on the concavity of the consumption function at least since keynes 1935 many economists have had the intuition that the marginal propensity to consume out of wealth declines as wealth increases nonetheless standard perfect certainty and certainty equivalent versions of intertemporal optimizing models of consumption imply a marginal propensity to consume that is unrelated to the level of household wealth we show that adding income uncertainty to the standard optimization problem induces a concave consumption function in which as keynes suggested the marginal propensity to consume out of wealth or transitory income declines with the level of wealth

interlinked credit and farm intensification evidence from kenya abstract this paper addresses the potential for interlinked credit input output marketing arrangements for particular cash crops to promote food crop intensification using panel survey data from kenya we estimate a household fixed effects model of fertiliser use per hectare of food crops using an instrumental variables approach for addressing the endogeneity of participation in interlinked credit arrangements results indicate that households engaging in interlinked marketing programs for selected cash crops applied considerably greater fertiliser on other crops primarily cereals not directly purchased by the cash crop trading firm these findings suggest that in addition to the direct stimulus that interlinked cash crop marketing arrangements can have on small farmer incomes these institutional arrangements may provide spill over benefits for the productivity of farmers other activities such as food cropping

advertising and food drink and tobacco consumption in the united kingdom a dynamic demand system this paper tests for the influence of advertising on the inter product distribution of consumer demand for non durable goods and services in the uk 1963 1996 the long run demand for seven categories of non durable products is modelled through an advertising augmented version of the almost ideal demand system aids which is incorporated into an error correction model to allow for short run dynamic adjustments to long run equilibrium positions model estimates confirm that the restrictions of price homogeneity and symmetry appear to be consistent with the data yield measures of the various types of demand elasticity that are in general plausible confirm the strong influence of prices on the allocation of consumer expenditure but find little evidence to support the hypothesis that advertising has the power to effect marked changes in the inter product pattern of consumer demand in the uk

the impact of bse on the demand for beef and other meats in great britain indices of media coverage of bse are incorporated in a dynamic aids model of meat demand the publicity which bse has received is found to have had significant effects on the allocation of consumer expenditure among the meats a short run impact has been identified which accounts in large part for the discernible drop in the market share of beef in the early 1990s and more important there also appears to be a significant long run impact of bse which by the end of 1993 has reduced the beef market share by 4 5

the demand for alcoholic drink in the united kingdom 1963 78 1983 the demand for alcoholic drink in the united kingdom 1963 78 applied economics vol 15 no 1 pp 125 140

exchange rate policy and the zero bound on nominal interest rates in this paper we study the effectiveness of monetary policy in a severe recession and deflation when nominal interest rates are bounded at zero we compare two alternative proposals for ameliorating the effect of the zero bound an exchange rate peg and price level targeting we conduct this quantitative comparison in an empirical macroeconometric model of japan the united states and the euro area furthermore we use a stylized micro founded two country model to check our qualitative findings we find that both proposals succeed in generating inflationary expectations and work almost equally well under full credibility of monetary policy however price level targeting may be less effective under imperfect credibility because the announced price level target path is not directly observable

smallholder production structure and rural roads in africa the case of nakuru district kenya data from a 1998 survey of farming households in kenya is used to estimate the effects of poor rural road infrastructure and high market access costs on the structure of smallholder farm production simultaneous estimation of cost and input share equations reveals rational responses by farmers to high access costs in the expected continued absence of major investments in rural infrastructure in countries such as kenya the policy challenge is to identify and catalyse institutional innovations that reduce a range of transaction costs increase financial liquidity increase social capital and reduce risk

monetary policy when interest rates are bounded at zero this paper assesses the importance of the zero lower bound on nominal interest rates for the interest rate channel of monetary policy we simulate several interest rate setting policy rules with ei

panel discussion price stability how should long term monetary policy be determined these comments address the question of monetary strategy as distinct from monetary tactics they are not directed at the question of what monetary policy is appropriate at the present time or of how monetary policy should be determined at any specific point as a function of prevailing conditions instead the issue i take is one that has been of increasing interest to economists in recent years what should be the long terrn objectives of the monetary authority increased interest in this issue as opposed to the issue of fine tuning the economy reflects the general intellectual consensus that has emerged on two points first what the monetary authority surely can control in the long run is the growth rate of nominal income second issues of dynamic consistency and commitment are crucial to the design of appropriate monetary policies beyond its recognition of these points my view is that most of what the academic economics community has had to say on the issue of long run monetary strategy has been tangential at best and i fear that many of the papers at this conference have not done much to improve the situation i wish to advance four propositions about monetary policy and to discuss their implications first an optimal tax theory has little or nothing to do with sensible inflation policy second positive rates of inflation are almost certainly desirable third to an important extent institutions do the work of rules and monetary rules should be avoided instead institutions should be drafted to solve time inconsistency problems fourth h j res 409 the proposed zero inflation amendment is a good idea if it is not taken too seriously or too literally but is instead viewed as a device for strengthening the independence of the federal reserve system my first proposition is that the connection between optimal tax theory and infla

price level targeting vs inflation targeting a free lunch price level targeting without base drift and inflation targeting with base drift are compared under commitment and discretion with persistence in unemployment price level targeting is often said to imply more short run inflation variability and thereby more employment variability than inflation targeting counter to this conventional wisdom under discretion a price level target results in lower inflation variability than an inflation target if unemployment is at least moderately persistent a price level target also eliminates the inflation bias under discretion and as is well known reduces long term price variability society may be better off assigning a price level target to the central bank even if its preferences correspond to inflation targeting a price level target thus appears to have more advantages than commonly acknowledged

the fiscal multiplier and spillover in a global liquidity trap we consider the fiscal multiplier and spillover in an environment in which two countries are caught simultaneously in a liquidity trap using an optimizing two country sticky price model we show that the fiscal multiplier and spillover are contrary to those predicted in textbook economics for the country with government expenditure the fiscal multiplier exceeds one the currency depreciates and the terms of trade worsen the fiscal spillover is negative if the intertemporal elasticity of substitution in consumption is less than one and positive if the parameter is greater than one incomplete stabilization of marginal costs due to the existence of the zero lower bound is a crucial factor in understanding the effects of fiscal policy in open economies

alternative views of the money transmission mechanism what difference do they make for monetary policy this paper examines how alternative views of the monetary transmission mechanism affect the choice of a monetary policy rule the main finding is that many different structural models indicate that the same simple monetary policy rule one in which the central bank s target short term interest rate reacts to inflation and to real output would perform well such rules work well even in models where the monetary transmission mechanism has a relatively strong exchange rate channel the models differ however in their implications for more complex monetary rules prepared for the oxford review of economic policy this paper is an updated revised and shortened version of an earlier paper entitled the monetary transmission mechanism and the evaluation of monetary policy rules presented at the central bank of chile in september 20 21 1999 i am grateful to david vines for very helpful comments

the lower bound and the causes of monetary policy inertia evidence from sweden abstractin 2009 in the midst of a global recession sweden s riksbank approached a lower bound on nominal interest rates this encounter with the lower bound provides a natural experiment for investigating the causes of monetary policy inertia to exploit this experiment we estimate taylor rules with tobit specifications that permit both interest rate smoothing and persistent shocks serial correlation as explanations for inertia the interest rate smoothing hypothesis leads to a specification in which lagged actual values of the dependent variable appear on the right hand side of the taylor rule while the persistent shocks hypothesis leads to a specification in which lagged values of an unobserved latent dependent variable appear on the right hand side of the taylor rule the divergence of actual and latent dependent variables that occurs at the lower bound provides leverage in distinguishing the two hypotheses for a conventional taylor rule we find evidence of both sources of inertia for a modifi

inflation targeting as a monetary policy rule the purpose of the paper is to survey and discuss in ation targeting in the context of monetary policy rules the paper provides a general conceptual discussion of monetary policy rules attempts to clarify the essential characteristics of in ation targeting compares in ation targeting to other monetary policy rules and draws some conclusions for the monetary policy of the european system of central banks jel classi cation e42 e52

weather shocks and agricultural commercialization in colonial tropical africa did cash crops alleviate social distress a rapidly growing body of research examines the ways in which climatic variability influences economic and societal outcomes this study investigates how weather shocks triggered social distress in british colonial africa further it intervenes in a long standing and unsettled debate concerning the effects of agricultural commercialization on the abilities of rural communities to cope with exogenous shocks we collect qualitative evidence from annual administrative records to explore the mechanisms linking weather extremes to harvest failures and social distress we also conduct econometric testing on a novel panel dataset of 143 administrative districts across west south central and east africa in the interwar era 1920 39 our findings are twofold first we find robust evidence that rainfall anomalies both drought and excessive precipitation are associated with spikes in imprisonment our proxy for social distress we argue that the key causal pathway is the loss of agricultural income which results in higher imprisonment for theft unrest debt and tax default second we find that the impact of weather shocks on distress is partially mitigated by the cultivation of export crops our findings suggest that even in the british colonial context smallholder export crop cultivation led to higher private incomes as well as greater public investment our findings speak to a topic of considerable urgency today as the process of global climate change accelerates generating more severe and unpredictable climatic extremes an increased understanding and identification of adaptive and mitigating factors would assist in targeting policy interventions and designing adaptive institutions to support vulnerable rural societies

inflation output variance trade offs and optimal monetary policy the author estimates the inflation output gap variance trade off faced by monetary policymakers in the united states for policymakers who care about deviations of inflation around target and output around potential the estimated trade off represents the optimal policy frontier given the structure of the economy policymakers can do no better than to attain weighted variances of inflation and output that lie on the frontier the author finds that the variance trade off becomes quite severe when the standard deviation of inflation or output drops much below 2 percent this suggests that approximately balanced responses to policy goals are consistent with reasonable preferences over inflation and output variability copyright 1997 by ohio state university press

inflation forecast targeting implementing and monitoring inflation targets abstract inflation targeting is shown to imply inflation forecast targeting the central bank s inflation forecast becomes an explicit intermediate target inflation forecast targeting simplifies both implementation and monitoring of monetary policy the weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability commitment to target rules may be better than commitment to instrument rules

consumer response to maize market liberalization in urban kenya abstract the elimination of consumer food subsidies associated with structural adjustment in africa has been widely thought to exacerbate food insecurity for low income consumers this article determines how urban maize consumption and expenditure patterns have responded to the liberalization of the maize and maize meal markets in kenya the article decomposes changes in maize meal prices attributable to changes in maize grain prices and maize milling margins results are obtained through two random household surveys in nairobi the first having been conducted before and the second after liberalization the main finding of the study is that maize market liberalization has conferred substantial benefits to urban consumers the combined saving to nairobi consumers from lower maize milling costs has been roughly us 10 1 million each year about the same amount that the government of kenya allocates annually to agricultural research results also indicate that the former consumer subsidies conferred through the official marketing channel were untargeted and actually inversely related to household income the subsidies on sifted meal also served to entrench a non competitive market structure that inhibited the development of a lower cost informal milling system these findings are consistent with research results from other eastern and southern african countries showing that the negative effects of eliminating food subsidies in the state marketing system have been largely compensated by relaxing controls on private grain trade which has increased consumers access to less expensive grain products distributed through informal markets

robust monetary policy structural breaks and nonlinearities in the reaction function of the central bank of brazil abstract in this work we seek to investigate the existence of nonlinearities in the reaction function of the central bank of brazil arising from this policymaker s uncertainties about the effects of the output gap on inflation theoretically we follow tillmann 2011 to obtain a nonlinear optimal monetary policy rule that is robust to uncertainty about the output inflation trade off of the phillips curve in addition we perform structural break tests to assess possible changes in the conduct of the brazilian monetary policy during the inflation targeting regime the results indicate that i the uncertainties about the slope in the phillips curve implied nonlinearities in the central bank of brazil s reaction function ii we cannot reject the hypothesis of a structural break in the monetary rule parameters occurring in the third quarter of 2003 iii there was an increase in the response of the selic rate to output gap and a weaker response to the current inflation gap in meirelles tombini s administration and iv the central bank of brazil has also reacted to the exchange rate in meirelles tombini s administration

optimal monetary and fiscal policy with a zero bound on nominal interest rates i characterize optimal monetary and fiscal policy in a stochastic new keynesian model when nominal interest rates may occasionally hit the zero lower bound the benevolent policymaker controls the short term nominal interest rate and the level of government spending under discretionary policy accounting for fiscal stabilization policy eliminates to a large extent the welfare losses associated with the presence of the zero bound under commitment the gains associated with the use of the fiscal policy tool remain modest even though fiscal stabilization policy is part of the optimal policy mix

risk premium shocks and the zero bound on nominal interest rates there appears to be a disconnect between the importance of the zero bound on nominal interest rates in the real world and predictions from quantitative dsge models recent economic events have reinforced the relevance of the zero bound for monetary policy whereas quantitative models suggest that the zero bound does not constrain optimal monetary policy

comment on theoretical analysis regarding a zero lower bound on nominal interest rates the sharp decline in interest rates in the past two decades has shifted attention to a new policy question do low interest rates interfere with the ability of a central bank to do its job some say the answer is yes according to them with rates low the central bank has lost the option to cut them further in the event of a bad economic shock 1 according to mccallum the right answer is no he asserts that the central bank has a second tool for stabilizing the economy the exchange rate he maintains that the central bank can stabilize the economy by exploiting its control over the exchange rate even if it cannot cut the interest rate because it is stuck on its zero lower bound according to mccallum s model exchange rate policy can even lift the economy out of the worst case scenario this occurs when the nominal rate of interest is zero and the expected future price level and exchange rate are sxed because the public srmly believes the central bank is committed to a price level target in this scenario a standard prescription for stimulating the economy reduce the real interest 1ate by committing to loose money in the future is ineffective according to mccallum s model this worst case scenario is not as big a problem as it might seem the central bank can still stimulate the economy by depreciating the currency through purchases of foreign exchange in my comment i make two points

optimal monetary policy under commitment with a zero bound on nominal interest rates we determine optimal monetary policy under commitment in a forwardlooking new keynesian model when nominal interest rates are bounded below by zero the lower bound represents an occasionally binding constraint that causes the model and optimal policy to be nonlinear a calibration to the u s economy suggests that policy should reduce nominal interest rates more aggressively than suggested by a model without lower bound rational agents anticipate the possibility of reaching the lower bound in the future and this amplifies the effects of adverse shocks well before the bound is reached while the empirical magnitude of u s mark up shocks seems too small to entail zero nominal interest rates shocks affecting the natural real interest rate plausibly lead to a binding lower bound under optimal policy however this occurs quite infrequently and does not imply positive average inflation rates in equilibrium interestingly the presence of binding real rate shocks alters the policy response to non binding markup shocks

dealing with monetary paralysis at the zero bound recently the key constraint for central banks is the zero lower bound on nominal interest rates central banks fear that if they push short term policy interest rates too deeply negative there will be a massive flight into paper currency this paper asks whether in a world where paper currency is becoming increasingly vestigial outside small transactions at least in the legal tax compliant economy there might be relatively simple ways to finesse the zero bound without affecting how most ordinary people live surprisingly this question gets little attention compared to the massive number of articles that take the zero bound as given and look for out of the box solutions for dealing with it in an inversion of the old joke it is a bit as if the economics literature has insisted on positing assume we don t have a can opener without considering the possibility that we might be able to devise one it makes sense not to wait until the next financial crisis to develop plans fundamentally there is no practical obstacle to paying negative or positive interest rates on electronic currency and as we shall see effective negative rate policy does not require eliminating paper currency

interlinked markets and the cash crop food crop debate in land abundant tropical agriculture the purpose of this article is to illustrate how such institutions do arise in the african context under certain preconditions it is argued that the lack of a land market due largely to a non capitalist conception of property rights over land 3 along with other conditions to be examined below leads to the failure of labor and private sector credit markets in response indigenous institutions have evolved to cope with the market failures

on risk transactions and economic development in the semiarid tropics recent interest in the institutions and production relations of tropical agriculture seem to hold promise for increased collaboration between economists and anthropologists in efforts to explain existing patterns of production and socioeconomic interaction this focus on customs and on the more formal institutional arrangements is encouraging given the continuing concern for food production in much of the semiarid tropics two recent papers are particularly germane to this growing literature h p binswanger and m r rosenzweig have offered a foundation for addressing the production relations in agriculture with a general focus on conditions in south asia more recently binswanger and j mcintire provide an explanation for the major institutions and customary features of production relations in three agroclimatic subzones of the land abundant tropics that have simple technology and high transport costs 2 they also offer predictions of how these institutions and features might change in response to the opening up of subsistence economies and to population growth our approach here is consistent with this recent work in several respects first it is explanatory in that we offer possible explanations for observed behavior in the land abundant tropics where agriculture is a mixture of cropping and livestock management second it is predictive in that we draw on economic theory to hypothesize likely changes in behavior in the face of institutional change finally it is offered in the interest of stimulating a concern for the institutional preconditions of economic development by such preconditions we have in mind the institutional arrangements that can stimulate the economic development process in particular we focus on the role of transactions in the economy we do not believe that there is anything intrinsically undesirable about transactions that are restricted to a circle of family and acquaintances on the contrary such transactions play an important

modeling the demand for alcoholic beverages and advertising specifications in this paper the demand for beer wine spirits and soft drinks in ontario is modeled in two parts an equation is specified to endogenize group expenditures and a demand system is set up to allocate budgeted group expenditures across types of beverages advertising is allowed to influence both the level of group expenditures and its allocation three popular advertising specifications are compared using the j test and the likelihood dominance criterion even though all three specifications fitted well according to standard criteria the calculated expenditure price and advertising elasticities were sensitive to the manner with which advertising is specified this clearly highlights the need to rely on a sound criterion to identify a dominant specification from the identified dominant specification we found that advertising has very subtle effects on expenditures on alcoholic beverages group and individual beverages thus advertising is not effective in enlarging markets and this suggests that firms especially breweries use advertising to compete in zero sum market share games from a public policy perspective our results are comforting but future research should investigate whether the neutral effect of advertising on aggregated expenditures hide substantial offsetting changes in the drinking habits of individuals 2000 elsevier science b v all rights reserved

advertising in demand systems testing a galbraithian hypothesis in this paper we argue that the influence of advertising upon the inter product distribution of demand is a system wide phenomenon which is investigated better through a demand equation system rather than through single equation methods attention is focused upon a dynamic version of deaton muellbauer s aids model modified to include advertising terms within this framework using data on consumer s non durable expenditure in the uk we carry out a preliminary test of galbraith hypothesis that advertising may affect the composition of aggregate consumer demand

advertising and the aggregate c 0 onsumption function the economic effects of advertising have been a much studied and hotly debated topic for a number of years by now there is fairly general agreement that inter alia advertising is important as a barrierto entry see joe bain william comanor and thomas a wilson leonard weiss and that advertising does succeed in shifting demand for individual products see neil borden nicholas kaldor robert dorfman and peter steiner lester telser 1962 kristian palda but there is little agreement as to the effect of advertising on aggregate consumption john kenneth galbraith would have us believe that much of consumers spending is managed from madison avenue but such a view has still to find universal acceptance 2 what is surprising however is that no one who has been party to the rather spirited debate generated by the tall gentleman s thesis has seen fit to examine by econometric methods the proposition that advertising has an impact on the aggregate consumption function to undertake this is the purpose of this paper in a modest yet not insignificant way we feel that we have made some progress based on an analysis of advertising expenditures in the aggregate our results suggest that advertising does in fact tend to increase consumption at the expense of saving but as to what the causal mechanism underlying this is we unfortunately cannot say it may be that advertising actually succeeds in altering tastes a la galbraith but then again it may be that advertising is simply serving to bring new goods and services to the attention of consumers as already noted our analysis concentrates on the effects of advertising in the aggregate and is conducted in the framework of the state adjustment model of hendrik houthakker and lester taylor as applied to aggregate consumption following houthakker and taylor two variants of the model have been employed the first focuses on consumption and the second on personal saving section i presents a brief description of the houthakker taylor h t model and discusses the ways that it can be extended to accommodate advertising this section also provides a short description of the data and methods of estimation sections ii and iii are empirical section ii being devoted to a presentation of results and section iii to their critical evaluation the paper is then concluded with some final observations in section iv

transport costs and smallholder cropping choices an application to siaya district kenya smallholders regularly devote shares of resources to low yielding food crops than they do to cash crops that have higher market returns in this paper costly exchange is incorporated into an agricultural household model and a numerical nonseparable version of the model is used to show that seemingly inefficient cropping choices of this type in siaya district kenya can be explained as rational food import substitution given high transport costs in product markets improved rural road networks that reduce these costs could abate motives to meet food needs through domestic production and promote specialization that raises farm incomes

the taylor principle and monetary policy approaching a zero bound on nominal rates quantile regression results for the united states and japan this paper offers a new approach that estimates the response of interest rates to inflation and the output gap at various points quantiles on the conditional distribution of interest rates this offers an improvement on empirical estimates conducted only at the mean and also allows us to test the propositions that policy shows greater aggression to inflation in the reaction function in terms of a greater response coefficient as interest rates reach low levels and increasing aggression as the lower bound is approached we find support for the taylor principle a more aggressive response to inflation than under a taylor rule but no detectable evidence of increasing aggression as the zero lower bound is approached in the us and japan

monetary policy trade offs and the correlation between nominal interest rates and real output the authors present a structural model of the u s economy that combines their price contracting specification with a term structure relationship an aggregate demand curve and a monetary policy reaction function the model matches important features of postwar data well and provides a structural explanation of the correlation between real output and the short term nominal rate of interest the authors perform a battery of monetary policy experiments that show that as viewed through the lens of this model monetary policy has struck a good balance recently among competing monetary policy objectives copyright 1995 by american economic association

the effect of advertising on total consumption of cigarettes in the u k a comment abstract the premise that there is a link between the volume of cigarette advertising and the total cigarette consumption is examined in this study with reference to two previous studies done by mcguinness and cowling and metra consulting group ltd the relationship between cigarette advertising and cigarette consumption was tested by using econometric and statistical methods the model tested had a reasonably high level of explanatory power in terms of accounting for changes in cigarette consumption over the studied period statistical analysis of the situation revealed a stable positive and significant relationship between sales and media advertising of cigarettes

alcohol consumption and alcohol advertising bans the purpose of this paper is to empirically examine the relationship between alcohol advertising bans and alcohol consumption most prior studies have found no effect of advertising on total alcohol consumption a simple economic model is provided which explains these prior results the data set used in this study is a pooled time series of data from 20 countries over 26 years the empirical model is a simultaneous equations system which treats both alcohol consumption and alcohol advertising bans as endogenous the primary conclusions of this study are that alcohol advertising bans decrease alcohol consumption and that alcohol consumption has a positive effect on the legislation of advertising bans the results indicate that an increase of one ban could reduce alcohol consumption by 5 to 8 the alcohol price elasticity is estimated at about 0 2 the results suggest that recent exogenous decreases in alcohol consumption will decrease the probability of enactment of new bans and undermine the continuance

cash cropping and food crop productivity synergies or trade offs the case for promoting export oriented cash crops in africa has generally been based on their direct potential contribution to agricultural productivity and small farmer incomes a relatively neglected avenue of research concerns the synergistic effects that cash cropping can have on other household activities including food production the conventional view that cash crops compete with food crops for land and labour neglects the potential for cash crop schemes to make available inputs on credit management training and other resources that can contribute to food crop productivity which might otherwise not be accessible to farmers if they did not participate in cash crop programs this article builds on previous research by hypothesising key pathways by which cash crops may affect food crop activities and empirically measuring these effects using the case of cotton in gokwe north district in zimbabwe analysis is based on instrumental variable analysis of survey data on 430 rural households in 1996 results indicate that after controlling for household assets education and locational differences households engaging intensively in cotton production obtain higher grain yields than non cotton and marginal cotton producers we also find evidence of regional spill over effects whereby commercialisation schemes induce second round investments in a particular area that provide benefits to all farmers in that region regardless of whether they engage in that commercialisation scheme the study suggests that the potential spill over benefits for food crops through participation in cash crop programs are important to consider in the development of strategies designed to intensify african food crop production

the robustness and efficiency of monetary policy rules as guidelines for interest rate setting by the european central bank abstract this paper examines the implications of recent research on monetary policy rules for practical monetary policy making with special emphasis on strategies for setting interest rates by the european central bank ecb the paper draws on recent research and new simulations of a large open economy model to assess the efficiency of a simple benchmark rule in comparison with other proposed rules further it stresses new results on the robustness of monetary policy rules in which each rule that is optimal or good according to one model or researcher is tested for robustness by other researchers using different models because of the large increase in the number of economists focussing on econometric evaluation of monetary policy rules for the interest rate instrument and because of the parallel increase in the variety of models being developed for this purpose much more evidence is becoming available on the robustness of simple monetary policy rules for the interest rate than ever before

testing restrictions in a flexible dynamic demand system an application to consumers expenditure in canada traditionally restrictions on systems of demand equations have been tested using static models whilst being estimated with time series data this paper develops a vector time series model of expenditure shares in the context of a singular dynamic demand system the model allows for non symmetric and non homogeneous short run behaviour the homogeneity and symmetry restrictions are only examined in the long run structure results based on canadian time series data are presented and reject the current practise of static modelling while restrictions suggested by economic theory are not rejected when imposed on the long run structure

optimal monetary policy when interest rates are bounded at zero abstract this paper characterizes the optimal monetary policy reaction function in the presence of a zero lower bound on the nominal interest rate we analytically prove and numerically show that the function is highly non linear more expansionary and more aggressive than the taylor rule we then test its empirical validity taking the case of japan in the 1990s qualitatively we find some evidence of non linear monetary policy quantitatively we find the actual monetary policy to be too contractionary during the first half of the decade while the low interest policy during the latter half turns out to be fairly consistent with the simulated path

to specialize or diversify agricultural diversity and poverty dynamics in ethiopia recent agricultural development policies have begun to shift focus from the promotion of a few staple crops toward encouraging crop diversity the belief is that crop diversification is an effective strategy for dealing with a variety of issues including poverty alleviation however there is a lack of empirical evidence to justify these positions we contribute to filling this research gap by providing quantitative evidence on the impact of diversity in crop cultivation on household poverty using household panel data from ethiopia we develop a diversity index to measure the effect of crop diversity on poverty status to control for endogeneity and selection bias resulting from unobserved heterogeneity we utilize a recently developed parametric method for estimating dynamic binary response models with endogenous contemporaneous regressors our results provide evidence that households which grow a diverse set of crops are less likely to be poor than households that specialize in their crop production additionally crop diversity reduces the probability that a non poor household will fall into poverty and the probability that a poor household will remain in poverty we conclude that crop diversification is a viable way to deal with the exigencies of being poor

monetary policy and the zero bound to interest rates a review1 this paper reviews the literature on what the zero bound to nominal interest rates implies for the conduct of monetary policy the aim is to evaluate the risks of hitting the zero bound and to evaluate policies that are said to be able to reduce that risk or policies that are proposed as means of helping the economy escape if it is in a zero bound trap i conclude that policies aimed at cure are arguably more uncertain tools than those aimed at prevention so prevention is a less risky strategy for policymakers but since the risks of hitting the zero bound seem quite small anyway and the risks of encountering a deflationary spiral smaller still it is conceivable that inflation objectives that typify modern monetary regimes already have more than enough insurance built into them to deal with the zero bound problem

estimates of the variance of u s inflation based upon the arch model it is generally agreed that the unpredictability of future inflation is a major component of the welfare loss associated with inflation perfectly predicted inflation might induce some costs through institutional rigidities governmental interference and transaction costs but in the long run these should be rather minimal as these institutions adopt various forms of indexing when inflation is unpredictable risk averse economic agents will incur a loss even if prices and quantities are perfectly flexible in all markets inflation is a measure of the relative price of goods today and goods tomorrow thus uncertainty in tomorrow s price impairs the efficiency of today s allocation decisions friedman in his nobel lecture 8 argues convincingly that higher variability of inflation would lead to decreased output ceteris paribus he then conjectures that higher rates of inflation are generally associated with higher variability of inflation and presumably greater uncertainty about future rates if this is true then higher rates of inflation would also be associated with low levels of output which implies a positively sloped phillips curve this paper uses a new statistical technique arch to estimate the conditional mean and variance of inflation from u s time series data the main finding is that the variance of inflation in the seventies was only slightly greater than in the sixties

alcohol advertising bans consumption and control policies in seventeen oecd countries 1975 2000 this article uses cross country panel data to study the effects of advertising bans and other control policies on alcohol demand the null hypothesis is that advertising bans do not decrease alcohol consumption the study addresses several shortcomings in four previous cross country studies first an explanatory variable is included for other alcohol control policies second the study examines the history of advertising bans in oecd countries third the study also examines differences in cross country trends that characterize developed countries including aging of the population increased tourism higher unemployment rates and increased consumption of wine the mediterranean wine drinking countries are shown to be categorically distinct from the beer drinking countries and nordic spirits drinking countries fourth the study examines the panel data for unit roots and employs model specifications that correct for nonstationary data the empirical results indicate a significantly negative effect for th

a monthly dynamic consumer expenditure system for germany with different kinds of households a dynamic monthly consumer expenditure system is estimated for an aggregate household and three household types using recent german data the results tend to support the long run restrictions of homogeneity and symmetry for the aggregate household but only when short run dynamics are modelled following the method of anderson and blundell the required lags are short however the results for the partiallydisaggregated data are markedly different in particular the integrability restrictions can be rejected for the sample of high income workers therefore contrary to the usual presumption the less aggregated data seem more at variance with the restrictions of utility maximization

global liquidity trap abstract how should monetary policy respond to a global liquidity trap where the two countries may fall into a liquidity trap simultaneously using a two country new open economy macroeconomics model we first characterize optimal monetary policy and show that the optimal rate of inflation in one country is affected by whether or not the other country is in a liquidity trap we next examine how well the optimal monetary policy is approximated by relatively simple monetary policy rules the interest rate rule targeting the producer price index performs well in this respect

the macroeconomic relationship between advertising and consumption profit maximizing firms advertise in order to increase the demand for the goods they produce hence we would expect increases in a firm s advertising to be associated with increases in consumption of the firm s goods ceteris paribus the increased demand for the firm s goods may be associated with decreased demand of their rivals goods at the market level increases in advertising by the industry may not be accompanied by increased consumption of the industry s output this is because changes in the levels of advertising among firms in a particular industry could merely rearrange market shares if this is true then in that industry a firm which increases its advertising relative to its rivals will gain sales at the rivals expense advertising in this case is a zero sum game when we aggregate across markets to consider advertising at the national level the question of the effect of advertising upon consumption has still different implications if increased advertising levels for the economy are associated with increased consumption this suggests that consumers are increasing current consumption at the expense of future consumption i e savings if this is true then advertising affects aggregate consumption and the business cycle in this paper we consider the relationship between aggregate advertising and aggregate consumption while previous research e g ashley granger and schmalensee 2 and schmalensee 24 has suggested that consumption affects advertising most previous empirical studies of the causal relationship between aggregate advertising and aggregate consumption reject the hypothesis that advertising affects consumption 6 section 8 3 12 an early study was verdon mcconnell and roesler 28 who studied the relationship between advertising and aggregate demand gnp while they found advertising to be pro cyclical and to have a positive effect on aggregate demand correlations between various leads and lags led them to conclude that no clear pattern existed this study was followed by ekelund and gramm 14 who faulted the verdon mcconnell and roesler study for considering the relationship between advertising and aggregate demand instead ekelund and gramm concentrated upon the relationship between advertising and

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