an economic theory of self control the concept of self control is incorporated in a theory of individual intertemporal choice by modeling the individual as an organization the individual at a point in time is assumed to be both a farsighted planner and a myopic doer the resulting conflict is seen to be fundamentally similar to the agency conflict between the owners and managers of a firm both individuals and firms use the same techniques to mitigate the problems which the conflicts create this paper stresses the implications of this agency model and discusses as applications the effect of pensions on saving saving and the timing of income flows and individual discount rates

inflation level and inflation volatility a seigniorage argument abstract we use a standard dynamic general equilibrium model with flexible prices money in the utility function exogenous fiscal policy and accommodating monetary policy to analytically demonstrate the positive relationship between the steady state level of inflation and business cycle inflation volatility this result holds in the presence of unique as well as multiple equilibria

inflation and uncertainty tests for temporal ordering for the postwar united states increases in the rate of inflation tend to precede increases in the level of inflation uncertainty the finding suggests that higher inflation uncertainty is part of the welfare cost of inflation possible explanations are 1 a high rate of inflation increases uncertainty about future monetary policy and 2 there is uncertainty about the persistence of inflation copyright 1995 by ohio state university press

are higher levels of inflation less predictable a state dependent conditional heteroscedasticity approach milton friedman proposed that there is a positive relationship between inflation and uncertainty about the future path of inflation in contrast to previous studies of this hypothesis we find strong statistical evidence that higher levels of inflation are less predictable although innovations in inflation are somewhat better predictors of future volatility than the actual level of inflation we argue that previous failures to find an inflation uncertainty relationship are due to two factors first none of the previous work directly tested friedman s hypothesis by including the level of inflation in the model of the conditional variance second these studies also used symmetric models which appears inconsistent with friedman s hypothesis our results are robust to different sample periods and to assumptions about the presence of a unit root in inflation to test the inflation uncertainty hypothesis we use state dependent models sdm s of conditional moments to estimate the time varying conditional v

a search cost model of obfuscation this article develops models in which obfuscation is individually rational for oligopolistic firms firms sell a homogeneous good to rational consumers who incur search costs to learn prices search costs are endogenized by allowing obfuscation firms have an unobservable action that increases the time needed to learn their price one model involves search costs convex in shopping time we show that slight convexity can dramatically alter the equilibrium price distribution a second model examines an informational linkage between current and future search costs consumers are uncertain about a component of search costs here a signal jamming mechanism can lead to equilibrium obfuscation

inflation output growth and nominal and real uncertainty empirical evidence for the g7 abstract we use univariate garch models of inflation and output growth and monthly data for the g7 covering the 1957 2000 period to test for the causal effect of real and nominal macroeconomic uncertainty on inflation and output growth and the effect of inflation on inflation uncertainty our evidence supports a number of important conclusions first inflation is a positive determinant of uncertainty about inflation second output growth uncertainty is a positive determinant of the output growth rate third there is mixed evidence regarding the effect of inflation uncertainty on inflation and output growth hence uncertainty about the inflation rate is not necessarily detrimental to economic growth finally there is not much evidence supporting the hypothesis that output uncertainty raises inflation

growth forecasts belief manipulation and capital markets abstract we analyze how a benevolent privately informed government agency would optimally release information about the economy s growth rate when the agents hold heterogeneous beliefs we model two types of agent conforming and dissenting the former has a prior that is identical to that of the government agency whereas the latter has a prior that differs from that of the government agency we identify both informative and uninformative equilibria informative equilibria are equilibria in which the government agency s equilibrium signal leads to a revision of beliefs we demonstrate that the uninformative equilibria can in fact dominate the informative ones in terms of ex post social welfare

simple market equilibria with rationally inattentive consumers we study a market with rationally inattentive consumers who are unsure of the terms of the offers made by firms but can acquire information about the terms at a cost in a symmetric equilibrium the price set by firms is continuously increasing in the cost of information for consumers and decreasing in the number of firms operating in addition favorable a priori information about a firm leads it to set a higher price and a new entrant can increase demand for incumbents when consumers have heterogeneous costs of information firms selling low quality products may choose to set the highest prices

inflation and inflation uncertainty in china abstractthe study examines the relationship between inflation and inflation uncertainty in china using generalized autoregressive conditional heteroscedasticity model particularly this link is investigated in china s urban and rural sectors motivated by the substantial urban rural divide the results provide strong statistical supportive evidence that higher inflation raises inflation uncertainty on the other hand evidence on the effect of inflation uncertainty on inflation is mixed depending on the sample periods and areas examined the understanding of inflation uncertainty nexus in china could provide implications to policymakers in the adoption of monetary policies

rent seeking activities and the brain gain effects of migration this paper studies migration and rent seeking activities in a framework of heterogeneous ability it is shown that despite the depletion of productive resources known as the brain drain the possibility of migration could sufficiently reduce participation in rent seeking activities and increase participation in productive activities such that the net effect of migration is a brain gain moreover the possibility of migration that sufficiently enlarges the relative reward to ability in the productive sector could result in qualitative improvements in the allocation of talent ce memoire etudie la migration et les activites de chasse aux rentes dans un monde ou les habiletes sont heterogenes on montre que malgre la perte de ressources productives que constitue la perte de cerveaux il se peut que la migration puisse suffisamment reduire la participation aux activites de chasse aux rentes et accroitre la participation aux activites productives pour que l effet net de la migration soit un gain de cerveaux de plus il se peut que la migration augmente suffisamment la recompense des habiletes dans le secteur productif qu il puisse en resulter des ameliorations qualitatives dans l allocation des talents

un cola why have cost of living clauses disappeared from union contracts and will they return 1 introduction one of the major changes in collective bargaining in recent decades has been the gradual elimination of cost of living adjustments colas from union contracts in 1976 61 of union workers covered by major collective bargaining contracts had cola provisions but by the end of 1995 when the u s bureau of labor statistics stopped collecting data on collective bargaining settlements cola coverage had fallen to 22 1 although the decline in cola rates has been studied extensively there is no agreement as to which factors are primarily responsible for this decline one view attributes the elimination of colas or escalator clauses to declines in inflationary uncertainty a second view emphasizes the erosion of union power yet another view focuses on structural shifts in the u s economy previous research has not determined the relative importance of these and other hypotheses another reason to reassess cola determination is that the economy has changed since the early research was completed the bulk of studies to examine cola incidence statistically have relied on sample periods that end in 1982 or earlier 2 since then there have been major changes in union strength inflationary uncertainty and other potential determinants of wage indexation including deregulation of certain industries in addition more than 90 of the decline in cola rates has occurred since 1982 it is worthwhile to determine whether the factors deemed to be important in the early studies are still important we provide a comparison with previous research formally assess the contributions of various factors to the erosion of cola rates and provide insights as to likely changes in cola coverage in the future if inflation picks up and with it inflationary uncertainty 3 will cola rates rise to levels not seen since the 1970s what would be the consequences of a rebound in union power of further economic deregulation of likely industrial and demographic shifts in the economy once the major causes of past changes in cola coverage are understood it becomes possible to project the consequences of changes in key economic variables given the concern in macroeconomics with wage indexation and the linkage between wages and prices gray 1976 fischer 1986 ball and cecchetti 1991 schiller 1997 the extent to which cola coverage responds to economic factors has important implications for the economy underlying the empirical analysis is a pooled cross sectional time series model of cola incidence that accounts for industry fixed effects to estimate the model we assemble a panel data set of cola coverage and an array of characteristics for 32 private sector industries over a 22 year period because cola clauses are multiyear in nature the model also recognizes that the percentage of workers covered by cola clauses in a particular year depends on conditions in both the current year and previous years previewing results we find that the major cause of the decline in cola coverage has been the reduction in inflationary uncertainty second in importance has been the erosion of union power both the percentage of the industry s workforce that is unionized and the estimated union wage premium in the industry are highly significant determinants of cola coverage but because the union wage premium has remained largely intact in most industries changes in the premium are much less important than losses in unionization in explaining the overall decline in cola provisions economic deregulation industrial shifts and an increased presence of women in the workforce have had modest effects on cola rates on the basis of our findings a rebound in inflationary uncertainty to the levels experienced in the 1970s would raise cola coverage by 10 percentage points 2 background for workers in long term contracts colas provide at least partial protection from the consequences of unexpected inflation

inflation inflation uncertainty and relative price dispersion evidence from bivariate garch m models abstract one potential real effect of inflation is its influence on the dispersion of relative prices in the economy menu cost models generally imply that higher trend inflation will increase price dispersion in contrast signal extraction models predict that increased inflation uncertainty will raise relative price dispersion existing empirical studies do not distinguish between these separate hypotheses we constuct a bivariate garch m model of inflation and relative price dispersion to test these differing explanations in a single model and find that inflation uncertainty dominates trend inflation as a predictor of relative price dispersion

ethnic discrimination and the migration of skilled labor we develop a model of interdependency between emigration education investment and discrimination in the context of an ethnically divided developing economy assuming a rent extraction basis for discrimination we first endogenize ethnic discrimination in the benchmark case of an economy closed to migration and then explore how migration prospects affect ethnic inequality under the free migration assumption we find the intuitive result that migration prospects have a protective effect on the minority immigration restrictions set by receiving countries on the other hand have the paradoxical effect of creating migration flows that would otherwise have remained latent

inflation and inflation uncertainty in turkey this article investigates the relationship between inflation and inflation uncertainty and the impact of monetary policy on this relationship using monthly turkish inflation data over january 1984 to october 2005 the results from various types of garch m models indicate that higher inflation rates lead to greater inflation uncertainty on the other hand the effect of inflation uncertainty on inflation is found to be negative due to stabilization motives dominating the opportunistic incentives of monetary authorities we find strong evidence to support the view that inflation oriented monetary policy has power to reduce the inflation persistence and eliminate uncertainty

measuring uncertainty based on rounding new method and application to inflation expectations abstract the literature on cognition and communication documents that people use round numbers to convey uncertainty this paper introduces a method of quantifying the uncertainty associated with round responses in pre existing survey data i construct micro level and time series measures of inflation uncertainty since 1978 inflation uncertainty is countercyclical and correlated with inflation disagreement volatility and the economic policy uncertainty index inflation uncertainty is lowest among high income consumers college graduates males and stock market investors more uncertain consumers are more reluctant to spend on durables cars and homes round responses are common on many surveys suggesting numerous applications of this method

the semiparametric asymmetric stochastic volatility model with time varying parameters the case of us inflation we propose a semiparametric extension of the time varying parameter regression model with asymmetric stochastic volatility for parameter estimation we use bayesian methods we illustrate our methods with an application to us inflation

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

a quantitative comparison of sticky price and sticky information models of price setting i estimate sticky price and sticky information models of price setting for the united states via maximum likelihood techniques reaching several conclusions first the sticky price model fits best and captures inflation dynamics as well as reduced form equations once hybrid behavior is allowed second the importance of hybrid behavior in sticky price models is potentially consistent with a role for some information imperfections such as sticky information as a complement to nominal price rigidities finally the favorable results herein for the hybrid sticky price model when evaluated by statistics that summarize the relative fit of different models is consistent with the existing literature that is both supportive and dismissive of such models as this literature has largely ignored fit in evaluating such models many previous studies have focused on ancillary issues such as the standard errors associated with certain parameters or granger causality tests that may not provide much information about sticky price models

the euro and inflation uncertainty in the european monetary union in this paper we investigate empirically the relationship between inflation and inflation uncertainty in twelve emu countries we estimate a time varying parameter model with a garch specification for the conditional volatility of inflation in order to distinguish between short run structural and impulse and steady state uncertainty we then introduce a dummy variable to model the policy regime shift which occurred in 1999 with the introduction of the euro and its effects on the links between inflation and inflation uncertainty we find that steady state inflation has generally remained stable with the important exception of germany where the trend has become positive steady state inflation uncertainty and inflation persistence have both increased and the relationship between inflation and inflation uncertainty has broken down in many countries these findings cast doubt on the optimistic view taken by the ecb concerning its success in controlling inflation and suggest the need for improvements in its analytical framework

brain drain and human capital formation in developing countries winners and losers using new data on emigration rates by education level we examine the impact of brain drain migration on human capital formation in developing countries we find evidence of a positive effect of skilled migration prospects on gross human capital formation in a cross section of 127 countries for each country of the sample we then estimate the net effect of the brain drain using counterfactual simulations countries combining relatively low levels of human capital and low emigration rates are shown to experience a beneficial brain drain and conversely there are more losers than winners and the former tend to lose relatively more than what the latter gain

a quantile framework for analysing the links between inflation uncertainty and inflation dynamics across countries in contrast to the conventional conditional mean approaches this study uses quantile regression techniques to present some new statistical evidence on the links between inflation uncertainty and the level of inflation with cross sectional data from 90 countries during the period 1961 to 2006 the results suggest that positive inflation shocks have stronger impact on inflation uncertainty which varies across the quantiles furthermore popular time series models are evaluated for their ability to reproduce measures of uncertainty and indicate similar results regarding the relationships between inflation and inflation uncertainty

analysing inflation by the fractionally integrated arfima garch model this paper considers the application of long memory processes to describing inflation for ten countries we implement a new procedure to obtain approximate maximum likelihood estimates of an arfima garch process which is fractionally integrated i d with a superimposed stationary arma component in its conditional mean additionally this long memory process is allowed to have garch type conditional heteroscedasticity on analysing monthly post world war ii cpi inflation for ten different countries we find strong evidence of long memory with mean reverting behaviour for all countries except japan which appears stationary for three high inflation economies there is evidence that the mean and volatility of inflation interact in a way that is consistent with the friedman hypothesis

the achilles heel of salience theory and a way to fix it abstract salience theory has been successfully used to explain a wide range of empirical and experimental phenomena such as the allais paradox framing effect the preference reversal phenomenon or the decoy and compromise effects in this paper we show that salience theory carries a notable flaw and under certain circumstances it suggests that a salient thinker may prefer a dominated option even when a strictly dominant alternative is available to her to solve this problem we propose a possible alteration of the theory and show how it accounts for the same phenomena as the salience theory

can democracy help growth and ethnic divisions this paper presents further empirical evidence suggestive of democracy s positive role in ameliorating the negative growth effects of ethnic diversity in nations however it is shown that endogeneity problems and a direct negative growth effect of democracy place inherent limitations on the strength of policy implications which may be drawn from the evidence

macroeconomic uncertainty and performance in the european union abstract we use a very general bivariate garch m model and monthly data on eu countries covering the 1962 2003 period to test for the impact of real output growth and nominal inflation macroeconomic uncertainty on inflation and output growth our evidence supports a number of important conclusions first in the majority of countries uncertainty regarding the output growth rate is related to the average growth rate and the effect in several countries is negative second in half of the cases there is no significant relationship between inflation uncertainty and output growth performance third inflation and output uncertainty have a mixed effect on inflation nevertheless considerable evidence for the cukierman meltzer hypothesis is obtained our conclusions are based on adopting both a structural and a reduced form bivariate garch model finally we also find statistically significant evidence of regime switching for both inflation and output growth volatility throughout the sample

the japanese deflation has it had real effects could it have been avoided has deflation contributed to the long lasting stagnation of the japanese economy could the bank of japan have stopped deflation by implementing a more expansionary monetary policy tentative answers are probably not to the first question and probably yes to the second question it is found that the total cost of deflation over the period 1995 2003 has been close to a 1 1 rate of lost gdp yet on the basis of statistical significance and robustness to specification choices this evidence is not compelling on the other hand the estimated positive linkage between nominal base money growth and inflation is significant and robust even given current economic conditions however in order to be inflationary monetary policy should have been more expansionary than what actually observed even since the launch of the quantitative easing in 2001

migration with endogenous moving costs we study a dynamic model of labor migration in which moving costs decrease with the number of migrants already settled in the destination this assumption is supported by sociological studies of migrant networks with endogenous moving costs migration occurs gradually over time once it starts it develops momentum and migratory flows may increase even as wage differentials narrow in addition migration tends to follow geographical channels and low moving cost individuals migrate first these patterns are consistent with historical evidence from the great black migration of 1915 1960 in the united states much of which cannot be reconciled with existing migration models excerpt

method in the madness a political economy analysis of the ethnic conflicts in less developed countries this paper is an attempt from a political economist s point of view to look for some clear patterns in the horrendous complexities of the ethnic and sectarian conflicts that are raging in less developed countries we emphasize the importance of some institutional failures such as the decline of mediating institutions or of preexisting structures of credible commitment rather than mere cultural and historical animosities behind the collapse of interethnic understandings and compromises the rise in ethnic conflicts is not always associated with economic deterioration sometimes quite the contrary the effects of market expansion are also ambiguous in our discussion of policy lessons we have tried to look for various ways both political and economic of constructing institutionalized incentives for conciliatory actions

why are stabilizations delayed when a stabilization has significant distributional implications e g tax increases to eliminate a large budget deficit socioeconomic groups may attempt to shift the burden of stabilization onto other groups the process leading to stabilization becomes a war of attrition each group attempting to wait the others out and stabilization occurring only when one group concedes and bears a disproportionate share of the burden the authors solve for the expected time of stabilization in a model of rational delay and relate it to several political and economic variables they motivate this approach and its results by comparison to historical and current episodes copyright 1991 by american economic association

disagreement and biases in inflation expectations empirical work documents substantial disagreement in inflation expectations obtained from survey data furthermore the extent of such disagreement varies systematically over time in a way that reflects the level and variance of current inflation this paper oers a simple explanation for these facts based on asymmetries in the forecasters costs of over and under predicting inflation our model implies biased forecasts with positive serial correlation in forecast errors and a cross sectional dispersion that rises with the level and the variance of the inflation rate it also implies that forecast errors at dierent horizons can be predicted through the spread between the short and long term variance of inflation we find empirically that these patterns are present in inflation forecasts from the survey of professional forecasters a constant bias component not explained by asymmetric loss and rational expectations is required to explain the shift in the sign of the bias observed for a substantial portion of forecasters around 1982

brain drain and economic growth theory and evidence we focus on the impact of migration prospects on human capital formation and growth in a small open developing economy we assume that agents are heterogeneous in skills and take their educational decisions in a context of uncertainty regarding future migrations we distinguish two growth effects an ex ante brain effect migration prospects foster investments in education because of higher returns abroad and an ex post drain effect because of actual migration flows the case for a beneficial brain drain bbd emerges when the first effect dominates i e when the average level of human capital is higher in the economy opened to migrations than in the closed economy we derive the theoretical conditions required for such a possibility to be observed using cross section data for 37 developing countries we find that the possibility of a bbd could be more than a theoretical curiosity

the stochastic volatility in mean model with time varying parameters an application to inflation modeling this article generalizes the popular stochastic volatility in mean model to allow for time varying parameters in the conditional mean the estimation of this extension is nontrival since the volatility appears in both the conditional mean and the conditional variance and its coefficient in the former is time varying we develop an efficient markov chain monte carlo algorithm based on band and sparse matrix algorithms instead of the kalman filter to estimate this more general variant the methodology is illustrated with an application that involves u s u k and germany inflation the estimation results show substantial time variation in the coefficient associated with the volatility highlighting the empirical relevance of the proposed extension moreover in a pseudo out of sample forecasting exercise the proposed variant also forecasts better than various standard benchmarks

measuring asymmetry and persistence in conditional volatility in real output evidence from three east asian tigers using a multivariate garch approach we search for evidence of conditional volatility in the quarterly real gross domestic product gdp growth rates of three east asian tigers singapore hong kong and taiwan the widely accepted exponential generalized autoregressive conditional heteroscedasticity egarch type model is used to capture the existence of asymmetric volatility and the potential structural break points in the volatility we find evidence of asymmetry and persistence in the volatility of gdp growth rates it is noted that the structural breakpoints of volatility correspond reasonably well to the historical economic and political events in these economies policy implications from our findings are discussed

frictions or mental gaps what s behind the information we don t use and when do we care consumers suffer significant losses from not acting on available information these losses stem from frictions such as search costs switching costs and rational inattention as well as what we call mental gaps resulting from wrong priors worldviews or relevant features of a problem not being top of mind most research studying such losses does not empirically distinguish between these mechanisms instead we show that most highly cited papers in this area presume one mechanism underlies consumer choices and assume away other potential explanations or collapse many mechanisms together we discuss the empirical difficulties that arise in distinguishing between different mechanisms and some promising approaches for making progress in doing so we also assess when it is more or less important for researchers to distinguish between these mechanisms approaches that seek to identify true value from demand without specifying mechanisms behind this wedge are most useful when researchers are interested in evaluating allocation policies that strongly steer consumers towards better options with regulation traditional policy instruments and defaults on the other hand understanding the precise mechanisms underlying consumer losses is essential to predicting the impact of mechanism policies aimed primarily at reducing specific frictions or mental gaps without otherwise steering consumers we make the case that papers engaging with these questions empirically should be clear about whether their analyses distinguish between mechanisms behind poorly informed choices and what that implies for the questions they can answer we present examples from several empirical contexts to highlight these distinctions

re examining inflation and inflation uncertainty in developed and emerging countries abstract this paper examines the relationship between inflation and inflation uncertainty for both developed and emerging countries we find new evidence that suggests positive inflationary shocks have stronger impacts on inflation uncertainty for mainly latin american countries

inflation uncertainty and interest rates is the fisher relation universal this paper tests the validity of the fisher hypothesis which establishes a positive relation between interest rates and expected inflation for the g7 countries and 45 developing economies for this purpose we estimate a version of the garch specification of the hypothesis for all countries included in the sample we also test the augmented fisher relation by including the inflation uncertainty in the equation the simple fisher relation holds in all g7 countries but in only 23 developing countries there is a positive and statistically significant relationship between interest rates and inflation uncertainty for six of the g7 and 18 of the developing countries and this relationship is negative for seven developing countries

migration of professionals from fiji to new zealand a reduced form supply demand model abstract in this study we estimate a reduced form equation for migration of highly skilled and professionally trained workers from fiji to new zealand during 1987 1990 explanatory variables include previous period s migrants occupational income in new zealand the supply of graduates in new zealand and political instability in fiji using a reduced form supply demand model to estimate the determinants of migration the study finds that the number of professional migrants from fiji was significantly and positively related to previous year s migrants the real income in new zealand and political instability in fiji

inflation output and uncertainty in the era of inflation targeting a multi economy view on causal linkages abstract this study provides cross country robust evidence on interdependencies among inflation output growth and respective uncertainties for the current era of low inflation policies we attribute the extant empirical disagreement on these relations to the fact that long sampling periods and single economies are typically considered for analysis in this study varx mgarch m models are estimated for 34 developed and emerging economies and the time period of 1990 2010 we study average granger causal effects by aggregating parameter estimates over economies the cross sectional variation of estimates serves as a means to assess the robustness of empirical findings over the entire cross section we find that both inflation and inflation uncertainty significantly reduce output growth economies with low inflation rates are particularly at risk to incur output losses from increasing inflation we also find spillover effects among uncertainty variables where the causal impact if present seems to point from the uncertainty in output to inflation uncertainty

competition for attention we present a model of market competition in which consumers attention is drawn to the products most salient attributes firms compete for consumer attention via their choices of quality and price strategic positioning of a product affects how all other products are perceived with this attention externality depending on the cost of producing quality some markets exhibit commoditized price salient equilibria while others exhibit de commoditized quality salient equilibria when the costs of quality change innovation can lead to radical shifts in markets as in the case of decommoditization of the coffee market by starbucks in the context of financial innovation the model generates the phenomenon of reaching for yield

foundations for optimal inattention abstract this paper models an agent who has a limited capacity to pay attention to information and thus conditions her actions on a coarsening of the available information an optimally inattentive agent chooses both her coarsening and her actions by maximization of an underlying subjective expected utility preference relation net of a cognitive cost of attention the main result axiomatically characterizes the conditional choices of actions by an agent that are necessary and sufficient for her behavior to be seen as if it is the result of optimal inattention observing these choices permits unique identification of the agent s utility index the information to which she pays attention her attention cost and her prior whenever information is costly

can a brain drain be good for growth in the source economy this paper analyzes the interaction between income distribution human capital accumulation and migration it shows that when migration is not a certainty a brain drain may increase average productivity and equality in the source economy even though average productivity is a positive function of past average levels of human capital in an economy it is also shown how the temporary possibility of emigration may permanently increase the average level of productivity of an economy

brain drain taxes for non benevolent governments abstract this paper investigates the welfare effects of brain drain taxes levied by non benevolent governments whereby a country collects a tax from skilled emigrants but potentially wastes a sizable portion of the revenue using a model in which taxes are chosen to maximize expected political rents i show that the availability of a brain drain tax increases a weighted sum of citizen utilities however the government s optimal brain drain tax is found to be higher than the level that maximizes this weighted sum in another model a brain drain tax is found to be desirable when governments use public good expenditures to compete for mobile residents

inflation and inflation volatility in thailand abstractquarterly data for thailand are used in this article for the period 1965q3 2013q4 to investigate both the relationship between inflation and inflation volatility and the impact of inflation volatility on economic growth inflation volatility is estimated by deploying the generalized autoregressive conditional heteroscedastic garch technique a granger causality test is then conducted to examine the causality between inflation and inflation volatility the empirical results obtained are consistent with a number of theoretical propositions first the results are consistent with the friedman ball proposition which states that a rise in inflation raises inflation volatility second there is evidence supporting the holland proposition that inflation volatility lowers the rate of inflation this is consistent with the view that central banks attempt to stabilize inflation with the rise in inflation volatility third empirical results obtained by asymmetric garch models suggest that inflation shoc

sources of ethnic inequality in vietnam vietnam s ethnic minorities who tend to live mostly in remote rural areas typically have lower living standards than the ethnic majority how much is this because of differences in economic characteristics such as education levels and land rather than low returns to characteristics is there a self reinforcing culture of poverty in the minority groups reflecting patterns of past discrimination the authors find that differences in levels of living are due in part to the fact that the minorities live in less productive areas characterized by difficult terrain poor infrastructure less access to off farm work and the market economy and inferior access to education geographic disparities tend to persist because of immobility and regional differences in living standards but the authors also find large differences within geographical areas even after controlling for household characteristics they find differences in returns to productive characteristics to be the most important explanation for ethnic inequality but the minorities do not obtain lower returns to all characteristics there is evidence of compensating behavior for example pure returns to location even in remote inhospitable areas tend to be higher for minorities though not high enough to overcome the large consumption difference with the majority the majority ethnic group s model of income generation is a poor guide on how to fight poverty among ethnic minority groups nor is it enough to target poor areas to redress ethnic inequality policies must be designed to reach minority households in poor areas and to explicitly recognize behavior patterns including compensating behavior that have served the minorities well in the short term but intensify ethnic inequalities in the longer term it will be important to open up options for minority groups both by ensuring that they are not disadvantaged in labor markets for example and by changing the conditions that have caused their isolation and social exclusion

a positive theory of inflation and inflation variance a positive theory of inflation and inflation variance empirically inflation and the variance of inflation are positively associated this paper develops a model that provides a potential explanation for this relationship in terms of the incentives facing the policymaker in a discretionary equilibrium the model can also account for an empirical association between inflation and measures of real output instability there is however no direct causal link whatever from the average rate of inflation to either the variance of inflation or that of real output i introduction the debate over the use rules or discretion in monetary policy has been central to macroeconomics for many years e g simons 1963 lucas 1980 buiter 1980 recently kydland and prescott 1977 and barro and gordon 1983a b have identified discretion as the absence of policy commitment in a game between policymakers and the public they argued that discretionary policymaking will lead governments to create excessive inflation a policy of low inflation is not consistent with incentives facing governments and thus will not be believed by the private sector barro and gordon 1983a argue that this positive theory of monetary policy can help to explain many features of the trend rate of inflation in modern economies high and persistent rates of inflation a positive relationship between inflation and unemployment and the observed countercyclical behaviour of monetary authorities among others these models are based on the premise that there are significant costs to a high but fully anticipated rate of inflation another feature of inflation in modern economics however is the well documented fact that inflation and the variability of inflation are positively associated this phenomenon has been widely observed over different countries at different times 1 this has led researchers to question the feasibility of a steady and predictable positive rate of inflation the finding suggests that high rates of inflation may reduce the ability to forecast future inflation rates a high average inflation rate may add an unnecessary degree of uncertainty to individual decision making and lead to a misallocation of resources friedman 1977 suggests that this may cause output instability and possibly raise the average unemployed rate a related paper by logue and sweeney 1981 establishes that there is a positive relationship between inflation and the variability of economic growth for industrial countries given this perspective the welfare costs associated with inflation might be considerably higher than the traditional costs of anticipated inflation this paper extends the barro and gordon 1983a model of discretionary monetary policy to take account of the relationship between inflation and measures of inflation and output variability the extension focussed on is to model an endogenous wage indexing scheme in the labor market in the discretionary equilibrium wage setters not only form rational expectations of the future price level but also choose an optimal degree of wage indexation this extension to the basic model has the following properties of a discretionary equilibrium 1 there is a positive association between the mean rate of inflation and the magnitude of real disturbances in the economy as well as between the mean inflation rate and the degree of output instability in the economy 2 in an economy where real disturbances are relatively important there is a positive association between the mean rate of inflation and the variance of inflation the explanation behind these results is as follows the lower is the degree of wage indexation the greater is the incentive for monetary authorities to cause surprise inflation and hence the higher is the mean rate of inflation in a discretionary equilibrium but the degree of wage indexation is negatively related to the variance of real disturbances in an economy which is subject to both real and nominal disturbances

modelling multi period inflation uncertainty using a panel of density forecasts this paper examines the determinants of inflation forecast uncertainty using a panel of density forecasts from the survey of professional forecasters spf based on a dynamic heterogeneous panel data model we find that the persistence in forecast uncertainty is much less than what the aggregate time series data would suggest in addition the strong link between past forecast errors and current forecast uncertainty as often noted in the arch literature is largely lost in a multi period context with varying forecast horizons we propose a novel way of estimating news and its variance using the kullback leibler information and show that the latter is an important determinant of forecast uncertainty our evidence suggests a strong relationship of forecast uncertainty with level of inflation but not with forecaster discord or with the volatility of a number of other macroeconomic indicators copyright 2006 john wiley sons ltd

testing for rate dependence and asymmetry in inflation uncertainty evidence from the g7 economies this paper employs a new test for level effects and asymmetry in inflation volatility higher inflation rates induce greater inflation uncertainty for the u s u k and canada uk and canadian inflation volatility responds asymmetrically to positive and negative inflation shocks c 2006 elsevier b v all rights reserved

the negative side of inflation targeting revisiting inflation uncertainty in the emu this article tests the friedman ball hypothesis for the european monetary union emu countries using a garch methodology the empirical results show a positive relationship between inflation and

globalization brain drain and development this paper reviews four decades of economics research on the brain drain with a focus on recent contributions and on development issues we first assess the magnitude intensity and determinants of the brain drain showing that brain drain or high skill migration is becoming a dominant pattern of international migration and a major aspect of globalization we then use a stylized growth model to analyze the various channels through which a brain drain affects the sending countries and review the evidence on these channels the recent empirical literature shows that high skill emigration need not deplete a country s human capital stock and can generate positive network externalities three case studies are also considered the african medical brain drain the exodus of european scientists to the united states and the role of the indian diaspora in the development of india s information technology sector we conclude with a discussion of the implications of the analysis for education immigration and international taxation policies in a global context

the relationship between inflation and inflation uncertainty in the uk 1885 1998 abstract using a long series of uk inflation data i have provided strong evidence in favour of the hypothesis that inflationary periods are associated with high inflation uncertainty this result supports the friedman ball hypothesis and has important implications for the inflation output relationship provided that more inflation uncertainty leads to lower output

changing inflation dynamics and uncertainty in the united states garch estimation we investigate recent changes in the level persistence and uncertainty of u s inflation despite the great strides in lowering inflation in the 1980s and 1990s we find that uncertainty has risen palpably in the current decade this is disturbing given the aforementioned findings of the negative impact of inflation uncertainty on output moreover analyzing both the standard consumer price index cpi and the cpi minus energy our results suggest that volatile energy costs contribute to the higher inflation uncertainty in the united states in the current decade

the relationship between inflation and inflation uncertainty in emerging market economies a standard generalized autoregressive conditional heteroskedastic q v model is employed to construct a measure of monthly inflation uncertainty in 12 emerging market economies and the relationship between inflation and inflation uncertainty is examined using granger causality tests the results suggest that higher inflation rates increased inflation uncertainty in all the economies providing strong support for the friedman hypothesis the evidence on the effect of inflation uncertainty on average monthly inflation is more mixed with increased inflation uncertainty leading to lower average inflation in colombia israel mexico and turkey consistent with the holland hypothesis but to higher average inflation in hungary indonesia and korea consistent with the hypothesis of cukierman and meltzer

losers and winners in economic growth this paper examines the growth rates in 116 economies from 1965 to 1985 it finds that the lowest quintile had an average growth rate of real gross domestic product gdp per capita of 1 3 percent whereas the highest quintile averaged 4 8 percent the authors isolate five influences that discriminate reasonably well between slow and fast growers a conditional convergence effect whereby a country grows faster if it begins with lower real gdp per capita in relation to its initial level of human capital in the forms of educational attainment and health a positive effect on growth from a high ratio of investment to gdp although this effect is weaker than that reported in some previous studies a negative effect from excessively large government a negative effect from government induced distortions of markets and a negative effect from political instability overall the fitted growth rates for eighty five economies for 1965 85 had a correlation of 0 8 with the actual values the authors also find that female educational attainment has a pronounced negative effect on fertility whereas female and male attainment are each positively related to life expectancy and negatively related to infant mortality

inflation uncertainty and labour market conditions in the us recent inflation dynamics in the united states us questioned the role of driving forces of inflation in the long run although the us recorded one of the longest economic recovery periods and the

explaining african economic performance africa has had slow growth and a massive exodus of capital in many respects it has been the most capital hostile region we review and interpret the aggregate level and microeconomic literatures to identify the key explanations for this performance there is a reasonable correspondence of the two sets of evidence pointing to four factors as being important these are a lack of openness to international trade a high risk environment a low level of social capital and poor infrastructure these problems are to a substantial extent attributable to government behaviour and the paper includes a review of the political economy literature which addresses that behaviour

setting the right prices for the wrong reasons we consider a model of nominal price adjustment with firm specific and aggregate shocks to economic fundamentals and incomplete dispersed information firms update their expectations about fundamentals based on their own cash flows revenues and wages we show that in a model with realistic levels of product level price dispersion the firms inference about aggregate shocks is very gradual yet in the aggregate prices adjust rapidly in response to aggregate nominal shocks when an aggregate shock occurs firms mistakenly attribute it to firm specific shocks but adjust prices nevertheless since the exact nature of the shock matters little for its optimal pricing decision

emigration and democracy migration is an important yet neglected determinant of institutions this paper documents the channels through which emigration affects home country institutions and considers dynamic panel regressions for a large sample of developing countries the authors find that emigration and human capital both increase democracy and economic freedom this implies that unskilled skilled emigration has a positive ambiguous impact on institutional quality simulations show an impact of skilled emigration that is generally positive significant for a few countries and for many countries once incentive effects of emigration on human capital formation are accounted for

rigid pricing and rationally inattentive consumer abstract this paper proposes a mechanism leading to rigid pricing as an optimal strategy it applies a framework of rational inattention to study the pricing strategies of a monopolistic seller facing a consumer with limited information capacity the consumer needs to process information about the realized price while the seller is perfectly attentive the seller chooses to price rigidly i e prices respond to changes in the unit input cost less than if the consumer was perfectly attentive the rigidity is sometimes manifested by discreteness of prices the seller charges a finite set of different prices even for a continuous range of unit input costs the seller does so to provide the consumer with easily observable prices which stimulates her to consume more and increases the seller s profit

uncertainty and export performance evidence from 18 countries we study a sample of nine developed and nine developing countries to evaluate the questions of how foreign income uncertainty and real exchange rate rer uncertainty impact international trade and how those impacts vary according to stage of development rer uncertainty has a negative and significant impact on export growth for six of the nine less developed countries in our sample while it has an insignificant effect for a majority of the developed countries in both groups foreign income uncertainty has a more pervasively significant and frequently larger influence on trade than does rer uncertainty

the effects of real and nominal uncertainty on inflation and output growth some garch m evidence in this paper we use garch m methods to test four hypotheses about the effects of real and nominal uncertainty on average inflation and output growth in the united states from 1948 to 1996 we find no evidence that higher inflation uncertainty or higher output growth uncertainty raises the average inflation rate we also find no support for the idea that more risky output growth is associated with a higher average real growth rate our key result is that in a variety of models and sample periods inflation uncertainty significantly lowers real output growth copyright 2000 john wiley sons ltd

consensus and uncertainty in economic prediction we define consensus as the degree of agreement among point predictions aimed at the same target by different individuals and uncertainty as the diffuseness of the corresponding probability distributions this distinction is made operational with the aid of the nber asa survey data on matched point and probabilistic forecasts of inflation and the rate of change in gross national product the means of the two sets of forecasts agree closely standard deviations of point forecasts tend to understate uncertainty as measured by standard deviations of the predictive probability distributions however these measures of consensus and uncertainty are on the whole positively correlated there is evidence that expectations of higher inflation generate greater uncertainty about inflation tests also favor the hypothesis that a rise in inflation uncertainty has adverse effects on real growth

estimates of the variance of u s inflation based upon the arch model it is generally agreed that the unpredictability of future inflation is a major component of the welfare loss associated with inflation perfectly predicted inflation might induce some costs through institutional rigidities governmental interference and transaction costs but in the long run these should be rather minimal as these institutions adopt various forms of indexing when inflation is unpredictable risk averse economic agents will incur a loss even if prices and quantities are perfectly flexible in all markets inflation is a measure of the relative price of goods today and goods tomorrow thus uncertainty in tomorrow s price impairs the efficiency of today s allocation decisions friedman in his nobel lecture 8 argues convincingly that higher variability of inflation would lead to decreased output ceteris paribus he then conjectures that higher rates of inflation are generally associated with higher variability of inflation and presumably greater uncertainty about future rates if this is true then higher rates of inflation would also be associated with low levels of output which implies a positively sloped phillips curve this paper uses a new statistical technique arch to estimate the conditional mean and variance of inflation from u s time series data the main finding is that the variance of inflation in the seventies was only slightly greater than in the sixties

rationalizability learning and equilibrium in games with strategic complementarities we study a rich class of noncooperative games that includes models of oligopoly competition macroeconomic coordination failures arms races bank runs technology adoption and diffusion r d competition pretrial bargaining coordination in teams and many others for all these games the sets of pure strategy nash equilibria correlated equilibria and rationalizable strategies have identical bounds also for a class of models of dynamic adaptive choice behavior that encompasses both best response dynamics and bayesian learning the players choices lie eventually within the same bounds these bounds are shown to vary monotonically with certain exogenous parameters we study the class of noncooperative supermodular games introduced by topkis 1979 and further analyzed by vives 1985 1989 who also pointed out the importance of these games in industrial economics supermodular games are games in which each player s strategy set is partially ordered the marginal returns to increasing one s strategy rise with increases in the competitors strategies so that the game exhibits strategic complementarity 2 and if a player s strategies are multidimensional marginal returns to any one com ponent of the player s strategy rise with increases in the other components this class turns out to encompass many of the most important economic applications of noncooperative game theory in macroeconomics diamond s 1982 search model and bryant s 1983 1984 rational expectations models can be represented as supermodular games in each of these models more activity by some members of the economy raises the returns to increased levels of activity by others in oligopoly theory some models of bertrand oligopoly with differentiated products qualify as supermodu lar games in these games when a firm s competitors raise their prices the marginal profitability of the firm s own price increase rises a similar structure is present in games of new technology adoption such as those of dybvig and spatt 1983 farrell and saloner 1986 and katz and shapiro 1986 when more users hook into a communication system or more manufacturers adopt an interface standard the marginal return to others of doing the same often rises similarly in some specifications of the bank runs model introduced by diamond and dybvig 1983 when more depositors withdraw their funds from a bank it is more worthwhile for other depositors to do the same in the warrant exercise

logit ces and rational inattention abstract we study the fundamental links between two popular approaches to consumer choice the multinomial logit model of individual discrete choice and the ces utility function which describes a diversified choice of a representative consumer we base our analysis on the rational inattention ri model and show that the demand system of ri agents each of which chooses a single option coincides with the demand system of a fictitious representative agent with ces utility function thus the diversified choice of the representative agent may be explained by the heterogeneity in signals received by the ri agents we obtain a new interpretation for the elasticity of substitution and the weighting coefficients of the ces utility function specifically we provide a correspondence between parameters of the ces utility function prior knowledge and marginal cost of information

optimal sticky prices under rational inattention this paper presents a model in which price setting firms decide what to pay attention to subject to a constraint on information flow when idiosyncratic conditions are more variable or more important than aggregate conditions firms pay more attention to idiosyncratic conditions than to aggregate conditions when we calibrate the model to match the large average absolute size of price changes observed in micro data prices react fast and by large amounts to idiosyncratic shocks but only slowly and by small amounts to nominal shocks nominal shocks have strong and persistent real effects we use the model to investigate how the optimal allocation of attention and the dynamics of prices depend on the firms environment jel e 3 e5 d8

on inflation and inflation uncertainty in the g7 countries abstract the relationship between inflation and inflation uncertainty is investigated in the g7 countries from 1948 to 1993 garch models are used to generate a measure of inflation uncertainty and then granger methods are employed to test the causality between average inflation and inflation uncertainty in all g7 countries inflation significantly raises inflation uncertainty as predicted by friedman and ball weaker evidence is found that inflation uncertainty granger causes inflation in three countries us uk and germany increased inflation uncertainty lowers inflation while in two countries japan and france increased inflation uncertainty raises inflation

nominal uncertainty and inflation the role of european union membership abstract we provide evidence that higher inflation uncertainty leads to higher inflation in the new european union eu member states and candidate countries only prior to eu accession during eu accession and entry inflation uncertainty has no effect on mean inflation

implications of rational inattention abstract a constraint that actions can depend on observations only through a communication channel with finite shannon capacity is shown to be able to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems the resulting theory looks enough like familiar dynamic rational expectations theories to suggest that it might be useful and practical while the implications for policy are different enough to be interesting

phillips curves and unemployment dynamics a critique and a holistic perspective the conventional wisdom that inflation and unemployment are unrelated in the long run implies that these phenomena can be analysed by separate branches of economics the macro literature tries to explain inflation dynamics and estimates the nairu the labour macro literature tries to explain unemployment dynamics and determine the real economic factors that drive the natural rate of unemployment we show that the orthodox view that the new keynesian phillips curve is vertical in the long run and that it cannot generate substantial inflation persistence relies on the implausible assumption of a zero interest rate in the light of these results we argue that a holistic framework is needed to jointly explain the evolution of inflation and unemployment

on the real effects of inflation and inflation uncertainty in mexico we estimate an augmented multivariate garch m model of inflation and output growth for mexico at business cycle frequencies the main findings are 1 inflation uncertainty has a negative and significant effect on growth 2 once the effect of inflation uncertainty is accounted for lagged inflation does not have a direct negative effect on output growth 3 however as predicted by friedman and ball higher average inflation raises inflation uncertainty and the overall net effect of average inflation on output growth in mexico is negative that is average inflation is harmful to mexican growth due to its impact on inflation uncertainty 4 the mexican presidential election cycle significantly raises inflation uncertainty both during the year of the election and the year following the election which has correspondingly negative effects on output growth

strategic pricing with rational inattention to quality this paper studies both theoretically and experimentally the pricing strategy of a rm that faces a consumer who is rationally inattentive to product quality sims 2003 in a standard sequential pricing game rational inattention to quality produces two types of mixed strategy perfect bayesian equilibria one where sellers pool at a low price and buyers are fully inattentive to quality and one where there is semi pooling at a high price and buyers are selectively attentive to quality i characterize these

migration as an antidote to rent seeking abstract we develop a new mechanism through which skilled migration may influence economic performance in the sending country if agents can choose between acting as rent seekers and engaging in productive activities and only productive skills are exportable a positive probability of migration to a more secure economy reduces the relative expected returns from rent seeking thus decreasing the proportion of skilled workers who opt for parasitic activities such an improvement in the allocation of talent may prevail over the loss of skilled workers due to outmigration however we show that this result is not robust to the introduction of endogenous protection if productive workers share their resources between accumulation of productive capital and investment in security prospective migration may induce a weaker protection against rent seeking which in turn might depress average income in the source economy

inflation and output growth uncertainty and their relationship with inflation and output growth abstract using a bivariate garch model of inflation and output growth we find evidence that higher inflation and more inflation uncertainty lead to lower output growth in the japanese economy these results support the argument of a price stability objective for the monetary authority

attention discrimination theory and field experiments with monitoring information acquisition we link two important ideas attention is scarce and lack of information about an individual drives discrimination in selection decisions our model of allocation of costly attention implies that applicants from negatively stereotyped groups face attention discrimination less attention in highly selective cherry picking markets where more attention helps applicants and more attention in lemon dropping markets where it harms them to test the prediction we integrate tools to monitor information acquisition into correspondence field experiments in both countries we study we find that unfavorable signals minority names or unemployment systematically reduce employers efforts to inspect resumes also consistent with the model in the rental housing market which is much less selective than labor markets we find landlords acquire more information about minority relative to majority applicants we discuss implications of endogenous attention for magnitude and persistence of discrimination in selection decisions returns to human capital and potentially for policy