spurious volatility in historical unemployment data this paper shows that the stabilization of the unemployment rate between the pre 1930 and post 1948 eras is an artifact of improvements in data collection procedures prewar methods are used to construct postwar unemployment data that are consistent with the historical data the constructed postwar series is nearly as volatile as the pre 1930 unemployment data the constructed postwar data are systematically more volatile than the actual postwar data because the cyclical behavior of the labor force and productivity are misspecified in the construction procedures the relationship between the actual and constructed postwar unemployment series is used to construct new historical data

what do we know about macroeconomics that fisher and wicksell did not the answer to the question in the title is a lot in this essay i argue that the history of macroeconomics during the 20th century can be divided into three epochs

does monetary unification lead to excessive debt accumulation abstract if discretionary monetary policy gives rise to an inflation bias monetary unification boosts the accumulation of public debt the additional debt accumulation harms welfare if governments are sufficiently myopic in the presence of myopic governments debt ceilings play a useful role in avoiding excessive debt accumulation in a monetary union and allowing a conservative independent central bank to focus on price stability with supply shocks monetary unification results in excessive variability of public debt a debt target that constrains stabilization policy helps to prevent this

the long run fisher relation in canada in this paper the existing fisher equation research is extended to time series on the canadian nominal interest rate and inflation to test the validity of the fisher hypothesis and related hypotheses the evidence suggests a significant long run equilibrium between nominal rates and inflation in canada but that this relationship has not been completely stable over the last three decades

rules and discretion with noncoordinated monetary and fiscal policies the time inconsistency of optimal monetary policy is due to the effects of tax distortions thus the issue of how to improve upon the time consistent suboptimal monetary policy is related to that of the coordination of monetary and fiscal policy we present a model with three players the central bark the fiscal authority and wage setters in which distortionary taxes are explicitly modelled we show that binding commitments to monetary rules are not necessarily welfare improving if monetary and fiscal policy are not coordinated we also examine the effects of different degrees of independence of the central bank

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macroeconomic policy in a two party system as a repeated game this paper considers the interaction of two parties with different objectives concerning inflation and unemployment and rational and forward looking wage setters if discretionary policies are followed an economic cycle related to the political cycle results in equilibrium this cycle is significantly different from the traditional political business cycle reputational mechanisms due to the repeated interaction of the two parties and the public or commitments to a common policy rule can improve upon the discretionary outcome by reducing or eliminating the magnitude of the economic fluctuations

the triumph of monetarism the story of 20th century macroeconomics begins with irving fisher in his books appreciation and interest 1896 the rate of interest 1907 and the purchasing power of money 1911 fisher fueled the intellectual fire that became known as monetarism but what has happened to monetarism at the end of the 20th century the short answer is that much of this current of thought is still there but its insights pass under another name we may not all be keynesians now but the influence of monetarism on how we all think about macroeconomics today has been deep pervasive and subtle why then do we today talk much more about the new keynesian economists than about the new monetarist economists i believe that to answer this question we need to look at the history of monetarism over the 20th century one fruitful way to look at the history of monetarism is to distinguish between four different variants or subspecies of monetarism that emerged and for a time flourished in the century just past first monetarism old chicago monetarism high monetarism and political monetarism

central bank independence and public debt policy the various proposals for the institutional design of the european monetary union have drawn fresh attention to the link between monetary and public debt policies this paper explores the strategic interaction between fiscal authorities setting public debt and the central bank controlling monetary policy in the absence of political distortions an optimally designed conservative independent central bank is sufficient to establish the second best in the presence of political distortions or with coordination of monetary and fiscal policy however also a debt target is needed

game theory for central bankers a report to the governor of the bank of england you asked me to review this book for you and try to digest what lessons it might hold for you i can well understand why you delegated this exercise to me you were no doubt already aware that alex cukierman ac is an eminent theoretician who has been applying currently fashionable game theoretic modeling techniques to the study of monetary policy and you may have had some concerns whether you would find the book user friendly in the rest of this review following both your instructions and my own inclinations i shall concentrate primarily upon the lessons and light that his work provides for monetary issues in general and for the conduct of central banking in particular neither you nor i have either the interest or the mathematical competence to assess how far this book represents an advance in the application or technical procedures of game theory as such in that respect the author will no doubt regard this as only a partial and one sided review of his work nevertheless ac hopes that you and other practitioners will read at least some part of the book and he has gone to considerable lengths to try to structure the book into modules of differing levels of technical difficulty and abstraction so that you will read the easy bits thus

keynesian uncertainty and liquidity preference in his economic writings keynes hints that his liquidity preference analysis is informed by the notion of evidential weight that first appears in his earlier treatise on probability this paper reviews keynes s distinction between probability and evidential weight and offers an account of its influence in his later work on the incentive to hold liquid assets alternative representations of the keynesian uncertainty liquidity preference relation are assessed in the light of this discussion james tobin s mean variance approach the keynesian fundamentalist view of paul davidson and the flexibility approach represented by louis makowski copyright 1994 by oxford university press

who wants an independent central bank monetary policy making and politics the costs and benefits of cooperative monetary and fiscal policy are analysed in the framework of a partisan business cycles model it is shown that political parties with different ideologies prefer to choose different arrangements for macroeconomic policy making more specifically right wing parties favour independent central banks more than left wing parties an independent central bank is also the generally preferred option from a social welfare point of view in addition the form of policy making arrangements between the fiscal and monetary authorities is shown to influence the extent of partisan cycles

can reputation resolve the monetary policy credibility problem abstract this paper addresses three problems with reputational equilibria in the barro gordon monetary policy game the multiplicity of equilibria the coordination problem and a chisel prone credibility problem a chisel proof credibility condition ensures that in response to a small deviation from the low inflation rate by the central bank it never pays for the private sector to acquiesce if the private sector can coordinate then a low but nonzero inflation outcome can be supported as a subgameperfect and chisel proof credible noncooperative equilibrium for an atomistic private sector the result can still hold in a game between successive monetary administrations

retrospectives irving fisher s appreciation and interest 1896 and the fisher relation irving fisher s monograph appreciation and interest 1896 proposed his famous equation showing expected inflation as the difference between nominal interest and real interest rates in addition he drew attention to insightful remarks and numerical examples scattered through the earlier literature and he derived results ranging from the uncovered interest arbitrage parity condition between currencies to the expectations theory of the term structure of interest rates

the effect of term structure of interest rates on the demand for money in the united states this note describes an experiment in incorporating the term structure of interest rates rather than a few selected interest rates in a demand for money equation the computed equation is for the united states is based on data for the period from 1873 to 1975 and takes a business cycle phase expansion or contraction as the basic time unit this note has two parents a purely theoretical analysis of money demand by one of us which concludes that the whole term structure of interest rates is relevant to the demand for money friedman 1977 and an empirical test of that conclusion with post world war ii quarterly u s data heller and khan 1979 the success of that test induced us to make a similar test with our phase average data covering a century

the time varying nairu and its implications for economic policy the nairu the unemployment rate consistent with a constant rate of inflation is estimated in this paper as a parameter allowed to vary over time value is determined in an econometric model where the inflation rate depends on its past values demand and supply shocks the nairu estimated for the gdp deflator varies over the past forty years within 5 4 to 6 5 percent its estimated value for the most recent quarter 1996 q2 is 5 6 percent the nairu has declined in recent years in response to global competition immigration other factors weakening labor s bargaining position and the rapidly declining prices of computers and other electronics

irving fisher and the fisher relation setting the record straight william j crowder 1997 1124 1127 states that the fisher hypothesis represents one of the oldest and most basic equilibrium relationships in financial economics the fisher equation encapsulates the simple relationship hypothesized to exist between nominal interest rates and expected inflation first delineated by irving fisher 1930 whose name has been associated with the equation ever since crowder s first sentence is indisputable the other sentence quoted presents a belief that seems almost universal in the literature on the fisher relation as distinct from the history of economic thought literature about irving fisher it credits fisher with one of the few innovations in the area for which he does not deserve and did not claim credit neglects what he did contribute on related topics and views the theory of interest 1930 as his first presentation of the relationship a third of a century later than his classic reformulation of the relation the celebrated equation which appears in fisher s american economic association monograph appreciation and interest 1896 and in an appendix to his the rate of interest 1907 does not appear in the theory of interest where the treatment of the relation in chapters 2 and 19 is verbal supplemented with diagrams but no equation in appreciation and interest 1896 fisher drew attention to statements by william douglass john stuart mill alfred marshall jacob de haas and john bates clark of how expected inflation or deflation affects nominal interest and he made no claim to originality on the point writing at the end of a thirty year period of declining prices fisher referred in his title to appreciation of the purchasing power of money rather than to depreciation fisher was the first to write down the relation as an equation but not the first to articulate the relation while endorsing

keynesian and monetarist theories of the monetary transmission process doctrinal aspects abstract this paper investigates the doctrinal link underlying differences between keynesian and monetarist approaches regarding the transmission mechanism of monetary policy consideration of the post general theory literature reveals that a key aspect of that link concerns the velocity of circulation of money the keynesian emphasis on compartmentalizing the demand for money into active and idle components resulted in a mechanical interpretation of velocity and the associated view that money does not matter the monetarist tradition illustrates the behavioral perspective adduced to velocity via adaptive price expectations by earlier quantity theorists leading to a capital theoretic reformulation of the quantity theory in terms of a stable demand function for money

structural distortions and decentralized fiscal policies in emu the combination of discretionary monetary policy labor market distortions and nominal wage rigidity yields excessive inflation as monetary policy tries to exploit nominal wage contracts to address labor market distortions an inflation target reduces inflation but creates a conflict between monetary policy and discretionary fiscal policy if fiscal policy is set at a higher frequency than nominal wages are preventing the associated excessive accumulation of public debt calls for debt ceilings if countries differ substantially in terms of structural distortions uniform debt ceilings must be complemented by country specific debt targets in order to prevent decentralized fiscal authorities from employing debt policy strategically

chicago harvard and the doctrinal foundations of monetary economics the relationship between milton friedman s monetary economics and the views espoused by chicago and non chicago quantity theorists during the years 1930 36 is examined contrary to recent interpretations chicago economists advanced the efficacy of monetary policy as the means of escaping from the great depression provided that such a policy was implemented by the use of budget deficits to generate monetary expansion the use of the quantity theory of money to provide a theoretical rationale for budget deficits distinguished the chicago economists from other quantity theorists and left them less susceptible to the keynesian revolution the claim that harvard was an important center for monetary research in the early 1930s is refuted

the macroeconomics of the great depression a comparative approach recently research on the causes of the great depression has shifted from a heavy emphasis on events in the united states to a broader more comparative approach that examines the interwar experiences of many countries simultaneously in this lecture i survey the current state of our knowledge about the depression from a comparative perspective on the aggregate demand side of the economy comparative analysis has greatly strengthened the empirical case for monetary shocks as a major driving force of the depression an interesting possibility suggested by this analysis is that the worldwide monetary collapse that began in 1931 may be interpreted as a jump from one nash equilibrium to another on the aggregate supply side comparative empirical studies provide support for both induced financial crisis and sticky nominal wages as mechanisms by which nominal shocks had real effects still unresolved is why nominal wages did not adjust more quickly in the face of mass unemployment this abstract was borrowed from another version of this item

how friedman and schwartz became monetarists during the late 1940s and the early 1950s milton friedman favored a rule under which fiscal policy would be used to generate changes in the money supply with the aim of stabilizing output at full employment he believed that the economy is inherently unstable because of endogenous movements in money supply under a fractional reserve banking system in her work anna schwartz downplayed the role of monetary factors in business cycles and the role of monetary policy as a stabilization tool we show how the joint work of friedman and schwartz from 1948 to 1958 led friedman to view money as the primary mover of the business cycle and underpinned his shift to a rule based on money growth so that discretionary monetary policy would not act as a source of destabilizing shocks the decisive factor in the evolution of friedman s thinking was the empirical confirmation that the great depression had been both initiated and deepened by the fed the largely neglected influence of clark warburton on the evolution of friedman s thinking provides a missing but crucial link in explaining friedman s recognition of the role of monetary factors in the great depression and of the fed s ability to offset the destabilizing effects produced by shifts from deposits into currency under a fractional reserve banking system

does government ideology influence deregulation of product markets empirical evidence from oecd countries this paper examines how government ideology has influenced deregulation of product markets in oecd countries i analyze a dataset of non manufacturing regulation indicators covering energy transport and communication industries in 21 oecd countries over the 1980 2003 period and employ two different indices of government ideology the results suggest that government ideology has had a strong influence on the deregulation process market oriented governments promoted the deregulation of the energy transport and communication industries this finding identifies remarkable differences between leftist and rightwing governments concerning the role of government in the economy and basic elements of political order

loss of monetary discretion in a simple dynamic policy game abstract we analyze a simple policy game featuring monetary credibility problems and argue that loss of monetary discretion is not advantageous two elements form the basis of our analysis firstly we endogenize the source of credibility problems and secondly we consider a dynamic framework where credibility problems are not time invariant by doing this we are able to demonstrate that credibility problems are temporary and in steady state the government has removed these through sound policies a binding policy rule will only serve as an obstacle towards this steady state

hard heads soft hearts tough minded economics for a just society introduction murphys law of economic policy needed hard heads and soft hearts striking a balance between unemployment and inflation do we know how to manage the national economy who will protect us from protectionism cleaning up the environment sometimes cheaper is better it can happen here the improbably saga of tax reform on breaking murphys law

how the world achieved consensus on monetary policy the worldwide progress in monetary policy is a great achievement and especially considering the situation 30 years ago a remarkable success story i describe how the world achieved a working consensus on the core principles of monetary policy by the late 1990s i survey the muddled state of affairs in the 1970s and then ask what happened in federal reserve policy to produce an understanding of the practical principles of monetary policy how did formal institutional support for targeting low inflation abroad follow from an international acceptance of these ideas and how did a consensus theoretical model develop in academia i explain how the modern theoretical consensus known alternatively as the new neoclassical synthesis or the new keynesian model of monetary policy reinforces key advances the priority for price stability the targeting of core rather than headline inflation the importance of credibility for low inflation and preemptive interest rate policy supported by transparent objectives and procedures of course a working consensus does not constitute complete agreement accordingly the conclusion identifies important monetary policy issues that remain to be explored

fiscal policy labor market structure and macroeconomic performance recent work on monetary policy design has investigated the interactions between labor market institutions and monetary policies and their implications for macroeconomic performance this paper argues that this link is not independent of the fiscal policymaking structure

time consistency of monetary policy in the open economy abstract this paper shows that in an open economy time consistency problems are created not only by nominal government debt but also by nominal private debt to foreigners given any external nominal debt inflation redistributes wealth between domestic residents and foreigners a government that cares about the welfare of its residents will be tempted to inflate whenever it or its residents have issued nominal debt to foreigners an analysis of the u s net investment position shows that these international considerations have become increasingly relevant for the united states because the recent external deficits have largely been financed in nominal terms

has government any role in money abstract recent interest in monetary reform has been sparked by the emergence of a world irredeemable paper money system in light of this interest we review the current validity of four good reasons friedman advanced in 1960 to rationalize government intervention we conclude that the forces that produced government involvement in the past will persist deregulation of financial intermediaries is desirable on grounds of market efficiency though it is an open question whether government should continue as lender of last resort we expect that the present world fiat money standard will neither degenerate into hyperinflation nor revert to a commodity standard

the reincarnation of keynesian economics this paper discusses the reemergence of keynesian economics during the past decade it highlights the substantial differences between new keynesian economics and the convictions of early keynesians in particular it points out that new keynesians have adopted many views that were once considered monetarist or classical it concludes that the term keynesian may have outlived its usefulness this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

why a stubborn conservative would run a deficit policy with time inconsistent preferences a conservative government in favor of a low level of public consumption knows that it will be replaced by a government in favor of a larger level of public consumption we show that the resulting level of public consumption is in between the levels the two governments would choose if each were in power both in the present and in the future in particular we show that if the conservative government is more stubborn in a particular sense than the succeeding government the conservative government will borrow more than it would had it remained in power in the future

information expectations and monetary policy keynes s and friedman s complementary lessons for today this paper considers what lessons there might be for our contemporary monetary consensus in keynes s and friedman s respective policy principles i focus first on the expectations issue for both keynes and friedman monetary policy aims at the stabilisation of expectations and in both cases major issues arise for knowledge and uncertainty although each conceives this in a different manner next i deal with the core of monetary policy principles while keynes s approach is at odds with our modern strategy of inflation targeting friedman would warn us that even in this case interest rate manipulation might not be the appropriate approach the analysis concludes with the issue of interest rate determination the issue of intertemporal coordination and financial stability policy principles are always rooted in theoretical investigation keynes s approach is based upon an analysis of intertemporal coordination failures whereas friedman s policy schemes require that financial markets be made perfectly competitive

fiscal activism under inflation targeting and non atomistic wage setting this paper presents a game between a fiscal authority an independent central bank and non atomistic wage setters the effects of fiscal activism and inflation targeting on labour market outcomes are analysed the results suggest that inflation targeting provides incentive for wage restraint moreover real wages are increasing in the degree of fiscal activism as wage setters exploit the response of a fiscal authority seeking to promote employment numerical results suggest that the benefits of targeting inflation are larger when the government pursues an activist policy and therefore that there is some substitutability between fiscal and monetary rules

the challenge of high unemployment it is argued that policymakers macroeconomists and microeconomists should all take high unemployment more seriously the shortcomings of existing theories of unemployment are discussed and a new definition of involuntary unemployment is proposed a model is sketched in which falling aggregate demand leads to keynesian unemployment because labor is heterogeneous and relative wages matter microeconomic theory is criticized for assuming away unemployment and in the process radically changing the answers to some basic questions in trade theory and public finance finally some speculative explanations are offered for the low unemployment now found in states like new jersey and massachusetts this abstract was borrowed from another version of this item

the advantage of tying one s hands ems discipline and central bank credibility abstract it is often argued that the ems is an effective disciplinary device for inflation prone countries in europe since it forces the respective policy makers to pursue more restrictive monetary policies than they would otherwise it is not clear however why these countries should submit themselves to such discipline this paper argues that to answer this question appropriately one must consider that ems membership brings potentially large credibility gains policy makers in inflation prone countries the reason is that not only it attaches an extra penalty to inflation in terms of real appreciation but makes the public aware that the policy maker is faced with such penalty and thus helps to overcome the inefficiency stemming from the public s mistrust of the authorities

the need for improved financial reporting of a developing country energy utility abstract some consideration has been given to regulatory and institutional reforms to facilitate sustainable development in electricity usage in papua new guinea but little attention has been paid to bringing about full compliance of financial reporting expectations of the country s main energy utility examining documentary evidence of the audit reports of the auditor general s office of papua new guinea this study considers the financial reporting compliance of png power for the period 2007 2013 and the means by which compliant reporting may be improved the results of the study reveal that the financial statements of png power are late and receive disclaimers of opinion from the auditor general s office which suggest that png power s stakeholders are not receiving accurate and reliable financial information to make informed decisions about sustainable development of electricity usage and planning in papua new guinea the study reveals that it would take little resources to improve png power s reporting which in turn could enhance national energy policy decision making and energy utility accountability

milton friedman s monetary economics and the quantity theory tradition abstract this article provides a selective review of milton friedman s contributions to monetary economics focusing on five areas in particular the demand for money the joint historical and empirical work with anna j schwartz the theoretical and empirical analyses of the phillips curve monetary policy and monetary dynamics

reflections on milton friedman s contributions to open economy money macro abstract friedman s central contributions to open economy macroeconomics are contained in his essay the case for flexible exchange rates the paper describes equilibrium in an open economy in terms of the flow market for domestic currency and so presents the basic elements of the monetary approach to the balance of payments which mundell and johnson developed later in the decade an application of the argument includes the first definitive statement of the criteria which one finds in the literature on optimum currency areas the essay s model in a better specified more modern form reappears in a monetary history with anna schwartz where it serves as a basis for detailed analysis of particular episodes and as a framework for empirical work which continues to this day

the price of policy risk empirical insights from choice experiments with european photovoltaic project developers managing the transition to a renewable energy future is an important policy priority in many countries solar photovoltaic pv technology is expected to make an important contribution but due to relatively higher cost its growth to date has been largely driven by public policy notably feed in tariffs feed in tariffs have been implemented in various countries however with widely differing outcomes in terms of installed pv capacity previous research indicates that the level of policy risk may be an important driver for differences in renewable energy policy effectiveness more specifically we suggest that investors who take a decision between pv investment opportunities in different countries carefully weigh feed in tariff induced returns against a set of policy risks and choose the country with the most favorable risk return profile we empirically test this model based on a stated preference survey among european pv project developers consisting of 1575 choice decisions by 63 investors the findings of our study demonstrate that risk matters in pv policy design and that a price tag can be attached to specific policy risks such as the duration of administrative processes or uncertainty induced by an approaching capacity cap governments can build on our empirical results to design policies that will be effective in attracting private pv investment while at the same time maintaining efficiency by providing an adequate compensation for policy risk

keeping the keynesian faith this wide ranging discussion takes in the development of macroeconomics and the influence of ideas and events on that development the nature and causes of the great depression keynesianism lessons from the high inflation period of the 1970s the role of macroeconomic policy and the idea of the new economy

money debt and deficits in a dynamic game this paper analyzes a dynamic linear quadratic game between the fiscal and monetary authorities the equilibrium outcome of the game determines the time path of money creation fiscal deficits and public debt the game is solved for different equilibrium concepts the equilibria are then compared and interpreted with reference to alternative institutional arrangements the main results are i coordination increases the speed of adjustment towards the steady state and takes the steady state value of public debt closer to the desired target ii precommitments take the non cooperative equilibrium closer to the coordinated outcome iii increasing the weight that each policymaker assigns to his own private objectives slows down the adjustment process places more burden on the opponent but has ambiguous effects on the steady state value of public debt

monetary policy and policy credibility theories and evidence within the past decade there has been a significant shift in attitude by many western industrialized countries toward the objectives and conduct of national economic policy the events of the 1970s accelerating inflation and stagnant economic growth motivated the view that inflation had created its own stubborn self sustaining momentum that either was not amendable to the influences of conventional macroeconomic policy or else would yield to such influences only at unacceptable costs this led to the development of a program aimed at reestablishing control over prices while minimizing any adverse consequences of anti inflationary policies on output and employment seen as a new monetary experiment the essential ingredients included prudent financial management abstinence from discretionary intervention commitment to intermediate targets and above all prior announcement of these policies evidence of this program and its effects can be found oni the continents of europe north america and latin america and provide further important lessons in anti inflationary management this paper is a survey of recent theoretical developments in monetary policy which among other issues attempt to explain one rationale for this program and the likely consequences thereof to the extent that the new program of monetary and fiscal reform was deliberately made public and impressed upon citizens as an overriding commitment of governments in advance of its execution reflects a prevailing opinion that economic policies are more effective if they are credible to private economic agents this view emphasized forcefully by william fellner 1976 1979 may be seen as being mainly due to the assimilation of the rational expectations hypothesis

regulation competition and liberalization in many countries throughout the world regulators are struggling to determine whether and how to introduce competition into regulated industries this essay examines the complexities involved in the liberalization process while stressing the importance of case specific analyses this essay distinguishes liberalization policies that generally are procompetitive from corresponding anticompetitive liberalization policies

was the monetarist tradition invented in 1969 harry johnson charged that milton friedman invented a chicago oral quantity theory tradition the idea being that in order to launch a monetarist counter revolution friedman needed to establish a linkage with pre keynesian orthodoxy this paper shows that there was a distinct pre keynesian chicago quantity theory tradition that advocated increased government expenditure during the great depression in order to put money directly into circulation this policy stance distinguished the chicago economists from other quantity theorists leaving them less susceptible to the keynesian revolution those who have been critical of friedman s claim that his work derives from the earlier chicago tradition have focused exclusively on friedman s long run empirical specification of money demand friedman s cyclical analysis is shown to be very much in the chicago tradition other connections between friedman s views and the chicago tradition are also discussed

transactions technology and the time consistency of optimal policy abstract in a perfect foresight continuous time model of the macro economy turnovsky and brock 1980 have demonstrated that the government s choice of an optimal policy will be time inconsistent only if it is bound by a k rule regarding the growth of nominal monetary balances this result is shown to be invalid when bonds bear a liquidity yield under such circumstances it is shown that all optimal policies are time inconsistent the conclusion is that the liquidity properties of the government s financing instruments play an important role in determining the consistency properties of its optimal policies

the impact of regulatory governance and privatization on electricity industry generation capacity in developing economies this article assesses whether a regulatory law and higher quality regulatory governance are associated with superior outcomes in the electricity industry the analysis for 28 developing economies over 1980 2001 draws on theoretical and empirical work on the impact of telecommunications regulators in developing economies controlling for privatization and competition and allowing for country specific fixed effects both regulatory law and higher quality regulatory governance are positively and significantly associated with higher per capita generation capacity this positive impact increases for more than 10 years as experience develops and regulatory reputation grows the results are robust to estimating alternative dynamic specifications including error correction models to inclusion of economy governance political risk indicators and to controlling for possible endogeneity biases the article concludes with a short discussion of causality in panel data modeling of governance models and the policy

political shocks and public debt the case for a conservative central bank revisited abstract we explore the dynamics of public debt and optimal institutions in the presence of political shocks arising from electoral uncertainty under commitment optimal stabilization is established by combining an inflation target with a debt target the inflation target should be contingent on the political shocks while the debt target forces the government to fully absorb the political shocks in the period in which it occurs in the absence of such inflation and debt targets but with monetary commitment a conservative central bank enhances stabilization an even more conservative central bank is optimal if monetary policy cannot commit

twentieth century political economy a brief history of global capitalism modern capitalism emerged in the early nineteenth century in western europe and the european offshoots of the americas and oceania recognizing the unparalleled dynamism of the new socio economic system marx and engels predicted in 1848 that capitalism would spread to the entire world by the end of the twentieth century that prediction was confirmed capitalism had indeed become global but only after a tortuous and violent course of institutional change in many parts of the world this paper provides a brief account of the emergence of global capitalism and discusses some of the reasons why the diffusion of capitalism has been so conflictual and violently contested copyright 1999 by oxford university press

in old chicago simons friedman and the development of monetary policy rules this paper examines the different policy rules proposed by henry simons who beginning in the mid 1930s advocated a price level stabilization rule and by milton friedman who beginning in the late 1950s advocated a rule that targeted a constant growth rate of the money supply although both rules shared the objective of eliminating the policy uncertainty emanating from discretion they differed because of the different views of simons and friedman about the stability of secular relationships simons rule relates to modern rules that emphasize the pursuit of price stability as representing optimal monetary policy

monetary union without fiscal coordination may discipline policymakers abstract with benevolent policymakers and fiscal leadership monetary unification reduces inflation taxes and public spending these disciplining effects of a monetary union which become stronger if the number of participants in the union increases are likely to raise welfare two types of arrangements are considered for the union s common central bank ccb making the ccb more conservative and imposing an inflation target on the ccb in contrast to the results of svensson 1997 svensson l e o 1997 optimal inflation targets conservative central banks and linear inflation contracts american economic review 87 98 114 an optimally designed conservative ccb may outperform inflation targeting finally we find that fiscal coordination offsets the disciplining effects of monetary unification hence subsidiarity in fiscal policymaking may enhance welfare

what is new keynesian economics this research was supported by the national science foundation i am grateful to george williams for help with the data and to steven allen laurence ball olivier j blanchard timothy bresnahan charles calomiris dennis carlton robert chirinko russell cooper stanley fischer herschel grossman r glenn hubbard david laidler john leahy assar lindbeck n gregory mankiw david romer julio rotemberg dennis snower john taylor andrew weiss and two anonymous referees for comments on one or more earlier drafts i am also indebted to michael parkin and edmund s phelps for helping to establish the etymology of the phrase new keynesian

independent regulatory agencies and rules harmonization for the electricity sector and renewables in the mediterranean region the paper analyses the existing regulatory framework for the electricity and renewables sectors and the role of regulatory agencies in northern africa and middle east countries under the promotion by the european union using data collected through an original survey directed at regulators ministry departments and energy companies of the southern mediterranean the study is aimed at assessing the extent of agencies independence looking at three main dimensions of independence regulatory instruments available to regulators and decision making autonomy regulators organizational autonomy and regulators accountability results show that those countries having established an independent regulator have a more credible regulatory framework than those countries in which such a body does not exist in particular the analysis shows that turkey croatia and jordan have defined a regulatory framework that limits administrative expropriation and consequently creates an environment more suitable for attracting investments in the electricity and renewables sector on the institutional ground this is probably related with the harmonization of regulatory standards promoted by the european union through the neighboring policy for the jordan case and the membership perspective in the turkish and croatian cases

money in the production function a new keynesian dsge perspective this article checks whether money is an omitted variable in the production process by proposing a microfounded new keynesian dynamic stochastic general equilibrium model in this framework real money balances enter the production function and money demanded by households is differentiated from that demanded by firms using a bayesian analysis our model weakens the hypothesis that money is a factor of production however the demand of money by firms appears to have a significant impact on the economy even if this demand has a low weight in the production process

note on loss of monetary discretion in a simple dynamic policy game jensen 1994a finds that loss of monetary discretion leads to lower welfare however by extending his model we show that if real base money holdings are relatively low as is likely to be the case for modern economics a zero inflation rule may well be preferable to monetary discretion if the emphasis on achieving the output and public spending targets falls a zero inflation rule is more likely to be preferred the increased support for binding policy rules thus conforms with a less tolerant attitude towards inflation

political and monetary institutions and public financial policies in the industrial countries institutions and policies vittorio grilli donato masciandaro and guido tabellini why do countries as similar as the industrialized oecd countries go through such different experience in terms of public deficits and debts or in terms of inflation the answer cannot come from macroeconomic policy responses to different disturbances nor from the principles of optimal taxation but rather from politics this article focuses on the role that particular institutions exert in providing constraints and incentives which shape the actions of policymakers the electoral process and political traditions affect the ability of governments to deal with deficits and mounting debts what seems to matter most it is found is the effect of the durability of governments governments with short horizons act myopically and never quite tackle the hard choices such governments typically exist in countries with an electoral system favouring many small political parties central bank independence promotes low inflation with no apparent costs in terms of real economic performance irrespective of the political institutions in fact there is no link between monetary and fiscal discipline these findings carry powerful implications for countries facing high indebtedness or stubborn inflation but also for the construction of the european economic and monetary union

alternative approaches to analyzing economic data this paper compares two approaches to the analysis of economic data the exclusively econometric approach recommended by hendry and ericsson and the more eclectic approach that we employed in our books monetary history and monetary trends it concludes that the article by hendry and ericsson is mislabeled their article is not in any relevant sense an evaluation of our empirical model of u k money demand rather it uses one equation from our book as a peg on which to hang an exposition of sophisticated econometric techniques insofar as their empirical findings do bear on ours they simply confirm some of our principal results and contradict none jel 036 212

some remarks on uncertainty and economic analysis in an important paper lawson i 985 a discusses the conditions under which it is possible to carry out a coherent economic analysis of a system which is subject to fundamental uncertainty as opposed to mathematical risk the issue is crucial for although the fact of uncertainty can hardly be denied it seems to have been extraordinarily difficult to take this into account in formal economic theory it remains in coddington s i982 phrase a troublesome theme since the subject of uncertainty was broached by keynes and by knight in the interwar period the response by economists has fallen into two main categories those whose major interest has been pushing on with the technical analysis have simply ignored it apparently on operational grounds for example a remarkably frank modern statement of the position is to be found in lucas i98i as quoted by lawson i985a p gog on the other hand those economists who have wished to emphasise uncertainty notably shackle and the post keynesians have been rightly or wrongly accused of analytical nihilism coddington i983 p 6i and have certainly not yet provided an alternative theoretical framework which would be persuasive to the majority of the profession against this background lawson seeks to establish the view as he puts it i 985 a p 9 i o that economic analysis can be constructive whilst admitting that we know less about the future than is typically assumed lawson begins his discussion with a re examination of j m keynes early work on probability theory in the treatise on probability i973 b and on the perceived links 1 985 a p 914 between the treatise and keynes later treatment of uncertainty in the context of economics i973a pp 147 64 1973 d pp 109 23 1 given keynes seminal contributions to the literature we would agree that this focus is appropriate but we wish to argue in the present note that the discussion can be usefully extended by consideration of certain issues raised by keynes which are not emphasised in lawson s treatment particularly important in this context is the position which keynes reached on the basic difference in subject matter between the natural sciences and the so called moral sciences and hence on the appropriateness of what he had described in the treatise i973b pp 276 8 as the atomic and organic assumptions as applied to each this is an issue which has attracted the

an optimum currency area odyssey abstract the theory of optimum currency areas was conceived and developed in three highly influential papers written by mundell 1961 mckinnon 1963 and kenen 1969 those authors identified characteristics that potential members of a monetary union should ideally possess in order to make it feasible to surrender a nationally tailored monetary policy and the adjustment of an exchange rate of a national currency we trace the development of optimum currency area theory which after a flurry of research into the subject in the 1960s was relegated to intellectual purgatory for about 20 years we then discuss factors that led to a renewed interest into the subject beginning in the early 1990s milton friedman plays a pivotal role in our narrative friedman s work on monetary integration in the early 1950s presaged subsequent optimum currency area contributions mundell s classic formulation of an optimal currency area was aimed in part at refuting friedman s strong case for floating exchange rates and friedman s work on the role of monetary policy had the effect of helping to revive interest in optimum currency area analysis the paper concludes with a discussion of recent analytical work using new keynesian models which has the promise of fulfilling the unfinished agenda set out by the original contributors to the optimum currency area literature that is providing a consistent framework in which a country s characteristics can be used to determine its optimal exchange rate regime