on the indeterminacy of capital accumulation paths abstract in neoclassical optimal growth models the stability of the accumulation paths depends on the discount parameter we prove that for discount factors small enough the policy function which describes an optimal path can be of any type the result is achieved using the notion of concavity we adopt a constructive approach given any twice differentiable map we show how to construct an optimal growth problem which produces that map as the optimal policy function a consequence is that chaos can appear in these models we also provide bounds on the values of the discount parameter for which indeterminacy is possible

the consequences of minimum wage laws some new theoretical ideas economists generally agree that the effect of a binding minimum wage law is to move firms backward along the demand curve for low skill workers however this prediction of worker displacement depends critically on the assumption that the productivity of firms labor is not dependent on the wage in this paper we show that in a conventional efficiency wage model a minimum wage may increase the level of employment in low wage jobs the formal logic of our model is similar to the case of labor demand under monopsony but arises in a model with a large number of employers

a characterization of erratic dynamics in the overlapping generations model abstract in this paper we characterize and give examples o wide classes of utility functions which generate erratic dynamics in the standard deterministic overlapping generations model erratic dynamics refers to feasible trajectories which are bounded but which do not converge to stationary points or periodic orbits we show that such trajectories are pareto efficient we introduce credit into the model and show how a constant credit expansion rate can result in erratic trajectories in prices and the real value of credit finally we briefly discuss certain technical aspects of the mathematics used and the statistical nature of the dynamics that can arise from deterministic dynamical systems

the impact of minimum wages on employment in a low income country a quasi natural experiment in indonesia the extensive literature on the employment impact of minimum wages has focused heavily on industrialized nations and very little on the developing world despite the importance of minimum wages in many low income countries one such country indo nesia was the setting for an unusual quasi natural experiment not only did minimum wages in indonesia increase sharply between 1990 and 1996 but the resultant increment in average wages varied markedly across different areas in greater jakarta the authors use household level labor market data to determine the extent of compliance with the legislation then estimate the employment impact in the clothing textiles footwear and leather industries based on a census of all large and medium sized establishments the evidence suggests that there was no negative employment impact for large establish ments either foreign or domestic but that workers in smaller domestic establishments may have suffered job losses as a result of minimum wage increases

effects of the minimum wage on the employment status of youths an update the large decline in the relative value of the minimum wage during the 1980s makes that period a valuable one for identifying the impact of variation in the minimum wage on youth employment this study produces the robust finding that when the experience of the 1980s is included a 10 percent increase in the minimum wage is estimated to reduce teen employment by less than 1 percent the lower end of the range of previous estimates because this small employment effect is offset by a labor force withdrawal effect the study finds no discernible effect on measured unemployment the study also finds no apparent effect of the minimum wage on the employment of young adults aged 20 24

minimum wages and compliance the case of trinidad and tobago explores compliance to the national minimum wage in trinidad and tobago potential costs associated with the national minimum wage actual incidence of compliance in terms of employment and wage distribution nature of labor market this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from an this abstract was borrowed from another version of this item

business cycle dynamics under rational inattention we develop a dynamic stochastic general equilibrium dsge model with rational inattention and compare its predictions to data households and decision makers in firms have limited attention and optimally allocate their attention rational inattention is the only source of slow adjustment the model matches the empirical impulse responses to monetary policy shocks and aggregate technology shocks at the same time profit losses and utility losses from inattention are very small furthermore it matters whether one uses this model or a conventional dsge model for policy analysis

the economic impacts of minimum wage laws a new look at an old question this article uses a radically different methodology to address the question of the impact of minimum wage laws on employment and earnings the methodology uses the adult wage structure which exists prior to a change in the federal minimum wage to identify the members of the subminimum wage population this allows the parameterization of the disemployment effects of the minimum wage amendment on the subminimum population and the spillover employment effects on the above minimum population the members of the subminimum population are found to experience considerably reduced employment probabilities and annual hours worked conditional on employment some evidence of above minimum spillover effects is also found the paper evaluates the impact of the minimum on the earnings distribution and concludes that the burden of the minimum wage falls most severely on females this effect on adult females is surprisingly neutral with respect to race the greatest beneficiaries of the minimum among the adult populati

the minimum wage and the employment of youth evidence from the nlsy using panel data on individuals from the national longitudinal survey of youth we find that employed individuals who were affected by the increases in the federal minimum wage in 1979 and 1980 were about 3 percent less likely to be employed a year later even after accounting for the fact that workers employed at the minimum wage may differ from their peers in unobserved ways

the impact of minimum wages in mexico and colombia there are diverging views about how minimum wages affect labor markets in developing countries advocates of minimum wages hold that they redistribute resources in a welfare enhancing way and can thus reduce poverty improve productivity and foster growth opponents on the other hand contend that minimum wage interventions result in a misallocation of labor and lead to depressed wages in the very sectors the rural and informal urban sectors where most of the poor are found with the effect of wasting resources and reducing the growth rate data from colombia and mexico for the 1980s provide an opportunity to evaluate the impact of minimum wages in mexico in the 1980s the minimum wage fell in real terms roughly 45 percent by 1990 mexico s minimum wage was about 13 percent of the average unskilled manufacturing wage during the same period the minimum wage in colombia increased at nearly the same rate reaching roughly 53 percent of the average unskilled wage the author charts how the mandated minimum wage affected the demand for skilled and unskilled labor in both countries during that decade findings are as follows in mexico minimum wages have had virtually no effect on wages or employment in the formal sector the main reason the minimum wage is not an effective wage for most firms or workers in the informal sector in turn there is considerable noncompliance with the mandated minimum wage especially among part time and female workers as a result significant numbers of workers are paid at or below minimum wages in colombia minimum wages have a much stronger impact on wages judging from their proximity to the average wage and both cross section and time series estimates the estimates imply that the elasticity of low paid unskilled employment with respect to minimum wages is in the range of 2 to 12 percent

the emergence of chaos from classical economic growth this paper shows how fluctuations of an erratic and unstable nature can emerge from the classical deterministic economic growth process implications of the analysis would appear to be at least two first pronounced changes in the way an economy behaves need not cause us to reject our understanding of how it works second we need not seek in exogenous forces an explanation as to why behavioral patterns change and why it may be so difficult to anticipate future events from the profile of past experience

the role of capital depreciation in multi sectoral models abstract this study investigates the role of capital depreciation in economic fluctuations that may appear in multi sectoral models of optimal growth in the standard literature on non linear optimal dynamics it has been assumed that capital depreciates completely within a period this study in contrast deals with the case in which capital depreciates slowly more precisely only by a certain percentage we adopt the standard two sector model with cobb douglas production functions and characterize the dynamics around the stationary state we derive explicit conditions on parameter values under which cyclical optimal paths appear these conditions reveal the complexity that slow depreciation adds to multi sectoral optimal dynamics the economic interpretation of slow depreciation in multi sectoral models is also discussed

irregular growth cycles this paper uses the familiar neoclassical theory of capital accumulation to show how complex behavior can emerge from quite simple economic structures indeed when sufficient nonlinearities and a production lag are present the interaction alone of the propensity to save and the productivity of capital can lead to growth cycles that exhibit a wandering sawtooth pattern not unlike those observed in reality these fluctuations need not converge to a cycle of any regular periodicity so they are not quasi periodic because such chaotic trajectories are unstable errors of estimation in parameters or initial conditions however tiny will accumulate rapidly into substantial errors of forecast moreover periods of erratic cycling can be interspersed with periods of more or less stable growth evidently the future behavior of a model solution cannot be anticipated from its patterns in the past a situation that seems to mimic experience apparent structural change and unpredictability is explained in the present theory by a deterministic single equation model random shocks play no role so the reader can visualize just what it is we are are talking about a noteworthy simulation is presented in figure 1 for gnp in a growth model that is described below in section iii a period of relatively rapid growth is followed by a period of cycles then remarkably for a considerable time about twenty periods apparently steady state growth occurs wandering cycles however emerge another brief period close to the steady state appears again toward the end of the series i establish conditions of savings and productivity that lead to results of this kind this analysis makes use of the mathematical theory of chaos which in the form exploited here originated in the work of edward lorenz a formal definition of chaos and sufficient conditions for chaotic trajectories were provided in a seminal paper by t y li and james yorke a survey of these related contributions is found in yorke and evelyn yorke this theory was introduced into economics by jess benhabib and myself 1981 where we showed that sequences of rational choices can be erratic when preferences depend on experience in a certain way by michael stutzer who provides a detailed analysis of trygve haavelmo s growth model by benhabib and myself 1980 in an application of the overlapping generations model and in my forthcoming study of the classical growth model

interest rate prominence in consumer decision making variations in consumers responsiveness to interest rates across households and over time have important implications for monetary transmission responses from the michigan survey of consumers provide an indication of the degree to which interest rates are a prominent consideration in spending decisions news recollection and financial situations prominence is strongest in housing attitudes increases with income education and homeownership and declined in the great recession rate prominence is associated with stronger responsiveness of consumption attitudes to monetary policy jel d84 d91 e21 e40 e50

cross country heterogeneity in intertemporal substitution abstract we collect 2735 estimates of the elasticity of intertemporal substitution in consumption from 169 published studies that cover 104 countries during different time periods the estimates vary substantially from country to country even after controlling for 30 aspects of study design our results suggest that income and asset market participation are the most effective factors in explaining the heterogeneity households in rich countries and countries with high stock market participation substitute a larger fraction of consumption intertemporally in response to changes in expected asset returns micro level studies that focus on sub samples of rich households or asset holders also find systematically larger values of the elasticity

the monetary transmission mechanism an empirical framework this paper provides an overview of the monetary transmission mechanism describing the impact of changes in monetary policy on real gdp changes in financial market prices including long term interest rates and exchange rates are the main vehicle for the transmission of policy the framework incorporates rational expectations and policy rules it is empirical and appears to fit the facts well

the economic importance of financial literacy theory and evidence this paper undertakes an assessment of a rapidly growing body of economic research on financial literacy we start with an overview of theoretical research which casts financial knowledge as a form of investment in human capital endogenizing financial knowledge has important implications for welfare as well as policies intended to enhance levels of financial knowledge in the larger population next we draw on recent surveys to establish how much or how little people know and identify the least financially savvy population subgroups this is followed by an examination of the impact of financial literacy on economic decision making in the united states and elsewhere while the literature is still young conclusions may be drawn about the effects and consequences of financial illiteracy and what works to remedy these gaps a final section offers thoughts on what remains to be learned if researchers are to better inform theoretical and empirical models as well as public policy jel a20 d14 g11 i20 j26

rational choice and erratic behaviour in this paper we show that rational choice in a stationary environment can lead to erratic behaviour when preferences depend on experience we mean by erratic behaviour choice sequences that do not converge to a long run stationary value or to any periodic pattern early investigations of the effects of experience on choice goes back to pareto see also benhabib 1979 some keynesian theories of the consumption function incorporate the effects of experience and habit formation on current levels of consumption duesenberry 1949 modigliani 1949 and brown 1952 a general model of experience dependent choice was described in day 1970 and investigated in day and kennedy 1971 while the specific issue of the existence of stable representable long run consumer demand when tastes vary endogenously has been treated by gorman 1967 pollak 1970 1976 weizsaicker 1971 mccarthy 1974 and hammond 1976 pollak gave conditions for the representability of long run choice when the equations of preference dependence are linear and utility additive hammond in a generalization of these findings provides conditions for stable representable long run choice when preferences are acyclic a condition which in essence assures convergence to a long run choice

competitive equilibrium cycles recently there has been a surge of interest in endogenous business cycles that arise in competitive laissez faire economies in the context of standard overlapping generations economies conditions for the existence of equilibrium cycles have been given by grandmont 1983 and by benhabib and day 1982 models of the economy with extrinsic uncertainty or sunspots that have been developed by shell 1977 and by cass and shell 1983 see also balasko 1983 can also lead to equilibrium cycles

the effects of social security taxes and minimum wages on employment evidence from turkey using worker level panel data for the period from 2002 to 2005 the author analyzes the separate employment effects of increases in the social security taxes paid by employers and increases in the

statistical dynamics and economics abstract it is shown in this paper how complex economic dynamics can be characterized using the statistical or distributional theory of dynamical systems the basic concepts of the latter are summarized then applications to supply and demand adjustments in competitive markets aggregate business fluctuations and economic growth in the very long run are briefly reviewed

durable capital and chaos in competitive business cycles abstract this study constructs an example of chaotic optimal accumulation that results from the existence of the limitation of capital depreciation an example is an extension of the model developed by weitzman

innocent bystanders monetary policy and inequality abstract we study the effects of monetary policy shocks on and their historical contribution to consumption and income inequality in the united states since 1980 as measured by the consumer expenditure survey contractionary monetary policy systematically increases inequality in labor earnings total income consumption and total expenditures furthermore monetary policy shocks account for a non trivial component of the historical cyclical variation in income and consumption inequality using detailed micro level data on income and consumption we document some of the different channels via which monetary policy shocks affect inequality as well as how these channels depend on the nature of the change in monetary policy

sources of complex dynamics in two sector growth models this paper develops a tractable multisectoral dynamic equilibrium model and provides a fairly complete analysis of the dynamics that may arise along the intertemporal competitive equilibrium path despite the fact that the environment displays neither random nor deterministic variability the model may produce oscillations in aggregate variables such as output consumption and investment we show that these oscillations can be exactly periodic of any finite period i and even totally aperiodic chaotic we characterize the parameter values for which each of these cases occur but also provide some strong global asymptotic stability results

implications of rational inattention abstract a constraint that actions can depend on observations only through a communication channel with finite shannon capacity is shown to be able to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems the resulting theory looks enough like familiar dynamic rational expectations theories to suggest that it might be useful and practical while the implications for policy are different enough to be interesting