targeting inflation by constant interest rate forecasts this paper reviews the concept of constant interest rate inflation forecast cir targeting it stresses the time inconsistent nature of cir targeting and provides a new method for constructing cir forecasts consistently in the context of models with forward looking variables a dynamic new keynesian model with forward looking price setting is used as an illustration suggesting that the main reason for choosing a relatively long forecast targeting horizon lies in the monetary authorities objective to smooth interest rate movements as greater nominal and real stabilization is achieved at a relatively short inflation forecast targeting horizon

measuring movement of incomes we consider a small set of elementary properties for income movement measures and show that there is essentially only one measure that satisfies all of these properties the per capita aggregate change in log incomes we demonstrate next that this movement mobility measure has a number of appealing descriptive and normative properties and provide a formal generalization of our basic characterization theorem drawing from the related literature on poverty measurement finally we present here an empirical application in which we show by using our new measure that there has been a broad based increase in income movement in the united states between the 1970s and 1980s

adjustment costs and indeterminacy in perfect foresight models abstract this paper suggests a method for resolving indeterminacy of equilibrium in perfect foresight models and applies it to several existing models quadratic adjustment costs are introduced into models with multiple equilibria and the limiting behavior of the resulting solutions is studied as the adjustment costs go to zero the method is shown to be useful in selecting among feasible equilibria in examples in which there is local indeterminacy

stable near rational sunspot equilibria abstract we introduce a new class of solutions to nonlinear forward looking models called near rational sunspot equilibria nrse nrse are natural nonlinear extensions of the usual sunspot equilibria associated with the linearized version of the economy and are near rational in that agents use the optimal linear forecasting model when forming expectations generic results for existence and stability under learning are established nrse in indeterminate nonlinear models are found to be stable under learning provided that the corresponding linearized model s minimal state variable solution is e stable nrse are readily computable and our results make it possible to use the standard linear tools to search for stable nrse we illustrate our results using a canonical nonlinear new keynesian model

the trend and the measurement of world inequality over extended periods of accounting abstract the principal result of this paper is the demonstration of a method for measuring an index of e g nominal gnp over extended periods of time and the inequality thereof snap shot inequality for specific points in 1964 1972 and 1980 is also reported and decomposed for six subgroups in 122 countries

an index of inequality with applications to horizontal equity and social mobility horizontal equity and social mobility are discussed in terms of a non utilitarian social welfare function which takes account of the process by which an ex ante distribution is mapped into an ex post distribution by the tax system for example an index of inequality is proposed which decomposes into two components corresponding to vertical and horizontal equity respectively a functional form for the social welfare function is derived for the purposes of empirical work and an application to data for 5895 uk households is presented the paper contains a theoretical application of the index to a model of optimal taxation it is conventional to assess the merits of alternative public policies in terms of a trade off between equity and efficiency in practice however a change in say the tax system involves three effects first it may have incentive or disincentive effects leading to efficiency gains or losses secondly it may alter the distribution of welfare levels thirdly it may alter the ranking of individuals or households within the distribution these three effects correspond to efficiency vertical equity and we shall argue certain aspects of horizontal equity respectively and any assessment of a tax change must take into account all three the principal assumption of this paper is that government is concerned about the trade off between these three effects a strict utilitarian is concerned only with the consequences of an action and in the evaluation of a particular reform a utilitarian measure of social welfare is defined over the vector of ex post utilities no account is taken of the process by which the vector of ex ante utilities is mapped into the ex post vector and no ethical status is awarded to the ex ante distribution one does not have to adopt an entitlement theory of justice to believe that the utilitarian approach may ignore some relevant considerations such as the fairness of the redistributive process a striking example of this arises in the model used by mirrlees 11 to examine optimal income taxation in that model individuals have identical preferences defined over consumption and leisure and differ only in respect of their potential wage rates or ability levels clearly in the absence of taxation individual utility is an increasing function of ability suppose the government uses redistributive lump sum taxes to achieve the first best optimum then as mirrlees 11 12 shows the first best optimum for a utilitarian social welfare

changes in the world distribution of income between 1950 and 1977 trends in the world distribution of income are much discussed and philosophised about the issue of increasing economic inequality among nonsocialist countries in the post war period is central to the debate about the international economic order in i969 the pearson commission report was already pointing to the widening gap between the developed and developing countries as a central issue of our time and was proposing the reduction of that gap as the main objective of international co operation according to that report gnp per capita had increased between i960 and i967 at annual rates of 2 5 and 3 6 in developing and developed countries respectively morawetz i978 found that the gap between the two sets of countries rose from i 2 6 fold in i950 to i3 2 fold in i975 other authors see a more complicated picture atkinson i975 for instance has argued that although the share of poor countries in world income probably declined between i950 and i970 that of the countries at the middle of the world distribution probably increased 2 what may be a mere assessment of relative growth performances among nonsocialist countries becomes a basic theoretical element in the radical stream of economic literature for authors like amin i974 emmanuel i972 and frank i978 the capitalist mode of development necessarily leads to the rich countries of the centre becoming richer and poor countries of the periphery becoming poorer in a degree depending on their involvement in international trade for them a widening gap between developed and developing countries is simply the statistical confirmation of an unavoidable consequence of the national and international capitalist system in the latter perspective the issue at stake is of such importance that the contrast between the abundance of theoretical literature and the lack of empirical work is striking the few existing studies of changes in world distribution provide an inadequate picture intra country income distributions are not taken into account observation periods do not exceed i5 years 8 for andic and peacock i96i and for beckerman and bacon i970 i5 for kirman and tomasini i969 socialist as well as some non socialist countries are excluded and national incomes are converted to u s dollars at official exchange rates 3 finally none of these studies covers the i970s although several shocks which might have affected world distribution occurred during that decade for the non socialist countries to which they refer the andic peacock and beckerman bacon studies found the gini coefficient almost constant over

optimal allocation policies in a two echelon inventory problem with fixed shipment costs this study investigates the stock allocation problems in a two echelon distribution system which consists of a central warehouse and two identical retailers we restrict our attention to two period order cycles where the period lengths are allowed to be different shipments from the supplier to the warehouse arrive at the beginning of the order cycle i e at the beginning of the first period in each order cycle there are two shipment opportunities from the warehouse to the retailers at the beginning of the first and the second periods in each shipment realization a fixed shipment cost is incurred in each period a random demand is observed at each retailer which is assumed to follow a normal distribution the overall two stage problem is to determine the optimal allocation policies at the beginning of each period so that the expected two period inventory holding shortage and the shipment costs will be minimum in this work we characterize the optimal policy for the second period allocation problem as a function of the stock levels of the retailers at the beginning of the second period and the reserve stock held at the warehouse furthermore we provide sufficient conditions for which realizing an allocation yields inferior expected costs over keeping the reserve stock at the warehouse a simulation model is employed to find the optimal first period decision parameters

how much income mobility is there in britain using the first four waves of the british household panel survey 1991 4 and a variety of methods we show that there is much mobility in household net income from one year to the next in britain however most income changes from one year to the next are not very large and when incomes are longitudinally averaged so that transitory variations are smoothed out substantial permanent income differences are revealed there is some evidence of greater mobility for those in the tails of the income distribution relative to the middle and for elderly persons compared to non elderly persons

intercountry inequalities in income and index of net social progress evidence from recent data abstract intercountry income inequality is computed from real gdp data that became available recently from phase iv of international comparisons project similar inequality measures are also calculated for index of net social progress proposed by estes 1983 and for conventional gnp per capita although the three indicators are strongly and positively correlated intercountry inequality indices derived from these are rather dramatically different

the meaning and measurement of income mobility abstract income mobility may be seen as arising from two sources i the transfer of income among individuals with total income held constant and ii a change in the total amount of income available in this paper we propose several sensible properties defining the concept of income mobility and show that an easily applicable measure of mobility is uniquely implied by these properties we also show that the resulting measure is additively decomposable into the two sources listed above namely mobility due to the transfer of income within a given structure and mobility due to economic growth or contraction finally these results are compared and contrasted with other mobility concepts and measures in the literature journal of economic literature classification numbers d31 d63

adjustment costs learning and indeterminacy abstract i compare the adjustment cost and learning approaches to resolving indeterminacy of perfect foresight equilibrium in a continuous time model with local indeterminacy rapid learning tends to select different perfect foresight equilibria of the original model than does the inclusion of vanishing adjustment costs this difference has implications for the dynamic response of the economy to unanticipated shocks

on non uniqueness in rational expectations models an attempt at perspective abstract many macroeconomic models involving rational expectations give rise to an infinity of solution paths even when the models are linear in all variables some writers have suggested that this non uniqueness constitutes a serious weakness for the rational expectations hypothesis one purpose of the present paper is to argue that the non uniqueness in question is not properly attributable to the rationality hypothesis but instead is a general feature of dynamic models involving expectations it is also argued that there typically exists in a very wide class of linear rational expectations models a single solution that excludes bubble or bootstrap effects one that occur only because they are arbitrarily expected to occur a systematic procedure for obtaining solutions free from such effects is introduced and discussed in addition this procedure is used to interpret and reconsider several prominent examples with solution multiplicities including ones developed by fischer black and john b taylor

price level determinacy with an interest rate policy rule and rational expectations abstract this paper reconsiders a result obtained by sargent and wallace namely that price level indeterminacy obtains in their model if the monetary authorities adopt a feedback rule for the interest rate rather than the money stock it is shown that the indeterminacy vanishes if the interest rate rule is chosen so as to have a desired effect on the expected quantity of money demanded this holds even if considerable weight is given in the choice of a rule to the aim of smoothing interest rate fluctuations

comparative statics and perfect foresight in infinite horizon economies does a pure exchange economy with an infinite time horizon have determinate perfect foresight equilibria when there is a finite number of infinitely lived agents equilibria are generically determinate this is not true with overlapping generations of finitely lived agents we ask whether the initial conditions together with the requirement of convergence to a steady state locally determine an equilibrium price path in this framework there are many economies with isolated equilibria many with continua of equilibria and many with no equilibria at all with two or more goods in every period not only can the price level be indeterminate but relative prices as well furthermore such indeterminacy can occur whether or not there is fiat money and whether or not the equilibria are pareto efficient this paper considers whether infinite horizon economies have determinate perfect foresight equilibria this question is of crucial importance if instead equilibria are locally indeterminate not only are we unable to make comparative static predictions but the agents in the model are unable to determine the consequences of unanticipated shocks the idea underlying perfect foresight is that agents expectations should be the actual future sequence predicted by the model if the model does not make determinate predictions the concept of perfect foresight is meaningless we consider two extreme cases the first with a finite number of infinitely lived consumers and the second with an infinite number of finitely lived consumers an overlapping generations model both are models of stationary pure exchange economies no production including the storage of goods between periods can occur these models are unrealistic but are the easiest to study extensions of the results of this paper to models with production infinitely lived assets and mixtures of the two types of consumers are presented by muller and woodford 29 when there is a finite number of infinitely lived consumers we argue that equilibria are generically determinate this is because the effective number of equations determining equilibria is not infinite but equal to the number of agents minus one and must determine the marginal utility of income for all but one agent generically near an equilibrium these equations are independent and exactly determine the unknowns when there are infinitely many overlapping generations this reasoning breaks down an infinite number of equations is not necessarily sufficient to determine

another perspective on changes in international inequality from 1950 to 1980 abstract real income data derived from the third phase of the international comparisons project are used to compute theil s population weighted indices of intercountry inequality for several years between 1950 and 1980 contrary to some recently reported results a substantial increase in inequality is observed internationally comparable consumption data indicate consumption inequality increased more than income inequality

a simple nonnegative process for equilibrium models abstract this paper presents a general specification for dynamic equilibrium models where nonnegative variables follow the autoregressive gamma process in jasiak and gourieroux 2006 the model solution implies linear dynamics for endogenous variables and provides conditional and unconditional moments in closed form finding the solution is computationally inexpensive requiring only to solve linear and quadratic equations the specification can be applied to a wide variety of models in finance and economics two applications are presented first a time varying volatility premium in a long run risks asset pricing model second time varying volatility in policy shocks in a simple new keynesian model accuracy in these models solutions is high and not significantly affected by time varying volatility

spending reversals and fiscal multipliers under an interest rate peg this paper examines whether fiscal stimuli are more effective when the monetary policy is less responsive to inflation first we provide empirical evidence suggesting that in the period of u s passive monetary policy a positive government spending shock was followed over time by a spending cut second our theoretical analysis reveals that the pegged nominal interest rate is not a sufficient condition to generate a large fiscal multiplier an increase in government spending could increase the long run real interest rate if it is associated with a government spending reversal and a less responsive monetary policy consequently the response of private consumption can be negative and the government spending multiplier is not necessarily greater than 1

international inequalities in human development and real income abstract two well recommended measures are used to compute intercountry inequalities in real gdp per capita ry and the index of human development hdi despite very high positive correlation between ry and hdi the inequality measures reveal dramatically different pictures

a test for speculative bubbles in the sterling dollar exchange rate 1981 84 the u s dollar price of the u k pound sterling is tested for a speculative bubble defined as a period with a nonzero median in excessreturns a nonparametric procedure is developed which controls for data mining over the period of flexible exchange rates and finds a negative bubble in the excess return to holding sterling rather than dollar assets during the period 1981 84 possible interpretations arebootstrap equilibria rational bubbles nonsym metric fundamentals and nonrational expectations copyright 1986 by american economic association

adaptive behavior and economic theory the relationship between psychological and economic views of behavior once a subject of heavy dispute is now understood in a very similar way by practitioners of both these disciplines and of our sister social sciences in general terms we view or model an individual as a collection of decision rules rules that dictate the action to be taken in given situations and a set of preferences used to evaluate the outcomes arising from particular situation action combinations these decision rules are continuously under review and revision new decision rules are tried and tested against experience and rules that produce desirable outcomes supplant those that do not i use the term adaptive to refer to this trial anderror process through which our modes of behavior are determined if one is interested in modeling particular decisions in any very explicit way it is obviously necessary to think about rather narrow aspects of an individual s entire set of decision rules his or her personality experimental psychology has traditionally focused on the adaptive process by which decision rules are replaced by others in this tradition the influence of the subject s or as an economist says the agent s preferences this essay uses a series of examples to illustrate the use of rationality and adaptation in economic theory it is argued that these hypotheses are complementary and that stability theories based on adaptive behavior may help to narrow the class of empirically interesting equilibria in certain economic models an experiment is proposed to test this idea

intercountry inequalities in income and basic needs indicators a recent perspective abstract large crosscountry samples are used to compute intercountry inequalities in income and three indicators of basic needs fulfillment first the familiar picture of high intercountry inequality in income coexisting with low inequality in basic needs indicators is reaffirmed for the 1980s second income inequality seems to have continued its increasing trend third however while the pace of increase in inequality in conventional gdp per capita has accelerated accentuation of inequality in real gdp per capita has slowed fourth inequality in basic needs indicators continues to decline last caution is urged in interpreting the very low values observed for some indices of inequality in basic needs fulfillment during the 1980s

has monetary policy become more effective we investigate the implications of changes in the structure of the u s economy for monetary policy effectiveness estimating a vector autoregression over the pre and post 1980 periods we provide evidence of a reduced effect of monetary policy shocks in the latter period we estimate a structural model that replicates well the economy s response in both periods and perform counterfactual experiments to determine the source of the change in the monetary transmission mechanism and in the economy s volatility we find that by responding more strongly to inflation expectations monetary policy has stabilized the economy more effectively in the post 1980 period

fiscal policy in the new neoclassical synthesis we analytically derive the cyclical effects of fiscal policy shocks in a new neoclassical synthesis model price stickiness has the consequence that a rise in government demand affects labor demand while at the same time the usual wealth effect boosts labor supply the strength of the demand effect depends on the response of the real interest rate governed by the monetary policy regime when the central bank controls money growth fiscal expansions are deflationary and might even be contractionary whereas output wages and inflation can increase when the rise in the real interest rate is dampened by an interest rate rule however price stickiness alone is not sufficient to explain a rise in consumption as predicted by keynesian theory

equilibrium beliefs in linear rational expectations models abstract non unique equilibria are widely found in dynamic models with money increasing returns and imperfect competition this paper provides a convenient method for representing the entire set of equilibria in a large class of models similar to those studied by blanchard and kahn the method utilizes restrictions imposed on comovements implied by the structures of such models it is an aid in theoretical analysis and can be instrumental in the development of econometric tests of indeterminacy and sunspots important restrictions on admissible non fundamental uncertainty and on model forecasts are also highlighted

factor decomposition of cross country income inequality 1960 1990 abstract in this paper we present esteban s 1994 esteban j 1994 la desigualdad interregional en europa y en espana descripcion y analisis in esteban j m a vives x dirs crecimiento y convergencia regional en espana y en europa vol 2 instituto de analisis economico decomposition of the theil index of inequality over per capita incomes into the unweighted sum of the inequality indices of i the productivity per employed worker ii the employment rate iii the active over working age population rate and iv the working age over total population rate each of these factors clearly have different meanings for analysis as well as for policy we apply this factoral decomposition to a set of 120 countries we also contrast the empirical findings with the results obtained for the 23 oecd countries oecd labour force statistics several issues paris

seeking a comprehensive measure of economic well being annuitisation versus capitalisation abstract biases in inequality measures arise when components of comprehensive measures of economic well being are estimated using cross section data biases under annuitisation are small and bounded unlike biases under capitalisation this recommends the annuity over the capitalisation approach

international income mobility abstract we perform a novel analysis of the international mobility of per capita gnp we find general but not unambiguous support for the notion that world income mobility increased between 1972 and 1992 counterpointing the increased inequality over this period

phillips curve instability and optimal monetary policy this paper assesses the implications for optimal discretionary monetary policy if the slope of the phillips curve changes the paper first derives a phillips curve from the optimal pricing decision of a monopolistic firm that faces a changing cost of price adjustment the second aspect of the paper constructs a utility based welfare criterion a novel feature of this criterion is that is has a relative weight on output gap deviations that changes synchronously with changes in the cost of price adjustment the systematic component of the targeting rule that implements the optimal discretionary policy under the utility based criteria is constant in contrast the systematic component of the targeting rule under an ad hoc criteria changes along with changes in the slope of the phillips curve

measuring social mobility as unpredictability by associating mobility with the unpredictability of social states new measures of social mobility may be constructed we propose a family of three state by state and aggregate scalar predictability measures the first set of measures is based on the transition matrix the second uses a sampling approach and permits statistical testing of the hypothesis of perfect mobility providing a new justification for the use of the x2 statistic the third satisfies the demanding criterion of period consistency an empirical example demonstrates the usefulness of the new measures to complement existing ones in the literature

the phillips curve the persistence of inflation and the lucas critique evidence from exchange rate regimes comment we present evidence from the united states and the united kingdom that the persistence of price inflation is significantly higher under managed exchange rate regimes than under gold based fixed exchange rate regimes these differences are also reflected in expectations augmented phillips curves we use a two country macro model with forward looking price setters to demonstrate that higher monetary accommodation of inflation and exchange rate accommodation of inflation differentials increase inflation persistence the evidence does not contradict this hypothesis it supports the hypothesis of forward looking price setters and highlights the empirical significance of the lucas critique jel e31 e42 f33

monetary policy expectations and commitment commitment in monetary policy leads to equilibria that are superior to those from optimal discretionary policies a number of interest rate reaction functions and instrument rules have been proposed to implement or approximate commitment policy we assess these rules in terms of whether they lead to a rational expectations equilibrium that is both locally determinate and stable under adaptive learning by private agents a reaction function that appropriately depends explicitly on private sector expectations performs particularly well on both counts

backward and forward solutions for economies with rational expectations in models where anticipations of future endogenous variables influence current behavior there exists an infinity of solutions under the assumption of rational expectations this problem has been dealt with in the study of macro economic models by the implicit or explicit use of one of three additional requirements optimality consistency with alleged economic behavior or conformity of the endogenous variables to an imposed stationarity condition these requirements have coincided in existing models leading to the choice of a unique solution a forward solution the purpose of this paper is to review the problem characterize the solutions and examine whether these requirements are acceptable section i presents a simple model and derives the set of solutions the model makes no claim to generality but has the major advantage that the issues are easily understood in this simple case section ii discusses the requirement of consistency with economic behavior section iii discusses the requirement of stationarity and section iv provides some conclusions