directed matching and monetary exchange we develop a model of monetary exchange where as in the random matching literature agents trade bilaterally and not through centralized markets rather than assuming they match exogenously and at random however we determine who meets whom as part of the equilibrium we show how to formalize this process of directed matching in dynamic models with double coincidence problems and present several examples and applications that illustrate how the approach can be used in monetary theory some of our results are similar to those in the random matching literature others differ significantly

money and capital abstract the effects of money anticipated inflation on capital formation is a classic issue in macroeconomics previous papers adopt reduced form approaches putting money in the utility function or imposing cash in advance but using otherwise frictionless models we follow instead a literature that tries to be explicit about the frictions making money essential this introduces new elements including a two sector structure with centralized and decentralized markets stochastic trading opportunities and bargaining these elements matter quantitatively and numerical results differ from findings in the reduced form literature the analysis also reduces a gap between microfounded monetary economics and mainstream macro

currency and credit in a private information economy in an environment with private information spatial separation and limited communication a currency like object and more standard named credits can be distinguished the credit objects can be used among agents in an enduring relationship that is among agents with known trading histories whereas the currency like object must be used among relative strangers in this environment collectively determined pareto optimal rules make the level of the currency like object and the mix of currency to named credits responsive to individual needs and to economywide states total indebtedness is determined by the number of lenders that is by preference or demand shocks and the mix of currency to credits is determined by transaction patterns among the agents

el precio de los terrenos y el valor de sus atributos un enfoque de precios hedonicos o one of the most interesting characteristics in urban plots markets is that differentiated products are traded in integrated markets urban plots are composite goods whose utility for the consumer depends on the utility yield by each one of the characteristics or attributes that compose them the technique used to study the contributions of each one of those characteristics to the market price of urban plots in the city of san miguel of tucuman is the econometric estimation of hedonic equations whose regressors are the attributes of the urban plots it is found that location variables commercial areas and commercial surroundings have the greatest impact on prices on the other hand variables associated with the availability of public utilities are less important it is also found that the price per square meter diminishes as the size of the urban plot increases this is consistent with the results obtained by figueroa and lever for the case of santiago de chile

clarifying the foreign aid puzzle a comparison of american japanese french and swedish aid flows this study explores the donor side of debates revolving around the proper role of foreign assistance as a foreign policy tool by empirically testing for the aid determinants of four industrial democracies france japan sweden and the united states a pooled cross sectional time series design is employed to assess the impacts of six sets of variables on aid flows to thirty six african states during the 1980s three sets of these variables humanitarian need strategic importance and economic potential are constructed using data traditionally employed in empirical foreign aid studies three additional sets of variables cultural similarity ideological stance and region are constructed from data that regional specialists consider to be important in the foreign aid equation although no two cases are alike one can nevertheless draw some tentative conclusions about the nature of the foreign aid regime of the final cold war decade of the 1980s on the basis of several cross national patterns in short the results 1 contradict rhetorical statements of northern policymakers who claim that foreign aid serves as an altruistic foreign policy tool designed to relieve humanitarian suffering 2 confirm the expected importance of strategic and ideological factors in a foreign aid regime heavily influenced by the cold war and 3 underscore the importance of economic particularly trade interests in northern aid calculations

anonymous markets and monetary trading abstract we study infinite horizon monetary economies characterized by trading frictions that originate from random pairwise meetings and commitment and enforcement limitations we prove that introducing occasional trade in centralized markets opens the door to an informal enforcement scheme that sustains a non monetary efficient allocation all is required is that trading partners be patient and their actions be observable we then present a matching environment in which trade may occur in large markets and yet agents trading paths cross at most once this allows the construction of models in which infinitely lived agents trade in competitive markets where money plays an essential role

the role of agriculture and its prerequisites in economic development a vision for foreign development assistance abstract the aim of this paper is to establish a vision for foreign development assistance based upon the evolution of thought and empirical evidence found in the development literature the paper spotlights the agricultural led approach the empirical record shows that agricultural growth had a more pronounced impact on increases in developing country income than did growth in the nonagricultural sector the reason for the differential impact is that developing countries focusing on agricultural development experienced more broad based income growth and increases in the demand for domestically produced goods whereas the developing countries promoting rapid industrialization experienced narrow based income growth with a demand pattern oriented toward nonfood and capital intensive products a precondition for agriculture to play its proper role is the existence of a conducive environment in which private enterprise can flourish developing country governments need to assume responsibility for the creation and maintenance of essential institutions government investments are required in education infrastructure and other areas where the commercial market is not capable of delivering critical services finally governments must responsibly manage the macroeconomy pursuing sustainable pricing policies and fiscal and monetary policies that are consistent with real equilibrium exchange rates

does agricultural growth in poor countries harm agricultural exporting rich countries abstract the commonly held view that agricultural exporting developed countries would lose from agricultural growth in less developed countries lcds is shown to be based on an incomplete argument it considers only the effects on ldc agricultural supply or at best only that and the first round effects of increased farmer incomes on the demand for tradables what also needs to be considered is the effect on the demand for nontradables and hence the second round effects of increased spending by producers of nontradables when all these effects are considered the positive correlations obtained between agricultural output growth in ldcs and agricultural imports from developed countries is not surprising it is then shown that selling or giving away agricultural research and management skills to developing countries can be beneficial to developed countries including agricultural exporters by setting out to do good they may end up also doing well

motivations for aid to developing countries abstract this paper attempts to identify the underlying principles of aid allocation and particularly the balance of motivations as between the needs of recipient countries and the interests of donor countries two alternative models are fitted by cross country regressions to bilateral and multilateral aid flows to some 80 developing countries in 1969 1970 and 1978 1980 the first recipient need model assumes that all aid is given to compensate for shortfalls in domestic resources this model provides a reasonable explanation for the distribution of multilateral aid but it is clearly not applicable for bilateral aid flows the second donor interest model assumes that all aid serves only donor interests defined to cover political security investment and trade interests this model gives generally good explanations of bilateral aid but is a poor fit for multilateral aid the relative importance of the various donor interests differs sharply among donors the paper ends with an analysis of the shift in the balance of aid over the 1970s towards the recipient need element and with a reference to the sharp change in policy in the 1980s towards increasing emphasis on donor interest aid

a model of the bfh payments system the bfh payments system was introduced by robert l greenfield and leland b yeager in a laissez faire approach to monetary stability 6 the key element of their proposal is to dispense with base money and instead tie the means of payment to a nearly comprehensive bundle of goods and services by the institution of indirect convertibility their system promises to be free from inflation and several sources of recession while bfh was named to credit fischer black i eugene fama 3 4 and robert hall 10 11 it must not be confused with their specific institutions or arguments greenfield and yeager modified their ideas and have continued to develop the system 20 5 21 8 9 the purpose of this paper is to present a model of bfh consistent with simple textbook macroeconomics contrary to first impressions bfh is best understood using the concept of money but the absence of base money makes the quantity theory inappropriate for analysis instead a simple keynesian model illustrates the determination of interest rates real income the price level and the quantity of money aggregate supply the is relationship and money demand are conventional only the money supply process is unusual

the failure of woodford s model of the channel system in the cashless economy woodford claims to present a cashless and frictionless model of the channel system of interest rate control this note explains why woodford s frictionless model omits an essential feature of channel systems the need for clearing e cash balances at the central bank without the existence of some form of final settlement on the books of the central bank channel systems collapse woodford makes this conceptual error because he assumes that moneyless accounting systems of exchange can be applied to model e cash economies

determinants of the levels and distribution of pl 480 food aid 1955 1979 abstract this paper reports the results of statistical tests of hypotheses related to a number of debates surrounding the determinants of the levels and distribution of us food aid the statistical results supported the following hypotheses 1 pl 480 food aid is influenced by the need of the recipient country 2 pl 480 food aid is tied to political and military concerns of the us 3 pl 480 food aid is influenced by the political party occupying the white house 4 pl 480 food aid and us commercial sales of agricultural commodities are substitutes and 5 pl 480 food aid is inversely related to a recipient s foreign exchange holdings

commodity money inflation theory and evidence from france in 1350 1436 abstract this paper presents a theory of inflation in commodity money and supports it by evidence from inflationary episodes in france during the 14th and 15th centuries the paper shows that commodity money can be inflated similarly to fiat money through repeated debasements which act like devaluations furthermore as with fiat money demand for commodity money falls with inflation however at high rates of inflation demand for commodity money becomes insensitive to inflation since commodity money has intrinsic value in addition to its transactions value finally we show that anticipated stabilization reduces demand for commodity money

food aid and malnutrition in developing countries evidence from global food aid allocation abstract this study investigates the allocation of dietary energy iron vitamin a and zinc within global food aid the response of us and non us donors to nutritional needs and donor interests is estimated with a dynamic correlated random effects tobit model aid flows of the period 1993 2007 are analysed the empirical results show that nutrient shipments in emergency food aid have been allocated towards poorer countries but also face inertia and media bias project food aid from the us is found to be targeted towards politically stable and rural regions while non us project aid focuses on populations with high nutritional requirements

a model of nominal contracts a model is produced in which labor contracts that prespecify unindexed nominal wage payments arise endogenously these contracts function as a self selection mechanism under appropriately different attitudes toward price level risk which can either arise directly from preferences or be induced by different patterns of asset holdings nominal contracts allow high productivity workers to signal their type by their willingness to accept unindexed contracts this explanation of nominal contracts does not require that money be used in any particular set of transactions and nominal contracts enhance the risk faced by all parties accepting them

the development of the new monetary economics this paper looks into the history of economic thought to examine the forerunners of the new monetary economics this approach emphasizes the role of regulations on private financial intermediation in determining the particular institutional arrangements that contemporary monetary theory treats as data the new view investigates the possibility that under laissez faire the unit of account and means of payment traditionally bundled together in the item called money may become separated the earlier writers who share this perspective have been overlooked by historians of economic thought as well as by recent contributors to the new monetary economics an examination of these theorists is of more than historical interest for many of their insights and analyses are relevant to modern monetary theory

a hedonic price model for islands abstract this paper addresses the following question why do island prices vary across locations to answer this question an econometric model is developed to explain differences in island prices with respect to their characteristics distance from the coast size economic and political situation of the membership state the findings suggest that an island price is likely to increase with its size and temperature similarly islands which exhibit greater geographical isolation tend to be more highly valued moreover the price of islands increases in response to an increase in per capita income and population density of the states to which they belong reflecting the importance of the public good and externality dimension embodied in real estate parcels on the contrary political instability and war proneness of the membership states have no effect on an island price

the domestic determinants of us food aid policy abstract this study presents empirical analysis of us food aid flows as evidence of the strong and stable relationship between commodity producer interests and policy makers during a 35 yr period whereas most foreign aid research centers on the distribution of aid among recipient countries this study focuses on the determinants of the supply of food aid made available by the donor country i conduct time series regression analysis of total us food aid shipments as well as separate analyses of two key commodities wheat and rice several key findings emerge 1 there is a consistent relationship between commodity producer interests and us food aid policy 2 there is a strong relationship between commodity stocks and food aid shipments especially during the years when stocks were the greatest 3 us food aid policy making is highly incremental these findings taken together with the lack of a strong relationship between grain production in poor countries and us food aid shipments belie official rhetoric emphasizing the growing humanitarian objectives of the program over time in the case of rice i find a strong relationship between aid flows and us involvement in the vietnam war

the distribution of money balances and the nonneutrality of money recent monetary models with explicit microfoundations are made tractable by assuming that agents have access to centralized markets after one round of decentralized trade given quasi linear preferences this makes the distribution of money degenerate which keeps the models simple but precludes the discussion of distributional effects of monetary policy we generalize these models by assuming two rounds of trade before agents can readjust their money holdings to study a range of new distributional effects analytically we show that unexpected symmetric lump sum money injections may increase short run output and welfare whereas asymmetric injections may increase long run output and welfare

money unit of account and nominal rigidity abstract in order to characterize the properties required to fulfill the roles of money as a unit of account uoa as well as a medium of exchange moe we consider the choice of a uoa in the context of a micro founded model where inflation uncertainty exists and some conversion cost is incurred in using a uoa that is different from an moe we show that it is not the level of inflation but its volatility that matters for the choice of a uoa in the presence of inflation uncertainty money can still become both an moe and a uoa as long as the conversion cost is higher than its maximum buyers are willing to bear for ensuring stable consumption against inflation uncertainty also the choice of a uoa in the presence of fiat money as an moe determines endogenously the nominal price rigidity or flexibility an economy adopting money as a uoa yields the short run nominal rigidity and the phillips curve relationship

credit and identity theft abstract the quintessential crime of the information age is identity theft the malicious use of personal identifying data in this paper we model identity and its use in credit transactions various types of identity theft occur in equilibrium including new account fraud existing account fraud and friendly fraud the equilibrium incidence of identity theft represents a tradeoff between a desire to avoid costly or invasive monitoring of individuals on the one hand and the need to control transactions fraud on the other our results suggest that technological advances will not eliminate this tradeoff

relationship between agricultural growth and farm imports in ldcs a sims causality test based on 35 countries abstract previous empirical studies on the relationship between agricultural growth and farm imports in the ldcs suffer from serious methodological defects which to some extent may invalidate their results and interpretations this study used sims causality test to examine interactions between agricultural output and agricultural imports for 35 ldcs individually it was found that there was no causality from agricultural output to agricultural imports for a majority of countries under study for countries where agricultural growth did have a causal effect on agricultural imports the effect was positive in some countries and negative in others

barter and monetary exchange under private information the authors develop a model of production and exchange with uncertainty concerning the quality of commodities and study the role of fiat money in ameliorating frictions caused by private information the model is specified so that without private information only high quality commodities are produced and there is no welfare gain from using money with private information there can be equilibria and sometimes multiple equilibria where low quality commodities are produced and money can increase welfare money works by promoting useful production and exchange in efficient monetary equilibria agents adopt strategies that increase the probability of acquiring high quality output copyright 1994 by american economic association

a theory of monetary exchange the transactions cost for alternative exchange mechanisms for the household exchange problem can be characterized by the computational complexity of the exchange process the computational complexity for any exchange mechanism is at least nh where n is the number of goods and h is the number of households imposing the conditions of conservation nonnegativity and quid pro quo results in a command exchange mechanism whose computational complexity is nh multiparty barter exchange formalized using graph theory has computational complexity

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

money as a unit of account we develop a theory that rationalizes the use of a dominant unit of account in an economy agents enter into non contingent contracts with a variety of business partners trade unfolds sequentially in credit chains and is subject to random matching by using a dominant unit of account agents can lower their exposure to relative price risk avoid costly default and create more total surplus we discuss conditions under which it is optimal to adopt circulating government paper as the dominant unit of account and the optimal choice of currency areas when there is variation in the intensity of trade within and across regions

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

farm development in poor countries the disputed consequences for u s farm trade a growing body of evidence suggests that farm development in poor countries is not necessarily menacing to u s farm trade to the contrary by helping to stimulate broadbased income growth in poor countries which is often followed by dietary enrichment and food import expansion farm development in poor countries can actually be beneficial to u s farm trade here we shall review some of the evidence which agricultural economists have recently put forward to support this paradoxical argument and we shall ask why this evidence has not yet been persuasive to the u s farm community in poor countries where incomes are low where diets are not yet rich and where a majority of citizens often depend upon farming for income and employment rapid agricultural development can stimulate the broad based income growth and eventually the industrial development usually necessary to turn loose pent up demands for dietary enrichment the paradoxical result can be that local food consumption may grow even more rapidly than local food production and the net farm imports of agriculturally successful developing countries can then actually increase to the presumed benefit of u s farmers a significant body of evidence has recently been assembled to document this paradoxical claim in 1979 bachman and paulino examined the trade consequences of rapid food production growth in sixteen developing countries and found that while the proportion of domestic food consumption satisfied by imports generally fell in these countries net imports of staple foods nonetheless increased annual net staple food imports in these agriculturally successful poor countries actually rose in volume by 133 between 1961 65 and 1974 76 bachman and paulino p 14 a similar pattern of rapid food import growth has more recently been documented by lee and shane in two developing countries malaysia and brazil often cited as threats to u s farm trade both of these coun

the conditions for harmony between third world agricultural development and u s farm exports during the 1960s and 1970s the growth and welfare of u s agriculture has become increasingly dependent on rapidly expanding foreign demand the origin of import demand for food and feed grains has been significantly relocated away from the more developed countries and toward the centrally planned economies the oil exporting and newly industrialized countries nics and the less developed countries ldcs between 1961 63 and 1981 83 63 of the growth in net imports of food grains originated in the developing countries dcs of which 41 was in the ldcs shane for feed grains 49 of the growth in net imports originated in the dcs of which 35 was in the nics

separation of unit of account from medium of exchange the separation of a unit of account uoa from a medium of exchange moe in the commodity money system is investigated by considering explicitly a seller s choice of uoa in terms of either an moe or a unit of metal weight if the likelihood of debasement of an moe and its rate are high enough the price is posted in terms of a unit of metal weight rather than an moe interestingly this moe uoa separated equilibrium yields the flexible nominal price whereas an moe uoa integrated equilibrium yields the sticky one this implies the nominal price rigidity in the fiat money system where moe and uoa are integrated

the market valuation of the fgis grain quality characteristics the issue addressed in this paper is whether the grain quality factors used by the federal grain inspection service in determining the quality grades of wheat exported by the united states including test weight dockage moisture content percentage of foreign material percentage of shrunken and broken kernels and protein content are characteristics that influence the price of wheat for export using shiplot data on the transactions price for hard red winter wheat hard red spring wheat and soft white wheat and the associated quality characteristics covering the period january 1990 to october 1991 and exported to 63 countires the results suggest that only the test weight and the protein content are characteristics consistently valued by the market

existence and stability of conventions and institutions in a monetary economy the example of money illustrates that the role of history is crucial in explaining the emergence and persistence of conventions and institutions this implies that in analyzing money and monetary institutions the usefulness of the general equilibrium analysis and game theory which both draw upon an instrumental concept of rationality is limited in our view a fruitful analysis of conventions and institutions has to take account of the importance of historical contingencies and the fundamental incompleteness of individual knowledge

money a market microstructure approach the current discussion about the future of the financial system draws heavily on a set of theories known as the new monetary economics the new monetary economics predicts that deregulation and financial innovation will lead to a moneyless world this paper uses a market microstructure approach to show that a common medium of exchange that serves as unit of account will remain a necessary instrument to reduce transaction costs this finding is supported by empirical evidence from foreign exchange markets

on the choice of funtional form for hedonic price functions this study examines how errors in measuring marginal attribute pric es vary with the form of the hedonic price function in simulations consumers with known utility functions bid for houses with given attributes various forms of the hedonic function are estimated using equilibrium housing prices errors in estimating marginal attribute prices are calculated by comparing each consumer s equilibrium marginal bid vector with the gradient of the hedonic function when all attributes are observed linear and quadratic box cox forms produce lowest mean percentage errors however when some attributes are unobserved or are replaced by proxies linear and linear box cox functions perform best copyright 1988 by mit press

whither monetary economics i argue that monetary economics should be pursued by applying implementation theory to models which contain explicit frictions that make money essential the argument has two parts first i argue that models in which real balances are assumed to be productive models with money in utility or production functions or with cash in advance constraints contain hidden inconsistencies second i argue that the approach advocated is capable of providing new insights about some of the main issues in monetary economics the effects of monetary shocks the welfare cost of inflation and the roles of inside and outside money

renegotiation and optimality in agency contracts we analyse renegotiation in a hidden action principal agent model contract renegotiation offers are made by the agent a refinement is imposed on the principal s beliefs if precisely one action is optimal with respect to both the principal s and the agent s contracts the principal believes that that action has been taken with the refinement imposed perfect bayesian equilibrium allocations are identical to the second best in the classical principal agent model without renegotiation when renegotiation is led by the agent and when equilibria satisfy the refinement equilibrium allocations are ex ante efficient incentive contracting is a common mechanism for promoting ex ante investments and for avoiding ex post opportunistic behaviour in a long term or continuing economic relationship the classical principal agent model holmstrom 1979 grossman and hart 1983 is a natural framework for this class of problem in such a model a risk averse agent performs an action on behalf of a risk neutral principal the agent s action is unobservable and affects the principal s revenue in a random fashion the derivation and characterization of efficient compensation schemes have been the major focus in the principal agent literature generally the incentives to motivate a costly action from the agent take the form of profit sharing the agent s reward is made contingent on his random performance outcomes

ambiguity aversion and the absence of wage indexation abstract this paper analyzes optimal wage contracting assuming agents are not subjective expected utility maximizers but are instead ambiguity or uncertainty averse decision makers who maximize choquet expected utility we show that such agents will choose not to include any indexation coverage in their wage contracts even when inflation is uncertain unless the perceived inflation uncertainty is high enough significantly the exercise does not presume any exogenous costs e g transactions costs of including indexation links

valuation of the quality characteristics of japanese soybean imports the implicit prices of the physical and intrinsic characteristics of soybeans exported by the united states are estimated the results suggest that the us grades and standards assigned to a shipment either do not provide information valued by the market or the existence of us grades and standards has resulted in the definition of a standard of quality that is met by all exporters additionally in japan there are two identifiable soybean markets a premium food bean market and a crushing market the soybeans going into the food market for processing can be identified by their lower oil content lower percentage of split and damaged beans and a lower amount of foreign material as well as smaller shipment sizes

stock returns and inflation in a principal agent economy abstract we study a monetary system in which final goods sell on spot markets while labor and dividends sell through contracts firms and workers confuse absolute and relative price changes a positive price level shock makes sellers think they are producing better goods than they really are they split this apparent windfall with workers who get a higher real wage hence unexpected inflation shifts real income from firms the principals to workers the agents and thereby lowers stock returns a predictable money supply rulestrictlypareto dominates random money supply rules journal of economic literatureclassification numbers e43 e51

can we improve the structure of financial systems 1993 the main theme of this paper is that several of the characteristics of our present western monetary and banking systems have been crucially dependent on the particular temporal process of historical development and are not an essential feature of more fundamental preferences or technological conditions they exist in part because we take them for granted it is the purpose of this paper to examine what might change in both theory and practice if some of these inessential characteristics were to be changed

chronicle of a deflation unforetold suppose the nominal money supply could be cut literally overnight by say 20 what would happen to prices wages output the answer can be found in 1720s france where just such an experiment was carried out repeatedly prices adjusted instantaneously and fully on one market only that for foreign exchange prices on other markets such as commodities as well as prices of manufactured goods and industrial wages fell slowly over many months and not by the full amount of the nominal reduction coincidentally or not the industrial sector as represented by manufacturing of woolen cloths experienced a contraction of 30 when the government changed course and increased the nominal money supply overnight by 20 prices responded much more and the woolen industry rebounded

feeding the famine american food aid and the gmo debate in southern africa abstract the inclusion of genetically modified maize in food aid shipments to southern africa during the 2002 food crisis rekindled debates over agricultural biotechnology as the region edged ever closer to famine putting the lives to some 14 million africans at risk corporate pundits government officials and biotech s critics debated the health and environmental dangers posed by the new technology by situating the decision to send genetically modified maize to southern africa in the context of us european debates over agricultural biotechnology it becomes clear that the promotion of biotechnology has nothing to do with ending hunger in the region indeed american food aid shipments to southern africa have little to do with the famine at all instead i argue that us food aid policy following the 2002 crisis was intended to promote the adoption of biotech crops in southern africa expanding the market access and control of transnational corporations and undermining local smallholder production thereby fostering greater food insecurity on the continent

economic organization with limited communication this paper presents formal stylized representations of communication accounting systems oral assignment portable object written message and telecommunication systems are considered the environments that allow this formalization are characterized by spatial separation private information and a need to keep track of past actions transfers and shocks in environments that have spatial separation and private information beneficial multilateral arrangements can depend critically on agents ability to communicate to one another values of contemporary shocks and to keep track of histories of past transfers or past announced shocks this paper formalizes this idea and focuses on com

house prices borrowing constraints and monetary policy in the business cycle i develop a general equilibrium model with sticky prices credit constraints nominal loans and asset prices changes in asset prices modify agents borrowing capacity through collateral value changes in nominal prices affect real repayments through debt deflation monetary policy shocks move asset and nominal prices in the same direction and are amplified and propagated over time the financial accelerator is not constant across shocks nominal debt stabilises supply shocks making the economy less volatile when the central bank controls the interest rate i discuss the role of equity debt indexation and household and firm leverage in the propagation mechanism finally i find that monetary policy should not target asset prices as a means of reducing output and inflation volatility

consumer sorting and hedonic valuation of wine attributes exploiting data from a field experiment this article uses a novel experimental approach to measure consumer willingness to pay wtp for wine attributes we invited customers of a local supermarket who had selected a bottle of wine to purchase to participate in a valuation experiment integrating their original wine choice into the experiment each participant evaluated six alternative wines generating a rich set of data on willingness to pay and consumer characteristics the data from the experiment allow us to compare standard shelf price based wine attribute valuation estimates with estimates using wtp data and an increasing amount of information about individual consumers the full model employs individual fixed effects to estimate wtp parameters without bias from consumer sorting or supply side influences our wtp estimates for wine attributes differ markedly from previous attribute value estimates consumers in our sample display clear and stable preferences for wine varieties but less clear preferences for appellations our results suggest caution is needed in using market prices to estimate parameters of the consumer valuation function for product attributes

the mechanics of indirect convertibility this paper sets out the mechanics and equilibrating processes of indirectly convertible monetary systems in which currency issuing banks redeem their currency with redemption media of the same value as the commodity or commodity basket that defines the dollar it goes on to investigate the paradox of indirect convertibility and suggests that indirect convertibility is feasible despite the paradox finally it assesses the systems of fisher hall and others that have been suggested as alternatives to indirect convertibility but concludes that these alternative systems are open to serious objections copyright 1995 by ohio state university press

has government any role in money abstract recent interest in monetary reform has been sparked by the emergence of a world irredeemable paper money system in light of this interest we review the current validity of four good reasons friedman advanced in 1960 to rationalize government intervention we conclude that the forces that produced government involvement in the past will persist deregulation of financial intermediaries is desirable on grounds of market efficiency though it is an open question whether government should continue as lender of last resort we expect that the present world fiat money standard will neither degenerate into hyperinflation nor revert to a commodity standard

how effectively does multilateral food aid respond to fluctuating needs abstract this paper tests the targeting efficacy of multilateral food aid at the level of nation states exploring whether it stabilizes food availability in recipient economies flows most to those with the greatest need or both we find that unlike bilateral flows from the united states under pl 480 multilateral food aid distribution by the world food programme flows countercyclically thereby stabilizing food availability in recipient economies wfp flows also exhibit significant progressivity at the regional level helping to resolve international inequalities in food availability per capita

international monetary trade and the law of one price abstract we endogenize circulation of currencies and price formation in a decentralized trading environment with two countries and two currencies in equilibrium sellers of homogeneous goods may post prices in the national or also in the foreign currency given unobservable buyers valuations we prove that under different monetary regimes the absence of well integrated international goods markets doesn t necessarily imply a violation of the law of one price we also illustrate the behavior of prices across regimes characterized by different degrees of monetary integration

counting the cost of the intifada consumption saving and political instability in israel in this paper we investigate some of the ways in whichshort term variations in the magnitude of politicalinstability can impact on macroeconomic performance takingthe example of israel since 1987 several indicators ofpolitical instability are found to have a significant impacton aggregate consumption and savings and explain a large partof poor israeli savings performance over recent years

existence of steady states with positive consumption in the kiyotaki wright model we prove the general existence of steady states with positive consumption in an n goods and fiat money version of the kiyotaki wright model by admitting mixed strategies we also show that there always exists a steady state in which everyone accepts a least costly to store object in particular if fiat money is one such object then there always exists a monetary steady state we also establish some other properties of steady states and comment on the relationship between steady states and incentive feasible allocations

a laissez faire approach to monetary stability this paper develops some diverse hints for a new monetary system offered separately by fischer black eugene fama and robert e hall for reasons that will become evident though we should perhaps say payments system instead of monetary system none of the economists mentioned has actually proposed the particular system set forth here nor examined all its properties and we call it the bfh system not to implicate them but only to give credit for some component ideas and to have a convenient label l regardless of who if anyone may actually advocate the system contemplating it is instructive it illuminates by contrast some characteristics of our existing and recent systems

food policy integrating supply distribution and consumption in many developing countries the persistent problem of hunger calls for policies that encompass not only the production of food but also its distribution and its use by consumers this book brings together the best of current thinking on food policy by specialists in agriculture nutrition management public health education development and other related fields the editors place the individual contributions within the broad framework of food policy topics discussed include world food policy the outcome and effects of programs to increase production trade and food aid domestic marketing price and subsidy policies nutrition growth and disease and food and nutrition policy in the context of existing institutions and competing national priorities experience with food policy in china and in sub saharan africa is reviewed throughout the contribution of women to the household food budget and the impact on women of technological change and agricultural programs receive particular attention this interdisciplinary collection will be of interest both to specialists in the areas covered and to persons interested in development issues and food security

effects of increasing agricultural productivity in a multisectoral model for the philippines bautista r m 1986 effects of increasing agricultural productivity in a mul tisectoral model for the philippines agric econ 1 67 85 this paper investigates empirically the economy wide effects of agricultural productivity increases in the philippines reporting the results of a quantitative analysis based on a general equilibrium framework a multisectoral price endog enous model of the philippine economy is employed emphasizing not only agri culture but also other production sectors with which it closely interacts as well as the distinction between rural and urban households in their income genera tion and consumption patterns among other findings the differential effects on the real income of rural households vis a vis urban households arising from increased productivity in the various components of the agricultural production sector are striking the resulting improvements in the trade balance and national income among other macroeconomic variables are also relatively significant moreover there are significant differences in the economy wide effects among the four sectors of food and agriculture distinguished in the study particularly interesting is the highly favorable impact of rising productivity in the food pro cessing sector on agricultural crop production and rural income a linkage effect that has not received much attention in the development literature

structural unemployment cyclical unemployment and income inequality this is the first study that decomposes unemployment into its structural and cyclical components and investigates their impact on income distribution controlling for the influence of inflation increases in structural unemployment have a substantial aggravating impact on income inequality inflation has a progressive impact which is due to the unexpected component the study demonstrates that previous work failed to take into account the stochastic trend behavior of the variables consequently specifications used by previous research cannot predict the behavior of income shares after 1983 whereas the specification used by this paper generates accurate forecasts the results also indicate that a sustained gnp growth is not necessarily associated with an improvement in income inequality because sustained gnp growth can coexist with increased structural unemployment

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

legal restrictions and monetary evolution abstract the legal restrictions school of monetary theory hypothesizes that the use of ordinary currency would die out if legal tender laws were abolished instead interest bearing instruments would be used in transactions this paper refutes the claim as far as it applies to money as a medium of exchange the network externality or coordination convention properties of a medium of exchange imply that the strategy of holding interest bearing instruments is not necessarily individually dominant there is a critical mass of users that has to be assembled before a switch can occur

comments on money is privacy by charles kahn james mcandrews and william roberds monetary theory and game theory three classes of models on money closely related to game theoretic models are i search theoretic models ii repeated games in a narrow sense and iii trading post games this note tries to point out the sense of affinity between the theory of microfoundations of money and the theory of repeated games in a broad sense of the term

estimating market demand for fresh yam characteristics using contingent valuation implications for crop breeding and production choices this study uses the box cox bc transformations to examine nonlinearity in price modeling and compare results from several functional specifications in hedonic price analysis of yam in togo based on a sample of 6 402 observations on price and produce characteristics generated through a market experiment it is found that the bc quadratic asymmetric specification is the most suitable function several characteristics are valued more than others and prices vary across species time and market sites some residual symptoms of pest and disease damages on yam tubers reduce their market values tuber weight exhibits a diminishing marginal value and price per kilogram decreases above an optimum size therefore producers do not derive additional reward from extra large tubers we conclude that to effectively access and benefit from urban markets producers should focus on small size low weight and conical shaped tubers which are easy to process and meet the esthetic qualities preferred by urban consumers the implications for research on improved variety development to reduce poverty and for crop and resource management practices are drawn

aid food policy reform and u s agricultural interests in the third world global food economy one component of this new agricultural nationalism is a growing disenchantment with american aid to agriculture in the third world the new york times on 4 june 1987 for example featured the story world bank loans stir ire of u s farm groups in which a halfdozen leading agricultural organizations argued against aid and stimulating competition against american farmers this paper assesses the aid to agriculture question from a food policy perspective it seeks to answer two broad questions is food policy reform and agricultural growth in the third world in the interest of u s agriculture if so is aid and the conditions attached to it an effective means for achieving this reform these are immense topics and the rather bold series of propositions presented here provide only partial answers four clarifying comments seem necessary before proceeding with the analysis first the focus of this paper is on food policy and its reform such a concept is not necessarily synonymous with simply increasing agricultural output although reform typically leads to additional production food policy is instead a broader view that embraces consumption marketing and trade as well as production timmer falcon and pearson some types of policy reform might significantly improve consumption but leave agricultural production unaffected or even lowered for example many developing countries now have domestic prices higher than those in comparable world markets if reform means using world or border prices as the pricing norm an imposition of that norm would increase consumption but negatively affect farmer incentives and hence reduce the production of certain commodities

contracts constraints and consumption the paper compares implications of three kinds of models of households consumption behaviour the basic permanent income model several models of liquidity constrained households and a model of an informationally constrained efficient contract these models are distinguished in terms of implications regarding the present discounted values of net trades to households at various levels of temporary income and the households marginal rates of substitution martingale consumption is studied as an approximation to the predicted consumption process of the efficient contract model

incomplete record keeping and optimal payment arrangements abstract we study a random matching absence of double coincidence environment in which people cannot precommit and in which there are two imperfect ways to keep track of what other people have done in the past money and a public record of all past actions that is updated with an average lag we study how the magnitude of that lag affects the allocations that are optimal from among allocations that are stationary and feasible and that satisfy incentive constraints which arise from the absence of commitment and the imperfect ways of keeping track of what others have done in the past journal of economic literature classification numbers e40 c73 d82

competitive payments systems comment view lawrence h white criticizes several recent proposals for monetary reform including what we 1983 call the bfh system under this system the government precluded from issuing money would merely define a new unit of account and encourage the unit s general adoption by using it in all its own pricing contracting and accounting the definition would run in terms of so comprehensive a bundle of precisely gradable items with continuously quoted prices that the new unit would have a stable general purchasing power

asymmetric information and optimal bank reserves one traditional argument in favor of bank reserve requirements holds that since a b ank and its depositors are asymmetrically informed as to the bank s reserve position and its portfolio the bank will hold too few reserves and too risky a port folio this being the case presumably a central banking authority is equipped t o impose and to monitor a minimal reserve requirement yielding a pareto superior outcome this paper analyzes this position in the context of a formalmodel and shows that at least for some parameters of the model there is such a case for a minimal reserve requirement copyright 1987 by ohio state university press

nominal contracting and monetary targets drifting into indexation we look for a theoretical justification of nominal wage contracts in household diversification of risk in a calibrated general equilibrium model we find from stochastic simulation that if both productivity and monetary shocks are temporary then optimal wage contracts are overwhelmingly nominal the model suggests that the persistence in monetary shocks not only raises wage protection but also reduces welfare in a world where productivity shocks are persistent as both theory and our empirical results for the oced suggest they are this suggests that this central bank practice is due for review

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

renegotiation of sales contracts this paper studies moral hazard contracts that may be renegotiated after an agent chooses an unobservable effort unlike in previous models a contract here contains only one compensation scheme and the agent has all the bargaining power in the renegotiation stage using a relatively weak forward induction refinement all equilibria are shown tb be second best efficient renegotiation occurs in every equilibrium if the effort set is rich the only equilibrium initial contract is a sales contract i e a scheme which sells the project to the agent this captures the idea that a party the principal who has an inherently weak renegotiation position will sometimes insist on a simple initial contract

money is memory abstract this paper examines the sets of feasible allocations in a large class of economic environments in which commitment is impossible following myerson 8 the standard definition of feasibility is adapted to take account of the lack of commitment the environments feature either memory or money memory is defined as knowledge on the part of an agent of the full histories of all agents with whom he has had direct or indirect contact in the past money is defined as an object that does not enter utility or production functions and is available in fixed supply the main proposition is that any allocation that is feasible in an environment with money is also feasible in the same environment with memory depending on the environment the converse may or may not be true hence from a technological point of view money is equivalent to a primitive form of memory journal of economic literature classification numbers e40 c73 d82

contracts and money why are contracts not fully indexed in a setting in which fully indexed contracts are feasible we find that when price level data are gathered with delay these contracts are not renegotiation proof the contracts that replace them entail a lower level of welfare for the parties to that contract they also imply that real variables respond to nominal shocks

unexpected inflation real wages and employment determination in union contracts this paper examines the effect of nominal contracting provisions on employment determination in union contracts in most contracts the nominal wage rate is wholly or partially predetermined real wage rates therefore contain unanticipated components that reflect unexpected price changes and the degree of indexation the empirical analysis based on a large sample of indexed and nonindexed contracts suggests that unexpected real wage changes are associated with systematic employment responses in the opposite direction the author concludes that nominal contracting provisions play a potentially important role in the cyclical properties and persistence of employment movements in the union sector copyright 1990 by american economic association

estimation of a hedonic price equation for bordeaux wine does quality matter in this paper the hedonic price technique is applied to bordeaux wine in the hedonic price function we include not only the objective characteristics appearing on the label of the bottle but also the sensory characteristics of the wine our data come from an experimental study in which juries have evaluated and graded a sample of bordeaux wines the estimation of the hedonic price equation shows that the market price is essentially determined by the objective characteristics the estimation of a jury grade equation shows that quality unlike the market price is essentially determined by the sensory characteristics

price setting price dispersion and the value of money or the law of two prices abstract we study models combining search money price posting and preference shocks we show how these features interact to influence the price level and price dispersion first price posting equilibria exist with valued fiat currency second although both are possible price dispersion is more common than a single price third we prove that generically there cannot be more than two prices we provide intuition for this law of two prices show it also holds in some nonmonetary search models and discuss variations of the assumptions under which it may not hold

nominal contracting theories of unemployment evidence from panel data this paper examines economywide and sector specific responses of real wages to nominal shocks using micro panel data from the national longitudinal survey of young men the observed response patterns provide no support for nominal contracting theories of unemployment which predict that nominal surprises should be negatively correlated with real wages in fact both inflation and money growth surprises are found to be essentially uncorrelated with real wages either a real business cycle model or a model with rigidities in commodity prices could be consistent with these results copyright 1993 by american economic association

hedonic prices for a nondurable good the case of breakfast cereals numerous studies have estimated hedonic price functions for durable goods in this paper the authors apply the methodology to breakfast cereals a nondurable good they employ maximum likelihood to estimate the hedonic price functions using data from three large supermarkets the price function depends on characteristics that provide taste nutrition and convenience to consumers and the estimates yield insights into pricing policies consumer preferences and consumer use of information copyright 1991 by mit press

shopping around how households adjusted food spending over the great recession over the great recession real wages stagnated and unemployment increased concurrently food prices rose sharply outstripping growth in food expenditure and leading to a reduction in calories purchased this has led to concern about rising food poverty we study british households to assess how they adjusted to changes in the economic environment we show they switched to cheaper calories implying food consumption was smoother than expenditure we use longitudinal data to quantify the way households lowered their per calorie spending and show they done this in part by increasing shopping eort and without lowering the nutritional quality of

scottish banking before 1845 a model for laissez faire during the free banking era in eighteenth and early nineteenth century scotland there were a number of legal restrictions affecting the evolution of the system scottish banking was characterized by restrictions on small denomination and interest bearing notes there were also restrictions inhibiting the development of capital markets and entry into banking furthermore the bank of england operated as a shadow central bank for the scottish system these considerations call into question the use of the scottish banking experience as the appropriate model for laissez faire and as evidence against the legal restrictions theory of money and the new monetary economics copyright 1989 by ohio state university press