institute this index is critically discussed also various serious shortcomings of empirical studies using this index are identified nevertheless there are strong indications that liberalization i e an increase in the ef index stimulates economic growth this paper also reviews studies on the determinants of ef political liberalization is often found to enhance economic liberalization whereas there is less evidence for causality running in the other direction

commodity price stabilization in imperfect or cartelized markets most studies of commodity price stabilization assume that all agents behave competitively however many commodities suitable for stockpiling are produced by countries with a significant share of the world market and commodity agreements themselves often result in cartelization of the market the paper explores the consequences of market power for the choice of storage rule and the degree of price stabilization it finds that with linear demand dominant producers choose more stable prices than under perfect competition and price stability increases with their market share with constant elastic demand the competitive degree of price stabilization is achieved

nudges at the dentist abstract we implement a field experiment to study the impact of reminder messages on dental health prevention patients who are due to schedule a check up receive no reminder a neutral reminder postcard or reminders including additional information on the benefits of prevention our results document a strong impact of reminders within one month after receiving a reminder the fraction of patients who make a check up appointment more than doubles the effect declines slightly over time but remains economically and statistically significant including additional information in the reminders does not significantly increase response rates relative to the neutral reminder finally our data indicates that applying reminders repeatedly neither strengthens nor weakens their effects

are political freedoms converging this article tests for convergence o f freedom using freedom house s 2002 indices of political rights and civil liberties in 136 countries from 1972 to 2001 time series tests using structural breaks are employed to test for stochastic and beta convergence cross section tests are performed to examine the impact of legal systems education natural resources economic freedom and other variables we find that political freedoms are converging for one half of the countries additionally we find that the level of freedom is significantly related to the legal system education economic freedom and natural resources

inventories and money holdings in a search economy the authors analyze a continuous time model with a walrasian labor market and a random search retail market with prices set on a take it or leave it basis the equilibrium distribution of money holdings is the asymptotic steady state of this stochastic process there is a unique uniform price steady state equilibrium the faster the search process the higher the absolute price wage and real wage the instantaneous effect of an equal per capita infusion of money is to raise the price wage real wage and transactions rate the immediate post infusion price and wage can overshoot their new asymptotic values copyright 1990 by the econometric society

search for a monetary propagation mechanism abstract this paper examines a monetary propagation mechanism in an economy where exchanges in goods and labor markets involve costly search it is shown that an increase in the money growth rate increases steady state employment and output when the money growth rate is low but reduces steady state employment and output when the money growth rate is already high the model produces persistent hump shaped responses in employment and output to money growth shocks even when the shocks have no persistence the model also generates desirable features in job vacancy sales inventory and the velocity of money all these features emerge here in an economy with perfectly flexible prices and wages journal of economic literatureclassification numbers e40 e30

liquidity loanable funds and real activity abstract this paper develops a general equilibrium model of two traditional explanations of the monetary black box linking money and real activity the liquidity effect and the loanable funds effect these effects are modeled with a monetary production economy in which central bank injections of cash are funnelled into the economy through the credit market since only borrowers have direct access to the newly injected cash monetary injections cause nominal interest rates to fall if firms are borrowers then monetary injections also increase current and future real activity

financial freedom and bank efficiency evidence from the european union this paper investigates the dynamics between the financial freedom counterparts of the economic freedom index drawn from the heritage foundation database and bank efficiency levels we rely on a large sample of commercial banks operating in the 27 european union member states over the 2000s after estimating bank specific efficiency scores using data envelopment analysis dea we develop a truncated regression model combined with bootstrapped confidence intervals to test our main hypotheses results suggest that the higher the degree of an economy s financial freedom the higher the benefits for banks in terms of cost advantages and overall efficiency our results also show that the effects of financial freedom on bank efficiency tend to be more pronounced in countries with freer political systems in which governments formulate and implement sound policies and higher quality governance

comparative democracy the economic development thesis in comparative politics an established finding that economic development fosters democratic performance has recently come under challenge we counter this challenge with a dynamic pooled time series analysis of a major but neglected data set from 131 nations the final generalized least squares autoregressive moving averages estimates n 2 096 appear robust and indicate strong economic development effects dependent in part on the nation s position in the world system for the first time rather hard evidence is offered on the causal relationship between economics and democracy according to granger tests economic development causes democracy but democracy does not cause economic development overall the various tests would seem to advance sharply the modeling of democratic performance

the institutional framework and economic development the compound growth rates of per capita output and farrell type efficiency measures for 115 market economies over the period 1960 80 were compared with measures of political civil and economic liberty it was found that the institutional framework has significant and large effects on the efficiency and growth rate of economies politically open societies which subscribe to the rule of law to private property and to the market allocation of resources grow at three times the rate and are two and one half times as efficient as societies in which these freedoms are abridged

freedom and other variables in the choice of public pension systems there are three types of public pension systems popular throughout the world pay as you go defined benefit funded defined contribution and mixed the latter two systems were largely adopted in the 1990s after chile successfully built its funded system in this paper we analyze the choice of these types of pension system identifying factors that affect countries choice several measures of freedom economic and political are associated with these choices the estimated effects of the two freedoms on pension choice and percent elderly are quite interesting and intuitive

the impact of economic development on democracy any account of the social and economic conditions of democracy must come to terms with the central finding of the cross national statistical research a sturdy though not perfect association between economic development and democracy to tackle these questions of causation we adopted a strategy of analytic induction based on comparative historical research our program of comparative historical research confirmed the conclusion of the cross national statistical analyses of the correlates of political democracy the level of economic development is causally related to the development of political democracy however the underlying reason for the connection in our view is that capitalist development transforms the class structure enlarging the working and middle classes and facilitating their self organization thus making it more difficult for elites to exclude them politically simultaneously development weakens the landed upper class democracy s most consistent opponent

the political economy of development a cross national causality test of development democracy growth hypothesis the empirical investigation of the development democracy growth hypothesis estimates positive correlations and causal associations between development and democracy and democracy and growth among the preconditions for the emergence of democracy market and culture show strong and highly significant positive effects which are largely transmitted directly development affects democracy directly and indirectly via education and investment the positive causal association between democracy and growth is transmitted both directly and indirectly via labor and welfare accordingly the hypothesized compatibility between economic development and political democracy is confirmed while rejecting the trade off between political democracy and economic growth

freedom and growth do constitutions matter this paper uses an augmented solow model with cross section data to measure the effect on per capita income of a the entrenchment of various rights in a country s constitution and b the level of economic freedom in a country broadly construed the results suggest that entrenchment per se of any single right seldom has a significant general economic effect while the effect of economic freedom is significant and substantial the paper then considers whether such evidence could support the proposition that constitutions do not matter while it concludes otherwise it does caution against incurring excessive negotiation costs to obtain entrenchment of a comprehensive wish list of rights

political freedom economic freedom and income convergence do stages of economic development matter in the literature theory and empirical evidence on the nexus of political freedom economic freedom and economic growth are mixed in this paper we test the hypothesis that the effect of political freedom on promoting economic growth is realized and detectable at later stages of social and economic development using panel data for a sample of 104 countries between 1970 and 2003 we find strong support for our hypothesis while economic freedom has greater effects on income convergence in the oecd countries political freedom clearly promotes the convergence among those oecd countries

search price setting and inflation a model of monopolistic competition in an inflationary environment is developed which embodies optimal sequential search price dynamics and entry on the part of consumers and firms respectively equilibrium price strategies are s s these bounds increase continuously with consumer search costs and so does price dispersion indeed the whole equilibrium varies smoothly from the competitive bertrand to the monopolistic diamond 1971 end of the spectrum the latter s paradoxical result is explained as a limiting case where frictions on firms side of the market price adjustment costs but not on buyers search costs tend to zero a positive relationship between smooth and perfectly anticipated inflation and price dispersion or uncertainty is established

political sources of growth a critical note on measurement this note critically reviews the research on the link between political systems and economic growth empirical attempts to capture this patent relationship have been met with mixed success we conclude that the political variables used in these studies i e democracy and political instability do not adequately reflect the investors problem we suggest that a political variable that encompasses all kinds of potential discretionary state interventions would be more effective in explaining cross country differences in economic growth

a contribution to the pure theory of money abstract this article analyzes a general equilibrium model with search frictions and differentiated commodities because of the many differentiated commodities barter is difficult in that it requires a double coincidence of wants and this provides a medium of exchange role for fiat currency we prove the existence of equilibrium with valued fiat money and show it is robust to certain changes in the environment rate of return dominance liquidity and the welfare implications of fiat money are discussed

national competitive advantage and the roles of economic and political freedom evidence from hong kong the equivocal interrelationships between economic performance and the institu tions of respectively economic and political freedom are examined using data from firms op erating in hong kong an economy where both an erstwhile paramount international business reputation for competitiveness and the institutional basis on which it was predicated have come into question in recent years it is hypothesized that i both economic and political freedom declines will be associated with a proxy for future economic performance competitiveness decline but that ii the correlation of economic freedom declines with competitiveness de cline will be mediated by political freedom declines hierarchical regression analyses tend to support these hypotheses although results vary by firm origin

credit and money in a search model with divisible commodities this paper examines the competition between money and credit in a search model with divisible commodities it is shown that fiat money can be valuable even though it yields a lower rate of return than the coexisting credit the competition between money and credit increases efficiency the monetary equilibrium with credit pareto dominates the monetary equilibrium without credit whenever the two coexist when a credit is repaid with money the competition also bounds the purchasing power of money from below by that of credit and so eliminates the weak inefficient monetary equilibrium found in previous search models with numerical examples three different monetary equilibria are ranked and the properties of the interest rate are examined