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

the effect of the food stamp program on nutrient intake i introduction one of the goals of the food stamp program as stated in the preamble of the law is to ensure that low income households have the opportunity to attain a nutritionally adequate diet previous economic studies evaluating the effects of food stamp income on nutrient intake have typically found a positive usually small correlation between the receipt of food stamps and nutrition two recent papers by devaney and moffitt 1991 and horton and campbell 1991 reach very positive conclusions concerning the effect of income in general papers from the nutrition literature generally find positive but weak and often insignificant effects of income on nutrition we employ information on two groups of low income people and find slightly different results for the two groups but very different results from many of the other studies for a sample of rural families taken from data from the rural income maintenance experiment we find almost no effect of food stamp income or evidence of selection bias 1 however for a sample of elderly people from the food stamp cashout project we find strong evidence that self selection into the food stamp program is highly correlated with attaining nutritional adequacy and that controlling for the self selection food stamp income and other income have a negative effect on nutrition we re examine the relationship between food stamp income and the nutrient intake of the poor and improve upon the existing literature in several important ways first it is possible that the positive correlation between the receipt of food stamps and nutrition is not a direct causal link but rather is the result of other factors affecting both for example in one of the samples examined in this paper only 50 percent of those eligible actually apply for and receive food stamps it could be the case that those who care more about nutrition are at the same time more likely to apply for and receive food stamps and more likely to maintain a nutritionally adequate diet these possible self selection problems can be disentangled from possible direct effects of food stamp income on nutrition using estimation procedures which correct for selection bias another issue which our research addresses is that the level of one nutrient may be correlated with the levels of other nutrients this may occur either because individuals who care about nutrition may be more likely to attain adequate levels of all nutrients or because combinations of nutrients occur naturally in foods we posit a multi equation model of the levels of nutrients and allow the disturbances in each equation to be correlated none of the previous studies considered this correlation finally we recognize the fact that above some level extra nutrients are superfluous if an individual has attained a nutritionally adequate diet then whether or not food stamp income allows him or her to consume more nutrients is irrelevant we are primarily interested in therefore whether or not an individual attains an adequate level of a nutrient rather than the absolute amount of a nutrient consumed in previous studies devaney and moffitt 1991 had addressed simultaneously the issues of selection bias and the superfluity of nutrients above some level the finding that food stamp income actually lowers nutrient intake ceteris paribus is a novel result for studies of the food stamp program but it would not be novel in the literature on nutrition in less developed countries pitt and rosenzweig 1985 behrman and deolalikar 1987 it is reasonable to believe that as income increases households employ relatively more money than time in household production this is silberberg s 1985 explanation for decreased efficiency in producing pure nutrients in other words as income increases people spend less time preparing meals and more money on foods which are easier to prepare if as is often the case foods which are more convenient to prepare are less nutritious than foods which require a lot of time to prepare then our result is not surprising

the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

factors influencing the incidence of bribery payouts by firms a cross country analysis this article explores micro and macro level variables that influence the incidence of bribery payouts by firms a rich data set with information from 55 countries was utilized to achieve this objective results of logit regression models indicate that there are a number of micro and macro level factors that significantly affect the incidence of bribery payouts this suggests that it is not only the characteristics of a firm but also the environment of doing business that affect the firm s bribery decision the results of this study provides information that may help firms develop strategies to reduce corruption in their respective industries and thereby improve their image of corporate social responsibility the analysis also points to possible policy directions that governments could undertake in order to reduce the incidence of bribery in their country

bribes lobbying and development paign contributions or influence buying through other means as an activity that is aimed at changing existing rules or policies we view bribery in contrast as an attempt to bend or get around existing rules or policies the analysis contrasts these two means of influencing politics we use the labels lobbying and bribery for convenience and not because they are perfect defini tions for the two rent seeking activities we study in reality bribery and lobbying differ in several di mensions first lobbying is a legal and regulated activ ity in many countries whereas bribery is not second a change in the rules as a result of lobbying often af fects an entire industry whereas the return to bribery is more firm specific third a government that ponders a change in the rules might have quite different concerns than a bureaucrat considering a bribe our model cap tures all these differences possibly the most important difference however and the driving assumption in the model is that bending the rules is only temporary bu reaucrats can seldom commit to not asking for bribes in the future because corrupt deals are not enforceable in courts and because firms deal with different officials over time a legislative change on the other hand al ters the status quo and is therefore likely to last longer although policies and politicians also change over time our key assumption is that changing the rules is long lasting relative to bending them 2

credit and inflation under borrowerʼs lack of commitment here we investigate the existence of credit in a cash in advance economy where there are complete markets but for the fact that agents cannot commit to repay their debts defectors are banned from the credit market but they can use money balances for saving purposes without uncertainty deflation crowds out credit completely the equilibrium allocation however is efficient if the government deflates at the time preference rate efficiency can also be restored with positive inflation for any non negative inflation rate below the optimal level the volume of credit and the real interest rate increase with inflation our results hold when idiosyncratic uncertainty is introduced and households are sufficiently impatient but in one instance efficiency cannot be restored if the deflation rate is nearby the rate of time preference our numerical examples suggest that the optimal inflation rate is not too large for reasonable levels of patience and risk aversion finally we present a framework where the use of money arises endogenously and show that it is tantamount to our cash in advance framework our results hold in this modified environment

are corruption and taxation really harmful to growth firm level evidence exploiting a unique data set containing information about the estimated bribe payments of ugandan firms the authors study the relationship between bribe payments taxes and firm growth in uganda for the period 1995 97 using industry location averages to circumvent the potential problem of endogeneity and to deal with issues of measurement error they find that both the rate of taxation and the rate of bribery are negatively correlated with firm growth for the full data set a one percentage point increase in the bribery rate is associated with three percentage point reduction in firm growth an effect about three times that of taxation moreover after excluding outliers the authors find that bribery has a much greater negative impact on growth and taxation a considerably smaller one this provides some validation of firm level theories of corruption which posit that corruption retards development even more than taxation does

liquidity constraints in a monetary economy this article presents a microfounded model of money with a consumption and an investment market we consider an economy in which only part of the investment returns can be pledged a liquidity constraint arises when the pledgeable part of the returns are not enough to pay for investment costs we show that when the liquidity constraint is binding agents may make a cash downpayment and money can perform two roles as a provider of liquidity services and exchange services the liquidity constraint constitutes a channel though which underinvestment occurs even at low inflation rates

tax structure and growth are some taxes better than others using pooled cross sectional data from 23 oecd countries between1965 and 1990 i find evidence that the tax structure affectseconomic growth specifically the proportion of tax revenueraised by taxing personal income has a negative correlation witheconomic growth this result is robust to a rigorous sensitivityanalysis where i control for other plausible growth determinantsin a systematic manner also there is some empirical evidencethat tax progressivity measured in terms of the long run incomeelasticity of tax revenue is associated with low economicgrowth

investment and the nominal interest rate the variable velocity case investment and the nominal interest rate the variable velocity case evan f koenig models treating money either as a consumer good or as a producer good are encompassed by a model in which both households and firms use money as a buffer between receipts and expenditures a rise in nominal interest rates increases resources devoted to intermediation while discouraging purchases financed from accumulated cash if investment is financed from contemporaneous earnings there is a tendency to substitute out of consumption and into investment when interest rates are high greater resources devoted to intermediation generate a negative wealth effect the net impact on investment is ambiguous i introduction the relationship between investment and the nominal interest rate in an economy where the cash balances of households and firms are rigidly linked to their respective expenditures has been examined by koenig 1987b in such an economy the nominal interest rate acts like a tax on agents purchases as a result households are inclined to save rather than spend when the nominal interest rate is relatively high provided that at the margin firms are able to finance at least some of their capital spending out of contemporaneous earnings this increase in desired saving is only partially offset by a decrease in desired investment realized investment is thus greatest when the nominal interest rate is high in comparison to its own moving average a short run tobin effect this paper extends koenig s analysis to the case in which households and firms at a cost in terms of real resources are able to increase the velocity of money in this context it is shown that the short run tobin effect may be reversed intuitively when the nominal interest rate is high consumption of financial services by households and firms may rise to such an extent that any decline in the consumption of nonfinancial goods and services is overwhelmed reducing the resources available for investment as in the earlier paper i allow for the possibility that some fraction 1 u of firms investment expenditures can be financed from contemporaneous earnings unless u equals zero there is a stockman effect 1981 a tendency for investment to be depressed whenever the nominal interest rate is expected to be higher on average in the future than it has been in the past when u equals unity so all investment must be financed out of accumulated assets the money balances of the representative firm can be interpreted as an argument of its production function regardless of the value of u the money balances of households may be thought of as an argument along with gross household spending of an indirect utility function thus both of the most frequently used methods of modeling the role of money as an argument of the household utility function and as an argument of the production function are special cases of the model developed here this is a substantially less restrictive framework than that employed by fischer 1979 sweeney 1984 cohen 1985 and obstfeld 1985 each of whom has also examined the effects of anticipated policy in an economy where the velocity of money is variable 1 section ii discusses the utility and profit maximization problems facing households and firms respectively and shows how the behavior of economic agents is affected by the presence of real costs of financial management a dynamic analysis is undertaken in section iii and it is shown that the short run tobin effect may operate in reverse a summary concludes the paper throughout agents are assumed to possess perfect foresight ii the model preliminary analysis intuition imagine a world in which each household receives wage and dividend income at discrete intervals but desires to purchase and consume output continuously through time

money output and income velocity this paper attempts to assess empirically the contribution of three structural shocks monetary institutional financial and fiscal and technological to output and velocity fluctuations in the national bank era and the post 1973 period to identify these shocks we impose only long run restrictions derived from a monetary growth model we find that higher money growth increases decreases velocity in the first second period depending crucially on the resulting changes in the transactions frequency credit enhancing financial or expansionary fiscal shocks have a permanent positive effect on velocity and a himp shaped effect on output whereas technological shocks cause velocity to decrease in the short run and output to move to a permanently higher level

the effect of the food stamp program on the nutrient intake of the eligible elderly an objective of the food stamp program recognized in its originating legislation is to increase the nutrient intake of the poor economic theory suggests this might be achieved through income effects and program related effects this paper using data from the food stamp cashout project tests the effectiveness of food stamps and direct cash transfers in achieving this goal for a sample of elderly households food stamp program effects were negligible and nutrient intake did not increase with income in either program controlling for the endogeneity of participation with a selection bias technique did not affect these results

rules and discretion with noncoordinated monetary and fiscal policies the time inconsistency of optimal monetary policy is due to the effects of tax distortions thus the issue of how to improve upon the time consistent suboptimal monetary policy is related to that of the coordination of monetary and fiscal policy we present a model with three players the central bark the fiscal authority and wage setters in which distortionary taxes are explicitly modelled we show that binding commitments to monetary rules are not necessarily welfare improving if monetary and fiscal policy are not coordinated we also examine the effects of different degrees of independence of the central bank

child allowances and allocative decisions in romanian households in this paper it is tested whether increasing child allowances will affect the intra household allocation of consumption measured by child and adult goods holding total household resources constant the analysis is based on household survey data collected in romania where cash payments are made to families according to the number and age of children selectivity is controled for since there is the potential for self selection bias in terms of the level of child allowances received the findings suggest that holding total household resources constant child allowances increase demand for child goods and calories and reduce demand for adult goods

money as the mechanism of exchange abstract the existence and use of money remained an embarrassing puzzle for monetary analysis we observe over man s history that social groups without generally accepted media of exchange exhibit poor survival characteristics most social groups do not use assets or commodities at random in the execution of exchanges one observes that a small subset of assets is dominantly used in transactions these transaction dominating assets are usually referred to as money the literature contains many suggestive attempts to explain the emergence and role of money the classic writers made passing references in somewhat pictorial language to the extension markets and increasing labor productivity induced by the use of a general medium of exchange this idea has never been systematically developed however karl brunner 1971

the effect of foreign aid on corruption a quantile regression approach abstract this paper investigates the effect of foreign aid on corruption using a quantile regression method we show that foreign aid generally reduces corruption and its reduction effect is greater in less corrupt countries moreover this effect is different by different donor countries

more on the inflation tax and the value of equity a cash in advance macro model is presented in which dividends are distributed at the end of each p eriod but where all other money receipts may be spent immediately on output and labor markets if money grows at a constant rate only th e real price of equity will be inversely related to inflation in the steady state if the money supply is allowed to grow at an increasing rate however agent welfare will decline

monetary policy and financial intermediation this paper develops a general equilibrium model of monetary nonneutrality that is a natural result of three basic assumptions 1 financial intermediaries face reserve requirements on deposits 2 financial intermediaries are the conduit for central bank monetary injections and 3 monetary injections are not initially subject to reserve requirements this asymmetry on the imposition of reserve requirements this results in stochastic monetary injections being expansionary the model also gives rise to an endogenous money multiplier because some purchases are made with cash while others with checking accounts and the cash versus check composition of total purchases varies with the aggregate shocks copyright 1994 by ohio state university press

costly monitoring financial intermediation and equilibrium credit rationing abstract this paper establishes a link between equilibrium credit rationing and financial intermediation in a model with asymmetrically informed lenders and borrowers costly monitoring and investment project indivisibilities intermediation is shown to dominate borrowing and lending between individuals and these financial intermediaries exhibit several of the important features of intermediaries as we know them equilibrium interest rates and the aggregate quantity of loans respond quite differently to changes in taste and technology parameters depending on whether or not there is rationing in equilibrium

do social protection transfers reduce poverty and vulnerability to poverty in pakistan household level evidence from punjab empirical studies in different developing countries have investigated the impact of social protection sp on ex post poverty however few studies analysed the impact of sp on ex ante vulnerability to poverty vtp this paper contributes to the literature by evaluating the impact of sp on vulnerability to poverty vtp and poverty rates among households in the punjab province of pakistan a hierarchical modelling approach is used to analyse the multiple indicator cluster survey mics 2011 data of about 90 000 households matching methods and simultaneous endogenous switching regression are used to control for potential selection bias and estimate average treatment effects our results show that sp has a positive impact in reducing household poverty and vtp but this impact is mainly driven by a short term flood relief cash transfer programme pension of government employees and households regular purchase from utility store network

balance of payments crises in a cash in advance economy the author shows that a flexible prices sidrauski type model with a cash in advance constraint is capable of depicting some of the phenomena associated with a balance of payments crisis like the onesrecently observed in argentina and mexico current accounts deficits and appreciation of the real exchange rat e it is also shown that these phenomena become exacerbated as the rate of devaluation before the crisis occurs becomes smaller copyright 1987 by ohio state university press

corruption and development new initiatives in economic openness and strengthened rule of law corruption is a major problem in many of the world s developing economies today world bank studies put bribery at over 1 trillion per year accounting for up to 12 of the gdp of nations like nigeria kenya and venezuela though largely ignored for many years interest in world wide corruption has been rekindled by recent corporate scandals in the us and europe corruption in the developing nations is said to result from a number of factors mass poverty has been cited as a facilitating condition for corruption just as an inability to manage a sudden upsurge in mineral revenues has been credited with breeding corruption and adventurous government procurement among public officials in countries like nigeria and venezuela virtually all developing nations that have serious corruption problems also have very limited economic freedom and a very weak enforcement of the rule of law in such nations corruption represents a regressive taxation that bears hard on the poor it has a dampening effect on development and it could result in the production of inferior goods as companies find ways to accommodate under the table payments finally corruption is a dangerous threat to the legitimacy of the governments of some of the developing nations themselves it is suggested that new urgent initiatives are needed to deal with the dangers posed by corruption in the developing economies they include making the economies of these nations more open by the withdrawal of the government from the productive sector and by the abolition of unnecessarily stringent restrictions on business conduct the rule of law needs to be strengthened in these nations and those countries like nigeria and venezuela should ignore scruples over sovereignty and seek foreign assistance in the management of their oil wealth finally multinationals should be made to disclose all the payments they make in developing nations to such organizations like international chamber of commerce or transparency international where they can be reviewed by anyone interested

long run neutrality high inflation and bank insolvencies in argentina and brazil abstract using long low frequency data on money and output over 1884 1996 for argentina and over 1912 1995 for brazil it is found that money is long run neutral but not long run superneutral with regard to real output a rise in money growth is associated with a decline in output the opposite of the tobin effect the introduction of dummy variables for 1930s or to capture recent periods of financial disruption associated with bank insolvencies does not restore long run superneutrality for either country however results indicate that bank insolvency episodes have a distinct and negative influence on output

investment matching and persistence in a modified cash in advance economy abstract we simulate and estimate a new keynesian search and matching model with sticky wages in which capital has to be financed with cash at least partially our objective is to assess the ability of this framework to account for the persistence of output and inflation observed in the data we find that our setup generates enough output and inflation persistence with standard stickiness parameters the key factor driving these results is the inclusion of investment in the cia constraint rather than any other nominal or real rigidity the model reproduces labor market dynamics after a positive increase in productivity hours fall nominal wages hardly react and real wages go up with some delay regarding money supply shocks we investigate the conditions under which our model specification generates the liquidity effect a fact which is absent in most sticky price models

the effects of import quotas on national welfare does money matter recent evidence shows that there is an increasing use of non tariff barriers to trade ntbs and especially of quantitative restrictions such as import quotas in the world economy to protect import competing industries see table i 1 international trade theory however has traditionally focused on the welfare effects of tariffs as well as on the equivalence between tariffs and quotas with little attention paid to the welfare implications of quotas the latter have basically been restricted within the traditional heckscher ohlin trade model where for the case of a small open economy import quotas always reduce welfare a few recent studies have attempted to fill in this gap in the literature for instance young 19 compares optimal tariffs and quotas for a large country in a stochastic environment neary 14 on the other hand investigates the welfare implications of tariffs quotas and voluntary export restraints under different assumptions on capital mobility finally chao hwang and yu 3 4 examine the welfare effects of import quotas under variable returns to scale although the existing literature has generated important policy implications most of the analysis has been conducted within a barter exchange framework it is well known however that the introduction of money can alter results obtained within a non monetary environment 2 accordingly this paper attempts to re examine the welfare effects of import quotas for a small monetary economy we develop a two sector trade model in which money enters the economy

search inflation and capital accumulation abstract this paper constructs a model to integrate the search monetary theory into a neoclassical growth model with divisible goods and money the model is used to examine the relationship between money growth and capital accumulation the framework uncovers a distinct extensive effect that an increase in the money growth rate increases the frequency of successful trades by increasing the number of agents in the market this positive extensive effect on the number of trades can dominate the conventional negative intensive effects of money growth on individuals labor input and real money balance in which case increasing the money growth rate increases aggregate capital and output

are foreign owned firms more likely to pay bribes than domestic ones evidence from emerging markets summary an extensive literature exists on the adverse effects of corruption on inward fdi and the impact this may have on economic development but the reverse causality has not been fully explored legislation in the us and the eu prohibits firms from engaging in corrupt practices in foreign countries and this suggests that foreign owned firms might be less likely to pay bribes however such legislation may be ineffective because foreign firms have to adapt to local market conditions or risk being uncompetitive using firm level data for 41 emerging countries a probit model estimates the probability that a firm pays bribes to allow for possible endogeneity this probit analysis is repeated with an instrument to proxy for endogenous foreign ownership then a propensity score matching technique tests for differences in the propensity to pay bribes by domestic and foreign firms the paper finds no difference in the behavior of foreign owned and domestic firms with respect to corrupt practices results are robust to different levels of foreign ownership and support the view that foreign owned firms adapt to local practices and are neither more nor less likely to pay bribes than comparable domestic firms the paper finds that other variables including bureaucracy government contracts and perceived difficulties with civil society legal and political do have statistically significant effects on increasing bribery and that some others such as per capita gdp tend to reduce bribery the study concludes that there is no evidence that foreign ownership after investment has occurred tends to reduce bribery but it does support the view that foreign owned firms adopt local behavioral norms

understanding corruption and firm responses in cross national firm level surveys the issue of corruption is important to politicians citizens and firms since the early 1990s a large number of studies have sought to understand the causes and consequences of corruption employing firm level survey data from various countries while insightful these analyses have largely ignored two important potential problems nonresponse and potential false response by the firms we argue that in politically repressive environments firms use nonresponse and potential false response as self protection mechanisms corruption is likely understated in such countries we test our argument using the world bank enterprise survey data of more than 44 000 firms in 72 countries for the period 2000 2005 we find that firms in countries with less press freedom are more likely to provide nonresponse and false response on the issue of corruption therefore ignoring these systematic biases in firms responses could result in serious underestimation of the severity of corruption in politically repressive countries more important these biases are a rich and underutilized source of information on the political constraints faced by the firms firm managers can better evaluate levels of corruption not only by truthful answers to corruption questions but also by nonresponses and false responses to such questions

the effect of food stamp cashout on undernutrition abstract we investigate the effect of food stamp cashout on undernutrition using household data from cashout experiments in alabama and san diego california we apply dominance methods to test for differences in nutrient distributions at or below the recommended dietary allowances

sources of variation in international real interest rates this paper analyses the effects of inflation on ex post real interest rates in an international framework a dynamic factor model is estimated in which real interest rates are influenced by real interest and inflation factors that are common to all the countries and by country specific factors we find that the source of domestic inflation is an important determinant of the effect of inflation on real interest rates a common inflation factor has a negative effect on ex post real interest rates lending support to a form of the mundell tobin effect in international real interest rates and that a country specific inflation factor tends to have a positive effect

is corruption an efficient grease this paper tests whether corruption may be an efficient grease in the wheels of an otherwise deficient institutional framework it analyzes the interaction between aggregate efficiency corruption and other dimensions of governance for a panel of 69 countries both developed and developing using two measures of corruption and two other aspects of governance we observe that corruption is less detrimental to efficiency in countries where institutions are less effective it may even be positively associated with efficiency in countries where institutions are extremely ineffective we thus find evidence for the grease the wheels hypothesis in its weak and strong forms

the effect of changes in the federal funds rate target on market interest rates in the 1970s abstract this paper examines the influence of monetary policy on interest rates by estimating the effect of changes in the federal funds rate target the federal reserve s policy instrument on market interest rates in the 1970s we find that changes in the target caused large movements in short term rates and smaller but significant movements in intermediate and long term rates we hypothesize that the similarity of the reactions of three six and twelve month rates to changes in the target offers a possible explanation for the lack of support for the expectations theory from studies that have tested the theory using these rates

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

how petty is petty corruption evidence from firm surveys in africa summary evidence suggests that corruption is costly for african firms this paper however shows that a minor difference in the way the question on bribe payments is asked has a large effect on estimates of the size of the burden on average firms report payments that are between 4 and 15 times higher when they report them as a percent of sales than when they report them in monetary terms the paper discusses several possible reasons for this but none explain the difference one plausible remaining reason is that firm managers overestimate bribes when they report them in percentage terms

the impact of federal transfer programs on the nutrient intake of elderly individuals in this paper we analyze the determinants of elderly nutrient intake our focus is on the impact of food assistance and income transfer programs particularly the food stamp program fsp our statistical analysis is of a model with endogenous fsp participation and nutrient intake decisions the insights gained regarding the effects on the behavior of the elderly caused by interactions among fsp supplemental security income social security and elderly feeding programs should prove useful in designing future transfer policies

the relationship between r d collaboration subsidies and r d performance empirical evidence from finland and germany this study focuses on the impact of innovation policies and r d collaboration in germany and finland we consider collaboration and subsidies as heterogeneous treatments and perform an econometric matching to analyze r d and patent activity at the firm level in general we find that collaboration has positive effects in germany subsidies for individual research do neither exhibit a significant impact on r d nor on patenting but the innovative performance could be improved by additional incentives for collaboration for finnish companies public funding is an important source of finance for r d without subsidies recipients would show less r d and patenting activity whilst those firms not receiving subsidies would perform significantly better if they were publicly funded copyright 2007 john wiley sons ltd

the capital inflows problem revisited a stylized model of southern cone disinflation in the late 1970s countries in latin america s southern cone initiated attempts to lower domestic inflation rates through the progressive reduction of a preannounced rate of exchange rate devaluation the stabilization programs gave rise to massive capital inflows real exchange rate appreciation and current account deficits this paper develops a stylized intertemporal framework in which the effects of a credible preannounced disinflation scheme can be studied it is shown that even when agents have perfect foresight and markets clear continuously the capital inflows phenomenon and the associated real appreciation may result while unanticipated permanent inflation changes are neutral in the paper anticipated inflation is neutral only in exceptional circumstances a preannounced disinflation operates by altering the path of an expenditure based real domestic interest rate that depends on expected changes in the prices of liquidity services and nontradable consumption goods

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

financial assets inflation hedges and capital utilization in developing countries an extension of mckinnon s complementarity hypothesis in a highly influential book mckinnon 1973 proposed that interest rate liberalization and low inflation can promote capital accumulation and economic growth in developing countries an important aspect of mckinnon s work is his formal argument that money broadly defined to include both cash and bank deposits and physical capital are more likely to be complements than substitutes under conditions of financial repression where interest rate controls or high inflation reduce the real yield on money balances to low or even negative levels mckinnon chapter 6 mckinnon s formal analysis assumes that household firms and other small enterprises in financially repressed developing economies are faced with significant capital indivisibilities and have no access to credit so that they are forced to accumulate substantial amounts of noncapital assets before undertaking productive investments under financial repression accumulation of inflation hedges commodity inventories for example may be the least cost method of building up these noncapital asset balances required for lumpy investments in physical capital even inflation hedges may have negative returns e g due to high storage costs thereby further reducing potential capital accumulation in this situation an increased yield to money balances via interest rate liberalization or lower inflation can lower the cost of accumulating funds for physical capital purchases so that increased money balances may be associated with a more rapid rate of capital accumulation and hence economic growth mckinnon s complementarity hypothesis thus emphasizes the use of cash and deposit balances as a conduit for physical capital accumulation by credit constrained enterprises however as noted by drake 1980 p 66

japanese investors choice of joint ventures versus wholly owned subsidiaries in the us the role of market barriers and firm capabilities this study analyzes how market barriers and firm capabilities affect multinationals choice of joint ventures versus wholly owned subsidiaries abroad in the study we compile a vector of variables that distinguish between industry specific barriers and firm specific capabilities to analyze japanese investors ownership decisions in the us our results in general support the hypothesis that japanese investors facing high market barriers in the target industry are more likely to choose joint ventures while those possessing strong competitive capabilities are more likely to set up wholly owned subsidiaries specifically marketing variables are more influential than technological factors in determining the choice of partial versus full ownership these findings however vary across sub samples that represent low versus high tech industries and consumer versus industrial products

dynamic behavior of capital accumulation in a cash in advance model abstract this paper analyzes the dynamic behavior of capital accumulation in stockman s cash in advance model if the cash in advance constraint applies only to consumption then money is superneutral along the transition path as well as in the long run alternatively if the cash in advance constraint applies to gross investment as well as consumption then a permanent increase in the rate of monetary growth reduces the steady state capital stock the effect on the speed of adjustment depends on the sign of a certain simple function of the parameters of preferences and technology

divisia monetary aggregates the great ratios and classical money demand functions king et al 1991 evaluate the empirical relevance of a class of real business cycle models with permanent productivity shocks by analyzing the stochastic trend properties of postwar u s macroeconomic data they find a common stochastic trend in a three variable system that includes output consumption and investment but the explanatory power of the common trend drops significantly when they add money balances and the nominal interest rate in this paper we revisit the cointegration tests in the spirit of king et al using improved monetary aggregates whose construction has been stimulated by the barnett critique we show that previous rejections of the balanced growth hypothesis and classical money demand functions can be attributed to mismeasurement of the monetary aggregates

the dynamics of a small open economy in response to monetary fiscal and productivity shocks abstract this paper evaluates empirically the relative importance of monetary and fiscal versus technology shocks in an open economy characterized by perfect international capital mobility the variance covariance matrix of these shocks is estimated a stochastic model is used to perform numerical simulations the results show that persistent shocks to productivity can reproduce several empirical regularities including the puzzling high correlation between national saving and investment remarkably well and that monetary and fiscal shocks play a minor role

money inflation and investment abstract this paper analyzes an infinite horizon optimizing monetary growth model with endogenously determined income tax rates the technology is linear and random and preferences exhibit unitary relative risk aversion and a constant elasticity of substitution between real money balances and consumption an explicit solution for the rational expectations equilibrium is derived the relationship between the money growth rate and investment depends on the elasticity of substitution moreover maximizing welfare is inconsistent with choosing a money growth rule to maximize investment

will developing country nutrition improve with income a case study for rural south india aggregate estimates of food expenditure are consistent with such a possibility implying income expenditure elasticities close to one however the high degree of aggregation at which such estimates are made means that the considerable increase in price per nutrient as income increases is ignored and the nutrient elasticities are therefore overstated estimates for a rural south indian sample indicate that this bias is considerable and that the true nutrient elasticities with respect to income may be close to zero

corruption institutions and economic development many scholarly articles on corruption give the impression that the world is populated by two types of people the sanders and the greasers the sanders believe that corruption is an obstacle to de velopment while the greasers believe that corruption can in some cases foster development this paper takes a critical look at these positions it concludes that the evidence supporting the greasing the wheels hypothesis is very weak and shows that there is no cor relation between a new measure of managers actual experience with corruption and gdp growth instead the paper uncovers a strong negative correlation between growth in genuine wealth per capita a direct measure of sustainable development and corruption while corruption may have little average eect on the growth rate of gdp per capita it is a likely source of unsustainable development

inflation liquidity and innovation this paper presents a simple model with financial frictions where inflation increases the cost faced by firms holding liquid assets to hedge risky production against expenditure shocks inflation tilts firms technology choice away from innovative activities and toward safer but return dominated ones and therefore reduces long run growth the theory makes specific predictions about how the severity of this adverse effect depends on industry characteristics these predictions are tested with novel harmonized firm level data from 139 developing countries overcoming small sample problems constraining previous work the analysis finds that inflation affects the composition but not the overall quantity of investment a one percentage point increase in inflation reduces the establishment level probability of innovation by 4 3 percent but does not affect total investment moreover innovating firms display a stronger dependence on liquid assets which in turn are negatively related to inflation generalized difference in differences estimations corroborate the sector specific predictions of the theoretical model

money and specialization in a neoclassical growth model this paper studies the links between money specialization and capital accumulation in a neoclassical growth framework for tractability the transactions role of money is introduced through a cash in advance constraint in contrast to the standard cash in advance model an individual s reliance on money balances for transactions is endogenous through the choice of specialization although the cash in advance constraint only applies to consumption the model exhibits a reverse tobin effect we conclude by discussing the implications of the model for the welfare costs of inflation

money and output a test of reverse causation this paper attempts to explain the correlation between money and output at various leads and lags with a model in which money is largely neutral and endogenously responds to output money is endogenous because both monetary policy and deposit creation are endogenous parameters are selected according to the simulated moments estimation technique while the estimated model succeeds along some dimensions in matching properties of postwar u s data its failure to match key patterns of lead lag correlations seems to cast doubt on the ability of endogenous money determination by itself to quantitatively account for the observed money output correlations copyright 1996 by american economic association

contrasting models of the effect of inflation on growth the paper formulates a nesting model for studying the theoretical literature on inflation and endogenous growth it analyses different classes of endogenous growth models with different usage of physical and human capital with different exchange technologies first the paper shows that a broad array of models can all generate significant negative effects of inflation on growth second it shows that these models can be differentiated primarily by the fact whether there is a tobin type effect of inflation and also whether the inflation growth effect becomes weaker as the inflation rate rises a non linearity or stays essentially constant over the range of inflation rates the paper compares these features of the models to empirical evidence as a way to summarize the efficacy of the models

anticipated inflation and the capital stock in a cash in advance economy abstract an economy is constructed in which the steady state capital stock is inversely related to the rate of inflation as a result that is directly opposite the usual conclusion

national culture transaction costs and the choice between joint venture and wholly owned subsidiary transaction cost theory posits that culture plays a limited role in the choice between jv and wos in contrast research suggests that firms preferred level of ownership in their foreign subsidiaries is influenced primarily by cultural traits this study provides additional evidence in this ongoing debate by replicating hennart s transaction cost model of entry mode choice in two different national contexts japanese firms investing in the u s and the u s firms investing in japan the results suggest that the transaction cost explanation for the ownership choice holds in the both national contexts yet the propensity to choose jv or wos significantly varied between japanese and the u s firms

financial structure and aggregate economic activity an overview this paper surveys literature that explores the possible links between the financial system and aggregate economic behavior the survey is in two parts the first reviews the traditional work and the second discusses new research copyright 1988 by ohio state university press

firm ownership preferences and host government restrictions an integrated approach two approaches may explain how multinational enterprises mnes select ownership structures for subsidiaries the first argues that mnes prefer structures that minimize that transaction costs of doing business abroad the second argues that ownership structures are determined by negotiations with host governments whose outcomes depend on the bargaining power of the firm this paper presents a framework integrating these two approaches and uses statistical methods to separate their effects empirically

the monthly food stamp cycle shooping frequency and food intake decisions in an endogenous switching regression framework mean food spending by food stamp households peaks sharply in the first three days after benefits are received for those who conduct major grocery shopping trips only once per month 42 of all food stamp households mean food energy intake drops significantly by the fourth week of the month for the remaining households intake remains steady over the course of the month these patterns motivate an empirical model that simultaneously accounts for the shopping frequency and food intake decisions over time results have implications for policies that may affect the frequency of grocery shopping by food stamp households

the mnc as an agent of change for host country institutions fdi and corruption most empirical research examines how the institutional environment of corruption shapes the behavior of multinational corporations mncs in this study we would like to highlight the other side of the picture how the presence of mncs may shape the institutional environment of corruption over time we propose three avenues through which the mncs may have an impact on its host institutions regulatory pressure effect demonstration effect and professionalization effect based on extensive data on foreign direct investment and corruption for a large sample of countries over the last 30 years the empirical results are generally consistent with our hypothesis such findings provide a glimmer of hope for the future of the host country where corruption is prevalent

corruption and cross border investment in emerging markets firm level evidence abstract this paper studies the joint impact of corruption on the entry mode and volume of inward foreign direct investment fdi using a unique firm level data set we find that corruption not only reduces inward fdi but also shifts the ownership structure towards joint ventures the latter finding supports the view that corruption increases the value of using a local partner to cut through the bureaucratic maze however r d intensive firms are found to favor sole ownership

the stock market monetary policy and economic development author affiliation edgar a ghossoub department of economics university of texas at san antonio san antonio tx 78249 usa e mail edgar ghossoub utsa edu robert r reed dagger department of economics finance and legal studies 200 alston hall university of alabama tuscaloosa al 35487 e mail rreed cba ua edu corresponding author acknowledgment we thank two anonymous referees and the co editor kent kimbrough for their insightful comments 1 introductiona vast amount of research in macroeconomics studies the role of financial markets for economic development for example king and levine 1993 document that active banking systems help economies achieve higher rates of growth 1 in addition to banking systems other measures of financial development are important notably levine and zervos 1998 conclude that stock market liquidity promotes activity 2 however minier 2003 identifies nonlinearities in the relationship between stock market activity and growth in particular minier concludes that there are threshold effects from financial development to economic performance beyond a threshold level of financial development growth and stock market activity are positively related however the correlation is not observed in countries with small stock markets consequently access to a stock market may result in a significant increase in economic activity or it may have little impact 3in addition to the stage of financial development monetary policy also affects the development process while initial studies indicate that inflation is generally associated with slower economic progress more recent research concludes that the effects of monetary policy vary across countries bae and ratti 2000 observe that higher rates of money growth are correlated with lower levels of output in argentina and brazil in contrast bullard and keating 1995 point out that inflation may be associated with an increase in output in low inflation countries in particular the recent work of ahmed and rogers 2000 finds evidence of a tobin effect for the united states 4 5why does the impact of financial development vary across countries furthermore why does the effect of monetary policy also differ across countries in this article we demonstrate that the impact of financial development depends on the services provided by various financial markets that is the economic functions of banks may be substantially different than stock markets although different types of financial markets fulfill unique allocative functions there has been surprisingly little attention devoted to studying the ways in which asset markets collectively interact from a general equilibrium perspective 6 furthermore previous work does not address how the role of monetary policy depends on the extent of financial market development we attempt to fill this gap by developing a monetary growth model that incorporates money bank deposits and equity 7 as in schreft and smith 1998 spatial separation and limited communication create a role for money and commercial banks in our economy young individuals are subject to random relocation shocks as money is the only asset that can cross locations relocated agents must liquidate all their asset holdings into currency thus random relocation is analogous to the liquidity preference shocks in diamond and dybvig 1983 as a result our model illustrates the risk pooling role of financial intermediaries in contrast to banks we consider that the stock market promotes economic development by establishing a market in which capital can be transferred across time for example this may reflect specialization of factor inputs to illustrate such ideas we consider the following motivation individuals in the economy have specialized production technologies

using micro surveys to measure and explain corruption summary this paper discusses survey techniques aimed at a better measurement of corruption at the micro level and argues that with appropriate survey methods and interview techniques it is possible to collect quantitative micro level data on corruption public expenditure tracking surveys service provider surveys and enterprise surveys are highlighted with several applications these surveys permit measurement of corruption at the level of individual agents such as schools health clinics or firms they also permit the study of mechanisms responsible for corruption including capture of public funds and bribery 2005 elsevier ltd all rights reserved

inside the war on poverty the impact of food stamps on birth outcomes this paper evaluates the health impacts of a signature initiative of the war on poverty the introduction of the modern food stamp pro gram fsp using variation in the month fsp began operating in each u s county we find that pregnancies exposed to fsp three months prior to birth yielded deliveries with increased birth weight with the largest gains at the lowest birth weights we also find small but statistically insig nificant improvements in neonatal mortality we conclude that the sizable increase in income from fsp improved birth outcomes for both whites and african americans with larger impacts for african american mothers n this paper we evaluate the health consequences of a sizable improvement in the resources available to ameri ca s poorest in particular we examine the impact of the food stamp program fsp which in 2007 provided 34 billion in payments to about 13 million households on infant health our paper makes two distinct contributions first although the goal of the fsp is to increase the nutri tion of the poor few papers have examined its impact on health outcomes second building on work by hoynes and schanzenbach 2009 we argue that the fsp treatment represents an exogenous increase in income for the poor our analysis therefore represents a causal estimate of the impact of income on health an important topic with little convincing evidence due to concerns about endogeneity and reverse causality currie 2009 we use the natural experiment afforded by the nation wide rollout of the modern fsp during the 1960s and early 1970s our identification strategy uses the sharp timing of the county by county rollout of the fsp which was initially constrained by congressional funding authorizations and ultimately became available in all counties by 1975 speci fically we use information on the month the fsp began operating in each of the roughly 3 100 u s counties and examine the impact of the fsp rollout on mean birth weight low birth weight gestation and neonatal mortality throughout the history of the fsp the program para meters have been set by the u s department of agriculture usda and are uniform across states in the absence of the state level variation often leveraged by economists to eval uate transfer programs previous fsp research has typically resorted to strong assumptions as to the comparability of fsp participants and eligible nonparticipants currie 2003 not surprisingly the literature is far from settled as to what casual impact if any the fsp has on nutrition and health hoynes and schanzenbach 2009 use this county rollout to examine the impact of the fsp on food consumption using the psid they found that the introduction of the fsp increased total food spending and decreased out of pocket food spending importantly consistent with the predictions of canonical microeconomic theory the magnitude of the increase in food expenditures was similar to an equivalent sized income transfer implying that most recipient house holds were inframarginal that is they would spend more on the subsidized good than the face value of the in kind transfer as one of the largest antipoverty programs in the united states comparable in cost to the earned income tax credit eitc and substantially larger than temporary assistance to needy families tanf understanding fsp effects is valuable both in its own right and for what it reveals about the relationship between income and health 1

anticipation of future consumption a monetary perspective we adapt the monetary model sidrauski 1967 to study the hypothesis of anticipation of future consumption we assume that anticipation of future consumption affects an agent s instantaneous utility and that all effects of future consumption on current well being are captured by the stock of future consumption monetary policy effectiveness is thereby reduced and a zero nominal lower interest rate and thus the friedman rule is destabilizing given this we can derive a just stable equilibrium nominal interest rate with matching definitions for inflation and monetary growth we demonstrate that these implied lower bounds match their historical analogues well

inflation and welfare in the steady state this is a paper on expected inflation and welfare in steady state equilibrium the demand for money is an inventory demand with an endogenous payment period the clower constraint is not imposed higher inflation reduces welfare by reducing consumption as people devote more of their real income to maintaining lower average money holdings high inflation does not necessarily promote an increase in the capital stock the mundell tobin effect is absent the policy conclusion is standard deflate at the rate of time preference because capital is held socially optimal consumption falls short of its golden rule level if inside money is allowed it drives out fiat money and welfare is again at a maximum

governance infrastructure and us foreign direct investment this paper examines the statistical importance of governance infrastructure as a determinant of us foreign direct investment fdi in broad terms governance infrastructure represents attributes of legislation regulation and legal systems that condition freedom of transacting security of property rights and transparency of government and legal processes our econometric analysis uses a two stage estimation procedure in the first stage the probability that a country is an fdi recipient is estimated the results indicate that countries that fail to achieve a minimum threshold of effective governance are unlikely to receive any us fdi countries that receive no us fdi are typically countries that do not promote free and transparent markets that have ineffective governments and that often have legal systems that are not rooted in english common law in the second stage the analysis is restricted to those countries that did receive fdi flows the estimated equations focus on the determinants of the amount of fdi received given that a country is a recipient of us fdi governance infrastructure including the nature of the legal system is an important determinant of the amount received

money capital and the pigou effect abstract the effect of inflation on the capital stock is considered in an overlapping generations framework with a cash in advance constraint on consumption expenditures the adjustment mechanism underlying the model is that of a traditional model with the real balance effect on savings

macroeconomic in stability under real interest rate targeting we show that in a one sector monetary endogenous growth model under real interest rate targeting the local stability properties of the economy s balanced growth path depend crucially on the exact formulation of the cash in advance constraint and the degree of productive externalities in particular when a positive fraction including 100 of gross investment is subject to the liquidity constraint the model exhibits indeterminacy and sunspots if and only if the equilibrium wage hours locus is positively sloped and steeper than the labor supply curve on the other hand when real money balances are required only for the household s consumption purchases the economy always displays saddle path stability and equilibrium uniqueness regardless of the strength of productive externalities

the speed of convergence and alternative government financing abstract in this paper we are concerned with the speed of convergence in the sidrauski monetary optimizing model sidrauski am econ rev 57 1967 534 in which the steady state capital stock is not influenced by a change in public spending the paper studies how different the speed of convergence to the steady state is affected by a change in government spending under the various ways of financing in exploring the transitional adjustment to the public policy shock it will be convenient to focus upon the degree of relative risk averse

a dynamic specific factors model with money when the capital stock is endogenously chosen by optimizing households the predictions of the static specific factors model are modified an increase in tariffs unambiguously increases real wages whereas an expansion of the labor force does not reduce wages capital and land are not only factors of production but also assets and their shares in the household s portfolio are determined by features of the supply side time preference and inflation an increase in inflation reduces the capital stock but its impact on the price of land is ambiguous because of opposite movements in the inflation tax and in land rents

wife s employment food expenditures and apparent nutrient intake evidence from canada the increase in women working outside the home has had important economic effects one effect involves food expenditures both in terms of patterns of eating out and the types of foods prepared in the home with consequent effects on nutrient availability this study examines the effect of wife s employment on an extensive set of variables describing food behavior the variables include the share of food in total expenditure the share of food away from home fafh in the food budget price paid per calorie and the per capita availability of twelve nutrients the results are of potential interest for food policy for nutrition education and for programs which aim to affect the nutrient composition of food eaten outside the home restaurant food fast food school meals etc in ad

anticipated inflation and rates of return in a search theoretic monetary model abstract how does anticipated inflation of fiat money affect the real return of a near money an asset with real value used to mediate trades this essay studies a search model in which decentralized trade takes place under a fixed bargaining rule the essay analytically studies the comparative statics of a near money s real return as it varies with inflation the effects diverge markedly over the parameter space there exist parameters for which higher inflation lowers the real asset return as suggested by asset substitution theories there also exist parameters for which inflation has the opposite effect

interest rates in a credit constrained economy when households face credit constraints in an economy with inside as well as outside money stationary equilibrium real interest rates are below the household rate of time preference they also depend significantly upon household risk aversion the demand for inside versus outside money bank costs bank reserves inflation and the marginal productivity of capital and capital depreciation rates in addition changes in financial variables affect per capita capital and output to a greater extent when households are credit constrained copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

dietary effects of the food stamp program based on data from the 1979 80 survey of food consumption in low income households this paper estimates the effects of changes in cash income and the food stamp benefit on household nutrient availability while controlling for two potential sources of selection bias the major finding of the empirical analysis is that the estimated dietary effects of changes in food stamp benefits are considerably larger than those resulting from changes in cash income with estimates of the ratios of the mpc for the food stamp benefit to the cash income mpc ranging from three to seven across nutrients no significant evidence of selection bias was found and the estimated dietary effects of food stamp benefits from the selection bias models are similar to those from the basic model estimated by ordinary least squares regression

global foreign direct investment flows the role of governance infrastructure abstract it is widely argued that a country s economic performance over time is determined to a great extent by its political institutional and legal environment we refer to these institutions and policies as the governance infrastructure of a country we utilize newly developed indices to examine the effects of governance infrastructure on both foreign direct investment fdi inflows and outflows for a broad sample of developed and developing countries over 1995 97 in addition we examine the role of other forms of infrastructure including human capital and the environment the results clearly indicate that governance infrastructure is an important determinant of both fdi inflows and outflows investments in governance infrastructure not only attract capital but also create the conditions under which domestic multinational corporations emerge and invest abroad it would appear that investments in governance infrastructure are subject to diminishing returns so that the benefits in terms of inflows are most pronounced for smaller and developing economies