money and capital abstract the effects of money anticipated inflation on capital formation is a classic issue in macroeconomics previous papers adopt reduced form approaches putting money in the utility function or imposing cash in advance but using otherwise frictionless models we follow instead a literature that tries to be explicit about the frictions making money essential this introduces new elements including a two sector structure with centralized and decentralized markets stochastic trading opportunities and bargaining these elements matter quantitatively and numerical results differ from findings in the reduced form literature the analysis also reduces a gap between microfounded monetary economics and mainstream macro

the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

welfare costs of inflation and interest bearing money this work extends the lucas analysis of the welfare cost of inflation to an economy with interest bearing deposits lower and upper bounds to lucas measure of the welfare cost of inflation are also provided the upper bound is shown to lie between lucas measure of the welfare cost of inflation and the area under the money demand curve starting with martin bailey in 1956 the literature on welfare costs of inflation has recently been enriched by contributions among others by lucas 1993 2000 dotsey and ireland 1996 and gillman 1993 1995 it remains yet to adequately integrate the banking sector in this process this work extends lucas analysis of the welfare cost of inflation developed in the mccallumgoodfriend 1987 framework to an economy with interest bearing deposits lower and upper bounds to lucas measure of the welfare cost of inflation are also provided the upper bound is shown to lie between lucas measure and the area under the money demand curve which characterizes bailey s method 1956 for calculating the welfare cost of inflation

money and crime in a cash in advance model a cash in advance model in which holding money is risky is constructed to study the coexistence of multiple means of payment and monetary policy implications in steady state equilibrium the marginal rate of substitution of cash goods for credit goods depends on the crime rate as well as the nominal interest rate credit may be in use although the return on money is not positive with theft a money injection reduces the crime rate and makes cash more preferable for a greater variety of goods inflation improves welfare however without theft inflation makes credit more preferable and decreases welfare in general the friedman rule is not optimal

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

financial crises and liquidity shocks a bank run perspective abstract in contrast with the financial multiplier literature this note explores a case in which the shock triggering a financial crisis stems from the financial sector itself it is not a shock stemming from the real sector which gets amplified by say agency problems the basic intuition is provided by the bank run literature of the diamond and dybvig 1983 variety financial development is modeled as a mechanism that endows real assets e g land and capital with liquidity however liquidity can be impaired by shocks that are equivalent to a bank run liquidity creation enhances real asset prices while a liquidity crunch generates asset price collapse this bubble looking episode is not driven by standard fundamentals although it is fully in line with rationality in this context devoid of other frictions like price stickiness the note examines the effect of monetary policy in the absence of nominal rigidities it shows that preventing price deflation is not enough to offset relative to output asset price meltdown but lower policy interest rates increase relative asset prices and steady state output moreover in the neighborhood of a first best capital allocation an increase in the liquidity of capital may lower the welfare of the representative individual even if the higher liquidity of capital is sustainable and hence not destroyed by future crash illustrating the possibility of excessive financial innovation an extension of the basic model supports the conjecture that low policy interest rates may have given further incentives to the development of shadow banking

consumer response to tax rebates many households received income tax rebates in 2001 of 300 or 600 these rebates represented advance payments of the tax cut from the new 10 percent tax bracket based on a survey of a representative sample of households this paper finds that only 22 percent of households receiving the rebate would spent it instead they would either save it or use it to pay off debt this very low rate of spending represents a striking break with past behavior which would have suggested a much higher rate of spending the low spending rate implies that the tax rebate provided a very limited stimulus to aggregate demand this abstract was borrowed from another version of this item

divisia index inflation and welfare this work addresses a usual criticism in the literature of the welfare costs of inflation related to the tact that some items in the relevant definition of money pay interest while others do not we show that the problem can be solved by using a divisia index of monetary services as the welfare measure

confronting the environmental kuznets curve t he environmental kuznets curve posits an inverted u relationship between pollution and economic development kuznets s name was apparently attached to the curve by grossman and krueger 1993 who noted its resemblance to kuznets s inverted u relationship between income inequality and development in the first stage of industrialization pollution in the environmental kuznets curve world grows rapidly because people are more interested in jobs and income than clean air and water communities are too poor to pay for abatement and environmental regulation is correspondingly weak the balance shifts as income rises leading industrial sectors become cleaner people value the environment more highly and regulatory institutions become more effective along the curve pollution levels off in the middle income range and then falls toward pre industrial levels in wealthy societies the environmental kuznets curve model has elicited conflicting reactions from researchers and policymakers applied econometricians have generally accepted the basic tenets of the model and focused on measuring its parameters their regressions typically fitted to cross sectional observations across countries or regions suggest that air and water pollution increase with development until per capita income reaches a range of 5000 to 8000 when income rises beyond that level pollution starts to decline as shown in the conventional ekc line in figure 1 in developing countries some policymakers have interpreted such results as conveying a message about priorities grow first then clean up numerous critics have challenged the conventional environmental kuznets curve both as a representation of what actually happens in the development process and as a policy prescription some pessimistic critics argue that crosssectional evidence for the environmental kuznets curve is nothing more than a

household expenditure and the income tax rebates of 2001 using questions expressly added to the consumer expenditure survey we estimate the change in consumption expenditures caused by the 2001 federal income tax rebates and test the permanent income hypothesis we exploit the unique randomized timing of rebate receipt across households households spent 20 to 40 percent of their rebates on nondurable goods during the three month period in which their rebates arrived and roughly two thirds of their rebates cumulatively during this period and the subsequent three month period the implied effects on aggregate consumption demand are substantial consistent with liquidity constraints responses are larger for households with low liquid wealth or low income

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

measuring the impact of fiscal policy in the face of anticipation a structural var approach empirical estimates of the impact of government spending shocks disagree on central issues such as the size of output multipliers and the responses of consumption and the real wage one explanation for the disagreement is that fiscal shocks are often anticipated due to misspecification of the information set anticipation effects may invalidate svar estimates of impulse responses we use economic theory to derive a fiscal svar estimator that is applicable when fiscal shocks are anticipated we study its properties and apply it to us data we fail to find evidence that anticipation effects overturn the existing findings from the fiscal svar literature despite years of intensive research the empirical literature on fiscal policy has yet to reach consensus on the macroeconomic impact of fiscal policy shocks disagreements concern central issues such as the size of output multipliers and the impact of government spending shocks on consumption and the real wage clearly such level of disagreement constrains our ability to give simple guidelines for the operation of one of the most important stabilisation policies a key empirical obstacle is the measurement of innovations to fiscal policy one strand of the literature employs structural vector autoregressive svar methods and achieves identification based on the presence of decision lags or sign restrictions

government spending and heterogeneous consumption dynamics abstract what is the effect of government spending on consumption neoclassical and new keynesian models deliver opposing predictions and empirical studies differ in their conclusions this paper takes a data driven approach and exploits information from over 200 variables via a bayesian factor augmented var model i use sign restrictions for identifying effects that both classes of models agree upon this approach imposes a minimal set of restrictions on the empirical model leaving the sign and magnitude of the effect of government spending on consumption free to be determined by the data i find that i government spending increases aggregate consumption ii the estimated spending multiplier is close to 2 iii there exists heterogeneity even within durable nondurable and service consumption variables which is undocumented in the literature finally i show that my identified structural shocks are not predictable by economic agents and are uncorrelated with traditional monetary policy shocks suggesting that these effects are not confounded by monetary policy

the form of money demand function and the welfare costs of inflation in this article we show that the marginal welfare costs of inflationary is progressively larger with the inflation rate in bailey s formulation but under baumol tobin treatment the opposite applies

monetary aggregates and the business cycle a monetary aggregate consisting predominantly of zero maturity deposits called mzm tends to systematically lead output in the us business cycle such fluctuations are observed both before and after the 1979 monetary policy change similar dynamics are obtained in a model with multi stage production and purchase size heterogeneity when agents optimally choose their mix of cash checkable and time deposits used in transactions the causality in the model runs from real activity to money rather than the other way around although the monetary base is endogenous through a taylor type rule the lead in mzm is primarily driven by deposit creation

clearing up the fiscal multiplier morass bayesian prior predictive analysis of five nested dsge models suggests that model specifications and prior distributions tightly circumscribe the range of possible government spending multipliers multipliers are decomposed into wealth and substitution effects yielding uniform comparisons across models by constraining the multiplier to tight ranges model and prior selections bias results revealing less about fiscal effects in data than about the lenses through which researchers choose to interpret data when monetary policy actively targets inflation output multipliers can exceed one but investment multipliers are likely to be negative passive monetary policy produces consistently strong multipliers for output consumption and investment

embodied pollution in trade estimating the environmental load displacement of industrialised countries abstract the present paper sets out to aid in the development of environmental load displacement indicators developing the notion of the environmental memory of physical flows we estimated embodied pollution in trade of 18 industrialized countries with a the rest of the world and b developing countries from 1976 to 1994 we found that in the last years of analysis total imports of japan usa and western europe have entailed in general larger air pollutant emissions than local exports the balance of embodied emissions in trade beet seems to follow an inverted u shape across time in japan and western europe and an n shape in the us in the period of analysis japanese and european environmental terms of trade with developing countries improved from the japanese and european point of view whereas american environmental terms of trade with developing countries deteriorated over time although there is no statistical trend between income and embodied emissions in imports in a cross section analysis there does seem to be a positive relationship between both variables at a national level the results suggest that despite many shortcomings this type of assessment may shed useful insights on the international aspects of sustainable development

deposit spreads and the welfare cost of inflation abstract high nominal interest rates are associated with high deposit spreads which is consistent with a model where banks have monopoly power and currency and deposits are substitutes therefore higher interest rates raise the implicit price of banking services increase bank profits and attract entry into the banking sector taking these effects into account a one percentage point increase in inflation has a welfare cost of 0 083 of gdp 6 7 times higher than traditional estimates

how does foreign direct investment influence energy intensity convergence in china evidence from prefecture level data abstract the huge energy intensity gaps among chinese prefectures make the overall reduction of energy intensity extremely difficult energy intensity convergence eic i e catching up of the high energy intensity prefectures with the low ones is imperative for narrowing these gaps as one of the most important channels for international technology diffusion foreign direct investment fdi has great impact on energy intensity and may be beneficial for the convergence based on pollution haven hypothesis however fdi may result in energy intensity divergence to provide an in depth understanding of the mechanisms of fdi induced convergence divergence this paper employs markov chain approach to examine the impact of fdi on eic for 256 chinese prefectures in the period from 2005 to 2014 moreover we particularly emphasis on the influences of local specific characteristics such as human capital resource endowment and environmental regulation on fdi induced convergence divergence our study on 256 chinese prefectures finds that fdi helps prefectures with higher energy intensity to catch up with lower ones which strengthens eic the impact of fdi on eic varies depending on different local characteristics among all characteristics mentioned above human capital and environmental regulation benefit the convergence driving effect of fdi while this effect is hindered by resource endowment more comprehensive and detailed policies are recommended to address energy intensity gaps in china

the cyclicality of consumption wages and employment of the public sector in the euro area this study empirically examines the business cycle behaviour of public consumption and its main components the public wage bill including its breakdown into compensation per employee and public employment and intermediate consumption in the euro area aggregate euro area countries and a group of selected non euro area organization for economic co operation and development oecd countries denmark sweden the uk japan and the us it looks across a large number of variables and methods using annual data from 1960 to 2005 it finds robust evidence supporting that public consumption wages and employment co move with the business cycle in a pro cyclical manner with 1 2 year lags notably for the euro area aggregate and euro area countries the findings reflect mainly the correlation between cyclical developments but also point to an important role of pro cyclical discretionary fiscal policies

discretionary tax changes and the macroeconomy new narrative evidence from the united kingdom abstract this paper provides new estimates of the macroeconomic effects of tax changes using a new narrative dataset for the united kingdom identification is achieved by isolating exogenous tax policy changes using the romer and romer narrative strategy i find that a 1 percent cut in taxes increases gdp by 0 6 percent on impact and 2 5 percent over three years the findings are remarkably similar to romer and romer narrative estimates for the united states reinforcing the view that tax changes have powerful and persistent effects exogenous tax changes are also shown to have contributed to important episodes in the uk business cycle jel e23 e32 e62 h20 h61

fiscal policy in the aftermath of 9 11 this paper investigates the nature of u s fiscal policy in the aftermath of 9 11 we argue that the recent declines in the government surplus and tax rates cannot be accounted for by either the state of the u s economy as of 9 11 or as the typical response of fiscal policy to a large exogenous rise in military expenditures our evidence suggests that had tax rates responded in the way they normally do to a large fiscal shock aggregate output would have been lower and the surplus would not have changed by much our results do not bear directly on the desirability of the decline in tax rates or the surplus after 9 11

the search for a stable money demand function a survey of the post 1973 literature phe question of whether the demnand function for money is stable is one of the most important recurring issues in the theory and application of macroeconomic policy what is being sought in a stable demand function is a set of necessary conditions for money to exert a predictable influence on the economy so that the central bank s control of the money supply can be a useful instrument of economic policy as such the notion of a stable demand function appears to involve three key elements e g john t boorman 1976 p 317 and david e w laidler 1977 pp 34 35 first the demand for money relation should be highly predictable in a statistical sense as measured by the usual goodness of fit statistics precision of estimated coefficients and presumably its ability to forecast accurately out of sample second a stable demand function for money has relatively few arguments a relationship that requires knowledge about a large number of variables in order to pin it down is in effect not predictable finally the variables that appear as arguments in the function should represent significant links to spending and economic activity in the real sector in sum a stable demand function for money means that the quantity of money is predictably related to a small set of key variables linking money to the real sector of the economy the importance of a stable money demand function for monetary policy can be illustrated with the standard is lm model in which interest rates and gnp are the endogenous variables in this context a stable demand function for money translates into a well defined relationship between money interest rates and gnp

vertical and horizontal intra industry trade a cross industry analysis for the united kingdom a large theoretical literature has emerged directed at explaining the presence of intra industry trade iit one of the distinctions which comes out of these models is that between horizontal iit where goods are differentiated by attributes and vertical iit where goods are differentiated by quality in this paper horizontal and vertical iit in u k trade are disentangled using a unit value dispersion criterion and a range of industry characteristics the paper not only points up the relative importance of vertical and horizontal iit in the united kingdom it also demonstrates how a failure to separate them out can impact on the interpretation of empirical results copyright 1995 by royal economic society

macroeconomic effects from government purchases and taxes for u s annual data that include world war ii the estimated multiplier for temporary defense spending is 0 4 0 5 contemporaneously and 0 6 0 7 over 2 years if the change in defense spending is permanent gauged by ramey s defense news variable the multipliers are higher by 0 1 0 2 since all estimated multipliers are significantly less than 1 greater spending crowds out other components of gdp particularly investment the lack of good instruments prevents estimation of reliable multipliers for nondefense purchases multipliers in the literature of two or more likely reflect reverse causation from gdp to nondefense purchases increases in average marginal income tax rates measured by a newly constructed time series have significantly negative effects on gdp when interpreted as a tax multiplier the magnitude is around 1 1 the combination of the estimated spending and tax multipliers implies that the balanced budget multiplier for defense spending is negative we have some evidence that tax changes affect gdp mainly through substitution effects rather than wealth effects

the general equilibrium effects of fiscal policy estimates for the euro area abstract this paper describes a dynamic stochastic general equilibrium model featuring a fraction of non ricardian agents in order to estimate the effects of fiscal policy in the euro area the model takes into account distortionary taxation on labor and capital income and on consumption while expenditures are broken down into purchases of goods and services compensation of public employees and transfers to households a newly computed quarterly data set of fiscal variables is used our results point to the prevalence of mild keynesian effects of public expenditures in particular although innovations in fiscal policy variables tend to be rather persistent government purchases of goods and services and compensations for public employees have small and short lived expansionary effects on private consumption while innovations in transfers to households show a slightly more sizeable and lasting effect the effects are more significant on the revenue side decreases in labor income and consumption tax rates have sizeable effects on consumption and output while a reduction in capital income tax favors investment and output in the medium run finally our estimates suggest that fiscal policy variables contribute little to the cyclical variability of the main macro variables

liquidity models in open economies theory and empirical evidence abstract this paper presents an overview of recent theoretical and empirical research on liquidity models in open economies this is a class of optimizing models where money has effects on real asset prices and economic activity without relying on the ad hoc assumption of price wage stickiness the non neutrality of money derives from a temporary segmentation between goods and asset markets after surveying the theoretical literature on liquidity models we present empirical evidence based on var econometric techniques for the seven major industrial countries such evidence is shown to be consistent with the main implications of the liquidity models

price differentials in monetary unions the role of fiscal shocks we study the effect of regional expenditure and revenue shocks on price differentials for 47 us states and 9 eu countries we identify shocks using sign restrictions on the dynamics of expenditures revenues deficits and output and construct two estimates for structural price differentials dynamics one for the average and one for each unit which optimally weight information contained in the data for all units on average expansionary fiscal disturbances produce positive while distortionary balance budget shocks produce negative price differential responses the negative price differentials responses in some units is partially explained by spillovers and labour supply effects

the analytics of svars a unified framework to measure fiscal multipliers ticities implied by the identification schemes generate a large dispersion in the estimates of tax and spending multipliers second i estimate fiscal multipliers consistent with prior distributions of the elasticities computed by a variety of empirical strategies and by employing a simple dynamic stochastic general equilibrium model i document three findings for the u s for the period 1947 2010 first the impact tax multiplier is close to 0 second the impact spending multiplier ranges between 0 35 and 1 third there is a large uncertainty in the estimates of fiscal multipliers at longer horizons yet the probability that the spending multiplier is larger than the tax multiplier is above 0 65 for up to three years after policy interventions

measuring the effects of fiscal policy measuring the effects of discretionary fiscal policy is both difficult and controversial as some explicit or implicit identifying assumptions need to be made to isolate exogenous and unanticipated changes in taxes and government spending studies based on structural vector autoregressions typically achieve identification by restricting the contemporaneous interaction of fiscal and non fiscal variables in a rather arbitrary way in this paper we relax those restrictions and identify fiscal policy shocks by exploiting the conditional heteroscedasticity of the structural disturbances we use this methodology to evaluate the macroeconomic effects of fiscal policy shocks in the u s before and after 1979 our results show substantive differences in the economy s response to government spending and tax shocks across the two periods importantly we find that increases in public spending are in general more effective than tax cuts in stimulating economic activity a key contribution of this study is to provide a formal test of the identifying restrictions commonly used in the literature

fiscal foresight and information flows news or foresight about future economic fundamentals can create rational expectations equilibria with non fundamental representations that pose substantial challenges to econometric efforts to recover the structural shocks to which economic agents react using tax policies as a leading example of foresight simple theory makes transparent the economic behavior and information structures that generate non fundamental equilibria econometric analyses that fail to model foresight will obtain biased estimates of output multipliers for taxes biases are quantitatively important when two canonical theoretical models are taken as data generating processes both the nature of equilibria and the inferences about the effects of anticipated tax changes hinge critically on hypothesized information flows different methods for extracting or hypothesizing the information flows are discussed and shown to be alternative techniques for resolving a non uniqueness problem endemic to moving average representations

the effects of fiscal shocks on employment and the real wage we study the transmission of fiscal shocks in the labor market we employ a structural var and base identification on the restrictions that shocks to government consumption investment and employment must raise output and deficits these restrictions hold in both prototype real business cycle rbc and new keynesian models shocks to government consumption and investment increase real wages and employment contemporaneously both at state level and in the aggregate the dynamics in response to employment shocks are mixed increases in government employment raise the real wage and total employment in the aggregate however in one third of the states they reduce total employment

in search of the liquidity effect abstract a short run negative relationship between monetary aggregates and interest rates the liquidity effect is central to discussions of monetary policy this paper searches for this empirical relationship we investigate whether the characterization of the liquidity effect is sensitive to i changes in sample period ii conditioning the correlations on past information iii assuming money growth is exogenous and iv treating monetary changes as anticipated or unanticipated the correlations change substantially in each case we conclude that the traditional analysis and modern models which rely completely on demand side behavior cannot explain the observed correlations a successful characterization of the liquidity effect requires identification of both private and policy behavior

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

can government purchases stimulate the economy this essay briefly reviews the state of knowledge about the government spending multiplier drawing on theoretical work aggregate empirical estimates from the united states as well as cross locality estimates i assess the likely range of multiplier values for the experiment most relevant to the stimulus package debate a temporary deficit financed increase in government purchases i conclude that the multiplier for this type of spending is probably between 0 8 and 1 5 jel e23 e62 h50

housework and fiscal expansions in an otherwise standard business cycle model with housework calibrated consistently with data on time use we discipline complementarity between consumption and hours worked and relate its strength to the size of fiscal multipliers evidence on the substitutability between home and market goods confirms that complementarity is an empirically relevant driver of fiscal multipliers however in a housework model substantial complementarity can be generated without imposing a low wealth effect which contradicts the microeconomic evidence also explicitly modeling housework matters for assessing the welfare effects of government spending which are understated by theories that neglect substitutability between home produced and market goods

the cyclical behaviour of fiscal policy evidence from the oecd this paper addresses the topic of cyclicality in scal policy in particular we show that the level of cyclicality varies across spending categories and across oecd countries in line with leading theories of scal cyclicality we show that countries with volatile output and dispersed political power are the most likely to run procyclical scal policies wage government consumption is highlighted as the most important channel by which these variables affect scal cyclicality

seasonal cycles business cycles and monetary policy abstract this paper presents a dynamic general equilibrium model that is consistent with both seasonal and business cycle facts in the u s economy the model features consumption durability and a transaction technology both crucial in accounting for seasonal patterns of nominal variables a calibrated version of the model is used to quantitatively evaluate welfare consequences of three alternative monetary policy rules 1 the fed s historical policy that smooths nominal interest rates at the seasonal frequency but not at the business cycle frequency 2 a constant money growth rule and 3 a constant interest rate rule we find that the historical policy is associated with higher welfare than both alternatives

a trade related pollution trap for economies in transition evidence from china abstract this study argues that economic growth does not necessarily reverse the pollution haven behavior even if one economy shifts from the low income group to the high income one i e the economy in transition the economy in transition can become a convergence of trade related pollution then getting stuck in a pollution trap through investigating the case of china during 2003 2009 this study examines the features and causes of trade related pollution trap supported by the world input output database and the product specific statistics from china customs this study applies the input output analysis to trace the distribution of pollution embodied in china s foreign trade then it constructs a sector country year panel and applies the fixed effect model to examine causes of the pollution trap the results show that china s pollution terms of trade ptt with developing economies increases and exceeds one while the ptt with developed economies keeps larger than one it supports the feature of pollution trap the results also demonstrate that pollution trap is determined by the synergy of environmental regulation inter industry trade and intra industry trade 1 environmental regulations keep china from becoming pollution haven of developed economies rather than relocating pollution intensive production to other developing economies 2 the current intra industry trade of low value added products worsens china s environmental performance 3 the diluting advantage on labor and the accumulating advantage on capital keep china specializing in pollution intensive production overall the pollution trap may alert economies that applies the outward oriented growth model to prepare for sustainability transition our findings imply that going green rather than moving away is essential in response to trade environment effects more stringent regulation should improve the environmental performance of production and encourage the utilization of clean technology the increasing role of intra industry trade requires to upgrade the commodity structure towards one with higher added value

tentative evidence of tax foresight abstract when lagged interest rates and prices are included in a var responses to a tax shock decrease this reduced form result is consistent with tax foresight and hence casts doubt on estimates of tax effects under the no foresight assumption

contrasting models of the effect of inflation on growth the paper formulates a nesting model for studying the theoretical literature on inflation and endogenous growth it analyses different classes of endogenous growth models with different usage of physical and human capital with different exchange technologies first the paper shows that a broad array of models can all generate significant negative effects of inflation on growth second it shows that these models can be differentiated primarily by the fact whether there is a tobin type effect of inflation and also whether the inflation growth effect becomes weaker as the inflation rate rises a non linearity or stays essentially constant over the range of inflation rates the paper compares these features of the models to empirical evidence as a way to summarize the efficacy of the models

what are the effects of fiscal policy shocks we propose and apply a new approach for analyzing the effects of fiscal policy using vector autoregressions specifically we use sign restrictions to identify a government revenue shock as well as a government spending shock while controlling for a generic business cycle shock and a monetary policy shock we explicitly allow for the possibility of announcement effects i e that a current fiscal policy shock changes fiscal policy variables in the future but not at present we construct the impulse responses to three linear combinations of these fiscal shocks corresponding to the three scenarios of deficit spending deficit financed tax cuts and a balanced budget spending expansion we apply the method to us quarterly data from 1955 to 2000 we find that deficit financed tax cuts work best among these three scenarios to improve gdp with a maximal present value multiplier of five dollars of total additional gdp per each dollar of the total cut in government revenue 5 years after the shock copyright 2009 john wiley sons ltd

exogenous uncertainty and the identification of structural vector autoregressions with external instruments we provide necessary and sufficient conditions for the identification of structural vector autoregressions svars with external instruments considering the case in which r instruments are used to identify g structural shocks of interest r g 1 novel frequentist estimation methods are discussed by considering both a partial shocks identification strategy where only g structural shocks are of interest and are instrumented and in a full shocks identification strategy where despite g structural shocks are instrumented all n structural shocks of the system can be identified under certain conditions the suggested approach is applied to empirically investigate whether financial and macroeconomic uncertainty can be approximated as exogenous drivers of u s real economic activity or rather as endogenous responses to first moment shocks or both we analyze whether the dynamic causal effects of non uncertainty shocks on macroeconomic and financial uncertainty are signicant in the period after the global financial crisis

temporal change of china s pollution terms of trade and its determinants abstract based on the world input output database wiod this study employed a revised pollution terms of trade ptt indicator to investigate the temporal change of china s environmental cost relative to its economic gains from international trade from 1995 to 2009 the results show that china has ptt larger than 1 indicating that china emits more emissions to obtain each unit of value added from exports than its trade partners over the period china s ptt first decreased from 1995 to 2001 and then increased from 2001 to 2009 the further decompositions show that improving technology is the leading driving force to decrease ptt while the change in global trade pattern is the leading force increasing ptt especially after 2001 we further decomposed the temporal change of china s ptt by income group of the trading partners the results show that the change in the global trade pattern is the crucial driving force behind the different changes of ptt by income group

on the complementarity of money and credit i propose a model where agents choose to conduct their business using two payment instruments money and bilateral credit a friction in the timing of transactions rationalizes the use of both instruments and makes it optimal for agents to use money as a means of settlement for credit money and credit complement each other with anticipated inflation complementarity implies that the credit to money ratio decreases with inflation

the pollution terms of trade and its five components abstract based on two extensions this paper proposes a re appraisal of the concept of the pollution terms of trade ptt introduced by antweiler 1996 first detailed data allows capturing the effect of differences in emission intensities across countries and over time second relying on johnson and noguera 2012 the revised ptt index controls for trade in intermediate goods and is based on value added rather than gross output figures applied to a database for so 2 emission intensities for 62 developed and developing countries over the 1990 2000 period it turns out that the first extension has a larger empirical importance than the second one the global pattern is one in which the major rich economies exhibit a ptt index below one higher pollution intensity in imports than in exports trade imbalances tend to exacerbate this asymmetry allowing rich economies to further offshore their pollution through trade

the welfare effect of access to credit i present a model in which credit and outside money can be used as means of payment in order to analyze how access to credit aects welfare when credit markets feature limited participation allowing more agents to use credit has an ambiguous eect on welfare because it may make consumption risk sharing more ine cient i calibrate the model using u s data on credit card transactions and show that the increase in access to credit from 1990 to the near present has had a slightly negative impact on welfare

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

the response of household consumption to income tax refunds a central implication of the life cycle or permanent income theory is that consumption should not respond to predictable fluctuations in income tests of this implication have yielded mixed results especially on micro data angus deaton 1992 martin browning and annamaria lusardi 1996 in large part this might be due to the difficulties of isolating the predictable component of income at the micro level most tests proceed by instrumenting for income but since the available instruments are typically poor such tests might be prejudiced against finding significant excess sensitivity of consumption to income john shea 1995 also it is not clear how closely the resulting econometric predictions of income coincide with agents actual expectations of income to avoid these difficulties this paper examines the response of household consumption to a particular type of income that is both predictable and transitory income tax refunds since a refund depends on events in the previous calendar year it is predictable income as regards consumption in the year of its receipt consequently under the life cycle theory consumption should not increase on receipt of a refund 2 in addition to testing the canonical model of consumption this paper provides estimates interpretable as the marginal propensity to consume mpc out of refunds since federal tax refunds now amount to over 80 billion per year averaging well over 1 000 per refund these estimates are of interest in themselves more generally they bear on the impact of even preannounced and temporary changes in fiscal policy the paper begins by surveying related studies in section i section ii describes the data the consumer expenditure survey cex which of the leading u s micro data sets has the most comprehensive coverage of expenditure the empirical specification is set out in section hi section iv reports the results and section v concludes

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

bayesian methods for dynamic multivariate models if dynamic multivariate models are to be used to guide decisionmaking it is important that probability assessments of forecasts or policy projections be provided when identified bayesian vector autoregression var models are presented with error bands in the existing literature both conceptual and numerical problems have not been dealt with in an internally consistent way in this paper the authors develop methods to introduce prior information in both reduced form and structural var models without introducing substantial new computational burdens their approach makes it feasible to use a single large dynamic framework for example twenty variable models for tasks of policy projections copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

intra industry trade in intermediate products pollution and internationally increasing returns this paper examines the relationship between intra industry trade in intermediate products pollution and increasing returns we develop a two country model in which production occurs in two stages final and intermediate good production intermediate goods are produced under monopolistic competition and final good production exhibits increasing returns with respect to the number of varieties of intermediates pollution occurs in the production of the final good when polluting intermediates are used we analyze the effects of international trade in intermediate products on pollution output and welfare under an endogenous tax scenario and with two types of pollution functions the results show that because of increasing returns international trade either leads to lower total pollution in each country or lower pollution per unit of output in at least one country in addition intra industry trade causes countries to import the environmental quality of their trading partners

sticky prices and costly credit we develop a theory of money and credit as competing payment instruments then put it to work in applications agents use cash and credit because the former latter is subject to the inflation tax transaction costs frictions that make the choice of payment method interesting also imply equilibrium price dispersion we derive closed form solutions for money demand and show how to simultaneously account for the price change facts cash credit shares in micro data and money interest correlations in macro data the effects of inflation on welfare price dispersion and markups are discussed as are nonstationary equilibria with dynamics in the price distribution

a fiscal stimulus and jobless recovery we analyze the effects of a government spending expansion in a dynamic stochastic general equilibrium model with mortensen pissarides labor market frictions deep habits in private and public consumption investment adjustment costs a constant elasticity of substitution ces production function and adjustments in employment at both intensive and extensive margins the combination of deep habits and ces technology is crucial the presence of deep habits magnifies the responses of macroeconomic variables to a fiscal stimulus while an elasticity of substitution between capital and labor in the range of available estimates allows the model to produce a scenario compatible with the observed jobless recovery

the welfare cost of inflation in general equilibrium abstract this paper presents a general equilibrium monetary model in which inflation distorts a variety of marginal decisions although individually none of the distortions is very large they combine to yield substantial welfare cost estimates a sustained 4 percent inflation like that experienced in the us since 1983 costs the economy the equivalent of 0 41 percent of output per year when currency is identified as the relevant definition of money and over 1 percent of output per year when m1 is defined as money the results illustrate how the traditional partial equilibrium approach can seriously underestimate the true cost of inflation

driving factors of carbon emissions embodied in china us trade a structural decomposition analysis abstract based on the environmental multi regional input output model this study employed structural decomposition analysis to investigate the driving factors of carbon emissions embodied in china us trade over the period of 1995 2009 effective driving factors were classified into six groups and each group included both factors at home and abroad the results show that factors trade structure of intermediate products at home and export market shares of final products at home presented the largest positive impacts to increments in carbon emissions embodied in chinese exports to the us while the majority of negative impacts was generated by changes in energy intensities at home the increment in carbon emissions embodied in us exports to china was mostly contributed by total demands abroad impacts of other driving factors were much smaller at the sectoral level both positive and negative impacts of driving factors were largely limited to a few sectors e g textiles products machinery transport equipment and electrical equipment here positive impacts were mostly contributed by export market shares of final products at home and total demands abroad and negative impacts were mainly contributed by energy intensities at home policy implications deduced from the results were discussed

the use of electronic funds transfers to capture the effects of cash management practices on the demand for demand deposits a note the rapidly increasing use of more sophisticated cash management practices is a factor influencing the demand for money that is not considered in standard models of money demand within the framework of an inventory theoretic model of money demand this paper provides theoretical grounds for using the number of electronic funds transfers as an indication of increasing cash management sophistication specifically the demand for demand deposits is determined from the solution of a simultaneous equation system that also determines the optimal level of cash management therefore the level of cash management services influences transactions costs implying that transactions costs are endogenous the number of electronic funds transfers is closely linked to the level of cash management services and is therefore related to transactions costs models of money demand that treat transactions costs as exogenous and fixed are therefore misspecified and will not perform well when transactions costs are changing by explicitly incorporating the changing nature of transactions costs through the use of electronic funds transfers the problems of instability and poor predictive power associated with the demand for money in the 1970 s are overcome this paper analyzes the effects of cash management techniques on the demand for demand deposits these effects are derived from an inventory demand for money model in which cash management services are viewed as lowering transactions costs this derivation implies that the solution of the model results in a two equation system that simultaneously determines the optimal level of cash management services and the optimal average demand deposit balances since the number of electronic funds transfers is related to investment in cash management services modelling cash management in this way gives theoretical content to kimball s 20 contention that the number of electronic funds transfers is an important variable in explaining the demand for demand deposits the model of the demand for demand deposits presented in this paper implies that omitting cash management innovations will produce serious misspecification and will bias regression results these innovations allow deposit holders especially firms to economize on deposit balances therefore the desired amount of demand deposits for any given level of transactions income and interest rates will be lower than that implied by any historical relationship failure to incor