what accounts for the changes in u s fiscal policy transmission using vector autoregressions on u s time series for 1957 79 and 1983 2004 we find government spending shocks to have stronger effects on output consumption and wages in the earlier period we try to account for this observation within a dsge model featuring price rigidities and limited asset market participation specifically we estimate the structural parameters of the model for both periods by matching impulse responses model based counterfactual experiments suggest that most of the changes in fiscal policy transmission are accounted for by increased asset market participation and the more active monetary policy of the volcker greenspan period

rich and powerful subjective power and welfare in russia abstract does empowerment come hand in hand with higher economic welfare in theory higher income is likely to raise both power and welfare but heterogeneity in other characteristics can either strengthen or weaken the relationship survey data on russian adults indicate that higher individual and household incomes raise both self rated power and economic welfare the individual income effect is primarily direct rather than through higher household income there are diminishing returns to income though income inequality emerges as only a minor factor reducing either aggregate power or welfare at given income the identified covariates have strikingly similar effects on power and economic welfare

fighting inflation with high interest rates the small open economy case under flexible prices in high inflation countries policymakers often end up paying interest on part of the money supply higher interest rates on money have been used both to reduce inflation and to defend the domestic currency this paper analyzes the effectiveness of such a policy in the context of an open economy with flexible prices and exchange rates a temporary increase in the interest rate on money reduces the price level on impact but inflation follows an explosive path afterwards the domestic currency appreciates on impact but begins to depreciate immediately thereafter hence the analysis does not support the use of high interest rates in disinflationary programs copyright 1995 by ohio state university press

indicator properties of the paper bill spread lessons from recent experience a feature of u s postwar business cycle experience that is by now widely documented is the tendency of the spread between the respective interest rates on commercial paper and treasury bills to widen shortly before the onset of recessions by contrast the paper bill spread did not anticipate the 1990 1991 recession empirical work presented in this paper supports two not mutually exclusive explanations for this departure from past experience first at least part of the paper bill spread s predictive content with respect to business cycle fluctuations stems from its role as an indicator of monetary policy but the 1990 1991 recession was unusual in postwar u s experience in not being immediately precipitated by tight monetary policy second movements of the spread during the few years just prior to the 1990 1991 recession were strongly influenced by changes in the relative quantities of commercial paper bank cds and treasury bills that occurred for reasons unrelated to the business cycle this lat

monetary aggregates and liquidity in a neo wicksellian framework woodford 2003 describes a popular class of neo wicksellian models in which monetary policy is characterized by an interest rate rule and the money market and financial institutions are typically not even modeled critics contend that these models are incomplete and unsuitable for monetary policy evaluation our banks and bonds model starts with a standard neo wicksellian model and then adds banks and a role for bonds in the liquidity management of households and banks the banks and bonds model gives a more complete description of the economy but the neo wicksellian model has the virtue of simplicity our purpose here is to see if the neo wicksellian model gives a reasonably accurate account of macroeconomic behavior in the more complete banks and bonds model we do this by comparing the models second moments variance decompositions and impulse response functions we also study the role of monetary aggregates in predicting inflation in the two models

an analysis of life satisfaction in albania an heteroscedastic ordered probit model approach this paper uses the nationally representative albanian living standards measurement study survey from 2005 to investigate the determinants of life satisfaction in common with much of the existing empirical literature that models life satisfaction or subjective well being this paper exploits an ordered probit model in contrast to the existing literature however the current study places an important emphasis on regression model evaluation diagnostic testing revealed a number of econometric model deficiencies but the explicit incorporation of a variance function into the ordered probit model resolved all detected problems the tenor of the key findings generally reflects that found in the literature on the determinants of life satisfaction for both advanced capitalist and transitional economies however a number of additional themes with a strong albanian dimension were interrogated in particular our study revealed evidence of long memories among albanian respondents with respect to the collapse of that country s notorious pyramid schemes and the scarring effects of the episode continue to impact on life satisfaction even with the passage of almost eight years a sizeable effect for communal level criminal activity on life satisfaction was also detected in addition our econometric estimates also provided some empirical insights on the monetary value of friendship and the costs of children

solution of macromodels with hansen sargent robust policies some extensions abstract we summarize some methods useful in formulating and solving hansen sargent robust control problems and suggest extensions to discretion and simple rules matlab octave and gauss software is provided we illustrate these extensions with applications to the term structure of interest rates the time inconsistency of optimal monetary policy the effects of expectations on the variances of inflation and output and on whether central banks should make their forecasts public

robustness of subjective welfare analysis in a poor developing country madagascar 2001 the authors analyze the subjective perceptions of poverty in madagascar in 2001 and their relationship to objective poverty indicators they base their analysis on survey responses to a series of subjective perception questions the authors extend the existing empirical methodology for estimating subjective poverty lines on the basis of categorical consumption adequacy questions based on this methodology they calculate the household specific subjective poverty lines and compare the poverty profiles derived from different subjective welfare questions the results show that the aggregate poverty measures derived from consumption adequacy questions accord quite well with the poverty measures based on objective poverty lines the subjective welfare analysis can be used in poor developing countries for evaluating socioeconomic and distributional impacts of various policy interventions

how sensible is the leyden individual welfare function of income a reply abstract in this paper we react to seidl s 1994 critique on the leyden approach our conclusion is that seidl s critique is ill founded as a serious critique on the leyden approach

monetary policy rules macroeconomic stability and inflation a view from the trenches i estimate a forward looking monetary policy reaction function for the federal reserve for the periods before and after paul volcker s appointment as chairman in 1979 using information that was available to the fomc in real time from 1966 to 1995 the results suggest broad similarities in policy and point to a forward looking approach to policy consistent with a strong reaction to inflation forecasts during both periods this contradicts the hypothesis based on analysis with ex post constructed data that the instability of the great inflation was the result of weak fomc policy responses to expected inflation a difference is that prior to volcker s appointment policy was too activist in reacting to perceived output gaps that retrospectively proved overambitious drawing on contemporaneous accounts of fomc policy i discuss the implications of the findings for alternative explanations of the great inflation and the improvement in macroeconomic stability since then

measuring poverty using qualitative perceptions of consumption adequacy we show that subjective poverty lines can be derived using simple qualitative assessments of perceived consumption adequacy based on a household survey we implement the method using survey data for jamaica and nepal respondents were asked whether their consumptions of food housing and clothing were adequate for their family s needs the implied poverty lines are robust to alternative methods of dealing with other components of expenditure the aggregate poverty rates accord quite closely with those based on independent objective poverty lines however there are notable differences in the geographic and demographic poverty profiles

how sensible is the leyden individual welfare function of income abstract the leyden economists contend that the individual welfare function utility function of income is best represented by a lognormal distribution function they have presented ample data to document the good empirical fit of the lognormal hypothesis this paper presents reexamines and criticises the theoretical foundations of the lognormal hypothesis and finds that this edifice is not built on solid ground neither from the point of view of economic theory nor of experimental psychology moreover it investigates the paradox of the good empirical fit of the lognormal hypothesis in spite of its theoretical deficiencies it is shown that the lognormal hypothesis is observationally equivalent to the logarithmic power welfare function when respondents evaluate welfare according to a normal lognormal distribution function

testing for indeterminacy an application to u s monetary policy reply this paper considers a prototypical new keynesian model in which the equilibrium is undetermined if monetary policy is passive the likelihood based estimation of dynamic equilibrium models is extended to allow for indeterminacies and sunspot fluctuations we construct posterior weights for the determinacy and indeterminacy region of the parameter space and estimates for the propagation of fundamental and sunspot shocks according to the estimated model u s monetary policy post 1982 is consistent with determinacy whereas the pre volcker policy is not we find that before 1979 indeterminacy substantially altered the propagation of shocks

industrial districts old wine in new bottles harrison b 1992 industrial districts old wine in new bottles reg studies 26 469 483 according to the theory of industrial districts a new wave of economic growth is being led in a number of regions in europe north america and east asia by spatially concentrated networks of mostly small and medium sized enterprises often using flexible production technology and characterized by extensive local interfirm linkages does this amount to a re emergence of the dominance of what urban and regional economists call agglomeration economies over the well known pressures on business to spatially disperse its operations neoclassical economic theorizing from marshall to perroux provides one perspective on the contemporary industrial district phenomenon another is afforded by granovetter s more recent elaboration of the ideas of embedding under and over socialization confronting each of these theoretical approaches with the other leads me to conclude that the industrial district prototypes involv

biased perceptions of income distribution and preferences for redistribution evidence from a survey experiment abstract individual perceptions of income distribution play a vital role in political economy and public finance models yet there is little evidence regarding their origins or accuracy this study examines how individuals form these perceptions and explores their potential impact on preferences for redistribution a tailored household survey provides original evidence on systematic biases in individuals evaluations of their own relative position in the income distribution the study discusses one of the mechanisms that may generate such biases based on the extrapolation of information from endogenous reference groups and presents some suggestive evidence that this mechanism has significant explanatory power the impact of these biased perceptions on attitudes toward redistributive policies is studied by means of an experimental design that was incorporated into the survey which provided consistent information on the own ranking within the income distribution to a randomly selected group of respondents the evidence suggests that those who had overestimated their relative position and thought that they were relatively richer than they were tend to demand higher levels of redistribution when informed of their true ranking

weakly relative poverty prevailing measures of relative poverty are unchanged when all incomes grow or contract by the same proportion this property stems from seemingly implausible assumptions about the disutility of relative deprivation and the cost of social inclusion the authors propose weakly relative lines that relax these assumptions on calibrating our measures to national poverty lines and survey data we find that half the population of the developing world in 2005 lived in poverty only half of whom were absolutely poor the total number of poor rose over 1981 to 2005 despite falling numbers of absolutely poor with sustained economic growth the incidence of relative poverty became less responsive to further growth the number of relatively poor rose just as the numbers of absolutely poor fell

who wants to redistribute the tunnel effect in 1990s russia abstract support for governmental redistribution tended to be greater for the poor than the rich in a representative sample of russian adults in 1996 however support for redistribution is higher amongst those who expect their welfare to fall and this effect is strongest amongst the currently well off a rising trajectory inhibits demand for redistribution support is also stronger in rural areas amongst those with less schooling those who fear losing their job the elderly and amongst women our results are consistent with albert hirschman s idea of a tunnel effect whereby prospects of mobility in both directions influence demand for governmental redistribution

the role of liquid government bonds in the great transformation of american monetary policy abstract a fundamental shift in monetary policy occurred around 1980 the fed went from a passive policy to an active policy we study a model in which government bonds provide transactions services we present two calibrations of our model using pre and post 1980 data we show that estimates of pre and post 1980 policy rules all lie within our determinacy regions but the pre 1980 policy was a very bad monetary policy even if it avoided sunspot equilibria model simulations suggest that household welfare would have increased by 3 3 percent of permanent consumption in this period under an active policy

rural income generating activities whatever happened to the institutional vacuum evidence from ghana guatemala nicaragua and vietnam this paper assesses the current rural development practice against the main trends in recent rural development thinking based on evidence from four country case studies while much progress has been made in understanding the need to look beyond only agriculture for the promotion of productive activities in rural areas and the institutional vacuum consistently identified in the rural non farm literature is gradually being filled much remains to be done one aspect on which more research is particularly needed is the development of better mechanisms to promote productive investment rather than just social investment and to assess the appropriate level community regional national at which to do this

nominal price rigidity money supply endogeneity and business cycles abstract this paper investigates the ability of nominal price rigidity to explain the co movement of inflation with the cyclical component of output observed in the post war u s data a dynamic general equilibrium model is constructed with the introduction of monopolistic competition and nominal price rigidity in a standard real business cycle model allowing for an endogenous money supply rule it is then demonstrated that sticky price models can explain the observed associations between movements in inflation and output much better than flexible price models this result depends little on whether money supply is assumed to be endogenous or not

self rated economic welfare in russia abstract most of those russian adults who feel that they are poor are not classified as such in the poverty statistics and most of those who are classified as poor don t feel that way we study the determinants of peoples perceptions of their economic welfare in an unusually rich socioeconomic survey while income is a highly significant predictor subjective economic welfare is influenced by many other factors including health education employment assets relative income in the area of residence and expectations about future welfare insights are obtained into how objective data should be weighted in assessing economic welfare

monetary fiscal policy interactions and fiscal stimulus abstract increases in government spending trigger substitution effects both inter and intra temporal and a wealth effect the ultimate impacts on the economy hinge on current and expected monetary and fiscal policy behavior studies that impose active monetary policy and passive fiscal policy typically find that government consumption crowds out private consumption higher future taxes create a strong negative wealth effect while the active monetary response increases the real interest rate this paper estimates markov switching policy rules for the united states and finds that monetary and fiscal policies fluctuate between active and passive behavior when the estimated joint policy process is imposed on a conventional new keynesian model government spending generates positive consumption multipliers in some policy regimes and in simulated data in which all policy regimes are realized the paper reports the model s predictions of the macroeconomic impacts of the american recovery and reinvestment act s implied path for government spending under alternative monetary fiscal policy combinations

a monetary explanation of the equity premium term premium and risk free rate puzzles this paper develops and estimates a monetary model that offers an explanation of some puzzling features of observed returns on equities and default free bonds the key feature of the model is that some assets other than money play a special role in facilitating transactions which affects the rate of return that they offer the model is capable of producing a low risk free rate a high equity premium and an average positive relationship between maturity and term premium for default free bonds the model s implications for the joint distribution of asset returns velocity inflation money growth and consumption growth are also compared to the behavior of these variables in the u s economy

the effects of a calamity on income and wellbeing of poor microfinance borrowers the case of the 2004 tsunami shock abstract we investigate the effects of the 2004 tsunami on a sample of microfinance borrowers our findings show that the severe loss of income of damaged borrowers only partially explains the dip in wellbeing this is because the latter is also related to economic losses not measured by current income that is loss in wealth or in permanent income and by psychological or emotional effects finally we find that the role of risk on the tsunami impact is partially captured by the interaction of the damage dummy with borrowers productive activity

growth pole strategies in regional economic planning a retrospective view part 2 implementation and outcome the paper continues from part 1 which appeared in the previous issue of the journal the primary concern is with neglected aspects of the growth pole strategy particularly as these relate to its i

the persistence of subjective poverty in urban ethiopia using panel data spanning 15 years this paper investigates the persistence and correlates of subjective and consumption poverty in urban ethiopia despite the decline in consumption poverty in recent years which has been linked to rapid economic growth subjective poverty has remained largely unchanged dynamic probit regression results show that households with a history of past poverty continue to perceive themselves as poor even if their material consumption improves our results also suggest that the relative economic position of households is a strong determinant of subjective poverty and having at least some type of employment reduces the likelihood that households will perceive themselves as poor even if they remain in objective poverty receiving remittances from abroad on the other hand does not reduce perceived poverty even if it raises material consumption we argue that any analysis to measure the impact of growth on welfare should encompass subjective measures as well

too poor to be green consumers a field experiment on revealed preferences for firewood in rural guatemala the paper reports on a field experiment that investigates whether households in guatemala are willing to surrender a small material gain in order to buy legal rather than illegal firewood given the ineffectiveness of command and control policies to curb the problem of illegal logging in guatemala the experiment assesses the potential viability of market oriented solutions local consumers in developing countries are generally believed to be too poor to pay a premium for green ethical products therefore little information has been gathered on willingness to pay wtp for such products and its determinants in non affluent consumer markets while our experiment on firewood consumption in central guatemala only implies a weak and indirect test of wtp for green products the results indicate that it is premature if not unwarranted to assume that the poor are not ready to make pro ethical choices in the marketplace moreover we find that information on the legal procedures for firewood extraction significantly affects consumer choice between legal and illegal firewood

adoption of improved wheat varieties and impacts on household food security in ethiopia this article evaluates the impact of the adoption of improved wheat varieties on food security using a recent nationally representative dataset of over 2000 farm households in ethiopia we adopted endogenous switching regression treatment effects complemented with a binary propensity score matching methodology to test robustness and reduced selection bias stemming from both observed and unobserved characteristics we expand this further with the generalized propensity score gps approach to evaluate the effects of continuous treatment on the response of the outcome variables we find a consistent result across models indicating that adoption increases food security and farm households that did adopt would also have benefited significantly had they adopted new varieties this study supports the need for vital investments in agricultural research for major food staples widely consumed by the poor and efforts to improve access to modern varieties and services policies that enhance diffusion and adoption of modern wheat varieties should be central to food security strategies in ethiopia

fiscal requirements for price stability maintaining price stability requires not only commitment to an appropriate monetary policy rule but an appropriate scal policy rule as well ricardian equivalence does not imply that scal policy is irrelevant except in the case of a certain class of policies ricardian policies the role of scal developments in inflation determination under a non ricardian regime is illustrated through an analysis of the bond price support regime of the 1940s a monetary scal regime with attractive properties would combine a taylor rule for monetary policy with nominal decit targeting as a scal policy commitment

a journey without maps the regional policies of the 1964 70 british labour government o hara g 2005 a journey without maps the regional policies of the 1964 70 british labour government regional studies 39 1183 1195 this paper examines four influences on british regional policy in the late 1960s party politics in the context of the economic environment the structure of government the influence of the new regional economics and the impact of new knowledge and statistics much of the confusion of british regional policies in the 1960s is found to have been due to political and administrative divisions allowed by the fact that new theoretical approaches and data were so novel and uncertain policies are therefore advocated that are based on established research clearly and simply defined and determined democratically within regions themselves

monetary policy and the natural rate of interest it is most important for monetary policy to be able to track the unobserved natural rate of interest in environments in which that rate takes big and sustained swings away from its long run equilibrium to establish this fact we study two models one is a standard new keynesian model in the other government bonds provide liquidity and deficit financed spending shocks cause large and persistent movements in the natural rate because they create extra liquidity policy rules that cannot make the policy rate track the natural rate perform poorly in both of these models but they are especially bad in the second model households would give up half of a percent of their onsumption each period to have a rule that could track the natural rate even in the standard model households would give up a quarter of a percent of consumption to obtain such a rule first difference rules perform quite well in this environment and they do not require any information about the natural rate of interest model uncertainty is perhaps the main reason why it is difficult to track the natural rate when model uncertainty is taken into account the

the potential bias in producer service employment estimates the case of the canadian space economy footloose information technology producer services are increasingly viewed as the new engines of regional growth and employment creation the claim is often that appropriate government policy can engineer comparative advantage in that direction by means of judicious subsidisation the evaluation of such claims relies on accurate statistical data we argue that attempts to distinguish in survey data or official statistics the subset of services commonly but unofficially known as producer services from consumer and government services may result in a potential bias with implications for public policy an input output model is developed for estimating this bias by decomposing service industry data into its producer and consumer services content this method can give a truer estimate of the actual employment in producer services at various spatial levels we find a systematic bias in official data and a non systematic bias in survey data the model is applicable to countries and regions for which input ou

asset market participation monetary policy rules and the great inflation this paper argues that limited asset market participation is crucial in explaining u s macroeconomic performance and monetary policy before the 1980s and their changes thereafter in an otherwise conventional sticky price model standard aggregate demand logic is inverted at low enough asset market participation interest rate increases become expansionary passive monetary policy ensures equilibrium determinacy and maximizes welfare this suggests that federal reserve policy in the pre volcker era was better than conventional wisdom implies we provide empirical evidence consistent with this hypothesis and study the relative merits of changes in structure and shocks for reproducing the conquest of the great inflation and the great moderation

what determines gender inequality in household food security in kenya application of exogenous switching treatment regression this paper explores the link between the gender of a household head and food security in rural kenya the results show that the food security gap between male headed households mhhs and female headed households fhhs is explained by their differences in observable and unobservable characteristics fhhs food security status would have been higher than it is now if the returns coefficients on their observed characteristics had been the same as the returns on the mhhs characteristics even if that had been the case however results indicate that fhhs would still have been less food secure than the mhhs due to unobservable characteristics

just in time inventory control and the economic integration of japanese owned manufacturing plants with the county state and national economies of the united states reid n 1995 just in time inventory control and the economic integration of japanese owned manufacturing plants with the county state and national economies of the united states reg studies 29 345 355 this paper attempts to shed light on the ongoing debate concerning the spatial implications of just in time jit manufacturing systems the central issue around which this debate has focused concerns the extent to which use of jit inventory control encourages the spatial clustering of the members of a jit network this paper tests the hypothesis that plants which use jit inventory control purchase a greater proportion of their material inputs from inside their host economy than plants which do not use jit inventory control using survey data collected from 239 us based japanese owned manufacturing plants this hypothesis is tested for host economies defined at three geographic scales county state and national support for the hypothesis is found at the county but not at the state and national scales

debt nonneutrality policy interactions and macroeconomic stability we study the consequences of non neutrality of government debt for macroeconomic stabilization policy in an environment where prices are sticky assuming transaction services of government bonds ricardian equivalence fails because public debt has a negative impact on its marginal rate of return and thus on private savings stability of equilibrium sequences requires a stationary evolution of real public debt which steers inflation expectations and rules out endogenous fluctuations under anti inflationary monetary policy regimes macroeconomic fluctuations tend to decrease with the share of tax financing which justifies tight debt constraints in particular a balanced budget policy stabilizes the economy under cost push shocks such that output and inflation variances can be lower than in a corresponding case where debt is neutral

monetary rules for small open emerging economies abstract this paper develops a variant of the imf s global economic model suitable to analyze macroeconomic dynamics in open economies and uses it to assess the effectiveness of taylor rules and inflation forecast based ifb rules in stabilizing variability in output and inflation our findings suggest that a simple ifb rule that does not rely upon any direct estimates of the equilibrium real interest rate and places a relatively high weight on the inflation forecast may perform better in small open economies than conventional taylor rules

interest rate rules and price determinacy the role of transactions services of bonds abstract interest rate rules have been associated with price indeterminacy when they do not respond aggressively enough to inflation price indeterminacy is typically associated with indeterminacy of real bond balances suggesting that the missing element is a meaningful role for government bonds we assume that government bonds provide arbitrarily small transactions services and show that this can dramatically change the local and global determinacy conditions in particular the specification of fiscal policy affects the aggressiveness with which monetary policy must respond to inflation to deliver local determinacy a range of passive monetary policies even an interest rate peg may yield determinacy

the cost of nominal rigidity in nns models we present a model with calvo wage and price setting capital formation and estimated rules for government spending and monetary policy our model captures many aspects of u s data including the volatility that has been observed in various efficiency gaps we estimate the cost of nominal rigidity welfare under flexible wages and prices minus welfare with nominal rigidities to be as much as 3 of consumption each period since there are interest rate rules that virtually eliminate this cost our model suggests that contrary to lucas s 2003 assertion there is considerable room for improvement in demand management policy

optimal fiscal and monetary policy under sticky prices this paper studies optimal fiscal and monetary policy under sticky product prices the theoretical framework is a stochastic production economy without capital the government finances an exogenous stream of purchases by levying distortionary income taxes printing money and issuing one period nominally risk free bonds the main findings of the paper are first for a miniscule degree of price stickiness i e many times below available empirical estimates the optimal volatility of inflation is near zero this result stands in stark contrast with the high volatility of inflation implied by the ramsey allocation when prices are flexible the finding is in line with a recent body of work on optimal monetary policy under nominal rigidities that ignores the role of optimal fiscal policy second even small deviations from full price flexibility induce near random walk behavior in government debt and tax rates third sluggish price adjustment raises the average nominal interest rate above the one called for by the friedman rule finally an interest rate feedback rule whereby the nominal interest rate depends on inflation and output fits well the data emanating from the ramsey economy however the fitted rule is not of the taylor type for the implied inflation coefficient is less than one and close to zero and the output coefficient is negative jel classification e52 e61 e63

the performance of forecast based monetary policy rules under model uncertainty we investigate the performance of forecast based monetary policy rules using five macroeconomic models that reflect a wide range of views on aggregate dynamics we identify the key characteristics of rules that are robust to model uncertainty such rules respond to the one year ahead inflation forecast and to the current output gap and incorporate a substantial degree of policy inertia in contrast rules with longer forecast horizons are less robust and are prone to generating indeterminacy in light of these results we identify a robust benchmark rule that performs very well in all five models over a wide range of policy preferences