optimal inflation policy abstract this paper considers the problem of optimal long run monetary policy it shows that optimal inflation policy involves trading off two quite different considerations first increases in the rate of inflation tax the holding of many balances leading to a deadweight loss as excessive resources are devoted to economizing on cash balances second increases in the rate of inflation raise capital intensity as long as the economy has a capital stock short of the golden rule level increases in capital intensity raise the level of consumption ignoring the second consideration leads to the common recommendation that the money growth rate be set so that the nominal interest rate is zero taking it into account can lead to significant modifications in the full liquidity rule interactions of inflation policy with financial intermediation and taxation are also considered the results taken together suggest that inflation can have important welfare effects and that optimal inflation policy is an empirical question which depends on the structure of the economy

the time pattern of hedging and the volatility of futures prices the paper proposes a multi period model of hedging which allows for a futures position to be revised within the cash market holding period within this framework we assess the robustness of the two period theory of hedging when generalized to many periods we characterize the normal time path of a hedge and the way it is affected by the requirement that futures accounts mark to market daily finally we show how the resolution of production uncertainty over time affects hedging behavior and determines the volatility of futures prices in the large literature on hedging in futures markets the principal analytical accounts of hedging are framed in a two trade date setting an agent commits himself now to a future purchase or sale of a good whose cash price later is uncertain this risk is hedged by purchase or sale of an appropriate number of futures contracts and holding this futures position until the cash transaction is realized in the present paper we formulate a multi period model of hedging which allows for the futures position to be revised within the cash market holding period the resulting analysis captures an important institutional reality that is absent in a two trade date model namely the fact that the day to day fluctuations of the futures price will generate a series of random cash flows over the period during which a futures position is held this is due to the requirement that futures accounts mark to market daily within this framework we address a number of issues first we assess the robustness of the two period theory of hedging when generalized to many periods second we characterize the normal time path of a hedge and contrast futures and forward contracts from the perspective of an individual hedger finally we show how the resolution of production uncertainty over time affects hedging behaviour and determines the volatility of futures prices while the literature on asset demand in a multiperiod setting is large futures markets are specifically treated in a limited number of studies grauer and litzenberger 1976 are concerned principally with characterizing the relation of spot and futures prices in a market for a storable periodically produced commodity they offer a rationale for positive stock holding in markets where spot price exceeds the futures price richard and sundaresan 1980 are also concerned primarily with characterizing price behaviour since they posit identical consumers in equilibrium individual holdings of futures are zero there is no hedging activity in the sense that we understand it breeden 1980b analyzes the optimal futures position sizes in a multiperiod setting his framework is more general than ours in that his is a multi good multi asset model where preferences

distribution of personal income development of a new model and its application to u s income data summary this paper proposes a four parameter statistical model of the personalized distribution of income using the income share elasticity approach suggested by esteban 1986 our proposed model includes the singh maddala 1976 and dagum 1977 distributions as special cases the generalized beta ii distribution of mcdonald 1984 is also a variant of this model it appears to give an excellent fit to us income data and its empirical performance turns out to be superior to those of the singh maddala 1976 dagum 1977 the five parameter champernowne 1953 distributions and the generalized beta ii distribution of mcdonald 1984 on some data

unemployment and income distribution time series evidence from sweden for a long time swedish politicians have been devoted to keeping unemployment at low levels the main reason for this devotion is probably the belief that higher unemployment increases inequality of income and welfare this is a reasonable belief since unemployment risks are highest among people with low earnings capacity even when they have a job by means of micro data it is easy to verify a marked low income profile of unemployment further the swedish unemployment insurance system replaces only about 70 per cent of foregone income and quite many unemployed do not qualify for any benefits see bjorklund and holmlund 1991 increases in unemployment however are associated with many changes in the economy with complex consequences for the personal distribution of income in addition to the income losses suffered by those who become unemployed higher unemployment also affects the factor shares of income the profit share typically declines during recessions and because upper income groups receive a relatively high proportion of their income from capital income a countervailing mechanism is involved changes in unemployment also affect inflation which in turn might influence the personal distribution of income the distributional effects of inflation are an open question this note makes an investigation into the relationship between unemployment and the personal distribution of income using swedish time series data the method was first used on u s data by blinder and

the influence of macroeconomic factors on personal income distribution in developing countries a parametric modelling approach this article examines the influence of macroeconomic factors on personal income distribution in developing countries using a parametric modelling approach the technique is based on the selection and estimation of a theoretical parametric model a dagum distribution which fits accurately to the empirical income distributions of the countries examined the parameters of the model specifically related to inequality are subsequently used as dependent variables in econometric models in order to examine the impact that certain macroeconomic variables gdp growth inflation employment and real interest rates have on inequality the results reveal that gdp growth employment rate and real interest rate are the macroeconomic factors with greater impact in shaping personal income distribution in developing countries

the evolution of income inequality in the european union during the period 1993 1996 the objective of this work is to analyse the income inequality in the 15 eu countries during the convergence process to the monetary union using the information contained in the european community household panel corresponding to the four first waves using the inverse second order stochastic dominance concept an ordering of these countries has been carried out furthermore this ranking allows one to determine if the differences among eu country members have increased or decreased during this particular period whether the inequality of income has diminished within and between countries over time was studied gini s generalized family indices proposed by donaldson and weymark journal of economic theory 22 67 86 1980 and 29 353 8 1983 and yitzhaki international economic review 24 617 28 1983 have been used this allows one to test the sensitivity of the results obtained to different degrees of inequality aversion and to different equivalence scales taking into account household sizes

using the dagum model to explain changes in personal income distribution this article studies the evolution of personal income distribution in spain from 1995 to 2005 using the dagum model dagum s three parameter model type i provides a good fitting to empirical income distributions in spain moreover its parameters can be interpreted as economic indicators of income distribution changes after studying the economic interpretation of the dagum model parameters we analyse the impact of parameter changes on different income percentiles and also on the evolution of inequality in spain using data from the european community household panel echp and the european union statistics on income and living conditions eu silc

inflationary financing of public investment and economic growth abstract a theoretical model is constructed in order to explain particular historical experiences in which inflation acceleration apparently helped to spur a period of economic growth government financed expenditures affect positively the productivity growth in this model so that the distortionary effect of inflation tax is compensated by the productive effect of public expenditures we show that for some interval of money creation rates there is an equilibrium where money is valued and where steady state physical capital grows with inflation it is also shown that zero inflation and growth maximization are never the optimal policies

on a simple rule for the optimal inflation rate in second best taxation abstract the optimal inflation rate is analyzed in the framework of dynamic second best with endogenous factor prices it is shown that when the marginal excess burden of taxation is relatively small the optimal inflation rate is approximated by a simple rule the paper also analyzes the robustness of this rule to the specification of the model money as an input in utility or production

labor supply decisions human capital attributes and inequality in the size distribution of earnings in the u s 1952 81 this paper analyzes the impact of human capital and labor force variables and macroeconomic growth measures on inequality in the size distribution of earnings for the united states our technique utilizes a beta distribution of the second kind to approximate the distribution of earnings we derive a measure of inequality that depends solely on the parameters of the beta distribution and that links human capital labor force and macroeconomic variables to changes in the parameters of the beta distribution we then relate the changing parameters of the beta distribution to changes in the degree of inequality in the marginal distribution of earnings

the distribution of personal income revisited in a recent paper majumder and chakravarty 1990 propose a four parameter model which they find provides a better fit to some income data than the lognormal gamma singh maddala dagum and generalized beta of the second kind gb2 distributions this note 1 demonstrates that the model proposed by majumder and chakravarty is a reparameterization of the gb2 and 2 reconciles the corresponding contradictory empirical findings reported by majumder and chakravarty

technology and hedging behavior a proof of hicks conjecture technical conditions give the entrepreneur a much freer hand about the acquisition of inputs which are largely needed to start a new process than about the completion of outputs whose process of production in the ordinary business sense may be already begun if forward markets consisted entirely of hedgers there would always be a tendency for a planned weakness on the demand side a smaller proportion of planned purchases than of planned sales would be covered by forward contracts 1946 p 137

optimal bank interest margin and default risk in equity returns under the return to domestic retail with structural breaks a retrenchment in crossborder credit is under way the product of both market forces and political pressure on international banks to lend at home economist 2009 in addition banks particularly the largest have also dramatically expanded their retail banking operations over the past few years hirtle and stiroh 2007 our goal in this article is to study the effects of default risk on equity returns through bank interest margin management under a renewed focus on domestic retail banking a trend often attributed to the stability of banking activities specifically this article explores the determinants of optimal bank interest margins based on an option based firm theoretical model with multiple sources of structural breaks due to political pressure the model demonstrates how capital regulation and political pressure on foreign lending return and risk conditions jointly determine the optimal bank interest margin decision we show that a more stringent capital requirement is linked with lower eq

north south the implications for multinational banking abstract international finance should be of great value to developing countries because their potential growth paths are out of step with the world economy and because the gambles they must take to develop are much more diversifiable in the context of the world economy than locally however the actual benefits of north south finance have been limited by an overreliance on non specific bank credit with the inherent limitations and by errors in judgement by both borrowers and lenders in fact the current crisis threatens to reverse many of the earlier gains while the current crisis is primarily the result of the world recession the severity of its effects on lenders and borrowers reflects three key aspects of bank credits 1 its perverse real repayment patterns 2 its specific nature which implies that risks are transferred only through generalized non performance with its attendant deadweight costs and 3 its concentration in a small but critical segment of capital markets these characteristics would be serious even with ideal behavior by lenders and borrowers but they also can lend to inappropriate and possibly erratic behavior specific suggestion for restructuring the system of north south finance are given including 1 smoothing repayment patterns 2 increasing repayment flexibility 3 increasing risk bearing non specific finance 4 increasing non recourse financing and 5 increasing project specific risk capital

optimal monetary growth abstract in the absence of monetary superneutrality inflation affects capital accumulation and the demand for real balances this paper derives the combination of monetary and lump sum fiscal policy which maximizes the sum of discounted utilities of representative consumers in present and future generations under the optimal policy package the steady state has a zero nominal interest rate and has monetary contraction at the rate of intergenerational discount as the rate of intergenerational discount rate approaches zero optimal policy maximizes steady state utility of the representative consumer in this case the optimal steady state is characterized by a constant nominal money supply

opening a can of worms the pitfalls of time series regression analyses of income inequality this paper argues that time series regression analysis is of only very limited use for understanding the determinants of income inequality the argument is based on a combination of results from the time series econometrics literature and several characteristics of inequality itself principally nonstationarity of the data in most inequality regression models and the weak theoretical foundations underlying the models a sample of postwar us data is used to illustrate the problems involved

financial contracts and international lending abstract this paper examines alternative financial contracts for international lending i demonstrate that conventional loans can be pareto dominated by financial contracts explicitly incorporating characteristics of the borrower s product market i provide conditions under which commodity linked debt is desirable and determine when more complicated revenue linked loans are optimal i also demonstrate that the type of lending contract has important real effects on production decisions one result of this research is to demonstrate why equity based lending arrangements may have limited applicability

the impact of schooling and industrial restructuring on recent trends in wage inequality in the united states sufficient evidence now exists to confirm a strong rising trend in wage inequality in the united states since at least the mid 1970s still elusive is a definitive explanation for this tendency in the pursuit of one researchers have now begun to turn their attention to two factors 1 on the supply side an apparent rapid growth in the rates of return to education and 2 on the demand side an acceleration in industrial restructuring in particular the shift in employment from goods production to services in this connection the decline in unionization and the expanded exposure of the manufacturing sector to international competition have received renewed consideration this paper contends that it is precisely the increasing returns to schooling in both goods and services in combination with the shift in employment between the two that is responsible for the recent growth in wage dispersion

dagum vs singh maddala income distributions this letter shows that the dagum and the singh maddala income distributions are closely related it exploits this relationship to derive lorenz ordering results for the dagum distributions from known results for the singh maddala family

fundamental economic factors that affect housing prices comparative analysis between kosovo and slovenia the purpose of this study is to provide strategic implications for real estate appraisers and real estate managers to know the economic determinants of housing price dynamics in kosovo the fundamental economic determinants of housing prices adopted from previous studies are gross domestic product growth demographics real interest rates and construction costs the research methodology used is quantitative factor analysis the main question addressed is whether the conventional fundamental determinants of housing prices such as gross domestic product per capita real interest rates demographic factors and construction costs have driven the observed housing prices in kosovo by sampling the determinants of housing prices in kosovo the study shows their effects on housing price dynamics the study shows that housing prices in kosovo are significantly determined by the underlying conventional fundamentals this is the first research that tries to determine whether the fundamental economic factors influence the housing prices in kosovo

commodity bonds and consumption risks this paper analyzes the economic role of commodity bonds by examining the nature of the demand for these securities i show that while commodity bonds protect against relative price changes they do so by introducing variability into the future real income stream this variability limits the desirability of using commodity bonds to provide price insurance for future consumption however this variability may allow commodity bonds to hedge risks to consumption caused by stochastic changes in income the analysis also suggests that it is this income insurance rather than price insurance that is important in hedging risks to future consumption in 1863 the confederate states of america csa took the unusual step of issuing bonds payable in bales of cotton in 1980 the sunshine mining company took the unusual step of issuing bonds payable in ounces of silver although the csa commodity bond offering proved to be of an isolated and rather shortlived nature recent developments suggest that commodity bond offerings like that of sunshine mining may become more commonplace for example both mexico and the british oil and gas corporation have issued petroleum bonds and the reagan administration has proposed issuing oil indexed bonds to finance the strategic oil reserve france has experimented with gold bonds as have several private companies commodity indexed debt also has appeared outside of organized bond markets shared appreciation mortgages for example represent a debt indexed to the price of housing even bank loans can be indexed to underlying commodities as evidenced by the oil indexed loans between japanese banks and the soviet union 2 such developments suggest that debts linked to a wide variety of commodity indices are certainly feasible this paper analyzes the economic role of commodity bonds by considering the nature of the demand for these securities because commodity bonds can hedge graduate school of management cornell university this paper has benefitted greatly from discussions with david easley seymour smidt and piet sercu i would also like to acknowledge the extremely valuable comments of an anomymous referee 1 for discussion of the reagan petroleum bond plan see a new plan to finance oil reserve new york times january 15 1981 devious device to trim a budget new york times february 6 1981 and building an oil reserve the thrifty way new york times february 16 1981 britain s oil bonds are discussed in oil bonds may not bring riches world business weekly october 27 1980 gold bonds are featured in gold indexed bond is costly for france new york times june 30 1980 hot seller bonds indexed to oil and gold business week august 3 1979 and sale of gold bonds in europe planned new york times january 28 1981 2 numerous articles on such indexed loans have appeared in the wall street journal see for example wsj february 15 1979 p 33 june 11 1979 p 18 august 15 1979 p 29 april 7 1980 p 7 april 8 1980 p 35 and may 14 1981 p 31

analysing disequilibrium interest rate systems in developing countries abstract under equilibrium conditions monetary policy measures to raise institutional interest rates are contractionary when interest rates are held below their free market equilibrium levels however an increase can be expansionary higher institutional interest rates may deter savings in the form of unproductive inflation hedges and encourage savings in the form of financial claims issued to finance productive investment in most developing countries money is the predominant financial repository of savings and bank loans are a major source of investible funds hence attention is focused here on models which analyse the effects of binding interest rate ceilings on financial intermediation empirical evidence reported in this paper is consistent with the view that binding institutional interest rate ceilings can have a substantial growth reducing impact

lump sum taxation and the superneutrality and optimum quantity of money in life cycle growth models abstract the question of superneutrality and the optimum quantity of money is addressed in a model where money services enter the utility function and where individuals have finite lives it is demonstrated that the existing result in the literature regarding a positive relationship between money creation and the steady state capital intensity and welfare is not due to monetary policy per se on the contrary this is shown to arise because of the intergenerational wealth effects embedded in the manner in which money is created assuming that preferences are separable between consumption goods and real balances and that the consumption goods are normal it is proved that i money is superneutral and ii any other money supply rule is pareto inferior to the chicago rule provided that the government also embarks on a policy of wealth redistribution across generations through the imposition of appropriate lump sum taxes and transfers