empirical evidence on competitive bidding some surprising results abstract this paper compares the assumptions and predictions of common values auction theory with ocs leasing data we find that the general assumption of continuous bid density functions is not supported by the empirical evidence this leads us to suggest several lines for future theoretical experimental and empirical research

intertemporal labor supply and human capital accumulation we solve and estimate a dynamic model that allows agents to optimally choose their labor hours and consumption and that allows for both human capital accumulation and savings estimation results and simulation exercises indicate that the intertemporal elasticity of substitution is much higher than the conventional estimates and the downward bias comes from the omission of the human capital accumulation effect the human capital accumulation effect renders the life cycle path of the shadow wage relatively flat even though wages increase with age hence a rather flat life cycle labor supply path can be reconciled with a high intertemporal elasticity of substitution

some empirical evidence on the effects of shocks to monetary policy on exchange rates this paper investigates the effects of shocks to u s monetary policy on exchange rates we consider three measures of these shocks orthogonalized shocks to the federal funds rate orthogonalized shocks to the ratio of nonborrowed to total reserves and changes in the romer and romer index of monetary policy in sharp contrast to the literature we find substantial evidence of a link between monetary policy and exchange rates specifically according to our results a contractionary shock to u s monetary policy leads to i persistent significant appreciations in u s nominal and real exchange rates and ii significant persistent deviations from uncovered interest rate parity in favor of u s interest rates

living in an uncertain world environment substitution local and global indeterminacy abstract environmental problems are increasingly frequent intensive and unpredictable to protect from the observed environmental depletion economic agents increasingly react by substituting previously free public environmental goods with costly private goods this substitution mechanism however can contribute to enhance the indeterminacy of the possible consequences of mankind activity further increasing the uncertainty on the future environmental trajectories to investigate this issue the paper proposes an intertemporal optimization problem in which agents derive utility from three goods leisure a public environmental good and or private consumption that can be used as a substitute for the environment the analysis shows that the economy may end up being trapped in the pareto dominated steady state and that both local and global indeterminacy may arise in the model no indeterminacy however emerges if green technologies are used so that production has no negative effects on the environment

tax policy and aggregate demand management under catching up with the joneses this paper examines the role for tax policies in productivity shock driven economies with catching up with the joneses utility functions the optimal tax policy is shown to affect the economy countercyclically via procyclical taxes i e cooling down the economy with higher taxes when it is overheating in booms and stimulating the economy with lower taxes in recessions to keep consumption up thus models with catching up with the joneses utility functions call for traditional keynesian demand management policies but for rather unorthodox reasons

a two sector model of endogenous growth with leisure externalities abstract this paper considers the impact of leisure preference and leisure externalities on growth and labor supply in a lucas 1988 12 type model as in gomez 2008 7 with a separable non homothetic utility and the assumption that physical and human capital are both necessary inputs in both the goods and the education sectors in spite of the non concavities due to the leisure externality the balanced growth path is always unique which guarantees global stability for comparative static exercises we find that small differences in preferences toward leisure or in leisure externalities can generate substantial differences in hours worked and growth which may play a significant role in explaining differences in growth paths between the us and europe in addition to the mechanisms uncovered in prescott 2004 15 relying on differing marginal tax rates on labor income our model indicates however that a higher preference for leisure or leisure externality implies less growth but also less education attainment which seems counterfactual

interpreting the macroeconomic time series facts the effects of monetary policy existing theory and evidence on the effects of monetary policy are reviewed substantial room for disagreement among economists remains new evidence based on multivariate time series studies of several countries is presented while certain patterns in the data consistent with effective monetary policy are strikingly similar across countries others particularly the tendency of interest rate increases to predict high inflation are harder to reconcile with effective monetary policy

uniqueness and indeterminacy on the dynamics of endogenous growth abstract in this paper we study the dynamics of endogenous growth both in the model of lucas and in a generalization that incorporates a labor leisure choice we characterize the regions of the parameter space that give rise to unique equilibria as well as the regions that yield a continuum of equilibria with positive growth rates we find that such multiple equilibria exist for empirically very plausible parameters in particular when the lucas model is modified to incorporate endogenous labor journal of economic literature numbers e00 e3 o40

nobel lecture the transformation of macroeconomic policy and research what i am going to describe for you is a revolution in macroeconomics a transformation in methodology that has reshaped how we conduct our science prior to the transformation macroeconomics was largely separate from the rest of economics indeed some considered the study of macroeconomics fundamentally different and thought there was no hope of integrating macroeconomics with the rest of economics that is with neoclassical economics others held the view that neoclassical foundations for the empirically determined macro relations would in time be developed neither view proved correct finn kydland and i have been lucky to be a part of this revolution and my address will focus heavily on our role in advancing this transformation now all stories about transformation have three essential parts the time prior to the key change the transformative era and the new period that has been affected by the change and that is the story i am going to tell how macroeconomic policy and research changed as a result of the transformation of macroeconomics from constructing a system of equations of the national accounts to an investigation of dynamic stochastic model economies

growth effects of flat rate taxes recent estimates of the potential growth effects of tax reform vary wildly ranging from zero to eight percentage points using an endogenous growth model we assess which model features and parameter values are important for determining the quantitative impact of tax reform we find that the critical parameters are factor shares depreciation rates the elasticity of intertemporal substitution and the elasticity of labor supply the elasticities of substitution in production on the other hand are relatively unimportant the quantitative estimates in several recent papers are compared with each other and with some of the evidence from u s experience we find that robert lucas s conclusion that tax reform would have little or no effect on the u s growth rate is theoretically robust and consistent with the evidence

optimal bidding in auctions from a game theory perspective abstract the game theoretic perspective in auction bidding has provided a powerful normative framework for the analysis of auctions and it has generated an impressive volume of research contributions tracing this research we review key recent advances which have greatly expanded our understanding of the operation of auctions and produced a more accurate analysis of mechanism design and optimal bidding we follow various experimental studies which have shown that the predictive power of auction theory remains in many cases limited for this reason we concentrate on research themes which enhance the applicability of auction theory leading to more realistic descriptions of bidding behaviors we identify important innovations which expand the environment of auction bidding and carry us beyond rational decision making we conclude providing directions of future research and discussing their implications

participation constraints in the vickrey auction abstract economic agents are characterized by two privately observable parameters their willingness to pay for an item being auctioned and their reservation utility level which must be exceeded in expectation to induce them to participate in this auction this creates a situation in which the distribution of willingness to pay among the bidders is endogenous for the case in which the parameters are jointly uniformly distributed the existence of an equilibrium is proven and characterized

real exchange rate monetary policy and the u s economy evidence from a favar model this paper examines the effects of exchange rate depreciation to the u s economy in a factor augmented vector autoregression model using monthly data of 148 variables for the post bretton woods period of 1973 2017 exchange rate shock is identified to reflect exogenous disturbances to the foreign exchange market and movements in exchange rate that are not accounted for by changes in the u s monetary policy we find that depreciation is expansionary and inflationary to the broad u s economy the current account improves over time conforming to the j curve theory and monetary policy is leaning against the wind jel e3 e5 f31 f32 f41

admiration is a source of indeterminacy abstract are consumption externalities sources of indeterminacy the answer is negative in conventional wisdom this paper shows consumption externalities establish local indeterminacy if the degree of decreasing impatience is sufficiently large dynamic models with indeterminacy are valuable as they tend to explain economic fluctuations without relying on exogenous shocks and question interpretation of simple estimation obtained by pooling data among others

sources of fluctuations in real and nominal exchange rates this paper attempts to distinguish empirically real versus nominal sources of fluctuations in real and nominal exchange rates the distinction is obtained by imposing the following restriction on the bivariate vector autoregression of real and nominal exchange rates over the current flexible rate period nominal shocks are required to have no permanent effect on the level of the real exchange rate given this identification scheme the author analyzes the dynamic effects and relative importance of real and nominal shocks with regards to exchange rates the findings indicate that real shocks dominate nominal shocks for both exchange rate series over short and long frequencies copyright 1992 by mit press

the stock market and exchange rate dynamics abstract this paper articulates a model of the open economy in which as in tobin 1978 the price of shares in the stock market subtitutes for the real interest rate in the determination of aggregate demand the stock market reduces the impact of monetary policy on the real exchange rate indeed if the link between stock prices and aggregate demand is important enough the impact of monetary policy on the real exchange rate can be reversed in contrast with standard dynamic mundell flemming models anticipated fiscal policy can be expansionary rather than contradictionary as in for example burgstaller 1983 blanchard 1984 and branson et al 1985

a two sector model of endogenous growth with leisure in this paper we analyze a class of endogenous growth models with physical and human capital and with three altematives uses of time unqualified leisure work and education in contrast to some other related models we find that even in the absence of technological extemalities there could be multiple balanced paths we provide a characterization of the qualitative behavior of consumption leisure work and education over those balanced paths and study their transitional dynamics

equilibria in first price auctions with participation costs this paper characterizes the equilibria of first price auctions with participation costs in the independent private values environment bidders use cutoff strategies to decide whether they will participate in the auction it is shown that when bidders are homogeneous there always exists a unique symmetric equilibrium and further there is no other equilibrium when valuation distribution functions are inelastic when distribution functions are elastic at the symmetric equilibrium there exists an asymmetric equilibrium inelasticity elasticity includes concavity convexity of distribution functions as a special case we find similar results when bidders are heterogeneous

are the macroeconomic effects of oil price shock symmetric a factor augmented vector autoregressive approach abstract this paper aims to examine the asymmetric effect of oil price shocks on real economic activity in the u s within the context of a nonlinear factor augmented vector autoregressive favar model by employing simulation methods we trace the effects of positive and negative oil price shocks on the macroeconomic variables through the impulse response function irf it is found that the negative impacts of higher oil prices are larger than the positive effects of lower oil prices and the asymmetric effects are more evident when the oil price shocks are larger the results are robust to different lag specification and choice of factors

equilibrium dynamics in two sector models of endogenous growth abstract this paper considers two extensions of the uzawa lucas framework in our first extension physical capital is included as an input of the educational sector in our second extension leisure considerations are assumed to play a positive role in agents welfare the case with physical capital in the production of education features under standard conditions a unique steady state and thus the dynamics are qualitatively similar to those of the original uzawa lucas framework in our second model with leisure there could be a multiplicity of steady states with different rates of growth what determines here the chosen rate of growth is the initial relative amount of physical and human capital our results therefore illustrate that in a world without externalities there could coexist different long term growth rates

transitional dynamics in two sector models of endogenous growth the steady state and transitional dynamics of two sector models of endogenous growth are analyzed in this paper we describe necessary conditions for endogenous growth the conditions allow us to reduce the dynamics of the solution to a system with one state like and two control like variables we analyze the determinants of the long run growth rate we use the time elimination method to analyze the transitional dynamics of the models we find that there are transitions in real time if the point in time production possibility frontier is strictly concave which occurs for example if the two production functions are different or if there are decreasing point in time returns in any of the sectors we also show that if the models have a transition in real time the models are globally saddle path stable we find that the wealth or consumption smoothing effect tends to dominate the substitution or real wage effect so that the transition from relatively low levels of physical capital is carried over through high work effort rather than high savings we develop some empirical implications we show that the models predict conditional convergence in that in a cross section the growth rate is predicted to be negatively related to initial income but only after some measure of human capital is held constant thus the models are consistent with existing empirical cross country evidence authors

jealousy and equilibrium overconsumption the idea that the happiness of an individual depends upon the consumption of others is widely viewed as an important feature of our shared social existence recent research in finance has used this idea through consumption externalities to explore asset pricing anomalies consumption externalities potentially break the link between pareto optimality and competitive equilibria and open the door for beneficial government intervention e g lars ljungqvist and harald uhlig 2000 in this paper we delineate two effects that a consumption externality may have an increase in aggregate consumption may a raise the marginal utility of individual consumption relative to leisure and or b lower an individual s utility level we refer to a as keeping up with the joneses henceforth kuj following jordi gali 1994 and we refer to b as jealousy jealousy is a distinct concept from kuj under kuj an individual derives greater utility from additional own consumption relative to leisure when others consume more at the same time higher per capita consumption holding fixed individual consumption can trigger either jealousy so that individual utility falls or admiration so that individual utility rises in section i of this paper we show that jealousy implies that the laissez faire equilibrium consumption level is greater than the optimal level whether preferences exhibit kuj is not necessary for this main result intuitively in the presence of jealousy consumption is similar to pollution overpollution exists because individuals do not take into account the cost of polluting on others not because an increase in economywide pollution makes the return to individual polluting higher similarly overconsumption exists because individuals do not take into account the negative effect of own consumption on jealous others things go in the opposite direction when individuals are admiring in section ii we consider a functional form that encompasses several existing models we show that jealousy determines the optimal tax to correct overconsumption and that kuj is mainly important for asset pricing

exchange rate stabilization in the erm identifying european monetary policy reactions abstract we develop the structural var models for european countries france denmark and germany during the erm period to examine the monetary policy reactions especially the within erm exchange rate stabilization in addition to analyzing the impulse responses and variance decomposition we present the full monetary reaction function in an interpretable manner without introducing additional assumptions the results suggest some asymmetry in exchange rate stabilization non german exchange rate stabilization is stronger than german exchange rate stabilization but do not support the hypothesis that german monetary policy was independent of the erm

consumption externalities habit formation and equilibrium efficiency we analyze the welfare properties of the competitive equilibrium in a capital accumulation model where individual preferences are subject to both habit formation and consumption spillovers using an additive specification for preferences according to which the argument in the utility function is a linear combination of present and past values of own consumption and consumption spillovers we analyze the circumstances under which these spillovers are a source of inefficiency it is shown that consumption externalities have to interact with habits in order to generate an inefficient dynamic equilibrium finally we characterize optimal tax policies aimed at restoring efficient decentralized paths

aspirations health and the cost of inequality how does inequality motivate people and at what cost in a model of perpetual youth people have heterogeneous upward looking aspirations they value their consumption relative to the conditional mean of those above them in the distribution their survival depends on health capital produced from time investment and health goods higher fundamental inequality working through the aspirations gap motivates people to work and save more economic outcomes improve but income and consumption inequality worsen because the poor have less capacity to respond on the labor market by diverting resources from health production aspirations also worsen mortality especially for the poor though relative income has a strong negative effect on personal health inequality has a weak effect on population health explaining an empirical puzzle on the relative income and health gradient

auctions with heterogeneous entry costs it is well known that if bidders have independent private values and homogeneous entry costs a rst or second price auction with a reserve price equal to the seller s value maximizes social surplus and seller revenue and leaves bidders with no surplus further in mixed strategy entry equilibria social surplus and seller revenue decrease with the number of bidders we show that when entry costs are heterogeneous and private information the revenue maximizing reserve price is above the seller s value a positive inspection fee and a reserve price equal to the seller s value generates even more revenue and in either case bidders capture informational rents further seller revenue and social surplus may either increase or decrease with the number of bidders nevertheless seller revenue is asymptotically the same whether entry costs are homogeneous or heterogeneous our results are framed in terms of screening values rather than reserve prices and apply to any standard auction

business cycles and labor market search the quantitative implications of labor market search for economic fluctuations are evaluated in the context of a real business cycle model incorporating labor market search into the model is found to improve its empirical performance along several dimensions in particular hours now fluctuate substantially more than wages and the contemporaneous correlation between hours and productivity falls in addition the model replicates the observation that output growth displays positive autocorrelation at short horizons overall the empirical results suggest that the labor market search environment embodies a quantitatively important propagation mechanism copyright 1996 by american economic association

resale in second price auctions with costly participation abstract we study sealed bid second price auctions with costly participation and resale each bidder chooses to participate in the auction if her valuation is higher than her optimally chosen participation cutoff if resale is not allowed and the bidder valuations are drawn from a strictly convex distribution function the symmetric equilibrium where all bidders use the same cutoff is less efficient than a class of two cutoff asymmetric equilibria existence of these equilibria without resale is sufficient for existence of similarly constructed two cutoff equilibria with resale moreover the equilibria with resale are more asymmetric and under a sufficient condition more efficient than the corresponding equilibria without resale

coordination and externalities abstract we analyze the gains of coordinating decisions in a regulatory framework in which agents are sovereign and tax inducements are socially costly we consider a general multi agent situation with externalities among agents incomplete information and type dependent reservation utilities when the regulator optimally leaves informational rents to the most efficient agents centralized coordination reduces global activity coordination induces more activity when the principal optimally leaves rents to the most inefficient agents last if we impose budget balance our mechanism can also be interpreted as the optimal auction of a public good with congestion externalities journal of economic literatureclassification numbers d62 d82 l51

optimal tax policy in the presence of productive consumption and leisure externalities abstract this paper presents the optimal tax policy in an economy featuring consumption production and leisure externalities this extends prior models that only consider consumption and production externalities the immediate consequence is labor income should be taxed subsidized if the leisure externality is positive negative in addition numerical simulations show that in the presence of positive production externalities and irrespective of the sign of consumption externalities an increase in the importance of the leisure externality reduces the distortion generated by consumption and production externalities this effect is reversed if production externalities are negative

a general two sector model of endogenous growth with human and physical capital balanced growth and transitional dynamics abstract we examine a two sector endogenous growth model with general constant return to scale production technologies governing the evolution of human and physical capital we prove the existence uniqueness and saddle path stability of the balanced growth equilibrium a dual approach drawing on techniques from international trade theory is used to provide complete characterization of the transitional dynamics of consumption goods and education outputs human and physical capital inputs and the relative price of human capital investment we investigate the long run effects of changes in time preference and factor taxation and show the emergence of instability or indeterminacy when factor taxes are too distortionary journal of economic literatureclassification number d90

macroeconomic forecasting using diffusion indexes this article studies forecasting a macroeconomic time series variable using a large number of predictors the predictors are summarized using a small number of indexes constructed by principal component analysis an approximate dynamic factor model serves as the statistical framework for the estimation of the indexes and construction of the forecasts the method is used to construct 6 12 and 24 monthahead forecasts for eight monthly u s macroeconomic time series using 215 predictors in simulated real time from 1970 through 1998 during this sample period these new forecasts outperformed univariate autoregressions small vector autoregressions and leading indicator models

analysis of a two sector model of endogenous growth with capital income taxation this paper addresses a two sector model of endogenous growth in which one sector produces final goods and the other produces new human capital both sectors employ human as well as physical capital under constant returns to scale technologies unlike existing studies of this type of model that have mostly concentrated on steady state analysis or on numerical simulations of calibrated models this paper presents an analytical argument concerning the dynamic behavior of the growth path and the effects of capital income taxation in and out of the steady growth equilibrium it is demonstrated that the dynamic behavior of the economy and some policy effects depend heavily upon the magnitude of factor intensity used in each production sector copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association