transaction costs in the theory of unemployment this paper addresses the problem of accounting theoretically for the persistence of large scale unemployment it briefly reviews some of the well known shortcomings of the keynesian account based upon sticky wages and prices and upon robert clower s 1965 concept of effective demand arguing that these shortcomings can be seen as a failure explicitly to integrate transaction costs into the theory of unemployment the main constructive contribution of the paper is an example of a simple macro model along the lines of robert barro and herschel grossman 1971 in which transaction costs are made explicit an essential part of this example is an externality of the sort suggested by peter diamond 1982 the example provides an account of persistent unemployment with many keynesian features yet without some of the keynesian shortcomings in particular it assumes perfect wage and price flexibility

the political economy of environmental taxes with an aging population this paper develops a two period overlapping generations model with environmental externalities and uncertain lifetimes and studies how two sources of population aging greater longevity and a lower rate of population growth affect the politically determined environmental tax and the quality of the environment it is shown that greater longevity and a lower rate of population growth have entirely different effects on these factors greater longevity has no effect on the environmental tax and has a non positive effect on the environmental quality whereas a lower rate of population growth has a negative effect on the tax and has a positive effect on the quality in addition the political decision making on the tax leads to an inefficient allocation of capital and environmental quality

the measurement of retail output and the retail revolution the computerization of retailing has made price dispersion a norm in the united states so that any given list price or transactions price is an increasingly imperfect measure of a product s resource cost as a consequence measuring the real output of retailers has become increasingly difficult food retailing is used as a case study to examine data problems in retail productivity measurement crude direct measures of grocery store output suggest that the cpi for food at home may have been overstated by 1 4 percentage points annually from 1978 to 1996 this abstract was borrowed from another version of this item

evaluating unemployment policies what do the underlying theories tell us the paper surveys unemployment policies for advanced market economies and evaluates them by examining the predictions of the underlying macroeconomic theories the basic idea is that for the most part different unemployment policy prescriptions rest on different macroeconomic theories and our confidence in the prescriptions should depend at least in part on theories ability to predict some salient stylized facts about unemployment behavior the paper considers four types of policies laissez faire demand management policies supply side policies and structural policies copyright 1995 by oxford university press

political internalization of economic externalities and environmental policy abstract this paper derives the characteristics of endogenous environmental policy in a common agency model of politics and proceeds to show that competition between lobby groups is an important source of internalization of economic externalities our analysis generalizes bhagwati s principle of targeting to the case of distorted political markets moreover we show that the politically optimal structure of environmental taxes incorporates a pigouvian adjustment however since lobby groups care about the distribution of income as well as about efficiency the equilibrium structure of taxes differs considerably from the pigouvian rule

measuring and understanding productivity in uk market services many productivity studies if they cover the service sector commonly enter a caveat that the data are uncertain orjust look at manufacturing this paper attempts to clarify what uk market service sector data are available whether they should be treated as inaccurate and what conceptual problems might make measuring service sectoroutput so hard our overall conclusion is that most problems surround financial intermediation and business services infinancial intermediation national accounts conventions and adjustments make the output data very hard to interpret inbusiness services many of the output measures are employment based elsewhere for example retail and wholesaletrade transport and hotels and restaurants the main problem is in practice lack of collected deflators

selection and monetary non neutrality in time dependent pricing models for a given frequency of price adjustment monetary non neutrality is smaller if older prices are disproportionately more likely to change selection for the age of prices provides a complete characterization of price setting frictions in time dependent models selection for older prices is weaker and non neutralities are larger if the hazard function of price adjustment is less strongly increasing selection is weaker if there is heterogeneity in price stickiness finally selection is weaker if durations of price spells are more variable in particular the taylor 1979 model exhibits maximal selection for older prices whereas the calvo 1983 model exhibits no selection

sectoral patterns of technical change towards a taxonomy and a theory abstract the purpose of the paper is to describe and explain sectoral patterns of technical change as revealed by data on about 2000 significant innovations in britain since 1945 most technological knowledge turns out not to be information that is generally applicable and easily reproducible but specific to firms and applications cumulative in development and varied amongst sectors in source and direction innovating firms principally in electronics and chemicals are relatively big and they develop innovations over a wide range of specific product groups within their principal sector but relatively few outside firms principally in mechanical and instrument engineering are relatively small and specialised and they exist in symbiosis with large firms in scale intensive sectors like metal manufacture and vehicles who make a significant contribution to their own process technology in textile firms on the other hand most process innovations come from suppliers these characteristics and variations can be classified in a three part taxonomy based on firms 1 supplier dominated 2 production intensive 3 science based they can be explained by sources of technology requirements of users and possibilities for appropriation this explanation has implications for our understanding of the sources and directions of technical change firms diversification behaviour the dynamic relationship between technology and industrial structure and the formation of technological skills and advantages at the level of the firm the region and the country

new directions for ui social welfare and vocational education and training i dedicate this address to ging wong ian midgley and craig riddell for bringing cerf the canadian employment research forum into existence and in so doing for producing quantum leaps forward in the policy relevance of labour economics research in this country in the development and use of important micro data bases for analysing labour market behaviour and in the use of labour economics research to inform public policy development

the europe u s productivity gap in a rear view mirror will measurement differences in the services sector output please rise the deterioration in 1995 of europe s productivity performance relative to the u s coincided with the renaissance of the u s statistical system which can be regarded by now as the frontier in official statistics this paper raises the natural question whether the european statistical system was left at the station while its u s counterpart departed making it possible for measurement differences to become the primary suspect for the existing productivity gap my retrospective review of the development path in the services sector productivity statistics suggests that europe lags significantly behind the u s in the services producer price index program both in terms of scope and timing of its implementation accordingly the role of these measurement differences in the post 1995 europe u s productivity story cannot reasonably be ruled out the paper concludes with a structured guess that provides a circumstantial evidence on the benefits generated by the upgrades in the u s services sector statistics the results show that these enhancements led to two kinds of benefits during the post 1995 period a considerable reduction in the contribution of industries that traditionally dampened the aggregate productivity trend combined with a larger contribution of those that generally lifted it this contrasts markedly with europe where the contribution of these two sources remained unchanged in the meantime

is aging harmful to the environment how does aging affect the environment we analyze this question using anoverlapping generations model featuring uncertain lifetimes andenvironmental externalities we show that whether aging is harmful to theenvironment depends on the curvature of utility function which ismeasured by the degree of relative risk aversion we also explore theimplication of the results for environmental policy in an aging society

costly search and recruiting a labor market model with costly search and recruiting is constructed it incorporates many features found in other models and provides new insights into the effects of externalities and transaction costs the model possesses a continuum of equilibria some of which may be pareto ranked with different rates of unemployment despite the multiplicity of equilibria comparative statics results are obtained copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

a near rational model of the business cycle with wage and price inertia this paper presents a model in which insignificantly suboptimal behavior causes aggregate demand shocks to have significant real effects the individual loss to agents with inertial price wage behavior is second order in terms of the parameter describing the shock while the effect on real economic variables is first order thus significant changes in business activity can be generated by anticipated money supply changes provided that some agents are willing to engage in nonmaximizing behavior which results in small losses

how to reduce unemployment a new policy proposal this paper uses a model with a continuum of equilibrium steady state unemployment rates to explore the effectiveness of fiscal policy the existence of multiple steady state equilibria is explained by the presence of search and recruiting costs i use the model to explain the current financial crisis as a shift to a high unemployment equilibrium induced by the self fulfilling beliefs of market participants about asset prices i ask two questions 1 can fiscal policy help us out of the crisis 2 is there an alternative to fiscal policy that is less costly and more effective the answer to both questions is yes

inertial inflation indexation and price stickiness evidence from brazil abstract this paper evaluates the inertial inflation hypothesis for brazil the hypothesis posits that indexation created a feedback mechanism such that one time supply shocks were fully transmitted into permanent changes in inflation a theoretical model is used to show that this outcome is based on the assumption of perfect price flexibility however with price stickiness indexation does not produce inertial inflation the degree of inertia is then compared for two periods one without indexation 1945 1963 and one with indexation 1969 1985 finally vector autoregressive representations are estimated for the latter period allowing for price stickiness the empirical results do not support the hypothesis

monetary targets real exchange rates and macroeconomic stability abstract in this paper i develop a model to determine the optimal degree of flexibility in attaining monetary targets in an economy that is affected by shocks in the labor and financial markets i then simulate the model to assess the optimal degree of monetary policy flexibility in spain a country that has adopted monetary targets rigidly since 1978 i show that the model supports the policy choice of that country i also show that the monetary authorities should attribute more importance to real exchange rate movements in choosing their policies if the spanish economy becomes more open to international trade or if the labor market becomes more flexible

the keynesian recovery although modem macro economic analysis has almost immortalized keynes s is lm framework it has largely ignored the central message of the general theory this is attributable at least in part to keynes s failure to provide a clear concept of market organization as an alternative to the walrasian auction paradigm recent developments however in the theory of search and transaction externalities may ultimately provide that missing concept also work on indeterminacy in rational expectations models may direct the profession s attention away from wage stickiness and back towards the intertemporal co ordination problems that keynes saw as lying at the root of unemployment la reprise keynesienne meme si l analyse macroeconomique moderne a presque immortalis6 le cadre d analyse is lm de keynes elle a en gros ignore le message central contenu dans sa theorie generale cela est attribuable au moins en partie au fait que keynes n a pas propose une notion claire d organisation du marche qui puisse remplacer le paradigme de l encan a la walras cependant certains developpements recents dans la theorie des cofuts de la recherche d un emploi des cofuts de transaction et des effets extemes que ce phenomene entraine pourraient fournir un des ces jours le chainon manquant i1 se pourrait aussi que les travaux sur l indetermination dans les modeles d anticipations rationnelles puissent aider a faire que l attention des membres de la profession economiste cesse d etre braquee sur les problemes de rigidit6 des salaires pour se fixer de nouveau sur les problemes de coordination intertemporelle qui etaient pour keynes au coeur du probleme du chomage it is an honour to be giving the harold innis memorial lecture for 1986 i m especially happy to be giving it in 1986 because this is the fiftieth anniversary of keynes s general theory of employment interest and money and i d like to take this occasion to speak on the subject of the influence keynes s central the 1986 harold innis memorial lecture presented at the canadian economics association meetings in winnipeg 29 may 1986 robert clower david laidler michael parkin and douglas purvis provided useful comments on the original lecture canadian journal of economics revue canadienne d economique xix no 4 november novembre 1986 printed in canada imprime au canada 0008 4085 86 626 641 1 50 canadian economics association this content downloaded from 157 55 39 244 on fri 17 jun 2016 05 48 33 utc all use subject to http about jstor org terms the keynesian recovery 627 message in the general theory has had on contemporary macro economics and the influence it is likely to have in coming years if i had been asked to address this subject five or ten years ago i would have made the lecture very short although the keynesian is lm apparatus was still the main organizing device of all intermediate macro textbooks and of most policy oriented economists keynesian theoretical ideas had virtually disappeared from the leading journals having been displaced by unkeynesian ideas such as perfect wage flexibility perfect foresight the absence of involuntary unemployment the pareto optimality of business cycle fluctuations and so forth keynesian policy advice had become downright disreputable in some academic circles and was clearly on the defensive everywhere as for the status of keynesian ideas in society at large keynes once expressed the wish that some day economists could get themselves thought of as humble competent people on a level with dentists 1930 332 by 1979 keynesian economists had become thought of the way i used to think of my dentist when i was ten years old with a mouth full of cavities and he could see no reason for using novocaine not humble or competent but a menace to society who was all the more dangerous because of his belief that he knew better than others what was good for them and because he now had his hands on some of the crucial policy instruments since 1979 the public status of keynesian ideas has fallen even further the madmen in authority are now distilling their frenzy from other defunct economists but i see signs of some recovery in the status of those ideas within the discipline of economics signs that at least they aren t yet completely dead what i d like to argue is that there is an important aspect of keynes s central message that was never incorporated into the mainstream of macro economic theory that the failure to incorporate this aspect is largely responsible for the decline of keynesian theoretical ideas but that some recent theoretical developments offer hope that that failure may finally be rectified

the effects of annuities bequests and aging in an overlapping generations model of endogenous growth we examine the effects of introducing actuarially fair annuity markets into an overlapping generations model of endogenous growth the complete annuitisation of agents wealth is not in general dynamically optimal the degree of annuitisation that is dynamically optimal depends nonmonotonically on the expected length of retirement and on the pay as you go social security tax rate the government has an incentive to restrict the availability of actuarially fair annuities contracts and can often move the economy from a pay as you go to a fully funded social security system via voluntary contributions to a government sponsored actuarially fair pension today accompanied by reductions in social security taxes tomorrow

limits and cycles of environmental policy the olg model analyzes emissions of an accumulative pollutant in a laissez faire economy and an economy regulated through a government controlled license market the government either takes the price on the license market as given or sells the licenses demanded at the cournot price the first type of regulation is called a liberal environmental policy and the second type a monopolistic environmental policy the forward looking temporary and the stationary equilibria as well as the pollution boundaries of the mechanisms are studied if people can choose between laissez faire and regulation or between the liberal and the monopolistic environmental policy regime then in general no steady state exists instead endogenous policy cycles can alternate between laissez faire and regulation or between liberal and monopolistic regulation

the political economy of pollution taxes in a small open economy abstract this paper develops a positive theory explaining pollution tax policy outcomes in a small open economy the equilibrium tax rate depends on lobby group membership the relative importance of lobbying activities and the tax elasticity of pollution the equilibrium properties are investigated the model is extended to incorporate pollution abatement and a pollution abatement subsidy we show that total pollution may be increasing in the pollution abatement subsidy rate this effect arises because the equilibrium pollution tax rate may be decreasing in the subsidy rate due to altered political influence of the lobby groups in the political equilibrium

intergenerational altruism and the environment we construct an overlapping generations model of pollution externality in which individuals are altruistically linked to their offspring as in barro 1974 it is shown that steady state consumption may be a decreasing function of the intergenerational degree of altruism despite individuals altruism the competitive equilibrium is not optimal we thus study the social optimum and show that it can be decentralized

inequality growth and environmental quality trade offs in a model with human capital accumulation this paper develops a simple endogenous growth model where pollution exposure and vulnerability are unequally spread across the population and growth and distribution are endogenous in this set up we investigate whether trade offs between growth distributional and environmental concerns may emerge we show that a tighter environmental policy reduces income inequality and can improve both growth and total welfare immediate welfare losses though do occur and are larger for countries that start at low levels of environmental quality e g developing countries inegalite croissance et qualite de l environnement arbitrages dans un modele d accumulation de capital humain nous developpons un modele de croissance endogene ou l exposition et la vulnerabilite a la pollution sont inegalement reparties dans la population et ou la croissance et la distribution des revenus sont determinees de facon endogene dans ce cadre d analyse nous cherchons s il existe des arbitrages entre la croissance les inegalites et l environnement notamment dans les pays en developpement nous montrons qu une politique environnementale plus stricte conduit a la fois a une reduction des inegalit es et a une augmentation de la croissance et du bien etre dans un premier temps cependant ce changement de politique conduit a une reduction du bien etre qui est relativement plus importante pour les pays dont la qualite environmentale est initiallement faible e g les pays en developpement

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

is increased price flexibility stabilizing this paper uses john taylor s model of overlapping contracts to show that increased wage and price flexibility can easily be destabilizing because of the mundell effect while lower prices increase output the expectation of falling prices decreases output simulations based on realistic parameter values suggest that increases in price flexibility might well increase the cyclical variability of output in the united states copyright 1986 by american economic association

an overlapping generations model of growth and the environment this article analyzes the potential conflict between economic growth and the maintenance of environmental quality in an overlapping generations model short lived individuals make decisions which have long lasting effects on both factor productivity and the environment the model provides a theoretical explanation of observed correlations between environmental quality and income whereby economic growth is associated first with declines then improvements in environmental quality it suggests circumstances in which multiple pareto ranked steady state equilibria may arise and in which sustained growth of both capital and environmental quality may occur overmaintenance of the environment analogous to dynamically inefficient overaccumulation of capital may emerge copyright 1994 by royal economic society

the phillips curve the persistence of inflation and the lucas critique evidence from exchange rate regimes comment we present evidence from the united states and the united kingdom that the persistence of price inflation is significantly higher under managed exchange rate regimes than under gold based fixed exchange rate regimes these differences are also reflected in expectations augmented phillips curves we use a two country macro model with forward looking price setters to demonstrate that higher monetary accommodation of inflation and exchange rate accommodation of inflation differentials increase inflation persistence the evidence does not contradict this hypothesis it supports the hypothesis of forward looking price setters and highlights the empirical significance of the lucas critique jel e31 e42 f33

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

the transatlantic productivity gap a survey of the main causes abstract during the last 2 decades europe s economy experienced a productivity slowdown whereas the united states us economy exhibited a marked acceleration the result is that since the early 1990s the relative productivity levels between the two regions have continuously diverged leading to a transatlantic productivity gap much of the explanation for this is the strong performance of the us in the so called new economy or knowledge economy and in particular the underinvestment in r d and as a result productivity and innovation has been at the forefront in the european policy agenda however various explanations for the us european union transatlantic productivity gap suggest that the picture is rather more complex than simply the effects on or the result of particular technology driven sectors