price versus quantity in a mixed duopoly abstract we revisit the classic discussion of the endogenous choice of a price or a quantity contract but in a mixed duopoly we find that choosing the price contract is a dominant strategy for both firms whether the goods are substitutes or complements

political cycles in oecd economies this paper studies whether the dynamic behaviour of gnp growth unemployment and inflation is systematically affected by the timing of elections and of changes of governments the sample include the last three decades in 18 oecd economies we explicitly test the implication of several models of political cycles both of the opportunistic and of the partisan type also we confront the implication of recent rational models with more traditional approaches our results can be summarized as follows a the political business cycle hypothesis as formulated in nordhaus 1975 on output and unemployment is generally rejected by the data b inflation tends to increase immediately after elections perhaps as a result of pre electoral expansionary monetary and fiscal policies c we find evidence of temporary partisan differences in output and unemployment and of long run partisan differences in the inflation rate as implied by the rational partisan theory by alesina 1987 d we find virtually no evidence of permanent partisan differences in output growth and unemployment

feer for the cfa franc we investigate the behaviour of the real effective exchange rates reer of the two cfa franc zone monetary unions cemac and waemu vis a vis their long run equilibrium paths a reduced form of the edwards 1989 fundamentals equilibrium exchange rate feer model is estimated using the johansen s 1995 cointegration methodology and equilibrium paths and associated misalignments are derived for the period 1970 to 2005 our results suggest that for both cemac and waemu the fundamentals account for most of the exchange rates fluctuation increases in the terms of trade government consumption and productivity tend to appreciate the exchange rate while increases in investment and openness tend to depreciate it at end of 2005 we find no evidence that either the cemac or waemu reers were significantly over valued which suggests that no exchange rate action is currently needed our analysis also reveals significant differences in the fundamentals marginal impact and speed of reversion to equilibr

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

empirical evidence on inflation expectations in the new keynesian phillips curve abstract we review the main identification strategies and empirical evidence on the role of expectations in the new keynesian phillips curve paying particular attention to the issue of weak identi

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

optimal anti inflation programs in semi industrialized economies orthodox versus heterodox policies abstract the paper characterizes the optimal time consistent anti inflation program in a small open semi industrialized economy when policy makers choose the rate of exchange rate crawl the rate of change of fiscal spending and a wage and price control parameter to minimize deviations of output and inflation the optimal program involves a rapidly decelerating rate of crawl a sharp reduction in spending and a short initial period of wage and price controls the paper also assesses the importance of controls in helping to reduce the output loss associated with fighting inflation

the cournot bertrand model and the degree of product differentiation abstract we consider a duopoly model with a cournot type firm and a bertrand type firm both survive and the equilibrium is stable when there is sufficient product differentiation with no differentiation only the cournot type firm survives and the outcome is perfectly competitive

unemployment and inflation consequences of unexpected election results the empirical evidence toward rational partisan theory of business cycles is mixed and thus inconclusive this is due to the enormous heterogeneity of the existing empirical studies only a few of these test explicitly for the central theoretical innovation that post electoral blips in economic activity depend on the degree of the electoral surprise using polling data we present empirical evidence in favor of rational partisan theory for a panel of oecd countries

reconciling the wage curve and the phillips curve the wage curve is the negative relationship that links wage levels to the unemployment rate it fits accurately with modern non competitive labour market models but goes against a phillips curve modelling because the latter ties wage growth to the unemployment rate in this article we present a comprehensive review of these non competitive models highlighting recent contributions that try to eliminate the possible gap that exists between the concepts of the wage curve on the one hand and the phillips curve on the other copyright blackwell publishers ltd 2005

endogenous timing in duopoly games stackelberg or cournot equilibria abstract simultaneous versus sequential play is studied in an extended game in a preplay stage players decide whether to select actions in the basic game at the first opportunity or to wait until observing their rivals first period actions in one extended game players first decide when to select actions without committing to actions in the basic game the equilibrium has a simultaneous play subgame unless payoffs in a sequential play subgame pareto dominate those payoffs in another extended game deciding to select at the first turn requires committing to an action both sequential play outcomes are the equilibria only in undominated strategies

the welfare effects of trade and capital market liberalization treatise on the welfare effects of trade and capital market liberalization consquenses of the capital account liberalization in the presence of trade restrictions specifies on the liberalization of trade in the presence of foreign borrowing constraints proves superiority of gradual liberalization of trade to an abrupt liberalization

unemployment and the democratic electoral advantage this article calls into question the conventional wisdom that incumbent parties are rewarded when unemployment is low and punished when it is high using county level data on unemployment and election returns for 175 midterm gubernatorial elections and 4 presidential elections from 1994 to 2010 the analysis finds that unemployment and the democratic vote for president and governor move together other things being equal higher unemployment increases the vote shares of democratic candidates the effect is greatest when republicans are the incumbent party but democrats benefit from unemployment even when they are in control the explanation for these findings is that unemployment is a partisan issue for voters not a valence issue and that the democratic party owns unemployment when unemployment is high or rising democratic candidates can successfully convince voters that they are the party best able to solve the problem

reading cournot reading nash the creation and stabilisation of the nash equilibrium the concept of the cournot nash equilibrium is central to noncooperative game theory and the latter s use in macroeconomic theory this paper considers the creation of this theoretical construct examining the separate contributions of both cournot and nash and showing how the two were ultimately joined together in the eyes of contemporary economic theorists rather than simply showing how cournot served as a precursor to nash the author challenges the traditional approach and emphasizes the shifts in interpretation of their respective contributions in so doing he addresses some pertinent questions about the manner in which economic theorists view the evolution of their own discipline copyright 1994 by royal economic society

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

the new keynesian phillips curve revisited abstract several authors have questioned the evidence claimed by gali and gertler 1999 and gali et al 2001 that a hybrid version of the new keynesian phillips curve approximates european and us inflation dynamics quite well we re examine the evidence using the vector autoregressive framework and likelihood based methods paying particular attention to the stationary and nonstationary and possibly cointegrated nature of variables involved our results show that the exact as well as the inexact form of the hybrid nkpc are clearly at odds with the european data on the other hand gali and gertler 1999 finding that the inexact hybrid nkpc is a good first approximation to the us inflation dynamics seems less at odds with the data however the assumption of the model that the stochastic term forms a sequence of innovations may be problematic as we find indication of autocorrelation in the estimated residuals the exact form of the hybrid nkpc is firmly rejected by the us data

common stochastic trends in international stock markets abstract this paper presents evidence concerning the number of common stochastic trends in the equity markets of the u s japan england germany and canada monthly and quarterly data from january 1974 through august 1990 on morgan stanley s capital international indices are used to compute johansen 1990 tests for common trends the results indicate the presence of a single common trend driving these countries stock markets estimates of the factor loadings suggest that this trend is most important in the japanese market and least important in the canadian market to interpret this evidence the paper demonstrates that under weak conditions the unit root and cointegration structure of stock prices should mirror the unit root and cointegration structure of their dividend payments the paper tests this prediction by constructing national dividend series from capital international s dividend yield data as well as by using gnp data as with stock prices the evidence points to a single common trend although the stochastic properties and relative importance of this trend differs somewhat from the trend in stock prices

predetermined prices and the persistent effects of money on output this note illustrates a model of predetermined pricing where firms set a fixed schedule of nominal prices at the time of price readjustment based on the work of fischer 1977 this contrasts with the model of fixed pricing the specification underlying most recent dynamic sticky price models it is well known that predetermined pricing cannot generate substantial persistence in the real effects of monetary shocks when prices are set via fixed duration contracts unless the contracts are of long duration however we show that with a probabilistic model of price adjustment a predetermined pricing specification can produce almost as much persistence as the more conventional model of fixed prices without the assumption of long average contract duration

electoral uncertainty and the macroeconomy the evidence from canada the partisan advantage and incumbency advantage versions ofthe rational partisan business cycle model are tested bothmodels assume agents form weighted averages of partisaninflation rates during an election period and differ only inhow the weights are formed which alters the form of businesscycles the partisan advantage assumes fixed weightsdesignated for both major parties in each election whereasthe incumbency advantage model assumes fixed weights forwhichever is the incumbent and opposition party in eachelection the symmetric representation assumes each electionis a toss up strongest support is found for a temporarysymmetric effect on the level of output but none of themodels are supported for temporary electoral changes in growthor unemployment rates

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

adjustment and economic performance under a fixed exchange rate a comparative analysis of the cfa zone abstract this paper examines the economic performance of the cfa franc zone versus non cfa countries in recent years a modified control group approach is used to compare the evolution of macro economic indicators in the cfa countries vis a vis other sub saharan african countries controlling for initial conditions changing exogenous internal and world environment and policy stance in addition our approach allows for a formal testing of whether zone membership is a random the implication of randomness i e no selection bias is that the cfa zone economies would have performed in the same fashion as the rest of sub saharan africa for example in the absence of the zone our results show that the randomness assumption is only valid for the cases of gdp growth and inflation for other indicators savings investment and export ratios to gdp the decision to participate in the zone is endogenous and is related to the expectation of improved economic performance subsequently in the estimation of the zone s effects on the latter group of indicators we corrected for the ensuing sample selectivity bias by estimating that status indicator participation versus non participation via a probit model our estimation results indicate a weakening competitive position of the cfa members during the second half of 1980s relative to the first half compared with the non cfa countries in terms of output growth as well as the performance of exports investment and savings the exception is domestic inflation with the cfa countries faring better on that front results for a longer term comparison the 1970s versus the 1980s are somewhat mixed while the estimated coefficients for the marginal effect of zone participation corroborates a better performance for the cfa zone over the group of comparators in terms of exports domestic savings and investment and inflation the zone failed to distinguish itself with regard to economic growth in the long run

nash equilibrium and the history of economic theory john nash s formulation of noncooperative game theory was one of the great breakthroughs in the history of social science nash s work in this area is reviewed in its historical context to better understand how the fundamental ideas of noncooperative game theory were developed and how they changed the course of economic theory

recent advances in oligopoly theory from a game theory perspective abstract this paper surveys the contribution that recent developments in game theory have made to the understanding of oligopoly theory it is argued that conventional models suffer from the problem that there are a number of solution concepts offered with little guidance as to which should be selected and this is related to the static nature of the models employed one important development in game theory has been the analysis of repeated games and when applied to oligopoly theory this suggests that outcomes may be more cooperative than conventional theory suggests related to this is the requirement that firms employ credible threats to punish cheating from cooperative outcomes and the paper examines the extent to which imperfect information may restrict the scope of firms to employ such punishments one way in which firms may seek to make threats credible is through strategic investments for example in production capacity and the paper explores how competition over price or output is integrated with competition over instruments for strategic investment

price level co movements within currency unions an alternative integration metric this paper analyses currency union integration by testing whether price levels in member countries possess a common stochastic trend the trace statistic test for cointegration proposed by johansen 1995 demonstrates the presence of such a trend for most unions a disaggregated analysis identifies a common stochastic trend for several though fewer than half of country pairs within a union some unions such as the eurozone have small shares of cointegrated country pairs yet the share of cointegrated country pairs is large relative to countries outside currency unions comparison to a control group country pairs where one country belongs to a given union and the other country does not indicates that the cointegration found within a currency union is a union specific trait and not a feature of the individual countries within the union these results provide an alternative metric to intraunion trade for gauging the extent of currency union integration

rational partisan theory empirical evidence for the united states this paper presents two tests of the rational partisan theory rpt of business cycles first i develop and test an rpt model in which wage contracts are staggered and overlapping bureau of labor statistics bls data on the density and duration of wage contracts and estimates of the incumbent party s election win probability are employed to calibrate partisan intervention variables entered in output growth regressions next i perform a more flexible test of the rpt by comparing partisan output growth differences after elections in which the outcome was relatively surprising with partisan output growth differences after elections in which the outcome was widely anticipated the two approaches produce the same conclusion the rpt is not supported by the data

stackelberg versus cournot equilibrium we reconsider stackelberg s classical critique of the cournot duopoly in the framework of endogenous timing for two player games for quantity duopoly we provide different sets of minimal conditions directly on the demand and cost functions yielding respectively the simultaneous and the two sequential modes of play while our findings essentially confirm the predominance of the former they also indicate that the latter is natural under some robust but restrictive conditions no extraneous assumptions such as concavity existence or uniqueness of equilibria are needed and the analysis makes crucial use of the basic results from the theory of supermodular games classification numbers b21 c72 d43 l13 c 1999 academic press

comparing bertrand and cournot in mixed markets abstract we revisit the classic comparison between bertrand and cournot outcomes in a mixed market with private and public firms the results are often strikingly different and opposite to the ones obtained from a similar comparison in the standard setting with all profit maximizing firms

output effects of a tariff under flexible exchange rates abstract a tariff s impact on output is shown to depend on the asset market structure if foreigners do not hold the domestic asset as is generally assumed in the previous literature the tariff induced current account surplus creates a large enough currency appreciation that demand for domestic output falls when foreigners hold the domestic asset the current account surplus results in an international transfer of assets which allows a smaller currency appreciation the more similar are asset preferences across countries the smaller is the appreciation and therefore the greater is the likelihood that domestic output will increase

counterinflationary policy in a unionised economy with nonsynchronised wage setting a model of the determination of wages and employment in a unionised economy with nonsynchronised wage setting is presented in this paper it is shown that a monetary deflation can lead to prolonged unemployment even though the unions act rationally and with full information about the change in policy the model generates a statistical phillips curve in which the rate of change of money wages depends on the anticipated growth rate of the money supply and on disequilibrium unemployment conventional incomes policies are shown to have desirable social effects but run counter to the perceived self interest of the trade unions and are therefore likely to be resisted taxes on wage increases have desirable long run effects but do not appear able to reduce the transitional unemployment costs of monetary deflation

inflationary rigidities and orthodox stabilization policies lessons from latin america orthodox stabilization programs in latin american countries have been notoriously unsuccessful in combating inflation despite the imposition of stringent cuts in government deficits in most cases inflation came down only slowly and temporarily with concomitant declines in growth and employment the bolivian program one of the only latin american successes is contrasted with those of argentina brazil chile and mexico the problems of dealing with chronic inflation are compared with those of hyperinflationary countries and the influence of price and wage rigidities expectations and credibility is explored the study shows that fiscal restraint is a necessary but not sufficient condition for success and that sound management of nominal variables the exchange rate and money supply are also necessary the critical role of credibility is linked with price and wage rigidities in the chronic inflation countries whereas the unsuitability of hyperinflation is seen to increase the credibility of and thus the potential for successful stabilization programs

does the law of one price hold in a high inflation environment a tale of two cities in turkey this study addresses the price convergence in two cities in turkey istanbul and ankara using annual data over the three quarters of the twentieth century 1922 1998 characterized by prevailing high inflation rates for most of the period in contrast to the rest of the literature addressing convergence in price levels with a typical result of extremely slow convergence rates at best we argue that convergence is much easier detected in growth rates rather than levels of prices we suggest using the bounds testing procedure of pesaran et al 2001 for this purpose we find a clear cut evidence on the existence of a common driving force behind inflation dynamics in istanbul and ankara a finding that is in contrast with the results typically reported in related literature

oligopoly games and the cournot bertrand model a survey traditional oligopoly models hold that firms compete in the same strategic variable output cournot or price bertrand alternatively a hybrid model allows some firms to compete in output and other firms to compete in price also known as the cournot bertrand model when the choice of strategic variable is endogenous the established dominant strategy is output competition a growing body of work demonstrates however that the cournot bertrand outcome can be a subgame perfect nash equilibrium in the presence of market asymmetries observations of real world markets consistent with cournot bertrand behavior bolster justification for the model and have stimulated an impressive and evolving literature on advances and applications we lay out the roots of the cournot bertrand model and explore a number of model developments we categorize 12 primary models in the literature based on alternative assumptions in particular some authors consider when the timing of play as well as the choice of strategic variable are endogenous altogether this research identifies when cournot bertrand behavior can emerge in a dynamic setting and under alternative market conditions we also review the cournot bertrand model applications in the fields of international economics industrial organization labor and public economics we expect the literature to continue to expand in the future

another look at the evidence for rational partisan cycles in presenting evidence in favor of rational partisan cycles where electoral victories by leftist parties are expected to create temporary expansions and electoral victories by rightist parties are expected to create temporary recessions alesina cohen and roubini 1999 rely upon autoregressive time series intervention regressions these regressions however are not consistent with their model in this paper a model is derived which is consistent with the intervention approach in its reduced form the differences between the models are highlighted and new empirical estimates are presented on a panel of seven oecd nations which generally does not support the rational partisan cycle implications

the unemployment rate consequences of partisan monetary policies economists and political scientists have identified several ways in which political motivations and institutional arrangements can affect macroeconomic policymaking one way is described by the political business cycle model 42 37 in which vote seeking politicians manipulate the path of the economy to secure unsustainably favorable conditions at election times variants of this model have been widely tested with limited success a second channel for political impacts comes through partisan policy changes brought about by electoral turnover the pathbreaking work in this literature includes the contributions of hibbs 30 31 32 33 and beck 11 these works have focused on the empirical issue of how unemployment rates vary under democratic and republican presidents in the u s and have found strong support for the proposition that unemployment rates decline under democratic administrations a third phenomenon has been studied primarily by economists and concerns the credibility problem faced by a central bank selecting money growth rates models of the credibility problem 8 21 describe a setting in which the central bank and the public interact by respectively choosing actual and expected money growth rates in a variant of the prisoners dilemma this interaction can result in excessive inflation

institutional causes macroeconomic symptoms volatility crises and growth countries that have pursued distortionary macroeconomic policies including high inflation large budget deficits and misaligned exchange rates appear to have suffered more macroeconomic volatility and also grown more slowly during the postwar period does this reflect the causal effect of these macroeconomic policies on economic outcomes one reason to suspect that the answer may be no is that countries pursuing poor macroeconomic policies also have weak institutions including political institutions that do not constrain politicians and political elites ineffective enforcement of property rights for investors widespread corruption and a high degree of political instability this paper documents that countries that inherited more extractive institutions from their colonial past were more likely to experience high volatility and economic crises during the postwar period more specifically societies where european colonists faced high mortality rates more than 100 years ago are much more volatile and prone to crises based on our previous work we interpret this relationship as due to the causal effect of institutions on economic outcomes europeans did not settle and were more likely to set up extractive institutions in areas where they faced high mortality once we control for the effect of institutions macroeconomic policies appear to have only a minor impact on volatility and crises this suggests that distortionary macroeconomic policies are more likely to be symptoms of underlying institutional problems rather than the main causes of economic

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

price adjustments in a general model of state dependent pricing we study the distribution of retail price adjustments under the assumption that firms are more likely to adjust their prices when doing so is more valuable our setup nests calvo 1983 at one extreme and a fixed menu cost model at the other all parameterizations are ranked by a measure of state dependence high state dependence implies counterfactually that there are no small price changes and that the variance of price changes falls sharply with trend inflation the parameterization that best fits microdata has low state dependence implying a phillips curve coefficient 60 as large as that of the calvo model but is nonetheless well behaved at high inflation rates

party differences in macroeconomic policies and outcomes although the nature of the differences between parties in democratic electoral politics is an enduring question in political science surprisingly little is understood about the subject but substantial progress has been made in recent years most notably in understanding party differences in macroeconomic policies and outcomes the first breakthrough was douglas hibbs s 1977 analysis of party related differences in the unemployment rate in his time series analysis for the united states hibbs modeled the path of unemployment as an autoregressive moving average process subject to a dummy variable intervention term indicating party of the president his analysis indicated that democratic administrations were associated with lower unemployment than republicans by 2 36 points after eight years in office and even larger differences in long run equilibrium a subsequent article by nathaniel beck 1982 addressed the same issue and found the party differences less sharp when administration specific policy differences are considered the techniques employed by hibbs and beck focus directly on an outcome unemployment rather than on the policy instruments that are presumably responsible for altering outcomes this approach can be misleading when there are long lags between implementation of policies and ultimate effects or when shocks occasionally intrude upon the regular connections between instruments and outcomes macroeconomic theories can provide information about constraints linking macroeconomic variables but hibbs and beck fail to incorporate theoretical constraints such constraints could help determine what kinds of outcomes are feasible and sustainable and to what extent outcomes are induced by policies as opposed to shocks our purpose here is to consider how one might go about estimating party differences in a framework that takes advantage of some insights offered by macroeconomic theories and to report some preliminary results a more complete description of the analysis is provided in our working paper available upon request

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

services inflation dynamics and persistence puzzle in brazil a time varying parameter approach this article analyses services inflation dynamics in brazil focusing on the services inflation persistence puzzle for monthly data from january 2004 to february 2016 we apply a time varying para

game theoretic models of mixed oligopoly abstract in this paper we review various models that have been proposed for the study of mixed oligopoly that is markets in which private and public firm compete on equal basis using only market instruments

the return of the liquidity effect a study of the short run relation between money growth and interest rates in this article i use band pass filters to investigate the short run relationship between money growth and interest rates i find a negative correlation between short run movements in money growth and interest rates which i interpret as evidence that the liquidity effect dominates the anticipated inflation effect

price wage dynamics and inflation in socialist economies empirical models for hungary and poland this article analyzes the determinants of open inflation in transitional socialist economies with reference to recent experience in hungary and poland a simple inflation model is centered on the transmission process and on the short run dynamics of inflation further incorporating a number of features specific to socialist economies and working with quarterly data dynamic price and wage equations are estimated the estimated equations allow satisfactory exploration of the role and weight of foreign prices and domestic factors in propagating inflation foreign prices matter but developments on the cost side are critical in relating exogenous policy driven adjustments to the price level to increases in the rate of inflation the absence of conventional market based equilibrating mechanisms requires that nominal anchors particularly wage restraints feature prominently in any stabilization program adopted by reforming socialist economies copyright 1992 by oxford university press

trend inflation wage and price rigidities and productivity growth abstract what are the steady state implications of inflation in a general equilibrium model with real per capita output growth and staggered nominal price and wage contracts surprisingly a benchmark calibration implies an optimal inflation rate of 1 9 percent the analysis also shows that trend inflation has important effects on the economy when combined with nominal contracts and real output growth steady state output and welfare losses are quantitatively important even for low values of trend inflation further nominal wage contracting is found to be quantitatively more important than nominal price contracting in generating the results this conclusion does not arise from price dispersion per se but from an effect of nominal output growth on the optimal markup of monopolistically competitive labour suppliers finally accounting for productivity growth is found to be important for calculating the welfare costs of inflation indeed the presence of 2 percent productivity growth increases the welfare costs of inflation in the benchmark specification by a factor of four relative to the no growth case

output persistence from monetary shocks with staggered prices or wages under a taylor rule we analytically examine output persistence from monetary shocks in a dsge model with staggered prices or wages under a taylor rule surprisingly while taylor style staggering never yields persistence calvo style staggering of wages does generate persistence under decreasing returns to labour c 2009 elsevier b v all rights reserved

unemployment as excess supply of labor implications for wage and price inflation abstract the introduction of both market clearing wages and nominal rigidities on wage setting can be used to rationalize unemployment as excess supply of labor in the new keynesian model as a result wage inflation dynamics are forward looking and depend negatively on the rate of unemployment moreover both price inflation and wage inflation evolve as indicated by equations equivalent to those obtained in erceg et al 2000 though with different slope coefficients in an equal volatility comparison the model with unemployment conveys less price stickiness and more wage stickiness

staggering the optimal monetary rule and persistence abstract the purpose of this paper is to show that persistence is not an attribute that derives from the characteristics of wage and price setting alone the structure of demand the monetary rule and the welfare loss function are also crucial determinants of the time series characteristics of the model

wage interdependence through decentralized bargaining abstract the idea that sector specific unions are influenced by the wages obtained by other unions has mainly been used to support the empirical observation that wages are highly correlated among industries the sources of wage interdependence can mainly be found in unions preferences in the nature of technology and in price and demand determination the presence of externalities and of strategic complementarity among unions leads to suboptimal equilibria which generates non desired inflation unemployment and possibly also trade balance deficit this enforces the idea that part of current unemployment can be eliminated by improving the cooperation between social actors

deficits politics and money growth the authors examine the linkage between federal deficits and money growth by allowing the fed s resp onse to any given deficit to vary systematically according to how the deficit is generated and the party affiliation of the current presid ent in equations for m1 and monetary base growth the structural def icit is consistently significant and invariant across political chang es while the cyclical component of the deficit or a direct measure of the business cycle is significant only during the tenure of democ ratic presidents copyright 1987 by oxford university press

surprise party estimating the consequences of unexpected presidential election results alesina s quarterly journal of economics 102 651 678 1987 influential model of presidential elections with ideologically motivated parties attributes higher growth and lower unemployment under democratic presidents to the surprise inflation a democratic victory entails in contrast to the published literature we test this hypothesis using calcula tions of presidential election surprises consistent with the assumption of rational economic actors we confront the econometric complications attending a time series approach tak ing into account economic growth dynamics we ultimately fail to confirm the hypothesis that the level of uncertainty associated with presidential election results has an effect on economic outcomes

rationalizability learning and equilibrium in games with strategic complementarities we study a rich class of noncooperative games that includes models of oligopoly competition macroeconomic coordination failures arms races bank runs technology adoption and diffusion r d competition pretrial bargaining coordination in teams and many others for all these games the sets of pure strategy nash equilibria correlated equilibria and rationalizable strategies have identical bounds also for a class of models of dynamic adaptive choice behavior that encompasses both best response dynamics and bayesian learning the players choices lie eventually within the same bounds these bounds are shown to vary monotonically with certain exogenous parameters we study the class of noncooperative supermodular games introduced by topkis 1979 and further analyzed by vives 1985 1989 who also pointed out the importance of these games in industrial economics supermodular games are games in which each player s strategy set is partially ordered the marginal returns to increasing one s strategy rise with increases in the competitors strategies so that the game exhibits strategic complementarity 2 and if a player s strategies are multidimensional marginal returns to any one com ponent of the player s strategy rise with increases in the other components this class turns out to encompass many of the most important economic applications of noncooperative game theory in macroeconomics diamond s 1982 search model and bryant s 1983 1984 rational expectations models can be represented as supermodular games in each of these models more activity by some members of the economy raises the returns to increased levels of activity by others in oligopoly theory some models of bertrand oligopoly with differentiated products qualify as supermodu lar games in these games when a firm s competitors raise their prices the marginal profitability of the firm s own price increase rises a similar structure is present in games of new technology adoption such as those of dybvig and spatt 1983 farrell and saloner 1986 and katz and shapiro 1986 when more users hook into a communication system or more manufacturers adopt an interface standard the marginal return to others of doing the same often rises similarly in some specifications of the bank runs model introduced by diamond and dybvig 1983 when more depositors withdraw their funds from a bank it is more worthwhile for other depositors to do the same in the warrant exercise

a partisanship theory of fiscal and monetary regimes this paper indicates that income redistribution motivated by the distributive ideals of liberal political p arties create unanticipated disincentives for productive effort thi s suggests that newly elected liberal parties are likely to engage in monetary surprises in order to compensate for the adverse effects of these disincentives on real income estimated reaction from function s support these predictions a measure of income redistribution the change in the ratio of the social expenditures of government to gnp has a positive significant effect on money growth in addition when the presidency changes from conservative to liberal there is a posit ive and significant increase on money growth copyright 1987 by ohio state university press

partisan differences in swedish macroeconomic policy the purpose of this paper is to trace partisan differencesamong swedish governments during the period 1958 2000 according tothe partisan theory of macroeconomic policy left wing governmentsare relatively more concerned with the performance of the realside of the economy real output and unemployment as compared toright wing governments that place a higher weight on the nominalvariables inflation left wing governments would therefore pursue moreexpansionary aggregate demand policy and thereby be willingto risk a higher inflation in order to improve real economicperformance in this paper we apply the model developed in hibbs 1994 onswedish data our empirical results support the partisan theory showing that ceteris paribus aggregate demand policy under left winggovernments is relatively more expansionary than under right wing governments even if the expansionary policysometimes leads to higher inflation

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