optimal price and inventory adjustment in an open economy model of the business cycle this paper presents a macroeconomic model containing optimizing inventory holding firms that is consistent with a number of prominent empirical regularities concerning fluctuations in output exchange rates relative prices and money prices are sticky but they are not predetermined still our model is consistent with exchange rate overshooting in the sense of dornbusch typical sticky price models allow a divergence between current production and current demand but this divergence is never allowed to feed back into the model our optimal inventory adjustments reconcile divergences between current demand and production and the inventory stock movements provide expected future dynamics

political economic markets perts and pests in food and agriculture j i lyniversity of california berkeley jjept of agricultural and resource economic l working paper al cljdare i lorking paper 0 231 politic eco lic l rxets a d pests i j food l ti achiculture by per ts cordon c rausser ja nlnl tt junot tlon a riii ent st ticn giannini fou 1cl itiol1of ar ricultllrnj econo ll i cs july 11 w

beyond search fiat money in organized exchange am odel offiat money is constructed in which spatial separation and the logistics of communication are made explicit as in search theory but in which exchange is organized by profit seeking business enterprises as in all market economies firms mitigate search costs by opening shops that are easily located the model endogenizes the number of shops and which objects are traded in each shop it permits the double coincidence of wants and deals easily with divisible commodities equilibria may exist in which fiat money is used as a universal medium of exchange when such an equilibrium exists fiat money is essential in the sense that it is the universal medium of exchange in any efficient network of shops the model provides a foundation to cash in advance theory without specifying in advance that one object will be used as the universal medium of exchange

structure and performance the task of economic history jhe cliometric revolution in ecoknomic history wedded neoclassical economics and quantitative methods in order to describe and explain the performance of economies in the past economic history gained in rigor and scientific pretension but at the expense of exploring a much more fundamental set of questions about the evolving structure of economies that underlies performance 2 cliometricians have turned their backs on a long tradition stretching back from joseph schumpeter to karl marx to adam smith these scholars regarded economic history as essential because it added a dimension to economics its purpose was to analyze the parameters held constant by the economist if economics is a theory of choice subject to specified constraints a task of economic history was to theorize about those evolving constraints the failure of economic historians to provide their colleagues with a historical dimension to their perspective has reduced the effectiveness of economists in dealing with contemporary problems failure of economists to appreciate the transitory character of the assumed constraints and to understand the source and direction of these changing constraints is a fundamental handicap to further development of economic theory the challenge to the economic historian which has equally compelling implications for the economic theorist is to explain the transformation of the structure of the american economy in the past century 3 in the rest of this essay i shall explore this issue in order to specify some of the dimensions of the economic historian s task

inflation interest rates and welfare this paper develops a simple general equilibrium model of a monetary economy with a capital market money demand arises from a cash in advance constraint rather than from any direct role in the utility function and uncertainty gives rise to a meaningful portfolio choice between money and bonds we show that velocity is increasing in the rate of inflation and that the optimal monetary policy is that which maximizes real balances we also show that the real rate of interest is not invariant to monetary policy inflation lowers the real rate

interest rates and currency prices in a two country world abstract this paper is a theoretical study of the determination of prices interest rates and currency exchange rates set in an infinitely lived two country world which is subject both to stochastic endowment shocks and to monetary instability formulas are obtained for pricing all equity claims nominally denominated bonds and currencies and these formulas are related to earlier closely related results in the theories of money finance international trade

the rise of the chicago packers and the origins of meat inspection and antitrust the meat inspection act of 1891 and the sherman act of 1890 are closely tied this link makes clearer congress intent in enacting the legislation both laws were products of economic conditions after 1880 and reflected in part widespread concern about the market power of chicago meat packers the concerns of local slaughterhouses which were being displaced by new low cost refrigerated beef and of farmers who sold livestock to the large chicago packers were echoed elsewhere by other small businesses and farmers who feared for their livelihood during a time of structural change in the economy i introduction in the few years between 1887 and 1891 the legislative basis was established for major intervention by the federal government into the american economy the interstate commerce act of 1887 the sherman act of 1890 and the meat inspection act of 1891 1 with these laws the federal government became directly involved in the regulation of railroad rates antitrust enforcement and the inspection and certification of food quality for consumers representing a significant break from what had previously been considered an appropriate role for the federal government this legislation provided a new and permanent mandate for government regulation in the market economy despite the importance of these laws the link between the economic and political environment in the united states in the late nineteenth century on the one hand and the legislative histories of the laws on the other has not been thoroughly explored as a result the motives of congress for enacting these laws remain both unclear and controversial consider meat inspection and antitrust although most attention in the literature is focused on the 1906 meat inspection act made popular by the publication of upton sinclair s the jungle the initial legislation the meat inspection act of 1891 came fifteen years earlier and it addressed the production and consumption of fresh beef but as reported in this paper there is no evidence of a major health crisis regarding the consumption of beef at the time something else appears to have been on the mind of congress when it passed the legislation in 1891 the objectives of congress in enacting the sherman act are even more controversial because of the prominence of the law debate revolves around whether the sherman act was designed to promote competition and consumer welfare or to limit competition and protect special interests 2 this paper argues that to gain a better understanding of the origins of this important legislation and its early economic effects the laws must be placed into the context of the extraordinary changes taking place in the american economy in the late nineteenth century the linkages among the laws help to identify the underlying political and economic forces behind the legislation three broad characteristics of the economy must be kept in mind in analyzing this period first the post civil war period was a time of general deflation between 1864 and 1900 the consumer price index fell by 47 percent u s department of commerce 1975 211 in general prices for farm products followed the overall pattern but prices for cattle fell in real terms after the mid 1880s fluctuations in farm prices also appear to have coincided with periods of agrarian unrest 3 second as described by higgs 1971 and chandler 1977 the period after 1880 was a time of major structural change in the economy the economy was becoming more industrial and biased technological change economies of scale in production distribution and marketing as well as the lowering of transportation costs were fundamentally altering production methods and products this affected the competitive positions of many firms creating winners and losers james 1983 burns 1983 atack 1985 emerging large firms expanded from local to national and international markets and existing small firms found their local markets threatened by new competitors

exchange rate determination interest rates and an integrative approach to the demand for money abstract this paper presents a simple framework in which the money in the utility function miuf and the cash in advance cia approaches to the demand for money can be seen as equivalent this integrative approach to money demand is extended to a two country world and the equilibrium relationship between terms of trade exchange rates and interest rates implied by the underlying stochastic structure of the economy is discussed a theory of currency substitution is presented

a simple account of the behavior of long term interest rates recent empirical research on the term structure of interest rates has shown that the long term interest rate is well described by a distributed lag on short term interest rates but does not conform to the expectations theory of the term structure it has been suggested that the long rate overreacts to the short rate this paper presents aunified taxonomy of risk premia or deviations from the expectations theory this enables the hypothesis of overreaction to be formally stated it is shown that if anything the long rate has underreacted to the short rate however the independent movement of the long rate is primarily responsible for the failure of the expectations theory

currency prices terms of trade and interest rates a general equilibrium asset pricing cash in advance approach currency prices terms of trade and interest rates a general equilibrium asset pricing cash in advance approach

effects of inflation on the pattern of international trade this paper integrates a transactions based model of money with a real trade model and examines how steady state inflation affects the direction and size of international trade the effects of inflation work through changes in supplies of labour and capital which are chosen jointly with production and consumption by utility maximizing households if production exhibits constant returns to scale in domestically mobile factors then it is unlikely that the economy will produce both of the two traded goods for certain rates of inflation small changes can have dramatic effects on the direction of trade for other rates of inflation the volume of trade is affected when money is held for transactions purposes and factor supplies are endogenous changes in inflation can cause changes in the pattern of trade that do not reflect real underlying changes in comparative advantage

institutions and economic growth an historical introduction abstract in this essay the interdependence of political and economic institutions is examined against premises in neoclassical theories of economies which maintain that population and savings are the principal determinants of economic growth that institutions matter in the development of economies is the difference in assumptions i examine i look at the institutional frameworks that preceded adoption of the united states constitution and the northwest ordinance in early america i then trace the precedents of these american institutions to the evolution of common law in england where interests unconcerned with the crown coalesced to form competing political units i then contrast england s institutional development with the comparatively centralized enforcement mechanisms of spain to examine the hypothesis that institutional differences produce economic consequences

anticipated monetary policy in a cash in advance economy this paper analyses the effects of perfectly foreseen monetary policy within the framework of a standard cash in advance economy anticipated monetary policy is shown to have real effects by influencing inflationary expectations in a cash in advance economy an increase in the anticipated rate of inflation reduces the return to labour supply and induces a substitution away from time spent in the labour market the paper analyses the implication of this substitution for the time paths of output prices interest rates real and nominal and stock market prices

the growth of government in the united states an economic historian s perspective abstract this paper first outlines the salient features of the growth of government in american history secondly it offers a neoclassical explanation of that history in which increasing specialization and division of labor brought on by the scientific technological revolution of the nineteenth century drastically altered the demand for and supply of government finally it argues that institutions matter and describes the way the particular structure of governments was important in the timing and pace of its growth

international interest rates exchange rates and the stochastic structure of supply in a dual currency flexible exchange rate model both nominal and real foreign exchange premia depend on investor risk attitudes consumption parameters and the stochastic structure of currency and commodity supplies when supplies are random their joint correlation structure determines the sign of the premia if the money supplies are identically distributed then all foreign exchange premia regardless of the currency of denomination are zero a positive correlation between the value of a country s currency and its nominal interest rate need not indicate real interest rate movements relative bond prices can be negatively correlated with the terms of trade recently there has been a great deal of interest in the construction and use of general equilibrium models of an international economy subject to random disturbances 1 however with the exceptions of stulz 1984 domowitz and hakkio 1985 hodrick and srivastava 1986 and stockman and svensson 1987 little effort has been devoted to expressing the relationships examined in these models in terms of parameters describing the underlying stochastic processes of the exogenous variables 2 stockman and svensson incorporated international capital flows into the model of svensson 1985 and calculated covariances between investment the current account the exchange rate and the terms of trade in terms of exogenous money and commodity supplies focusing more on financial market issues domowitz and hakkio and hodrick and srivastava simplified the case in advance model of lucas 1982 by assuming that the exogenous variables are independently lognormal and that investors have loglinear utility functions a procedure which allowed them to relate the premium required on forward exchange contracts to money supply variances stulz obtained similar results in a continuous time model where real money balances enter the utility function this paper employs a model similar to that developed by domowitz and hakkio 1985 and hodrick and srivastava 1986 but its emphasis and objectives are quite different those authors were concerned only with demonstrating that a time varying risk premium is a theoretical possibility prior to conducting a series of empirical tests only loosely related to the model itself consequently they did

in defense of the finance constraint simple models of monetary trade commonly impose a finance constraint on expenditure it is often suggested that this finance constraint is artificial a result of money s being the only asset of the absence of credit and of the special time structure of such models this paper shows that the finance constraint on aggregate expenditure remains in force when other assets and credit are introduced and when the time structure is generalized to allow overlapping income periods of differing lengths most of the objections to the finance constraint are shown to involve fallacies of composition there are economists to whom a constraint of the form pc m in units t must appear unthinkable r e lucas jr 1980

interest rate control and nonconvergence to rational expectations this paper investigates the feasibility of a monetary policy aimed at pegging the nominal rate of interest it shows that under general conditions such a policy would produce the well known cumulative process despite the fact that there exists a well behaved rational expectations equilibrium with no tendency for inflation to accelerate or decelerate the cumulative process shows up as the failure of learning to converge to rational expectations specifically the paper shows first in a conventional is lm model with an expectations augmented phillips curve and then in a micro based finance constraint model that if people follow any learning rule based on experience that satisfies a weak condition then the sequence of temporary equilibria under a policy of interest pegging cannot converge the nonconvergent path that will be observed accords with the familiar cumulative process in that inflation accelerates if the market rate of interest has been pegged below the natural rate

the structure of a contract and the theory of a non exclusive resource the process of arriving at a useful concept of analysis is not only slow and painful but also may go astray and attain nothing useful someone begins with one example or observation followed by a theory which is intuitively plausible a theoretical term associated with a vague concept is coined examples of a seemingly different type emerge which call for another theory the process goes on as examples and theories continue to accumulate the different categories under the same heading of analysis serve only to confuse and each associated theory becomes ad hoc such has been the fate of the concept of externality a more useful approach i think is via contractual conditions the example chosen for illustration is marine fisheries where the fishing right is taken

peltzman on regulation and politics there is no question that self interest matters not only in private markets but in the political arena as well see goldberg 1974 1976 1977 peltzman s paper is an extremely clever effort to pose the political problem so that the tools and reasoning from the standard model could be extended to the new area with minimal modification the approach directs attention to technical questions e g the signs of second derivatives peltzman 1976 220 221 of a familiar sort however the environment in the new area is so different from the more mundane environments in which the theory normally thrives that a major adaptive effort will be necessary for the theory to survive if it does survive it will be in a form that is almost unrecognizable

transaction costs risk aversion and the choice of contractual arrangements publisher summary this chapter discusses transaction costs risk aversion and the choice of contractual arrangements every transaction involves a contract and the transactions conducted in the marketplace entail outright or partial transfers of property rights among individual contracting parties the contractual arrangements through which these transfers are negotiated are several and varied the chapter presents a theory that states that economic efficiency is the same under various land tenure arrangements subject to the constraint of private property rights although transaction costs exist in the real world the theory enables the understanding of much of the farming behavior however the presence of a variety of contractual arrangements under the same constraint of competition poses the question of the choice of these arrangements if a firm can increase efficiency in production by employing productive resources of more than one resource owner a contract to combine the resources will be obtained the formation of the contract involves partial transfers of property rights in one form or another such as leasing hiring or mortgaging

aggregation and the microfoundations of the monetary approach to the balance of payments an optimizing model with overlapping generations and finance constraints is used to develop microfoundations for the monetary adjustment process under fixed exchange rates the results are broadly consistent with those of the monetary approach to the balance of payments however it is shown that although the model exhibits comovements of money interest rate and income that seem consistent with an aggregate money demand function aggregate relation is not structural in the sense of r e lucas the model economy cannot be described as in the strong version of the monetary approach in terms of adjustment in an aggregate market for money

why do expectations models of the term structure fail abstract this paper provides evidence that the apparent rejection of the expectations theory for data on nominal treasury bill yields is primarily due to the failure of market participants to forecast inflation in a consistent manner over horizons of different length

a theory of price control price or rent control is but one of many forms of legislative action which interfere with private contracting in the market place to delimit the scope of my analysis i shall use the term price control to refer only to any set of regulations which satisfies the following three conditions first the control must fix the price or income terms of private contracts this categorically excludes any laws which regulate the distribution of income among the contracting parties on a share or percentage basis 2 second the control must involve no appropriation of proceeds to or from the government taxation and subsidization are thus excluded finally the fixing of price must not be associated with direct government sales purchases or manipulation of resources so as to maintain the regulated price 3 by this stipulation price support is also excluded even on such terms legal regulations to control price are still many and varied to evaluate our understanding of the class of phenomena which we seek to explain it is essential that we discover implications refutable by facts by this criterion the available body of economic theory pertaining to price control is deficient indeed the massive literature on the subject offers few such implications 4 an alternative approach to analyzing the observable effects of price control is presented here

inflation and welfare in the steady state this is a paper on expected inflation and welfare in steady state equilibrium the demand for money is an inventory demand with an endogenous payment period the clower constraint is not imposed higher inflation reduces welfare by reducing consumption as people devote more of their real income to maintaining lower average money holdings high inflation does not necessarily promote an increase in the capital stock the mundell tobin effect is absent the policy conclusion is standard deflate at the rate of time preference because capital is held socially optimal consumption falls short of its golden rule level if inside money is allowed it drives out fiat money and welfare is again at a maximum

on exchange rates and economic growth abstract extending ireland s 1994 model this paper analyzes an international economy where cash or credit can be used for payment foreign trade credit is more costly than its domestic analog a depreciation of the real exchange rate is associated with an external surplus and a reduced share of imports purchased with credit economic growth slows when foreign trade credit becomes the predominant means of payment for international transactions a country with high inflation exports its tobin effect and thus temporarily increases world growth