monetary policy coordination under fixed and floating exchange rates this paper studies monetary policy coordination in a familiar fixed price perfect capital mobility multicountry model it is shown that under fixed exchange rates countries can coordinate their policies and reach pareto efficient outcomes with rules closely related to the nash based mechanisms that have been designed to overcome free riding in standard public good economies the coordination rules defined in this paper do not make countries lose the control of their own policies it is also shown that nash implementation of pareto efficient states with similar rules is in general not possible under floating exchange rates copyright 1990 by royal economic society

exchange rates and the fiscal theory of the price level abstract this paper addresses exchange rate determination under a nominal interest peg in a two country cash in advance model under two types of cash in advance constraints if both governments peg the nominal interest rate on domestic bonds there is a continuum of equilibria each consistent with different nominal exchange rates and real resource allocations the well known finding of equilibrium uniqueness under a nominal interest rate peg in a closed economy does not survive in a multi country multi currency setting

sunspots currency substitution and inflationary finance abstract this paper explores some issues surrounding inflationary finance of government deficits in a two country world with currency substitution each country s monetary policy is assumed to be subordinate to fiscal policy private agents knowing that the monetary authorities cannot commit themselves to fixed policy rules substitute among the two monies each monetary authority is then forced to accomodate the actions of the fiscal authorities and private agents by setting monetary growth rates consistent with their decisions this framework offers some interesting insights into the behavior of nominal exchange rates and their co movements with relative money supplies and government deficits

dynamic implementation in two agent economies abstract the dynamic mechanisms that implement pareto efficient and individually rational allocations in standard public good economies suppose that agents communicate by exchanging as messages their marginal rates of substitution in some familiar models such as economies with non monotonic preferences marginal rates of substitution are not well defined or do not characterize preferences and therefore cannot play the role of communication messages we define a dynamic mechanism that implements pareto efficient and individually rational allocations in a general two agent economy

can currency competition work abstract can competition among privately issued fiat currencies work only sometimes and partially to show this we build a model of competition among privately issued fiat currencies a purely private arrangement fails to implement an efficient allocation even though it can deliver price stability under certain technological conditions although currency competition creates problems for monetary policy it is possible to design a policy rule that uniquely implements an efficient allocation

the impossibility of efficient decision rules for firms in competitive stock market economies considerable attention has been focused recently on models of firms under uncertainty in which there is an incomplete set of securities markets in these models each firm can issue only one security and consumers can generate consumption plans only through the purchase of firms securities consequently if the economy is competitive each stockholder of a firm will impute the same value to the firm in equilibrium where this value is given by the market price of the firm s security however stockholders will not in general have the same implicit prices for state contingent consumption since the financial market is said to be incomplete if the number of independent securities is less than the number of states of nature consumers cannot hedge perfectly whichimplies that unconstrained pareto optimal allocations are not generally attainable see 2 and 3 finally it is unclear what firms objectives should be in these models because profit maximization is not well defined firms profits in different states cannot be aggregated into a single index it is still generally accepted however that firms should operate in their own stockholders interests a necessary condition for allocative efficiency

a simple auctioneerless mechanism with walrasian properties abstract a simple mechanism for reallocating holdings is described in which no auctioneer is required outcomes are determined solely from traders actions and without any requirement that the mechanism be in equilibrium the mechanism is shown to exactly duplicate the performance of the walrasian auctioneer both in its equilibria and in its disequilibrium path if individuals are price takers and if the number of individuals is large to approximately duplicate the auctioneer s performance even when individuals behave strategically each taking account of his own influence on prices

learning dynamics for mechanism design an experimental comparison of public goods mechanisms in a repeated interaction public goods economy incomplete information and dynamic behavior may affect the realized outcomes of mechanisms known to be efficient in a complete information oneshot game an experimental test of five public goods mechanisms indicates that subjects with private information appear to best respond to recent observations this provides predictions about which mechanisms will generate convergence to their efficient equilibrium allocations these predictions match the experimental result that globally stable efficient mechanisms realize the highest efficiency in practice the simplicity of the suggested best response model makes it useful in predicting stability of mechanisms not yet tested

the appraisal of industrial investments a new method and a case study abstract a general method of investment projects evaluation proposed by the second author is outlined it consists in decomposing in period quotas myers adjusted present value the analysis of these quotas provides satisfactory insight into the profitability of the project per se and its profitability through an adequate funding policy a case from real life concerning a large scale industrial investment is briefly discussed and some advantages of the method are highlighted

bubbles and self enforcing debt we characterize equilibria with endogenous debt constraints for a general equilibrium economy with limited commitment in which the only consequence of default is losing the ability to borrow in future periods first we show that equilibrium debt limits must satisfy a simple condition that allows agents to exactly roll over existing debt period by period second we provide an equivalence result whereby the resulting set of equilibrium allocations with self enforcing private debt is equivalent to the allocations that are sustained with unbacked public debt or rational bubbles in contrast to the classic result by bulow and rogoff 1989a positive levels of debt are sustainable in our environment because the interest rate is sufficiently low to provide repayment incentives

continuous and feasible implementation of rational expectations lindahl allocations abstract in this paper we consider bayesian implementation of rational expectations lindahl allocations for economic environments with public goods when agents are incompletely informed about environments we construct a continuous and feasible mechanism whose bayesian equilibrium allocations coincide with rational expectations lindahl allocations we not only allow the types of individuals to be unknown but also allow both the preferences and the initial endowments to be unknown to the designer in addition we allow some types of boundary equilibrium allocations and a continuous information structure journal of economic literatureclassification number c72 d71 d82 h41

private versus public production of information abstract this paper re examines a recent article by grossman and stiglitz 1980 where information production is shown to be fundamentally incompatible with decentralized market systems based upon their model public production of information is discussed as a natural alternative three main implications of the analysis are i the market can be informationally efficient with public production of information ii there exists an informational equilibrium and the resulting allocation is pareto efficient and iii although the optimal level of information critically depends upon information users preferences and endowments their complete knowledge t the societal level is not necessary for public production of information

the behavior of the exchange rate in the genetic algorithm and experimental economies this paper studies the behavior of the exchange rate in the kareken wallace overlapping generations economy with two currencies in which decision rules are updated using the genetic algorithm the analysis shows that a stationary monetary equilibrium of the kareken wallace model is not stable under the genetic algorithm dynamics the fluctuations in the genetic algorithm exchange rate are driven by fluctuations in the portfolio fractions which change over time in response to the inequality between the rates of return on two currencies further both the genetic algorithm simulations and the experiments with human subjects were characterized by continuing fluctuations of the exchange rate with first period consumption values close to a stationary value

financial management in inventory problems risk averse vs risk neutral policies abstract in this work we discuss the effect of risk measure selection in the determination of inventory policies we consider an inventory system characterized by the loss function of luciano et al 2003 var as a risk measure for multi period static inventory models international journal of production economics 81 82 375 384 we derive the optimization problems faced by risk neutral quadratic utility mean absolute and cvar decision makers results show that while the global nature of the optimal policy is assured for risk coherent and risk neutral decision makers the convexity of the quadratic utility problem depends on the stochastic properties of demand we investigate the economic and stochastic determinants of the different policies this allows us to establish the conditions under which each type of decision maker is indifferent to imprecision in the distribution families finally we discuss the numerical impact of the choice of the risk measure by means of a multi item inventory the introduction of an approach based on savage scores allows us to offer a quantitative measurement of the similarity discrepancy of policies reflecting different risk attitudes

out of equilibrium performance of three lindahl mechanisms experimental evidence abstract we describe an experimental comparison of the out of equilibrium performance of three allocation mechanisms designed to achieve lindahl outcomes as nash equilibria the mechanisms due to walker 1981 kim 1993 and chen 2002 we find that chen s mechanism which is supermodular converges closest and most rapidly to its equilibrium however we find that the properties that move subjects toward equilibrium in chen s mechanism typically generate sizeable taxes and subsidies when not in equilibrium and correspondingly large budget surpluses and deficits which typically far outweigh the surplus created by providing the public good the kim mechanism on the other hand converges relatively close to its equilibrium and exhibits much better out of equilibrium efficiency properties

equilibrium binding agreements abstract we study equilibrium binding agreements the coalition structures that form under such agreements and the efficiency of the outcomes that result we analyze such agreements in a context where the payoff to each player depends on the actions of all other players thus a game in strategic form is a natural starting point unlike the device of a characteristic function explicit attention is paid to the behavior of the complementary set of players when a coalition blocks a proposed agreement a solution concept and its applications are discussed journal of economic literature classification numbers c70 c71

surplus sharing with a two stage mechanism in this article we consider environments where agents jointly produce a private output good by contributing privately owned resources an efficient outcome may not be realized due to strategic behavior and conflicting interests of the agents we construct a two stage mechanism building on a varian mechanism the modified mechanism ensures an equilibrium for a large class of preferences and guarantees the feasibility of outcomes

on the value of virtual currencies nous construisons un modele d analyse pour cerner les facteurs qui influent sur le taux de change des monnaies virtuelles trois elements importent tout d abord l utilisation actuelle d une monnaie virtuelle comme moyen de paiement ensuite la decision d investisseurs prospectifs d acheter de la monnaie virtuelle et de controler ainsi l offre de ce type de monnaie enfin les facteurs qui determineront ensemble l adoption d une monnaie virtuelle par les consommateurs et son acceptation par les commercants

non excludable public good experiments we conduct a two stage game experiment with a non excludable public good in the first stage two subjects choose simultaneously whether or not they commit to contributing nothing to provide a pure public good in the second stage knowing the other subject s commitment decision subjects who did not commit in the first stage choose contributions to the public good we found no support for the evolutionary stable strategy equilibrium and the ratio of subjects who did not commit to contributing nothing increased as periods advanced that is the free riding rate declined over time furthermore this behavior did not arise due to altruism or kindness among subjects but from spiteful behavior of subjects

some simple bitcoin economics abstract we provide a model of an endowment economy with two competing but intrinsically worthless currencies dollar bitcoin dollars are supplied by a central bank to achieve its inflation target while the bitcoin supply grows deterministically our fundamental pricing equation implies in its simplest form that bitcoin prices form a martingale mutual impatience implies absence of speculation price volatility therefore does not invalidate the medium of exchange function bitcoin block rewards are not a tax on bitcoin holders they are financed with a dollar tax we discuss monetary policy implications bitcoin production taxation welfare and entry and characterize the range of equilibria

a voluntary participation game with a non excludable public good faculty of economics tokyo metropolitan university hachioji tokyo 192 0397 japanyamato takehiko c metro u ac jpreceived november 14 1997 revised august 21 1998in the previous mechanism design on public goods it was implicitly assumed thatevery agent must participate in the mechanism that the designer provides thisapproach neglects non excludability of public goods we explicitly incorporatenon excludability and examine a two stage game with voluntary participation inthe first stage each agent simultaneously decides whether she participates in themechanism or not and in the second stage knowing the other agents participationdecisions the agents who selected participation in the first stage choose theirstrategies participation of all agents is not an equilibrium in many situations journal of economic literature classification numbers c72 d71 d78 h41

ratio lindahl equilibria and an informationally efficient and implementable mixed ownership system abstract in this paper we formalize an informationally efficient and implementable mixed ownership economic institutional framework by using the ratio lindahl equilibrium that yields pareto efficient and individually rational allocations for public goods economies with general variable returns we consider the incentive aspects of the system by giving an incentive compatible informationally efficient and privacy preserving mechanism whose nash allocations coincide with ratio lindahl allocations moreover the mechanism is well behaved in the sense that it uses an individually feasible balanced and continuous outcome function and further has a message space of minimal dimension

indeterminacy and volatility of exchange rates under imperfect currency substitution i introduction this paper presents a model of exchange rate determination under currency substitution its primary objective is to examine the implications of currency substitution for the behavior of exchange rates in a general equilibrium model under uncertainty the basic framework used here is the cash in advance model of lucas 1982 which is extended to allow for substitution among currencies it is well known that under perfect currency substitution foreign exchange rates may become indeterminate and behave independently of fundamental economic variables the reason is that the objects traded in foreign exchange markets are fiat currencies which unless supported by binding legal tender laws have no fundamental economic value when agents have unrestricted access to currency markets and are free to use any currency as the means of payment currency demands are entirely determined by speculation and consequently equilibrium exchange rates become indeterminate e g see kareken and wallace 1981 increased integration of financial markets reduces the costs and the risks of holding balances in multiple currencies 4 this creates more opportunities for currency substitution and it is reasonable to assume that agents are free to use any currency as the means of the payment in some of their international transactions for example suppose some percentage of transactions involving the u s exports to germany can be paid with either u s dollars or german marks agents will look at the opportunity costs i e u s and german nominal interest rates and expected exchange rate changes to decide what combination of the two currencies to use in these transactions if the potential costs and benefits of holding the two currencies are similar then agents will be indifferent between the two currencies we show that this could lead to exchange rate indeterminacy and nonfundamental volatility and change the effectiveness of monetary policies in our cash in advance framework agents are allowed to use any currency in some of their transactions called unrestricted transactions to make different currencies attractive at different times we allow the governments to follow timevarying monetary policies as a result agents will change their currency holdings to maximize the risk adjusted return on their portfolio subject to the constraint that specific currencies must be used as the means of payment in their restricted transactions 2 to answer specific questions about the behavior of exchange rates we obtain closed form solutions for agents demand functions equilibrium interest rates and the equilibrium exchange rate it turns out that two types of equilibrium exist in the first type the two currencies have different risk return profiles such that agents will prefer to use only one of them in unrestricted transactions in this case the exchange rate will be determined by fundamentals however as a large percentage of transactions become unrestricted the equilibrium exchange rate becomes more volatile under this type of equilibrium the effectiveness of monetary policies are changed currencies of countries that have high nominal interest rates will not be in demand for use in unrestricted transactions 3 this lack of demand means that any increase in the money supply of a high nominal rate country will lead to a larger increase in its rate of inflation and thus a larger reduction in the value of its currency in other words increased currency substitution increases the sensitivity of the currency values to changes in the money supply of high nominal rate countries also we show that as national economies become more integrated and more opportunities for currency substitution arise currencies of countries with high nominal interest rates would decline substantially the reason is that higher opportunity costs are associated with holding these currencies and thus agents will fully take advantage of currency substitution to reduce their holdings of these currencies reducing the value of these currencies

stable implementation of lindahl allocations abstract the resource allocation mechanisms using nash equilibrium as the solution concept in economies with incomplete information rely on the assumption that agent s disequilibrium messages converge to a nash equilibrium the mechanisms implementing lindahl allocations are however extremely unstable under the most used process to represent disequilibrium behaviour in games of incomplete information the cournot process we provide a new mechanism overcoming the instability difficulty in the case of quasi linear preferences

economies with public projects efficiency and decentralization the article deals with the two fundamental theorems of welfare economics for production economies with a finite set of agents infinitely many private goods and a set of public projects the problem of efficiency and decentralization is addressed under the following very general assumptions a the commodity price duality is endowed with a consistent locally convex topology b the set of public projects is without any mathematical structure moreover any agent is characterized by a nonordered preference relation depending on consumption goods and public projects approximate and exact welfare theorems are discussed throughout the article

on the indeterminacy of equilibrium exchange rates in this paper we consider a particular international economic policy regime the laissez faire regime the distinguishing features of which are unrestricted portfolio choice and floating exchange rates and as we show this regime although favored by many economists is not economically feasible it does not have a determinate equilibrium that is an implication of an overlapping generations model more basically it is an implication of the notion that money is wanted only in order to accomplish trades

currency areas and monetary coordination we integrate a monetary search model into open economy macro to analyze the gains from coordinating on inflation search frictions and local congestion lead to a determinate exchange rate between two currencies relative prices deviate from the law of one price because the deviations depend on the cross country differential in money growth each country is tempted to inflate to exploit the deviations policy coordination reduces inflation and improves welfare for all countries in contrast to traditional models the gains from coordination continue to exist even after each country optimally sets a direct tax on the foreign use of the country s currency

an inventory control model with stochastic review interval and special sale offer abstract periodic review inventory models are widely used in practice especially for inventory systems in which many different items are purchased from the same supplier however most of periodic review models have assumed a fixed length of the review periods in practice it is possible that the review periods are of a random stochastic length this paper presents an inventory control model in the case of random review intervals and special sale offer from the supplier the replenishment interval is assumed to obey from two different distributions namely exponential and uniform distributions also shortages are allowed in the term of partial backordering for this model its convexity condition is discussed and closed form solutions are proposed

nonfundamental uncertainty and exchange rates this paper shows that there can be equilibria in which exchange rates display randomness unrelated to fundamentals this is demonstrated in the context of a two currency one good model with three agent types and cash in advance constraints a crucial feature is that the type i agents for i 1 2 must satisfy a cash in advance constraint by holding currency i while type 3 agents can satisfy it by holding either currency it is shown that real allocations vary across the multiple equilibria if markets for hedging exchange risk do not exist and that the randomness is innocuous if complete markets exist

lindahl mechanisms and free riders several authors have proposed mechanisms whose nash equilibria yield lindahl tax allocations however as is well known so does the lindahl procedure with an auctioneer moreover the game forms of all these mechanisms and of any as yet undiscovered such mechanism all have the same normal form as does the lindahl procedure without an auctioneer the manipulative nash equilibria are consequently the same for all these mechanisms so that all have the traditional free rider problem and all have the same outcome under strategic behavior

global sensitivity analysis in inventory management abstract this paper deals with the sensitivity analysis sa of inventory management models when uncertainty in the input parameters is given full consideration we make use of sobol function and variance decomposition method for determining the most influential parameters on the model output we first illustrate the method by means of an analytical example we provide the expression of the global importance of demand holding costs order costs of the harris economic order quantity eoq formula we then present the global sa of the inventory management model developed by luciano and peccati 1999 capital structure and inventory management the temporary sale problem international journal of production economics 59 169 178 for the economic order quantity estimation in the context of the temporary sale problem we show that by performing global sa in parallel to the modeling process an analyst derives insights not only on the eoq structure when its expression is not analytically known but also on the relevance of modeling choices as the inclusion of financing policies and special orders

implementation of lindahl allocations with nontotal nontransitive preferences abstract the purpose of this paper is to present a mechanism the nash allocations of which coincide with the lindahl allocations even when preferences are nontransitive or nontotal this extension to include nontotal nontransitive preferences is potentially very important since preferences of agents are nontransitive nontotal in many cases in particular in the case where the players are groups of individuals besides the mechanism presented here uses outcome functions that are individually feasible balanced not merely weakly balanced continuous differentiable around nash equilibria and furthermore almost everywhere differentiable moreover the mechanism has a message space of minimal dimension

international asset pricing with time varying risk premia abstract recent empirical evidence that forward exchange rates are biased predictors of future spot rates can also be interpreted as evidence against the hypothesis of a constant risk premium consequently reconciliation of this evidence with efficient international capital markets requires the existence of time varying risk premia this paper modifies kouri s 1977 asset pricing model to allow time varying exected returns on assets eliminates the assumption of a risk free real asset and derives the characteristics of the risk premia in the forward market as well as the equilibrium yield relationships among the equities and riskless nominal bonds of all countries

evaluation of capital costs in a multi level inventory system by means of the annuity stream principle abstract in this paper some results obtained from applying the annuity stream principle for evaluating capital tied up in inventory and work in progress and presented this principle departs from the cashflows associated with the production inventory processes considered in contrast to traditional procedures by which the inventory value is determined from physical stock evaluated at costs incurred to date in many situations it appears that the traditional procedure will underestimate the amount of capital tied up in production in this paper the two principles are applied to a multi level inventory system and the capital cost expressions and optimal order quantities are compared

growth trade and international transfers abstract this paper analyzes the simplest neoclassical economy in which agents have finite lives and there is sustained per capita growth the growth rate of the world economy depends upon countries savings propensities and common technology trade can reverse an economy s autarkic growth trajectory and a country with a high savings rate runs a current account surplus if a surplus country expands aggregate demand while a deficit country contracts analogously world growth increases an appropriate international policy can change the path of the world economy from stagnation to growth

inflation expectations and qualitative government policy in ecuador 1970 1982 abstract a model of constrained money demand for a dominated domestic currency is specified it is found that the model traces the evolution of the course of inflation when applied to the experience of ecuador and provides an interpretation for the differing statistical relationship between money and prices during the estimation period

a note on feasible implementations abstract this paper is concerned with the problem of individually feasible outcomes in decentralized allocation mechanisms we consider a well known mechanism which achieves efficient allocations in equilibrium this mechanism however may leave agents bankrupt if they fail to reach equilibrium it is shown that the bankruptcy problem can be avoided if a voting stage is added to the original mechanism

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

implementation of balanced linear cost share equilibrium solution in nash and strong nash equilibria abstract this paper considers the incentive aspect of the balanced linear cost share equilibrium blcse which yields an endogenous theory of profit distribution for public goods economies with convex production technologies we do so by presenting an incentive compatible mechanism which doubly implements the blcse solution in nash and strong nash equilibria so that nash allocations and strong nash allocations coincide with blcse allocations the mechanism presented here allows not only preferences and initial endowments but also coalition patterns to be privately observed in addition it works not only for three or more agents but also for two agent economies

on the existence of optimal truth dominant mechanisms abstract the existence of optimal dominant strategy mechanisms has been shown only for quadratic valuation functions this paper shows that non trivial pareto efficient and truth dominant mechanisms exist for a slightly larger set of valuation functions

state currencies and the transition to the u s dollar clarifying some confusions farley w grubb s recent papers on the early u s monetary system would be important contributions to the common currency area literature were not most of their historical assertions questionable and their key assumption that the medium of exchange can be inferred from the unit of account dubious we contend that after 1781 most americans eschewed government paper money in favor of full bodied coins and convertible bank liabilities and that contrary to grubb s claim bankers did not foist the constitutional clause banning state emissions onto an unsuspecting public

generalized groves ledyard mechanisms abstract groves and ledyard 1977 construct a mechanism for public goods procurement that can be viewed as a direct revelation groves mechanism in which agents announce a parameter of a quadratic approximation of their true preferences the mechanism s nash equilibrium outcomes are efficient the budget is balanced because groves mechanisms are balanced for the announced quadratic preferences tian 1996 subsequently discovered a richer set of budget balancing preferences we replicate the groves ledyard construction using this expanded set of preferences and uncover a new set of complex mechanisms that generalize the original groves ledyard mechanism the original mechanism however remains the most appealing in terms of both simplicity and stability

average rates of return working capital and npv consistency in project appraisal a sensitivity analysis approach abstract in project appraisal under uncertainty the economic reliability of a measure of financial efficiency such as a rate of return depends on its strong npv consistency meaning that the performance metric i supplies the same recommendation in accept reject decisions as the npv ii ranks competing projects in the same way as the npv iii has the same sensitivity to perturbations in the input data as the npv in real life projects financial efficiency is greatly affected by the management of the working capital using a sensitivity analysis approach and taking into explicit account the role of working capital we show that the average return on investment roi is not strongly npv consistent in accept reject decisions if the working capital is uncertain and changes under changes in revenues and costs also it is not strongly npv consistent in project ranking we also show that the internal rate of return irr is not strongly npv consistent and economic analysis may even turn out to be impossible owing to possible nonexistence and multiplicity caused by perturbations in the input data as well as to possible shifts in the financial meaning of irr under changes in the project s value drivers we introduce the straight line rate of return slrr based on the notion of average rate of change which overcomes all the problems encountered by average roi and irr it always exists is unique strongly npv consistent for both accept reject decisions and project ranking and has an unambiguous financial nature

limited commitment and the legal restrictions theory of the demand for money this paper addresses the rate of return puzzle of monetary theory similarly to the legal restrictions theory of the demand for money we assume that government bonds are subject to a minimum purchase requirement differently from this theory however we assume that intermediaries when issuing private notes cannot commit to always redeem them first we study an environment with legal restrictions to intermediation and show that cash and interest bearing bonds both circulate in the economy then we drop the legal restrictions and show that also with active intermediation under limited commitment there is an equilibrium with rate of return dominance a positive interest rate provides the intermediaries with the incentive to issue and redeem their notes

a fundamental theory of exchange rates and direct currency trades in this paper we construct a two country search model to determine the nominal exchange rate between two fiat monies our model allows agents to use any currency to trade for goods in all countries however search frictions restrict agents opportunities for instantaneous arbitrage and hence make the nominal exchange rate determinate the nominal exchange rate depends on the two countries economic fundamentals including the stocks and growth rates of the two monies direct exchanges between currencies are essential and they imply a nominal exchange rate that is different from the relative price between the two currencies in the goods markets there are persistent violations of the law of one price and purchasing power parity in equilibrium despite the fact that prices are perfectly flexible and all goods are tradeable between countries nominal and real exchange rates can move together in the steady state in response to money growth shocks

differential importance and comparative statics an application to inventory management abstract in this work we deal with the problem of establishing which parameters impact an inventory policy the most a new sensitivity measure is introduced by relating the differential importance d and the comparative statics cs techniques we discuss the properties of the new indicator and show that it shares the additivity property we provide the expression of for optimization models numerical results are offered for the sensitivity analysis of a recently introduced inventory management model

capital structure and inventory management the temporary sale price problem the paper discusses the use of adjusted present value techniques in a problem of inventory management the temporary sale price problem in the presence of equity or debt financing while traditional net present value approaches produce results very similar to those of the average cost approach our consideration of the capital structure of the firm opens the way to theoretically and numerically different inventory policies

subgame perfect implementation of bargaining solutions abstract this paper provides simple four stage game forms that fully implement a large class of two person bargaining solutions in subgame perfect equilibrium the solutions that can be implemented by our game forms are those that maximize a monotonic and quasi concave function of utilities after normalizing each agent s utility function so that the maximum utility is 1 and the utility of the disagreement outcome is 0 this class of solutions includes the nash kalai smorodinsky and relative utilitarian solutions the game forms have a structure of alternating offers and contain no integer device

adverse incentives in the taxation of foreigners abstract sovereign policymakers will opt for too much of the public good if their tax falls partially on foreigners they myopically calculate that an increase in public spending is only partially financed by a decrease in home consumption the rest comes from foreign consumption which they do not care about this paper presents an example with seignorage taxes in a two country model with cash in advance constraints the inefficiency is characterized by an inflation bias too much public spending and large fiscal deficits curiously the countries most able to impose such taxes seem to have abstained from doing so

stability of the groves and ledyard mechanism abstract it is shown that the nash equilibria of the game defined by the groves and ledyard mechanism in a public good economy can be made locally stable under cournot best replay behavior and general assumptions on preferneces

decisions and optimality in competitive stock ownership economies reexamination of the decision theoretic structure of a diamond dreze stock market economy reveals that general lack of optimal equilibrium allocations is an informational problem prices of firms shares and observed production convey information sufficient for weak form market efficiency but is inadequate for investors to select socially optimal portfolios which constitute strong form market efficiency revising the optimality concept to accommodate information constraints yields a notion of information constrained pareto optimality this concept reflects general application of the principle of semistrong form market efficiency our approach subsumes the bayesian approach

an eoq model for perishable product with special sale and shortage abstract in this paper for the first time an inventory control model to determine the optimal order and shortage quantities of a perishable item when the supplier offers a special sale is developed four possible cases based on decision that the purchaser might make about the first replenishment policy using regular economic order quantity model at reduced price or regular price if he did not take the special order and coincidence of special period length with positive or negative inventory level of the last regular period length during the special period are investigated moreover several useful theorems are suggested through which one can find closed form solution directly when there are integer operators involved in an objective function at the end in order to illustrate the proposed theorems and the solution method some numerical examples are solved and a sensitivity analysis is reported too

sharing the cost of a public good an incentive constrained axiomatic approach we study the problem of provision and cost sharing of a public good in large economies where exclusion complete or partial is possible we search for incentive constrained efficient allocation rules that display fairness properties population monotonicity says that an increase in population should not be detrimental to anyone demand monotonicity states that an increase in the demand for the public good in the sense of a first order stochastic dominance shift in the distribution of preferences should not be detrimental to any agent whose preferences remain unchanged under suitable domain restrictions we give an explicit characterization of all incentive constrained efficient allocation rules we then show that there exists a unique incentive constrained efficient and demand monotonic allocation rule the so called serial rule in the binary public good case the serial rule is also the only incentive constrained efficient and population monotonic rule

instability in the implementation of walrasian allocations abstract the existence of game forms which implement walrasian allocations as cournot nash equilibrium outcomes is well known however if the equilibria are also required to be locally dynamically stable at least for environments with unique walrasian allocations this paper shows that the requisite game forms do not exist our definition of a game form entails certain regularity conditions and requires the cournot equilibrium to be unique when the walrasian equilibrium is unique the main result is that for such a game form there does not exist a continuous time strategy adjustment process which ensures the local stability of cournot equilibria throughout a certain class of environments having unique walrasian equilibria each trader adjusts his strategy in response to his own characteristics and the observed current strategies of others but the direction and magnitude of adjustments are not constrained by any behavioral assumptions the definitions permit the inclusion of an artificial player such as an auctioneer so the well known tatonnement instability emerges as a special case

gmm estimates of currency substitution between the canadian dollar and the u s dollar this paper investigates the empirical strength of currency substitution between the canadian dollar and the u s dollar euler equations implied by a small open economy money in the utility function model are estimated and tested by hansen s generalized method of moments procedure the major empirical finding is that both the elasticity of currency substitution and the share of u s currency in the production of canadian liquidity services are economically small even though the combined domestic and u s real balances appear to provide statistically significant economizing on transactions costs copyright 1994 by ohio state university press

moneyspots extraneous attributes and the coexistence of money and interest bearing nominal bonds it is folklore among monetary theorists that under laissez faire without ad hoc assumptions that favor money over bonds there do not exist equilibria in which government issued fiat money coexists with nominal default free interest bearing government bonds with similar physical characteristics this proposition is the basis for the strongest version of the rate of return dominance puzzle in this paper i show that if as has been the case throughout monetary history the physical object used as fiat money is heterogeneous in an extraneous attribute then there exist equilibria in which money coexists with interest bearing bonds

experiments with the pivot process for providing public goods interest in demand revealing mechanisms for providing public goods has both waned and then renewed over the past two decades the possibility of using such mechanisms in different venues than originally anticipated sparked the research reported here the specific motivation for this paper is to conduct a series of simple direct tests of one version of the class of mechanisms failure of demand revelation was much more expensive than we had expected even when compared to previous research with related mechanisms the reason for this remains an open question

implementing the efficient allocation of pollution we provide simple mechanisms to implement the efficient allocation of pollution first assuming complete information across firms and then allowing for incomplete information both mechanisms operate by inducing firms to monitor one another using firms reports to determine pollution allotments and transfers the complete information mechanism determines a firm s transfer according to a linear pollution price set by other firms both mechanisms can be modified to be budget balanced in and out of equilibrium the complete information mechanism implements the efficient allocation even when firms are allowed to use mixed strategies under a single crossing condition the same holds for the incomplete information mechanism this abstract was borrowed from another version of this item

a mechanism for the allocation of corporate investment corporate investment in an economy without a complete set of contingent claims markets has the characteristic of a public good in the sense that the stockholders consumption planscannot be separated from but depend on the specific investment plans of the firms dreze 4 has shown that a constrained pareto optimal cpo allocation of investment in a stock market economy must satisfy a generalization of the samuelson 24 condition for efficient production of public goods the investment plan should maximize a weighted sum of the stockholders personal valuations of future output minus current input cost however except for those special cases in which cpo investment plans are unanimously supported by stockholders see 17 20 and 2 the theory of the firm in incomplete markets lacks a suitable maximization criterion although the dreze samuelson condition is a most appealing candidate it is not unanimously preferred by stockholders each of whom prefers that his or her own valuation of future output receives all the weight in the investment decision furthermore the application of the dreze samuelson condition depends on the correct revelation of stockholders preferences which in the absence of special inducements cannot be expected from economic agents

costing partial order cycles in the temporary sale price problem the selection of a special order quantity in response to a temporary price reduction is usually derived by comparing the benefits of a special order in terms of a lower purchase price with the additional holding cost if the offer is rejected the analysis is usually carried out over a finite planning horizon under various cost allocation specifications thus neglecting the longer term effects of these offers in contrasting the different solutions this paper shows i that the basic differences among the various earlier formulations centres around the evaluation of the cost of a partial inventory cycle within the average cost avc approach ii that the net present value npv approach eliminates the partial order cycle problem by evaluating cash flows always at the time of occurrence thus obviating the need for considering partial order cycles and iii that the various avc specifications presented in this paper yield excellent approximations to the theoretically correct but harder to use npv formulation numerical examples highlight the main features of the paper

cycles optimization the equivalent annuity and the npv approaches abstract the paper discusses the use of a generalized version of the equivalent annuity principle which takes into account interest rate fluctuations over time when dealing with applications over a sequence of cycles e g plant replacement ones the equivalent annuity is usually defined with reference to each single cycle or to the whole sequence first we study the correspondence between net present values and equivalent annuities as defined above in optimization problems we show that only the second definition is appropriate for optimization whenever the length of the cycle is a choice variable however also the second is not necessarily correct when the horizon is finite then we discuss the corresponding problems of optimality both with an infinite and a finite sequence of cycles applications to a simple plant replacement problem are illustrated they show how different the optimal decisions can be from the equivalent annuity ones

nominal prices and interest rates in general equilibrium endowment shocks the outstanding problem of neoclassical monetary theory has been to determine the effect of changes in the money stock on nominal prices and interest rates the classic result is that in the absence of money illusion contracts fixed in nominal terms and other such impedimenta money is neutral thus a doubling of the money stock results in a doubling of the nominal price level and in no change in nominal interest rates except at most for a temporary liquidity effect while the price level is rising to its new level during the adjustment period the nominal interest rate might temporarily drop this neutrality result has conventionally been proved in a static framework in intertemporal models it is necessary to distinguish between static neutrality and dynamic neutrality if a model displays dynamic neutrality fluctuations in the money stock immediately induce a proportional change in the nominal price level and no change in nominal interest rates or any real variable this property is different from and stronger than static neutrality which in dynamic models states only that if the money stock at all dates is doubled so will be the price level at all dates the effects of exogenous shocks in the monetary growth rate on nominal prices and interest rates are analyzed a representative individual rational expectations framework is adopted and a demand for money is generated by entering money in the utility function the effects of monetary shocks on inflation and interest rates are shown to depend on the autocorrelation of the monetary growth rate for example under serial independence the inflation rate equals the monetary growth rate and the nominal interest rate is nonrandom while under positive negative autocorrelation the nominal interest rate is affected positively negatively by positive growth rate shocks i am grateful to the staff of the federal reserve bank of philadelphia to the finance groups at the university of southem california and virginia polytechnic institute and to c j lacivita dan peled john seater and jon sonstelie for valuable comments on earlier drafts

self confirming price dispersion in monetary economies abstract in a monetary economy we show that price dispersion arises as an equilibrium outcome without the need for costly simultaneous search or any heterogeneity in preferences production costs or search technologies a distribution of money holdings among buyers makes sellers indifferent across a set of posted prices leading to a non degenerate price distribution this price distribution in turn makes buyers indifferent across a range of money balances rationalizing the non degenerate distribution of money holdings we completely characterize the distribution of posted prices and money holdings in any equilibrium equilibria with price dispersion admit higher maximum prices than observed in any single price equilibrium and feature an increasing density of prices in contrast to existing theories price dispersion reduces welfare by creating mismatch between posted prices and money balances inflation exacerbates this welfare loss by shifting the distribution towards higher prices

a note on allocations attainable through nash equilibria abstract this note reexamines the issue of attaining efficient resource allocations as noncooperative equilibria of a strategic game contrary to the spirit of earlier work on this subject it is shown that there is an entire class of choice rules aside from the walrasian one which are implementable in nash equilibrium stategies

an experiment on nash implementation we perform an experimental test of a modification of the controversial canonical mechanism for nash implementation using three subjects in non repeated groups as well as three outcomes states of nature and integer choices we find that this mechanism successfully implements the desired outcome a large majority of the time providing empirical evidence for the feasibility of such implementation in addition the performance is further improved by imposing a fine on a dissident so that the mechanism implements strict nash equilibria while our environment is stylized our results offer hope that experiments can identify reasonable features for practical implementation mechanisms

liquidity a new monetarist perspective this essay surveys the new monetarist approach to liquidity work in this literature strives for empirical and policy relevance plus rigorous foundations questions include what is liquidity is money essential in achieving desirable outcomes which objects can or should serve in this capacity when can asset prices differ from fundamentals what are the functions of commitment and collateral in credit markets how does money interact with credit and intermediation what can and should monetary policy do the research summarized emphasizes the micro structure of frictional transactions and studies how institutions like monetary exchange credit arrangements or intermediation facilitate the exchange process

some basic problems in inventory theory the financial perspective the analysis of the standard eoq problem from a financial perspective is proposed the case of mixed financing equity and debt is considered and the results are compared with those stemming from the average cost approach it is shown that no prediction about the result can be made we solve completely the problem of finding the best financing policy as the financial framework suggests to consider an infinity of inventory cycles we investigate the effects on the solution of a more realistic finite truncation of the chain we show that the finite chain solution is always smaller than the infinite chain one

an economic order quantity model with partial backordering and a special sale price abstract a constant unit purchase cost is one of the main assumptions in the classic economic order quantity model in practice suppliers sometimes offer special sale prices to stimulate sales or decrease inventories of certain items in this paper we develop an eoq model with a special sale price and partial backordering we prove the convexity of the cost reduction function if a special order is placed at the special sale price a solution method is proposed and numerical examples are presented

moneyspots and coexistence in the pure theory of money a reply to neil wallace a response to a letter to the editor from the author of the article moneyspots extraneous attributes and the coexistence of money and interest bearing nominal bonds in the august 2013 issue is presented

from a bundled energy capacity pricing model to an energy capacity ancillary services pricing model in this paper we extend the chilean power generation pricing mechanism with capacity and energy payments to one where ancillary services as as frequency regulation and voltage control are explicitly recognized adequacy and security attributes of the electric system and the public good characteristics of as are set within the payment structure to distribute the financing of as among those who benefit from their provision the contribution to finance the provision of as is determined assessing the value assigned to the system security by each agent following what s an efficient pricing mechanism in the presence of public goods