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

an equilibrium conflict model of land tenure in hunter gatherer societies i apply features of the economics of conflict and spatial competition in developing a model of the emergence of land ownership in hunter gatherer societies tenure regimes are the result of interactions between those seeking to defend claims to land and those seeking to infringe on those claims the model highlights the dependence of land ownership on ecological parameters such as resource density and predictability and allows for situational ownership in which the nature of ownership changes as realized ecological conditions change the paper concludes with a comparative assessment of tenure across a representative sample of hunter gatherer peoples

exchange rate management and manufactured exports in sub saharan africa this paper presents an overview of the evolution of exchange rate regimes in africa and then attempts to assess empirically the impact of exchange rate policy on manufactured export performance on a panel of major sub saharan africa countries over the 1970 92 period we examine the impact of three exchange rate policy indicators real effective exchangerate changes real exchange rate volatility and model based measures of real exchange rate misalignment export supply functions are estimated for three manufacturing industries textile chemicals and metals and two exchange rate regimes a fixed rates regime including six cfa franc countries and a more flexible regime represented by five non cfa countries our findings show that exchange rate management matters for export performance this is evidenced both by the significant impact of changes in the real effective exchange rate and by the negative influence exerted independently by real exchange rate misalignment on the

fickle consumers durable goods and business cycles abstract this paper develops a three sector dynamic general equilibrium model with the specific aim of evaluating the role of consumer durables in the generation and propagation of business cycles the model displays indeterminacy at commonly considered realistic parameter restrictions and basically constant returns to scale if calibrated at modest increasing returns to scale the sunspots driven model version produces a close match to moments of aggregate u s data journal of economic literatureclassification numbers e00 e32

the impact of terms of trade and real exchange rate volatility on investment and growth in sub saharan africa abstract specialization in primary product exports reduces growth but why adverse trends in and the high variance of primary product prices are possible explanations the impact on investment and growth of the level and volatility of the terms of trade and the real effective exchange rate is estimated for a panel of 14 sub saharan african countries over 1980 1995 growth is negatively affected by terms of trade instability and investment by real exchange rate instability both growth and investment increase when the terms of trade improve and real exchange rate overvaluation is eliminated

tax disturbances and real economic activity in the postwar united states abstract this paper investigates the macroeconomic effects of cyclical fluctuations in marginal tax rates it finds that systematically including tax variables in a standard real business cycle model substantially improves the model s ability to reproduce basic facts about postwar u s business cycle fluctuations in particular modeling fluctuations in personal and corporate income tax rates increases the model s predicted relative variability of hours and decreases its predicted correlation between hours and average productivity fluctuations in tax rates produce large substitution effects that alter the leisure labor supply decision

testing for indeterminacy an application to u s monetary policy reply this paper considers a prototypical new keynesian model in which the equilibrium is undetermined if monetary policy is passive the likelihood based estimation of dynamic equilibrium models is extended to allow for indeterminacies and sunspot fluctuations we construct posterior weights for the determinacy and indeterminacy region of the parameter space and estimates for the propagation of fundamental and sunspot shocks according to the estimated model u s monetary policy post 1982 is consistent with determinacy whereas the pre volcker policy is not we find that before 1979 indeterminacy substantially altered the propagation of shocks

taylor rules and macroeconomic instability or how the central bank can preempt sunspot expectations this paper derives new results on the effects of employing taylor rules in economies that are subject to real market imperfections such as production externalities policies which respond to output movements can block sunspot equilibria that arise from the increasing returns the paper also finds that rules which should be chosen avoided in perfect market environments often yield ensure multiple unique rational expectations solutions in alternative settings therefore exact knowledge on the degree of market imperfection may be integral for robust policy advice

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

family labor supply and aggregate fluctuations abstract this paper considers an economy which is populated by a continuum of identical families consisting of two members the two members have different productivities and the family faces a fixed utility cost if both members supply labor simultaneously although both family members have the same preferences they display very different elasticities of labor supply a real business cycle model is calibrated and it is seen that this cross sectional heterogeneity results in interesting forms of aggregation bias

output effects of government purchases the theoretical analysis focuses on the distinction between temporary and permanent movements in government purchases under plausible conditions the temporary case involves an output response that is positive less than one to one with the change in government purchases and larger than that generated by an equal sized but permanent shift in purchase the equilibrium real rate of return rise in the temporary case but changes little in the permanent one defense purchases are divided empirically into permanent and temporary components by considering the role of temporary wars no temporary shifts in nondefense purchases were isolated empirical results verify an expansionary output effect for temporary purchases that exceeds that of permanent purchases the results for some other expectational hypotheses are found to be generally supportive of the theory

real exchange rate volatility and exchange rate regimes evidence from long term data abstract using over one hundred years of historical data for the uk canadian japanese and french us real exchange rates we find that real exchange rate volatility is greater for flexible exchange rate periods than for fixed rate periods

external effects in u s procyclical productivity abstract in this paper we highlight a new dimension of the aggregate procyclical productivity phenomenon we show that estimates of the degree of returns to scale are larger for manufacturing as a whole than for two digit industries since this difference must be due to factors that are only internalized at the most aggregate level we term it an external effect this result rules out explanations based on own input variation such as true increasing returns and unmeasured factor utilization tied to own activity as the sole explanations for aggregate procyclical productivity we explore several potential explanations of this external effect

atheoretical macroeconometrics a critique abstract the spurious nature of the restrictions used to identify many macroeconometric models has led some researchers to advocate a style of econometric inquiry that is less dependent on prior theoretical restrictions of the sort that were central to the approach of the cowles commission this development which we call atheoretical macroeconometrics is summarized and evaluated in the current paper it is contrasted with an updated version of the cowles commission approach we conclude that while some of the exercises of atheoretical macroeconometrics are valid those that have attracted the most attention and appear the most innovative exogeneity testing impulse response analysis and policy analysis using estimated vector autoregressions are based on incorrect analysis

international trade and exchange rate volatility for currencies with well developed forward markets several papers have investigated the conjectured negative relationship between trade and short term exchange rate volatility without being very successful a theoretical explanation for the empirical anomalies is provided by solving explicitly for the forward rate because importers and exporters are on opposite sides of the forward market so is their exposure towards exchange rate volatility moreover which trade flow benefits and which one loses from increased volatility is determined by the signs of the aggregate net foreign currency exposure and the aggregate measure of risk aversion

indivisible labor lotteries and equilibrium abstract this paper considers an economy where labor is indivisible and agents are identical although the discontinuity in labor supply at the individual level disappears as a result of aggregation it is shown that indivisible labor has strong consequences for the aggregate bahavior of the economy it is also shown that optimal allocations involve lotteries over employment and consumption

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

market structure and cyclical fluctuations in u s manufacturing the relevance of imperfect competition for models of economic fluctuations has received increased attention from researchers in both macroeconomics and industrial organization the authors outline a new methodology for estimating industry markups of price over marginal cost and the influence of market structure on cyclical movements in total factor productivity measures of industry concentration import competition and unionization are important for explaining markups in some industry groups much of the estimated markup of price over marginal cost is accounted for by noncapital fixed costs finally the authors show that their estimated margins fluctuate substantially over the cycle in particular markups are countercyclical especially in concentrated durable goods industries copyright 1988 by mit press

stability and the distribution of power the relation between stability and the distribution of power is an important and long debated problem in international relations theory the balance of power school argues that an even distribution of power is more stable while the preponderance of power school argues that a preponderance of power is more stable empirical efforts to estimate this relation have yielded contradictory results this essay examines the relation between stability and the distribution of power in an infinite horizon game theoretic model in which two states are bargaining about revising the international status quo the states make offers and counteroffers until they reach a mutually acceptable settlement or until one of them becomes so pessimistic about the prospects of reaching an agreement that it uses force to impose a new settlement the equilibrium of the game contradicts the expectations of both schools and offers an explanation for the conflicting empirical estimates in the model stability is greatest when the status quo distribution of benefits reflects the expected distribution of benefits that the use of force would impose

the economics of early warfare over land abstract we investigate the incidence of early warfare among foragers and farmers in prehistory our focus is specifically on conflict over land food is produced using inputs of labor and land and the probability of victory in a conflict depends on relative group sizes the group sizes are determined by individual migration and malthusian population dynamics both factors result in larger populations at better sites which deters attack there are two necessary conditions for warfare high enough individual mobility costs and large enough shocks to the relative productivities of the sites together these conditions are sufficient in particular technological or environmental shocks that alter the productivities of sites can trigger warfare but only if individual agents do not change sites in response these results are consistent with evidence from archaeology and anthropology

the real exchange rate and macroeconomic performance in sub saharan africa abstract pooled time series and cross section data for 33 countries in sub saharan africa ssa confirm the negative relationship between the real exchange rate rer misalignment and economic performance economic growth imports exports saving and investment macroeconomic instability also slows growth and other indicators of performance higher levels of misalignment are accompanied by higher levels of macroeconomic instability both lower levels of rer misalignment and instability lead to better economic performance the edwards model of rer determination performs well for the region black market premia tend to show a greater degree of misalignment in rer than alternative measures

does china really lose from rmb revaluation evidence from some export industries this study attempts to examine the impacts of real exchange rate rer misalignment on china s export performance using the sur methodology coupled with disaggregate panel export data it shows that china s export sector may not necessarily lose from the central government s decision to revalue its rmb against the us dollar because the negative impact of the rer appreciation on chinese exports may be diluted by the positive impacts attributing to a reduction in the rer misalignment

money and redistribution revisionist notes on a problem of samuelson abstract this paper disputes the view that money remedies a friction of overlapping generations its arguments are based upon the numerical example of samuelson 1958 it shows that there is a one to one mapping from equilibria in a system of complete timeless markets to the sequential equilibria usually studied friction is absent in that sense further monetary injection is not unique in converting inefficiency to efficiency the same conversion is possible in markets for consumption loans the common factor of both conversions is redistribution of wealth prior to trade such redistributions correspond to redistributions of numeraire in complete timeless markets

the impact of exchange rate uncertainty on the level of investment conventional wisdom has it that increasing price or exchange rate uncertainty will depress investment using the dixit pindyck model we find that there are situations where this will happen and situations where it does not there are threshold effects which allows us to identify when rising volatility would increase or decrease investment and also to identify which types of industries would gain and which would suffer from a move to fixed exchange rates this is important for monetary union in europe since it is likely that even if trade is insensitive to exchange rate volatility investment with its longer horizon will be affected textbook theories of investment under uncertainty present a rather oversimplified rule for a firm deciding whether to invest or not if the project s expected net present value npv is positive the firm invests otherwise it does not this implies that if the investment is reversible the firm will simply disinvest if the npv turns negative but if investment is irreversible then if a firm decides not to invest it will never invest this is not a realistic approach given uncertainty firms often find it convenient to wait rather than to commit themselves one way or another waiting is therefore a proper alternative to investing or not investing and firms will be confronted with an invest wait do not invest decision rather than an invest do not invest one dixit and pindyck 1994 have developed a model in which the option value of an investment project is evaluated to represent the value of waiting that option value then becomes part of the investment costs because once an irreversible investment is made the possibility of exercising this option to invest later on when better information is available has been lost thus the decision rule is still invest if npv 0 otherwise do not invest but the npv now represents the present value of the expected revenues less the value of the option to invest later less the present value of any other investment costs in this paper we extend the dixit pindyck model for varying degrees of uncertainty and price drift and specifically for the case where that uncertainty is caused by exchange rate volatility such an extension is important not only because it is a new development but also because we need to understand how monetary union will affect investment expenditures in europe for simplicity we assume the domestic prices are fixed and that the only uncertainty is in the exchange rate and hence the domestic value of foreign currency revenues that leaves us with various problems the first is to determine the threshold at which exchange rate price uncertainty is sufficient to affect investment adversely second under what conditions does that uncertainty actually reduce investment third do exchange rate misalignments or exchange rate volatility damage investment more we show that answers to such questions can be c55

a dynamic theory of resource wars we develop a dynamic theory of resource wars and study the conditions under which such wars can be prevented our focus is on the interaction between the scarcity of resources and the incentives for war in the presence of limited commitment we show that a key parameter determining the incentives for war is the elasticity of demand our first result identifies a novel externality that can precipitate war price taking firms fail to internalize the impact of their extraction on military action in the case of inelastic resource demand war incentives increase over time and war may become inevitable our second result shows that in some situations regulation of prices and quantities by the resource rich country can prevent war and when this is the case there will also be slower resource extraction than the hotelling benchmark with inelastic demand our third result is that because of limited commitment and its implications for armament incentives regulation of prices and quantities might actually precipitate war even in some circumstances where wars would not have arisen under competitive markets copyright 2012 oxford university press

the origins of inequality insiders outsiders elites and commoners hereditary economic inequality is unknown among mobile foragers but hereditary class distinctions between elites and commoners exist in some sedentary foraging societies with agriculture such stratification tends to become more pronounced we develop a model to explain the associations among productivity population property rights and inequality using malthusian dynamics we show that regional productivity growth leads to enclosure of the best sites first creating inequality between insiders and outsiders hereditary elite and commoner classes subsequently arise at the best sites food consumption becomes more unequal and commoners become poorer these predictions are consistent with a wide range of archaeological evidence

spotting sunspots some evidence in support of models with self fulfilling prophecies abstract this paper adds financial assests to roger farmer s business cycle model with increasing returns and self fulfilling beliefs by using information from the financial markets in conjunction with the structure of the model we can uncover from financial data the belief shocks that drive the model specifically we assume that belief shocks drive both economic fluctuations and asset returns the financial market information allows us to identify these shocks we use our methods to generate dynamic simulations of the model and show that it has incremental predictive power for key us time series

straight time and overtime in equilibrium abstract we formulate an equilibrium model of straight time and overtime wages by imposing restrictions on agents consumption sets and using a commodity space that includes employment lotteries we extract some time series implications from a linear quadratic approximation to our model evaluated at particular parameter values we use our model informally to interpret some features of observed time series for wages and employment

production growth and business cycles ii new directions abstract this paper outlines new directions for investigations of real business cycle models consideration of stochastic growth of exogenous and endogenous forms analysis of suboptimal outcomes arising due to externalities of distorting taxes and implications of labor market heterogeneity

the relation between price and marginal cost in u s industry an examination of data on output and labor input reveals that some u s industries have marginal cost well below price the conclusion rests on the finding that cyclical variations in labor input are small compared with variations in output in booms firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs the paper documents the disparity between price and marginal cost where marginal cost is estimated from annual variations in cost it considers a variety of explanations of the findings that are consistent with competition but none is found to be completely plausible

measuring and analysing the effects of short term volatility in real exchange rates this paper examines short term volatility in the real effective exchange rates of industrial countries and its impact on their imports it yields three conclusions first volatility has not diminished as markets have gained experience with floating exchange rates the trend appears to be in the opposite direction for some countries second exposure to short term volatility has differed among countries japan and sweden have experienced much more than most other industrial countries third volatility appears to depress the volume of international trade this third finding is consistent with results reported by cushman and by akhtar and hilton and challenges earlier findings by hooper and kohlhagen

real exchange rate volatility and the us bilateral trade a var approach this paper uses var models to investigate the impact of real exchange rate volatility on u s bilateral imports from the united kingdom france germany japan and canada the var systems include u s and foreign macro variables and are estimated separately for each country the major results suggest that the effect of volatility on imports is weak although permanent shocks to volatility do have a negative impact on this measure of trade and those effects are relatively more important over the flexible rate period copyright 1989 by mit press

rationalist explanations for war realist and other scholars commonly hold that rationally led states can and sometimes do fight when no peaceful bargains exist that both would prefer to war against this view i show that under very broad conditions there will exist negotiated settlements that genuinely rational states would mutually prefer to a risky and costly fight popular rationalist and realist explanations for war fail either to address or to explain adequately what would prevent leaders from locating a less costly bargain essentially just two mechanisms can resolve this puzzle on strictly rationalist terms the first turns on the fact that states have both private information about capabilities and resolve and the incentive to misrepresent it the second turns on the fact that in specific strategic contexts states may be unable credibly to commit to uphold a mutually preferable bargain historical examples suggest that both mechanisms are empirically plausible

dynamics and stagnation in the malthusian epoch this paper examines the central hypothesis of the influential malthusian theory according to which improvements in the technological environment during the pre industrial era had generated only temporary gains in income per capita eventually leading to a larger but not significantly richer population exploiting exogenous sources of cross country variations in land productivity and the level of technological advancement the analysis demonstrates that in accordance with the theory technological superiority and higher land productivity had significant positive effects on population density but insignificant effects on the standard of living during the time period 1 1500 ce

the economics of exogamous marriage in small scale societies marriage is a core institution in almost every human society including small scale societies based on foraging or subsistence agriculture a crucial dimension of the marriage systems in such societies involves endogamy and exogamy that is the choice of a marriage partner from within one s own community or from an outside community we develop a model in which the exogamy rate is higher when good local matches are scarce due to small community sizes and when productivity differs across communities due to environmental shocks these theoretical predictions are supported by econometric analysis of data from the standard cross cultural sample jel d13 j11 n30 z13

does exchange rate stability increase trade and welfare we develop a simple general equilibrium framework to study the effect of the exchange rate system on trade and welfare an important feature of the model is deviations from purchasing power parity caused by rigid price setting in buyers currency we find the following first exchange rate stability is not necessarily associated with more trade in a simple benchmark model with separable preferences and only monetary shocks trade is unaffected by the exchange rate system consistent with most evidence second both trade and welfare can be higher under either exchange rate system depending on preferences and on the monetary policy rules followed under each system finally in general there is no one to one relationship between the levels of trade and welfare across exchange rate systems

exchange rate variability and the level of international trade abstract theoretical research has shown that under reasonable assumptions exchange rate variability ought to depress the level of trade this paper builds a theoretical model designed to exaggerate the negative effect of exchange rate variability on trade in order to calibrate an upper bound to the potential size of this effect numerical analysis demonstrates that exchange rate variability of the magnitude currently observed among industrial countries has an insignificant effect on the level of trade this result is robust with respect to a wide range of parameter values and with respect to reasonable extensions of the model

information constrained insurance the revelation principle extended abstract private information induced incentive constraints can cause allocations to diverge from full information optimal allocations often in the direction of limited insurance but can bring unanticipated anomalies related plausible contract exclusion restrictions can be damaging in welfare terms more generally private information optimal allocations can be sensitive to the information structure suggesting that the latter be specified with an eye toward realism as well as tractability in an effort to make tractability less of a constraint the paper shows how two apparently difficult information structures a costly state verification environment and a multiperiod multilateral private information environment can be handled theoretically by revelation principle methods the paper also shows how solutions can be generated numerically

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

real business cycles and the animal spirits hypothesis abstract we calibrate a quantitative equilibrium macroeconomic model with an aggregate technology that is subject to increasing returns and show that this model may display fluctuations at business cycle frequencies even when there are no shocks to the fundamentals of the economy these fluctuations are due to the self fulfilling beliefs of investors which we call animal spirits we compare the impulse response functions predicted by our model and by two other more standard models with a four variable vector autoregression on u s data our animal spirits economy is the most successful of the three at matching broad features of the dynamic responses in the data journal of economic literature classification numbers e00 e3 e32

the workweek of capital and its cyclical implications abstract the neoclassical growth model studied in the kydland and prescott time to build paper is modified to permit the capital utilization rate to vary the effect of this modification is to increase the amplitude of the aggregate fluctuations predicted by theory as the equilibrium response to technological shocks if following solow the changes in output not accounted for by changes in the labor and tangible capital inputs are interpreted as being the technology shocks the statistical properties of the fluctuations in the postwar united states economy are close in magnitude and nature to those predicted by theory

average marginal tax rates from social security and the individual income tax we extend previous estimates of the average marginal tax rate from the federal individual income tax to include social security our computations consider the tax rates on employers employees and the self employed the income that accrues to persons with earnings below the ceiling and the effective deductibility of employers social security contributions from workers taxable income the next effect of social security on the average marginal tax rate is below 02 until 1966 but then rises to 03 in 1968 04 in 1973 05 in 1974 06 in 1979 and 07 in 1982 this abstract was borrowed from another version of this item

exchange rate effects on the relationship between fdi and trade in the u s food processing industry the effect of exchange rates on international trade and more specifically on agricultural trade flows has been documented by several studies most studies agree that an appreciation depreciation in the value of the u s dollar hurts helps u s agricultural exports an appreciation of the u s dollar raises the cost of u s products to foreign buyers and reduces their purchases 2 although neglected early on the effect of exchange rate risk as measured by its volatility on trade flows was also found to be negative arize pick parallel to this literature were the devel