learning to believe in sunspots a number of authors have shown that competitive economies may possess sunspot equilibria that is rational expectations equilibria in which purely extrinsic uncertainty affects equilibrium prices and allocations 2 such results demonstrate that it does not require a lack of faith in the rationality of market participants to believe that competitive markets may be subject to purely speculative fluctuations driven solely by expectations 3 the mere existence of sunspot equilibria as solutions to a system of marketclearing conditions however might not be judged sufficient to indicate that competitive markets with rational participants could ever be subject to speculative instability the sunspot equilibria represent states of affairs in which agents act differently in the case of different realizations of the sunspot variable and it is rational for each agent to do so but it might be thought unlikely that the beliefs of all the participants in the market could ever come to be coordinated so as to bring about an equilibrium of that kind it is rational to believe that sunspots convey information about future states of affairs once the economy is in a sunspot equilibrium but why would rational agents ever begin to believe in such a thing so as to create the conditions under which the belief is rational in order to address such a question one must go beyond the mere statement of the conditions for equilibrium and discussion of what states of affairs satisfy them one must specify an explicit dynamic process according to which the beliefs of agents adjust when out of equilibrium any exercise of this kind is necessarily unsatisfactory as there is no univocal meaning for the postulate of rational behavior outside of an equilibrium it may well be the case that

confusing liquidation with income in bc s forests economic analysis and the bc forest industry abstract forest exploitation in british columbia is currently unsustainable economic analysis is frequently used to justify the high rate of cut by documenting the revenue job and wage benefits of current industrial forestry however hicks definition of income implies that it is poor accounting practice to count the consumption of natural capital as income yet in bc economic analysis fails to make adjustments for the consumption of forest capital such analysis provides society with misleading signals of future economic prospects by reference to landscape ecology conservation biology forest ecology and ecosystem based management this paper sets out requirements for a forest management regime that maintains forest capital intact and for determining a rate of cut that would likely maintain ecosystem structure and function this ecologically sustainable rate of cut can be seen as an extraction ceiling extraction beyond this ceiling is considered to involve natural capital consumption this extraction ceiling is used to divide the proceeds from timber extraction into interest and depletion streams the interest stream is consistent with maintaining capital intact and can be considered true income the depletion stream involves capital consumption basing economic analysis of the forest industry on an extraction ceiling encourages debate about defining sustainable extraction levels and about how to make the transition to sustainable forestry it also shows that the timber industry overstates its contribution to government revenues and to the province s economic well being critics of industrial forestry in bc have yet to take full advantage of how proper accounting for natural capital depletion can show the advantages to moving towards an ecoforestry approach by insisting that economists make adjustments where natural capital depletion is projected to occur advocates of ecoforestry can ensure a more level playing field for the comparison of industrial forestry and ecoforestry

economic cost of deforestation in semi deciduous forests a case of two forest districts in ghana the ecological economic and socio cultural roles of forests are under threat in ghana due to the high rate of deforestation efforts are being made to combat this problem through rehabilitation measures however the costs of deforestation and restoration benefits are not adequately estimated this paper fills in the gap in knowledge by providing an empirical estimation of the cost of deforestation in monetary terms primary data collected regarding timber non timber forest products and soils in semi deciduous forests were analyzed using opportunity cost and replacement cost techniques the results emphasize differences in the value of these forest goods and services lost annually the largest losses were in stumpage fees edible fruits and avoided carbon emissions values the results show that us 133 650 000 gross revenue equivalent to 2 6 of the 2008 agricultural sector gross domestic product is lost annually it can be concluded that restoring the degraded forest lands would bring benefits particularly to the local communities through increased stumpage revenues and harvest of non timber forest products as well as additional funds from carbon credits it is recommended that stakeholders of forest resources are made aware of these costs in order to raise awareness of what they are losing through deforestation

valuation of landmass degradation using fuzzy hedonic method a case study of national capital region a hedonic model to determine the revealed willingness to pay for landmass of different suitability classes based on landmass functional characteristics obtained through subjective assessments is developed for the national capital region in india the inherent non specificity involved in subjective evaluation is minimized using fuzzy logic based regression technique the proposed fuzzy regression involves regression using central values of triangular fuzzy number and minimization of non specificity using linear programming the revealed willingness to pay for landmass of different suitability classes is used for valuation of disbenefits due to urban expansion on landmass of different agricultural suitability classes in national capital territory of delhi appropriate pricing policies to prevent the future inappropriate landuse practices are developed using the landmass valuation

changing the economics of environmental degradation in madagascar lessons from the national environmental action plan process abstract this paper examines the economic logic and implicit assumptions used to develop and support the national environmental action plan neap process in madagascar the study focuses on three key issues how were the costs of the main environmental problems identified and estimated what underlying factors were identified as causing these problems and how is the neap implementation strategy designed to change these underlying factors the most difficult tasks for neaps will continue to be identifying the key specific underlying factors causing the problem and determining which of these factors are actually feasible for a neap process to change the analysis of the madagascar makes clear that key environmental problems are driven by land use decisions of large numbers of geographically dispersed rural and urban inhabitants these problems are not easy or even feasible targets for specific environmental policy changes if this is the case as it seems to be in madagascar then it is perhaps unrealistic to hope that neaps as constituted can provide a framework for both understanding and alleviating a country s key environmental problems

evolving monetary fiscal policy mix in the united states a micro founded model that allows for changes in the monetary fiscal policy mix and in the volatility of structural shocks is fit to us post wwii data agents are aware of the possibility of regime changes and their beliefs have an impact on the law of motion of the macroeconomy the results show that the 60s and the 70s were characterized by a prolonged period of active fiscal policy and passive monetary policy the appointment of volcker marked a change in the conduct of monetary policy but it took almost ten years for the fiscal authority to start accommodating this regime change

testing for indeterminacy an application to u s monetary policy reply this paper considers a prototypical new keynesian model in which the equilibrium is undetermined if monetary policy is passive the likelihood based estimation of dynamic equilibrium models is extended to allow for indeterminacies and sunspot fluctuations we construct posterior weights for the determinacy and indeterminacy region of the parameter space and estimates for the propagation of fundamental and sunspot shocks according to the estimated model u s monetary policy post 1982 is consistent with determinacy whereas the pre volcker policy is not we find that before 1979 indeterminacy substantially altered the propagation of shocks

the costs of land degradation in sub saharan africa the overriding question that this article addresses is what are the immediate and future costs of land degradation for a nation the objectives of the analysis are to find appropriate measures to express the national level costs of land degradation and suitable methods to estimate such measures furthermore the aim is to document and interpret the results of existing studies to meet these objectives a set of 12 studies from sub saharan africa ssa is reviewed using a consistent cross study analytical framework derived from the objectives above with regard to measures of the cost of land degradation this article identifies ten different dimensions which illustrate the importance of qualifying statements about the costs of land degradation by rigorous clarification of what type of measure has been used furthermore with regard to methods of deriving costs of land degradation this article illustrates a spectrum of approaches one sub group has used a replacement cost approach while a productivity loss approach has been used in the majority of the studies reviewed the latter approach is further sub divided into five different categories ranging from the most informal to the most rigorous it is evident that very few original estimates exist of soil loss yield decline functions in sub saharan africa hence some of the basic work in this area is recycled for use in areas that may exhibit quite different conditions finally with regard to study results there is considerable variance of cost estimates pertaining even to the same country these differences can be explained however and a rational assessment allows a choice of the most appropriate results results across countries are reasonably well clustered in terms of their productivity impact per soil loss unit with local knowledge of soil conditions but in the absence of local yield loss data this provides a useful interval of reasonable assumptions as one would expect the national costs of land degradation vary considerably across countries this sometimes leaves room for considerable investment in soil and water conservation but should not invoke images of a rapidly approaching doomsday

economic crisis adjustment and living standards in mexico 1982 85 abstract this paper presents an estimate of the impact of economic crisis and adjustment on the living standards of the mexican population between 1982 and 1985 the analysis is based on information on wage and nonwage incomes unemployment functional income distribution changes in public expenditures and social indicators the specific questions addressed are what happened to agricultural and nonagricultural wage and nonwage incomes how did unemployment and the composition of employment change what was the impact of fiscal cuts on social expenditures and food subsidies were social services affected by declining resources did social indicators worsen in addition households strategies in response to declining incomes are briefly discussed finally conjectures are made regarding which population groups were hurt most by the crisis the results indicate that the crisis and adjustment process left mexico with a relatively impoverished middle class and with rising poverty

expectations learning and business cycle fluctuations this paper explores an alternative theory based on learning dynamics in the con text of an otherwise standard stochastic growth model we consider an environment in which households and firms have an incomplete model of the macroeconomy knowing only their own objectives constraints and beliefs agents are optimizing have a completely specified belief system but do not know the equilibrium map ping between primitive disturbances the aggregate state of the economy and mar ket clearing prices by extrapolating from historical patterns in observed data they approximate this mapping to forecast variables that are exogenous to their decision problems such as the rental rate of capital and the real wage this belief structure has the property that beliefs affect the true data generating process of the economy which in turn affects belief formation the economy is therefore self referential shifts in beliefs about future returns to labor and capital affect current market clear ing prices which in turn can reinforce beliefs in this environment current prices can become less informative about future economic conditions generating fluctuations in real activity this kind of mechanism driving business cycle fluctuations is found in early writ ings on macroeconomic dynamics for example alfred c pigou 1927 on page 122 writes

external shocks structural change and economic growth in mexico 1979 2007 summary this article finds that shocks to net financial inflows world oil prices the us growth rate and the lagged real exchange rate explain most of the fluctuations in mexico s annual growth since 1979 the article also estimates how the effects of these external constraints have changed since mexico s liberalization policies of the late 1980s and the formation of nafta in 1994 estimates of an investment function and other tests show that growth drives investment but not conversely in the short run investment is driven mainly by oil prices and the accelerator effect foreign direct investment has no significant impact 2008 elsevier ltd all rights reserved

inflation stationarity during latin american inflation insights from unit root and structural break analysis inflation stationarity has important theoretical and policy implications yet most of the literature has focused on low inflation countries this article investigates inflation stationarity in brazil argentina chile mexico and bolivia during a hyperinflationary period from 1980 to 2004 we test for structural breaks in inflation discuss the breaks in terms of changes in monetary regimes and test if accounting for these structural breaks changes the nonstationarity results for those nations that fail the traditional augmented dickey fuller adf test for inflation all five are found to have inflation rates that are i 0 once the structural breaks analysis is incorporated into our unit root tests

estimating dsge models with zero interest rate policy we propose estimating dsge models in which the central bank fixes the policy rate for an extended period of time and apply our approach to estimate expected durations of the federal reserve s zero interest rate policy since 2009 we find a large increase in expected duration in 2011 with the move to calendar based guidance and a decrease in 2013 with the taper tantrum these changes are identified by the influence of expected duration on output inflation and interest rates at longer maturities the structural model measures the severity of the zero lower bound constraint and the effects of unconventional policy

e stability vis a vis determinacy in regime switching models abstract this paper examines e stability determinacy and indeterminacy in a general class of regime switching models with lagged endogenous variables using determinacy conditions from cho 2016 2020 our first result extends mccallum 2007 to models with time varying parameters the unique mean square stable equilibrium is e stable if agents have current information and one period ahead decision rules further we address the existence of e stable non fundamental equilibria and find that iteratively e stable equilibria of indeterminate switching models can exist finally we show that indeterminate new keynesian models with persistent recurring interest rate peg regimes admit iteratively e stable equilibria in special cases the iterative e stability condition coincides with the long run taylor principle

learning about monetary policy rules abstract we study macroeconomic systems with forward looking private sector agents and a monetary authority that is trying to control the economy through the use of a linear policy feedback rule we use stability under recursive learning a la evans and honkapohja learning and expectations in macroeconomics princeton university press princeton new jersey 2001 as a criterion for evaluating monetary policy rules in this context we find that considering learning can alter the evaluation of alternative policy rules

monetary fiscal policy interactions and fiscal stimulus abstract increases in government spending trigger substitution effects both inter and intra temporal and a wealth effect the ultimate impacts on the economy hinge on current and expected monetary and fiscal policy behavior studies that impose active monetary policy and passive fiscal policy typically find that government consumption crowds out private consumption higher future taxes create a strong negative wealth effect while the active monetary response increases the real interest rate this paper estimates markov switching policy rules for the united states and finds that monetary and fiscal policies fluctuate between active and passive behavior when the estimated joint policy process is imposed on a conventional new keynesian model government spending generates positive consumption multipliers in some policy regimes and in simulated data in which all policy regimes are realized the paper reports the model s predictions of the macroeconomic impacts of the american recovery and reinvestment act s implied path for government spending under alternative monetary fiscal policy combinations

liquidity traps learning and stagnation we examine global economic dynamics under learning in a new keynesian model in which the interest rate rule is subject to the zero lower bound under normal monetary and fiscal policy the intended steady state is locally but not globally stable large pessimistic shocks to expectations can lead to deflationary spirals with falling prices and falling output to avoid this outcome we recommend augmenting normal policies with aggressive monetary and fiscal policy that guarantee a lower bound on inflation in contrast policies geared toward ensuring an output lower bound are insufficient for avoiding deflationary spirals

resource based industry in boom downswing and liberalization mexico abstract mexico s oil windfall was advantageously later and smaller than that of most oil exporters but it was still absorbed too quickly inflation accelerated the exchange rate appreciated and diversification into competitive non oil tradeables like resource based industry rbi was retarded too much rbi investment was channelled through state enterprises whose performance deteriorated it relied heavily on the protected domestic market which fell short of projections excess capacity and inadequate revenues then made rbi vulnerable as mexico rapidly liberalized its economy in the late 1980s

fiscal policy in an expectations driven liquidity trap we study the effects of fiscal policy interventions in a liquidity trap in a model with nominal rigidities and an interest rate rule in a liquidity trap caused by a self fulfilling state of low confidence higher government spending has deflationary effects that reduce the spending multiplier when the zero lower bound is binding instead cuts in marginal labor tax rates are inflationary and become more expansionary when the zero lower bound is binding these findings contradict popular views about the effects of fiscal policy in a liquidity trap

learning about fiscal policy and the effects of policy uncertainty abstract in this paper we ask how uncertainty about fiscal policy affects the impact of fiscal policy changes on the economy when the government tries to counteract a deep recession the agents in our model are uncertain about the conduct of fiscal policy and act as econometricians by estimating fiscal policy rules that might change over time we find that assuming that agents are not instantaneously aware of the new fiscal policy regime in place leads to substantially more volatility in the short run and persistent differences in average outcomes we highlight issues that can arise when a policymaker wants to announce a policy change from a methodological perspective we introduce a novel way to model learning in the face of discrete policy changes

external shocks and growth prospects the case of brazil 1973 1989 this is a study of the factors underlying the current account deficits experienced by brazil since the mid 1970s it also explores the country s economic prospects through 1989 with the help of a simple macro simulations model the current account deficit is identically equal to the excess of domestic spending over national income provided that net external financing is available this excess may increase for a number of reasons prominent among them is an expansion of real domestic spending associated with increases either of real consumption expenditures or of real domestic capital formation even if domestic absorption is invariant the external deficit may worsen because of inadequate domestic pricing policies these may make it impossible for local firms to compete with cheaper foreign products thus forcing a contraction of national income and employment a temporary reduction of gnp below its potential value may also be caused by domestic supply shocks of a climatic or other nature however other factors can also cause a deterioration of the current account in this context this study investigates the factors underlying the evolution of the external accounts of brazil since the mid 1970s following an approach suggested in the dell report and elaborated by balassa the reasons for a deterioration of the current account are divided into three groups external shocks burden of accumulated debt and domestic policy actions the first group comprises terms of trade international interest rates and world recession the second includes the accumulated effect of past shocks and domestic policy actions finally the third group encompasses the variables supposedly under the control of local policy makers domestic absorption and the economy s tradability

regime switches agents beliefs and post world war ii u s macroeconomic dynamics the evolution of inflation and output over the last 50 years is examined through the lens of a micro founded model that allows for changes in the behavior of the federal reserve and in the volatility of structural shocks agents are aware of the possibility of regime changes and their beliefs have an impact on the law of motion underlying the macroeconomy the results support the view that there were regime switches in the conduct of monetary policy however the behavior of the federal reserve is identified by repeated fluctuations between a hawk and a dove regime instead of by the traditional pre and post volcker structure counterfactual simulations show that if agents had anticipated the appointment of an extremely conservative chairman inflation would not have reached the peaks of the late 70s and the inflation output trade off would have been less severe these beliefs counterfactuals are new in the literature finally the paper provides a bayesian algorithm to handle the technical difficulties that arise in a rational expectations model with markov switching regimes

monetary policy indeterminacy and learning abstract forward looking monetary models with taylor type interest rate rules are known to generate indeterminacies with a potential dependence on extraneous sunspots for some structural and policy parameters we investigate the stability of these solutions under adaptive learning focusing on common factor or resonance frequency representations in which the observed sunspot has a suitable time series structure we consider specifications incorporating both lagged and expected inflation in the phillips curve and both expected and inertial elements in the policy rule we find that some policy rules can indeed lead to learnable sunspot solutions and we investigate the conditions under which this phenomenon arises

consumption habits in a new keynesian business cycle model consumption habits have become an integral component in new keynesian models however consumption habits can be modeled in a host of different ways and this diversity is reflected in the literature i examine whether different approaches to modeling consumption habits have important implications for business cycle behavior using a standard new keynesian business cycle model i show that to a first order log approximation the consumption euler equation associated with the additive functional form for habit formation encompasses the multiplicative function form empirically i show that whether consumption habits are internal or external has little effect on the model s business cycle characteristics

interest rate control and nonconvergence to rational expectations this paper investigates the feasibility of a monetary policy aimed at pegging the nominal rate of interest it shows that under general conditions such a policy would produce the well known cumulative process despite the fact that there exists a well behaved rational expectations equilibrium with no tendency for inflation to accelerate or decelerate the cumulative process shows up as the failure of learning to converge to rational expectations specifically the paper shows first in a conventional is lm model with an expectations augmented phillips curve and then in a micro based finance constraint model that if people follow any learning rule based on experience that satisfies a weak condition then the sequence of temporary equilibria under a policy of interest pegging cannot converge the nonconvergent path that will be observed accords with the familiar cumulative process in that inflation accelerates if the market rate of interest has been pegged below the natural rate

the consequences of an unknown debt target abstract several proposals to reduce u s debt reveal large differences in their targets we examine how an unknown debt target affects economic activity using a real business cycle model in which bayesian households learn about a state dependent debt target in an endogenous tax rule recent papers use stochastic volatility shocks to study fiscal uncertainty in our setup the fiscal rule is time varying due to unknown changes in the debt target households infer the current debt target from a noisy tax rule and jointly estimate the transition probabilities three key findings emerge from our analysis 1 limited information about the debt target amplifies the effect of tax shocks through changes in expected tax rates 2 the welfare losses are an order of magnitude larger when both the debt target state and transition matrix are unknown than when only the debt target state is unknown to households 3 an unknown debt target likely reduced the stimulative effect of the arra and uncertainty about the sunset provision in the bush tax cuts may have slowed the recovery and led to welfare losses

learning and the great moderation we study a stylized theory of the volatility reduction in the u s after 1984 the great moderation which attributes part of the stabilization to less volatile shocks and another part to more difficult inference on the part of bayesian households attempting to learn the latent state of the economy we use a standard equilibrium business cycle model with technology following an unobserved regime switching process after 1984 according to kim and nelson 1999a the variance of u s macroeconomic aggregates declined because boom and recession regimes moved closer together keeping conditional variance unchanged in our model this makes the signal extraction problem more difficult for bayesian households and in response they moderate their behavior reinforcing the effect of the less volatile stochastic technology and contributing an extra measure of moderation to the economy we construct example economies in which this learning effect accounts for about 30 of a volatility reduction of the magnitude observed in the postwar u s data

evolving macroeconomic dynamics in a small open economy an estimated markov switching dsge model for the uk this paper investigates the possibility of shifts in the uk economy using a markov switching open economy dynamic stochastic general equilibrium dsge model we find overwhelming evidence to reject the hypothesis that the deep structural parameters of the underlying structural model had stayed constant throughout the sample period and there is significant changes to the volatility of the structural shocks counterfactual experiments based on the model with the best empirical fit indicate that the change in the policy rule as well as changes to the volatility of the structural shocks over the sample period are crucial features in explaining uk s macroeconomic performance

optimal management of soil quality stocks and long term consequences of land degradation for smallholder farmers in malawi while soil degradation has long term consequences static models which form the bulk of studies on this topic in africa do not account for the inter temporal dimensions of optimal resource management this paper used an inter temporal optimisation framework which considered soil in a time dependent resource extraction perspective we have demonstrated that soil degradation is causing an enormous reduction in productive value of smallholder land in malawi current user cost of soil quality among smallholder farmers which represents annual loss in productive value of land was estimated to be us 21 per hectare based on this value and land area under smallholder agriculture in malawi economic costs of soil degradation among smallholder farmers were estimated to amount to 14 of the agricultural gdp for malawi although smallholder farmers current practices are sub optimal to steady state solutions they are above static solutions this demonstrates that smallholder farmers have some private incentives to invest in the soil quality stock smallholder farmers internalise some of the dynamic costs of soil degradation under the current practices however a sensitivity analysis on a slightly higher discount rate indicates that ss solutions closely resemble the prevailing smallholder farming practices this suggests that smallholder farmers may be overexploiting soil quality stock because they have a high time preference that is they value the current consumption more than their future consumption and wellbeing high levels of poverty in malawi and serious lack of viable alternatives to subsistence farming may be influencing such behaviour promoting more viable land use alternatives than subsistence farming and formuling policies that help transform smallholder agriculture into a profitable enterprise will not only increase the cost of degrading the soil but also encourage farmers to invest in the soil quality stock