generalized models of japanese demand for fish given a relative lack of knowledge about japanese consumer preferences for fish japanese fish demand is modeled using both marshallian ordinary and inverse demand systems each of which nests a number of competing specifications results indicate that the inverse demand systems dominate the ordinary demand systems in forecasting performance and in nonnested tests the inverse system suggests that japanese fish prices are less responsive to changes in consumption than found in previous studies

inflation and welfare in a monetary economy it is in everyone s private interest to try to get someone else to hold non interest bearing cash and reserves but someone has to hold it all so these efforts must simply cancel out all of us spend several hours per year in this effort and employ thousands of talented and highly trained people to help us these person hours are simply thrown away wasted on a task that should not have to be performed at all

liquidity infinite horizons and macroeconomic fluctuations abstract this paper develops a computable dynamic general equilibrium model in which corporate demand for liquidity is endogenously determined in the model liquidity demand is motivated by moral hazard as in holmstrom and tirole j politic econom 106 1998 1 as a result of incorporating agency cost and endogenously determined liquidity demand the model can replicate an empirical business cycle fact the hump shaped dynamic response of output which is seldom observed in standard rbc dynamics further in the model the corporate demand for liquidity from a financial intermediary credit line for instance is pro cyclical while the degree of liquidity dependence defined as liquidity demand divided by corporate investment is counter cyclical these business cycle patterns are consistent with a stylized fact empirically verified in the lending view literature

units of measurement and the stone index in demand system estimation the stone index typically used in estimating linear almost ideal demand systems is not invariant to changes in units of measurement which may seriously affect the approximation properties of the model a modification to the stone index or use of a regular price index instead are both desirable practices in estimating linear ai models

addiction and discounting abstract in 1988 becker and murphy becker g s murphy k m 1988 a theory of rational addiction journal of political economy 96 675 700 launched a theory in which they proposed that the perspective of rational decision making could be applied also to cases of addictive behaviour this paper discusses the theory s assumptions of interpersonal variation and stability in time preferences on the basis of estimates derived from three groups of people with different consumption levels of illegal intoxicants we find that active injectors of heroin and amphetamine have a higher discount rate than a group reporting that they have never used the substances of greater interest though not in accordance with becker and murphy s assumption of stability we also find that the discount rate among active and former users differs significantly these findings raise the question of whether a high time preference rate leads to addiction or whether the onset of an addiction itself alters people s inter temporal equilibrium

consumption baskets and currency choice in international borrowing abstract we propose a novel explanation for the empirically low prevalence of external borrowing in local currency in emerging market economies a phenomenon sometimes referred to as the original sin of international finance we study the endogenous currency denomination of an emerging economy s assets and liabilities within the context of a dynamic stochastic general equilibrium dsge model with portfolio choice featuring non tradable goods and nominal rigidities we find that these features lower the correlation between the local currency and domestic lenders consumption they thus reduce the risk premium demanded by domestic lenders on local currency debt and can therefore help explain the low willingness of foreigners to lend in local currency

entrepreneurship social mobility and income redistribution in south india development economists have been preoccupied with the problem of increasing the size of the gnp pie to the relative neglect of its distribution despite the recent disenchantment with the viewpoint that all classes share in the benefits of industrial growth empirical data on the distribution of income business opportunity and economic power are in short supply many of the studies on entrepreneurship and economic development when they are not apologetics for ruthless capitalist exploitation as paul baran suggests extol the achievements of the capitalist entrepreneur without examining class origins and monopoly advantage joseph schumpeter sees entrepreneurs irrespective of class origin as heroic figures with the dream and will to found a private kingdom to conquer adversity to achieve success for its own sake and to experience the joy of creation for gustav papanek 1967 the private entrepreneur who is frugal diligent far sighted remarkably able and willing to take political risks is in large part responsible for the success of pakistan in achieving rapid industrialization

liquidity effects monetary policy and the business cycle this paper presents a flexible price quantitative general equilibrium model with the property that a positive money supply shock drives the nominal interest rate down and aggregate employment output and the real wage up these implications are broadly consistent with postwar u s data the two key features of the model that are responsible for its properties are 1 money shocks have a heterogeneous impact on agents and 2 ex post inflexibilities in production give rise to a very low short run interest elasticity of money demand in our model the extent of the drop in the interest rate after a positive money supply shock depends on the degree to which production is ex post inflexible given sufficient ex post inflexibility the model conforms well with the view widely held within the u s federal system that the short run interest rate elasticity for total reserves is very close to zero copyright 1995 by ohio state university press

a banking explanation of the us velocity of money 1919 2004 the paper shows that us gdp velocity of m1 money has exhibited long cycles around a 1 25 per year upward trend during the 1919 2004 period it explains the velocity cycles through shocks constructed from a dsge model and annual time series data ingram et al 1994 model velocity is stable along the balanced growth path which features endogenous growth and decentralized banking hat produces exchange credit positive shocks to credit productivity and money supply increase velocity as money demand falls while positive goods productivity shock raises temporary output and velocity the paper explains such velocity volatility at both business cycle and long run frequencies with filtered velocity turning negative starting during the 1930s and the 1987 crashes and again around 2003 results suggest that the money and credit shocks appear to be more important for velocity during less stable times and the goods productivity shock more important during stable times

on price indices in the almost ideal demand system a number of papers have discussed the relationship between the almost ideal demand system aids and its linear approximation la aids in this paper it is shown that if the prices in the system are normalized to one the aids and la aids representations are identical at the point of normalization also at the point of normalization the expressions for price and expenditure elasticities from both systems are identical

flight to liquidity and the great recession abstract this paper argues that counter cyclical liquidity hoarding by financial intermediaries may strongly amplify business cycles it develops a dynamic stochastic general equilibrium model in which banks operate subject to agency problems and funding liquidity risk in their intermediation activity importantly the amount of liquidity reserves held in the financial sector is determined endogenously balance sheet constraints force banks to trade off insurance against funding outflows with loan scale a financial crisis simulated as an abrupt decline in the collateral value of bank assets triggers a flight to liquidity which strongly amplifies the initial shock and induces credit crunch dynamics sharing key features with the great recession the paper thus develops a new balance sheet channel of shock transmission that works through the composition of banks asset portfolios

international capital flows portfolio composition and the stability of external imbalances abstract this paper develops a simple and tractable model of net capital flows in which time varying gross country portfolios are an essential element in current account imbalances the main constituents of country portfolios in the model are general derivatives which could be interpreted as nominal bond assets and liabilities in particular under very weak conditions the world wealth distribution is stationary stationarity is generated by movements in derivative i e bond risk premia such that the return on a debtor country s gross liabilities is less than the return on its gross assets this is well known feature of the us international investment position we also provide suggestive evidence that a similar property holds more widely for a sample of advanced and emerging market countries

liquidity loanable funds and real activity abstract this paper develops a general equilibrium model of two traditional explanations of the monetary black box linking money and real activity the liquidity effect and the loanable funds effect these effects are modeled with a monetary production economy in which central bank injections of cash are funnelled into the economy through the credit market since only borrowers have direct access to the newly injected cash monetary injections cause nominal interest rates to fall if firms are borrowers then monetary injections also increase current and future real activity

the financial cycle and macroeconomics what have we learnt abstract it is high time we rediscovered the role of the financial cycle in macroeconomics in the environment that has prevailed for at least three decades now it is not possible to understand business fluctuations and the corresponding analytical and policy challenges without understanding the financial cycle this calls for a rethink of modelling strategies and for significant adjustments to macroeconomic policies this essay highlights the stylised empirical features of the financial cycle conjectures as to what it may take to model it satisfactorily and considers its policy implications in the discussion of policy the essay pays special attention to the bust phase which is less well explored and raises much more controversial issues

the output costs of hard and soft sovereign default abstract how costly are sovereign debt crises in this paper we study output losses during sovereign default and debt renegotiation episodes since 1980 in contrast to previous work we account for the severity of default and not only for its occurrence specifically we distinguish between hard and soft defaults using new data on debtor payment and negotiation behavior and on the size of haircuts towards private external creditors we show that hard defaults are associated with a much steeper drop in gdp of up to ten percent compared to soft defaults the results are consistent with theoretical models assuming proportional output costs of default

the duration of the smoking habit i introduction most smokers smoke out of habit once the habit is ended many of smoking s most harmful effects decline rather quickly preventing and ending cigarette addiction is therefore the straightest path toward preventing the health damage done by cigarette smoking consequently the related questions of why people start smoking and why they quit are central to formulating and evaluating effective antismoking policies duration or hazard models are designed to measure the probability of transition between states and are thus ideal for investigating the structural determinants of the transition between addiction and non addiction nevertheless most previous work in the economics literature uses the aggregate smoking participation rate defined as the percentage of people who currently smoke or an individual s probability of participation rather than a hazard rate to measure the attractiveness of habitual smoking this paper models the hazard rates of both starting and quitting the cigarette smoking habit the starting hazard rate is the probability that an individual will start smoking in a given time period conditional on being a nonsmoker until then the quitting hazard rate is the probability of quitting smoking in a given time period conditional on being a smoker since the starting date both of these rates should rise and fall in response to changes in the attractiveness of smoking the two rates will respond differently to different stimuli since the starting hazard reflects the point of view of nonsmokers and the quitting hazard reflects the point of view of smokers hazard or duration models possess several advantages over smoking participation models most obviously smoking participation rates cannot directly distinguish between increased starting rates and decreased quitting rates but the hazard models can also in a participation rate model it is difficult to control for the effect of the duration of the habit whereas duration models are designed specifically to allow for and measure the dependence of the hazard rate on duration another advantage is that the participation rate at any one time will oversample the number of long term smokers relative to those who had a short term habit whereas a duration model is designed to avoid this source of bias one drawback however is that because of their inherent panel nature the data requirements of duration models are somewhat more difficult to satisfy as shall be seen the only previous work in the economics literature that estimates the hazard rate of starting smoking is douglas and hariharan 1994 my paper improves upon douglas and hariharan in at least three important ways first it estimates the hazard rate of quitting smoking as well as that of starting second it takes into account variation in state level regulation third its time varying covariate model allows hazard rates to respond dynamically to changes in cigarette price regulation and information variables the use of time varying covariates is important because it brings the empirical model into much closer accord with theory the decision whether or not to start or quit smoking is an ongoing decision made one day at a time on the basis of current information the hazard of starting is greatest when the cost of the habit appears lowest and its benefit appears highest this comparison of cost and benefit changes through time as price information income and life cycle variables change while douglas and hariharan 1994 used price information from the potential smoker s most vulnerable age on the theory that its marginal effect is greatest at that time the model used in this paper allows each individual s hazard rate to respond to changes in price and public information as they occur the leading theoretical model of the decision to smoke is the rational addiction model of becker and murphy 1988 which assumes that consumers of addictive goods begin smoking only after fully weighing the costs and benefits of the habit

inflation and balanced path growth with alternative payment mechanisms the paper shows that contrary to conventional wisdom an endogenous growth economy with human capital and alternative payment mechanisms can robustly explain major facets of the long run inflation experience a negative inflation growth relation is explained including a striking nonlinearity found re peatedly in empirical studies a set of tobin 1965 effects are also explained and further linked in magnitude to the growth effects through the interest elasticity of money demand undis closed previously this link helps fill out the intuition of how the inflation experience can be plausibly explained in a robust fashion with a model extended to include credit as a payment mechanism

corporate structure liquidity and investment evidence from japanese industrial groups this paper presents evidence suggesting that information and incentive problems in the capital market affect investment we come to this conclusion by examining two sets of japanese firms the first set has close financial ties to large japanese banks that serve as their primary source of external finance and are likely to be well informed about the firm the second set of firms has weaker links to a main bank and presumably faces greater problems raising capital investment is more sensitive to liquidity for the second set of firms than for the first set the analysis also highlights the role of financial intermediaries in the investment process

the demand for cocaine by young adults a rational addiction approach abstract this paper applies the rational addiction model to the demand for cocaine by young adults in the monitoring the future panel the price of cocaine is added to this survey from the drug enforcement administration s system to retrieve information from drug evidence results suggest that annual participation and frequency of use given participation are negatively related to the price of cocaine in addition current participation frequency is positively related to past and future participation frequency the long run price elasticity of total consumption participation multiplied by frequency given participation of 1 35 is substantial

an economic theory of self control the concept of self control is incorporated in a theory of individual intertemporal choice by modeling the individual as an organization the individual at a point in time is assumed to be both a farsighted planner and a myopic doer the resulting conflict is seen to be fundamentally similar to the agency conflict between the owners and managers of a firm both individuals and firms use the same techniques to mitigate the problems which the conflicts create this paper stresses the implications of this agency model and discusses as applications the effect of pensions on saving saving and the timing of income flows and individual discount rates

the aftermath of financial crises a look on human and social wellbeing summary alongside its detrimental macroeconomics impacts financial crises can have substantial negative consequences on human and social wellbeing employing a cross country dataset on more than 100 banking and or currency crises during 1981 2007 this work examines the effects of financial crises on indicators of human and social wellbeing through employing an event study analysis the findings of this analysis suggest that the aftermaths of financial crises are characterized by increases in the growth rates of suicide rates crime rates and income inequality rates relative to their pre crisis trajectories additionally declines in the growth rates of health and educational expenditures government welfare expenditures and food quality and quantity intakes are common during periods immediately following financial crises such deteriorations are observed across different countries with income levels and also for crises that are and are not accompanied by recessions on average though human and social indicators are hit harder during financial crisis events accompanied by recessions this is especially true for crises in low and middle income economies in comparison to those in high income countries as a result not only are financial crises directly responsible for more rapid increases in income inequality within countries they may also be responsible for increasing inequalities of income security health nutrition and educational outcomes between richer and poorer countries needless to say deteriorations in many of these fronts are often associated with persistent or permanent losses in human and social wellbeing and cannot be assumed to be simply and immediately reversed with an economic recovery therefore the paper calls on the need for more concerted effort on the part of the policymakers to actively protect human and social outcomes during financial crises rather than trying to address such losses in the aftermath of crises because some of these losses are simply not recoverable

news sovereign debt maturity and default risk abstract leading into a debt crisis interest rate spreads on sovereign debt rise before the economy experiences a decline in productivity suggesting that news about future economic developments may play an important role in these episodes an empirical var estimation shows that a news shock has a larger contemporaneous impact on sovereign credit spreads than a comparable shock to labor productivity a quantitative model of news and sovereign debt default with endogenous maturity choice generates impulse responses and a variance decomposition similar to the empirical var estimates the dynamics of the economy after a bad news shock share some features of a productivity shock and some features of sudden stop events however unlike during sudden stop episodes long term debt does not shield the country from bad news shocks and it may even exacerbate default risk finally an increase in the precision of news allows the government to improve its debt maturity management especially during periods of high stress in credit markets and thus face lower yield spreads while increasing the amount of debt

growth and the effects of inflation abstract in this paper we study the relationship between the rate of increase of the money supply and the rate of growth of output in an economy we show that in some models of endogenous growth inflation has direct effects on the growth rate of the economy despite this the estimated welfare cost of inflation from calibrated examples is similar to that found in exogenous growth models

an empirical analysis of alcohol addiction results from the monitoring the future panels in a panel of young adults we find that alcohol consumption is addictive in the sense that increases in past or future consumption cause current consumption to rise the positive and significant future consumption effect is consistent with the hypothesis of rational addiction the long run price elasticity is approximately 60 larger than the short run price elasticity and twice as large as the elasticity that ignores addiction thus a tax hike policy to curtail consumption or abuse may not have a favorable cost benefit ratio unless it is based on the long run price elasticity jel 110

sudden stops and phoenix miracles in emerging markets a decade has passed since the salvos from mexico s tequila crisis of 1994 1995 echoed around the financial world since then many more crises have taken place in emerging market economies ems furthermore crises have tended to bunch together bringing to the forefront the systemic nature of these events true every new crisis has its own idiosyncratic features but useful policy lessons must be derived from robust empirical regularities this is the research strategy we have pursued in the last few years we will report on two types of regularities that strike us as highly robust across em crises a sudden stops of capital inflows and b phoenix miracles a sudden stop is a sharp fall in capital inflows relative to their past trajectory sudden stops are not a common feature in developed economies and display a large degree of temporal bunching suggesting that global capital market turmoil acts as a coordinating factor external to ems as shown in section i however balance sheet effects namely the interaction of large changes in the real exchange rate during sudden stops and liability dollarization i e foreign exchange denominated debts are key in influencing the likelihood of a sudden stop thus even though the initial shock is in principle exogenous to the economy whether or not it materializes into a sudden stop depends on domestic financial vulnerabilities on the other hand a phoenix miracle is defined as a case in which output recovers relatively quickly from a sharp collapse with virtually no recovery in credit or capital inflows and a very weak recovery in investment hence the reference to the mythical bird rising from the ashes the existence of phoenix like recoveries suggests that financial frictions play a key role in pushing economies to the abyss from which in some way or another they can crawl back to safe ground by means less than apparent to the conventional observer looking for standard fundamentals and thus may appear miraculous interestingly the great depression of the 1930s shares some of the key features of phoenix miracles in ems but shows salient differences as well that suggest nominal labor market rigidities are not crucial in explaining output collapse in ems understanding these regularities could and we believe does shed light on policies aimed at preventing crises and attenuating their effects

transaction services inflation and welfare this paper is motivated by empirical observations on the comovements of currency velocity inflation and the relative size of the credit services sector we document these comovements and incorporate into a monetary growth model a credit services sector that provides services that help people economize on money our model makes two new contributions first we show that direct evidence on the appropriately defined credit service sector for the united states is consistent with the welfare cost measured using an estimated money demand schedule second we provide estimates of the welfare cost of inflation that have some new features

corporate dollar debt and depreciations much ado about nothing abstract emerging markets firms often carry foreign currency debt on their balance sheets following a depreciation the expanding peso value of dollar liabilities could via a net worth effect offset the expansionary competitiveness effect to assess which effect dominates we use accounting data including the currency composition of liabilities for 450 nonfinancial firms in five latin american countries in the 1990s we find that firms holding more dollar debt do not invest less than their peso indebted counterparts following a depreciation we also show that these firms match the currency denomination of their liabilities with the exchange rate sensitivity of their profits

how central banks prepare for financial crises an empirical analysis of the effects of crises and globalisation on international reserves central banks international reserve holdings have increased significantly in the recent past while traditional models fail to explain this accumulation of reserves the more recent literature argues that reserves are used as a lifejacket against currency crises however research so far has neglected the question whether and how central banks change their precautionary reserve holdings after the country was affected by a currency crisis this paper tests the hypothesis that central banks revise their reserve policy in the aftermath of currency crises a dynamic panel data model is estimated for developing and industrial countries covering the period from 1975 to 2003 the evidence suggests that currency crises induce a permanent increase of reserves this effect is particularly strong for recent currency crises since the asian financial crisis

household demand for fats and oils two step estimation of a censored demand system a censored system of household fat and oil demand equations is estimated with a two step procedure using cross sectional data from the 1987 1988 us nationwide food consumption survey own price and total expenditure elasticities are close to unity and there is no evidence of gross substitutability compensated elasticities suggest net substitution among the products considered

endogenous financial innovation and the demand for money this paper embeds two key ideas about the nature of financial innovation taken from the empirical literature into a familiar equilibrium monetary model it provides formal support for several alternative econometric specifications for money demand that attempt to capture the effects of financial innovation and demonstrates that a popular theoretical model of money demand when suitably modified can account for some unusual monetary dynamics found in the data thus it helps to establish both the theoretical relevance of recent empirical work and the empirical relevance of recent theoretical work on the demand for money copyright 1995 by ohio state university press

monetary news in the united states and business cycles in emerging economies abstract this paper identifies anticipated news and unanticipated surprise shocks to the u s fed funds rate using fed funds futures contracts and assesses their propagation to emerging economies anticipated shocks are identified as the expected change in the fed funds rate orthogonal to expected u s business cycle conditions while unanticipated shocks are the one step ahead forecast error anticipated shocks explain around half of the narrative series of u s monetary policy shocks to identify the effects of both shocks i estimate a panel var using a sample of emerging economies an anticipated 25 basis points contractionary u s interest rate shock induces a fall of 0 5 in gdp from its trend two quarters before the shock materializes both anticipated and unanticipated changes in the u s interest rate cause significant and quantitatively similar effects the increase of the u s baa corporate spread in response to both shocks significantly exacerbates the response of emerging economies after accounting for anticipation u s interest rate shocks explain 14 of business cycle fluctuations in emerging economies

corporate debt structure and economic recoveries abstract this paper analyzes the business cycle behavior of the corporate debt structure and its interaction with economic recovery the debt structure is measured as the share of bonds in the total credit to non financial corporations for a quarterly panel of countries over the period 1989 2013 we first show that the substitution of loans for bonds in recoveries is a regular property of business cycles secondly we provide evidence that economies with high bond share and important bond loan substitution recover from the recessions faster this identified link between corporate debt structure and business cycles is robust to the inclusion of traditional factors which shape recessions and recovery such as the size and the quality of financial markets the occurrence of bank crisis the dynamics of credit and the distribution of firm size

credit growth monetary policy and economic activity in a three regime tvar model we employ a threshold vector autoregression tvar methodology in order to examine the nonlinear nature of the interactions among credit market conditions monetary policy and economic activity we depart from the existing literature on the subject along two dimensions first we focus on a model in which the relevant threshold variable describes the state of economic activity rather than credit market conditions second in contrast to the existing tvar literature which concentrates exclusively on single threshold models we allow for the presence of a second threshold which is overwhelmingly supported by all relevant statistical tests our results indicate that the dynamics of the interactions among credit market conditions monetary policy and economic activity change considerably as the economy moves from one phase of the business cycle to another and that single threshold tvar models are too restrictive to fully capture the nonlinear nature of those interactions the impact of most shocks tends to be largest during periods of sub par economic growth and smallest during times of moderate economic activity by contrast credit risk shocks have the largest impact when output growth is considerably above it long term trend

currency crises and monetary policy in an economy with credit constraints this paper presents a simple model of currency crises which is driven by the interplay between the credit constraints of private domestic firms and the existence of nominal price rigidities the possibility of multiple equilibria including a currency crisis equilibrium with low output and a depreciated domestic currency results from the following mechanism if nominal prices are sticky a currency depreciation leads to an increase in the foreign currency debt repayment obligations of firms and thus to a fall in their profits this reduces firms borrowing capacity and therefore investment and output in a credit constrained economy which in turn reduces the demand for the domestic currency and leads to a depreciation we examine the impact of various shocks including productivity fiscal or expectational shocks we then analyze the optimal monetary policy to prevent or solve currency crises we also argue that currency crises can occur both under fixed and flexible exchange rate regimes as the primary source of crises is the deteriorating balance sheet of private firms

impulse dynamics and propagation mechanisms in a real business cycle model abstract in a typical real business cycle model we find that output dynamics are determined primarily by impulse dynamics and that endogenous propagation mechanisms are weak consequently the model must rely on external sources of dynamics in order to replicate the univariate dynamics of u s per capita gnp

the welfare cost of inflation in a cash in advance economy with costly credit the paper presents a modification of the lucas stokey 1983 cash in advance economy in which the representative consumer decides based on relative prices which goods to buy with cash and which with costly credit an explicit baumol 1952 condition emerges that guides this consumer choice deriving and estimating a closed form welfare cost function in an example economy the paper shows that the welfare cost of inflation depends on the margins of substitution the consumer avoids inflation through costly credit and faces higher welfare costs of inflation than in standard cash in advance economies

why do people drink tests of the rational addiction model the rational addiction ra model applied to alcoho consumption is tested using 1983 us health interview survey data the ra model yields refutable hypotheses concerning effects of current past and future prices past and future consumption time preference and marginal utility of wealth on addictive good consumption the estimations provide relatively strong support for the ra model past and present consumption had strong positive relationship with current consumption coefficients on past present and future money prices and fines for first oflence drunk driving as a form of price for alcohol consumption were significant and of the predical sign

incorporating demand shifters in the almost ideal demand system abstract intercepts of share equations generally include demand shift variables in the almost ideal demand system and related models this results in estimates that depend on units of measurement solutions to this problem are identified and discussed

excessive dollar debt financial development and underinsurance we propose that the limited financial development of emerging markets is a significant factor behind the large share of dollar denominated external debt present in these markets we show that when financial constraints affect borrowing and lending between domestic agents agents undervalue insuring against an exchange rate depreciation since more of this insurance is present when external debt is denominated in domestic currency rather than in dollars this result implies that domestic agents choose excessive dollar debt we also show that limited financial development reduces the incentives for foreign lenders to enter emerging markets the retarded entry reinforces the underinsurance problem

taxation regulation and addiction a demand function for cigarettes based on time series evidence this work analyzes the effects of prices taxes income and anti smoking regulations on the consumption of cigarettes in california a 25 cent per pack state tax increase in 1989 enhances the usefulness of this exercise analysis is based on monthly time series data for 1980 through 1990 results show a price elasticity of demand for cigarettes in the short run of 0 3 to 0 5 at mean data values and 0 5 to 0 6 in the long run we find at least some support for two further hypotheses that antismoking regulations reduce cigarette consumption and that consumers behave consistently with the model of rational addiction

foreign currency debt and the global financial architecture abstract this paper discusses some problems posed by foreign currency debt for emerging economies in the context of the ongoing debate on the reform of the global financial architecture we present a model in which the currency composition of corporate debt is endogenous and discuss the optimality of measures aimed at coping with the risks posed by foreign currency debt while removing these risks is not necessarily efficient in the presence of moral hazard some forms of public intervention such as a tax on foreign currency debt or international bailouts may be optimal

sovereign default risk and the u s equity market i develop a two country general equilibrium model with firms governments and endogenous default decisions this paper shows that the risk of sovereign default abroad is important in the explanation of the level and the volatility of u s equity returns the intuition is that negative economic shocks deteriorate the fiscal situation of foreign governments thereby increasing the risk of a sovereign default that would trigger a local contraction in economic growth the rise in the risk of an economic slowdown abroad amplifies the direct eect of these shocks on the level and the volatility of equity returns in the u s through i a decrease in the present value of future firm earnings due to the unfavorable adjustment of the real exchange rate for u s exporters and ii a fall in u s equity prices that originates from the investors incentive to rebalance their portfolio towards risk free securities the amplification eect is strongest during periods of financial distress when the risk of corporate default is high in the u s a structural estimation of the model provides strong support for this prediction using monthly data for brazil and the u s over the period 1994 2008

output dynamics in real business cycles models the time series literature reports two stylized facts about output dynamics in the united states gnp growth is positively autocorrelated and gnp appears to have an important trend reverting component this paper investigates whether current real business cycle rbc models are consistent with these stylized facts many rbc models have weak internal propagation mechanisms and must rely on external sources of dynamics to replicate both facts models that incorporate labor adjustment costs are partially successful they endogenously generate positive autocorrelation in output growth but they need implausibly large transitory shocks to match the trend reverting component in output

a dynamic generalisation of the almost ideal demand system abstract this paper proposes and estimates on annual time series u k data 1900 1980 a dynamic generalisation of the almost ideal demand system the results support the proposed generalisation and point to the dynamic aids as a potentially useful tool in future applications

a revised tobin effect from inflation relative input price and capital ratio realignments usa and uk 1959 1999 the paper studies the realignments induced by inflation within an endogenous growth monetary economy accelerating inflation raises the ratio of the real wage to the real interest rate and so raises the use of physical capital relative to human capital across all sectors we find cointegration evidence for the us and uk economies consistent with a general equilibrium tobin type effect of inflation on input prices and capital intensity even while the growth rate of output is reduced by inflation

quality quantity and spatial variation of price this paper develops and implements a method for estimating price elasticities of demand using cross sectional household survey data geographically clustered households report unit values which when corrected for quality effects and for measurement error indicate the underlying spatial variation in prices and can be matched to variation in demand patterns a simple model of quality choice is proposed while the correction for measurement error exploits the clustered design of such surveys data from a 1979 household survey from the ivory coast are used to estimate price elasticities for beef meat fish cereals and starches copyright 1988 by american economic association

costly monitoring financial intermediation and equilibrium credit rationing abstract this paper establishes a link between equilibrium credit rationing and financial intermediation in a model with asymmetrically informed lenders and borrowers costly monitoring and investment project indivisibilities intermediation is shown to dominate borrowing and lending between individuals and these financial intermediaries exhibit several of the important features of intermediaries as we know them equilibrium interest rates and the aggregate quantity of loans respond quite differently to changes in taste and technology parameters depending on whether or not there is rationing in equilibrium

the role of foreign currency debt in financial crises 1880 1913 versus 1972 1997 abstract we show that exposure to foreign currency debt does not necessarily increase the risk of having a financial crisis some countries do not suffer from financial fragility despite original sin before 1913 british offshoots and scandinavia afflicted with it avoided financial meltdowns today many advanced countries have original sin but few have had crises in both periods aggregate balance sheet mismatches are associated with a greater likelihood of a crisis the evidence suggests that foreign currency debt is dangerous when mis managed this is part of the difference between developed countries and emerging markets both of which borrow in foreign currency

bank intermediation over the business cycle a model is developed in which banks engage in valued asset transformation by converting illiquid assets working capital loans into highly liquid demand deposit accounts that households use for transactions purposes consumption smoothing behavior induces countercyclicality in the degree to which firms rely on bank borrowings to finance their working capital expenses which is consistent with u s data the importance of financial markets that provide alternative sources of short term funds to firms is also illustrated absent these markets nominal interest rates become nearly perfectly positively correlated with output which is counterfactual and monetary shocks induce perhaps artificially large aggregate employment responses

the macroeconomics of the great depression a comparative approach recently research on the causes of the great depression has shifted from a heavy emphasis on events in the united states to a broader more comparative approach that examines the interwar experiences of many countries simultaneously in this lecture i survey the current state of our knowledge about the depression from a comparative perspective on the aggregate demand side of the economy comparative analysis has greatly strengthened the empirical case for monetary shocks as a major driving force of the depression an interesting possibility suggested by this analysis is that the worldwide monetary collapse that began in 1931 may be interpreted as a jump from one nash equilibrium to another on the aggregate supply side comparative empirical studies provide support for both induced financial crisis and sticky nominal wages as mechanisms by which nominal shocks had real effects still unresolved is why nominal wages did not adjust more quickly in the face of mass unemployment this abstract was borrowed from another version of this item

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

on inflation as a regressive consumption tax abstract evidence on the portfolio holdings and transaction patterns of households suggests that the burden of inflation is not evenly distributed we build a monetary growth model consistent with key features of cross sectional household data and use this framework to study the distributional impact of inflation at the aggregate level our model economy behaves similar to standard monetary growth models within the representative agent abstraction inflation has however important distributional effects since it is effectively a regressive consumption tax thus neglecting the distributional consequences of inflation may prove misleading in assessing the effects of inflation in our economy

a century of current account dynamics abstract recent globalization trends have refocused attention on the historical evolution of international capital mobility over the long run the issue is examined here using time series analysis of current account dynamics for fifteen countries since circa 1850 the inter war period emerges as an era of low capital mobility and only recently can we observe a tentative return to the degree of capital mobility witnessed during the late nineteenth century the analysis of saving and investment dynamics also helps make sense of the frequently observed high correlation of saving and investment rates in historical data

foreign currency debt financial crises and economic growth a long run view what are the costs of hard currency liabilities after being implicated in the global financial instability of the late 1990s the costs are widely believed to be large and as a result many emerging markets have pushed to minimize currency mismatches we study the growth effects of exposure to foreign currency debt using data from two periods of international financial integration 1880 1913 and 1973 2002 for over 45 countries hard currency debt is associated with increased risks of currency and debt crises in both periods especially when a country s macroeconomic financial fundamentals are weak we find the risk of financial crisis associated with hard currency debts translated into significantly diminished growth rates however we also find evidence that strong financial development and policy credibility attenuate the crisis risks associated with high exposure to hard currency debt which has implications for eastern european countries where large current account deficits and high levels of hard currency debt are believed to pose financial risks in this region some countries have adopted flexible exchange rates and avoided foreign currency debt several others have built up large net foreign currency liabilities and are exposed to a significant likelihood of a financial crisis in the near future

on the microeconomics of food and malnutrition under endogenous discounting abstract this paper explores the microeconomics and dynamics of food and nutrition it examines the linkages between malnutrition and the incentive to invest and accumulate capital the analysis focuses on a dynamic model where preferences about the future depend on nutrition and health situations of malnutrition cover both ends of the spectrum from nutrient deficiency to obesity the model involves preferences that are not time additive and exhibit endogenous discounting this provides a framework to investigate the factors affecting consumption and investment behavior the adverse investment incentives of malnutrition are examined

native american obesity an economic model of the thrifty gene theory native american obesity is hypothesized to result from three potential causes 1 a genetic predisposition or the thrifty gene 2 a rational addiction to nutrients and 3 dietary adjustment costs these hypotheses are tested using a two stage household production approach and scanner data from a panel of native and non native supermarkets nutrient intake for both groups is strongly influenced by adjustment costs native americans tend to place higher implicit valuations on protein relative to fats and carbohydrates compared to non natives consequently reductions in real carbohydrate prices over time may be a cause of high incidence of native american obesity

money and interest in a cash in advance economy the authors analyze an aggregative general equilibrium model in which the use of money is motivated by a cash in advance constraint applied to purchases of a subset of consumption goods the system is subject to both real and monetary shocks which are economy wide and observed by all they develop methods for verifying the existence of characterizing and explicitly calculating equilibria copyright 1987 by the econometric society

anticipated inflation and the capital stock in a cash in advance economy abstract an economy is constructed in which the steady state capital stock is inversely related to the rate of inflation as a result that is directly opposite the usual conclusion

the theory and econometrics of health information in cross sectional nutrient demand analysis understanding the role of health information in food and nutrient demand has become an important issue over the last decade endogeneity and measurement error are two empirical problems that are inherent in this type of analysis while some type of instrumental variables estimation would appear the obvious solution this article provides several theoretical and empirical reasons why this is not the case in cross sectional analysis an alternative estimation strategy is pursued an empirical example is given and the implications are discussed copyright 2001 oxford university press

habit formation interdependent preferences and demographic effects in the almost ideal demand system the authors model myopic habit formation interdependence of preferences among consumers and demographic effects as taste shifters in a micro consumer demand model of the almost ideal demand variety the model is estimated for dutch micro data the authors investigate the dynamic properties of the model and find that it behaves very differently from models without interdependence of preferences the implications for micro macro modeling are discussed copyright 1991 by royal economic society

unemployment and productivity in the long run the role of macroeconomic volatility abstract this paper presents a new empirical regularity between the volatility of productivity growth and long run unemployment for a given level of long run productivity growth a theoretical framework based on asymmetric real wage rigidities is shown to have the potential to rationalize this finding the model tends to fit u s long run unemployment better than a specification based on long run productivity growth only especially during the great moderation and the great recession

is addiction rational theory and evidence this paper makes two contributions to the modeling of addiction first we provide new and convincing evidence that smokers are forward looking in their smoking decisions using state excise tax increases that have been legislatively enacted but are not yet effective and monthly data on consumption second we recognize the strong evidence that preferences with respect to smoking are time inconsistent with individuals both not recognizing the true dife culty of quitting and searching for self control devices to help them quit we develop a new model of addictive behavior that takes as its starting point the standard rational addiction model but incorporates time inconsistent preferences this model also exhibits forward looking behavior but it has strikingly different normative implications in this case optimal government policy should depend not only on the externalities that smokers impose on others but also on the internalities imposed by smokers on themselves we estimate that the optimal tax per pack of cigarettes should be at least one dollar higher under our formulation than in the rational addiction case

money and growth an alternative approach this paper takes an alternative approach to the topic of money and growth by developing a model in which the effects of sustained capital accumulation on an evolving system of payments in addition to the conventional effects of sustained inflation on growth are examined while the effects of inflation on growth are small the effects of growth on the monetary system are substantial the results are consistent with ideas about money and growth contained in work that predates that of james tobin and miguel sidrauski as well as with evidence that money and asset demands vary systematically within economies as they develop copyright 1994 by american economic association

monetary policy banking and growth i introduction fischer and modigliani 1978 exhaustively list the costs associated with inflation in recent years a growing body of evidence is consistent with the notion that slower output growth may be added to the fischer modigliani list specifically analyses by kormendi and meguire 1985 fisher 1991 degregario 1992 gomme 1993 wynne 1993 barro 1996 and others find a negative correlation between the inflation rate and output growth both across countries and over time 1 moreover the studies consistently find that the growth rate response to a change in the inflation rate is quite large the different studies produce a range of correlation coefficients a country in which the inflation rate is 10 will grow between 1 4 and 3 4 percentage points slower than a country in which the inflation rate is 0 the purpose of this paper is to determine whether a reasonably calibrated model economy can account for the size of the regression coefficients the model economy is a modified version of a member of the ak class in which bank deposits are used to finance capital accumulation in this model economy fiat money is valued because the bank is required to hold reserves against its deposits throughout this paper bank deposits is used in a narrow sense to include only those deposits against which a reserve requirement applies because monetary policy has two tools at its disposal it is possible to conduct two separate policy experiments the results from these experiments particularly the inflation rate experiment sheds light on the potential importance on the share of investment financed through bank deposits researchers have long been interested in the interaction between financing and growth schumpeter 1911 argued that the financial sector more specifically its stage of development affected a country s growth rate 2 cameron 1967 described financial development in scotland england and france in the late 18th and early 19th centuries cameron concluded that scotland and england entered the industrial revolution ahead of france because it had the financial infrastructure capable of financing capital accumulation on the needed scale king and levine 1993 find that countries with more developed financial sectors tend to grow faster than countries with less developed financial sectors it seems natural therefore to investigate whether the means of financing can yield any insights into the inflation growth relationship other researchers have also quantified the effect that movements in the inflation rate has on the growth rate in particular jones and manuelli 1995 use several variants of economies in which people hold fiat money to satisfy a cash in advance constraint they demonstrate that large growth rate effects cannot be accounted for in these model economies in these models inflation does not materially alter capital accumulation rates affecting instead the allocation between the credit good and cash good purchases jones and manuelli find small growth rate effects in an economy in which the tax code has nominally denominated depreciation rates in two papers that focus on inflation and growth chari jones and manuelli 1995 1996 consider economies in which capital accumulation can be financed through either bank deposits or directly as in the economy specified in this paper reserve requirements are applied against bank deposits agents can avoid the inflation tax by using the direct financing means more intensively consequently the growth rate effects are muted in the chari jones manuelli model economies and are too small to account for the size of the regression coefficients reported in kormendi and mcguire fischer and barro in this paper i assume that all investment is financed through bank deposits with this extreme assumption the model economy can account for the size of the growth rate effects observed in the data 3 thus there is a potentially useful lesson learned from the quantitative results in the all bank financing economy and those reported in chari jones manuelli

rational addiction with learning and regret we present a theory of rational behavior in which individuals maximize a set of stable preferences over goods with unknown addictive power the theory is based on three fundamental postulates that consumption of the addictive good is not equally harmful to all that individuals possess subjective beliefs concerning this harm and that beliefs are optimally undated with information gained through consumption although individual actions are optimal and dynamically consistent addicts regret their past consumption decisions and regret their initial assessment of the potential harm of the good addict prone individuals who believe it could not happen to them are most likely to be drawn into a harmful addiction

rational addiction to caffeine an analysis of coffee consumption it is common knowledge that coffee tea and other beverages that contain caffeine are habit forming a recent medical study confirms that caffeine is strongly addictive with subjects exhibiting syndromes of intoxication withdrawal and dependence strain et al 1994 p 1043 that study concludes that the effect is physiological not just psychological it is of interest to ask whether the addictive nature of the most widely used psychoactive substance in the world is apparent from data on consumption there are several economic models of addiction among them the rational addiction model of becker and murphy 1988 stands out because of its simplicity and consistency with economic theory in this model the utility a consumer derives from consumption depends not only on the quantity c that is consumed but also on the degree of addiction at addiction is a form of human capital taking the form of a possibly harmful rather than beneficial stock variable it is increased as a by product of consumption and it gradually depreciates as time passes thus current consumption affects future choices consuming the good now increases its desirability in the future the becker murphy model is rational and forward looking in that the consumer is aware of these future effects and weighs them in making the current consumption choice this is in strong contrast to models that are based on assumptions of myopia and nonrational behavior an implication of the model is that this forward looking behavior can be detected in the data theory predicts that consumption data

nutrient demand and the allocation of time evidence from guam this paper presents an econometric study of nutrient intake in guam which explicitly accounts for household time allocation and household capital variables the empirical framework is based on a household production model of nutrient consumption food expenditure and the allocation of time between labour leisure and food preparation activities the study finds evidence that 1 capital and wage variables have significant impacts on households nutrient demands 2 income wage and educational status have very different effects on the nutrient choices of low calorie households than on the nutrient choices of high calorie households and 3 a family s participation in the food stamp programme leads to higher levels of food expenditure but this impact is attributable to the purchase of more costly taste characteristics in food rather than to the purchase of more nutritious foods

bias in estimating the almost ideal demand system with the stone index approximation this paper shows that the commonly used stone index approximation can bias the parameter estimates of the almost ideal demand system the bias mostly affects the price parameters and can be more serious when the budget share equations are estimated with individual household rather than aggregate data in the absence of strong substitution effects the price parameter bias can be largely corrected through simple reparameterization copyright 1993 by royal economic society

worldwide economic recoveries from financial crises through the decades abstract the profiles of economic recoveries after a financial crisis are identified through a self organizing map covering 104 countries during 1973 2017 first and surprisingly only 55 of the 276 events belong to the usual v u l classification new s shaped bounce back recoveries d oomed ones and double dip m occur in 23 18 and 4 of the cases respectively second the frequencies of profiles vary with the crisis type countries development and location and over time third unlike government spending supporting domestic credit liquidity foreign trade or else the exchange rate after the crisis may help activity bounce back

evaluating the role of capital controls and monetary policy in emerging market crises abstract this paper explores the interactive role of optimal monetary policy and capital controls in dealing with sudden stop financial crises in emerging market economies the model features collateral constraints embedding pecuniary externalities as well as nominal rigidities in prices and wages we explore the role of policy commitment and macro prudential motives in the design of optimal monetary and capital market responses to crises under alternative exchange rate regimes we find that policy commitment is very important under flexible exchange rates but commitment to the path of capital taxes is only of minor benefit under an exchange rate peg as regards macro prudential policy we find the exact opposite under floating exchange rates the optimal policy has almost no macro prudential elements on the other hand when authorities are constrained by an exchange rate peg macro prudential policy is used aggressively as part of an optimal policy framework an important additional finding is that the direction of capital controls is different under a fixed relative to a flexible exchange rate with flexible exchange rates policy makers impose inflow taxes immediately at the onset of a crisis under pegged exchange rates they will impose capital inflow subsidies

money velocity in an endogenous growth business cycle with credit shocks the explanation of velocity has been based in substitution and income effects since keynes s 1923 interest rate explanation and friedman s 1956 application of the permanent income hypothesis to money demand modern real business cycle theory relies on a goods productivity shocks to mimic the data s procyclic velocity feature as in friedman s explanation while finding money shocks unimportant and not integrating financial innovation explanations this paper sets the model within endogenous growth and adds credit shocks it models velocity more closely with significant roles for money shocks and credit shocks along with the goods productivity shocks endogenous growth is key to the construction of the money and credit shocks since they have similar effects on velocity through substitution effects from changes in the nominal interest rate and in the cost of financial intermediation but opposite effects upon growth through permanent income effects that are absent with exogenous growth

foreign currency borrowing by small firms in emerging markets when domestic banks intermediate dollars this paper investigates what induces small firms in an emerging market economy to borrow dollar credit from domestic banks our data are from a unique survey of firms in lebanon the findings complement studies of large firms with foreign currency loans from foreign lenders exporters naturally hedged against currency risk are more likely to incur dollar debt firms also partly hedge themselves by passing currency risk to customers and suppliers less opaque firms with easily verifiable collateral and higher net worth are more likely to access dollar credit firms reliant on formal financing banks and supplier credit are more likely to contract dollar debt than firms reliant on informal financing family friends and moneylenders bank relationships however do not increase the dollar debt likelihood and finally profitable firms are less likely to have dollar debt information frictions and limited collateral therefore constrain dollar credit even when it is intermediated domestically

currency crises are they all the same abstract the plethora of currency crises around the world has fueled many theories on the causes of speculative attacks the first generation models focus on fiscal problems while the second generation models emphasize countercyclical policies and self fulfilling crises in the 1990s models pinpoint to financial excesses with the crisis of argentina in 2001 models of sovereign default have become popular again while the theoretical literature has emphasized variety the empirical literature has supported the one size fits all models this paper contributes to the empirical literature by assessing whether the crises of the last 30 years are of different varieties

money and growth revisited abstract conventional wisdom is that if public policy can affect the growth rate of the economy the welfare implications of alternative policies will be large in this paper a stochastic dynamic general equilibrium model with endogenous growth and money is examined in this setting inflation lowers growth through its effect on the return to work however the welfare costs of higher inflation are modest the endogenous labor supply is important in producing this result

rational habit formation abstract this paper discusses consumer demand under rational habit formation if consumer tastes change endogenously through habit stocks depending on past consumption the rational consumer will make allowance of the future habit forming effects of current consumption a model with rational habit formation is made formally equivalent to an intertemporal consumer model without habit formation by redefining the cost of consumption and wealth the cost of consumption is obtained by adding the cost of future induced consumption to the rental price of the commodity the extended wealth concept is obtained by subtracting the cost of the initial stocks of habits and the cost of future physically necessary consumption from wealth the paper also investigates the implication of rational habit formation for constructing one period cost of living indices

the value of inside and outside money abstract we study dynamic economies in which agents may have incentives to hold both privately issued a k a inside and publicly issued a k a outside circulating liabilities as part of an equilibrium our analysis emphasizes spatial separation and limited communication as frictions that motivate monetary exchange we isolate conditions under which a combination of inside and outside money does and does not allow the economy to achieve a first best allocation of resources we also study the extent to which the use of private circulating liabilities alone or the use of public circulating liabilities alone can address the frictions that lead to monetary exchange

the demand for bank reserves and other monetary aggregates the paper starts with haslag s 1998 model of the bank s demand for reserves and reformulates it with a cash in advance approach for both financial intermediary and consumer this gives a demand for a base of cash plus reserves that is not sensitive to who gets the inflation tax transfer it extends the model to formulate a demand for demand deposits yielding an m1 type demand and then includes exchange credit yielding an m2 type demand based on the comparative statics of the model it provides an interpretation of the evidence on monetary aggregates this explanation relies on the nominal interest as well as technology factors of the banking sector e31 e13 o42

financial frictions capital reallocation and aggregate fluctuations abstract we address an important business cycle fact i e the amplified and hump shaped responses of output to productivity shocks in a dynamic general equilibrium model with financial frictions models with financial frictions in the current literature have either the amplification mechanism or the propagation mechanism our model shows that the dynamic interaction of borrowing constraints endogenous capital accumulation and capital reallocation among agents with different productivity constitutes a mechanism through which the effects of productivity shock on aggregate output are amplified and propagated more in line with the empirical evidence than other related models in the literature