diversifying external linkages the exercise of irish economic sovereignty in long term perspective political independence is usually associated with an attempt to reduce economic dependency on the former dominant or colonial power for most of the early period since irish independence the attempt to reduce exposure to the uk was implemented through tariff protection and restrictions on foreign ownership inward orientation eventually ran out of steam culminating in sustained emigration and deep recession in the 1950s the genesis in the mid 1950s of ireland s low corporation tax regime facilitated later trade liberalization and diversified the economy away from the uk these developments facilitated the full convergence on uk and broader western european living standards that was eventually achieved in the 1990s from 1979 the uk would diverge from most of the rest of western europe on exchange rate policy and ireland was forced to choose between the two the resulting difficulties can be ascribed to design flaws in the european monetary project and ireland s failure to recognize the constraints that the new regime imposed

learning by doing vs learning from others in a principal agent model abstract we introduce learning in a principal agent model of output sharing under moral hazard we use social evolutionary learning to represent social learning and reinforcement experience weighted attraction ewa and individual evolutionary learning iel to represent individual learning learning in the principal agent model is difficult due to the stochastic environment the discontinuity in payoffs at the optimal contract and the incorrect evaluation of foregone payoffs for iel and ewa social learning is much more successful in adapting to the optimal contract than standard individual learning algorithms a modified iel using realized payoffs evaluation performs better but still falls short of social learning

bankable permits for the control of environmental pollution abstract intertemporal trading of emission permits banking is often identified as one of three promising market mechanisms for controlling pollution along with averaging and trading surprisingly the efficiency properties of permit banking systems have not been investigated using a simple optimal control model this paper investigates firms incentives for banking or borrowing emission permits and compares the emission and output streams firms would choose with the socially optimal solution we find that in many cases firms will suboptimally choose excessive damage and output levels in early periods and correspondingly too few in later periods if given the opportunity to freely move emissions between time periods we propose a simple alternative trading scheme we term modified banking that counters this problem and should be no more difficult for an environmental authority to implement than a straigth banking system

arbitrage and existence of equilibrium in infinite asset markets this paper develops a framework for a general equilibrium analysis of asset markets when the number of assets is infinite such markets have been studied in financial economics in the context of asset pricing theories a distinctive feature of an equilibrium model of asset markets is that investors portfolio choice sets are typically not bounded below we prove that an equilibrium exists under a condition that markets are arbitrage free the markets are arbitrage free if there is a price system under which no investor has an arbitrage opportunity the concept of an arbitrage opportunity used in this paper differs from the standard concept on an arbitrage portfolio in financial markets which is a portfolio that guarantees a non negative payoff in every event a positive payoff in some event and has zero price we provide an extensive discussion of concepts of an arbitrage opportunity

learning by doing and the introduction of new goods a dynamic general equilibrium model is developed in which goods are valued according to the characteristics they contain the set of goods produced in any period is endogenously determined and learning by doing is the force behind sustained growth it is shown that the set of produced goods changes in a systematic way over time with goods of higher quality entering each period and those of lower quality dropping out the model is then used to study the effect of introducing a traditional sector in which there is no learning

a structuralist perspective on the role of technology in economic growth and development abstract this paper presents an integrated view of what is termed a structuralist perspective to economic growth and development that stands in contrast to the mainstream orthodox or neoclassical view in the structuralist view structural changes are causes of growth rather than outcomes of a process of capital accumulation and of rising per capita incomes moreover the growth process may be punctuated by periods of discrete shifts in resource allocation creative destruction and growth acceleration rather than being smooth throughout structural changes need not be automatic they require a skill specific infrastructure of new capabilities which when established generate new comparative advantages market failures may be pervasive due to problems of human capital accumulation critical mass and discrete choice among alternative growth paths thus in addition to creating a favorable environment for business and assuring through macroeconomic policy adequate investment successful growth may require an adequate industrial and technological policy particularly at nodes of structural change the paper surveys the structuralist insights appearing in the literature starting with the early postwar economic development literature and including recently developed formal models it also proposes a kinked or scalloped aggregate production function as a simple tool for structuralist analysis

fiscal policy banks and the financial crisis this paper studies the effectiveness of euro area ea fiscal policy during the recent financial crisis using an estimated new keynesian model with a bank a key dimension of policy in the crisis was massive government support for banks that dimension has so far received little attention in the macroeconomics literature we use the estimated model to analyze the effects of bank asset losses of government support for banks and other fiscal stimulus measures in the ea our results suggest that support for banks had a stabilizing effect on ea output consumption and investment increased government purchases helped to stabilize output but crowded out consumption higher transfers to households had a positive impact on private consumption but a negligible effect on output and investment banking shocks and increased government spending explain half of the rise in the public debt gdp ratio since the onset of the crisis

political credit cycles the case of the euro zone we study the mechanisms through which the adoption of the euro delayed rather than advanced economic reforms in the euro zone periphery and led to the deterioration of important institutions in these countries we show that the abandonment of the reform process and the institutional deterioration in turn not only reduced their growth prospects but also fed back into financial conditions prolonging the credit boom and delaying the response to the bubble when the speculative nature of the cycle was already evident we analyze empirically the interrelation between the financial boom and the reform process in greece spain ireland and portugal and by way of contrast in germany a country that did experience a reform process after the creation of the euro

managerial skills acquisition and the theory of economic development micro level studies suggest managerial skills play a key role in the adoption of modern technologies in this paper we model the interactive process between on the job managerial skill acquisition and the adoption of modern technology we use the model to illustrate why some countries develop managerial skills quickly and adopt best practice technologies while others stay backwards the model also explains why managers will not migrate from rich countries to poor countries as would be needed to generate convergence finally we show why standard growth accounting exercises will incorrectly attribute a large proportion of managerial skills contribution to tfp and we quantify the importance of this bias aq2

international capital flows and the boom bust cycle in spain we study the joint dynamics of foreign capital flows and real activity during the recent boom bust cycle of the spanish economy using a three country new keynesian model with credit constrained households and firms a construction sector and a government we estimate the model using 1995q1 2013q2 data for spain the rest of the euro area rea and the rest of the world we show that falling risk premia on spanish housing and non residential capital a loosening of collateral constraints for spanish households and firms as well as a fall in the interest rate spread between spain and the rea fuelled the spanish output boom and the persistent rise in foreign capital flows to spain before the global financial crisis during and after the global financial crisis falling house prices and a tightening of collateral constraints for spanish borrowers contributed to a sharp reduction in capital inflows and to the persistent slump in spanish real activity the credit crunch was especially pronounced for spanish households firm credit constraints tightened later and more gradually and contributed much less to the slump

computing equilibria when asset markets are incomplete existence of equilibrium with incomplete markets is problematic because demand functions are typically not continuous discontinuities occur at prices for which a marketed asset suddenly becomes redundant we show that this discontinuity disappears if we allow an agent in the economy to introduce a new asset when such redundancies occur this enables us to prove existence with incomplete markets using a standard path following argument hence available algorithms for path following in r k can be applied to compute equilibria in the gei case we demonstrate this by computing equilibrium for a numerical example

the precious bane abstract are natural resources harmful to growth we address this question using a two sector endogenous growth model in which human capital is the engine of growth by increasing the rewards to unskilled labor natural resources make schooling more expensive as long as the intertemporal elasticity of consumption substitution is not too high this slows down human capital accumulation and growth the presence of production spillovers from human capital however implies that a planner could react to a resource boom by increasing human capital accumulation even though the decentralized solution yields the exact opposite the paper also shows that as the production complementarity between natural resources and unskilled labor declines the growth effects of natural resources become increasingly sensitive to whether or not there is free trade in goods the empirical evidence lends support to the main channel natural resources to human capital to growth that is suggested in the paper

fiscal policy in a financial crisis standard policy versus bank rescue measures a key dimension of fiscal policy during the financial crisis was massive government support for the banking system the macroeconomic effects of that support have so far received little attention in the literature this paper fills this gap using a quantitative dynamic model with a banking sector our results suggest that state aid for banks may have a strong positive effect on real activity bank state aid multipliers are in the same range as conventional fiscal spending multipliers support for banks has a positive effect on investment while a rise in government purchases crowds out investment

from sick man of europe to economic superstar germany s resurgent economy in the late 1990s and into the early 2000s germany was often called the sick man of europe indeed germany s economic growth averaged only about 1 2 percent per year from 1998 to 2005 including a recession in 2003 and unemployment rates rose from 9 2 percent in 1998 to 11 1 percent in 2005 today after the great recession germany is described as an economic superstar in contrast to most of its european neighbors and the united states germany experienced almost no increase in unemployment during the great recession despite a sharp decline in gdp in 2008 and 2009 germany s exports reached an all time record of 1 738 trillion in 2011 which is roughly equal to half of germany s gdp or 7 7 percent of world exports even the euro crisis seems not to have been able to stop germany s strengthening economy and employment how did germany with the fourth largest gdp in the world transform itself from the sick man of europe to an economic superstar in less than a decade we present evidence that the specific governance structure of the german labor market institutions allowed them to react flexibly in a time of extraordinary economic circumstances and that this distinctive characteristic of its labor market institutions has been the main reason for germany s economic success over the last decade

twin deficits squaring theory evidence and common sense in this paper we reconsider the twin deficit hypothesis that fiscal shocks generating budget deficits also worsen external trade both from a theoretical point of view and by analyzing data for australia canada the uk and the us first we assess the joint dynamics of budget and trade deficits along the business cycle uncovering a strikingly recurrent s shaped relation between the two the correlation is actually negative suggesting twin divergence this observation however cannot rule out the possibility that government spending expansions and or tax cuts may cause trade deficits as the overall correlation is likely to be dominated by cyclical factors second we reconsider the transmission of government spending in a standard two country two good model we find that openness and the persistence of fiscal shocks are major determinants of the magnitude or even sign of the response of the trade balance to fiscal shocks for a given persistence of the fiscal shock the closer an economy the larger the crowding out effect on investment the lower the deterioration of the trade balance third we take this insight to the data investigating the transmission of fiscal shocks in a var framework in the four countries in our sample our empirical findings tend to support our view in the us and australia which are relatively less open than canada and the uk and where government spending shocks are less persistent we find that the external impact of fiscal policy is rather limited instead private investment responds substantially the reverse is true for canada and the uk these findings confirm and put into perspective earlier results whereas fiscal expansions in the us are found to have on average a negligible effect on the country s trade balance however we emphasize that these results are consistent with a call for a us fiscal retrenchment to address global imbalances the impact of budget cuts on the us external trade is muted by their positive effect on domestic investment strengthening the us ability to generate resources against future interest and debt repayment

impact of an emissions trading scheme on australian households a computable general equilibrium analysis abstract following the international commitment to tackle climate change issues many countries have introduced climate change policies to reduce emission levels australia also expects to follow the international pathways to implement a climate change policy to curb its greenhouse gas emissions in this context the former labor government in australia intended to switch its carbon tax policy to an emissions trading scheme ets after 2 years of its initial operation to achieve an emission target of 5 per cent below the 2000 level by 2020 by employing a computable general equilibrium model and a social accounting matrix database this article analyses the potential impacts of an ets with various revenue recycling options on australian households results show that an emission permit price of a 20 per tonne of co2 e would help australia to achieve the 2020 emission reduction target this permit price is likely to have a small contraction in australia s real gdp i e about 0 3 per cent and in real household consumption i e about 0 19 per cent the price of electricity is projected to increase by 13 per cent the revenue recycling options seem to create an improvement in the macro economy and there is a trade off between economic efficiency and equity in the australian economy with compensations the personal income tax reduction policy results in an economic efficiency with a positive change in real aggregate household consumption whereas providing an equal lump sum transfer brings benefits equally for all household groups increased government transfers based on recipients current pension and allowance rates generate more welfare gains for middle income household groups

productivity shocks budget deficits and the current account abstract productivity shocks and budget deficits are considered to be two key determinants of the current account in order to assess formally the role of both factors in driving current account movements the present paper extends the standard intertemporal model of the current account to allow for non ricardian household behavior testable cross equation restrictions for the current account and investment are derived by drawing on the distinction between country specific and global innovations to productivity as well as to the government budget we test the restrictions of the model against time series data for 21 oecd countries and find evidence in support of the model

protection of property rights and growth as political equilibria abstract this paper presents a survey of the literature on property rights and economic growth different theoretical mechanisms that relate property rights to economic development are discussed lack of protection of property rights can result in slow economic growth through different channels expropriation of private wealth corruption of civil servants excessive taxation and barriers to adoption of new technologies the origins of property rights are also considered different theories are illustrated but more attention is paid to the social conflict view and its success and limitations the second part of the paper illustrates relevant empirical works on property rights and growth

learning matching and growth we examine an endogenous growth model in which market frictions are an integral part of the economic environment workers invest in education when young which raises their productivity onice employed the level of schooling also acts as a key determinant of the rate of economic growth by influencing workers ability to accumulate additional human capital on the job once schooling is completed workers search for employment the division of the surplus between vacancies and searching workers is characterized as is the optimal level of education the economy may display multiple steady state growth paths

us trade balance dynamics the role of fiscal policy and productivity shocks and of financial market linkages abstract this paper examines whether domestic and foreign productivity and fiscal policy changes can account for the wide swings in us net exports during the period 1975 1991 a two country real business cycle model is used for that purpose the model is simulated using data on productivity government purchases and taxes for the g7 countries a version of the model with incomplete asset markets in which only bonds can be used for international capital flows tracks the us trade balance fairly closely provided permanent country specific productivity shifts are assumed the simulations suggest that us productivity changes were the main source of fluctuations in us net exports

competitive equilibria in production economies with an infinite dimensional commodity space the existence of competitive equilibrium is established for economies with a produc tion sector and an infinite dimensional space of commodities the cru cial assumptions which are required beyond those required in the fin ite dimensional setting are bounds on marginal rates of substitution and marginal rates of transformation copyright 1987 by the econometric society

dissecting the dynamics of the us trade balance in an estimated equilibrium model in an estimated two country dsge model we find that efficiency shocks specific to investment account for more than half of the forecast variance of cyclical fluctuations in the us trade balance both domestic and foreign investment specific shocks have a substantial impact on the variability of the imbalance total factor productivity shocks do not matter for the variance and even lead to procyclicality in the trade balance

arbitrage and the existence of competitive equilibrium a general equilibrium model of markets for commodities and assets is considered the author develops the notion of a price system that admits no arbitrage opportunity and demonstrates the fundamenta l role of this concept for the theory of the existence of a competiti ve equilibrium a price system admits no arbitrage opportunity for a consumer if every bundle of desired commodities has a positive market value the author proves that the existence of a price system that a dmits no arbitrage opportunity for all consumers is sufficient for th e existence of an equilibrium copyright 1987 by the econometric society

information technology and the changing workplace in canada firm level evidence recent advances in information and communication technology ict have had dramatic effects on both individual and workplace performance use of computers and the internet as general purpose technologies has spread rapidly across all sectors of the economy transforming business organization increasing competition and fostering innovation understanding the influence of ict on the dynamics of the workplace requires information on both demand and supply sides of the labor market but it is only recently that the study of both sides of the market has become feasible using linked employer employee data in this article we investigate the effects of new technology on firm productivity using the rich canadian workplace and employee survey for the period 1999 2003 we apply a mixed regression model which includes both firm and employee characteristics as well as their interactions with computer use our model allows us to control for unobserved heterogeneity at higher levels along many dimensions our findings indicate that computer use by employees has a positive and significant effect on the productivity of firms that the effect has not lost its momentum and that spillover effects are not significant moreover human capital enhances the effect of computer use on productivity but organizational changes do not interact with computer use in our sample period copyright 2011 the author 2011 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

human capital accumulation and endogenous public expenditures in this paper we present an overlapping generations model where individuals accu mulate human capital through formal schooling we model the role of the public sector in schooling as one of collecting taxes from households and providing inputs to the learning technology public expenditures on schools are determined endogenously under plausible restrictions our model s predictions qualitatively match the observations on schooling pub lic expenditures on education and student teacher ratios jel classification el 3 e62 accumulation de capital humain et depenses publiques endogenes dans ce memoire les auteurs presentent un modele de generations qui se chevauchent ofu les individus accumulent du capital humain via l education formelle le r6le du secteur public dans l education est defini comme celui de collecteur d imp6ts aupres des menages et de fournisseur d intrants dans la technologie d apprentissage les depenses publiques en education sont determinees de maniere endogene a partir de restrictions plausibles les predictions du modele s arriment qualitativement aux observations sur le monde scolaire aux depenses publiques en educa tion et aux ratios 6leves enseignants

on marginal cost pricing with given tax subsidy rules we provide an existence proof for generalized marginal cost pricing with given tax subsidy rules the novelty is that our approach allows for economic environments where all the generalized marginal cost pricing equilibria are inefficient in the aggregate an example is recalled in order to suggest how non pathological these environments are

returns to scale productive efficiency and optimal firm size evidence from taiwan s firm data by using taiwan s census firm data this paper estimates and tests the variable returns to scale hypothesis for aggregate manufacturing and two digit industries an efficiency measure is constructed to further examine the size efficiency relations among two digit industries analysis indicates that increasing returns exist at the aggregate manufacturing level and its magnitude is higher for exporting firms than for non exporting firms moreover trade is beneficial only for small firms however the property of increasing returns diminishes for most of the industries at the two digit level particularly for the exporting firms this sharp comparison between aggregate and two digit level results suggests that trade is conducive to productivity and provides an indication of the specific form of technology spillovers among firms and across industries further investigation of the relationship between productive efficiency and firm size renders the result that optimal firm size is small for exporting firms i

a model of intertemporal emission trading banking and borrowing abstract this paper provides a general treatment of emission trading banking and borrowing in an intertemporal continuous time model using optimal control theory the decentralized behavior of firms is shown to lead to the least cost solution attainable under joint cost minimization explicit solutions for the time paths of emissions and permit prices are derived when firms are allowed to both bank and borrow and when firms are only allowed to bank emission permits the policy implications of emission banking and borrowing are discussed

finite lifetimes and growth abstract in this paper we study the long run growth property of overlapping generations models it is shown that in one sector models with convex technologies the asymptotic growth rate must be zero this results because the young do not have sufficient income to purchase a large capital stock thus a policy of income redistribution to the young can generate growth even if financed by income taxation additionaly it is shown that two sector models and one sector models with nonconvex technologies are consistent with growth

the production life cycle tasks in production have different dynamics in comparison with individual products we build a general equilibrium model where three forces offshoring learning and wage interact to determine how production fragmentation evolves over time we show that the production process follows a life cycle its fragmentation emerges deepens and converges our model is stylized and versatile which can be used to tractably characterize the loci of global output productivity welfare and value added distribution as production fragmentation progresses this article is protected by copyright all rights reserved

welfare effects of a monetary union the role of trade openness this paper evaluates the welfare effects of a monetary union mu compared to a e oating exchange rate regime using a quantitative business cycle model of a two country world with sticky prices it is assumed that under a e oat there are shocks to the uncovered interest rate parity uip condition these shocks are shown to have a negative effect on welfare the detrimental effect is stronger the higher the degree of trade openness a mu eliminates uip shocks and it may thus raise welfare the welfare gain from mu is positively linked to openness jel e4 f3 f4

the exchange rate in a dynamic optimizing business cycle model with nominal rigidities a quantitative investigation this paper studies a quantitative dynamic optimizing business cycle model of a small open economy with staggered price and wage setting the model exhibits exchange rate overshooting in response to money supply shocks the predicted variability of the nominal and especially of the real exchange rate is noticeably higher than in standard real business cycle models with flexible prices and wages a positive domestic money supply shock is predicted to lower the domestic interest rate raise gdp and trigger a depreciation of both the nominal and real exchange rate increases in domestic productivity and in the world interest rate are also predicted to induce a nominal and real exchange rate depreciation 2001 elsevier science b v all rights reserved

investment shocks and business cycles abstract the origins of business cycles are still controversial among macroeconomists this paper contributes to this debate by studying the driving forces of fluctuations in an estimated new neoclassical synthesis model of the u s economy in this model most of the variability of output and hours at business cycle frequencies is due to shocks to the marginal efficiency of investment imperfect competition and to a lesser extent technological frictions are the key to their transmission although labor supply shocks explain a large fraction of the fluctuations in hours at very low frequencies they are irrelevant over the business cycle this finding is important because the microfoundations of these disturbances are widely regarded as unappealing

the size of human capital externalities cross country evidence human capital accumulation is usually held to generate positive externalities however the empirical evidence on human capital externalities has been scarce and inconclusive the missing evidence appears to be caused by misleading comparisons between private and social rates of return by incorrect interpretations of regression coefficients or by an inappropriate level of aggregation our own estimates point to relatively robust empirical evidence for a human capital externality that is about twice as large as a benchmark estimate which is derived from a standard parameterization of a simple growth model we ponder a possible causal link from human capital to social capital in the context of alternative views of long run development and argue that the grand transition view paldam 2002 is compatible with the existence of a large human capital externality

increasing returns in infinite horizon economies this paper shows that in a general equilibrium model with an infiniite holizonl in whichi productionl may exhibit increasing returns to scale or non conivexities marginal cost pricing equilibria exist anid are essential that is stable witlh respect to small perturbationis of the economily as in many important models of mairket imperfections marginal cost pricinig equilibria need not be pareto optimal in the presence of noni convexities so the systematic approaches to equilibrium analysis in infinite dimenisionial commodity spaces which rely crucially oln the first welfare theorem cainnot be used instead this paper introduces leray schauder degree theory the extension of degree theor y to banacih and locally convex spaces as the natural methodology for showinlg that equilibria exist and for anialyzing qualitative features of equilibria such as local uniqueness or essentiality

catch up in turn in a multi country international trade model with learning by doing and invention abstract we consider how the world income distribution evolves over time when both learning by doing and invention are the engines of economic growth and when countries interact with each other through international trade the main findings are i catch up is possible ii in the three country model transitional dynamics are much richer than in the two country model in particular catch up may occur in turn there may be a first stage in which the middle income country grows fastest closing the gap with the richest country but increasing the income difference with the poorest followed by a second stage where the poorest country catches up

the economics of product variety a survey demand for variety may arise from a taste for diversity in individual consumption and or from diversity in tastes even when each consumer chooses a single variant the full degree of variety potentially demanded will not in general be supplied because scale economies even to a small degree mean that the potential welfare or revenue gain from greater variety must be balanced against the lower unit production costs with fewer variants the economics of product variety consists essentially in analysing the effect of this balance in different situations and comparing the degree of product variety for different market structures with each other and with the optimum the survey commences with the work on market structures with single product firms generalized monopolistic competition tracing modern developments in both the chamberlinian and hotelling traditions the latter has been particularly fruitful due to the expansion of the original locational ideas into virtual spaces in product characteristics the emphasis in recent work on product variety has been on multiproduct firms in both monopolistic and oligopolistic structures including strategic market preemption although most work has been in a full information context there have been advances in product variety under imperfect information either by consumers to properties of the firms products or firms as to consumers demands

opportunity cost for free allocations of emissions permits an experimental analysis an important feature of emissions trading is how emissions permits are allocated the choice between an auction and free allocation should not influence firms production choices nor consumer prices according to economic theory however many parties expect the method of allocation to affect product prices this paper describes an experimental investigation into price determination under a cap and trade program with different allocation methods participants initially display diverse pricing strategies however given a simple economic setting in which earnings depend on behavior we find that subjects learn to consider the opportunity cost of permits and overall behavior moves toward the economic prediction

the us market for so2 permits policy implications of the low price and trading volume abstract the price of so2 permits and the volume of trading under the us acid rain program have been lower than expected this can be explained by the creation and distribution of more permits than were initially authorized by the sale of permits by high cost abaters who are subject to more stringent local emission constraints or who have irreversibly invested in high cost abatement technologies and by the deregulation of the natural gas and railroad industries which in combination with incentives for cost cutting under the new market approach to so2 control has lowered marginal costs of abatement curves and made them more uniform across powerplants the low price of permits and low trading volume are evidence that market approaches to pollution control can be more cost effective than command and control regulations the effect of public policies and technological changes on the allowance market are usefully examined in the context of an ideal market in which the equilibrium price of allowances equals the marginal cost of abatement of individual powerplants using recent data from coggins and swinton 1996 we are able to explain the current price of permits with some accuracy

r d in a model of search and growth just how important a determinant of economic growth is the efficacy with which markets are organized it is clear that in order to answer this question it is necessary to have both a well articulated theory of economic growth and a precise notion of what it means for one market to be better organized than another the newly developed theory of endogenous growth pioneered by among others paul m romer 1986 robert e lucas 1988 nancy stokey 1988 and gene grossman and elhanan helpman 1991 has equipped economists with a rigorous microeconomic foundation of the growth process since its original inception research in this area has bifurcated one strand of work has continued to emphasize the importance of capital accumulation both physical and human in environments in which agents are competitive price takers the other strand has a distinctly neo schumpeterian flavor in which firms are price setters and purposive innovative activity leads to technological advancement but what of the role played by market organization the growth literature has remained relatively silent on this issue the reason is that the canonical growth model is one in which trade either competitive or monopolisticly competitive is coordinated by the walrasian auctioneer given that ex hypothesi trade is frictionless it is meaningless to use this framework to discuss issues pertaining to improvements in market organization however beginning with the seminal contributions of peter diamond 1982 dale t mortensen 1982 and christopher pissarides 1985 economists have begun to construct models that dispense with the auctioneer s coordinating function in this setting it is possible to make precise the notion of an improvement in market efficacy since search and bargaining frictions are explicitly incorporated as an integral part of the trading environment yet it is only very recently that this literature has begun to explore the consequences for perpetual economic growth

learning by doing and the choice of technology the role of patience if agents learn by doing and are myopic less advanced firms might adopt new technologies while more advanced firms would stick with the old technology this kind of overtaking can also occur if agents are forward looking and have high discount rates however overtaking never occurs if agents are sufficiently patient a finite discount rate increases the set of states at which agents adopt new technologies so more patient agents tend to upgrade their technology more frequently journal of economic literature classification numbers d92 o14 o33

the recent boom bust cycle the relative contribution of capital flows credit supply and asset bubbles abstract we use an estimated open economy dsge model with financial frictions for the us and the rest of the world to evaluate various competing explanations about the recent boom bust cycle we find that the savings glut hypothesis is insufficient for explaining all aspects of the boom in the us relatively strong tfp growth and expansionary monetary policy are also not able to explain fully the volatility of corporate and in particular residential investment we identify bubbles in the stock and housing market as crucial concerning the downturn in 2008 2009 the fall in house prices and residential investment only plays a minor role mortgage defaults have more explanatory power especially in a specification of the model with a segregated equity market finally the bursting of the stock market bubble was at least as important in this recession as in 2001 because of various negative shocks hitting the economy at the same time in 2008 2009 and continued positive technology growth not only the real interest rate declined but inflation fell rapidly and left insufficient room for monetary policy to play a similar stabilising role as in previous recessions

edgeworth equilibria in production economies abstract an edgeworth equilibrium is an allocation that belongs to the core of every n fold replica of the economy in this work we study the properties of edgeworth equilibria for economies with production and infinite dimensional commodity spaces under some relatively mild conditions we establish among other things that 1 edgeworth equilibria exist 2 every edgeworth equilibrium is a quasi equilibrium and 3 an allocation is an edgeworth equilibrium if and only if it can be decentralized by a price system

current accounts and financial flows in the euro area abstract we construct a new database of bilateral financial flows among euro area countries and their major world partners and explore the role of financial links in the accumulation and then adjustment of current account imbalances in the euro area the data show that the geography of financial flows can differ quite markedly from trade flow patterns and suggest that the nexus between surpluses in the core with deficits in the periphery went along financial rather than trade interlinkages in particular the data document the dominant role of core countries in financing the euro area periphery s current account deficits before the financial crisis both directly and through intermediating financial flows from outside of the euro area most of this financing took the form of debt instruments following the withdrawal of private financing from core countries during the crisis the ecb mediated funding and other official flows helped the periphery to refinance its liabilities and smoothen the external adjustment

what drives the german current account and how does it affect other eu member states we estimate a three country model using 1995 2013 data for germany the rest of the euro area rea and the rest of the world row to analyse the determinants of germany s current account ca surplus after the launch of the euro our results suggest that the german surplus reflects a succession of distinct shocks mono causal explanations of the surplus are thus insufficient the most important factors driving the german surplus were positive shocks to the german saving rate and to row demand for german exports as well as german labour market reforms and other positive german aggregate supply shocks the key shocks that drove the rise in the german ca tended to worsen the rea trade balance but had a weak effect on rea real activity our analysis suggests these driving factors are likely to be slowly eroded leading to a very gradual reduction of the german ca surplus an expansion in german government consumption and investment would raise german gdp and reduce the ca surplus but the effects on the surplus would be weak

endogenous growth in multisector ramsey models in this paper i give sufficient conditions for the existence of endogenously growing optimal paths in a general multisector ramsey model of optimal capital accumulation the key assumption involves the existence of a positive vector of capital stocks which admits strictly positive consumption and expansibility in inverse proportion to the utility discount factor if the technology set contains the ray through such a point in addition to standard convexity and interiority assumptions then optimal paths grow without bound from any strictly positive initial stocks the result unifies a number of existing models in the growth theory literature within both capital theory and macroeconomics there has been a resurgence of interest in models of capital accumulation which display endogenous growth models without time dependent technologies which nonetheless have the property that the optimal or equilibrium paths of capital and consumption which they generate grow without bound it is thus surprising that little work has been done in establishing conditions which guarantee this property a recent exception is jones and manuelli 1990 working in a variant of the standard one sector ramsey model of optimal growth earlier gale and sutherland 1968 also proved a growth result for an undiscounted one sector ramsey model by and large though this research program has been carried out in a series of particular examples with little suggestion of a general framework for achieving endogenous growth this essay attempts to fill that gap at least for models which may be cast in the convex ramsey optimal growth framework 2 the results below provide sufficient conditions for the existence of endogenously growing optimal paths in a convex multisector ramsey model of optimal capital accumulation thus unifying a number of particular examples in the growth literature as well as providing simple conditions for guaranteeing growth in more complex models by way of motivation consider the simplest of all endogenous growth models the one sector linear model or a k model used by rebelo 1991 there is a single all purpose consumption investment good an infinitely lived representative con

learning by doing changes in industrial structure and trade patterns and economic growth in a small open economy abstract this paper presents a simple dynamic model which allows for changes in both industrial structure and trade patterns during the process of economic growth learning by doing in the producer service sector is the source of endogenous growth interesting interdependences between economic growth and the structure of the economy are obtained economic growth is accompanied by changes in industrial structure and comparative advantage while changes in industrial composition of the manufacturing sector accelerate economic growth furthermore this paper analyzes the relationship between economic growth and the endowment structure and the effects of two types of technology transfers on economic growth

the macroeconomics of dr strangelove the cold war has ended and president george bush has declared the beginning of a 4 new world order this new world order has so far been characterized by the intensification of regional disputes civil strife and civil war its implications for arms proliferation and arms control are still unclear this paper considers both superpower conflict and the transition to international cooperation in the context of a model that emphasizes intergenerational linkages specifically we explore the weapons accumulation decisions of two adversarial countries in the context of a deterrence conflict initiation game embedded in an overlapping generations model the demographic structure of the overlapping generations model allows the analysis of both between and withincountry intergenerational external effects caused by past weapons accumulation decisions while the two country setting permits consideration of international external effects caused by the adversary country s current weapons accumulation decision we analyze the noncooperative equilibrium and then consider the effects of a regime change characterized by international cooperation but where the intergenerational externali

the effects of government purchases shocks review and estimates for the eu in this article we review the theoretical consequences of government purchases shocks for both closed and open economies followed by a discussion of the empirical literature next we provide our own estimates for the eu countries we find that an increase in government purchases raises output consumption and investment and reduces the trade balance however the stimulating effect is weaker and the trade balance reduction is larger for the more open eu economies consistent with larger leakage effects further we show that government purchases shocks in large eu economies have non negligible consequences for economic activity in the main trading partners

production experiences and market structure in r d competition abstract in the rd and ii the likelihood of persistent leadership increases with the value of being the winner and the value of being a loser but decreases with expected waiting time of r d innovation and the flow of monopoly profits however destructive innovations may still occur even when production experiences are allowed to play an important role in the r d competition

aviation and the eu emissions trading scheme lessons learned from previous emissions trading schemes designing an emissions trading scheme requires in depth knowledge regarding several aspects this paper attempts to clarify some important design points of the forthcoming emissions trading scheme

a reconsideration of the uncovered interest parity relationship abstract this paper argues that the uncovered interest parity uip relationship is distinct from and more important than the unbiasedness of forward exchange rates as predictors of future spot rates the standard finding that the slope estimate b is roughly 3 in regressions of s t on t 1 s t 1 implies rejection of unbiasedness but not necessarily uip the hypothesis that monetary authorities manage interest rates so as to smooth their movements while also resisting changes in exchange rates is attractive conceptually and is capable of explaining not only the b 3 finding but also several other notable features of the data

german wage moderation and european imbalances feeding the global var with theory german labor market reforms in the 1990s and 2000s are generally believed to have driven the large increase in the dispersion of current account balances in the euro area we investigate this hypothesis quantitatively we develop a 3 region open economy new keynesian model with search and matching frictions from which we derive robust sign restrictions for wage bargaining and matching efficiency shocks which we term wage moderation shocks we impose these restrictions on a global var consisting of germany and 8 emu countries to identify a wage moderation shock in germany our results show that although the german current account was significantly affected by wage moderation shocks their contribution to european current account imbalances was negligible we conclude that the german labor market reforms cannot be the lone driver of european imbalances

on endogenizing long run growth this assessment of recent theoretical work on endogenous growth identifies three different engines of long run growth i the asymptotic average product of capital is positive ii labor productivity increases as an external effect of capital accumulation iii there are feedback effects on the cost of accumulating knowledge or innovating a general model encompassing all three is considered and then used to review different proposed determinants of long run growth rates the contribution of endogenous growth theory has been to create a framework in which to explain why economic institutions and policies can have long run effects on growth rates

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

assessing the performance of the uk emissions trading scheme the uk s climate change programme introduced an emissions trading scheme ets for greenhouse gases firms in over 40 industrial sectors which have negotiated climate change agreements setting quantitative energy efficiency targets can use the ets to trade over and under compliance with these targets in parallel a limited number of firms have become major participants in the ets as a result of an auction of subsidies for additional abatement commitments the paper describes the uk arrangements and assesses the economic efficiency and environmental effectiveness of the ets drawing on evidence of participants behaviour both in the incentive auction and in subsequent trading

convergence and anchoring of yield curves in the euro area we study the convergence of european bond markets and the anchoring of inflation expectations in the euro area using high frequency bond yield data for france germany italy and spain as well as smaller euro area countries and a control group comprising the uk denmark and sweden we find that economic and monetary union emu has led to substantial convergence in euro area sovereign bond markets in terms of interest rate levels unconditional daily fluctuations and conditional responses to major macroeconomic announcements our findings also suggest a substantial increase in the anchoring of long term inflation expectations since emu particularly for italy and spain which have seen their long term interest rates become much lower much less volatile and much better anchored in response to news finally we present evidence that the elimination of exchange rate risk and the adoption of a common monetary policy were the primary drivers of bond market convergence in the euro area as opposed to fiscal policy restraint and the loose exchange rate peg of the 1990s jel no e52 e58

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

the dynamic effects of neutral and investment specific technology shocks the neoclassical growth model is used to identify the short run effects of neutral technology shocks which affect the production of all goods homogeneously and investment specific shocks which affect only investment goods the real equipment price crucial for identifying the investment shocks experiences an abrupt increase in its average rate of decline in 1982 so the analysis is based on a split sample on the basis of the preferred specification the two technology shocks account for 73 percent of hours and 44 percent of output s business cycle variation before 1982 and 38 percent and 80 percent afterward the shocks also account for more than 40 percent of hours and 58 percent of output s forecast errors over a three to eight year horizon in both samples the majority of these effects are driven by the investment shocks

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite

has the euro changed the business cycle abstract in contrast to the notion that the exchange rate regime is non neutral there is little evidence that emu has systematically changed the european business cycle in fact we find the volatility of macroeconomic variables largely unchanged before and after the introduction of the euro exceptions are a strong decline in real exchange rate volatility and a considerable increase in cross country correlations to account for this finding we develop a two country business cycle model which is able to replicate key features of european data in particular the model correctly predicts a limited effect of emu on standard business cycles statistics however further analysis reveals that the euro has changed the nature of the cycle through its impact on the transmission mechanism cross country spillovers have become relatively more domestic shocks relatively less important in accounting for economic fluctuations under emu this explains why there is little change in unconditional volatilities

does the current account still matter do global current account imbalances still matter in a world of deep international financial markets where gross two way financial flows often dwarf the net flows measured in the current account contrary to a complete markets or consenting adults view of the world large current account imbalances while very possibly warranted by fundamentals and welcome can also signal elevated macroeconomic and financial stresses as was arguably the case in the mid 2000s furthermore the increasingly big valuation changes in countries net international investment positions while potentially important in risk allocation cannot be relied upon systematically to offset the changes in national wealth implied by the current account the same factors that dictate careful attention to global imbalances also imply however that data on gross international financial flows and positions are central to any assessment of financial stability risks the balance sheet mismatches of leveraged entities provide the most direct indicators of potential instability much more so than do global imbalances though the imbalances may well be a symptom that deeper financial threats are gathering