on optimal wage indexation when shocks are real abstract this note studies the optimal degree of wage indexation in the presence of real shocks contrary to what is indicated in the literature it is demonstrated that the optimal degree of indexation is not limited to 0 1 but may take any value in

a statistical approach to identifying poorly performing countries abstract this paper asks whether it is possible to identify using purely statistical criteria on widely available quantitative data a set of developing countries that can be classified as poor performers we restrict attention to two performance indicators economic growth and infant mortality over two periods 1980 90 and 1990 2000 and use four different statistical criteria to identify poor performance the main finding is that very few countries consistently appear as poor performers those that perform poorly on one indicator or in one period typically do not perform poorly on in the other a similar result is obtained in the context of identifying on statistical grounds good performers the research cautions against labelling countries as poor performers without careful qualification

the big push natural resource booms and growth a simple application of big push reasoning suggests that natural resource booms can be important catalysts for development in poorer countries in this paper we present evidence from seven latin american countries that natural resource booms are sometimes accompa nied by declining per capita gdp we present a model with natural resources increasing returns in the spirit of big push models and expectations to clarify some of the reasons this may happen q 1999 elsevier science b v all rights reserved

contingent capital with a capital ratio trigger contingent capital in the form of debt that converts to equity when a bank faces financial distress has been proposed as a mechanism to enhance financial stability and avoid costly government rescues specific proposals vary in their choice of conversion trigger and conversion mechanism we analyze the case of contingent capital with a capital ratio trigger and partial and ongoing conversion the capital ratio we use is based on accounting or book values to approximate the regulatory ratios that determine capital requirements for banks the conversion process is partial and ongoing in the sense that each time a bank s capital ratio reaches the minimum threshold just enough debt is converted to equity to meet the capital requirement so long as the contingent capital has not been depleted we derive closed form expressions for the market value of such securities when the firm s asset value is modeled as geometric brownian motion and from these we get formulas for the fair yield spread on the convertible debt a key step in the analysis is an explicit expression for the fraction of equity held by the original shareholders and the fraction held by converted investors in the contingent capital this paper was accepted by gerard p cachon stochastic models and simulation

what makes growth sustained abstract we identify structural breaks in economic growth in 140 countries and use these to define growth spells periods of high growth preceded by an upbreak and ending either with a downbreak or with the end of the sample growth spells tend to be shorter in african and latin american countries than elsewhere we find evidence that growth duration is positively related to the degree of equality of the income distribution democratic institutions export orientation with higher propensities to export manufactures greater openness to fdi and avoidance of exchange rate overvaluation favorable for duration and macroeconomic stability

on the absence of positive wage indexation this paper rationalizes the absence of positive wage indexation in labour contracts that is of indexing provisions that link wage increases to inflation we investigate the equilibrium of a policy game in a stochastic economy in which wage setters and a policy maker interact strategically in order to determine the preferred degree of wage indexation and an optimal stabilization rule respectively our conclusion is that nominal wage rigidity and counterinflationary economic policy represent the best courses of action when price stability is valued and negative responses of contractual wages to price shocks are ruled out under these assumptions moreover the stochastic structure of the economy has no bearing on the optimality of maximal real wage flexibility this paper presents an argument for explaining nominal wage rigidity in labour contracts we investigate the equilibrium of a policy game in a stochastic economy in which wage setters and a policy maker interact strategically in order to determine the preferred degree of wage indexation and an optimal intervention rule respectively our conclusion is that indexing provisions that maximize the flexibility of real wages and counter inflationary economic policy represent the best courses of action for the players in the absence of schemes that create a negative correlation between wage and price movements maximal real wage flexibility is attainable through zero indexation or rigid nominal wages the crucial assumption that drives this result is that some price stability is desirable for the policy maker the introduction of price stability as a goal seems eminently justified from a practical standpoint the federal reserve system s legislative mandate from the federal reserve reform act of 1977 the ongoing debate about the house joint resolution 409 and the delors report which speaks of an unequivocal commitment to maintain price stability as the primary objective of the european system of central banks

in quest of the slutsky diamond the slutsky equation can be constructed as a parallelogram a diamond the area of which is proportional to the elasticity of substitution this construction permits to show immediately that demand functions become concave on an interval if the elasticity of substitution increases sufficiently also the diamond sheds light on the fact that the production level increases with the elasticity of substitution as an application the author shows that the elasticity of substitution has a direct bearing not only on the rate of growth of an economy but also on the very existence of sustained growth copyright 1989 by american economic association

the long term success of the neoclassical growth model in this paper we seek to re establish the link between the constant elasticity of substitution ces production function and neoclassical solow growth theory we do so in three dimensions first we review the increasing importance of the ces technology in modern dynamic macroeconomics in expanding not only theory but also in addressing important policy questions second we aue that the importance of the ces function in growth theory is intimately linked to normalization finally we examine the data congruence between ces functions and recent growth patterns in the usa and the euro area economies where we apply a supply side system incorporating a ces function with factor augmenting and time varying technical progress

pricing convertible bonds abstract convertible bonds are an important segment of the corporate bond market although their pricing is compromised by the presence of complex option features and difficulty in measuring the risk factors needed as inputs to standard valuation models using a unique sample of pure u s convertible bonds devoid of other optionality we show that underpricing is affected mainly by the degree of underlying asset volatility and liquidity convertible bonds with a greater debt component more credit sensitive longer time to maturity and lower quality credit ratings are also found to be more underpriced the global financial crisis gfc is an episode with high underlying asset volatility and one subject to short selling constraints during this period there was deep convertible bond discounting which highlights the importance of market conditions and the temporal rather than systematic nature of the pricing errors

on functions quality and timeliness of economic information economic decisions confront more uncertainty as they grow in scope and reach further into the future they are likely to do so increasingly in decentralized economies that expand and diversify the economic incentives to reduce uncertainty and improve predictions and decisions give rise to the demand for large amounts of diverse information this is not a new phenomenon of course but it is revealed more clearly than ever in the present era of great advances in informational technology for now the demand is to a large extent visibly satisfied the knowledge industries or services of inquiring comthe uncertainty about economic information increases with the probability of error in the underlying data and their processing and interpretation many errors cannot be promptly detected and eliminated but can be gradually reduced over time as attested by the revisions in economic statistics this paper presents substantial evidence on the accuracy of provisional estimates of quarterly and monthly changes in 18 important variables measures of several aspects of data quality and of average lags of data release and signal detection are provided for a collection of 110 widely used economic indicators these materials help identify the location of the more serious measurement errors by variables and period and they show that informational lags of 5 and more months are frequent this paper is part of the national bureau of economic research program on economic fluctuations it was presented at the first international symposium on forecasting in quebec city on may 27 1981 and at the ifo institute for economics research in munich on september 23 1981 financial support from the national science foundation and the aid of the graduate school of business of the university of chicago and nber are gratefully acknowledged i am indebted to louis lambros for helpful suggestions and efficient research and to john gould and geoffrey moore for useful comments 1 growth in the modem economy is motivated by the desire to accumulate human and physical resources capital in the most general sense and is accomplished by actions that necessarily have long term consequences the decisions to choose these particular courses of action strategies must therefore be based on similarly long expectations which are fallible as the risk is high so is the premium on any knowledge that might help the decision maker

allocation under dictatorship research in stalin s archives we survey recent research on the soviet economy in the state party and military archives of the stalin era the archives have provided rich new evidence on the economic arrangements of a command system under a powerful dictator including stalin s role in the making of the economic system and economic policy stalin s accumulation objectives and the constraints that limited his power to achieve them the limits to administrative allocation the information flows and incentives that governed the behavior of economic managers the scope and significance of corruption and market oriented behavior and the prospects for economic reform

contingent convertible coco bonds a first empirical assessment of selected pricing models this study is the first to assess selected pricing models for contingent convertible coco bonds empirically substantial amounts of these instruments have recently been issued by a number of banks the authors analysis shows that although all tested approaches a structural model an equity derivatives model and a credit derivatives model largely fit market prices they exhibit biases in derived hedge ratios the equity derivatives model is the most practical for the pricing and risk management of coco bonds

empirics of hills plateaus mountains and plains a markov switching approach to growth abstract most economic growth research has been aimed at explaining cross country differences in average growth rates however it is well known that growth experiences differ over time within a country almost as much as they differ among countries this paper builds on pritchett s 2000 pritchett lant understanding patterns of economic growth searching for hills among plateaus mountains and plains world bank economic review may 2000 14 2 221 250 observation that the growth process can be thought of as transitions between different growth regimes and proposes a framework for systematic analysis of such regimes and the dynamics of the transitions i estimate a markov switching regression to characterize four distinct growth regimes and transitions between them the results show that countries switch among regimes of stable growth miracle catch up stagnation and crisis with the transition probabilities determined by the quality of institutions better institutions appear to improve long run growth by making episodes of fast growth more persistent low average growth rates in countries with weak institutions are a result of these countries spending more time in stagnation regimes rather then being incapable of fast growth at all weak institutions do not rule out growth takeoffs but limit their sustainability the approach directs attention to shifts in growth performance and highlights the fact that identical average growth rates can mask very distinct growth paths

the long run relationship between trade and population health evidence from five decades in recent years the increase in international trade has sparked a debate about the impact of international trade on population health to date however there has been very little econometric research on the relationship between these two variables this paper examines the long run relationship between trade openness and population health for a sample of 74 countries over five decades from 1960 to 2010 using panel time series techniques it is shown that international trade in general has a robust positive long run effect on health as measured by life expectancy and infant mortality this effect tends to be greater in countries with lower development levels higher taxes on income profits and capital gains and less restrictive business and labour market regulations

the voracity effect abstract we analyze an economy that lacks a strong legal political institutional infrastructure and is populated by multiple powerful groups powerful groups dynamically interact via a fiscal process that effectively allows open access to the aggregate capital stock in equilibrium this leads to slow economic growth and a voracity effect by which a shock such as a terms of trade windfall perversely generates a more than proportionate increase in fiscal redistribution and reduces growth we also show that a dilution in the concentration of power leads to faster growth and a less procyclical response to shocks jel f43 o10 o23 o40

wage and price contracts in a macro model with information costs this paper investigates the efficiency case for fixed price demand side contracts in a fischer gray type of macro model with information costs a simple market clearing macro model with market clearing costs in both labour and goods markets is presented first then predetermined wage contracts into the labour market are introduced contracts involving a demand side rule are compared with the market clearing system as well as alternative contracts based upon either supply side or predetermined quantity rules finally the case where the wage rate and the price level are both predetermined while output is determined by aggregated demand is considered salaires et prix contractuels dans un modele macro e conomique quand des couts d information existent ce memoire examine l efficacite de contrats a prix fixe dans un modele macro economique a la fischer gray quand des cofits d information existent la preniiere section du memoire presente un modele simple qui tient compte explicitement des cofits de l operation du marche tant dans le marche des biens que dans celui du travail la seconde section introduit des salaires contractuels predetermines dans le marche du travail les auteurs comparent les resultats d un tel arrangement dans le cas oii le niveau d emploi est determine par la demande de travail par l offre de travail ou est simplement pre determine la troisieme section examine le cas oiu le taux de salaire et le niveau des prix sont definis contractuellement alors que le niveau de production est determine par la demande agregee in order to explain movements of employment and output over the business cycle much of short run macro economic analysis has been based on the assumption of sticky or predetermined money prices models incorporating sticky prices have also tended to assume demand side quantity rules that is if the wage rate is predetermined employment is assumed to be determined by

the high price of dematerialization a dynamic panel data analysis of material use and economic recession abstract dematerialization at the national level occurs almost exclusively during periods of economic recession or low growth while recession is not a sustainable strategy to curb environmental impact such periods may offer important insights on the possibilities of reducing material use economic recession research has focused on the interactions between macroeconomic and financial variables with little systematic research dedicated to uncovering how resource use develops during periods of recession using a dynamic panel model we investigate whether and to what extent material use in a sample of 150 economies between 1970 and 2010 was affected by recession and low growth recession occurred most frequently and in more than two thirds of all countries during the 1980s and the 1990s in the 2000s more than half of the recessions occurred during the financial crisis of 2008 periods of recession were significantly and negatively correlated with material use they tended to coincide with dematerialization material use decreased in recession years but the significant correlations with growth in material use became weaker as growth rates increased construction minerals and metals used to build stocks of manufactured capital reacted more strongly to economic fluctuations than the throughput dominated flows of biomass and fossil fuels we conclude that the systematic link between recession and dematerialization can become policy relevant if the mechanisms causing reductions in material use during these periods are identified

aid policies and growth the authors of this paper use a new database on foreign aid to examine the relationships among foreign aid economic policies and growth of per capita gdp in panel growth regressions for 56 developing countries and 6 four year periods 1970 93 they find that the policies that have a great effect on growth are those related to fiscal surplus inflation and trade openness they construct an index for those three policies and have that index interact with foreign aid they have instruments for both aid and aid interacting with policies they find that aid has a positive impact on growth in developing countries with good fiscal monetary and trade policies in the presence of poor policies aid has no positive effect on growth this result is robust in a variety of specifications which include or exclude middle income countries include or exclude outliers and treat policies as exogenous or endogenous they examine the determinants of policy and find no evidence that aid has systematically affected policies either for good or for ill they estimate an aid allocation equation and show that any tendency for aid to reward good policies has been overwhelmed by donors pursuit of their own strategic interests in a counterfactual they reallocate aid reduce the role of donor interests and increasing the importance of policy such a reallocation would have a large positive effect on developing countries growth rates

factor substitution approach to testing the time variations in production the case of taiwan s manufacturing this paper is devoted to studying the time variations in the series of elasticities of factor substitution which in a sense manifests changes in production technology and structure a lkm translog cost function model is used to estimate the allen uzawa elasticities of substitution for taiwan s manufacturing sector in 1965 91 the variations are analysed using a regression model which incorporates the linear spline setting and income variable empirical results indicate that obvious structural breaks in the elasticity series conform to major exogenous disturbances such as worldwide energy crises and developmental policy changes

productivity growth in pre 1990 mongolian agriculture spiralling disaster or emerging success the reasons for the spectacular collapse of so many centrally planned economies are a source of ongoing debate in this paper we use detailed farm level data to measure total factor productivity tfp changes in mongolian grain and potato farming during the 14 year period immediately preceding the 1990 economic reforms we measure tfp growth using stochastic frontier analysis sfa and data envelopment analysis dea methods our results indicate quite poor overall performance with an average annual tfp change of 1 7 in grain and 0 8 in potatoes over the 14 year period however the pattern of tfp growth changed substantially during this period with tfp growth exceeding 7 per year in the latter half of this period this suggests that the new policies of improved education greater management autonomy and improved incentives which were introduced in final two planning periods in the 1980s were beginning to have a significant influence upon the performance of mongolian crop farming crown copyright c 2002 published by elsevier science b v all rights reserved

differential information and the role for active stabilization policy a comment in a recent paper t m anderson analyzes a new classical model in which demanders and suppliers are differentially informed he claims that a particular feedback monetary policy but not a private indexation rule is able to perfectly stablize the economy the authors show that anderson s private indexation rule is also able to perfectly stabilize the economy copyright 1991 by the london school of economics and political science

intertemporal substitution and the role of monetary policy new classical macroeconomists have asserted that once one ignores the consequences of sustained expected inflation or what is normally referred to as the tobin effect or inflation tax monetary policy is invariably ineffective both in the long and short run this view is not correct it will be shown that inflation tax free monetary policy rules can have strong stabilisation effects in rational expectations models with intertemporal substitution the best way to eliminate possible inflation tax effects of monetary growth is to assume that as in barro s i976 model the long run expected rate of growth of the money supply is zero more generally if one were concerned exclusively with the effectiveness of stabilisation policy in the new classical sense i e the capability of influencing deviations of actual equilibrium output from its full information level it would be sufficient to postulate that money transfers are simply proportional to pre existing money holdings the a priori exclusion of the tobin effect as a pre requisite for the new classical doctrine is clearly stated in lucas i98i

natural resources and economic growth the role of investment is it possible that excessive reliance on natural resources affects saving and investment in a way that retards economic growth and thus in the long run the level of output per capita this paper reviews the literature explores the data and compares and contrasts the explanatory power and interplay of natural resources and civil liberties our proxy for institutional variables currently under scrutiny in the literature we propose that natural resource dependence may be viewed as an exogenous factor that impedes economic growth and investment as well as institutions even if we stress that natural resource abundance may be good for growth

on the design of contingent capital with a market trigger contingent capital cc which intends to internalize the costs of too big to fail in the capital structure of large banks has been under intense debate by policy makers and academics we show that cc with a market trigger in which direct stake holders are unable to choose optimal conversion policies does not lead to a unique competitive equilibrium unless value transfer at conversion is not expected ex ante the no value transfer restriction precludes penalizing bank managers for taking excessive risk multiplicity or absence of an equilibrium introduces the potential for price uncertainty market manipulation inecient capital allocation and frequent conversion errors these results point to the need to explore alternative designs of a prudential capital structure for banks jel classication

on optimal wage indexation the observed practice of contracting for labor services in advance introduces stickiness or friction into the economic system in the presence of monetary and real stochastic disturbances the stability of the levels of employment and output hinges on the nature of the wage contracts in this paper we demonstrate the existence of optimal indexation schemes that are capable of eliminating the aforementioned friction by duplicating the equilibrium that would obtain if labor services were contracted for after the stochastic disturbances were realized

are developing countries catching up this paper reviews catch up growth in various parts of the world especially in the twentieth century with a particular focus on what this implies for the global south in 1950 us per capita national income adjusted for purchasing power was nearly five times the world average since then western europe and japan have closed their per capita income gaps with the usa east asia south asia and some other developing countries have also started to close their gaps with the west in recent decades thus after well over a century of growing international economic disparities or divergence the world has witnessed an era of uneven catching up with the north in parts of the south since the mid twentieth century

economic growth technical change biases and the elasticity of substitution a test of the de la grandville hypothesis a recent development in microeconomic theory suggests that the size of the elasticity of substitution between factors is relevant to economic growth this study undertakes an empirical investigation of this proposition comparing two economies the united states and south korea the authors test results support the de la grandville hypothesis that the elasticity of substitution is a potent explanatory variable of economic growth this inquiry also provides a clue to the puzzle that the u s elasticity of substitution between labor and capital is well below unity whereas that of south korea is close to unity nonetheless the u s factor shares have tended to remain fairly stable whereas the distributive shares of south korea seem to have changed in favor of capital their findings indicate that a high elasticity of substitution is a bad signal for the distribution of income under the paradigm of modern technology copyright 1991 by mit press

the soviet economic decline soviet growth from 1960 to 1989 was the worst in the world after we control for investment and human capital the relative performance worsens over time there is some evidence that the burden of defense spending modestly contributed to the soviet debacle the declining soviet growth rate from 1950 to 1987 can be accounted for by a declining marginal product of capital with a constant rate of growth of total factor productivity the soviet reliance on extensive growth rising capital to output ratios was no greater than that of market economies such as japan and the republic of korea but a low elasticity of substitution between capital and labor implied especially acute diminishing returns to capital compared with the case in market economies copyright 1995 by oxford university press

the effect of incentive reforms upon productivity evidence from the vietnamese rice industry in this study we use region level panel data on rice production in vietnam to investigate total factor productivity tfp growth in the period since reunification in 1975 two significant reforms were introduced during this period one in 1981 allowing farmers to keep part of their produce and another in 1987 providing improved land tenure we measure tfp growth using two modified forms of the standard malmquist data envelopment analysis dea method which we have named the three year window tyw and the full cumulative fc methods we have developed these methods to deal with degrees of freedom limitations our empirical results indicate strong average tfp growth of between 3 3 and 3 5 per cent per annum with the fastest growth observed in the period following the first reform our results support the assertion that incentive related issues have played a large role in the decline and subsequent resurgence of vietnamese agriculture

do weak institutions prolong crises on the identification characteristics and duration of declines during economic slumps this paper studies periods of prolonged contractions in output per capita in a sample of 145 countries from 1950 to 2014 economic slumps are defined as abrupt interruptions of a period of growth by several regime switches slumps start with a sharp contraction along with a trend break which is followed by another switch when growth stabilizes again the paper then analyzes the correlates of these slumps focusing on the length and depth of the contraction from the beginning of the slump to its trough the results establish three new stylized facts i weak political institutions predate crises whereas political reforms tend to follow them ii the length and depth of economic declines are robustly correlated with executive constraints and ethnic heterogeneity and iii there is a robust interaction between these two variables suggesting that institutions constraining leaders are important for stabilizing growth this is particularly relevant for sub saharan africa where politics are often ethnic and decision makers are comparatively unconstrained

growth in transition what we know what we don t and what we should abstract this essay surveys macroeconomic issues that marked the transition from planned to market economy in central and eastern european and former soviet union countries we first establish stylized facts of the transition so far we then critically survey the theoretical literature on transition discussing explanations for the initial output fall and mediumterm issues such as optimal speed of transition disorganization institutions and sectoral reallocation as source of output dynamics we review the empirical literature to assess how well it translates the theoretical models and explains the stylized facts we conclude with suggestions for future research

the war making state and privatisation states created with the central purpose of defending national independence resist the process of macro economic reform since it appears to limit their power to pursue this aim the states of the former centrally planned economies were marked out by their extreme subordination to the military drive so the resistance to reshaping the war making state into a market facilitating state is considerable the transition tends to be halted where the old structures of central control are ended without markets supplying alternative imperatives a rent seeking state is created these themes are examined in relationship to privatisation of state owned enterprises in four countries russia china vietnam and the ukraine

intertemporal substitution and the role of monetary policy policy irrelevance once again recently marini i985 demonstrates that feedback policy is effective in barro s i976 model even in the absence of differentially informed agents or non proportional money transfers in particular marini demonstrates that a policy rule with feedback to the current money stock from disturbances dated t 2 or further in the past will be effective at fully stabilising output in barro s model this paper demonstrates that this policy effectiveness result is dependent on an implicit assumption that the length of private agents horizon falls short of the length of the lags in the feedback rule more generally this paper points out that a crucial feature of barro s i976 model is the specification of the decision horizon of private agents relative to the lag on demand disturbances in the monetary rule if the feedback lag in the monetary rule exceeds the horizons of private agents then monetary policy can stabilise output if the horizon of private agents is equal to or exceeds the lags in the monetary rule

what determines the elasticity of substitution between capital and labor a literature review this paper provides the first comprehensive review of the empirical and theoretical literature on the determinants of the elasticity of substitution between capital and labor our focus is on the two input constant elasticity of substitution ces production function we start by presenting four concise observations that summarize the empirical literature on the estimation of motivated by these observations the main part of this survey then focuses on potential determinants of capital labor substitution we first review several approaches to the microfoundation of production functions where the elasticity of substitution eos is treated as a purely technological parameter second we outline the construction of an aggregate elasticity of substitution aes in a multi sectoral framework and investigate its dependence on underlying intra and inter sectoral substitution third we discuss the influence of the institutional framework on the extent of factor substitution overall this survey highlights that the effective elasticity of substitution ees which is typically estimated in empirical studies is generally not an immutable deep parameter but depends on a multitude of technological non technological and institutional determinants based on these insights the final section identifies a number of potential empirical and theoretical avenues for future research

business cycle fluctuations large macroeconomic shocks and development aid abstract we examine the cyclical properties of development aid using bilateral data for 22 donors and 113 recipients during 1970 2005 we find that bilateral aid flows are on average procyclical with respect to the business cycle in both donor and recipient countries while aid outlays contract sharply during severe downturns in donor countries they rise steeply when aid receiving countries experience large adverse shocks our findings suggest that development aid may play an important cushioning role in developing countries but only during times of severe macroeconomic stress our results are robust to alternate definitions of aid flows specifications and estimation techniques

factor substitution and factor augmenting technical progress in the united states a normalized supply side system approach abstract using a normalized ces function with factor augmenting technical progress we estimate a supply side system of the u s economy from 1953 to 1998 avoiding potential estimation biases that

the rise and decline of the soviet economy the reasons for the rapid growth of the soviet union before roughly 1970 and for its subsequent growth slowdown are analysed the concentration of investment on heavy industry and soft budget constraints explain most of the growth in the 1930s the growth slowdown was due to disastrous investment decisions following the elimination of surplus labour and the diversion of research and development resources to the military rather than the failure of firms to carry out plans or diminishing returns to capital

wage indexation and exchange market intervention in a small open economy the analysis of this paper stresses the interdependence between wage indexation on the one hand and exchange market intervention on the other as tools of macroeconomic stabilization policy in a small open economy subject to stochastic disturbances it is shown how the choice of eitherpolicy instrument impinges on the effectiveness of the other in particular if the domestic money wage is fully indexed to some weighted average of the domestic and foreign price levels then irrespective of what that chosen weight may be exchange market intervention is rendered totally ineffective insofar as the stabilization of the real part of the domestic economy is concerned likewise if the monetary authority intervenes in the exchange market so as to exactly accommodate for nominal movements in the demand for money thereby rendering the excess demand for money dependent only upon real variables then any form of wage indexation is totally ineffective for the stabilization of the real part of the system in either polar case the respective instrument can stabilize the domestic price level alternative combinations of policy for the stabilization for domestic and foreign disturbances are considered this abstract was borrowed from another version of this item

optimal wage indexation foreign exchange intervention and monetary policy this paper deals with the design of optimal monetary policy and with the interaction between the optimal degrees of wage indexation and foreign exchange intervention the model is governed by the characteristics of the stochastic shocks which affect the economy and by the information set that individuals possess because of cost of negotiations nominal wages are assumed to be precontracted and wage adjustments follow a simple indexation rule that links wage changes to observed changes in price the use of the price level as the only indicator for wage adjustments may not permit an efficient use of available information and may result in welfare loss the analysis specifies the optimal set of feedback rules that should govern policy aiming at the minimization of the welfare loss these feedback rules determine the optimal response of monetary policy to changes in exchange rates interest rates and foreign prices the adoption of the optimal set of feedback rules results in the complete elimination of the welfare cost arising from the simple indexation rule and from the existence of nominal contracts since optimal policies succeed in the elimination of the distortions issues concerning the nature of contracts and the implications of specific assumptions about disequilibrium positions become inconsequential the analysis then proceeds to examine the interdependence between the optimal feedback rules and the optimal degree of wage indexation it is shown that a rise in the degree of exchange rate flexibility raises the optimal degree of wage indexation one of the key conclusions is the proposition that the number of independent feedback rules that govern a policy must equal the number of independent sources of information that influence the determination of the undistorted equilibrium thus it is shown that with a sufficient number of feedback rules for monetary policy there may be no need to introduce wage indexation it is also shown that an economy that is not this abstract was borrowed from another version of this item

countercyclical contingent capital abstract we analyze the optimal capital structure of a bank issuing countercyclical contingent capital i e notes to be converted into common shares in poor macroeconomic conditions a comparison of the main effects produced by the countercyclical asset with the simple equity debt capital structure the non countercyclical contingent capital and the countercyclical callable bond is conducted we demonstrate that this type of asset reduces the spread of straight debt and is effective in reducing the asset substitution incentive the reduction of bankruptcy costs is strong only when the countercyclicality feature is removed contingent capital is useful for macroprudential regulation and we show that the countercyclical feature is important depending on priorities moderate the asset substitution incentive or reduce bankruptcy costs

productivity versus elasticity a normalized constant elasticity of substitution production function applied to historical soviet data this study tests the extensive growth hypothesis which would attribute the soviet economic slowdown to low elasticity of substitution and over investment rather than deteriorating productivity growth to circumvent the low availability of data widely applicable new methods for estimating productivity and elasticity of substitution were developed based on the normalized constant elasticity of substitution ces production function one is an extended version of the solow residual calculation and the other is a direct estimation of the time varying parameter normalized ces production function the application of the methods to the soviet data showed a decreasing trend in productivity growth and a low elasticity of substitution of approximately 0 25 the results neither reject nor support the extensive growth hypothesis because of uncertainty in the interpretation of the low elasticity of substitution the results suggest that it is reasonable to assert that both deteriorating productivity growth and low

real income stagnation of countries 1960 2001 abstract this paper examines the phenomenon of real income stagnation in which real income growth is uninterruptedly negligible or negative for a sizable sequence of years we analyse data for four decades from a large cross section of countries real income stagnation is a conceptually distinct phenomenon from low average growth and other features of the growth sequence that have been previously considered we find that real income stagnation has affected a significant number of countries 103 out of 168 and resulted in substantial income loss countries that suffered spells of real income stagnation were more likely to be poor in latin america or sub saharan africa conflict ridden and dependent on primary commodity exports stagnation is also very likely to persist over time countries that were afflicted with stagnation in the 1960s had a likelihood of 75 per cent of also being afflicted with stagnation in the 1990s