macroeconomics of stagflation under flexible exchange rates the concerns of macroeconomic policy in the industrial countries in recent years have shifted the focus of open economy ncroeconomics to new and interesting problems although no synthesis or a fully coherent theory of policy has yet emerged from this research the results have already led to major revisions in views about the nature of the problems that policy has to deal with this paper provides a selective survey and discussion of son of the results of recent research with errhasis on their inplications for policy pentti j k kouri department of economics 269 mercer street second floor new york university new york n y 10003 macroeconomics of stagflation under flexible exchange rates

the north south divide questions of existence and stability this paper investigates the relationship between regional earnings and unemployment by use of information primarily from the general household surveys of 1975 and 1982 conventional earnings functions are augmented to capture the effects of the level and duration of unemployment and of regional differences in living costs in common with previous studies the authors find personal characteristics and the occupation or industry of employment to be important in earnings determination in this paper however they generally find that although higher unemployment is associated with reduced regional earnings ceteris paribus long term unemployment has little influence in regional earnings determination copyright 1990 by royal economic society

spatial patterns of private sector and public sector non agricultural jobs in rural northeast thailand lohmann c and liefner i spatial patterns of private sector and public sector non agricultural jobs in rural northeast thailand regional studies published evidence from developing countries shows that in rural areas participation in non agricultural wage employment rises with proximity to urban centres while earnings do not this paper explores the reasons for this phenomenon analysing the job characteristics of rural workers in detail the data set consists of 900 jobs the results show that public jobs are over represented in rural remote regions driving up the mean wage of this type of region when considering private sector employment only spatial wage and income differentials do exist showing that workers in remote areas are economically more disadvantaged than workers in peri urban areas

employment policies wage formation and trade union behavior in a small open economy a model of trade union determined wages is developed which provides an explanation of underemployment based on optimizing behavior it is shown that fiscal policy will in general affect employment under perfect foresight and immediate wage flexibility future consequences of short run stabilization policies are discussed ratchet effects with respect to government expenditure and game theoretic interdependence between government and trade union behavior are emphasized if the trade union takes short run policy measures in order to increase employment as an indication of an employment stabilization rule the future behavior of the trade union changes and the result may be a decrease in long run employment

trying to explain home bias in equities and consumption investors hold a substantially larger proportion of their wealth portfolios in domestic assets than standard portfolio theory would suggest a phenomenon called equity home bias in the absence of this bias investors would optimally diversify domestic output risk using foreign equities therefore consumption growth rates would tend to co move across countries even when output growth rates do not empirically however consumption growth rates tend to have a lower correlation across countries than do output growth rates a phenomenon i call consumption home bias in this paper i discuss these two biases and their potential relationship as suggested by the literature

comment on e j driffill macroeconomic stabilization policy and trade union behavior as a repeated game driffill s paper is motivated by the notion that government concern over the level of unemployment enables unions to obtain higher real wages than they otherwise would with the paradoxical result that stabilization policy raises the average unemployment rate a closely related problem has been studied by barro gordon 1983 in the context of the inflation unemployment tradeoff in that case government attempts to reduce the unemployment rate end up creating higher inflation the process reaching equilibrium when the marginal cost of inflation to the government is equal to the putative gain that would be obtained from lower though unattainable unemployment

are national agreements a source of nominal wage rigidity in the depressed regions of britain elliott r f and hemmings p j 1991 are national agreements a source of nominal wage rigidity in the depressed regions of britain reg studies 25 63 69 this study uses unpublished new earnings survey data to evaluate the relative rigidity of national wage rates a simple model is constructed to test the extent to which rates of pay set by management in firms not covered by any form of collective bargaining respond more quickly to changes in levels of excess demand than do rates established by national bargaining elliott r f et hemmings p j 1991 les conventions nationales sont elles une source de rigidite des salaires nominaux aux regions en perte de vitesse en grande bretagne reg studies 25 63 69 a partir des donnees provenant d une enquete sur les salaires actuels new earnings survey qui n ont pas ete publiees cette etude evalue la rigidite relative des taux nationaux des salaires on construit un modele simple pour jauger dans quelle mesure les taux des salaires decides par la

time varying international diversification and the forward premium abstract this paper reproduces the slope of the uncovered interest rate parity uip regression for ten country pairs within one standard deviation under rational expectations we propose an infinite horizon dynamic stochastic general equilibrium model with incomplete markets heterogeneous investors experience varying risk aversion as a result of habit formation the underlying mechanism of the model relies on varying international diversification in the investors portfolio choice decision in response to their changing habit levels investors hedging desire varies over time this leads to adjustments in interest rates the habit induced investment decisions are negatively correlated with movements in the exchange rate this results in a negative correlation between interest rates and expected exchange rates as implied by a negative uip slope depending on the magnitude of habits the model is capable of reproducing positive as well as negative uip slopes as seen empirically in the data

wages and employment under trade unionism microeconomic models and macroeconomic applications the first part of this paper is a critical survey of microeconomic research into behavioural models of trade unionism although certain formulations of union objectives and models of wage and employment determination in unionized markets have found favor with economists unfortunately only a little is known about their empirical relevance the second part of this paper deals with the daunting problems of applying these models at the macroeconomic level one such model is estimated with data from sweden s mining and manufacturing sector from 1968 to 1982

is incomes policy the answer to unemployment in western europe unemployment has remained obstinately high ever since 1975 what has prevented governments from reducing it the answer is simple if unemployment were reduced by normal methods inflation would rise it follows that the only way to cut the long run level of unemployment is to find some other way of controlling inflation no such device will be costless but if we could find any method that was less costly than unemployment we ought to adopt it maurice chevalier was asked in later life what he thought of old age it s not so bad he replied when you consider the alternative that was a true economist talking and it is also the spirit in which i shall approach the unhappy choices open to us my argument will proceed roughly as follows first imagine that a costless incomes policy is available then most people would probably agree that if inflation was too high a temporary incomes policy would be a good idea in order to get inflation down but what then when it was down we would still be left with far too high an unemployment rate only a permanent incomes policy can substantially reduce the non inflationary level of unemployment however against these benefits have to be set the costs of an incomes policy a conventional incomes policy which permanently suspended collective bargaining would be out of the question in a free society so we have to have an incomes policy that works by incentive rather than by regulation the best thing would be a tax on wage increases levied on employers and proportional to wage increases above a prescribed norm i shall spend some time discussing this tax using various different models of wage setting to explain how it would have its effect and finally i shall try producing a first draft of the operator s manual

wage differentials between the public and private sectors abstract public sector employment and the tax pressure has grown very rapidly in denmark in recent years this paper discusses a new policy option for government using its role as a dominant employer to reduce relative public sector wages the paper contains an empirical analysis of wage differences between the public and the private sectors in denmark using a longitudinal data set covering the years 1976 1985 fixed effect regressions show that a wage twist policy of this type has been used in these years one of the consequences of a wage twist policy in the public sector is recruitment and retention problems for public employees

regional pay the public private sector pay differential abstractregional pay the public private sector pay differential regional studies this paper extends the debate on making public sector wages more responsive to those in the private sector the way in which the public private sector wage differential is calculated dramatically alters conclusions and far from there being substantial regional disparity in wages offered to public sector workers any differences are predominantly concentrated in london and the south east where public sector workers are significantly disadvantaged relative to private sector workers this has implications for staff recruitment and retention such findings question the need for regional market facing pay but highlight the necessity to revisit the london weighting offered to public sector workers

international portfolio nondiversification and exchange rate variability abstract incomplete international portfolio diversification is implied by an equilibrium models of exchange rates with nontraded goods the model can also explain the greater correlation between consumption and income within a country than between consumption across countries nontraded goods make more stringent the elasticity conditions required to explain exchange rate variability resulting from current productivity disturbances though not from disturbances to fiscal policies or the prospective return to investment the model is also consistent with international real interest rate differentials changes over time in the current account and relative wealth across nations and observed time series properties of exchange rates

home bias in equity portfolios inflation hedging and international capital market equilibrium we test whether the home bias in equity portfolios is caused by investors trying to hedge inflation risk the empirical evidence is consistent with this motive only if investors have very high levels of risk tolerance and equity returns are negatively correlated with domestic inflation we then develop a model of international portfolio choice and equity market equilibrium that integrates inflation risk and deadweight costs using this model we estimate the levels of costs required to generate the observed home bias in portfolios consistent with different levels of risk aversion for a level of risk aversion consistent with standard estimates of the domestic equity market risk premium these costs are about a few percent per annum greater than observable costs such as withholding taxes thus the home bias cannot be explained by either inflation hedging or direct observable costs of international investment unless investors have very low levels of risk aversion article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

exchange rate policy wage formation and credibility abstract since the collapse of the bretton woods system some european countries have pursued discretionary exchange rate policies in order to maintain or enhance the international competitiveness of the traded goods sector these countries which typically feature centralized wage setting have also tended to experience high nominal wage increases the overall outcome may be described as a devaluation wage spiral this paper applies two models of repeated games to analyze the strategic interaction between an exchange rate setting policy maker and a wage setting trade union it is shown how a devaluation wage spiral may result from a conflict of interest over the real wage it is also shown how reputational forces may provide a way out of the devaluation wage spiral

towards regionally embedded innovation support systems in south korea case studies from kyongbuk taegu and kyonggi since the beginning of the 1990s systems of innovation have been used as a framework to explain differences in innovativeness between firms industries and economies at local regional national and supranational levels the main argument behind the discussions around systems of innovation is that firms are increasingly dependent on institutions in their direct environment for their innovativeness and thus competitiveness in regional innovation systems firms and other organisations are systematically engaged in interactive learning through an institutional milieu characterised by embeddedness on the basis of these systems governance infrastructure a typology can be developed consisting of grassroots systems with the highest level of regional embeddedness integrated systems and dirigiste systems with the lowest level of regional embeddedness based on empirical research on innovation support agencies in kyongbuk taegu and kyonggi this paper shows that south korea is characterised by dirigiste r

classical unemployment accommodation policies and the adjustment of real wages a model of wage formation and stabilization policy in economies with strong trade unions is developed the analysis provides a theoretical underpinning for the assertion that accommodation policies may cause wage inflation and ultimately reduce employment various methods of accomplishing a real wage adjustment are discussed i a policy of complete nonaccommodation 2 continued accommodation policies but with lower employment targets 3 social contracts and 4 tax based incomes policies tip

public service employment and the public private wage differential in british regions successive forms of regional policy in the uk have sought to support the maintenance and creation of public sector employment opportunities in relatively disadvantaged regions nationally negotiated public sector pay rates mean that the private public pay gap is likely to be wider in lower demand regions this will be reinforced by the relative absence of private sector employment crowding out in such higher unemployment regions this paper investigates the association between private and public sector service employment using panel data for british regions and estimates regional public private wage differentials using british household panel survey data for 1991 to 1996 across britain private sector employment growth is weakly positively associated with higher public service employment growth but the association is stronger in scotland and the north of england the pattern of regional wage differentials found is consistent with lower crowding out in higher unemployment regions this suggests that reg

the recent slowdown of productivity growth the slowdown of productivity growth in the developed countries during the seventies will in this paper be viewed as a combined effect of three closely interacting forces i a long term deterioration in the efficiency and flexibility of some basic mechanisms of the economic and political systems of these countries ii the fading away of a number of uniquely favourable circumstances for productivity growth during the fifties and sixties and iii the exposure of these economies to unusually severe macroeconomic disturbances in the seventies careful inspection of time series with attempted modifications for cyclical factors suggests that there was hardly any general slowdown of productivity growth among developed countries before approximately i972 4 1 as we know the situation is radically different since then labour productivity growth per year for the entire national economy gdp per man hour seems to have fallen between the periods i960 73 and i973 9 by about i 2 percentage points in the united states 45 by about 24 percentage points in western europe2 45 and by about 5 9 percentage points in japan 6o table i see also fig i the slowdown was of about the same size in the business and manufacturing sectors see table i to calculate the extent of the slowdown of total factor productivity growth is of course a much more hazardous matter to which i will return later if just the various system changes and the fading away of the uniquely favourable factors had been the dominating forces behind the productivity growth slowdown we would expect the slowdown to have been gradual rather than abrupt as it turned out to be this abruptness as well as its timing makes the dramatic macroeconomic disturbances around i972 4 a prime suspect when looking for the villain behind the productivity growth slowdown indeed it is a basic hypothesis of the paper that these macroeconomic disturbances were not only by themselves strongly unfavourable for productivity growth but that they also revealed and accentuated the gradual deterioration of the

macroeconomic performance and collective bargaining an international perspective this paper critically reviews the research on how collective bargaining systems influence macroeconomic performance in industrialized countries the review considers effects of bargaining level coordination and corporatist institutional arrangements key empirical results turn out to be quite fragile and much of the paper explores issues of measurement and specification that account for the fragility the paper concludes that complementarities between key institutions and between institutions and the economic environment may be more important for macroeconomic performance than the effects of individual institutions and it suggests research strategies

on the effects of barriers to international investment a simple model is presented in which it is costly for domestic investors to hold foreign assets the implications of the model for the composition of optimal portfolios at home and abroad are derived it is shown that all foreign assets with a beta larger than some beta plot on either one of two security market lines some foreign assets with a beta smaller than are not held by domestic investors even if their expected return is increased slightly while it is obviously not true that asset markets are completely segmented between countries there is evidence of barriers to international investment although reality seems to lie in that grey area between complete segmentation and no segmentation at all most international asset pricing models are concerned with the extreme case of no barriers to international investment no effort seems to have been made to study the effect on portfolio choice of such barriers which make it costly to hold foreign securities as opposed to domestic securities but which do not in general render international diversification so onerous that investors avoid foreign securities completely casual empiricism suggests that models without barriers to international investment should be suspect those models cannot explain why it appears that in every country investors on average hold more domestic securities than would be required if they held the world market portfolio 2 this paper constructs a model of international asset pricing in which there is a cost associated with holding either long or short risky foreign securities for the sake of simplicity in most of the paper we assume that while domestic investors face barriers to international investment foreign investors face no such barriers it turns out that nothing significant is lost with such an assumption the main conclusions of this paper for the case in which foreign investors face no barriers to international investment are 1 in the presence of barriers to international investment some risky foreign

endogenous asymmetric information and international equity home bias the effects of portfolio size and information costs equity home bias is one of the major puzzles in international finance this paper investigates the impact of asymmetric information on equity home bias in a rational expectation model where portfolio managers differ in their levels of initial portfolio size and information acquisition is endogenous the model characterizes the information acquisition and investment decisions made by each portfolio manager and the resulting equilibrium we find that portfolio managers with larger portfolio size acquire information about the foreign asset this is consistent with new evidence linking the degree of home bias across portfolio managers to portfolio size

stabilisation policy targets and unemployment in imperfectly competitive economies this paper argues that the rate of equilibrium unemployment depends on the objectives of the central bank in a model where the central bank uses monetary policy to stabilise the economy we show that unemployment and inflation will be lower with an inflation target than with targets for output money or nominal gdp the intuition for this is that the elasticities of demand in both the product and the labour markets are greater when there is an inflation target we show that this leads to a lower mark up of price over marginal cost and makes wages more sensitive to unemployment

long term unemployment hysteresis and the unemployment vacancy relationship a regional analysis jones d r and manning d n 1992 long term unemployment hysteresis and the unemployment vacancy relationship a regional analysis reg studies 26 17 29 in this paper we investigate the unemployment vacancy uv relationship in the ten standard regions of great britain in particular we test the hypothesis of hysteresis in the unemployment rate and consider the importance of long term unemployment in the hysteresis mechanism previous work has demonstrated the importance of long term unemployment in empirical models of the aggregate uv relationship in the regions of britain there is considerable heterogeneity both in the measured uv relationship and in the relative importance of long term unemployment the nature of this heterogeneity is considered in this paper jones d r et manning d n 1992 le chomage de longue duree l hysterese et le rapport chomage offres d emploi une analyse regionale reg studies 26 17 29 cet article etudie le rapport chomage offres d emploi c o dans les dix zo

a wage bargaining model for denmark recent models of wage bargaining provide the background for formulating a wage employment model which is estimated for the manufacturing sector in denmark emphasis is laid on an interpretation of the empirical findings in a maroeconomic context the major results are that wage setting is not characterized by money illusion shorter working hours lead in the long run to full wage compensation and a fall in total number of hours worked and expansionary demand management policies induce wage increases which eventually eliminate the expansionary effects on activity

equity home bias and corporate disclosure abstract i show that more comprehensive corporate disclosure reduces investors uncertainty about domestic companies payoffs at no cost thereby decreasing investors equity home bias toward a country since investors should base their investment decisions on valid and easily interpretable company information only more comprehensive disclosure will reduce the home bias only if domestic securities law is sufficiently stratified and domestic companies use international accounting standards using panel data for 38 countries from 2003 to 2008 i find that more comprehensive disclosure reduces investors home bias though significantly only for countries that sufficiently enforce their securities law and implement international accounting standards

public sector pay bargaining and regional labour markets regional pay differentials for women working as nurses within the uk national health service spoor c and sutherland j 2007 public sector pay bargaining and regional labour markets regional pay differentials for women working as nurses within the uk national health service regional studies 41 115 129 the policy context of this paper is the controversy over pay bargaining processes and the advantages claimed for decentralized pay bargaining as opposed to centralized bargaining for nurses the single most important occupational grouping within the uk national health service and conventionally associated with a problem of labour shortages making use of a pooled cross section data set from eight successive sweeps of the labour force survey which consists of women who possess a nursing qualification this paper examines regional wage differentials from two perspectives first regional wage differentials accruing to women employed as nurses within the national health service are examined these differentials are seen to be sizeable evidence compatible with an existing degree of localization

labor union objectives and collective bargaining we consider a model oflabor union behavior in which workers make decisions about wages and employment by simple majority rule we show that under general conditions such a union has a well behaved objective function different from those previously postulated in the literature we then show that the union s majority preferences generally lack a von neumann morgenstern utility representation and thus cannot be inserted into traditional bargaining models we then develop and characterize the solutions to a new bargaining model that is consistent with the structure of union preferences several comparative statics results are presented

imperfect financial integration and asymmetric information competing explanations of the home bias puzzle this paper shows that imperfect financial integration and informational asymmetries are not competing theories but rather complementary ideas to a single explanation of the home bias puzzle we develop a rational expectations model of asset prices with investors that face informational constraints and find that informational advantages arise endogenously as a response to small financial frictions we also present empirical evidence that i international financial frictions are correlated to observed patterns of us investors attention and that ii the attention us investors allocate to foreign stocks helps explain home bias towards those countries even after controlling for financial integration levels ce memoire montre que l integration financiere imparfaite et l information asymetrique ne sont pas des theories concurrentes mais plutot des idees complementaires a l interieur d une resolution unifiee de l enigme du biais en faveur du marche domestique on developpe un modele d anticipations rationnelles des prix des actifs face a des investisseurs confrontes a des contraintes informationnelles et on decouvre que les avantages informationnels emergent de maniere endogene en reponse a de petites frictions financieres on montre empiriquement que i les frictions financieres internationales sont co reliees aux patterns d attention observes des investisseurs des etats unis et que ii l attention portee par les investisseurs americains aux marches financiers etrangers aide a expliquer le biais en faveur du marche domestique de ces pays meme apres avoir pris en compte les niveaux d integration financiere

trade unions wage formation and macroeconomic stability an introduction the process of wage formation is a crucial aspect of the current discussion about the causes of stagflation in fact differences between various policy prescriptions usually depend on differing assumptions about wage responses proposals to reduce unemployment through expansion of monetary demand are usually based on assumptions of rigid money wages in contrast recommendations of non intervention policies often rest on the opposite assumption of rigid real wages in which case monetary expansion will cause inflation but not affect employment

fiscal activism under inflation targeting and non atomistic wage setting this paper presents a game between a fiscal authority an independent central bank and non atomistic wage setters the effects of fiscal activism and inflation targeting on labour market outcomes are analysed the results suggest that inflation targeting provides incentive for wage restraint moreover real wages are increasing in the degree of fiscal activism as wage setters exploit the response of a fiscal authority seeking to promote employment numerical results suggest that the benefits of targeting inflation are larger when the government pursues an activist policy and therefore that there is some substitutability between fiscal and monetary rules

international investment restrictions and closed end country fund prices some closed end country funds trade at large premiums relative to their net asset values this paper examines whether international investment restrictions raise country fund price net asset value ratios by segmenting international capital markets we test whether a relation exists between announcements of changes in investment restrictions and changes in these ratios using weekly data from may 1981 to january 1989 the results provide evidence that some foreign markets are at least partially segmented from the u s capital market

exchange rate and foreign inflation risk premiums in global equity returns abstract we test for the pricing of exchange rate and foreign inflation risk in equities our tests are motivated by the empirical implications of the models of solnik 1974b solnik b 1974b the international pricing of risk an empirical investigation of the world capital market structure journal of finance 365 377 as revised by sercu 1980 sercu p 1980 a generalization of the international asset pricing model revue de l association francaise de finance 1 91 135 grauer et al 1976 grauer f litzenberger r stehle r 1976 sharing rules and equilibrium in an international capital market under uncertainty journal of financial economics 3 233 256 and adler and dumas 1983 adler m dumas b 1983 international portfolio choice and corporation finance a synthesis journal of finance 38 925 984 both exchange rate and foreign inflation risk factors can explain part of the within country cross sectional variation in returns our results have important implications for hedging exchange rate risk they also demonstrate that home bias at least in us equity portfolios cannot be the result of us investors efforts to hedge their domestic inflation

information and capital flows the determinants of transactions in financial assets abstract we show that a gravity model explains international transactions in financial assets at least as well as goods trade transactions our results support the hypothesis that informational asymmetries are responsible for the strong negative relationship between asset trade and distance this result is very important for theories of asset trade portfolio adjustments and home bias we strengthen it by investigating the roles of explicit informational variables as well as distance in explaining separately cross border trade in corporate equities corporate bonds and government bonds

macroeconomic stabilization policy and trade union behaviour as a repeated game lt is unquestionably true that the presence of trade unions in an economy affects its macroeconomic behaviour by attempting to maintain traditional patterns of relative wages among occupations and industries and by resisting cuts in real wages unions slow macroeconomic adjustment and structural change in response to macroeconomic shocks it is often argued that by insulating groups of workers from competitive pressures wage determination is less associated with market clearing than it otherwise would be overlapping contracts and resistance to relative wage changes thus give aggregate wage inflation mo mentum it would not otherwise have taylor 1980 jackman 1983 trade union bargaining may affect the position of the phillips curve jackman and layard 1982 nickell 1982 a popular argument for the increases in the nairu non acceleratinginflation rate of unemployment which have taken place between 1960 and 1980 in many industrialized countries where unions are strong is that trade unions have grown more militant and their bargaining behaviour has changed in some way this argument goes back at least as far as hines 1964

trade unions and the choice of capital stock this paper considers the interaction between a firm and trade union in determining employment wages and capital stock we take the monopoly trade union model of oswald 1982 where the union sets the wage and add the firms choice of capital stock the standard predictions of the union literature are highly dependent on the degree of strategic dominance of the union vis a vis the firm

a rational explanation for home country bias abstract while modern portfolio theory predicts that investors should diversify across international markets corporate equity is essentially held by domestic investors french and poterba 1991 french k poterba j 1991 investor diversification and international equity markets american economic review 81 222 226 suggest that in order for this bias to be justified investors must hold optimistic expectations about their domestic markets and pessimistic expectations about their foreign markets tesar and werner 1995 tesar l l werner i m 1995 home bias and high turnover journal of international money and finance 14 467 492 find existing explanations for the home equity bias unsatisfactory and conclude that the issue poses a challenge for portfolio theory we develop a model that incorporates both the foregone gains from diversification and the informational constraints of international investing and shows that home equity bias is consistent with rational mean variance portfolio choice specifically we prove that the nature of estimation risk in international markets can be responsible for this phenomenon we show that when the cross market variability in the estimation errors of international markets means far exceeds the cross market variability in the means themselves domestic dedication dominates international diversification an examination of 11 international markets returns over the last 25 years from the perspective of german japanese and us investors provides evidence consistent with this explanation

public and private sector wages in the netherlands there is much debate in the netherlands about underpayment of public sector workers relative to private sector workers in this paper we analyze the wage structures in both sectors using an endogenous switching regression model unlike previous dutch studies we find that the earnings prospects of public sector workers are better in the public sector than in the private sector for private sector workers we find the exact opposite their earnings prospects are better in the private sector moreover the allocation over sectors points to comparative advantages

the short run phillips curve with monopoly unions this paper concerns an economy subject to stochastic shocks where a union sets wages the government affects the price level and firms set employment the author shows that the phillips curve may then be upward or downward sloping for given preferences of agents depending on the nature of the shocks it most likely slopes downward when the government has little short run control of the price level or shocks stem from the demand side and upward when shocks originate on the production side average inflation while inefficiently high is brought down by union indexation of wages to the price level copyright 1988 by the editors of the scandinavian journal of economics

why real wages do not fall when there is unemployment abstract erroneous anticipations of fiscal policy results in involuntary unemployment if mutually agreeable unemployment may be eradicated by recontracting the real wage and employment level however if labor demand is inelastic unit elastic or within a bounded elastic range unemployment persists

rules discretion and reality both with respect to inflation and productivity macroeconomic performance in the last decade or so has been disappointing promises of policymakers to improve things have been frequently thwarted not only in terms of inflation and growth but also in terms of achieving targets for such summary measures of policy as the budget deficit or the money supply moreover critics have charged that policy failures are to blame for many of our economic difficulties the net effect has been to raise the practical question of whether the political process as now constituted can produce good economic policies the last decade or so has also been marked more than coincidentally by substantial professional criticism of conventional neokeynesian macro models and the theory of policy associated with them one of the major punch lines of this research is that activist macroeconomic policy is misguided indeed at best it is seen as ineffective and at worst highly counterproductive as a consequence the so called new classical economists argue that policymakers should avoid activism or discretion and instead be guided by simple rules the issue of rules vs discretion has of course been a source of long standing professional debate and while the new classical economists have provided some additional intellectual ammunition for rules this hardly serves to explain the apparent popular resurgence in advocacy of rules recent interest in rules is reflected in the emphasis on monetary targeting in proposed legislation even constitutional amendments for controlling the federal budget and in attempts to untarnish the gold standard this paper reviews the current state of the rules vs discretion debate i the nature of policy some preliminaries

the determinants of international investment and attention allocation using internet search query data abstract this paper explores the joint determination of home bias and attention allocation we overcome the typical challenge associated with evaluating attention allocation theories by using a new internet search query dataset to measure how much information investors decide to process employing an instrumental variables approach we find empirical evidence of a two way causality between home bias and attention our estimates suggest that if all countries were to receive the same level of attention as the u s then the average home bias by u s investors would fall from 85 2 to 57 3

what is a public sector pension worth we measure accruals in defined benefit db pension plans for public and private sector workers in britain using typical differences in scheme rules and sector specific lifetime age wage profiles by sex and educational group we show not just that coverage by db pension plans is greater in the public sector but that median pension accruals as a percentage of salary are more than 6 higher among db covered public sector workers than covered private sector workers this is largely driven by earlier normal pension retirement ages but also by differences in earnings profiles across the sectors

directed attention and nonparametric learning abstract this paper examines the implications of learning for the effects of ambiguity aversion the key result is that since agents naturally choose to learn about the sources of uncertainty that reduce utility the most information acquisition attenuates the most severe effects of ambiguity aversion the specific setting we study is the canonical consumption savings problem agents endogenously learn most about income dynamics at the very lowest frequencies while ambiguity aversion typically implies in this setting excessive extrapolation of income shocks that effect is eliminated here furthermore deviations of consumption from the full information benchmark are largest at high frequencies so the model naturally generates overreaction of consumption to predictable short run income variation

innovation policy making in a federalist system lessons from the states for u s federal innovation policy making abstract most observers argue that in comparison with other advanced industrial nations the u s has failed to develop a coherent and effective set of policies for industrial innovation in contrast in the 1980s u s states forged ahead of the federal government in the development of technology policies yet while some states have found the wherewithal to spend relatively large sums of money on an appropriate mix of well designed policies others facing similar situations have done little research conducted on the state policy making process found that this variation was caused by a number of procedural factors in fact in the course of the research two models of policy making were discovered one was associated with well funded and well designed policies the other was not significantly the federal innovation policy making process appears remarkably similar to the process of policy making followed in states doing the least this article suggests that it is precisely because the federal policy making process is so similar to the process in these latter states that the u s has yet to develop a well funded and well designed innovation policy effort this article outlines a reformulated federal policy making process closer to that used by the most successful states which would significantly improve the innovation policy effort

union wages temporary lay offs and seniority it is widely believed that the seniority system in conjunction with the collective bargaining process contributes significantly to the determination of the unemployment level in unionized sectors causa i empiricism suggests that real wage demands often remain buoyant in these sectors in the face of seemingly high rates of unemployment among union members james medoff 1979 p 380 convincingly documents the evidence that adjustment through lay offs is substantially greater in unionized firms than in comparable non unionized firms the usual but somewhat informal explanation is that the outcome of union voting is greatly influenced by senior workers who are fairly certain that they will not be laid off when normal shifts in the industry s demand for labour occur 2 these inframarginal workers are believed to vote for higher wage settlements than they would if their own jobs were not so secure

home asset preference and productivity shocks abstract this paper presents sufficient conditions for the domestic investor consumer to hold in equilibrium a disproportionate share of domestic assets the analysis is carried out in a general equilibrium framework of products and assets markets when the source of the uncertainty is productivity shocks in the nontraded goods industries in the asset markets we allow trade in instruments with a payoff which is not necessarily positively correlated with the price of the consumption good as the instruments considered in the existing literature consequently in our analysis in contrast to the existing literature hedging against price uncertainty is neither necessary nor sufficient for home asset preference

comment on t hersoug workers vs government who adjusts to whom ever since the days of keynes economists have been puzzled by the behavior of wages in the classical macroeconomic system real wages were supposed to clear the labor market yet real wage rates were only slightly reduced by the massive and persistent unemployment during the depression it is true that nominal wage rates fell but prices fell in roughly the same proportion

tax incidence partial policy improvements and centralized wage setting subsidies are often recommended both in theoretical analysis and in practical applications as a remedy for involuntary unemployment cf oswald 1984 likewise subsidies which assist domestic firms in their competition with foreign rivals are viewed with increasing favor in order to raise the number of well paid jobs high wage or high value added industries should be subsidized or protected from foreign competition see bhagwati and srinivasan 1983 these considerations are of a partial equilibrium nature however there is no theory as to how wages are determined and only one industry is examined in an otherwise competitive economy this paper focuses on the case where the government uses some taxes as policy instruments but balances its budget by other revenueraising taxes and where a wage setting union takes this government behavior as given the tax incidence on workers then has an impact on wages and expansion in one industry raises wages in general and reduces employment in the others so that the subsidy in one industry implicitly becomes the tax in another the study proceeds as follows in section ii we specify the determination of employment and wages in an open economy with one economy wide union in section iii we assume that the government can discriminate between the industries and in section iv that the authorities are subject to uniform tax and subsidy rates in both of these cases specific policy rules are obtained

workers versus government who adjusts to whom a dominant trade union and the government are regarded as players in a game it is argued that the institutional setting is such that the union in effect makes the first move and government the last then the stackelberg solution with the union as the leader is a nash equilibrium this solution is in accordance with an accommodating policy implying relatively high wage and price levels and a poor trade balance a nonaccommodating policy with the unions as the follower would be preferred by the government and may not imply lower employment but is likely to require short run losses in order to be established a cooperative solution could be to mutual benefit but is rarely observed problems of realizing such a solution are discussed

devolved government and public sector pay reform considerations of equity and efficiency elliott r f bell d scott a ma a and roberts e 2005 devolved government and public sector pay reform considerations of equity and efficiency regional studies 39 519 539 public sector pay is of critical concern to the governments in westminster and edinburgh it accounts for the major part of these government s current expenditures and is a crucial determinant of the quality and range of the services they provide the paper details the current arrangements for setting public sector pay it is shown that these mechanisms are for the most part uk wide and that they result in national rates of pay that reveal little sensitivity to specific labour market conditions in scotland in consequence in scotland public sector workers toward the lower end of the distribution of pay are now significantly better paid than their private sector counterparts while those at the upper end are now paid about the same the paper uses data from the labour force survey for 1996 2002 to establish these results

why empirical international portfolio models fail evidence that model misspecification creates home asset bias abstract international portfolio models consistently predict that investors should put much more of their wealth into foreign assets than they actually do a result known as home asset bias we use actual international portfolio data to show how model misspecification contributes to this bias we find that three widely used simplifying assumptions produce optimal portfolio weights that are significantly different from the weights produced by an unsimplified model in particular imposing the invalid assumption that ppp holds exaggerates the degree of home asset bias these findings suggest that researchers should pay greater attention to empirical model specification in the future