diverse information and market efficiency in a monetary model of the exchange rate tests of informational efficiency of a given market involve testing two hypotheses simultaneously the first is the hypothesis about the structure determining equilibrium prices or returns and the second is the hypothesis about the information used in formulating expectations and the ability of agents to set current prices to conform with their expected values we examine this issue in the context of the foreign exchange market by setting up a simple model of exchange rate determination and using equilibrium properties of the model to examine market efficiency the model of exchange rate determination involves monetary equilibrium and rational expectations by virtue of the latter equilibrium prices by definition fully reflect available information yet we show that conventional tests of market efficiency would fail when confronted by data generated by such a model we then proceed to define more restrictive and more appropriate concepts of informational efficiency we also illustrate and clarify a fundamental misconception with current rational expectations models we believe that the current models employing the rational expectations hypothesis overemphasize the distinction between monetary and real shocks and underemphasize the distinction between permanent and transitory distinctions for expectations formation the conventional efficiency tests it is the latter distinction that is the essential one this abstract was borrowed from another version of this item

the effect of imf lending on the probability of sovereign debt crises abstract this paper explores empirically how the adoption of imf programs affects sovereign risk over the medium term we find that imf programs significantly increase the probability of subsequent sovereign defaults by approximately 1 5 2 percentage points these results cannot be attributed to endogeneity bias as they are supported by specifications that explain sovereign defaults and program participation simultaneously furthermore imf programs turn out to be especially detrimental to fiscal solvency when the fund distributes its resources to countries whose economic fundamentals are already weak our evidence is therefore consistent with the hypothesis that debtor moral hazard is most likely to occur in these circumstances other explanations that point to the effects of debt dilution and the possibility of imf triggered debt runs however are also possible

absorptive capacity and the effects of foreign direct investment and equity foreign portfolio investment on economic growth abstract this study examines the effects of foreign direct investment fdi and equity foreign portfolio investment efpi on economic growth using data on 80 countries from 1979 through 1998 the results largely suggest that lagged fdi and efpi do not have direct unmitigated positive effects on growth but some data are consistent with the view that the effects of fdi and efpi are contingent on the absorptive capacity of host countries with particular respect to financial or institutional development moreover extreme bound analysis eba of significant results indicates that the estimates are robust compared to other empirical studies on growth

a new taxonomy of sudden stops which sudden stops should countries be most concerned about abstract this paper proposes a new taxonomy of sudden stops comprised of seven categories with definitions depending on the behavior of gross and net capital flows the incidence of different types of sudden stops is detailed over time and we relate the type of sudden stop to economic performance sudden stops in net flows associated with reductions in gross inflows are associated with larger falls in output than those where sudden starts in gross outflows dominate the paper further discusses the mechanisms that might result in sudden stops in gross flows that are not sudden stops in net flows such that purchases and sales in financial assets or liabilities do not require a sharp current account adjustment still it is found that sudden stops in gross inflows that do not provoke a sharp contraction in net flows may also be disruptive particularly sudden stops that are driven by other flows which include banking flows the results suggest new avenues for research and future policy analysis

state misallocation and housing prices theory and evidence from china this paper examines the equilibrium price effects of the privatization of housing assets that were previously owned and allocated by the state i develop a theoretical framework that shows that privatization can have ambiguous effects on prices in the private market and that the degree of misallocation of the assets prior to privatization deter mines the subsequent price effects i test the predictions of the model using a large scale housing reform in china the results suggest that the removal of price distortions allowed households to increase their consumption of housing and led to an increase in equilibrium hous ing prices jel l33 018 p25 r31 r38 state participation in the housing market occurs in several forms in countries throughout the world the provision of subsidized housing as a welfare benefit to low income households is common throughout the western hemisphere in addition local governments in several cities in the united states have implemented regula tions that limit the increase of rents charged by landlords 1 this paper focuses on a form of state intervention in housing that occurs through the provision of subsidized homes to state employees the economic consequences of this area of research are potentially large as employer provided housing in the state sector is common throughout the developing world particularly in asia and sub saharan africa government regulation of the private market or the creation of a separate mar ket ensures that certain households have access to housing at prices that are below market value state interventions that aim to bring affordable housing to particu lar subsegments of the population can create economic inefficiencies they distort the decisions that individuals make regarding residential mobility joseph gyourko and peter linneman 1989 gordon a hughes and barry mccormick 1987 and employment michael svarer michael rosholm and jakob roland munch 2005 wang forthcoming and they lead to underinvestment in the construction and main

liquidity protection versus moral hazard the role of the imf abstract a game between the imf a country and atomistic private investors is motivated by recent crises including that in argentina the one stage game has no nash equilibrium in pure strategies considering an equilibrium in mixed strategies conditions are derived on whether the imf should exist a cooperative first best may be supported in a repeated game by a minimum punishment strategy but breaks down as the probability of insolvency rises countries are likely to deviate in bad times placing the imf in an impossible position the international financial architecture ifa remains incomplete

does adversity affect long term financial behaviour evidence from china s rustication programme abstract this paper examines the long term effects of adversity on financial behaviour it draws on the largest forced migration experiment in history china s rustication programme evidence from the chinese twins survey and chinese household income project shows that rusticated individuals behave conservatively with respect to finances over the long term compared with their age eligible but nonrusticated peers they reduce housing consumption and its share of total assets increase savings accumulate more safe assets and invest less in risky assets such patterns are consistent with evidence from manually collected county gazetteer data possible mechanisms include reduced productivity habit formation and psychological changes

reconciling bagehot and the fed s response to september 11 bagehot 1873 states that to prevent bank panics a central bank should provide liquidity at a very high rate of interest in contrast most of the theoretical literature on liquidity provision suggests that central banks should lend at an interest rate of zero this is broadly consistent with the federal reserve s behavior in the days following september 11 2001 this paper shows that both policies can be reconciled with commodity money as in bagehot s time liquidity is scarce and a high price allows banks to self select in contrast the fed has a virtually unlimited ability to temporarily expand the money supply so self selection is unnecessary

open economy implications of two models of business fluctuations a wage contract model and misperceptions model of aggregate fluctuations are shown to have strikingly different implications when applied to a small open economy with a flexible exchange rate positive monetary disturbances reduce the relative price of non traded goods and create a trade surplus in the wage contract model but raise the relative price of non traded goods and create a trade deficit in the misperceptions model they also have different implications for production in each industry consumption nominal prices and the exchange rate open economy applications of macro economic models are shown to be a useful source of additional testable implications

imperfect interbank markets and the lender of last resort abstract this paper presents a monetary model in which interbank markets have limited commitment to contracts limited commitment reduces the proportion of assets that can be used as collateral and thus banks with high liquidity demands face borrowing constraints in interbank markets these constraints can be relieved by the central bank a lender of last resort through the provision of liquidity loans i show that the constrained efficient allocation can be decentralized by controlling only the money growth rate if commitment to interbank contracts is not limited otherwise a proper combination of central bank loans and monetary policy is needed to bring the market equilibrium into a state of constrained efficiency

monetary information and monetary neutrality abstract the monetary theory of business fluctuations in market clearing models constructed under the rational expectations assumption as advanced by lucas and others involves the idea that suppliers and demanders will typically misinterpret movements in the general level of prices as representing more or less favorable relative opportunities for real activities the present paper examines the consequences of agents possessing contemporaneous monetary information of a potentially noisy variety for the non neutrality of unanticipated monetary events within such an equilibrium business cycle model this modification of the information structure has the strong testable implication that real activity will be uncorrelated with contemporaneous monetary data

central banks and financial stability rediscovering the lender of last resort practice in a finance economy the purpose of our paper is to assess whether central banks have adopted new practices of lending in last resort during the 2007 09 financial crisis we compare the current period with the classical period both featured by a finance economy with developed financial markets and unregulated institutions beyond the differences determined by the monetary regime and concerning the central bank rate policy we find similarities such as the enlargements of the set of counterparties and eligible collateral assets since the credit system is based on financial markets and innovations central banks have a wider involvement that goes beyond a narrow conception of the lender of last resort that prevailed under a regulated banking system we conclude that the historical roots of financial stabilisation by central banks in a finance economy have just been rediscovered and that the functions of lender of last resort and market maker of last resort may be analytically integrated copyright oxford university press

fixed versus flexible exchange rates in an equilibrium business cycle model abstract this essay re examines the question of which exchange rate regime is preferable using a rational expectations model that explicitly incorporates wealth and emphasizing the information signalling role of prices previous authors have stressed the argument that floating rates provide agents with an additional source of information which improves forecasting accuracy leading to more efficient allocations this paper adds the counterweighing argument that they also have the effect in contrast to fixed rates of introducing an additional source of monetary disturbances in the determination of real variables another issue addressed is the nature of exchange rate adjustments to monetary disturbances

common property institutions and sustainable governance of resources abstract the literature on common property based resource management comprises many important studies that seek to specify the conditions under which groups of users will self organize and sustainably govern resources upon which they depend using three of the more comprehensive such studies and with an extensive review of writings on the commons this paper demonstrates that the enterprise of generating lists of conditions under which commons are governed sustainably is a flawed and impossibly costly research task for a way out the paper examines the relative merits of statistical comparative and case study approaches to studying the commons it ends with a plea for careful research design and sample selection construction of causal mechanisms and a shift toward comparative and statistical rather than single case analyses such steps are necessary for a coherent empirically relevant theory of the commons

academic tenure posttenure effort and contractual damages i introduction in this article we explore the incentive properties of academic tenure relative to alternatives that might be substitutes for tenure we do not present a comprehensive theory of academic tenure but rather emphasize the role of tenure in providing an incentive for incumbent faculty to reveal the characteristics of recruits and to maintain their own posttenure performance academic tenure often implies that its holder cannot be removed from post except for good cause usually based on gross moral turpitude or gross incompetence mcpherson and schapiro 1999 such removal is historically characterized by a costly procedure governed by organizational or state statutes tepker 1993 our results suggest that tenure is just one of many mechanisms able to achieve honest revelation and that it has important interactions with other mechanisms there is no question that tenure is a constraint to administrators and limits the discretion of university managers the objective of our article is not to provide a new explanation for academic tenure but to show how tenure could in principle be replaced by contractual damages and how it more generally interacts with damages we believe it is worth theoretically exploring alternatives to tenure because universities appear to ignore tenure statutes on occasions in particular it is now common for schools to ignore orders to reinstate dismissed apparently tenured faculty and to choose to pay damages instead tepker 1993 carmichael s 1988 model suggests that damages can achieve efficient information revelation where the value of academics next best occupations are known a damages payment equal to the difference between current expected earnings and next best earnings that is restoring the victim s expectations ignoring nonpecuniary benefits for simplicity will then make an incumbent indifferent between remaining and being sacked and happy to reveal the skills of entrants carmichael rules out the payment of expectation damages and concentrates on the use of tenure which creates a requirement for specific performance by the university we contend that the frequent award of expectation damages by courts faced with cases of refusal to reinstate suggests that more attention should be given to the damages option 1 and indeed to possible interactions between tenure and its alternatives our contention is reinforced by the observation that many universities are currently softening tenure by introducing devices like five yearly reviews for tenured faculty note also that the role of tenure looms large once it has been awarded directing our attention toward a model of posttenure performance particularly if it could be lost possibly subject to the payment of contract damages our model explores the role of contractual damages in replacing academic tenure i e reinstatement as well as addressing the problem of revelation we depart from previous literature in considering that it is now common practice for university departments to use rankings and publication records to evaluate faculty thus reducing the asymmetry of information with respect to research and productivity detected by carmichael 1988 p 460 we focus on posttenure performance in the shadow of the threat of dismissal followed by payment of contract damages dnes and seaton 1998 2001 examine the reform of academic tenure in the united kingdom by the 1988 education reform act which allowed softer tenure to be chosen by universities 2 the authors tested the hypothesis that softening tenure encourages incumbent academics to consolidate their hold on academic life it seems that after 1988 the distinction between hard tenure and soft tenure universities persisted that is many british universities chose to continue operating a hard tenure system allowing softer tenure has not hindered the improvement of academic performance in the context of increased pressures from a research quality exercise that is periodically carried out by the higher education funding council

aggregate information and the role of monetary policy in an open economy a model of a small open economy in which agents trade in local goods markets and an economy wide asset market is developed purchasing power parity is assumed to hold at the aggregate level however because of local deviations from purchasing power parity agents possess differential information using this framework it is shown that when the exchange rate is flexible monetary policy can influence the distribution of real output by altering the information content of the exchange rate however when monetary policy is committed to fixing the exchange rate by a feedback rule the distribution of real output is independent of the particular exchange rate rule chosen the stability of real output under the two regimes is compared and it is demonstrated that regardless of the stability of domestic monetary policy a flexible exchange rate regime is superior in this respect possible qualifications and extensions of these results are also discussed

money output and the trade balance theory and evidence this paper develops a two country equilibrium model of the world economy under floating exchange rates and draws out its implications for co movements of money output and the trade balance the predictions of this model are then compared with those of a fixed price keynesian version of the mundell fleming model the predictions of the two models for co movements of money output and the trade balance are shown to differ on almost all counts empirical evidence on the effects of anticipated and unanticipated changes in money growth rates on output and the trade balance from the recent canadian experience with floating rates is presented and discussed this evidence generally speaking is consistent with the implications of the equilibrium model

an examination of the effects of government purchases in an open economy this paper examines the effects of permanent and transitory changes in government purchases in the context of a model of a small open economy that produces and consumes both traded and nontraded goods the model incorporates an equilibrium interpretation of the business cycle that emphasizes the responsiveness of agents to intertemporal relative price changes it is demonstrated that transitory increases in government purchases lead to an appreciation of the real exchange rate and an ambiguous change although a likely worsening in the current account while permanent increases have an ambiguous impact on the real exchange rate and no effect on the current account when agents do not know whether a given increase in government purchases is permanent or transitory the effect is a weighted average of these separate effects the weights depend on the relative variances of the transitory and permanent components of government purchases in the past few years a considerable amount of effort has been devoted to examining the effects of macroeconomic policy in an open economy such issues as exchange rate overshooting deviations from purchasing power parity sterilization and monetary control the effectiveness of monetary policy and the choice between alternative exchange rate regimes have been at center stage the models that have been employed to study these issues have run the spectrum from variants of the mundell fleming model such as dornbusch 1976 turnovsky 1981 and kimbrough 1983a to wage contracting and indexing models like bhandari 1982b and flood and marion 1982 to equilibrium models of the business cycle along the lines of bhandari 1982a saidi 1982 and kimbrough 1983b to the closely related intertemporal utility maximization models with money of helpman 1981 and stockman 1980 1983 one common thread that in a sense unifies all of these and other recent contributions is that they are concerned primarily with the effects of alternative monetary and exchange rate policies that the central bank might enact in light of the development and refinement during this period of the monetary approach to the balance of payments and the exchange rate it is not surprising i would like to thank phil brock jeremy greenwood gary zarkin and two anonymous

macroeconomic aspects of exchange rate pass through abstract this paper addresses the cause of the variability in exchange rate pass through we develop a model in which foreign exporters setting prices under uncertainty infer the value of domestic income and prices based upon their observation of the exchange rate and their knowledge of the stochastic structure of the economy this inference problem links pass through to the underlying stochastic macroeconomic structure of the economy rather than the source direction or size of the endogenous exchange rate movement that period the predictions of the model are consistent with pass through experience in the united states during the past decade

the information content of the exchange rate and the stability of real output under alternative exchange rate regimes abstract when the exchange rate is flexible and thus responds to market forces it provides agents with useful information while when it is fixed by a feedback rule it does not the implications of this asymmetry for the stability of real output under the two regimes is discussed it is shown that whenever shocks are predominantly of one variety or when domestic monetary shocks accompanied by one real shock a flexible exchange rate does a better job of stabilizing real output than does a fixed exchange rate these results undermine arguments favoring fixed exchange rates because they discipline monetary policy in addition it is demonstrated that managed floating rules and exchange rate feedback rules are irrelevant for the distribution of real output

a model of adjuncts in higher education abstract we examine the phenomenon of the expanded use of non tenure track positions adjuncts and construct a supply side harris todaro model low adjunct wages are attributable to a hope rent from the gap between private opportunities and tenure track utility

the imf and precautionary lending an empirical evaluation of the selectivity and effectiveness of the flexible credit line abstract this paper provides an empirical evaluation of the flexible credit line fcl the imf s prime precautionary lending instrument since 2009 to which so far only mexico colombia and poland have subscribed we consider both questions of selectivity and effectiveness first which variables explain the three countries participation in fcl arrangements and second to which extent has the fcl delivered on its promise of boosting market confidence in its respective users based on a probit analysis we show that fcl selectivity can be explained by both demand and supply side factors the probability of participation in the fcl was greater in countries that experienced larger prior exchange market pressures that had lower bond spreads and inflation that accounted for higher shares in us exports and that exhibited a higher propensity of making political concessions to the us using a synthetic control approach we find evidence for some but generally limited beneficial effects on sovereign bond spreads and gross capital inflows into the three fcl countries overall our results suggest that any economic stigma that may prevent eligible countries from entering into an fcl arrangement is unwarranted conversely the apparent link of fcl participation with us interests is not conducive to overcoming political stigma

bail out or work out theoretical considerations this paper assesses various crisis resolution proposals using a theoretical model of liquidity and solvency crisis the model suggests that payments standstills and last resort lending are an equally efficient means of dealing with liquidity crises while coordinated lending through creditor committees is second best debt write downs are preferred to subsidised imf financing when dealing with solvency crises because of the negative moral hazard implications of the latter tool finally the model suggests that international bankruptcy court proposals may be superior to existing contractual approaches in securing such write downs on many measures the incidence of international financial crises increased in the last part of the twentieth century bordo et al 2001 but it is not just the incidence of financial crises that has altered in recent years so too has their nature the recent crises in mexico across south east asia russia brazil turkey and argentina were clearly rooted in the capital rather than current account of the balance of payments we appear to have entered an era of capital account crises imf 2002 theoretical models of financial crisis have developed in lockstep with crisis experience a third generation of models of financial crisis has emerged chang and velasco 1998 krugman 1999 these models combine imperfections in fundamentals as suggested by so called first generation models and fragility in expectations as suggested by second generation models to explain crises under the third generation approach capital account crises can originate in either fundamentals or expectations we have solvency as well as liquidity capital account crises

academic freedom private sector focus and the process of innovation we develop a model that clarifies the respective advantages and disadvantages of academic and private sector research rather than relying on lack of appropriability or spillovers to generate a rationale for academic research we emphasize control rights considerations and argue that the fundamental tradeoff between academia and the private sector is one of creative control versus focus by serving as a precommitment mechanism that allows scientists to freely pursue their own interests academia can be indispensable for early stage research at the same time the private sector s ability to direct scientists toward higher payoff activities makes it more attractive for later stage research

the effect of rent control on housing quality change a longitudinal analysis it is widely believed that rent control leads to a decline in the quality of rental housing this study examines the effect of rent control on the quality of rental housing in new york city quality change is linked to the suppression of rent below market levels and other characteristics of the housing unit we develop a first order nonstationary heterogeneous markov model that allows for true state dependence observed heterogeneity nonparametric unobserved heterogeneity and a mover stayer structure the results offer some support for the belief that rent control leads to a deterioration in housing quality but suggest the need for additional investigation of this issue

research productivity over the life cycle evidence for academic scientists the relationship between age and the publishing productivity of ph d scientists is analyzed using data from the survey of doctorate recipients national research council and the science citation index the longitudinal nature of the data allows for the identification of pure aging effects in five of the six areas studied life cycle aging effects are present only in particle physics where scientists often speak of being on a religious quest is the indication that scientific productivity is not investment motivated vintage effects are also considered the expectation that the latest educated are the most productive is not generally supported by the data copyright 1991 by american economic association

incentives in academics why is there tenure this paper models ancademic department as an internal labor market the major problem facing the university administration is to ensure that members of its departments are willing to hire the best possible candidates academic tenure is seen to be a necessary condition for this the analysis is also consistent with other aspects of the academic environment including tenure track appointments contract buy outs early retirement plans and when a budget crunch hits the elimination of entire departments the results extend in a simple way to other organizations in which members have an input into overall decisions

restructuring the imf s lending facilities the imf has recently completed a review of its lending facilities as a consequence of which it has implemented a number of reforms by examining the fund s basic functions this paper offers a critical appraisal of these reforms it is argued that more radical change is needed building on the liquidity and adjustment roles of the imf the reforms advocated here would reverse the proliferation of imf lending facilities that is to be observed since the early 1960s

imperfect information and the comovement of the exchange rate and the interest rate a signal extraction approach this paper analyzes the joint determination of the exchange rate and the interest rate in a signal extraction framework in principle a given disturbance should generate a systematic relationship between the exchange rate and the interest rate as two endogenous variables in the context of any specified economic model when expectations matter however the introduction of imperfect information would weaken the comovement between the two endogenous variables that results from a given disturbance this simple point is demonstrated in a flexible price model of a small economy

real exchange rate effects of monetary shocks under fixed and flexible exchange rates abstract we analyze how the real exchange rate effects of monetary and real shocks depend on the exchange rate regime within a two country rational expectations model with confusion about money and real shocks the model demonstrates that the real exchange rate effect of unanticipated monetary shocks is negatively related to the variance of the domestically created money supply growth and that the effects of increasing domestic money variance on the real exchange rate are less under a fixed rate regime than under a flexible rate regime

turning bagehot on his head lending at penalty rates when banks can become insolvent ever since bagehot s 1873 pioneering work it is a widely accepted wisdom that in order to alleviate ex ante bank moral hazard a lender of last resort should lend at penalty rates only in a model in which banks are subject to shocks but can exert effort to affect the likelihood of these shocks we show that the validity of this argument crucially relies on banks always remaining solvent the reason is that when banks become insolvent bagehot s prescription dictates to let them fail penalty rates charged when banks are illiquid but solvent then reduce banks incentives to avoid insolvency ex ante and thus increase bank moral hazard we derive a condition which shows precisely when this effect on ex ante incentives outweighs the traditional one and show that it is fulfilled under plausible scenarios

time for revisionism on rent control economists traditional hostility to rent contols is based on models that treat the housing market as perfectly competitive and on the experience with hard controls in new york city and many european countries following world war ii the current soft rent control systems in north america are varied and qualitatively different from earlier hard controls the theoretical case against them is weak particularly when the housing market is viewed as imperfectly competitive the empirical case against them is weak too economists should reconsider their blanket opposition to current rent control systems and evaluate them on a case by case basis

flexible exchange rates prices and the role of news lessons from the 1970s recent experience with flexible exchange rate systems has led to renewed interest in the operation of foreign exchange markets as reflected in many recent studies of the principal determinants of exchange rates the 1970s witnessed the dramatic alteration of the international monetary system from a regime of pegged exchange rates which prevailed for about a quarter of a century since the bretton woods conference into a regime of flexible though managed rates as a consequence of the emergence of the new legal and economic system traders national governments and international organisations were confronted with new economic problems choices and instruments during the 1970s ex change rates fluctuated widely and inflation rates accelerated the international monetary system had to accommodate extraordinarily large oil related shocks which affected trade flows in goods and assets huge oil payments had to be recycled uncertainties concerning future developments in international politics reached new heights and the prospects for the world economy got gloomier these developments placed unprecedented pressures on the markets for foreign exchange as well as on other asset markets they were associated with a large slide in the value of the us dollar and resulted in speeding up the creation of new institutions like the european monetary system which provided the formal framework for the management of exchange rates among members

the economics of academic tenure a relational perspective abstract this analysis draws on recent work in analytical labor economics that shows the value of stable long term employment relationships tenure is conventionally portrayed as an economically wasteful institution justified if at all by its non economic value the present analysis identifies ways in which an extended probationary period followed by a lifetime guarantee of a well defined job is well adapted to features of academic work the most important of these are a the difficulty of monitoring faculty work performance and the highly specific character of b faculty jobs and c the training those jobs require the probation tenure system is contrasted with term contracting case studies support the theoretical inferences about the drawbacks of term contracting in an academic setting

real exchange rate effects of monetary disturbances under different degrees of exchange rate flexibility an empirical analysis abstract we examine the effects of monetary policy on the real exchange rate in a cross country analysis we find that the variability of money shocks and the degree of informativeness of the exchange rate are important determinants of the magnitude of the real exchange rate effects of domestic money shocks our results are consistent with previous cross country evidence on the output effects of money shocks but also highlight the role of the exchange rate regime

the transmission of disturbances under alternative exchange rate regimes with optimal indexing the paper develops a general stochastic macroeconomic model that can be used to study the international transmission of disturbances under four alternative exchange rate systems uniform flexible exchange rates uniform fixed exchange rates and two versions of two tier exchange rates the analysis makes two general points first one cannot assume stability of structure when assessing the consequences of alternative exchange rate regimes for example the slope of the aggregate supply curve and the rationally formed expectations in the asset markets can respond dramatically to the government s choice of exchange rate regime second exchange rate regimes that provide full insulation from foreign disturbances may nevertheless be inferior to other regimes in terms of their ability to maximize social welfare

imf bailouts and moral hazard this paper empirically investigates the extent of investor moral hazard associated with imf bailouts by analyzing the responses of sovereign bond spreads to the changes in the perceived probability of imf bailouts of countries undergoing financial crisis we do not find strong evidence that the extent of investor moral hazard changed after the non bailout of russia in august 1998 that signaled a modification to imf intervention policy in contrast we find evidence that investor moral hazard is intensified for those countries that have stronger political connections to the imf and that are thereby more likely to be bailed out by the imf this pattern prevailed even after the russian crisis

credit constraints job mobility and entrepreneurship evidence from a property reform in china this paper provides new evidence on the impact of private property rights on entrepreneurship i explore this issue in the context of a housing reform in urban china that allowed state employees renting state owned housing the opportunity to buy their homes at subsidized prices using the reform as an exogenous change in the capital constraints and mobility costs that inuence individuals entry

the misallocation of housing under rent control the standard analysis of price controls assumes that goods are efficiently allocated even when there are shortages but if shortages mean that goods are randomly allocated across the consumers that want them the welfare costs from misallocation may be greater than the undersupply costs we develop a framework to empirically test for misallocation the methodology compares consumption patterns for demographic subgroups in rent controlled and free market places we find that in new york city which is rent controlled an economically and statistically significant fraction of apartments appears to be misallocated across demographic subgroups jel c25 d12 d61 r20

the demand for housing in developing countries empirical estimates from household data cities in developing countries are growing at extraordinary rates often compressing into decades the urbanization process that has taken centuries in developed countries in coping with this growth public authorities have devised a wide range of policy instruments to influence the rate and character of city expansion to meet the needs of people for shelter and urban services and to allocate resources in ways that redistribute both the costs and benefits of urban growth ideally such policy formulation should be informed by a careful understanding of the behavior of urban markets in fact little information on market behavior is available to the policymakers of developing countries such basic information is needed for improved project design and even more important for improved sector wide policies this paper reports on research conducted at the world bank to increase understanding of developing country housing markets in particular of housing demand behavior while the overall project examines both the demand for housing characteristics and the demand for housing as a composite good this paper addresses only the latter the objectives of this paper are 1 to review briefly previous evidence on housing demand parameters in developing countries 2 to present new evidence on housing demand parameters based on application of standardized models and comparable variable definitions in 16 cities in eight developing countries colombia egypt el salvador ghana india jamaica korea and the philippines and 3 to examine similarities and differences among cities in housing demand and in a preliminary way offer explanations for place to place differences limited comparisons are also made to two u s cities in order to begin comparison of developing and developed country market behavior

government intervention land market and urban development evidence from chinese cities this article investigates how government intervention in land market affects china s urban development using data from prefecture level cities between 2000 and 2010 we find that government intervention enlarges the impact of positive productivity shocks on housing price appreciation through mainly the government control over residential land supply however we find no significant evidence that high government intervention constrains population growth and leads to wage increase such patterns of urban dynamics can be explained by the fact that migrant workers are the driving force behind china s urbanization but they have limited housing demand and are not well compensated jel p52 r12 h11

coordination failures and the lender of last resort was bagehot right after all the classical doctrine of the lender of last resort lolr elaborated by bagehot 1873 asserts that the central bank should lend to illiquid but solvent banks under certain conditions several authors have argued that this view is now obsolete in modern interbank markets a solvent bank cannot be illiquid this paper provides a possible theoretical foundation for rescuing bagehot s view our theory does not rely on the multiplicity of equilibria that arises in classical models of bank runs we built a model of banks liquidity crises that possesses a unique bayesian equilibrium in this equilibrium there is a positive probability that a solvent bank cannot find liquidity assistance in the market we derive policy implications about banking regulation solvency and liquidity ratios and interventions of the lender of last resort furthermore we find that public bailout and private bail in involvement are complementary in implementing the incentive efficient solution and that bagehot s lender of last resort facility must work together with institutions providing prompt corrective action and orderly failure resolution finally we derive similar implications for an international lender of last resort ilolr jel g21 g28

macroeconomic policy evaluation and optimal control theory a critical review of some recent developments abstract this survey addresses the recent literature on the application of optimal control theory and game theory to macroeconomic policy evaluation and design this literature focuses on strategic interactions between governments and private agents engaged in dynamic non cooperative games and emphasizes such issues as precommitment credibility and reputation as important and endemic aspects of optimal policy design a dominant theme is the problem of dynamic inconsistency and the inferiority of an equilibrium in single stage full information games without commitment this may be alleviated in repeated games involving reputation effects and threat strategies designed to coerce rivals into pursuing particular strategies and to sustain a sequential equilibrium the type and characteristics of a sequential equilibrium also depend importantly upon the information structure conditioning players beliefs under uncertainty included here are separating and pooling equilibria involving notions of learning signalling and information revelation additional dimensions exist in stochastic systems which introduce other forms of uncertainty optimal control and game theory have also been applied to international macroeconomic policy design with emphasis on the potential costs and benefits of non cooperative and cooperative behaviour between countries and problems of international policy coordination

adam smith goes to college an economist becomes an academic administrator the author asks whether it is useful to view universities in a utility maximizing framework and shows that university organizing virtually guarantees that the utility maximizing model is the incorrect approach he then discusses resource allocation issues at cornell and reflects upon how concepts that are obvious to economists helped or hindered decision making at cornell the author hopes to convey not that economic concepts are irrelevant in operating a university but rather that it takes a long time to explain to all the actors in the system why these concepts should matter and even longer to actually make them matter

equity and efficiency aspects of rent control an empirical study of new york city modem rent controls arose during world war ii to deal with the war related influx into urban areas since then numerous cities have either considered adopted or eliminated rent controls the policy debate about the desirability of rent controls continues unabated and becomes particularly acute when high inflation rates drive up rents rapidly rent controls have both efficiency and distributional consequences the economics literature has produced theoretical insights about the inefficiencies created by rent controls this literature is frequently cited by opponents of rent controls who argue that the efficiency costs of rent controls are manifested in a decaying housing stock and altered mobility patterns proponents of rent control invariably argue that the distributional impacts of rent controls outweigh efficiency costs considering the large number of cities that have investigated or adopted rent controls relatively little empirical research documents either the efficiency or distributional effects of rent controls the most notable exceptions are the studies of new york city by de salvo 3 olsen 13 and roistacher 15 and the studies of los angeles by rydell et al 16 and fallis and smith 4 more recently linneman lo and marks 12 have further examined ramifications of rent controls in new york city and vancouver this paper fills some gaps in knowledge about the effects of rent controls we examine rent controls in new york city in 1968 using the new york city housing and vacancy survey 2 the paper extends the work of olsen 13 although there are important differences in both the questions addressed and methodology used this paper examines in detail the distributional consequences of rent controls for new york city residents both

blueprint for an international lender of last resort abstract this paper proposes a low cost alternative to the large bailout packages that the international monetary fund imf has organized to address financial crises the imf would act as a lender of last resort faced with an unsustainable debt burden a government would declare default it would announce negotiations to restructure its debt at a sustainable level and a minimum restructured value of the debt during the restructuring period the imf would provide a cash support bid at a discount to the government s minimum offer the imf floor would guarantee liquidity and create a functioning market in the defaulted debt the proposal would remedy market failure preclude panic and contagion and facilitate an orderly debt restructuring this would be achieved without substantial official funds lenders would be forced to bear the risks they undertake thereby reducing moral hazard and future instability

tenure issues in higher education the system of tenure that dominates american higher education has long been a source of controversy the institution of tenure has been attacked for entrenching a lazy professoriate more interested in attending faraway conferences and producing unreadable research than in teaching or developing practical insights while on the other hand it has long been defended as an absolute necessity for the defense of open intellectual inquiry the tenure controversy has been sharpened in recent years by several events the end of mandatory retirement which was abolished by federal law effective january 1 1994 has heightened concerns about the productivity and commitment of professors who received tenure long ago and who no longer have the same incentives to invest in long term reputation there is also ongoing concern over the steadily rising cost of higher education which raises the question of what students as well as the taxpayers who support public institutions of higher education are getting for their money 1 the idea that tenure is a wasteful institution for universities runs up against the puzzling fact that the commitment to tenure is one that academic institutions impose on themselves although the american association of university professors aaup provides a powerful lobby in favor of tenure generally colleges and universities most notably private ones are under no legal requirement to observe tenure constraints although as administrators we certainly feel the weight of those constraints our view is that a tenure system in fact provides important benefits to society and to colleges and universities we argue here that the role of tenure is

the role of information acquisition and financial markets in international macroeconomic adjustment abstract international macroeconomic adjustment to money supply aggregate expenditure and relative demand disturbances is analyzed within a framework which emphasizes the role of information agents are unable to directly observe disturbances and may become fully informed about disturbances only by purchasing information we analyze how relative price and exchange rate adjustment depends on the variances of the underlying disturbances while taking into account the incentive to acquire information we also discuss the conditions which are necessary to preclude a free rider problem whereby uninformed agents are able to extract from observation of financial market conditions the exact information of the information buyers

the persistence of power despite the changing meaning of homeownership an age period cohort analysis of urban housing tenure in china 1989 2011 using nine successive waves of the china health and nutrition survey chns data set this study employs hierarchical age period cohort logistic models hapc to analyse temporal patterns of urban homeownership from 1989 to 2011 with the changing meaning of homeownership due to housing reforms the strong period increases in homeownership track policy changes and the most dramatic increase occurs mainly in the era of housing privatisation rather than housing commodification the temporal analyses also offer insights into housing stratification from redistribution to markets the positive effect of education on homeownership is explained by period increases in homeownership whereas working in state sectors has persistently attached to preferred housing tenure choice before and after the housing reforms moreover the significant cohort effect lends support to strengthened temporal inequalities in the reform era these findings not only provide a dynamic understanding of housing stratification in post so

exchange rate policy and monetary information this paper develops a model of a small open economy in which the presence of local deviations from purchasing power parity give rise to differential information it is assumed that the monetary authorities are committed to buy and sell foreign exchange in order to support an exchange rate policy rule it is demonstrated that exchange rate policy can influence the distribution of real output i if agents possess incomplete and differential information and ii if they have contemporaneous money supply or balance of payments information it is also shown that exchange rate policy can be effective because of its ability to influence the information content of available monetary data the argument is turned around and used to support the frequent release of monetary data

contagion of a liquidity crisis between two firms abstract this paper presents a model in which the contagion of a liquidity crisis between two nonfinancial institutions occurs because of learning activity within a common creditor pool after creditors observe what occurs in a rollover game for a firm they conjecture one another s type or attitude toward the risk associated with the firm s investment project creditors inference about one another s type then influences their decision to lend to the next firm by providing an analysis of the incidence of failure the threshold for a liquidity crisis for each firm this paper demonstrates that the risk of contagion increases sharply if it originates ex ante from a firm facing a low probability of failure in addition the paper proposes some policy measures for mitigating the severity of contagion during a liquidity crisis

catalytic finance when does it work in a model of debt crisis caused partly by creditor coordination failure we show that bailouts that reduce ex post inefficiency will sometimes enhance the incentives for governments to take costly adjustment effort this model helps us understand a debate about the role of the imf in catalyzing lending to developing countries

estimating the distortionary effects of ethnic quotas in singapore using housing transactions abstract desegregation is a key policy issue in many countries i investigate a residential desegregation program in singapore the ethnic housing quotas i show that choice restrictions imposed on apartment blocks above the quota limits constrained could have distortionary effects causing price and quantity differences for constrained versus unconstrained blocks i test these predictions by hand matching more than 500 000 names in the phonebook to ethnicities to calculate ethnic proportions at the apartment block level i can then investigate differences for constrained and unconstrained blocks close to the quota limits and test for sorting around the limits i find that price differences are between 3 and 5 quantity effects are economically significant translating to longer time on market durations selection cannot fully explain these results my results point to challenges in achieving desegregation using quantity restrictions

the shattered iron rice bowl intergenerational effects of chinese state owned enterprise reform reform of the chinese state owned enterprise soe sector in the late 1990s triggered massive layoffs 34 million employees and marked the end of the iron rice bowl guarantee of employment security for the remaining 67 million workers an expanding international literature has documented the adverse health impacts of economic insecurity on adults but has typically neglected children this paper uses the natural experiment of soe reform to explore the causal relationship between increased parental economic insecurity and children s bmi z score using province year level layoff rates and income loss from the layoffs we estimate a generalised difference in differences model with child fixed effects and year fixed effects for a medium build 10 year old boy a median treatment effect implies a gain of 1 8 kg and a 2 2 percentage point increase in the overweight rate due to the reform anxiety about potential losses causes weight gain for boys whose soe parents kept their jobs unconditional quantile regressions suggest that boys who are heavier are more likely to gain weight girls are not significantly affected intergenerational effects therefore increase the estimated public health costs of greater economic insecurity