tax policy asset prices and growth a general equilibrium analysis abstract this paper presents a computable general equilibrium tax policy model that combines a consideration of disaggregate industry effects with an integrated treatment of short and long run adjustments to policy initiatives the model s explicit consideration of forward looking investment decisions and adjustment dynamics permits assessments of short run effects of tax policy on asset values as well as long term impacts on capital accumulation simulations reveal that effects on asset values and investment depend critically on whether policies are oriented toward new or old capital investment tax credits yield significant increases in investment without conferring windfall gains to corporate shareholders corporate tax cuts with the same revenue cost on the other hand yield large windfalls to shareholders while providing only a modest investment stimulus incidence and growth effects differ considerably across sectors particularly between business and housing

labour tax reform employment and intergenerational distribution a simulation model of an open economy with a unionized labour market is set up to analyze the effects of a labour tax reform which combines cuts in marginal tax rates with measures to broaden the tax base we find that such a reform will be contractionary and welfare reducing if unions set wage rates with the purpose of maximizing the after tax income of their members by contrast if unions also allow for the disutility of work of their members the reform will stimulate employment increase the welfare of all generations and redistribute welfare in favour of future generations

why don t remittances appear to affect growth although measured remittances by migrant workers have soared in recent years macroeconomic studies have difficulty detecting their effect on economic growth this paper reviews existing explanations for this puzzle and proposes three new ones first it offers evidence that a large majority of the recent rise in measured remittances may be illusory arising from changes in measurement not changes in real financial flows second it shows that even if these increases were correctly measured cross country regressions would have too little power to detect their effects on growth third it points out that the greatest driver of rising remittances is rising migration which has an opportunity cost to economic product at the origin net of that cost there is little reason to expect large growth effects of remittances in the origin economy migration and remittances clearly have first order effects on poverty at the origin on the welfare of migrants and their families and on global gross domestic product but detecting their effects on growth of the origin economy is likely to remain elusive

workers remittances and the equilibrium real exchange rate theory and evidence economic integration in the early twenty first century is coninternational ventionally thought of in terms of increased openness to trade in goods and services as well as a dramatic increase in the volume of capital flows the twenty first century experience is sometimes contrasted with that of the last wave of globalization at the end of the nineteenth century when increased integration in both of those dimensions was also accompanied by large waves of international migration however this contrast is probably overdrawn as increases in international flows of labor services have also been characteristic of the current wave of globalization and the impact of these factor movements is increasingly being felt in the international economy a particularly dramatic manifestation of this fact is the sharp recorded increase in flows of worker remittances to the large number of developing countries that have been the source of these flows of labor services in recent years many such countries have witnessed significant increases in remittance flows to the point that their scale has come to dwarf that of other types of resource inflows whether development assistance foreign direct investment or other types of capital flows in 2007 remittance flows to sub saharan africa were equal in magnitude to flows of official development assistance for example remittance flows now account for some 17 percent of gdp and 77 percent of exports in el salvador and over 20 percent of gdp and nearly 50 percent of exports in honduras in these countries remittance flows are more than five times larger than foreign direct investment flows unlike capital flows remittances do not entail the creation of external debt with future repayment obligations unlike foreign development assistance they do not come encumbered with a variety of political and economic conditions with which the recipient country must comply despite these virtues however large inflows of worker remittances have been perceived as posing 45

remittances in nepal boon or bane abstract nepal is one of the highest recipients of remittances percentage of gdp in the world for a small land locked economy battered by a decade long maoist insurgency 1996 2006 prolonged political instability slow growth rate and large exodus of youths for employment overseas high inflow of remittances bears a huge significance both at micro and macro levels exploring various facets of high migration and remittances this article shows remittance induced dutch disease effects and policy laxity to improve investment climate in nepal since it is costly to sterilise the impact of remittances each year it might be prudent to learn to live with it and gradually channel remittances to productive usages with a goal to boost productivity

using generalized method of moments to test mean variance efficiency this paper develops tests of unconditional mean variance efflciency under weak distributional assumptions using a generalized method of moments framework these tests are potentially more robust than commonly employed tests which rely on the assumption that asset returns are normally distributed and temporarily i i d using returns for size based portfolios from 1926 to 1988 we show that the conclusion concerning the mean variance effilciency of market indexes can be sensitive to the test considered the application of multivariate statistical techniques in financial economics has become common practice in recent years much of the development has been in the area of testing asset pricing models the assumption that asset returns follow a time invariant multivariate normal distribution permits tests of restrictions on model parameters in a pooled time series cross section framework these tests can be interpreted as tests of the mean variance efficiency of a portfolio or combination of portfolios gibbons 1982 jobson and korkie 1982 stambaugh 1982 shanken 1985 1987 kandel and stambaugh 1987 mackinlay 1987 and gibbons ross and shanken 1989 are examples of work presenting multivariate tests of the capital asset pricing model connor and korajczyk 1988 and lehmann and modest 1988 present multivariate tests of the arbitrage pricing model breeden gibbons and litzenberger 1989 present multivariate tests of the consumption based capm although these papers assume the normality of asset returns little analysis has been conducted to understand the sensitivity of the inferences to violations of this assumption 2 3

the effect of remittances prior to an election the objective of the article is to assess whether remittances have an influence on political manipulation which may occur prior to an election through an increase in the government consumption to gdp ratio we combine data from the national elections across democracy and autocracy data set compiled and discussed in hyde and marinov 2012 and the world development indicators data set we focus on 70 developing countries over the period 1990 2010 it appears that the political budget cycle is reduced up to the point where it is fully cancelled out at a remittance threshold of 10 7 of gdp those findings are robust to different robustness checks

relative wealth concerns and financial bubbles we present a rational general equilibrium model that highlights the fact that relative wealth concerns can play a role in explaining financial bubbles we consider a finite horizon overlapping generations model in which agents care only about their consumption though the horizon is finite competition over future investment opportunities makes agents utilities dependent on the wealth of their cohort and induces relative wealth concerns agents herd into risky securities and drive down their expected return even though the bubble is likely to burst and lead to a substantial loss agents relative wealth concerns make them afraid to trade against the crowd

multivariate tests of the zero beta capm abstract a cross sectional regression test csrt of the capm is developed and its connection to the hotelling t2 test of multivariate statistical analysis is explored algebraic relations between the csrt the likehood ratio test and the langrange multiplier test are derived and a useful small sample bound on the distribution function of the csrt is obtained an application of the csrt suggests that the crsp equally weighted index is inefficient but that the inefficiency is not explained by a firm size effect from february to december

the performance of cross sectional regression tests of the capm with non zero pricing errors abstract we show that in the presence of non zero pricing errors the fama macbeth fm cross sectional regression test is very likely to either reject the capital asset pricing model capm when it almost holds or accept the model when it grossly fails we investigate the case when pricing errors are correlated with betas and demonstrate that the test performance depends crucially on the correlation cross sectional distribution of betas and several other parameter values even when the capm holds exactly pricing errors are zero the fm test is equally likely to either reject or accept the model when typical sample sizes are used

does emigration reduce corruption we study the effects of emigration on bribery experience and attitudes towards corruption in the migrants countries of origin using data from the gallup balkan monitor survey and instrumental variable analysis we find that having relatives abroad reduces the likelihood of bribing public officials renders bribe taking behavior by public officials less acceptable and reduces the likelihood of being asked for bribes by public officials receiving monetary remittances does not change the beneficial effects regarding bribe paying and attitudes toward corruption however remittances counteract the beneficial effect on bribe solicitations by public officials overall our findings support the conjecture that migration contributes to the transfer of norms and practices from destination to source countries

keeping up with the joneses and optimal diversification abstract peer effects have been shown to affect behavior and can generally lead to investments choices that are mean variance inefficient this paper analyzes optimal diversification with peer effects we show that if individuals have keeping up with the joneses preferences and they take their peer group reference as the market portfolio markowitz s mean variance efficiency analysis and the capm equilibrium are intact this holds for any keeping up preferences as well as heterogeneous combinations of such preferences these results also extend to the merton levy segmented market model

tax push inflation in a unionized labour market in this paper the effect of changes in the average rate and in the progressivity of direct taxes on a the level of wages and b the extent to which cost of living increases are transmitted to wages are considered for a unionized labour market these effects are derived theoretically for different union objectives and the models applied to data for italian industry in a form which allows discrimination between these different objectives the empirical estimates for the preferred model are then used to determine the effects of the postulated tax changes

measuring the deadweight loss from taxation in a small open economy a general method with an application to sweden the paper develops a simple general equilibrium framework for calculating the marginal deadweight loss from taxation in a small open economy the framework allows a decomposition of the deadweight loss from each tax instrument into the losses stemming from the contraction of the different tax bases the paper describes a method of calibrating the model which exploits the links between the various factor supply elasticities implied by the standard life cycle model it also develops a method of estimating effective tax rates that is consistent with optimising household and firm behaviour to illustrate how the model works it is calibrated to a data set for sweden the quantitative results highlight the importance of accounting for the interaction between the major tax bases when estimating deadweight loss

remittances and institutions are remittances a curse summary this paper addresses the complex and overlooked relationship between the receipt of workers remittances and institutional quality in the recipient country using a simple model we show how an increase in remittance inflows can lead to deterioration of institutional quality specifically to an increase in the share of funds diverted by the government for its own purposes in a cross section of 111 countries we empirically verify this proposition and find that a higher ratio of remittances to gdp leads to lower indices of control of corruption government effectiveness and rule of law even after controlling for potential reverse causality

migration and institutions exit and voice from abroad a rapidly growing body of research examines the relationship between migration and institutions three strands of studies can be distinguished some studies focused on the role of domestic and foreign institutions in the decision to migrate others were interested by the impact of migration on institutional reforms in migrants countries of origin while the effect of migration on destination countries is largely documented recent studies focus on how migrants affect social and informal institutions in the destination countries this survey puts together these three strands of literature with three purposes first we offer a short definition and synthetic typology of institutions which provide a guide to understand several studies summarized and their results second our analysis is presented following the analytic framework exit voice and loyalty of hirschman in order to highlight the brain grain phenomenon for developing countries from an institutional point of view third we review the limited existing work on the very timely topic whether migrants are harmful or not to institutions in the host countries

sticky prices as coordination failure this paper links the coordination failure and menu cost approaches to the microeconomic foundations of keynesian macroeconomics if a firm s desired price is increasing in others prices then the gain from price adjustment after a nominal shock is greater if others adjust this strategic complementarity leads to multiple equilibria in the degree of rigidity welfare may be much higher in the equilibria with less rigidity thus nominal rigidity arises from a failure to coordinate price changes jel e12 e30 keynesian macroeconomics waned in the 1970 s because economists grew disenchanted with its weak microeconomic foundations the central difficulty was that keynesian models were based on ad hoc rigidities in nominal wages and prices the 1980 s produced two approaches to reviving keynesian theory the menu cost literature n gregory mankiw 1985 george akerlof and janet yellen 1985 seeks to provide rigorous explanations for nominal rigidities these papers argue that small frictions in price setting are enough to produce large nominal rigidities in contrast the coordination failure literature russell cooper and andrew john 1988 abandons nominal rigidities and seeks alternative foundations for keynesian models the central idea is that many economic activities such as production e g john bryant 1983 trade e g peter diamond 1982 and investment e g nobuhiro kiyotaki 1988 exhibit synergism or strategic complementarity one agent s optimal level of activity depends positively on others activity strategic complementarity can lead to multiple equilibria with high activity equilibria superior to low activity equilibria thus an economy may be stuck in an underemployment equilibrium even though a superior equilibrium exists models with nominal rigidities and models with coordination failures are often presented as competing paradigms 1 this paper shows that this view is incorrect we take a step toward unifying the foundations of keynesian economics by showing that the two sets of ideas are highly complementary nominal rigidity arises from a failure to coordinate price changes this failure has the essential features of coordination failures in previous models flexibility in one firm s price increases the incentives for other firms to make their prices flexible this strategic complementarity leads to multiple equilibria in the degree of nominal rigidity equilibria with less rigidity more active price adjustment are often pareto superior to equilibria with more rigidity these results contribute to our understanding both of coordination failure and of nominal rigidity the range of keynesian phenomena explained by coordination failures is greatly expanded previous coordination failure models contain only real variables and thus ascribe no role to monetary policy or other determinants of nominal spending our results suggest that coordination failure is at the root of inefficient nonneutralities of money theories of nominal rigidities gain new empirical and policy im

labour market institutions and economic performance labour markets richard freeman do particular types of labour market institution hold the key to economic success should other countries try to emulate the flexibility of the american labour market or the centralization of swedish style corporatism since 1970 within the oecd there has been a sharp divergence both of economic performance and of indicators of labour market structure the paper uses union density and the degree of wage dispersion across industries to proxy a country s underlying labour market institutions in assessing economic performance it is argued that cross country differences in output growth were much smaller than differences in employment growth for given output growth there is a clear negative relationship between employment growth and real wage growth across countries why do different countries find themselves at different points on this trade off the final part of the paper examines the correlation between indicators of labour market structure and the position on the wage employment trade off it concludes that the degree of wage dispersion across industries is the most important indicator of market structure and that countries with very high or very low dispersion typically the countries with highly centralized or highly decentralized bargaining in the labour market have better employment performance than countries with intermediate degrees of centralization and wage dispersion

small sample tests of portfolio efficiency abstract this paper presents an eigenvalue test of the efficiency of a portfolio when there is no riskless asset complementing the test of gibbons ross and shanken 1989 besides optimal upper and lower bounds an easily implented numerical method is provided for computing the exact p value our approach makes it possible to draw statistical inferences on the efficiency of a given portfolio both in the context of the zero beta capm and with respect to other linear pricing models as an application using monthly data for every consecutive five year period from 1926 to 1986 we reject the efficiency of the crsp value weighted index for most periods

putting risk in its proper place this paper examines preferences toward particular classes of lottery pairs we show how such concepts as prudence and temperance can be fully characterized by a preference relation over these lotteries if preferences are defined in an expected utility framework with differentiable utility the direction of preference for a particular class of lottery pairs is equivalent to signing the nth derivative of the utility function what makes our characterization appealing is its simplicity which seems particularly amenable to experimentation

misery loves company equilibrium portfolios with heterogeneous consumption externalities the present article extends the arrow debreu portfolio model to consumption externalities it is assumed that each investor has a von neumann morgenstern utility that is a function of her own consumption and of the average consumption in the group to which she belongs individual degrees of risk aversion and conformism are heterogeneous within each group and between the different groups in the economy we show that under some conditions on the degree of conformism in the economy the optimal portfolio and consumption choices observed at equilibrium in each group with consumption externalities are equivalent to those that are optimal without any externality but with an adjusted degree of risk aversion if these conditions are not fulfilled groups have no representative agent and the demand for pure zero mean lotteries may be positive thereby showing that not all diversifiable risks are washed away at equilibrium we characterize the relationship between the distribution of conformism in the economy to the competitive allocation of risk and to the equity premium we provide conditions for the two fund separation property to hold

inflation and taxation with optimizing governments this paper examines the empirical validity of the predictions that if governments minimize the deadweight loss from raising revenue through inflation and tax finance there should be a positive contemporaneous association between inflation and the level of tax burdens the authors examine the empirical validity of this prediction using data from great britain france germany japan and the united states inflation and tax rates are as likely to be negatively as positively correlated so the results cast doubt on the empirical relevance of simple models in which governments with time invariant tastes choose monetary policy to equate the marginal deadweight burdens of inflation and taxes copyright 1990 by ohio state university press

remittances and vulnerability in developing countries this paper examines how international remittances are affected by structural characteristics macroeconomic conditions and adverse shocks in recipient economies we exploit a novel rich panel data set covering bilateral remittances from 103 italian provinces to seventy nine developing countries over the period 2005 2011 we find that remittances are negatively correlated with the business cycle in recipient countries and in particular increase in response to adverse exogenous shocks such as large terms of trade declines this effect is stronger where the migrant communities have a larger share of newly arrived migrants finally we show that recipient country financial development is negatively associated with remittances suggesting that remittances help alleviate credit constraints

can a brain drain be good for growth in the source economy this paper analyzes the interaction between income distribution human capital accumulation and migration it shows that when migration is not a certainty a brain drain may increase average productivity and equality in the source economy even though average productivity is a positive function of past average levels of human capital in an economy it is also shown how the temporary possibility of emigration may permanently increase the average level of productivity of an economy

potential performance and tests of portfolio efficiency abstract the potential performance of an asset set may be obtained by choosing the portfolio proportions to maximize the sharpe 1966 performance measure if a portfolio has a sharpe measure equivalent to the potential performance of the underlying set of assets then it is efficient multivariate statistical procedures for comparing potential performance and testing portfolio efficiency are developed and then evaluated using simulations two likelihood ratio statistics are then used to compare stock and bond indices against sets of 20 and 40 portfolios the procedures are also compared to the gibbons 1982 methodology for testing financial models

implications of keeping up with the joneses behavior for the equilibrium cross section of stock returns international evidence this paper tests the cross sectional implications of keeping up with the joneses kuj preferences in an international setting when agents have kuj preferences in the presence of undiversifiable nonfinancial wealth both world and domestic risk the idiosyncratic component of domestic wealth are priced and the equilibrium price of risk of the domestic factor is negative we use labor income as a proxy for domestic wealth and find empirical support for these predictions in terms of explaining the cross section of stock returns and the size of the pricing errors the model performs better than alternative international asset pricing models

remittances deteriorate governance abstract i use a natural experiment of oil price driven remittance flows to poor non oil producing muslim countries to demonstrate that remittances deteriorate the quality of governance especially in countries with weak democratic institutions the results indicate that a 1 standard deviation increase in remittances raises corruption by 1 5 index points on a 6 point scale which is equivalent to a dollar 600 decrease in per capita gdp concomitantly remittances may enable governments to reduce their delivery of public services for example health care school enrollment the results suggest that political institutions may mediate the potentially beneficial socioeconomic effects of remittance inflows

interactions of commitment and discretion in monetary and fiscal policies we consider monetary scal interactions when the monetary authority is more conservative than the scal with both policies discretionary 1 nash equilibrium yields lower output and higher price than the ideal points of both authorities 2 of the two leadership possibilities scal leadership is generally better with scal discretion monetary commitment yields the same outcome as discretionary monetary leadership for all realizations of shocks but scal commitment is not similarly negated by monetary discretion second best outcomes require either joint commitment or identical targets for both authorities output socially optimal and price level appropriately conservative or complete separation of tasks jel e61 e63

impossible frontiers a key result of the capital asset pricing model capm is that the market portfolio the portfolio of all assets in which each asset s weight is proportional to its total market capitalization lies on the mean variance efficient frontier the set of portfolios having mean variance characteristics that cannot be improved upon therefore the capm cannot be consistent with efficient frontiers for which every frontier portfolio has at least one negative weight or short position we call such efficient frontiers impossible and show that impossible frontiers are difficult to avoid in particular as the number of assets n grows we prove that the probability that a generically chosen frontier is impossible tends to one at a geometric rate in fact for one natural class of distributions nearly one eighth of all assets on a frontier is expected to have negative weights for every portfolio on the frontier we also show that the expected minimum amount of short selling across frontier portfolios grows linearly with n and even when short sales are constrained to some finite level an impossible frontier remains impossible using daily and monthly u s stock returns we document the impossibility of efficient frontiers in the data

remittances and public finances evidence from oil price shocks we study the effect of inflowing remittances a major source of capital for many countries on tax revenues and tax policy instrumenting remittances with changes in the oil price interacted with a country s distance to oil producing countries we find that remittances have a large positive effect on vat revenues but no effect on income tax revenues this suggests that remittances often escape the income tax but can be taxed via consumption we further show that tax policy is responsive to shocks in incoming remittances remittances make the adoption of vat systems more likely and they lead to lower vat rates and higher income tax rates

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

prospect theory and mean variance analysis the experimental results of prospect theory pt reveal suggest that investors make decisions based on change of wealth rather than total wealth that preferences are s shaped with a risk seeking segment and that probabilities are subjectively distorted this article shows that while pt s findings are in sharp contradiction to the foundations of mean variance mv analysis counterintuitively when diversification between assets is allowed the mv and pt efficient sets almost coincide thus one can employ the mv optimization algorithm to construct ptefficient portfolios the markowitz 1952a tobin 1958 mean variance mv rule is probably the most popular investment decision rule under uncertainty in economics and in finance and it is widely employed by both academics and practitioners the strength of the mv analysis is that in the case of normal return distributions the choice of any expected utility maximizing risk averse individual will be according to the mv rule 1 the mv framework is the foundation of the sharpe 1964 lintner 1965 capital asset pricing model capm which is a cornerstone of modern finance moreover the mv framework provides a very important practical procedure for the construction of efficient portfolios while standard economic theory and in particular mv analysis assume expected utility maximization and risk aversion in a breakthrough article kahneman and tversky 1979 show that the actual behavior of individuals systematically and consistently violates these

career concerns of mutual fund managers we examine the labor market for mutual fund managers using data from 1992 1994 we find that termination is more performance sensitive for younger managers we identify possible implicit incentives created by the termination performance relationship the shape of the termination performance relationship may give younger managers an incentive to avoid unsystematic risk direct effects of portfolio composition may also give younger managers an incentive to herd into popular sectors consistent with these incentives we find that younger managers hold less unsystematic risk and have more conventional portfolios promotion incentives and market responses to managerial turnover are also studied

the rise in unemployment a multi country study one of the most remarkable features of recent economic history has been the remorseless rise in unemployment throughout the industrialized countries however while the trend to higher unemployment is universal the experience of individual countries also differs widely the increase is especially marked within the european community where unemployment rates rival those reached in the interwar years by contrast in the scandinavian countries and japan unemployment is lower and has risen very much less experience in the united states lies somewhere between these extremes and in the last few years unemployment there has fallen sharply

corruption and the composition of government expenditure abstract this paper asks whether predatory behavior by corrupt politicians distorts the composition of government expenditure corruption is found to reduce government spending on education in a cross section of countries

do remittances lead to a public moral hazard in developing countries an empirical investigation abstract this article tests the hypothesis that in a context of bad governance remittance inflows strongly reduce public spending on education and health in receiving countries a phenomenon called the public moral hazard problem using a large sample of 86 developing countries over the period 1996 2007 and after factoring in the endogeneity of remittances the results suggest a negative impact of remittances on public spending on education and health when governance is bad in remittance dependent economies

the comparison of multi dimensioned distributions of economic status the literature on inequality measurement has been largely concerned with single dimensioned indicators this paper explores some of the issues which arise when there are several dimensions to inequality and these are not readily reduced to a single index concentrating particularly on the two dimensioned case we make use of results on multi variate stochastic dominance in portfolio theory extending these and applying them to the measurement of inequality the use of the dominance conditions is illustrated by an application to the international distribution of income and life expectancy

diversification as a public good community effects in portfolio choice within a rational general equilibrium model in which agents care only about personal consumption we consider a setting in which due to borrowing constraints individuals endowed with local resources underparticipate in financial markets as a result investors compete for local resources through their portfolio choices even with complete financial markets and no aggregate risk agents may herd into risky portfolios this yields a pareto dominated outcome as agents introduce community risk unrelated to fundamentals moreover if some agents are behaviorally biased or cannot completely diversify their holdings rational agents may choose more extreme portfolios and amplify the effect

on correlations and inferences about mean variance efficiency a framework is presented for investigating the mean variance efficiency of an unobservable portfolio based on its correlation with a proxy portfolio a sensitivity analysis derives the highest correlation between the proxy and a portfolio that reverses the inference of a test of sharpe lintner tangency for example the maximum correlation between the value weighted nyse amex portfolio and a portfolio inferred tangent ranges from 0 76 to 0 48 we also test whether the correlation between the proxy and the tangent portfolio exceeds a given level this hypothesis is often rejected for the nyse amex proxy at a correlation of 0 7

determinants of risk sharing through remittances abstract the sending of remittances is a decentralised decision of migrant workers nevertheless it has macroeconomic implications in providing insurance against domestic output shocks in the recipient economies a phenomenon known in literature as risk sharing income smoothing using a large sample of 86 developing countries for the period 1990 2010 we establish that remittance inflows serve as an important channel through which risk sharing takes place in the developing world the extent of income smoothing via remittances stands at around 5 on average subsequently we explore the underlying factors that explain countries ability to share risk through remittances the diversification of migrants turns out to be the leading explanation for the extent of risk sharing via remittances the more diverse the migration destinations of a country the higher the amount of risk shared in addition the size of remittance flows appears to have a strong and statistically significant impact on enhancing risk sharing we also find suggestive evidence that a higher proportion of remittances originating from farther countries facilitate more risk sharing compared to those originating from neighbouring or regional economies

price rigidities and market structure conventional wisdom has it that a large part of the explanation of keynesian unemployment is the observed rigidities of wages and prices what has been lacking however is a satisfactory theory or conjunction of theories which explains how wages and prices can be at non market clearing levels the objective of this paper is to sketch out several alternative theoretical explanations of this phenomenon each in contrast with keynesian theory is consistent with the observation that as the economy goes into a recession real product wages do not increase and may in fact decrease all of the theories assume rational profit maximizing firms and all entail some important departure from the standard competitive paradigm the first three explanations represent minor adaptations of standard models

small menu costs and large business cycles a macroeconomic model of monopoly i introduction the conflict between modern neoclassical and traditional keynesian theories of the business cycle centers upon the pricing mechanism in neoclassical models prices are fully flexible they represent the continuous optimization of economic agents and the continuous intersection of supply and demand in keynesian models prices are often assumed to be sticky they do not necessarily equilibrate all markets at all times one of the reasons for the resurgence of the equilibrium approach to macroeconomics has been the absence of a theoretical underpinning for this keynesian price stickiness this note shows that sticky prices can be both privately efficient and socially inefficient the business cycle results from the suboptimal adjustment of prices in response to a demand shock to the extent that policy can stabilize aggregate demand it can mitigate the social loss due to this suboptimal adjustment in some keynesian models prices are simply exogenously fixed 2 in others agents must set their prices in advance of the transaction date the act of altering a posted price is certainly costly these costs include such items as printing new catalogs and informing salesmen of the new price yet these menu costs are small and therefore generally perceived as providing only a weak foundation for these fixed price models however this inference is flawed small menu costs can cause large welfare losses the claim that price adjustment costs are small does not rebut the claim that they are central to understanding economic fluctuations

increasing returns and the foundations of unemployment theory current approaches to macroeconomic theory divide roughly into two basic schools of thought one approach typically associated with rational expectations views the economy as basically at or near walrasian market clearing equilibrium in which case it becomes very difficult to explain away convincingly the undeniable persistence at times of involuntary unemployment another approach views the underemployed economy as being in a state of temporary fixed price disequilibrium in which case aside from having to repress suspicions that the essence of effective demand failure might not have to do with prices fixed at wrong values there is a lot of rationalising to be done about why profitable adjustments are so slow this paper argues that something like an internally consistent theory of steady state involuntary unemployment is possible and even plausible the cornerstone of this third approach is increasing returns to scale which blocks unemployed agents from breaking out of a low level equilibrium trap unless there is overall coordination or stimulation a simple model is presented which contains the basic ideas

what s different about monetary policy transmission in remittance dependent countries abstract despite welfare and poverty reducing benefits for recipient households remittance inflows have been shown to entail macroeconomic challenges producing dutch disease type effects reducing the quality of institutions delaying fiscal adjustment and having an indeterminate effect on long run growth this paper explores an additional challenge for monetary policy although remittances expand bank balance sheets providing a stable flow of interest insensitive funding they tend to increase banks holdings of liquid assets this both reduces the need for an interbank market and severs the link between policy rate and banks marginal cost of funds thus shutting down a major transmission channel we develop a stylized model based on asymmetric information and a lack of transparent borrowers and undertake econometric analysis providing evidence that increased remittance inflows are associated with weaker transmission as independent monetary policy becomes impaired this result is consistent with earlier findings that recipient countries tend to favor fixed exchange rate regimes

do remittances diminish social violence abstractthis paper represents the first attempt to formalise the relationship between remittances and social violence by developing a model that predicts that migrants remittances lead to the reduction of social violence in the recipient economy under the condition that remittances increase the average product of labour using homicide data as an indicator of social violence we tested our model s prediction controlling for the endogeneity problem with appropriate instruments we found that remittances tend to reduce social violence we performed sensitivity analysis on remittances in the empirical specification and found it robust with an unchanged negative sign

diversification and its discontents idiosyncratic and entrepreneurial risk in the quest for social status social status concerns influence investors decisions by driving a wedge in attitudes toward aggregate and idiosyncratic risks i model such concerns by emphasizing the desire to get ahead of the joneses which implies that aversion to idiosyncratic risk is lower than aversion to aggregate risk the model predicts that investors hold concentrated portfolios in equilibrium which helps rationalize the small premium for undiversified entrepreneurial risk in the model status concerns are more important for wealthier households consequently these households own a disproportionate share of risky assets particularly private equity and experience greater volatility of consumption consistent with empirical evidence diversification and risk sharing are fundamental principles of modern finance and macroeconomics however empirical evidence suggests that household portfolios are poorly diversified with many people reporting substantial holdings of a single stock for the wealthiest households large shares in closely held businesses constitute a particularly important source of risk e g heaton and lucas 2000a it is not surprising that entrepreneurs bear substantial undiversified risk since it is important for mitigating moral hazard and or adverse selection problems yet from a standpoint of portfolio theory entrepreneurship does not appear to be well compensated implying that many investors are willing to take poorly rewarded risks despite the availability of superior investment opportunities such as public equity that earns a large risk premium e g moskowitz and vissing j0rgensen 2002 hall and woodward 2007

wage setting and the tax system theory and evidence for the united kingdom abstract this paper analyses the effects of a non linear tax system on wage bargaining the main conclusions are an increase in the marginal income or payroll tax rate reduces the pre tax wage in the isoelastic case an increase in the average tax rate increases the pre tax wage by more than the tax increase and a measure of the progressivity of the tax system residual income progression is a sufficient measure of the effect of the tax system on wage pressure empirical evidence is presented to support these propositions and the predictions of the model regarding the effect of recent changes to the u k tax system on the distribution of earnings discussed

yes the capm is testable it is well known that cross sectional tests of the capm are problematic the market indexes used in empirical tests are likely to be inefficient ex ante which could lead to spurious results even in the absence of sampling errors this problem has led many to express serious doubt on the testability of the capm in this paper i show that the capm is indeed testable this paper builds on the seminal paper by kandel and stambaugh 1995 and proposes a two step procedure for testing the capm the first step uses a simple combination of the coefficients of determination from both ordinary least squares and generalised least squares estimations this step tests whether the index used in the empirical test is efficient and whether there are no omitted factors the second step tests the hypothesis that the efficient index is the market portfolio the two step approach enables testing the capm regardless of whether the true expected return generating process is a capm or a non capm 2014 elsevier b v