the commuting time paradox abstract we examine the conditions for the commuting time paradox which states that the average commuting time does not vary between different periods we develop therefore an equilibrium job search model with endogenously chosen commuting costs presuming wage bargaining between workers and firms the optimally chosen maximum commuting costs jointly maximise the worker s and firm s payoffs we demonstrate that when productivity levels increase over time average commuting costs and average wages both increase which affects the optimally chosen commuting time we establish the conditions under which the paradox holds

an extension of the second welfare theorem to economies with nonconvexities and public goods in this paper we report a generalization of the results of foley and guesnerie on the second welfare theorem to economies with arbitrary nonconvex production sets the nature of marginal cost prices in such economies is clarified through the use of the clarke tangent cones

help wanted job needed estimates of a matching function from employment service data i estimate a function that matches vacant jobs and unemployed workers to produce new hires israeli law requiring vacancy registration yields unique data quality the literature underestimates matching function coefficients because of a simultaneity bias as the outflow of hires depletes stocks of unemployed and vacancies instruments and a new simulation method address this bias a new test reveals strong evidence of heterogeneity in unemployed and vacancies estimates imply labor market dynamics that absorb shocks completely within only 2 months reductions in the hire rate of referrals can explain a 2 1 percentage point increase in unemployment between 1978 and 1990

labor heterogeneity wage bargaining and agglomeration economies abstract the modern economy is characterized by increasing returns to scale diverse production technology and specialized labor requirements with heterogeneous production technology increasing returns to scale and specific labor requirements we show that average productivity increases with the size of the labor market the larger the size of the market the better the matches between workers and firms resulting in lower on the job training costs through the wage bargaining between firms and workers the savings in training costs are transmitted into higher wages

monetary policy responses to exogenous shocks the oil price shocks of 1973 74 and 1979 80 reduced output growth in oil importing countries using monetary policy to accommodate exogenous shocks of this kind undoubtedly works but the more such monetary policy is used the less effective it becomes and discretionary monetary policy has a negative effect on economic growth in the long run this is how we interpret the econometric results reported below we find that money is neutral neither in the medium term nor in the long run the effects of current and lagged money growth shocks on output growth are significantly positive over time however discretionary monetary policy creates a higher variance of money growth shocks the period average variance of money growth shocks together with our indicator of an accommodative monetary policy regime are both negatively related to the rate of growth in real gross domestic product gdp higher variance of money growth shocks reduces both the medium term impact of discretionary monetary policy on output growth and output growth itself in the long run see robert lucas 1973 and roger kormendi and philip meguire 1984 1985 the only way of testing both the mediumand long run effects of discretionary monetary policy is by pooling time series data across countries we use 647 observations for 55 developed and developing countries we believe this to be the first appropriate test monetary accommodation of exogenous shocks specifically accommodation of the 1973 74 oil price increase works temporarily to offset the output growth reducing impact of the shock however accommodation adds noise to the economic environment and reduces output growth in the longer run indeed we find that our monetary accommodation variable performs in virtually the same way as the variance of money growth shocks expansionary fiscal policy has mediumand long run effects on output growth that are similar to monetary accommodation specifically expansionary fiscal policy raises the ratio of net government credit to total domestic credit in countries lacking well developed direct financial markets in the medium term a positive government credit shock raises output growth by stimulating aggregate demand but a higher government credit ratio lowers output growth in the long run by starving the private sector of finance for productive investment

a complete characterization of optimal growth paths in an aggregated model with a non concave production function the convexity of technology has played a crucial role in economic analyses of optimal one sector growth problems for example two of the key results on the traditional model of ramsey 1928 that have relied on the convexity of the technology are that optimal intertemporal growth involves moving monotonically towards a unique steady state as in cass 1965 koopmans 1965 and that the value function is a concave differentiable function of the initial capital stock as in benveniste and scheinkman 1979

trade and industrial location with heterogeneous labor we show in the context of a new economic geography model that when labor is heterogenous trade liberalization may lead to industrial agglomeration and inter regional trade labor heterogeneity gives local monopoly power tofirms but also introduces variations in the quality of the job match matches are likely to be better when there are more fi rms and workers in the local market giving rise to an agglomeration force which can offset the forces against trade costs and the erosion of monopoly power we derive analytically a robust agglomeration equilibrium and illustrate its properties with numerical simulations

on the existence of optimal stationary equilibria with a fixed supply of fiat money i the case of a single consumer this paper generalizes samuelson s well known analysis concerning the use of fiat or outside money to support pareto optimal allocations in an overlapping generations framework while maintaining an elementary demographic structure butexpanding the list of available commodities in each period we establish the following result if there is a fixed supply of fiat money and individuals are also permitted to issue bonds or inside money then there always exists at least one stationary equilibrium yielding a pareto optimal allocation

unemployment vs mismatch of talents reconsidering unemployment benefits we develop an equilibrium search matching model with risk neutral agents and two sided ex ante heterogeneity unemployment insurance has the standard effect of reducing employment but also helps workers to get a suitable job we show through calibrations how the mere difference on unemployment insurance when countries experience a common skilled biased technological shock may result in differences in unemployment productivity growth and wage inequality these results are consistent with the contrasting performance of the labour market in europe and the united states in the last twenty five years the model is used to address some political economy issues

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

real exchange rate effects of monetary shocks under fixed and flexible exchange rates abstract we analyze how the real exchange rate effects of monetary and real shocks depend on the exchange rate regime within a two country rational expectations model with confusion about money and real shocks the model demonstrates that the real exchange rate effect of unanticipated monetary shocks is negatively related to the variance of the domestically created money supply growth and that the effects of increasing domestic money variance on the real exchange rate are less under a fixed rate regime than under a flexible rate regime

labor heterogeneity in an urban labor market abstract we construct a model of agglomeration economies in a labor market with friction and heterogeneity of both workers and firms with friction matches between workers and firms are random we show that with random matches an increase in the number of workers brings improvements in worker firm match quality and agglomeration economies emerge if and only if the technology of search exhibits increasing returns to scale we then discuss how to find out empirically whether this condition is satisfied furthermore we investigate properties of the agglomeration economies here and the relation between the city size and states of a labor market

money credit constraints and economic activity when government expenditures exceed current tax revenues the resulting deficit must be financed either by issuing bonds which imply obligations to levy future taxes or by creating high powered money the choice between money and bonds is often thought to be of great moment for both real and nominal variables that is monetary policy matters there is by now a wide empirical consensus that monetary policy has effects on real variables like output and employment but there is far less agreement about why this is so the purpose of this paper is to take issue with some currently fashionable views of why money has real effects and to suggest a new theory or rather resurrect an old one the loanable funds theory and give it new improved microfoundations this abstract was borrowed from another version of this item

city structure search and workers job acceptance behavior abstract this paper develops a stochastic search model having a monocentric city structure and investigates how city structure affects workers job acceptance behavior and a labor market in the model workers reside in a city and commute to the central business district cbd to work when employed and to be interviewed when unemployed when a job searcher contacts a firm having a vacant job he she observes the level of training costs necessary for employment and decides whether to accept the job it is shown that there exists a unique market equilibrium in which the employed live close to the cbd and the unemployed reside far away from the cbd analysis shows that 1 improvement of commuting technology induces job searchers to accept more costly jobs and lowers the unemployment rate in the city 2 growth of the city makes job searchers less tolerant of training and raises the unemployment rate and 3 as job searchers search more intensively they become choosier if commuting costs are sufficiently small efficiency properties of the equilibrium are also explored

optimal consumption policy under uncertain income this paper considers the consumption behavior of a risk averse consumer with a preference for immediate consumption who faces an uncertain income stream and plans for a finite or infinite number of periods the consumer may borrow up to a limit or save where both saving and borrowing are subject to the same positive rate of interest we derive the optimal consumption policies for both finite and infinite planning horizons investigate their characteristics and analyze their economic and behavioral implications

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

on income fluctuations and capital gains abstract we consider the infinite time horizon problem of asymptotically maximizing the expected accumulated discounted utility in a one good production economy the available capital in a given period is given by the production of the previous period plus a random variable the product of the discount and interest factors is either 1 greater than or 2 equal to one under 1 the optimal policy exists under certain conditions and always under 2 the optimal capital sequence almost surely goes to infinity under 1 with conditions on the utility one almost surely reaches a capital level above which the sequence is increasing

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

returns to scale in a matching model of the labor market abstract this paper presents evidence on the degree of returns to scale in the labor market using a transcendental logarithmic model of the labor market matching technology the empirical results imply locally increasing returns to scale and are consistent with multiple equilibria thereby suggesting a potentially welfare enhancing role for macroeconomic policy intervention

marginal cost pricing under bounded marginal returns most of the available results on the existence of marginal cost pricing equilibrium are unsatisfactory in that they make a survival assumption that is stated as a condition on the production equilibria of the economy the primary objective of this paper is to provide a relatively elementary existence result that replaces such an assumption with one on the primitive data of the economy the author s main assumption is that no firm faces unbounded increasing returns in the sense that if it uses some input then the rate at which this input can be substituted into an output is finite copyright 1992 by the econometric society

sticky price and limited participation models of money a comparison abstract we provide new evidence that models of the monetary transmission mechanism should be consistent with at least the following facts after a contractionary monetary policy shock the aggregate price level responds very little aggregate output falls interest rates initially rise real wages decline by a modest amount and profits fall we compare the ability of sticky price and limited participation models with frictionless labor markets to account for these facts the key failing of the sticky price model lies in its counterfactual implications for profits the limited participation model can account for all the above facts but only if one is willing to assume a high labor supply elasticity 2 percent and a high markup 40 percent the shortcomings of both models reflect the absence of labor market frictions such as wage contracts or factor hoarding which dampen movements in the marginal cost of production after a monetary policy shock 1997 elsevier science b v

cross section estimation of the matching function evidence from england and wales this paper analyses how the levels of unemployment and vacancies affect the rate at which unemployed workers find employment the worker firm matching function in particular we test the robustness of previous empirical work by checking whether we obtain the same estimated function using cross section data rather than aggregate time series data we find strong evidence of constant returns to scale similar to previous work we also find larger cities have higher wages this provides indirect support for increasing returns but where those returns are taken in the form of better quality matches

car ownership and the labor market of ethnic minorities we show how initial wealth differences between low skilled minorities and white workers can generate differences in their labor market outcomes this even occurs in the absence of a taste for discrimination against ethnic minorities or exogenous differences in distance to jobs because of the initial wealth difference minorities cannot afford to buy a car while whites can car ownership allows whites to reach more jobs per unit of time which gives them a better bargaining position in the labor market as a result in equilibrium ethnic minorities end up with both higher unemployment rates and lower wages than whites furthermore we also show that it takes more time for minorities to reach their jobs even though they travel less miles when employed those predictions are consistent with the data better access to capital markets or better public transportation will reduce the differences in labor market outcomes

foreign debt instability an analysis of national saving and domestic investment responses to foreign debt accumulation in 28 developing countries abstract i specify and estimate a foreign debt model that exploits the balance of payments identity current account national saving domestic investment foreign debt can affect both saving and investment behavior in this model if an increase in foreigndebt reduces investment by more than it reduces saving or raises investment by less than it raises saving the current account will eventually be brought into a steady state equilibrium with a sustainable ratio of foreign debt to gnp in such case the debt crisis is more illusory than real for the country sample analyzed here however the buildup of government and government guaranteed foreign debt appears to have produced perverse private sector responses an increase in this type of foreign debt reduces saving by more than it reduces investment hence the current account deficit worsens over time as such foreign debt accumulates dynamic simulations identify only government policy that it raises national saving as an effective way of improving the current account the consequent real depreciation in the exchange rate may increase exporrts and reduce imports sufficiently to cause a current account surplus surprisingly export promotion policies alone seem unlikely to produce any substantial improvement in the current account

marginal versus average cost pricing in the presence of a public monopoly the arrow debreu analysis of decentralized resource allocation in a walrasian economy assumes constant or decreasing returns to scale in production recently several authors have extended this analysis to economies with a public monopoly that is a firm with increasing returns to scale in this literature the salient feature is the characterization of increasing returns to scale technologies as nonconvex production sets so that under this definition both single and multiproduct firms may exhibit increasing returns here our intended model is an economy with a competitive sector consisting of households and firms with convex technologies and a public sector consisting of firms with nonconvex technologies a special case is a single multiproduct firm which produces products for regulated markets with a nonconvex technology and produces products for unregulated markets with a convex technology for example att firms with constant or decreasing returns are maximizing profits the public monopoly is pricing at marginal cost where potential losses are covered by the lump sum taxes and all markets clear an average cost pricing equilibrium is a family of consumption plans production plans and prices such that households are maximizing utility subject to their budget constraint firms with constant or decreasing returns are maximizing profits the public monopoly is pricing at average cost that is breaking even or making zero profits and all markets clear unfortunately all of the extant proofs of existence of a mcp or an acp equilibrium are somewhat technical in nature and lack the transparency of counting equations and unknowns which many economists accept as an intuitive if not formally correct proof of existence in view of this one of the purposes of this paper is to demonstrate the existence of a mcp and an a cp equilibrium in a simple economy with increasing returns where the equilibrium notions are characterized by systems of behavioral equations and market clearing conditions we give both an intuitive proof of existence by counting equations and unknowns and a formal argument that these systems of equations have a solution by use of a simple fixed point argument in addition we review several of the standard partial equilibrium prescriptions for the regulation of a public monopoly and show that in a general equilibrium model they can be interpreted as mcp or a cp equilibria

why do cities pay more an empirical examination of some competing theories of the urban wage premium abstract ols regression identifies a 19 percent wage advantage for workers in large urban areas fixed effects estimation suggests that two thirds of this premium can be explained by cities attracting workers of higher unmeasured skills and ability the remaining wage premium is shown to consist of both level and growth elements the wage level effect is consistent with a productivity advantage for firms located in cities the wage growth effect is shown to relate in part to a cumulative advantage in the returns to job mobility for urban workers this last finding highlights the importance of coordination in urban labor markets

endogenous job destruction and job matching in cities we propose a spatial search matching model where both job creation and job destruction are endogenous workers are ex ante identical but not ex post since their jobs can be hit by a technological shock which decreases their productivity they reside in a city and commuting to the job center involves both pecuniary and time costs as a result workers with high wages are willing to live closer to jobs to save on time commuting costs we show that in equilibrium there is a one to one correspondence between the productivity space and the urban location space workers with high productivities and wages reside close to jobs have low per distance commuting costs and pay high land rents we also show that higher per distance commuting costs and higher unemployment benefits lead to more job destruction

agglomeration economies in urban manufacturing industries a case of japanese cities abstract the effects of urban agglomeration economies on productivities in two digit manufacturing industries is estimated using the cross section data of japanese cities in 1979 urbanization and localization economies which are major forms of urban agglomeration economies are explicitly separated the estimates of these economies vary considerably among industries light industries receive more productive advantages from urbanization economies than from localization economies but heavy industries experience these economies more from localization economies than from urbanization economies

aggregate job matching and returns to scale in germany abstract it is found that in 1984 the german matching function shifted from increasing to constant or even decreasing returns to scale such a regime shift is consistent with a move from a multiple equilibria environment to a single equilibrium state where policies lose effectiveness

search in cities the aim of this paper is to expose the recent developments of urban search models which incorporate a land market into a search matching framework using these models we will be able to explain why unemployment rates vary within a city how city structure affects workers labor market outcomes how unemployment benefits and the job destruction rate affect the growth of cities and why workers living far away from job centers search less intensively and experience higher unemployment rates than those residing closer to jobs we are also able to explain why as compared to whites black workers spend more time commuting to work but travel less miles and search for jobs over a smaller area

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

on income fluctuations and capital gains with a convex production function abstract this work considers a one good economy the production function is random and not necessarily concave the interest factor is variable and the consumer must maximize asymptotically the expected accumulated and discounted utility one proves that the value function is concave and the limit policy is optimal and is the unique one furthermore if the production function is convex there exist two levels of capital with the property that for initial capitals below the first level the optimal sequence of capitals stays bounded with probability one for initial capitals above the second level the optimal sequence of capitals tends monotonically to infinity for initial capitals between the two levels the optimal sequence of capitals leaves the interval with probability one

on income fluctuations and capital gains with a convex production function a note abstract this note considers the model of optimal consumption and accumulation with nonconvex technology contained in a 1987 paper by sotomayor published in this journal it is shown that the conditions on the utility and production functions imposed in that paper are insufficient to ensure the results claimed about concavity of the value function and other classical properties

existence of competitive equilibrium under financial constraints and increasing returns abstract this paper studies a factor cost in advance model with increasing returns in production in the model both partial equilibrium and general equilibrium may exist since working capital of firms limit their input demand we provide a sufficient condition for the existence of partial equilibrium of a firm operating on a non convex choice set furthermore we establish the existence and uniqueness of competitive equilibrium in the special case of logarithmic utility

the existence of marginal cost pricing equilibria with increasing returns the competitive mechanism fails in economies with nonconvex technologies competitive equilibria do not exist in general and pareto optima are no longer equilibria the search for alternative mechanisms in economies with increasing returns was developed and resulted in the principle of marginal cost pricing modern economic theory has returned to the foundations of marginal cost pricing theory in a general equilibrium framework the existence of equilibria with marginal cost pricing in economies with increasing returns and a more general type of nonconvexities is analyzed in this paper the case of differentiable economies where all production sets are limited by smooth surfaces is developed the principles of the proof are also extended to the nondifferentiable case