distinguishing between equilibrium and integration in spatial price analysis this article introduces a new spatial price analysis methodology based on maximum likelihood estimation of a mixture distribution model incorporating price transfer cost and trade flow data this method permits differentiation between market integration and competitive market equilibrium and derivation of intuitive measures of intermarket tradability competitive market equilibrium perfect integration segmented equilibrium and segmented disequilibrium one can also use these estimates to derive semiparametric measures of time varying regime probabilities to track changing market conditions an application to trade in soybean meal among pacific rim economies demonstrates the usefulness of the method copyright 2002 oxford university press

why is inflation low when productivity growth is high i introduction in the united states since world war ii inflation has been low when productivity growth has been high for example the 1950s and 1960s were a period of low inflation and high productivity growth whereas the 1970s and 1980s were a period of high inflation and low productivity growth the negative correlation between inflation and productivity growth over the years 1949 2000 is much stronger than the correlation between inflation and unemployment i e phillips curve type correlations or the correlation between inflation and growth in monetary aggregates i e quantity theory correlations little research has explored the comovement between inflation and productivity growth the evidence developed herein suggests that the negative correlation reflects the behavior of the federal reserve over the postwar period the federal reserve has not adjusted nominal income growth through changes in the growth of the money supply to changes in trend productivity growth as will be documented such a policy induces a negative correlation between trend productivity growth and inflation as an acceleration in trend productivity growth in the face of constant nominal income growth leads to a deceleration in inflation this focus on monetary policy as the key factor behind medium to long run correlations between inflation and productivity seems more plausible than a focus on peculiarities of phillips curve reduced form relationships because such relationships are plausibly more appropriate guides to the short run dynamics of inflation as a case in point consider the recent shift to inflation targeting monetary policy strategies in the united kingdom and sweden which emphasize the key role that monetary policy plays in the inflation outlook over several years the role of monetary policy in generating the strong correlation between productivity growth and inflation in the medium run is developed in a textbook model based on an expectations augmented phillips curve the model s main empirical predictions are confirmed 1 inflation especially expected inflation should fall when trend productivity growth rises and 2 nominal income and nominal wage growth should not change when trend productivity growth changes the model also implies that productivity growth enters a reduced form phillips curve relationship as a proxy for inflation expectations this implies that traditional estimates of the nonaccelerating inflation rates of unemployment nairu should fall when productivity growth accelerates an empirical regularity that has received a great deal of academic and policy attention in recent years and is typically explained via some type of irrationality perhaps surprisingly these empirically regularities do not rely on the great inflation of 1965 79 when inflation accelerated and productivity growth decelerated recent discussions of phillips curve reduced form relationships have placed a strong emphasis on structural explanations that may explain a link between productivity growth the nairu and hence inflation staiger et al 2001 present evidence that the time series techniques they employ to estimate trend productivity growth and the nairu yield a strong correlation between the nairu and trend productivity growth ball and moffitt 2001 and ball and mankiw 2002 provide a structural interpretation labor market institutions for some reason perhaps irrationality make the real wage aspirations of workers respond very sluggishly with a lag of perhaps 10 years or more to productivity growth and hence an acceleration in productivity growth leads to a prolonged period of downward pressure on labor costs and hence inflation similar reasoning has been used in policy circles for years at the council of economic advisors 1997 2000 and the federal reserve board meyer 2000 reflecting the reasoning in grub b et al 1982 and braun 1984 the focus herein the behavior of policy is consistent with the evidence on inflation productivity growth and empirical estimates of the nairu

performance of monetary policy with internal central bank forecasting abstract recent models of monetary policy have analyzed the desirability of different optimal and ad hoc interest rules under the restrictive assumption that forecasts of the private sector and the central bank are homogeneous this paper studies the implications of heterogeneity in forecasting by the central bank and private agents for the performance of interest rules in a framework of econometric learning

monetary policy trend inflation and the great moderation an alternative interpretation with positive trend inflation the taylor principle does not guarantee a determinate equilibrium we provide new theoretical results on determinacy in new keynesian models with positive trend inflation and new empirical findings on the federal reserve s reaction function before and after the volcker disinflation to find that i while the fed likely satisfied the taylor principle before volcker the us economy was still subject to self fulfilling fluctuations in the 1970s ii the us economy switched to determinacy during the volcker disinflation and iii the switch reflected changes in the fed s response to macroeconomic variables and the decline in trend inflation jel e12 e23 e31 e32 e52

optimal investment in transportation infrastructure when middlemen have market power a developing country analysis transportation costs and buyer market power reduce prices and income received by farmers in developing countries transportation costs directly affect the marketing margin and also exacerbate market power by limiting farmers access to buyers this article develops a multistage spatial model to determine optimal investment in transportation improvements taking account of impacts on marketing costs and competition the beneficial impact of investments from farmers perspective is mainly through enhanced competition meaning significant under investment may occur if this effect is ignored however the optimal investment depends on the relative importance of transportation costs in some settings transportation improvements reduce farm prices because buyers rationally over compensate farmers for these costs

the effect of government spending on private consumption a puzzle the empirical finding that cyclical changes in government spending tend to be associated with positive responses of private consumption has been interpreted as a challenge for representative agent intertemporal optimizing theories which usually imply that the negative wealth effect of higher fiscal spending reduces the households consumption and leisure the present paper shows that the evidence can be explained by a standard real business cycle type model with a nonadditively separable utility function and a small intertemporal consumption elasticity higher fiscal spending can raise consumption and lower investment as in the data the nonseparable utility model is shown to imply the same consumption euler equation as a model with rule of thumb consumers who mechanically spend their income

trend inflation taylor principle and indeterminacy positive trend inflation shrinks the determinacy region of a basic new keynesian dynamic stochastic general equilibrium model when monetary policy is conducted by a contemporaneous interest rate rule neither the taylor principle which requires the inflation coefficient to be greater than one nor the generalized taylor principle which requires that the nominal interest rate to be raised by more than the increase in inflation in the long run is a sufficient condition for local determinacy of equilibrium this finding holds for different types of taylor rules inertial policy rules and price indexation schemes therefore regardless of the theoretical setup the monetary literature on interest rate rules cannot disregard average inflation in both theoretical and empirical analyses

learning about monetary policy rules abstract we study macroeconomic systems with forward looking private sector agents and a monetary authority that is trying to control the economy through the use of a linear policy feedback rule we use stability under recursive learning a la evans and honkapohja learning and expectations in macroeconomics princeton university press princeton new jersey 2001 as a criterion for evaluating monetary policy rules in this context we find that considering learning can alter the evaluation of alternative policy rules

monetary policy determinacy and learnability in a two block world economy we study how determinacy and learnability of worldwide rational expectations equilibrium may be affected by monetary policy in a simple two country new keynesian framework under both fixed and flexible exchange rates we find that open economy considerations may alter conditions for determinacy and learnability relative to closed economy analyses and that new concerns can arise in the analysis of classic topics such as the desirability of exchange rate targeting and monetary policy cooperation

potential of and constraints to the rice green revolution in mozambique a case study of the chokwe irrigation scheme abstract this paper investigates the potential of and constraints to a lowland rice green revolution in mozambique using data from an agro climatically favorable area the chokwe irrigation scheme our data show that although the potential is high the insufficient supply of irrigation water excessively expensive chemical fertilizer and moderately costly labor hinder the scheme from achieving that potential first of all an improvement in irrigation is crucial as it increases yield not only directly but also indirectly through its complementary relationship to chemical fertilizer we also find that an improvement in credit access is important as it can increase the application of chemical fertilizer and labor by making the acquisition of these expensive inputs through markets possible the unavailability of hired and exchange labor during peak seasons is another constraint to the intensive use of labor the introduction of rice varieties with a shorter maturity duration would relax the timing of transplanting and thus spread out the peak seasons labor demand

internal rationality imperfect market knowledge and asset prices we present a decision theoretic framework in which agents are learning about market behavior and that provides microfoundations for models of adaptive learning agents are internally rational i e maximize discounted expected utility under uncertainty given dynamically consistent subjective beliefs about the future but agents may not be externally rational i e may not know the true stochastic process for payoff relevant variables beyond their control this includes future market outcomes and fundamentals we apply this approach to a simple asset pricing model and show that the equilibrium stock price is then determined by investors expectations of the price and dividend in the next period rather than by expectations of the discounted sum of dividends as a result learning about price behavior affects market outcomes while learning about the discounted sum of dividends is irrelevant for equilibrium prices stock prices equal the discounted sum of dividends only after making very strong assumptions about agents market knowledge

determinacy and expectational stability of equilibrium in a monetary sticky price model with taylor rule abstract recent studies show that the taylor rule possesses desirable properties in terms of generating determinacy and e stability of rational expectations equilibria under sticky prices this paper examines whether this policy rule retains these properties within a discrete time money in utility function model employing three timings of money balances of the utility function that the existing literature contains end of period timing and two types of cash in advance timing this paper shows i even a small degree of non separability of the utility function between consumption and real balances causes the taylor rule to be much more likely to induce indeterminacy or e instability if this rule responds not only to inflation but also to output or the output gap ii differences among the three timings strongly alter conditions for the taylor rule to ensure both determinacy and e stability

adaptive learning forecast based instrument rules and monetary policy abstract this paper argues that recently popular forecast based instrument rules for monetary policy may fail to stabilize economic fluctuations in a new keynesian model of output gap and inflation determination in which private agents face multi period decision problems but have non rational expectations and learn over time if the monetary authority adopts a forecast based instrument rule and responds to observed private forecasts then this class of policies frequently induce divergent learning dynamics a central bank that correctly understands private behavior can mitigate such instability by responding to the determinants of private forecasts this suggests gathering information on the determinants of expectations to be useful

refinements on macroeconomic modeling the role of non separability and heterogeneous labor supply abstract this paper proposes a dynamic stochastic general equilibrium model characterized by heterogenous labor schedules and non separability between consumption and labor in the utility function the model successfully describes output consumption investment and interest rates after a monetary expansion the proposed formulation improves on standard models by using preferences favored by the data and by requiring investment adjustment costs and habit formation parameters more in line with the micro based evidence

trend growth and learning about monetary policy rules abstract the paper examines the effect of trend productivity growth on the determinacy and learnability of equilibria under alternative monetary policy rules under zero trend inflation we show that the economic structure is isomorphic to that of bullard and mitra 2002 and show that under a policy rule that responds to current period inflation and output a higher trend growth rate relaxes the conditions for determinacy and learnability results are mixed for other policy rules under the expectations based rule trend growth tightens the conditions for determinacy but it relaxes the conditions for learnability under the lagged data based rule trend growth tightens the conditions for determinacy and learnability our analysis shows that lower higher trend growth has similar effects as higher lower trend inflation in the sense of making inflation more less forward looking thus our results complement previous studies on the role of high trend inflation as a cause of macroeconomic volatility in the u s in the 1970s as this period was also characterized by productivity growth slowdown

weather shocks and spatial market efficiency evidence from mozambique the aim of this paper is to study the association between weather shocks droughts and floods and agricultural market performance in mozambique to do so we employ a dyadic regression analysis on

monetary policy expectations and commitment commitment in monetary policy leads to equilibria that are superior to those from optimal discretionary policies a number of interest rate reaction functions and instrument rules have been proposed to implement or approximate commitment policy we assess these rules in terms of whether they lead to a rational expectations equilibrium that is both locally determinate and stable under adaptive learning by private agents a reaction function that appropriately depends explicitly on private sector expectations performs particularly well on both counts

productivity growth transparency and monetary policy abstract this study examines whether central bank transparency about views of future productivity growth contributes to stabilizing macroeconomic fluctuations in a standard new keynesian model the central bank and private agents make their subjective estimates on the persistence of productivity growth in this situation if private agents believe that the central bank s projections include forecast errors on future productivity growth these beliefs can destabilize private agents own expectations because the central bank s forecast errors may lead to policy mistakes in the future consequently central bank transparency does not necessarily stabilize the variations of the output gap and inflation rate the central bank should respond strongly to the inflation rate if the impact of transparency is uncertain

production growth and business cycles ii new directions abstract this paper outlines new directions for investigations of real business cycle models consideration of stochastic growth of exogenous and endogenous forms analysis of suboptimal outcomes arising due to externalities of distorting taxes and implications of labor market heterogeneity

measuring the impact of road rehabilitation on spatial market efficiency in maize markets in mozambique this article analyzes the impact of road rehabilitation on the spatial market efficiency of maize markets in mozambique we estimate a modified version of the parity bounds model pbm that allows us to test the impact of road rehabilitation on spatial efficiency this article seeks to contribute to the existing literature in three ways first a unique data set where road rehabilitation episodes between market pairs are identified is developed second special care is devoted to estimation of transaction costs due to the sensitivity of the pbm model to the quality of transaction costs estimates finally as opposed to most existing literature that focuses on relatively distant markets the article focuses on spatially closed markets we find that maize markets tend to be segmented due to high transport costs following road rehabilitation inefficiency and average absolute price differentials tend to decrease and market pairs have tended to shift toward autarky regimes overall while the results point broadly toward a positive impact of road rehabilitation on spatial efficiency they are not as strong or as robust as one would like large increases in fuel prices likely offset the positive impacts of road rehabilitation on transaction costs contributing to the increase in the probability of being in an autarky regime

methodology ideology and the economics of poticy why resource economists disagree it is evident that there is persistent disagreement among competent and articulate resource economists disagreement not only about the appropriate analytical and prescriptive response to particular constellations of policy issues but also about the uses and limitations of economics as a thought system in the policy arena this must be disquieting and disappointing to many among us who would regard the emergence of an integrated and cohesive as opposed to diverse and fractious resource economics as evidence of its maturation it is my purpose here to argue that the disagreements among us go deeper than mere disputes about priorities and tactics for doing resource economics where all participants share a common vision of what resource economics is and should be rather these disagreements extend beyond alternative conceptions of resource economics to fundamentally opposing methodologies i e conceptions of knowledge and how to get it while the proximate foci of disagreement will shift over time there is literally no good reason to expect an ultimate resolution of intradisciplinary conflict and convergence of viewpoints finally i argue that persistent disagreement is not only a fact of life it has its virtues

market emergence and transition arbitrage transaction costs and autarky in china s grain markets using trimonthly chinese provincial grain prices from 1988 to 1995 we estimate a parity bounds model of interregional trade for four subperiods to characterize how multiple aspects of market performance change during the process of economic transition for each period we estimate the extent to which arbitrage opportunities are realized by traders the transaction costs between location pairs and the likelihood that regions do not trade trade restrictions cannot explain the pattern of uneven market development over time infrastructure bottlenecks managerial incentive reforms and production specialization policies all were likely important factors affecting market performance

testing for spatial market integration evidence for colombia using a pairwise approach we examine the extent of spatial market integration in colombia using consumer price index data for 153 consumer goods in 13 cities an econometric analysis of the time series properties of all the possible city price differentials reveals that market integration tends to occur more frequently in unprocessed food products as opposed to processed foods other traded and nontraded products the results also support the view that except for nontraded products the speed at which prices adjust to the long run equilibrium is slower for cities that are farther apart

transfer costs spatial arbitrage and testing for food market integration conventional tests for food market integration ask often misleadingly whether prices in different locations move together in this paper an alternative methodology the parity bounds model pbm is developed which uses information on transfer costs in addition to food prices to assess the efficiency of spatial arbitrage monte carlo experiments using data generated by a point space spatial price equilibrium model show the pbm to be statistically reliable an application to philippine rice markets demonstrates that the pbm detects efficient arbitrage when other tests do not

market integration efficiency of arbitrage and imperfect competition methodology and application to u s celery this paper develops and applies a methodology to test for efficiency of interregional commodity arbitrage application of the methodology requires only time series data on prices for alternative cities regions countries or product forms yet the approach is capable of generating evidence on a number of market parameters including market integration arbitrage efficiency the magnitude of marketing margins product substitutability and competitiveness of markets estimation is based on a switching regression model with three regimes efficient arbitrage relative shortage and relative glut results from application of the model to u s celery marketing indicated significant departures from efficient arbitrage for both california and florida celery

spatial price efficiency in mozambique s post reform maize markets maize zea mays shortages and maize price instability continue to occur in mozambique in spite of policy reforms and great capacity for increased production in northern mozambique this study measured the efficiency of spatial maize price arbitrage in mozambique s post reform period spatial price inefficiency does not seem to explain why food shortages continue to occur in mozambique suggesting nonprice market constraints such as poor infrastructure and poor market institutions as more likely explanations baulch s spatial efficiency test indicated that it is not profitable to ship maize from northern surplus maize regions to southern mozambique records of interregional maize shipments show that indeed grain is not being shipped from the north to the south market liberalization may have improved spatial price efficiency but high transfer costs still limit trade and potential benefits from freeing markets under these circumstances food shortages and price instability are likely to continue