the chinese economy past present and future since initiating reforms in 1978 china has experienced an unprecedented rate of economic growth and development to become the second largest economy in the world after the united states yet there is so much that we do not know about the internal workings and operations of the chinese economy in part because the available english language literature is but a fraction of the scholarly work on china english speaking scholars business people analysts and policy makers are typically excluded from chinese language scholarship analysis and commentary or are often limited to executive summary type articles from business literature outlets we hope to fill at least part of the gap in the story of china past present and future with nine up to date surveys on some of the critical issues facing china which have been written by leaders in the relevant fields of scholarship

on the existence of sunspot equilibria in an overlapping generations model abstract the existence of sunspot equilibria is shown in a one commodity overlapping generations model without stationarity assumptions on preferences endowments or nominal taxes the essential assumption is that there is a continuum of perfect foresight equilibria the technique is also useful for constructing stationary sunspot equilibria when they exist consumption in a sunspot equilibrium is shown to lie within the range consistent with perfect foresight

multiple solution indeterminacies in monetary policy analysis abstract a sizeable fraction of recent research on monetary policy has been concerned with issues relating to analytical indeterminacies i e multiple solutions in rational expectations re models most of the literature features sophisticated re analysis conducted within dynamic models that reflect optimizing behavior by individual agents and incorporate taylor style policy rules a few papers have suggested that some of the particular indeterminacy arguments are misleading or irrelevant for the most part however there has been little dissent from the position that these indeterminacies present a genuine problem for monetary policy makers the purpose of the present paper by contrast is to argue that conclusions based on multiple solution indeterminacy findings are of dubious merit rather generally

ppp exchange rate rules macroeconomic in stability and learning in order to maintain competitiveness governments in developing economies seem to have pursued purchasing power parity ppp exchange rate rules by adjusting the nominal devaluation rate in response to real exchange rate deviations from an intermediate target this article shows that these rules are likely to induce macroeconomic instability as they generate sunspot driven fluctuations that are in fact learnable by agents in the expectational stability sense it finds that the existence of these learnable sunspots depends among others on open economy features including the degree of openness and the degree of exchange rate pass through to consumer s import prices

are chinese cities too small this paper models and estimates net urban agglomeration economies for cities economic models of cities postulate an inverted u shape of real income per worker against city employment where the inverted u shifts with industrial composition across the urban hierarchy of cities this relationship has never been estimated in part because of data requirements china has the necessary data and context we find that urban agglomeration benefits are high real incomes per worker rise sharply with increases in city size from a low level they level out nearer the peak and then decline very slowly past the peak we find that a large fraction of cities in china are undersized due to nationally imposed strong migration restrictions resulting in large income losses

learning convergence and stability with multiple rational expectations equilibria abstract for a linear model with multiple rational expectations equilibria ree we discuss the set of possible ree solutions include i locally unique minimal state variable solutions taking an ar 1 form and ii continua of solutions which may depend on sunspots we analyze the convergence of econometric learning to the different ree there exist cases with more than one stable ar 1 solution it is also possible for a continuum of solutions to be stable but this property is not robust to overparametrization an application is developed and it is suggested that the exhibited phenomena may arise in applied macroeconomic models

how migration restrictions limit agglomeration and productivity in china china strongly restricts rural urban migration resulting in a well acknowledged surplus of labor in agriculture but migration is also restricted within sectors this paper argues that these intra sector restrictions lead to insufficient agglomeration of economic activity in both the rural industrial and urban sectors with resulting first order losses in gdp for urban areas the paper estimates a city productivity relationship based on city gdp numbers the effects of access educational attainment fdi and public infrastructure on productivity are estimated given these worker productivity is shown to be an inverted u shape function of city employment with the peak point shifting out as industrial composition moves from manufacturing to services as predicted by urban theory as far as we know this is the first paper to actually estimate the relationship between output per worker and city scale for any country the majority of chinese cities are shown to be potentially undersized below the lower bound on the 95 confidence interval about the size where their output per worker peaks the paper calculates the large gains from increased agglomeration in both the rural industrial and urban sectors

adjustment costs learning and indeterminacy abstract i compare the adjustment cost and learning approaches to resolving indeterminacy of perfect foresight equilibrium in a continuous time model with local indeterminacy rapid learning tends to select different perfect foresight equilibria of the original model than does the inclusion of vanishing adjustment costs this difference has implications for the dynamic response of the economy to unanticipated shocks

on non uniqueness in rational expectations models an attempt at perspective abstract many macroeconomic models involving rational expectations give rise to an infinity of solution paths even when the models are linear in all variables some writers have suggested that this non uniqueness constitutes a serious weakness for the rational expectations hypothesis one purpose of the present paper is to argue that the non uniqueness in question is not properly attributable to the rationality hypothesis but instead is a general feature of dynamic models involving expectations it is also argued that there typically exists in a very wide class of linear rational expectations models a single solution that excludes bubble or bootstrap effects one that occur only because they are arbitrarily expected to occur a systematic procedure for obtaining solutions free from such effects is introduced and discussed in addition this procedure is used to interpret and reconsider several prominent examples with solution multiplicities including ones developed by fischer black and john b taylor

the effect of the time structure of information on the expectational stability of rational expectations abstract the boundedly rational learning of rational expectations may not lead to equilibria with strong informational properties the anomaly arises for certain parameterizations that a market of well informed agents where current price enters its own conditioning information set may be at a disadvantage in learning rational expectations compared with a market of agents who can only condition on past prices

convergence of least squares learning in environments with hidden state variables and private information we study the convergence of recursive least squares learning schemes in economic environments in which there is private information the presence of private information leads to the presence of hidden state variables from the viewpoint of particular agents by applying theorems of ljung we extend some of our earlier results to characterize conditions under which a system governed by leastsquares learning will eventually converge to a rational expectations equilibrium we apply insights from the learning results to formulate and compute the equilibrium of a version of townsend s model

on the robustness of bubbles in linear re models the authors analyze the expectational stability e stability of the different solutions of a linear rational expectations model in which the endogenous variable depends on expectations of its current and future values formed in the past and also on its own lagged value it is shown that continuum of bubble solutions cannot be strongly e stable in contrast for certain parameter values a particular solution that would normally be identified as a bubble solution can be strongly e stable the results are applied to a macroeconomic model with real balance effects copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

monetary and fiscal policy switching a growing body of evidence finds that policy reaction functions vary substantially over different periods in the united states this paper explores how moving to an environment in which monetary and fiscal regimes evolve according to a markov process can change the impacts of policy shocks in one regime monetary policy follows the taylor principle and taxes rise strongly with debt in another regime the taylor principle fails to hold and taxes are exogenous an example shows that a unique bounded non ricardian equilibrium exists in this environment a computational model illustrates that because agents decision rules embed the probability that policies will change in the future monetary and tax shocks always produce wealth effects when it is possible that fiscal policy will be unresponsive to debt at times active monetary policy like a taylor rule in one regime is not sufficient to insulate the economy against tax shocks in that regime and it can have the unintended consequence of amplifying and propagating the aggregate demand effects of tax shocks the paper also considers the implications of policy switching for two empirical issues

on the fragility of sunspot equilibria under learning and evolutionary dynamics abstract in this article we investigate the possibility of sunspot equilibria to emerge from a process of learning and adaptation on agents beliefs we consider both finite state markov sunspots and sunspots in autoregressive form and derive conditions for the existence of an heterogeneous equilibrium where only a fraction of agents condition their forecasts on the sunspot we then show that when the fraction of agents conditioning their forecasts on a sunspot changes over time under evolutionary dynamics these restrictions need to evolve endogenously with population shares we argue that such requirement questions the possibility of sunspot equilibria to emerge through a process of evolution and adaptation on agents beliefs in order for a sunspot equilibrium to emerge all agents must simultaneously coordinate on the same sunspot variable at the same time

are rational explosive solutions learnable abstract it is commonly believed that rational explosive solutions are unstable or fragile under adaptive learning contrary to this belief the paper shows that under realistic parameterizations rational explosive solutions are both e stable and strongly e stable in a class of models with lagged endogenous variables it also establishes the convergence of least squares learning process to explosive solutions taking a simple cagan model of inflation as an application the paper shows that money supply feedback rule gives rise to a rational explosive solution for prices which is learnable in real time this provides a new potential explanation for historical high inflation finally e stability results for non msv explosive solutions are provided

urbanization and urban systems in the people s republic of china research findings and policy recommendations this paper provides a literature review on urbanization in the people s republic of china prc research findings indicate that the prc s urbanization is incomplete its level of urbanization lags behind its industrialization and development status and while there are too many small cities the large cities are not large enough this is mainly because of the institutional constraints exerted by the hukou and land systems on labor mobility which have led to segregation efficiency loss distortion in the urban system and adverse impacts on equity as discussed in this study major policy recommendations are offered for removing the distortions and steering the prc s urbanization onto an efficient and equitable path

urban accounting and welfare why do people live in particular cities we can list many reasons but two are undoubtedly relevant agents can enjoy the city or be more productive there a combination of life amenities and productivity levels determines the size of cities but the positive effects of these characteristics are capped by the costs and frictions arising from congestion depending on city governance and the flexibility of markets these costs and frictions can be more or less important these city characteristics are in turn enhanced and amplified by the presence of urban externalities understanding the different forces that determine city sizes is crucial for answering a broad set of questions what is the relative importance of these forces in determining the size distribution of cities how much would we gain or lose if cities had similar amenities technology levels or frictions how much reallocation would this cause more generally what are the welfare implications of the location of agents across cities in this paper we provide a simple way of decomposing the characteristics that lead to the size distribution of cities into three main components efficiency amenities and excessive frictions we use a simple urban theory to calculate these components and to carry out a wide set of counterfactual exercises that provide answers to the questions we asked above the theory consists of a multi city model with monocentric cities that produce a single good workers decide how much to work and where to live efficiency is modeled as tfp amenities as directly affecting preferences

growth population and industrialization and urban land expansion of china china is experiencing urbanization at an unprecedented rate over the last two decades the overall goal of this paper is to understand the extent of and the factors driving urban expansion in china from the late 1980s to 2000 we use a unique three period panel data set of high resolution satellite imagery data and socioeconomic data for entire area of coterminous china consistent with a number of the key hypotheses generated by the monocentric model our results demonstrate the powerful role that the growth of income has played in china s urban expansion in some empirical models the other key variables in the monocentric model population the value of agricultural land and transportation costs also matter adapting the basic empirical model to account for the environment in developing countries we also find that industrialization and the rise of the service sector appear to have affected the growth of the urban core but their role was relatively small when compared to the direct effects of economic growth we also make a methodological contribution demonstrating the potential importance of accounting for unobserved fixed effects

the erroneous use of china s population and per capita data a structured review and critical test hundreds of studies in economics misinterpret china s subnational population and per capita data the most widely used population counts are of hukou registrations from each province prefecture county or city rather than of the people living in each place and generating local gross domestic product over 220 million people have left their place of registration while almost none had when reforms began creating time varying errors in estimates of per capita income of subnational units we survey empirical articles in blue ribbon journals in development journals and in regional and urban economics journals that use china s subnational data over 80 of articles use these data erroneously most commonly the wrong population or employment counts are used to measure the size of subnational units and per capita data are calculated with the wrong denominator for how variables are interpreted we provide examples of errors from each group of journals and a critical test of one highly cited study specifically we show that if hukou registrations are erroneously used to measure the local population following existing practice conclusions about driving forces for urban area expansion are reversed we give recommendations for more careful use of china s subnational population and per capita data

expectational stability and the multiple equilibria problem in linear rational expectations models linear models involving expectations of future endogenous variables generally have multiple rational expectations equilibria this paper investigates the stability of solutions in the disequilibrium sense of whether given a small deviation of expectations functions from some rational expectations equilibrium the system returns to that solution under a natural revision rule weak and strong local stability are distinguished stability conditions are calculated for a simple general linear model and applied to two macroeconomic examples in some cases there is a unique stable equilibrium in other cases a continuum of equilibria forms a weakly but not strongly stable class

a numerical simulation analysis of hukou labour mobility restrictions in china abstract we use numerical simulation methods to analyze the hukou system of permanent registration in china which many believe has supported growing relative inequality over the last 20 years by restraining labour migration both between the countryside and urban areas and between regions and cities our aim is to inject economic modelling into the debate on sources of inequality in china which thus far has been largely statistical we first use a model with homogeneous labour in which wage inequality across various geographical divides in china is supported solely by quantity based migration restrictions urban rural areas rich poor regions eastern central and western non coastal zones eastern and central western development zones eastern central western zones more disaggregated 6 regional classifications and an all 31 provincial classification we calibrate this model to base case data and when we remove migration restrictions all wage and most income inequality disappears results from this model structure points to a significant role for hukou restrictions in supporting inequality in china we then present a further model extension in which urban house price rises retard rural urban migration the impacts of removing hukou restrictions on migration are smaller but are still significant finally we modify the model to capture labour productivity differences across regions calibrating the modified model to estimates of both national and regional gini coefficients removal of migration barriers is again inequality improving but less so