on macro economic instability under a monetarist policy rule in a federal economy the feasibility of a monetarist policy rule has been the subject of a good deal of research all of which has implicitly assumed a unitary state in this paper the question is re examined for the case of a federal state with deficit financing non federal govemments the results of the paper indicate that the decision of non federal governments to deficit finance significantly lessens the feasibility of the monetarist policy rule and that this conclusion is true regardless of the degree to which economic agents perceive government debt as comprising a part of net wealth

women s changing participation in the labor force a world perspective this paper describes how the composition of the labor force changes with economic development it considers recent trends in women s labor force participation and the type of jobs held in various sectors as national per capita income increases the paper notes that women are more likely to work in the family or informal labor market if the labor costs to firms exceed the opportunity costs of female labor to family enterprises firms are at a relative disadvantage compared with families in the employment of less experienced and less skilled labor presumably because their labor costs are affected by such regulations as minimum wage social insurance premiums and limits on firing in asia and africa an increase in the proportion of employment in firms within the major sectors accounts for most of the rapid growth in women s overall share of wage employment in latin america however growth in the proportion of firm employment has been slower than elsewhere and the share of women in wage employment has even fallen overall in several countries it is not unreasonable to assume that women have lost more than men from market regulations and distortions but little research has addressed this proposition if it is true however these interventions in the labor market may be responsible for slowing women s transition from nonmarket and family work to firm employment this in turn may affect the rate and structure of economic growth

is ricardian equivalence a good approximation ricardian equivalence may be a good approximation even if all households have finite horizons many households have short horizons and an appreciable fraction of wage income is received by liquidity constrained households the approximation is likely to be better the more imperfect annuity markets are

liquidity effects in non ricardian economies it has often been found difficult to generate a liquidity effect i e a negative effect of monetary injections on the nominal interest rate in the traditional ricardian stochastic dynamic model with a single infinitely lived household we show that moving to a non ricardian environment where new agents enter the economy in each period allows to generate such a liquidity effect

insider forces in wage determination new evidence for norwegian industries using panel data for norwegian industries we establish a significant permanent relation between industry wages and industry profitability the estimated long run insider weight is above 0 2 and stable both over time and across industries industry wages are significantly affected by aggregate unemployment and the preferred wage equation implies a highly convex wage curve

real wages and unemployment in britain during the 1930s this paper explains shifts in the level of economic activity in britain in the interwar period particularly from 1928 to 1937 and relates these to movements in the real wage the authors general thesis is that the real wage follows a path that is perfectly consistent with the recession of the early 1930s being instigated in the main by demand shocks supply side factors are only of minor significance copyright 1989 by royal economic society

prices productivity and wage bargaining in open economies according to the standard union bargaining model unemployment benefits should have big effects on wages but product market prices and productivity should play no role in the wage bargain we formulate an alternative strategic bargaining model where labour and product market conditions together determine wages a wage equation is derived and estimated on aggregate data for four nordic countries wages are found to depend not only on unemployment and the replacement ratio but also on productivity international prices and exchange rates there is evidence of considerable nominal wage rigidity exchange rate changes have large and persistent effects on competitiveness

the sustainability of bond financed deficits an overlapping generations approach abstract the last decade has witnessed a dramatic and fundamental shift in the expenditure and taxation policies of many western democracies a shift unprecedented in peacetime history balanced budgets have virtually disappeared from the scene in their place deficit financing has arisen as an alternative for many countries becoming a focus of both professional interest and public debate the current literature has examined this issue by assessing the likelihood that governments violate their intertemporal budget constraint this paper takes a different tack we incorporate permanent fiscal deficits into an overlapping generations model and evaluate the implications we already know that if the steady state interest rate is less than the growth rate then permanent deficits are indeed sustainable however this is a necessary but not a sufficient condition in addition these deficits and the current stock of debt must also not be too big we calibrate the model to u s data with plausible parameters of taste and technology derive the theoretical limit to the maximal sustainable deficit implied by this model and discuss the relevance of our findings for current policy issues

are bond financed deficits inflationary a ricardian analysis this paper considers the possible theoretical validity of the following monetarist hypothesis that a constant positive government budget deficit can be maintained permanently and without inflation if it is financed by the issue of bonds rather than money the question is studied in a discrete time perfect foresight version of the competitive equilibrium model of sidrauski modified by the inclusion of government bonds as a third asset it is shown that the monetarist hypothesis is invalid if the deficit is defined exclusive of interest payments but that it is valid under the conventional definition it is also shown that the stock of bonds can grow indefinitely at a rate in excess of the rate of output growth provided that the difference is less than the rate of time preference these formal conclusions do not take account of possible limitations on taxing capacity arising from default incentives that tend to grow with the stock of bonds

endogenous growth and government debt the feasibility of the policy of perpetual debt financing given a particular path for expenditures and taxation has been questioned over the years sargent and wallace 17 argue that such a policy is not feasible in the sense that the debt gnp ratio will explode mccallum 8 and darby 2 argue that this policy will be feasible if and only if the long run growth rate of gnp exceeds the after tax real interest rate this particular condition was derived under the assumption of ricardian equivalence where the growth rate of gnp and the interest rate are exogenously given and are not affected by the path of debt miller and sargent 9 and weil 20 make the point that once the assumption of ricardian equivalence is dropped then simple comparisons of long run growth rates and interest rates are not sufficient to determine stability tirole 19 and o connell and zeldes 10 demonstrate in diamond s 3 model without ricardian equivalence that ponzi games such as this are feasible if and only if the economy is dynamically inefficient without debt all of these studies assume that the long run growth rate of gnp is exogenously given this assumption is particularly strong in the absence of ricardian equivalence in a separate literature a new generation of equilibrium growth models has recently been developed with positive sustained growth in the long run equilibrium in these models long run growth is endogenously determined rather than being imposed on the model as some exogenously given process 7 11 12 14 15 1 all of these models find some way of introducing increasing returns to scale into the neoclassical growth model and yet preserving the fact that it can be interpreted as a decentralized equilibrium this paper considers the feasibility of perpetual debt financing in an economy where the growth rate of gnp is endogenously determined and is a function of debt levels the model of endogenous growth presented here is a modified version of the one given in prescott and boyd 12 this particular model is chosen for two reasons first agents live for finite lengths of time so ricardian equivalence will not hold in general in this model also the production function is linear in the capital stock as will become clear below this implies that the equilibrium paths of the state variables can be characterized as first order linear difference equations

permanent budget deficits and inflation abstract the issue of whether permanent primary budget deficits have to be monetized is re examined in a simple monetary model hybrid of the sidrauski and overlapping generations frameworks in which intergenerational effects are generated by the arrival of new infinitely lived cohorts the presence of intergenerational effects enlarges for a given fiscal policy the set of admissible monetary policies and weakens the need to monetize the deficit comparisons between the growth and interest rates are in general insufficient to predict whether increased deficit must be monetized because of the existence of both bond and money seigniorage laffer curves

cointegration and government borrowing constraints evidence for the united states testable implications are derived in a present value borrowing constraint model for the u s federal government critical values for unit root and cointegration tests are calculated with monte carlo studies cointegration techniques are employed to determine whether the government has been involved in perpetual debt financing in recent years the data reject this assertion

money time preference and external balance in monetary economies international differences in rates of time preference do not in general lead to long run trade imbalances in sharp contrast with butter s 119811 results on non monetary overlapping generation economies this claim is documented within the context of a simple two country framework in which new immortal families enter each economy over time with the two countries differing only in their subjective discount rates even if consumers are more impatient at home than abroad trade is balanced in the long run in the presence of valued fiat currencies in constant supply and the current account is indeterminate this abstract was borrowed from another version of this item

consumers are not ricardian evidence from nineteen countries i introduction in conventional macroeconomic analysis government debt affects the economy because households view it as net wealth the larger the government debt is the wealthier households feel and the more they consume in principle however households need not view government debt as net wealth david ricardo pointed out that they might conceivably treat the future taxes servicing the government debt as exactly offsetting it 1 robert barro 1974 has shown that maximizing households will actually do so if they accurately anticipate future taxes if they face perfect capital markets and if they have effectively infinite horizons ricardian equivalence is said to hold if households do treat future servicing taxes as an exact offset to the government debt many empirical papers on consumption have investigated whether ricardian equivalence is consistent with observation kochin 1974 barro 1978 tanner 1979 seater 1982 kormendi 1983 aschauer 1985 seater and mariano 1985 kormendi and meguire 1986 1990 leiderman and razin 1988 evans 1988 and evans and hasan 1993 have reported evidence consistent with ricardian equivalence by contrast blinder and deaton 1985 feldstein 1978 1982 boskin and kotlikoff 1985 modigliani and sterling 1986 1990 and feldstein and elmendorf 1990 have reported evidence inconsistent with ricardian equivalence unfortunately most of these studies do not estimate regression equations that derive from well specified theoretical models nesting both ricardian equivalence and an alternative theory in which budget deficits and current taxes are not equivalent consequently their results are often hard to interpret moreover these studies consider the data for only one country typically the united states as a result the tests that are performed may not have much power to distinguish an economy for which ricardian equivalence would be a good approximation from one for which it would be a bad approximation olivier blanchard 1985 has provided one of the few models in the literature that tractably nests ricardian equivalence and an alternative in which households view government debt as net wealth depending upon whether a crucial parameter is zero or positive households have infinite horizons internalize all future generations and exhibit ricardian behavior or have finite horizons are at least somewhat disconnected from future generations and exhibit non ricardian behavior that strengthens as the parameter becomes larger the model has testable implications that this paper examines using annual data for nineteen countries when the data for the countries are pooled the tests have sufficient power not only to reject ricardian equivalence in favor of blanchard s alternative but also to yield a precise estimate of the deviation from ricardian equivalence this estimated deviation is approximately what one would expect if capital and insurance markets were perfect and households did not have altruistic bequest motives the deviation is however also economically unimportant for many purposes the rest of the paper is organized as follows section ii lays out blanchard s model and derives the testable implications of ricardian equivalence section iii tests these implications section iv summarizes the findings of the paper and interprets them ii empirical implications of ricardian equivalence in the stochastic variant of blanchard s model formulated in this section the economy is inhabited by a constant population of households that have finite horizons and face perfect capital and insurance markets 2 each household has a finite horizon because it has a probability p of dying each period and being replaced by another household from which it is entirely disconnected with the population normalized to unity the number of households born 0 1 2 periods earlier is always p p 1 p p 1 p sup

wage dynamics reconciling theory and evidence u s macroeconomic evidence shows a negative relation between the rate of change of wages and unemployment in contrast most theories of wage determination imply a negative relation between the level of wages and unemployment in this paper we ask whether one can reconcile the empirical evidence with theoretical wage relations we reach three main conclusions first we derive the condition under which the two can indeed be reconciled we show the constraints that such a condition imposes on the determinants of workers reservation wages as well as the relative importance of workers outside options as opposed to match specific productivity in wage determination second in the light of this condition we reinterpret the presence of an error correction term in macroeconomic wage relations for most european economies but not in the united states third we show that whether this condition holds or not has important implications for the effects of a number of variables from real interest rates to oil prices to payroll taxes on the natural rate of unemployment this abstract was borrowed from another version of this item

inflation wealth and interest rates in an intertemporal optimizing model abstract this paper analyzes the relationship between the growth of the money supply and capital accumulation in a monetary optimizing model under certain conditions we show that a large intertemporal elasticity of substitution makes the nominal rates of interest undershoot its long term value that a low elasticity gives rise to overshooting while a unitary elasticity is shown to make the nominal rate of interest a constant these considerations plus explicit attention paid to the income and substitution effects induced by the changes in the nominal rates of interest provide us with an understanding of the correlation between growth of money and capital accumulation

ricardian equivalence and the intertemporal keynesian multiplier abstract we show that keynesian multiplier effects can be obtained in dynamic optimizing models if one combines both price rigidities and a non ricardian framework where due for example to the birth of new agents ricardian equivalence does not hold

rising incomes and the shift from self employment to firm based production abstract as economic development brings increasing mean revenue to both self employed and firm based producers the cost advantages risk neutral firms derive from being able to offer workers implicit insurance likely rise relative to the disadvantage of having to monitor labor this allows firm based production to expand drawing labor out of self employment

wage formation and bargaining power during the great depression we present an econometric analysis of wage behaviour in norway during the interwar years the analysis is based on a panel of manufacturing industry data using gmm estimation methods our empirical analysis shows that wage formation in the interwar period can be understood with the help of modern bargaining theory and well established wage equations we estimate a long run wage curve that has all the standard features of being homogeneous in prices proportional to productivity and with a negative unemployment elasticity we also present some new monte carlo evidence on the properties of the estimators used

aggregate supply in interwar britain traditionally economists after keynes have attributed the high unemployment of interwar britain to fluctuations in aggregate demand however recently more emphasis has been placed on supply factors economic historians such as aldcroft i970 and richardson i967 have pointed to the problems of structural adjustment from the old staples to the new industries while economists in the classical tradition have emphasised labour market rigidities in particular benjamin and kochin i979 point to the existence of unemployment benefits which are held to have reduced the effective supply of labour while beenstock et al i984 emphasise the role of real wage determination a change in the wage determination process during the i 930s is seen as allowing a reduction in real wage growth which thus raised the productive potential of the economy by allowing the profitable employment of less productive workers in this paper we examine the relative importance of supply and demand factors drawing the following conclusions first supply factors were only important during the early 1920s secondly the supply shock of the early i920s was due to a fall in hours worked rather than any change in unemployment benefits or structural problem thirdly the recovery of the 1930s was due to demand factors and not due to any unusual behaviour of wages

fiscal policy coordination and emu a dynamic game approach abstract this paper examines the case for fiscal policy coordination in a european economic and monetary union emu a two bloc model with two market structures is examined emu producing a single homogeneous good in both blocs emu1 and a two good emu emu2 where each bloc produces a single home good the european central bank sets monetary policy so as to achieve credibly low inflation rates we find that for emu2 as relative prices can change countries have an incentive to improve their terms of trade leading to an inefficient noncooperative outcome which can be avoided by cooperation