a race to liberalization diffusion of economic policy reform among oecd economies most oecd economies witnessed a liberalization of economic policies over the past thirty years the present paper examines to what extent this development is caused by domestic political and economic factors on the one hand and international policy diffusion via competitive interaction of governments on the other employing a comprehensive index of economic reform it can be shown that policy diffusion is a driving factor for economic liberalization especially in the fields of regulatory monetary and trade policies we find significant interdependence of policy choices as suggested by theories of policy diffusion

political risk institutions and foreign direct investment how do they relate in various european countries this paper examines theoretically and empirically the extent to which the decision by foreign firms to invest in a group of countries is influenced by economic factors as opposed to political risk and institutional performance we consider the importance of these factors as drivers of foreign direct investment fdi for 32 european countries subsequently divided into three pooled clusters by means of panel regression techniques in two specifications over the 1995 2008 period our results suggest that risk and institutional factors considered in both static and dynamic perspectives significantly influence the behaviour of investors policies and institutions that vary widely between countries modify their decision making so that the purely economic factors have different statistical significance and impacts on the intensity of fdi as was revealed by clustering countries into three groups according to levels of economic maturity additionally not all factors of risk have an identical impact on fdi decisions in particular groups of countries however we find that as measures of political risk monetary discipline low regulation effective government and good education prove to be highly significant for most country groupings all of these measures reduce political risk and positively affect the level of fdi this abstract was borrowed from another version of this item

information competition and markets one of the dominant characteristics of modern capitalist economies is the important role played by competition not the peculiar static form of pure price competition embodied in the arrow debreu model but rather a dynamic competition more akin to the kind of competition represented by sports contests and other races including patent races in recent years there have been several attempts to explain why firms often base the pay of their workers and managers on relative performance see for example edward lazear and sherwin rosen 1981 such compensation schemes become desirable when three conditions are satisfied a the input effort of workers managers must not be directly observable at least without cost thus firms must either expend resources to monitor inputs or devise reward structures in which compensation is a function of variables such as output or profits which are themselves functions of inputs but are less costly to observe b the relationship between input and output must be stochastic so that by observing output one cannot perfectly infer what the input was c finally the stochastic disturbances which affect the relationship between input and output of different firms must be correlated by looking at the performance of one worker relative to that of others one can make better inferences about his effort than one can make without using this information not only can competition provide a basis of comparison which enables the design of reward structures that can simultaneously provide a high level of incentives with relatively low level risk but compensation schemes based on relative performance have the further advantage of automatically adjusting incentives to changes in the economic environment we refer to this as built in flexibility in a first best world with perfect information concerning the nature of the technology but where it is still costly to monitor individuals activities the compensation scheme would vary from time to time as the environment changed such changes in the compensation scheme are costly to implement and the information required to do so is seldom available when a task is easier the individual s rewards for performing the task should be reduced if pay is based on relative performance although all individuals perform better when they exert the same level of effort their compensation is automatically adjusted thus teachers frequently grade on the curve and a significant fraction of the pay of successful salesmen often consists of bonuses based on relative performance

a note on the causality between export and productivity abstract in this paper we re examine the export led growth hypothesis through testing granger causality from exports to labor productivity using the methodology developed in toda and yamamoto 1995

structural causes of the global financial crisis a critical assessment of the new financial architecture we are in the midst of the worst financial crisis since the great depression this crisis is the latest phase of the evolution of financial markets under the radical financial deregulation process that began in the late 1970s this evolution has taken the form of cycles in which deregulation accompanied by rapid financial innovation stimulates powerful financial booms that end in crises governments respond to crises with bailouts that allow new expansions to begin as a result financial markets have become ever larger and financial crises have become more threatening to society which forces governments to enact ever larger bailouts this process culminated in the current global financial crisis which is so deeply rooted that even unprecedented interventions by affected governments have thus far failed to contain it in this paper we analyse the structural flaws in the financial system that helped bring on the current crisis and discuss prospects for financial reform

the role of the state in evolutionary economics from an evolutionary perspective the role of public policy extends far beyond the mere correction of market failures emphasised by neoclassical economics public policy may facilitate the market process it may also guide the market process in the case of multiple equilibria the state can finally play a more creative role by allowing private agents to satisfy individually or collectively certain goals unattainable through market forces alone however this paper shows that although the scope of useful public policies is broader in an evolutionary approach than in neoclassical economics the government s ability to direct the evolution of the economic system is highly limited this paper also tries to formulate certain normative criteria which could act as public policy guidelines in an evolutionary perspective copyright 2004 oxford university press

the effects of inflation news on high frequency stock returns previous research using daily returns finds conflicting evidence about the relationship between unanticipated inflation news and stock returns we explore the relationship by looking at the response in minutes and trades of size based stock portfolios to unexpected changes in the regularly scheduled producer price index and consumer price index announcements in particular we answer the following three questions 1 do stocks respond to inflation news 2 what is the speed and path of that response 3 is the response stable or does it vary with the economy the direction of the news or time

macroeconomic fundamentals price discovery and volatility dynamics in emerging bond markets abstract this study characterizes volatility dynamics in external emerging bond markets and examines how prices and volatility respond to macroeconomic news as in mature bond markets surprises about macroeconomic conditions in emerging markets are found to affect both conditional returns and volatility of external bonds with the effects on volatility being more pronounced and longer lasting than those on prices yet the process of information absorption tends to be more drawn out than in mature bond markets global and regional macroeconomic news is at least as important as local news for both price and volatility dynamics

government policy for a partially deregulated industry deregulate it fully alfred kahn was a major force behind regulatory reform that initially benefited air travelers and subsequently consumers in other industries by placing greater reliance on markets than on regulators to allocate resources kahn also believed that effective governance was important for deregulation s success in this paper i argue that such governance has not occurred in practice and that problems that persist in partially deregulated industries are more likely to be solved by full deregulation and if necessary privatization than by government intervention

new perspectives on public finance recent achievements and future challenges abstract the advances in the economics of the public sector during the past quarter century have been as pronounced as in any field within economics public finance has become a rigorous branch of applied microeconomics incorporating the best thinking and most advanced tools of both theoretical economics and econometrics in the remarks below i will focus on a few key areas in applied and theoretical tax and expenditure policy drawing both upon the academic work of myself and others and my experiences in the policy arena both as chairman of the council of economic advisers and as chief economist of the world bank i shall address both the questions of what we have learned in the past few decades as well as the questions where further research is needed

a new approach to measuring financial contagion this article proposes a new approach to evaluate contagion in financial markets our measure of contagion captures the coincidence of extreme return shocks across countries within a region and across regions we characterize the extent of contagion its economic significance and its determinants using a multinomial logistic regression model applying our approach to daily returns of emerging markets during the 1990s we find that contagion is predictable and depends on regional interest rates exchange rate changes and conditional stock return volatility evidence that contagion is stronger for extreme negative returns than for extreme positive returns is mixed

is corruption grease grit or a gamble corruption increases variance of productivity across countries the effect of corruption on economic growth has attracted interest in empirical development economics the conventional view of corruption as impediment for growth has been challenged by the grease on the wheels hypothesis we take a new perspective on the issue and suggest corruption as macro risk referred to as a gamble hypothesis using cross country data and two alternative indicators of corruption we find corruption to be a significant driver of heteroscedasticity in total productivity this supports the new gamble hypothesis we also note some misleading interpretations in the previously published frontier applications to avoid these shortcomings we apply a flexible semi nonparametric estimator

daily cross border equity flows pushed or pulled we investigate the conditions under which an intertemporal equilibrium model based on investors portfolio decisions can explain the dynamics of high frequency equity flows our model shows that w

pre announcement effects news effects and volatility monetary policy and the stock market abstract i examine pre announcement and news effects on the stock market in the context of public disclosure of monetary policy decisions the results suggest that the stock market tends to be relatively quiet conditional volatility is abnormally low on days preceding regularly scheduled policy announcements although this calming effect is routinely reported in anecdotal press accounts it is statistically significant only over the past four to five years a result that i attribute to changes in the federal reserve s disclosure practices in early 1994 the paper also looks at how the actual interest rate decisions of policy makers affect stock market volatility the element of surprise in such decisions tends to boost stock market volatility significantly in the short run and positive surprises higher than expected values of the target federal funds rate tend to have a larger effect on volatility than negative surprises the implications of the results for broader issues in the finance and economics literatures are also discussed

transparency democratic accountability and the economic consequences of monetary institutions debates about the appropriate mix between autonomy and accountability of bureaucrats are relevant to numerous areas of government action i examine whether there is evidence of a tradeoff between transparency democratic accountability and the gains from monetary delegation i begin by presenting a simple theoretical model which suggests that central banks that are transparent in the sense of publishing their macroeconomic forecasts will find it easier to acquire a reputation despite making central banks more subject to outside scrutiny then monetary transparency can lead to improved economic outcomes i also consider arguments about the effect of accountability provisions involving parliamentary oversight and control over central bankers the paper then uses a new data set to examine these issues empirically focusing on a natural experiment involving disinflation costs under different central banking institutions during the 1990s results suggest that countries with more transparent central banks face lower costs of disinflation while accountability provisions have no clear effect on disinflation costs my results also concord with earlier findings that the effect of monetary institutions is conditional on other features of the political environment

response of hourly stock prices and trading volume to economic news this paper examines hourly stock returns and trading volume response to announcements about the money supply consumer price index cpi producer price index industrial production and the unemployment rate the empirical results indicate that surprises in announcements about money supply and cpi are significantly associated with stock price changes the announcements of the other three variables do not affect stock prices significantly trading volume is not affected by any of the five economic variable announcements indicating that market participants do not differ substanti ally in the interpretations of the effects of announcements the spee d of adjustment analysis indicates that the effect of information on stock prices is reflected in a short period of one hour or so copyright 1988 by the university of chicago

assessing the relative merits of development charges and transferable development rights in an uncertain world traditionally regulatory instruments have been used to achieve planning objectives however emerging market based policy instruments such as transferable development rights a quantity based app

how markets process information news releases and volatility we examine the impact of scheduled macroeconomic news announcements on interest rate and foreign exchange futures markets we find these announcements are responsible for most of the observed time of day and day of the week volatility patterns in these markets while the bulk of the price adjustment to a major announcement occurs within the first minute volatility remains substantially higher than normal for roughly fifteen minutes and slightly elevated for several hours nonetheless these subsequent price adjustments are basically independent of the first minute s return we identify those announcements with the greatest impact on these markets we examine the impact on interest rate and foreign exchange markets of scheduled macroeconomic news releases such as the employment report the consumer price index cpi and the producer price index ppi many market participants believe that such announcements have a major impact on financial markets indeed a small industry devoted to predicting the figures to be released in upcoming releases has evolved in recent years with the exception of the weekly money supply figures however the impact of such announcements on financial markets has received scant attention 1 this is doubly surprising given the considerable research interest in market volatility since these news releases are a potential source of much of this volatility consider for instance figure 1 as shown there prices in interest rate and foreign exchange futures markets are much more volatile between 8 30 and 8 35 a m eastern time et than during any other five minute trading period including

distinguished lecture on economics in government the private uses of public interests incentives and institutions as a long time student of the public sector i welcomed the opportunity to come to washington as a member of the council of economic advisers and later to become the chairman of the council partly because it gave me an opportunity to study at first hand this immensely important part of our economy and society and to test my ideas against the reality of government in action to be sure i came also as an activist if not with a fully articulated agenda at least with a view about what it was that government should and should not be doing my reference point was the fundamental theorems of welfare economics which as some describe them proved that the market left to itself would produce efficient allocations many saw in these theorems the vindication of adam smith s faith in the invisible hand leading the self interested decisions of each person to maximize the well being of the nation as a whole today many of us look at the fundamental theorem not as a description of the world but as an explication of the conditions under which a market equilibrium will be pareto efficient these conditions are quite strong the importance of some of the more explicit assumptions like the lack of externalities and the completeness of markets has long been known in the last two decades we have explored much more seriously the consequences of the informational assumptions implicit in the belief that markets are efficient in particular it has been shown that in the presence of imperfect information or incomplete markets the economy will not be pareto efficient in other words there joseph stiglitz is senior vice president and chief economist world bank washington d c stiglitz was a member of the council of economic advisers from 1993 95 and chairman

macroeconomic news surprises volume and volatility relationship in index futures market abstractthis paper examines the role of macroeconomic news surprises on returns volatility of indian index futures market empirical literature posits that news arrivals have an influential impact

the use of knowledge about society abstract selection of efficient institutions or policies in politics requires constituents to estimate the net benefits of political reforms political competition fails to inform constituents of the costs of forgone political alternatives ignorance of political opportunity costs prevents the adoption of welfare enhancing reforms of public institutions and policies the empirical record supports this contention

endogenous contract structure and monetary policy abstract we analyze the co determination of monetary policy and the labor contracts chosen by members of the public who can either fix or index their nominal wages fixed nominal wages allow the central bank to offset productivity shocks while the public fix nominal wages in response to the central bank offsetting shocks so there is an equilibrium in which realistically nominal wages are fixed and shocks offset a result which holds in single as well as in multi period games in addition there may be equilibria in which agents index their nominal wages and the central bank optimally responds by stabilizing price in contrast to conventional models the ramsey rule may be implemented in a finitely repeated game the central bank does not deviate for fear that agents would change their labor contracts such that the central bank s least favored equilibrium will subsequently be played

externalities in economies with imperfect information and incomplete markets this paper presents a simple general framework for analyzing externalities in economies with incomplete markets and imperfect infonnation by identifying the pecuniary effects of these externalities that net out the paper simplifies the problem of determining when tax interventions are pareto improving the approach indicates that such tax interventions almost always exist and that equilibria in situations of imperfect information are rarely constrained pareto optima it can also lead to simple tests based on readily observable indicators of the efficacy of particular tax policies in situations involving adverse selection signaling moral hazard incomplete contingent claims markets and queue rationing equilibria traditional discussions of externalities have emphasized the distinction between technological externalities in which the action of one individual or firm directly affects the utility or profit ofanother and pecuniary externalities in which one individual s or firm s actions affect another only through effects on prices while the presence of technological externalities imply in general that a competitive equilibrium may not be pareto efficient pecuniary externalities hy themselves are not a source of inefficiency the fact that prices change has of course important consequences there are both distributional and allocational effects but the distribution effects net out gains for example hy firms whose prices increase are precisely offset by losses e g to individuals who must pay higher prices and there are no welfare losses from the allocation effects as long as the price changes involved are small if firms are maximizing profits and individuals are maximizing utility both facing prices that correctly refiect opportunity costs then standard envelope theorem arguments imply that changes in profits or utility induced by changes in allocations resulting from any small change in prices are negligible

on committees of experts a committee makes a decision on a project on behalf of the public members of the committee agree on the a priori value of the project and hold additional private information about its consequences they are experts who care about the value of the project and about being considered well informed before voting on the project members can exchange their private information simultaneously we show that reputational concerns make the a priori unconventional decision more attractive and lead committees to show a united front these results hold irrespective of whether information can be manipulated or not also reputational concerns induce members to manipulate information and vote strategically if their preferences differ considerably from those of the member casting the decisive vote our last result is that the optimal voting rule balances the quality of information exchange and the alignment of interests of the decisive voter with those of the public

constrained discretion in uk monetary and regional policy mcvittie e and swales j k 2007 constrained discretion in uk monetary and regional policy regional studies 41 h m treasury claims that the notion of constrained discretion which directs the effective operation of uk monetary policy applies equally to other delegated and devolved policies such as the use of regional development agencies in the delivery of english regional policy a transaction cost politics perspective is used to argue that the delegation of responsibility for monetary stabilization raises principal agent issues quite different to those encountered in the delegation of the responsibility for regional regeneration in particular the effectiveness and transparency that characterize present day monetary policy cannot be expected in regional policy further the institutional arrangements that accompany the operation of regional development agencies in england should be critically reviewed mcvittie e et swales j k 2007 la notion de discretion entravee dans les poli

cognitive and institutional perspectives of eco efficiency the paper sketches out a theoretical framework for analysing the interplay between eco efficiency cognition and institutions it derives from analytical shortfalls of the prevailing literature which features strongly engineering and business economics by using insights from new institutional economics from cognitive science and partly from evolutionary economics it emphasises the role cognition and institutions play in the adoption of green technologies by firms a cognitive perspective derives from recent research on simple heuristics and context based rationality it is proposed that those findings can serve to analyse decision making of individual actors respectively firms and thus should complement economic analysis a second proposition is that eco efficiency and normative rules such as a factor four strongly rely upon institutions i e the ability of institutions to evolve over time and the development of those institutions that are most appropriate to enhance technological change in this regard business institutions and competition are crucial but regulatory needs remain in order to safeguard continuity of knowledge creation the framework allows for an analysis why overall adoption of eco efficiency still can be considered relatively slow and why some markets and firms are far ahead as a brief case study the article reflects upon german waste law s ability to enhance eco efficiency

dual track reforms with and without losers the dual track approach to market liberalization has been widely recognized as the key to the success of the chinese economic reform in this paper we study the effectiveness of this strategy in economic environments where the status quo government control is incomplete we show that in a dynamic context contractual arbitrage will emerge potentially resulting in efficiency losses and or adverse distributional effects by establishing a necessary and sufficient condition for the dual track approach to retain its appeal in a dynamic context our analysis provides a clear guideline to the broader applicability of this reform mechanism

pareto improvements from lexus lanes the effects of pricing a portion of the lanes on congested highways abstract though economists have long advocated road pricing as an efficiency enhancing solution to traffic congestion it has rarely been implemented primarily because it is thought to create losers as well as winners this paper shows that a judiciously designed toll applied to a portion of the lanes of a highway can generate a pareto improvement before using the revenue a sufficient condition being that drivers with a high value of time travel at the peak of rush hour i obtain these new theoretical results by extending a standard dynamic congestion model to reflect an important additional traffic externality extra traffic does not simply increase travel times but also introduces frictions that reduce throughput the analysis draws attention to a practical policy that may help overcome the widespread opposition to road pricing

information and the coase theorem abstract some economists think the coase theorem implies a lot about the proper scope of government intervention in the economy and about the welfare consequences of laissez faire others see it as a mere tautology that if people negotiate efficiently then every outcome will be efficient the coase theorem is important only if we believe that efficient negotiation is likely of course we can attribute inefficiencies to bargaining imperfection but it may not be useful to do so such attitudes sometimes seem to depend more on ideology than on reason this article gives one economist s reasoned view it discusses the coase theorem as a decentralization result and why decentralization results are interesting it considers mechanism design for revealing private information and describes the problems of centralization should the coase theorem should be viewed as a second best result property rights are more efficient than some reasonable alternative does the coase theorem recommend an institution or make

policy watch the introduction of indexed government debt in the united states abstract this article describes the early phases of the development of the market for indexed government debt in the united states the first such bonds were issued in 1997 one set with a maturity of ten years the other with a maturity of five years in the wake of the treasury issuance several non treasury borrowers have issued indexed debt and several new index linked products for retail customers have been introduced as expected the new indexed notes have outperformed conventional nominal notes in the secondary markets for treasury debt when bad news has become available about inflation and conversely

domestic regulation and the wto the case of water services in developing countries n recent years the interface between domestic regulation and trade liberalisa tion in services has received increasing attention in public policy debate inboth developed and developing countries trade in services to a much greaterextent than trade in goods is affected by a variety of domestic regulations whichmay in uence the effects of trade and investment liberalisation mattoo andsauve 2002 and 2003 many services particularly those provided by utilities ornetwork industries are characterised by various forms of market imperfection and regulation is needed in order to ensure a certain level of quality of service toprotect consumers or to protect the environment understandably governmentshave been concerned to retain national autonomy in regulation policy and havebeen wary of agreeing to commit themselves to common international rules inthis area as part of the uruguay round the general agreement on trade in services gats entered into force on 1 january 1995 with a set of binding rules anddisciplines to promote liberalisation of services trade and investment ows thewto ministerial declaration at doha in november 2001 agreed to negotiationson the reduction or elimination of tariff and non tariff barriers for environmentalgoods and services as part of the negotiations on trade in services within thegats framework wto 2001

productivity growth technical progress and efficiency change in industrialized countries this paper analyzes productivity growth in 17 oecd countries over the period 1979 1988 a nonparametric programming method activity analysis is used to compute malmquist productivity indexes these are decomposed into two component measures namely technical change and efficiency change we find that u s productivity growth is slightly higher than average all of which is due to technical change japan s productivity growth is the highest in the sample with almost half due to efficiency change jel c43 d24 in this paper we apply recently developed

the impact of macroeconomic surprises on spot and forward foreign exchange markets abstract this paper evaluates the effects of surprises in 23 types of macroeconomic announcements on foreign exchange rates and on the forward premium several findings emerge first as in the balance of payment framework announcements that convey a decline in consumer demand increase foreign exchange rates second the ppp hypothesis is rejected in favor of portfolio balance effects in determining exchange rates third the behavior of forward premiums is consistent with covered interest rate parity fourth exchange rates respond to announcements related to consumer demand inflation and interest rates but not to the announcements directly related to the general strength of the economy finally among the news releases considered surprises in the treasury budget trade balance and capacity utilization have the strongest influence in the currency market

the impact of regulation on economic growth in developing countries a cross country analysis summary the role of an effective regulatory regime in promoting economic growth and development has generated considerable interest among researchers and practitioners in recent years in particular building effective regulatory structures in developing countries is not simply an issue of the technical design of the most appropriate regulatory instruments it is also concerned with the quality of supporting regulatory institutions and capacity this paper explores the role of state regulation using an econometric model of the impact of regulation on growth the results based on two different techniques of estimation suggest a strong causal link between regulatory quality and economic performance