trade credit in a monetary economy abstract this paper examines the importance of financial and technological stochastic trends in the context of a stochastic dynamic general equilibrium monetary economy with multiple means of payment in contrast to earlier empirical work we find support for both a long run substitution condition between money trade credit and interest rates as well as a long run transactions demand for alternative payments media consistent with real business cycle frameworks

the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

cost of being poor retail price and consumer price search differences across inner city and suburban neighborhoods this research undertakes a carefully designed and detailed empirical study to gain insights into 1 the extent of price differentials between wealthy and poor neighborhoods 2 what induces such differentials especially the nature and intensity of competitive environments including mass merchandisers like wal mart and 3 their relative impacts it finds a price differential of about 10 15 for everyday items even after controlling for store size and competition prices are found to be 2 5 higher in poor areas it also finds that it is not the poverty level per se but access to cars that acts as a key determinant of consumers price search patterns

do big countries win tariff wars yes it is widely believed that tariffs invite retaliation and that the postretaliation equilibrium l eaves all countries worse off than they would be at free trade the a uthors present a simple pure exchange model with two countries and t wo goods and show which endowment patterns are consistent with this belief they find that if one country is substantially bigger than th e other it can expect to gain from a tariff war despite retaliation the model can be extended to show that the advantage obtained by bei ng part of a large trading unit can help explain the formation of cus toms unions copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

discrete equilibrium price dispersion an explicit solution of an equilibrium model with price setting firms and searching customers makes possible a number of comparativestatics predictions about how cost differences among firms search costs of customers and taxes will affect the mean and variance of the distribution of market prices another implication of the model is that a firm s demand depends on the difference between its price and the average price in the market

identification and estimation of money demand in most natural sciences physics chemistry biology theories are validated by controlled experiment however in other natural sciences astronomy meteorology and in most social sciences including economics the data are characteristically generated not by experiment but by measurement of uncontrolled systems in economics theories take the form of restrictions on the models assumed to generate the data and statistical methods replace experimental controls in testing these restrictions and here is the difficulty in economics particularly macroeconomics the theory used to derive tests ordinarily does not generate a complete specification of which variables are to be held constant when statistical tests are performed on the relation between the dependent variable and the independent variables of primary interest accordingly in such cases there will be a set of often very different candidate regression based tests each of which has equal status with the others since each is based on a different projection of the same underlying multivariate model except in the unlikely event that the explanatory variables are mutually orthogonal the conditional regression coefficients which generally form the basis for the test statistic will depend on the conditioning set we conclude from this that if a theory which does not generate a complete specification of the regression test is nonetheless to have testable implications these implications must be robust over the permissible alternative specifications if the restrictions indicated by the theory are satisfied in some projections but not in others that have an equal claim to represent implications of the theory one cannot conclude that the theory has been confirmed the fact that the observable implications of valid theories must obtain over a broad but usually incompletely specified set of regressions rather than for a single regression introduces a large and unavoidable element of imprecision into hypothesis testing in macroeconomics generally it appears to be appropriate to weaken the statistical criterion for rejecting theories consider for example the theory of money demand which will engage our attention in this paper the tobin baumol square root formula implies that the elasticity of money demand with respect to the interest rate is exactly one half but which interest rate should wealth be held constant inflation in view of such uncertainties it would be inappropriate to insist in a literal minded fashion on rejecting the tobin baumol model if in some regression the measured interest elasticity differed from one half by more than two standard deviations and only then obviously a more flexible approach is called for the practice has been to conclude that the statistical evidence is consistent with the tobin baumol model as long as the interest rate coefficient is negative if it is negative and significant or negative and insignificantly different from minus one half that would provide somewhat stronger confirmation but a positive coefficient particularly a significantly positive coefficient would be viewed as raising questions about the validity of the theory in macroeconomics generally as in the money demand application the typical response to specification uncertainty has been to regard a theory as supported if the signs of the estimated coefficients agree with those expected from theory and as disconfirmed otherwise there is no theoretical justification for this procedure but it seems to be a reasonable course to follow the point that economic theory ordinarily generates incompletely specified statistical university of california santa barbara we have received helpful comments from andrew abel robert clower michael darby robert engle stephen goldfeld david laidler edward leamer robert lucas frederic mishkin and edward prescott thomas hall provided able research assistance

the short run demand for money a reconsideration the partial adjustment approach to the specification of the short run demand for money has dominated the literature for more than a decade there are three basic problems with this approach first the same lag structure is imposed on all variables and each independent variable enters only as a current value in contrast a rational individual would respond to different variables income interest rates prices with quite different lags second when the general price levelis subject to gradual adjustment hut can move quickly in response to supply shocks the influence of these supply shocks should enter with a negative sign third the estimated equation for real balances may not be a money demand equation at all but rather its coefficients may represent a shifting mixture of demand and supply responses the empirical work examines several alternative dynamic specifications including a generalized partial adjustment framework and the error correction model both of the latter specifications exhibit greater structural stability after 1973 than the standard partial adjustment specification and the generalized partial adjustment model also yields relatively small errors in post sample dynamic simulations shifts in coefficients as the sample period is extended after 1973 are consistent with the interpretation that the real balance equation no longer traces out structural demand parameters hut rather a mixture of demand and supply responses this abstract was borrowed from another version of this item

cost benefit models for explaining consumer choice and information seeking behavior while it provides excellent descriptions of behavior existing consumer research on information seeking and processing largely fails to explain why consumers engage in various types of activities this paper presents an economic framework for measuring costs benefits of search behavior which can help to resolve these questions this work shows how such a framework can lead to testable hypotheses about information seeking and discusses how operational measures of economic incentives to search can be developed and employed

monetary control under alternative operating procedures this paper provides a detailed examination of various money stock control procedures in a rational expectations environment a major result is that borrowed reserve targeting is not necessarily equivalent to a noisy funds rate instrument however total reserve control under contemporaneous reserve requirements provides the most efficient control of money but also leads to greater volatility in interest rates copyright 1989 by ohio state university press

monetary information and monetary neutrality abstract the monetary theory of business fluctuations in market clearing models constructed under the rational expectations assumption as advanced by lucas and others involves the idea that suppliers and demanders will typically misinterpret movements in the general level of prices as representing more or less favorable relative opportunities for real activities the present paper examines the consequences of agents possessing contemporaneous monetary information of a potentially noisy variety for the non neutrality of unanticipated monetary events within such an equilibrium business cycle model this modification of the information structure has the strong testable implication that real activity will be uncorrelated with contemporaneous monetary data

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

federal reserve operating procedures a survey and evaluation of the historical record since october 1979 comment william poole has produced another thoughtful and thought provoking paper two major conclusions emerge from his work first the instability of growth in m1b since october 1979 can be attributed largely to a reluctance by the federal reserve to permit wide enough swings in the federal funds rate second to correct this problem and to promote greater stability in financial markets and the economy the fed ought to replace lagged with contemporaneous reserve accounting and reform the discount window they should then begin to hit a nonborrowed base or reserves target that grows at a steady rate i will organize my comments around these two conclusions i will not comment directly on the other excellent paper in this session by ralph c bryant i will refer to some of bryant s empirical work though in my discussion of the poole paper poole attributes the continued extensive volatility of m1b growth since october 1979 to efforts by the federal reserve to smooth interest rates he concedes that the fed really has let go the federal funds rate to a very considerable extent but he believes that variability in m1b growth over tonger periods is due primarily to the important role accorded interest rates in federal reserve policy making italics mine he cites four reasons for believing that the post october 1979 targeting procedures qualitatively are not very different from the federal funds targeting procedure followed earlier of the four the most interesting and empirically verifiable is that in nearly one third of the weeks since october 1979 the federal funds rate has averaged within 100 basis points of either the bottom or the top of the widened target range during these weeks the constraint on the funds rate might have prevented the fed from hitting its nonborrowed reserves target poole in fact accepts this view uncritically

the price effects of cash versus in kind transfers this article examines the effect of cash versus in kind transfers on local prices both types of transfers increase the demand for normal goods in kind transfers also increase supply in recipient communities which could lead to lower prices than under cash transfers we test and confirm this prediction using a programme in mexico that randomly assigned villages to receive boxes of food trucked into the village equivalently valued cash transfers or no transfers we find that prices are significantly lower under in kind transfers compared to cash transfers relative to the control group in kind transfers cause a 4 fall in prices while cash transfers cause a positive but negligible increase in prices in the more economically developed villages in the sample households purchasing power is only modestly affected by these price effects in the less developed villages the price effects are much larger in magnitude which we show is due to these villages being less tied to the outside economy and having less competition among local suppliers

the smoot hawley tariff a quantitative assessment in the two years after the imposition of the smoot hawley tariff in june 1930 the volume of u s imports fell over 40 to what extent can this collapse of trade be attributed to the tariff itself versus other factors such as declining income or foreign retaliation partial and general equilibrium assessments indicate that the smoot hawley tariff itself reduced imports by 4 8 ceteris paribus although the combination of specific duties and deflation further raised the effective tariff and reduced imports an additional 8 10 a counterfactual simulation suggests that nearly a quarter of the observed 40 decline in imports can be attributed to the rise in the effective tariff i e smoot hawley plus deflation

safeguards and retaliatory threats abstract this is the first empirical article to analyze the response of shareholders to the threat of retaliatory tariffs authorized by the world trade organization wto we use event study methodology to gauge the impact of european union eu retaliatory threats stemming from the 2002 imposition of u s steel safeguards results indicate that the u s stock returns of firms slated for wto authorized tariffs reacted negatively to the announcements signaling an increased likelihood of retaliation shareholders also generally responded positively to the early cancellation of the safeguards which removed the risk of retaliation industry level analysis indicates that producers of apparel tobacco and transportation equipment were particularly affected by the threat of retaliatory tariffs second stage estimates suggest that retaliatory threats have a more negative impact on firms with a higher export share to the eu greater profit growth and low research and development intensity

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

atheoretical macroeconometrics a critique abstract the spurious nature of the restrictions used to identify many macroeconometric models has led some researchers to advocate a style of econometric inquiry that is less dependent on prior theoretical restrictions of the sort that were central to the approach of the cowles commission this development which we call atheoretical macroeconometrics is summarized and evaluated in the current paper it is contrasted with an updated version of the cowles commission approach we conclude that while some of the exercises of atheoretical macroeconometrics are valid those that have attracted the most attention and appear the most innovative exogeneity testing impulse response analysis and policy analysis using estimated vector autoregressions are based on incorrect analysis

sectoral shifts and cyclical unemployment a substantial fraction of cyclical unemployment is better characterized as fluctuations of the frictional or natural rate than as deviations from some relatively stable natural rate shifts of employment demand between sectors of the economy necessitate continuous labor reallocation since it takes time for workers to find new jobs some unemployment is unavoidable this paper presents evidence that most of the unemployment fluctuations of the seventies unlike those in the sixties were induced by unusual structural shifts within the u s economy simple time series models of layoffs and unemployment are constructed that include a measure of structural shifts within the labor market these models are estimated and a derived natural rate series is constructed

the temporal and spatial dimensions of price search insights from matching household survey and purchase data abstract price promotions are pervasive in grocery markets a household can respond to price promotions by effectively cherry picking through 1 spatial price search across stores and 2 temporal price search across time however extant research has analyzed these two dimensions of price search only separately and therefore underestimates both the consumer response to price promotions and the impact of promotions on retail profit in this article the authors introduce an integrated analysis of spatial and temporal price search they seek answers to three questions first what are the predictors of household decisions to perform either spatial or temporal price search second how effective are the temporal spatial and spatiotemporal price search strategies in obtaining lower prices and third what is the impact of alternative price search strategies on retailer profit the authors use a unique data collection approach that combines household surveys with observed purchase data to address these que

price level determinacy with an interest rate policy rule and rational expectations abstract this paper reconsiders a result obtained by sargent and wallace namely that price level indeterminacy obtains in their model if the monetary authorities adopt a feedback rule for the interest rate rather than the money stock it is shown that the indeterminacy vanishes if the interest rate rule is chosen so as to have a desired effect on the expected quantity of money demanded this holds even if considerable weight is given in the choice of a rule to the aim of smoothing interest rate fluctuations

the u s embargo act of 1807 its impact on new england money banking and economic activity the u s embargo act of 1807 its impact of new england money banking and economic activity i introduction the period 1793 through 1807 was one of unusual prosperity in the united states paced by the growth of american carrying and re export trade 1 the embargo act of 1807 however supposedly halted this period of growth and prosperity the act was an attempt by a new nation to persuade great britain and france to refrain from seizing neutral american ships by prohibiting the trading of certain goods between the united states and other countries the provisions of the act forbade u s ships to sail with cargoes to foreign ports the act was in effect from december 1807 through march 1809 historians generally assert that the embargo had at least three important consequences of the u s economy the embargo allegedly initiated a severe economic depression led to a signficant increase in the level of smuggling between the united states and other countries and was instrumental in bringing about an expansion of domestic manufacturing that started the united states on a path to self sufficiency with respect to the depression effects of the embargo mcmaster 1903 415 described the economic losses of the period as follows the newspapers were full of insolvent debtor notices all over the country the court house doors the tavern doors the post offices the cross road posts were covered with advertisements of sheriffs sales in the cities the jails were not large enough to hold the debtors at new york during 1809 thirteen hundred men were imprisoned for no other crime than being ruined by the embargo a traveler who saw the city in this day of distress assures us that it looked like a town ravaged by pestilence the counting houses were shut or advertised to let the coffee houses were almost empty the streets along the water side were almost deserted the ships were dismantled their decks were cleared their hatches were battened down illegal trade arose as people searched for other sources of income malone and rauch 1960 118 described the situation in the following manner the ancient art of smuggling was revived particularly along the land frontier with canada where drovers of wagon trains shot down federal agents and concerning the stimulative effect of the embargo upon the rise in domestic manufacturing north 1961 56 stated the closing off of the import trade was effective in promoting the rise of domestic manufactures and capital which had been devoted to shipping and foreign commerce was partially absorbed in a rapid growth of industry before 1808 only fifteen cotton mills had been built in the united states one in 1791 one in 1795 two more in 1803 and 1808 by the end of 1809 eighty seven additional mills had been constructed and capacity had been increased from eight thousand spindles in 1808 to thirty one thousand at the end of 1809 and an estimated eighty thousand by 1811 other branches of manufacturing also made substantial gains through 1814 similar comments concerning the embargo are abundant in most economic history texts and in numerous articles devoted to the subject while dramatic such discussion is based on casual empiricism at best and little in the way of rigorous economic analysis has ever been applied to discern the actual effects of the embargo upon the u s economy as usual with such historically remote events a paucity of data on such variables as real income output and employment constitutes the major obstacle to empirical analysis until recently economic historians have attempted to make inferences about the effects of the embargo upon the economy by relying primarily upon data reflecting the volume of import export and re export trade domestic and imported price indices and governmental duties 2 in a recent article for example frankel 1982 argues that an examination of british shipping statistics rather than those of the u

reserves announcements and interest rates does monetary policy matter the author provides evidence on the perceived existence of strong liquidity effect the analysis is based on the response of the term structure of interest rates to the weekly federal reserve announcements of bank reserves during the post october 1979 period it is shown that unanticipated changes in the mix between borrowed and nonborrowed reserves cause expected real interest rates to change after the announcement because they provide information about a future change in the supply of money a precise model is developed and tested during subperiods of nonborrowed and borrowed reserves targeting by the fed

windfall profits and vertical relationships who gained in the japanese auto industry from vers this paper employs an event study to analyze the effect of the 1981 voluntary export restraint agreements on profits in the japanese automobile industry stock price movements of seven japanese automakers and sixty nine of their suppliers are examined the results indicate that the profits of japan s producers of passenger cars rose as a result of the voluntary export restraints while only some suppliers large ones and those producing specialized parts or services appear to have shared the benefits voluntary export restraints increased profits for some firms in the japanese auto industry but many suppliers did not share the windfall copyright 1993 by blackwell publishing ltd

steel safeguards and the welfare of u s steel firms and downstream consumers of steel a shareholder wealth perspective this paper analyses the steel safeguards applied during 2001 3 results reveal that for shareholders of u s steel companies safeguards generated positive abnormal returns of approximately 6 the cancellation of the safeguards resulted in wealth gains of about 5 steel shareholders experienced negative abnormal returns of 5 in response to the wto ruling that the u s had violated wto law our results are consistent with the neoclassical view that producers gain at the expense of consumers also findings indicate that downstream consuming firms that diversify production in nafta countries avert some trade policy risk associated with higher steel costs caused by safeguard protection ce texte analyse l effet de la protection des acieries americaines au cours de la periode 2001 03 les resultats montrent que pour les actionnaires des societes americaines cette protection a engendre des profits anormaux de l ordre de 6 l annulation de cette protection a resulte en des gains de richesse d environ 5 les actionnaires des acieries ont subi des rendements anormaux negatifs de l ordre de 5 a la suite de la decision de l omc a savoir que les etats unis avaient enfreint la loi ces resultats sont consistants avec le point de vue neo classique qui suggere que les producteurs gagnent au detriment des consommateurs de plus les resultats indiquent que les entreprises consommatrices d acier en aval qui ont diversifie leur production dans les pays de l alena se sont premunies contre certains risques associes a la politique commerciale et aux hauts couts de l acier engendres par la protection

the heterogeneous impact of brexit early indications from the ftse abstract the uk s decision to leave the eu is surrounded by several studies simulating its potential effects we take an alternative approach by examining how news of brexit affected expectations as embodied in stock returns using a two stage estimation process while most firms had negative returns following news of the referendum s result with nearly 3 trillion wiped off global markets there was considerable heterogeneity in their changes relative to expectations we show that this heterogeneity can be explained by the firm s global value chain with firms heavily exposed to the eu and uk doing worse in addition we find that firms reliant on imported intermediates also perform worse this however is partially offset via intra firm trade in intermediates when sterling fell relative to host currencies these changes were primarily in the first two trading days and highly persistent understanding these movements gives a better understanding of brexit s potential effects

firm participation in steel industry lobbying firm participation in steel industry lobbying i introduction what are the causes of recent protectionist pressure exerted by u s import competing firms studies by coughlin terza and khalifah 1989 feigenbaum and willett 1985 and takacs 1981 examine the empirical relationship between macroeconomic conditions and the aggregate frequency of escape clause petitions file by u s manufacturing firms although the results are mixed as to whether international macroeconomic performance influences the demand for protection the studies indicate that domestic macroeconomic conditions significantly influence the frequency of escape clause petitions 1 as important as these are to understanding the underlying sources of protectionist pressure they do not address another equally important aspect of protectionist pressure the determinants of a single industry s demand for protection the fact that most protectionist pressure results from actions taken by individual industries underscores the importance of understanding the determinants of industry pressure indeed most trade legislation is designed to respond to the problems of individuals sectors of the economy in this paper we empirically examine the microeconomic determinants of the protectionist pressure exerted by the u s steel industry in antidumping and countervailing duty cases from 1982 after the trigger price mechanism was abolished to 1986 the steel industry is a particularly attractive subject for empirical analysis since no other industry pushed more aggressively for protection during the 1980s in recognizing that the degree of pressure exerted by an industry is the aggregate result of decisions made by individual firms to contribute to a collective action the microeconomic approach offers two advantages over previous studies 2 first to explain industry pressure we model the decision of the representative firm taking into account the incentives that a firm faces in a collective setting for example we recognize that the benefits of antidumping and countervailing duties have characteristics of a public good so that individual firms may have an incentive to free ride a proposition supported by the empirical results second we specify microeconomic variables that reflect the economic conditions facing the representative firm in the steel industry rather than macroeconomic variables which may not accurately measure the economic performance of specific industries or the international pressures they face in contrast to previous studies which found a significant relationship between macroeconomic performance and aggregate pressure we do not find that the steel industry s economic performance influences the degree of industry pressure our second objective is to examine the policy implications of free riding by testing the relationship between the effectiveness of a coalition of firms and the degree of protection actually received if an effective coalition of firms can influence the policy outcome then antidumping and countervailing duties are more likely to be provided to segments of the steel industry that can minimize the free rider problem since these segments are not necessarily those that absorb the greatest injury u s trade policy may not be meeting its goal of providing greater relief to firms most injured by dumped or subsidized imports the results confirm the proposition that segments of the steel industry which are injured by dumped or subsidized imports and which can organize an effective coalition do in fact receive greater protection than those segments that are merely injured ii the representative firm s decision to contribute to a less than fair value action to obtain protection from alleged less than fair value lfv imports imports that are either dumped by foreign firms or subsidized by foreign governments firms representing a domestic industry must file a complaint of foreign dumping or export subsidization with the international trade administration ita which then determines the magniture of dumping or subsidization

intermediate monetary targets and macroeconomic fluctuations it is investigated whether the choice of intermediate target has altered macroeconomic fluctuations and whether the observed changes are consistent with predictions from economic theory since implications from the theoretical literature focus on the effects of structural disturbances an empirical analysis must identify these effects the structural vector autoregressive var technique estimates structural disturbances using restrictions from standard macroeconomic theory based on descriptions of actual targeting procedures by insiders to federal reserve policy decisions the intermediate target for the united states is identified as the interest rate from 1951 to 1969 and money from 1970 to 1986 var models are estimated over each subsample to assess whether the estimated structural disturbances cause endogenous variables to behave as economic theory predicts tests are also performed to assess whether or not the targeting rule affects the variance of endogenous variables attributable to structural sh

anticipated inflation and the capital stock in a cash in advance economy abstract an economy is constructed in which the steady state capital stock is inversely related to the rate of inflation as a result that is directly opposite the usual conclusion

wage contingencies the pattern of negotiation and aggregate implications of alternative contract structures abstract a model of long term contracts is developed in which the choice of the negotiation pattern is endogenized when disturbances to the economy derive primarily from relative shocks staggered negotiation is optimal because adjustments made by negotiating agents transmit desirable employment effects into sectors that are looked into previously negotiated contracts the price level acts as the transmission mechanism indexation of wages to the price level enhances the benefits of staggered negotiation because the sector specific information revealed by the price level acts as a substitute for explicit inclusion in the contract of sector specific information the degree of persistence and the level of variation in aggregate output and employment measures which are commonly used in comparing the merits of synchronized versus staggered regimes are shown to be inappropriate criteria upon which to judge the optimality of the negotiation pattern

stock price effects of u s trade policy responses to japanese trading practices in semi conductors over much of the last decade the united states and japan have been embroiled in a trade dispute over access to japanese markets for semiconductors and downstream products this study examines stock price reactions for firms affected by a subset of events commencing with the filing of a section 301 petition by the u s semiconductor industry association alleging unfair practices by the japanese and culminating in the 1986 trade agreement the evidence suggests that u s semiconductor consumers as well as producers benefited from these events

unexpected monetary disturbances during the gold standard era abstract this empirical paper uses the barro methodology of estimating unexpected monetary shocks to determine the effect these shocks had on real output in the u s during the gold standard era between 1880 and 1913 it also investigates whether changes in a measure of financial intermediation had real effects the results indicate that neither expected nor unexpected money shocks affected output changes in financial intermediation however were significantly correlated with output this result lends support to theories which stress the endogeneity of broad measures of the money supply

on the economic success of gatt wto dispute settlement what features of the dispute settlement process help governments live up to their trade liberalization commitments exploiting data on gatt wto trade disputes initiated and completed between 1973 and 1998 this paper identifies economic and institutional determinants that help defendant governments commit to liberalizing trade we find substantial evidence consistent with the theory that power measures including threat of retaliation by the plaintiff yield credibility to allow defendant governments to live up to their commitments we find only limited evidence however that particular procedural or institutional features beyond the basic gatt wto dispute settlement forum itself contributed to the successful economic resolution of trade disputes

optimum tariffs and retaliation revisited how country size matters in his seminal work on tariff retaliation johnson review of economic studies 21 1953 1954 showed that a country will win a bilateral tariff war if its relative monopoly monopsony power in world trade is sufficiently large however it is unclear from johnson s analysis and from subsequent research on the subject how this power is determined in general economic environments an important goal of this paper is to address this issue with the help of a neoclassical trade model in which country size is at centre stage it is shown that a sufficient condition for a country to prefer a non cooperative nash tariff equilibrium retaliation over free trade is that its relative size be sufficiently large the paper also refines the structure of the general trade model and generates additional characterization results on the importance of country size for best response tariff functions retaliatory tariffs and welfare

rent seeking protectionism and innovation in the american steel industry trade protection in a declining industry can cause damages beyond those revealed in the usual trade diagram analysis using data on the us steel firms we show that trade protection in that industry rewards poor performance reduces incentives to innovate and frustrates the normal schumpeterian process of creative destruction free trade gives consumers the lowest prices nonetheless protectionism in various guises is pervasive this we show is probably due to political rentseeking by groups that expect to lose as trade patterns adjust to innovation and altered economic conditions these groups invest in political lobbying to secure future returns in trade protection we find empirical evidence that trade protection returns private benefits to the shareholders senior workers and ceo s of lobbying firms perhaps more disturbingly trade protection also appears to reward less innovative firms and may thus frustrate the schumpeterian development of an industry we examine us steelmakers among the most active lobbyers in recent decades steel firms that lobby congress for protection tend to be larger older less diversified and less profitable than non lobbyers they pay their workers and ceos more and their ceos have longer tenure and are more likely to have risen through the ranks of their companies this suggests the owners managers and workers of less dynamic steel firms stand to lose from free trade the announcement of protection raises the stock prices of us steelmakers but by much more for lobbyers than non lobbyers when comprehensive and enduring protection was finally announced lobbyers more than non lobbyers cut jobs while maintaining or possibly increasing wages once comprehensive protection is in place protection also leads to large pay increases for lobbyers ceos this seems consistent with rent seeking and inconsistent with protection helping lobbyers mitigate social consequences of downsizing like unemployment our most striking finding is that high past r d spending is negatively correlated with stock price changes when proteption is announced and positively correlated with subsequent exit from the industry this seems inconsistent with protection providing a hiatus for retooling rather it suggests

antidumping and retaliation threats abstract we propose and test two ways in which retaliation threats may dampen the antidumping ad activity we observe first the threat of retaliatory ad actions may make a domestic industry less likely to name a foreign import source in an ad petition second the prospect of a gatt wto trade dispute may make government agencies less likely to rule positive in their ad decision using a nested logit framework we find evidence that both retaliation threats substantially affect us ad activity from 1980 through 1998

productivity shocks and business cycles this note uses two measures of productivity growth the solow residual and the dual residual from the cost function to test competing theories of the cycle in a number of oecd countries the empirical results indicate that both demand and supply shocks play a role in driving economic cycles and therefore refute the stronger real business cycle hypothesis

do announcements of wto dispute resolution cases matter evidence from the rare earth elements market abstract rare earth elements rees have gained increasing attention recently for several key reasons 1 they are vital to many strategic industries 2 they are relatively scarce 3 they frequently exhibit high price fluctuations 4 china holds a quasi monopoly on their mining and 5 china s ree policy which was overly restrictive and led to a formal complaint from the u s japan and the eu at the world trade organization wto in 2012 this paper investigates whether the announcement of a wto dispute resolution case has the power to fundamentally change market dynamics we find empirical support for this notion because ree prices exhibit a structural break around the announcement of the wto dispute and show lower variance ratios for all tested rees afterward this indicates a tendency toward efficiency although ree prices still do not follow a random walk similarly we find that stock price informativeness of companies in the ree industry increases after the announcement reflecting more firm specific than marketwide information and less governmental influence finally we show that model uncertainty for option pricing models decreases which we measure by the lower pricing differences among them

optimal monetary policy endogenous supply and rational expectations abstract in this paper we demonstrate that the choice of monetary policy regime will affect the variability of output when private agents in forming their supply decisions take into account the authority s selection of a policy rule a striking feature of the analysis is that the choice between policy rules in sargent wallace 1975 framework but with endogenous aggregate supply depends only on the variability of aggregate demand under each rule and not on the variability of aggregate supply it follows that the choice of monetary policy rules reduces to the problem analyzed by poole 1970 in the stochastic keynesian structure

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

financial innovation price smoothing and monetary policy financial innovation price smoothing and monetary policy i introduction in a monetary economy the volume of nominal transactions fluctuates with the level of economic activity empirical evidence suggests that the supply of nominal transaction assets such as currency and bank deposits also fluctuates with the level of economic activity some researchers have attributed these observations to the phenomenon of money endogeneity 1 one explanation for this endogenous supply response is a systematic monetary policy as described by black 1972 under which the central bank passively adjusts the money supply to accommodate the changes in money demand alternatively king and plosser 1984 and saving 1979 stress the role of the private banking system in producing this endogenous response they argue that exogenous changes in real activity elicit sympathetic changes in the demand for transaction services that may be partially or fully accommodated by the banking system through its supply of inside money in either case this endogenous supply response tends to mitigate the price adjustment that accompanies a real supply shock 2 in the long run however the price level is ultimately determined by the central bank in the market for the nominal quantity that it controls e g currency bank reserves when deposit accounts are subject to reserve requirements or the monetary base 3 this suggests that if the private banking system does not fully accommodate the real shock and if the shock exhibits a well defined persistence then endogenous price adjustments that are fully anticipated may be further damped by a passive supply response by the central bank in addition if price expectations affect real interest rates then current period price level smoothing via a passive monetary policy may also be possible 4 in addition to employing transaction assets currency and checkable bank deposit accounts to meet their transaction requirements agents may purchase non deposit transaction services directly for firms these services include the tools available to the modern corporate cash manager such as lockbox collection systems repurchase agreements and zero balance accounts in the household sector they take the form of atms debit and credit cards and overdraft privilages on checkable accounts among others these non deposit transaction services represent an increasingly important medium of exchange their supply by the banking system is not directly controlled by the central bank and also offers another avenue by which the economy may respond endogenously to fluctuating transaction requirements associated with real shocks thereby further mitigating the price adjustment 5 the production of non deposit transaction services is subject to technology shocks in the form of financial innovations these innovations alter the economy wide demand for currency and checkable bank deposit accounts and prices adjust as with the introduction of new technology into the production of goods financial innovations are not fully adopted immediately due to the fixed costs of adjusting individual cash management practices but are instead assimilated over time this implies that their effects on transaction asset demands persist if the rate of adoption has a forecastable component the central bank can smooth expected prices by passively accommodating these innovations as with aggregate productivity shocks this persistence may also enable the central bank to damp the disturbances to the current period price level that these innovations create through the impact of price expectations on real interest rates this paper examines a non deposit transaction services market in a model economy that is developed in section ii it has the following features transactors can meet their transaction requirements by allocating wealth to currency or to bank deposit accounts that pay a market determined interest rate or by purchasing non deposit transaction services directly at a market determined price

the value of administered protection a capital market approach the focus of this paper i s on the escape clause petitions filed under the trade act of 1974 section 201 first the capital marketevent study method is used to analyze the effects of protection decisions then cross section regressions are performed to examine the influence of key variables on the observed market reaction the authors conc lude that while protection is beneficial to beleaguered industries the extent o f such benefits is quite narrowly circumscribed and is conditional on internal v ariables for each firm protection is thus not the panacea that its advocates cl aim copyright 1986 by mit press

trade interdependence and the international business cycle a stochastic general equilibrium model of the world economy is developed to analyze the contribution of trade interdependence to international business cycles we test some of the implications of the model using data from ten major industrial countries and a variety of detrending techniques to calculate the cyclical component of output we find that the significance of trade in the transmission of economic disturbances across countries is not robust to the choice of the detrending method in general the role of trade interdependence is moderate and seem to have been stronger in the period before 1973

frugality is hard to afford intertemporal savings strategies such as bulk buying or accelerating purchase timing to take advantage of a good deal provide long term savings in exchange for an increase in immediate spending

the value of time spent in price comparison shopping survey and experimental evidence the value that consumers place on time spent in price comparison shopping is central to the economics of information theory and models of consumers search behavior yet few empirical studies have examined consumers subjective value of time building on gary becker s work this article presents two tests of a model of the subjective value of time in an effort to explain consumers subjective value of time while they are price comparison shopping the model introduces perceived enjoyment of shopping as a new explanatory variable the findings reveal that respondents incorporate both wage rates and perceived enjoyment of price comparison shopping into their subjective value of time

identifying var models under rational expectations abstract this paper shows that the exclusion restrictions used to identify structural vector autoregressions svars generally yield inconsistent parameter estimates under rational expectations i develop an alternative method of identifying rational expectations models within the svar framework that circumvents the need of imposing stringent identifying restrictions on the dynamic processes for technologies preferences and other mechanisms e g adjustment costs these strong restrictions may explain why rational expectations models are frequently rejected by the data two empirical examples demonstrate the feasibility and potential advantages of this alternative modeling strategy