rural transformation inequality and the origins of microfinance abstract what determines the development of rural financial markets starting from a simple theoretical framework we derive the factors shaping the market entry of rural microfinance institutions across time and space we provide empirical evidence for these determinants using the expansion of credit cooperatives in the 236 eastern counties of prussia between 1852 and 1913 this setting is attractive as it provides a free market benchmark scenario without public ownership subsidization or direct regulatory intervention furthermore we exploit features of our historical set up to identify causal effects the results show that declining agricultural staple prices as a feature of structural transformation leads to the emergence of credit cooperatives similarly declining bank lending rates contribute to their rise low asset sizes and land inequality inhibit the regional spread of cooperatives while ethnic heterogeneity has ambiguous effects we also offer empirical evidence suggesting that credit cooperatives accelerated rural transformation by diversifying farm outputs

inflation stabilization the experience of israel argentina brazil bolivia and mexico rampant inflation is a major economic problem in many of the less developed countries two out of three attempts to stabilize these economies fail inflation stabilization provides a valuable description and a critical analysis of the disinflation programs introduced in argentina bolivia brazil and israel in 1985 86 and discusses the possibility of such a program in mexico it documents the initial steps in stabilization as well as the reasons for failure as architects of the programs several of the authors are in key positions to assess which aspects were critical in getting the programs accepted and where to look for difficulties and failures in israel inflation was halted without recession the challenge to policy makers today is in shifting from stabilization to the revival of sustained growth this experience is described fully by michael bruno and sylvia piterman who examine the critical issue of exchange rates and by alex cukierman who uses modeling to analyze the interaction of money wages prices and activity under rational expectations that take the government s policy objectives into account endemic inflation and a sudden increase in external debt burden argentina s economy raising the wider issues of high inflation economies and stabilization that are discussed in the chapter by jose luis machinea and that by guido di tella and alfredo canavese eduardo modiano and mario simonsen take up issues of wages in brazil particularly the problem of finding an equitable way to deal with a wage freeze simonsen develops an ambitious game theoretic rationalization of incomes policy as a coordinating device for imperfectly competitive economies bolivia did reach hyperinflation price increases of more than 50 percent each month before stabilizing juan antonio morales shows how stabilizing the exchange rate in an economy where all pricing was already geared to the dollar achieved stabilization without a wage or price freeze and francisco gil diaz asks whether an incomes policy based program could work to control ever increasing inflation in mexico michael bruno is governor of the bank of israel guido di tella is a fellow of st anthony s college a professor at the di tella institute in buenos aires and a member of parliament in argentina stanley fischer is vice president of development economics and chief economist at the world bank rudiger dornbusch is ford international professor of economics at mit

modelling macroeconomic shocks in the cfa franc zone abstract in this paper we modify the method of blanchard and quah american economic review 79 1989 655 in order to estimate a structural var model appropriate for a small open economy in this way we identify shocks to output and prices in the members of the two monetary unions that make up the african cfa franc zone the costs of monetary union membership will depend on the extent to which price and output shocks are correlated across countries and the degree of similarity in the long run effects of the shocks on the macroeconomy the policy conclusions depend on the relative importance of different macroeconomic variables to policymakers and the speed with which a policymaker is able to respond to a shock

do consumers search for the highest price oligopoly equilibrium and monopoly optimum in differentiated products markets we develop a model of search among substitutes for the best combination of commodity variant and price in which the structure of search costs is manipulable by the suppliers of these variants e g by joining an existing market or opening a new one we analyze the subgame perfect equilibria arising in a multistage game involving specialized firms choice of entry variant and price and we compare them to a multiproduct monopolist s optimal choice we show that equilibrium prices increase in the number of substitutes sold in one market and that in the situation considered here monopoly increases welfare

prices and qualities in markets with costly information this paper extends the seminal work of akerlof and salop and stiglitz in two directions i the sellers can select both the selling prices and quality levels of their good and ii the buyers can acquire price quality information about individual sellers at a cost we observe multiple price quality combinations in equilibrium which depend upon the distribution of information costs of consumers and upon whether quality or price or both are costly observable welfare comparisons of equilibrium are considered we show that welfare will be greater when price advertising is permitted

time consistent collection of optimal seigniorage a unifying framework this paper reviews the existing literature on the time consistency problem of seigniorage collection when monetary policy is determined by optimal taxation considerations it develops a unifying accounting framework and suggests a general measure for seigniorage which encompasses the standard measures employed in the literature in addition the ex ante optimal solution to the optimal taxation problem is derived and interpreted in relation to the ramsey principle we show that the different recommendations of the public finance literature i e the friedman rule of optimal deflation moderately positive inflation and seigniorage maximizing inflation are specific solutions to the optimal taxation problem the paper continues with a formal illustration of the time consistency problem of the ex ante optimal policy and the characterization of the time consistent solution under discretion as possible solutions to the time consistency problem we consider reputational forces institutional reforms that establish central bank independence and specific ways of asset and debt management in particular it is formally shown that a modified version of the asset and debt management scheme suggested by persson persson and svensson is not only necessary but also sufficient for optimality although this did not hold in their model

certification under oligopolistic competition in a symmetric duopolistic market where each firm s choice regarding certain quality attributes such as the environmental friendliness of its product is its own private information the extent of horizontal differentiation between firms plays a crucial role in a certifier s optimal certification policy under a non profit certifier it is always the case that both firms produce the highest quality and opt for certification this is also the case under a for profit certifier but only when the degree of horizontal differentiation is sufficiently high when horizontal differentiation is low the for profit certifier by charging a very high certification fee creates maximum vertical differentiation between firms as a result only one firm produces the highest quality and opts for certification whereas the other firm produces the lowest quality and does not opt for certification this asymmetry under a for profit certifier makes the market inefficient which provides one possible explanation for the existence of mostly non profit certifiers in such markets

capital controls and balance of payments crises abstract the theory of balance of payments crises shows that under perfect foresight a system of fixed exchange rate is not sustainable in the presence of diverging economic policies in this paper it is shown how and why capital controls succeed in maintaining the principle of a fixed but adjustable parity both cases of a devaluation and a revaluation are considered and a condition for a parity change to be credible is presented

oligopolistic competition in price and quality abstract we consider an oligopolistic market where firms compete in price and quality and where consumers have heterogeneous information some consumers know both the prices and quality of the products offered some know only the prices and some know neither we show that if there are sufficiently many uninformed consumers then there exists a unique equilibrium where price is a perfect indicator of quality this equilibrium is characterized by dispersion and pareto inefficiency of the price quality offers where better price quality combinations are associated with lower prices

rtas proliferation and trade diversion effects evidence of the spaghetti bowl phenomenon this paper investigates the trade diversion effects of regional trade agreements rtas so called spaghetti bowl phenomenon sbp in multilateral trade the sbp is due to the proliferation of rtas thus we investigate the relationship between the number of rtas concluded by a country and the additional trade value attributed to an rta the main finding reveals a negative trade effect between them confirming the existence of sbp multilateral trade however results could not conclude evidence of a negative effect of overlapping rtas involving the existence of sbp within north north north south or south south trade but the additional trade value attributed to an rta concluded with eu countries or us seems to confirm significantly a trade diversion effect because of the number of rtas signed by these countries

informal insurance arrangements with limited commitment theory and evidence from village economies recent work on consumption allocations in village economies finds that idiosyncratic variation in consumption is systematically related to idiosyncratic variation in income thus rejecting the hypothesis of full risk pooling we attempt to explain these observations by adding limited commitment as an impediment to risk pooling we provide a general dynamic model and completely characterise efficient informal insurance arrangements constrained by limited commitment and test the model using data from three indian villages we find that the model can fully explain the dynamic response of consumption to income but that it fails to explain the distribution of consumption across households

the effect of standardized information on firm survival and marketing strategies we argue that standardized information disclosure information using a common format and uniform metrics creates asymmetric opportunities for firms which affects their strategies and survival we test our predictions using a longitudinal quasi experimental field study involving the nutrition labeling and education act of 1990 nlea and we focus on firm market share within a category as a key asymmetry findings indicate that in general the nlea had no effect on firm responses however when accounting for firm differences we observe that the nlea led to 1 an increase in small share firm exits and 2 a greater increase in distribution for large share firms no concurrent increase in price by large share firms following the nlea was observed we conclude by discussing the implications of these effects for firm strategy the design of public policy and theories regarding the impact of information on markets

empirical effects of short term export bans the case of african maize abstract temporary export restrictions have been widely used in recent years in an attempt to stabilize domestic prices of staple grains i use monthly market level price data to investigate the empirical effects of 13 short term export bans on maize implemented by 5 countries in east and southern africa i find no statistically significant effect of export bans on the price gaps between pairs of affected cross border markets my results for price gaps match those from a model simulation in which export bans are not implemented however prices and price volatility in the implementing country are significantly higher during export ban periods in the data than in the model simulation with no bans export bans in the region are imperfectly enforced divert trade into the informal sector and appear to destabilize domestic markets rather than stabilizing them

the formation of risk sharing networks this paper examines the formation of risk sharing networks in the rural philippines we find that geographic proximity possibly correlated with kinship is a major determinant of mutual insurance links among villagers age and wealth differences also play an important role in contrast income correlation and differences in occupation are not determinants of network links reported network links have a strong effect on subsequent gifts and loans gifts between network partners are found to respond to shocks and to differences in health status from this we conclude that intra village mutual insurance links are largely determined by social and geographical proximity and are only weakly the result of purposeful diversification of income risk the paper also makes a methodological contribution to the estimation of dyadic models

crime protection investment spillovers theory and evidence from the city of buenos aires abstract this paper studies spillover effects from private crime protection technologies criminals and victims interact in a frictional market for offenses private protection diverts crime towards unprotected targets but also discourages criminal activity the relative strength of these two effects determines the sign of externalities among potential victims using originally collected data from buenos aires evidence shows that i private protection investment is spatially concentrated and ii neighbors investment in private protection has a causal positive and significant effect on own investment to achieve identification i exploit variation in the investment status of close neighbors as induced by their knowledge of crimes targeting friends relatives acquaintances or others and occurred farther away neighbors investment in alarms and cameras significantly increases a household s propensity to invest in the same technology externalities raise the scope for government intervention while geo referenced information on private protection can inform policy with regard to the spatial distribution of policing effort and public investment in security

seigniorage and the case for national money in countries with high rates of inflation there is typically movement away from the use of the local currency the paper analyzes the costs and benefits of using a local currency with emphasis on the seigniorage foregone by using a foreign money even if it should be desirable for a country to fix its exchange rate it still loses seigniorage if it does not use its own money the case for using a foreign money then turns largely on the superior discipline imposed on domestic policymakers by removing their control over the money supply alternative methods of imposing discipline are discussed estimates of the amount of seigniorage raised by different governments are presented seigniorage amounts in some cases to about 10 percent of government revenue estimates are also presented of both the annual flow and one time stock costs of giving up use of domestic currencies and instead using the dollar the flow cost is typically about 1 percent of gnp and the stock cost is around 10 percent of gnp

temporary stabilization predetermined exchange rates the paper analyzes the impact of a stabilization policy based on a temporary reduction in the rate of devaluation against a background in which a constant rate of devaluation has no real effects it is shown that the temporary policy does and furthermore that the real effects tend to become bigger in absolute value as the horizon of the temporary policy is shortened the central discussion is carried out in terms of a one good cash in advance model with perfect capital mobility and ramsey type consumers results are extended to account for home goods and variable velocity the roles of capital mobility and banking liberalization are briefly discussed

quality indicators in theory and in fact abstract in recent literature it has been suggested that consumers need have no knowledge of product quality as a number of quality indicators or signals may be used as substitutes very little attention has been paid to the empirical verification of these studies the present paper is devoted to the issue of how well these indicators perform using market data provided by consumer magazines from 3 countries the results strongly indicate that price is a poor quality indicator the paper also presents some evidence which suggests that seller reputation and easily observable characteristics are also poor indicators

market structure and the durability of goods a basic proposition in microeconomics is that a monopolist tends to produce less output than would be produced by a competitive industry with this proposition in mind it is tempting to suggest that monopolistic producers of durable goods will produce goods with less durability than would be produced by a competitive industry this result was derived by martin 1962 kleiman and ophir 1966 levhari and srinivasan 1969 and schmalensee 1970 however swan 1970 showed that monopolists would choose the same degree of durability for their goods as would competitive producers the reason that earlier writers had reached a different result was that they had focused on long run equilibrium profits and ignored the role of initial conditions in optimizing decisions the swan independence result that durability is independent of market structurewas first derived under the assumption of constant returns to scale specifically the average cost of production was assumed to be an increasing function of durability but independent of the level of output the constant returns to scale assumption was first relaxed by sieper and swan 1973 by introducing a fixed capacity cost they showed that with finitely lived capacity which required replacement the independence result continued to hold in the very long run although market structure could affect durability before attainment of long run equilibrium no systematic results were derived kamien and schwartz 1974 introduced rising average cost curves and resurrected the result of earlier writers that a monopolist would choose a lower durability than competitive firms however swan 1977 pointed out that the kamien schwartz analysis is flawed by not allowing the monopolist access to the same technology as the competitive industry if the monopolist is allowed to choose the optimal number of plants then swan s independence result holds finally auernheimer and saving 1977 introduced costs of adjusting the rate of output and the durability of output they showed that if long run increasing costs arise from pecuniary external diseconomies then the independence result is preserved as remarked by schmalensee 1979 in his survey the general message of

uncertainty and shopping behaviour an experimental analysis this paper reports experimental tests of three search equilibrium models these models which differ only in the search strategies available to the buyers have qualitatively different predictions that is equilibria price distributions single price equilibria at the competitive price and at the monopoly price and two price equilibria the experimental outcomes generally were consistent with the models predictions this suggests that debate on the utility of this class of models should shift to the realism of the models assumptions rather than focus on their ability to characterize market outcomes also since the basic models have been validated the project of analyzing experimentally the results of relaxing some of their assumptions seems worthwhile

the limits of independence and the policy of the ecb it is argued that the european central bank s independence is not as secure as it seems and that as a result it has appreciable institutional incentives to protect and enhance its position it follows that its behaviour should not be understood as being solely determined by the pursuit of price stability one consequence is that certain points on which it has been criticised on the basis that its approach makes for ineffective monetary policy might be better understood as often effective attempts to protect its position another is that making a central bank or any other institution completely independent may be much harder than it seems and failed attempts which come close are not necessarily to be preferred even by the advocates of independence to less ambitious designs

when to dollarize implicit in the debate over dollarization are two very different views of the sequencing of policy measures one view is that dollarization to work smoothly and yield more benefits than costs must wait on the completion of complementary reforms the other view is that dollarization need not wait on these other reforms because the very act of dollarizing will produce the changes needed to smooth the operation of the new regime in this paper i consider these arguments as they apply to the cases of labor market reform fiscal reform and financial sector reform i conclude that neither theory nor evidence suggests that removing all scope for an independent monetary policy will necessarily accelerate the pace of reform

disinflation and fiscal reform a neoclassical perspective abstract many latin american countries engaged in disinflation programs based on both exchange rate management and fiscal reforms in most of the cases part of the fiscal reform was not implemented and the program had to be abandoned the aftermath of these programs is not encouraging in this paper we show that if the reform process is uncertain and inflation has welfare costs the optimal exchange rate policy indeed implies the initiation of a disinflation program at the announcement of the fiscal reform even if it implies the possibility of a balance of payments crisis finally we show that it is optimal to engage in a sequence of stabilization programs until one of them is successful

inflationary finance under discrepion and rules inflationary finance involves first the tax on cash balances from expected inflation and second a capital levy from unexpected inflation from the standpoint of minimizing distortions these capital levies are attractive ex post to the policymaker in a full equilibrium two conditions hold 1 the monetary authority optimizes subject to people s expectations mechanisms and 2 people form expectations rationally given their knowledge of the policymaker s objectives the outcomes under discretionary policy are contrasted with those generated under rules in a purely discretionary regime the monetary authority can make no meaningful commitments about the future behavior of money and prices under an enforced rule it becomes possible to make some guarantees hence the links between monetary actions and inflationary expectations can be internalized there is a distinction between fully contingent rules and rules of simple form a simple rule allows the internalization of some connections between policy act ion and inflationary expectations but discretion permits some desirable flexibility of monetary growth this abstract was borrowed from another version of this item

tight money and inflation further results abstract the sargent wallace results on inflationary effects of monetary restraint are considered in a sidrauski money growth model when the utility function is unrestricted except for separability temporary monetary tightening will eventually lead to higher inflation when the deficit is fixed only if the elasticity of money demand with respect to the money growth rate is less than unity it is also shown that for inflation to rise immediately further requires the elasticity with respect to the nominal interest rate to be no less than unity

inflationary rigidities and orthodox stabilization policies lessons from latin america orthodox stabilization programs in latin american countries have been notoriously unsuccessful in combating inflation despite the imposition of stringent cuts in government deficits in most cases inflation came down only slowly and temporarily with concomitant declines in growth and employment the bolivian program one of the only latin american successes is contrasted with those of argentina brazil chile and mexico the problems of dealing with chronic inflation are compared with those of hyperinflationary countries and the influence of price and wage rigidities expectations and credibility is explored the study shows that fiscal restraint is a necessary but not sufficient condition for success and that sound management of nominal variables the exchange rate and money supply are also necessary the critical role of credibility is linked with price and wage rigidities in the chronic inflation countries whereas the unsuitability of hyperinflation is seen to increase the credibility of and thus the potential for successful stabilization programs

product quality and imperfect information this paper considers markets in which consumers are imperfectly informed about both product prices and quality levels offered by firms we characterize necessary and sufficient conditions for existence of the various equilibrium configurations of price and quality that can arise in two paradigm cases when all consumers prefer higher quality and when all consumers prefer lower quality our results suggest that firms will exploit imperfect information by charging noncompetitive prices as well as by offering other than ideal quality in the former case but only by changing noncompetitive prices in the latter case

the advantage of tying one s hands ems discipline and central bank credibility abstract it is often argued that the ems is an effective disciplinary device for inflation prone countries in europe since it forces the respective policy makers to pursue more restrictive monetary policies than they would otherwise it is not clear however why these countries should submit themselves to such discipline this paper argues that to answer this question appropriately one must consider that ems membership brings potentially large credibility gains policy makers in inflation prone countries the reason is that not only it attaches an extra penalty to inflation in terms of real appreciation but makes the public aware that the policy maker is faced with such penalty and thus helps to overcome the inefficiency stemming from the public s mistrust of the authorities

a generalized model of pricing for homogeneous goods under imperfect information this paper generalizes the model developed in wilde and schwartz 1979 to allow downward sloping demand curves and u shaped average cost curves it shows that the basic qualitative conclusions of wilde and schwartz still hold moreover it shows that the critical proportion of comparison shoppers needed to generate a competitive equilibrium falls as demand becomes more elastic or average costs become more inelastic finally it shows that when imperfect information generates non competitive outcomes they are bounded below in welfare terms by the monopolistically competitive equilibrium

transparency reputation and credibility under floating and pegged exchange rates this paper shows that if the cost of importing foreign inflation and real exchange rate shocks are not too high then the equilibrium nominal exchange rate regime for a country with a credibility problem is a peg under which credibility is higher and inflation is lower than under a float this holds true although devaluations of the pegged rate are assumed to be costless the reason is that as realized inflation is not perfectly controllable planned inflation under a float is private information in contrast since the exchange rate can be perfectly controlled pegging resolves the private information problem is more transparent and makes reputation more effective

prices product qualities and asymmetric information the competitive case recent developments in the economics of information emphasize the informational content of prices we examine the degree to which prices convey information on product quality to uninformed agents under perfect competition we show that a rational expectations equilibrium may not exist when an equilibrium does exist the information on quality conveyed by prices depends on the shape of the average cost curves and the relative numbers of informed and uniformed agents

risk sharing and network formation in this paper we examine whether risk sharing networks are formed so as to maximize the mutual gains from pooling income risk the bene t from risk pooling is largest when households have different income pro les e g different occupations and are subjected to di erent sources of risk e g live far apart gains from risk sharing therefore increase with social and geographical distance but distance also raises the cost of interpersonal links the net e ect on link formation is a priori indeterminate we investigate this issue empirically using survey data from the rural philippines

consumption and investment in resource pooling family networks this paper examines a novel motive for resource pooling in family networks in rural economies to relax credit constraints and facilitate investment in non collateralizeable assets for which credit market imperfections are most binding we thus complement established literatures examining risk sharing motives for resource transfers within family networks as well as motives based on kinship tax obligations we do so exploiting the progresa program data in which family networks can be identified households are subject to large exogenous resource inflows and detailed responses on consumption and an array of investments can be tracked in a household panel over five years we find that for every dollar that accrues to the family network through progresa transfers food consumption expenditures increase by around 65c for both households eligible for progresa and ineligible members of the same family network hence the marginal propensity of families to invest save out of every dollar is around 35 and we document how this is channelled towards easing credit constraints poorer network members face in financing non collateralizable investments into their children s human capital we show these consumption and investment benefits of being embedded within a family network are sustained five years after households first experience resource transfers from progresa hence the interplay between resource inflows and resource pooling by family networks can place network members on sustained paths out of poverty this article is protected by copyright all rights reserved

on the imperfect substitutability of policy regimes exchange rate targetting vs policy coordination abstract exchange rate targetting is always an imperfect substitute for explicit policy coordination but succeeds when economies are either structurally dissimilar with symmetric shocks or structurally symmetric with dissimilar shocks a joint commitment then generates economies of scale in interventions

monetary union without fiscal coordination may discipline policymakers abstract with benevolent policymakers and fiscal leadership monetary unification reduces inflation taxes and public spending these disciplining effects of a monetary union which become stronger if the number of participants in the union increases are likely to raise welfare two types of arrangements are considered for the union s common central bank ccb making the ccb more conservative and imposing an inflation target on the ccb in contrast to the results of svensson 1997 svensson l e o 1997 optimal inflation targets conservative central banks and linear inflation contracts american economic review 87 98 114 an optimally designed conservative ccb may outperform inflation targeting finally we find that fiscal coordination offsets the disciplining effects of monetary unification hence subsidiarity in fiscal policymaking may enhance welfare

consumption risk sharing in social networks we develop a model of informal risk sharing in social networks where relationships between individuals can be used as social collateral to enforce insurance payments we characterize incentive compatible risk sharing arrangements and obtain two results 1 the degree of informal insurance is governed by the expansiveness of the network measured by the number of connections that groups of agents have with the rest of the community relative to group size twodimensional networks where people have connections in multiple directions are su ciently expansive to allow very good risk sharing we show that social networks in peruvian villages satisfy this dimensionality property thus our model can explain townsend s 1994 puzzling observation that village communities often exhibit close to full insurance 2 in second best arrangements agents organize in endogenous risk sharing islands in the network where shocks are shared fully within but imperfectly across islands as a result network based risk sharing is local socially closer agents insure each other more

reputation and uncertainty toward an explanation of quality problems in competitive ldc markets abstract this paper attempts to explain the puzzle of low and variable product qualities in seemingly competitive ldc markets it shows that the cost of overcoming quality moral hazard through seller reputation rises with the rate of interest the rate of seller turnover the amplitude of idiosyncratic cost fluctuations and the relative scarcity of exogenous entry costs since markets with a multiplicity of small producers are more likely to have these characteristics they are more susceptible to suffering from quality problems the model developed here in particular highlights the role of cost variations in impeding the function of reputation in markets with moral hazard and adverse selection the derived conditions for the persistence of quality problems contribute to the explanation of quality differences between similar markets in developed and less developed countries

fixed versus flexible exchange rates which provides more fiscal discipline abstract conventional wisdom holds that fixed rates provide more fiscal discipline than do flexible rates in this paper we show that this wisdom need not hold in a standard model in which fiscal policy is endogenously determined by a maximizing fiscal authority the claim that fixed rates induce more discipline stresses that sustained adoption of lax fiscal policies must eventually lead to an exhaustion of reserves and thus to a politically costly collapse of the peg hence under fixed rates bad behavior today leads to punishment tomorrow under flexible rates bad behavior has costs as well the difference is in the intertemporal distribution of these costs flexible rates allow the effects of unsound fiscal policies to manifest themselves immediately through movements in the exchange rate hence bad behavior today leads to punishment today if fiscal authorities are impatient flexible rates by forcing the costs to be paid up front provide more fiscal discipline and higher welfare for the representative private agent the recent experience of sub saharan countries supplies evidence that matches the predictions of the model

the phillips curve the persistence of inflation and the lucas critique evidence from exchange rate regimes comment we present evidence from the united states and the united kingdom that the persistence of price inflation is significantly higher under managed exchange rate regimes than under gold based fixed exchange rate regimes these differences are also reflected in expectations augmented phillips curves we use a two country macro model with forward looking price setters to demonstrate that higher monetary accommodation of inflation and exchange rate accommodation of inflation differentials increase inflation persistence the evidence does not contradict this hypothesis it supports the hypothesis of forward looking price setters and highlights the empirical significance of the lucas critique jel e31 e42 f33

fiscal discipline and the choice of exchange rate regime conventional wisdom claims that fixed exchange rates provide more fiscal discipline than do flexible rates but the recent experiences in europe the record of sub saharan countries in the 1980s and the history of stabilization attempts in latin america cast empirical doubts on this wisdom to explore this puzzle we present a standard intertemporal model with perfect capital mobility and price flexibility in which fiscal policy is endogenously determined by a maximizing fiscal authority

product differentiation with imperfect information the paper employs a model of monopolistic competition and product differentiation with consumers who are not well informed about the specification of the offered brands welfare analysis of the degree of product differentiation in such a market concludes that the socially desirable product variety is limited due to consumers imperfect information consequently when the number of consumers is sufficiently large or economies to scale in production are sufficiently weak the market would offer excessive variety the literature on product differentiation is motivated by the observation that only some of the potential brands of a differentiated product are produced and sold it studies issues such as the role of the market structure in the determination of product diversity and the welfare performance of alternative markets in making this product selection for example see lancaster 1979 and salop 1979 in the spatial models tradition spence 1976 and dixit and stiglitz 1977 in the diversifying representative consumer tradition these studies model product selection as an equilibrium outcome of monopolistic competition the welfare analysis focuses on the tradeoff between consumer benefits which naturally increase with variety and production efficiency which owing to economies to scale decreases with variety they find no natural relation between the socially optimal variety and the market outcome the latter can be smaller or larger than the former depending on the parameters of the model although it is natural to expect that in some markets for differentiated products consumers are imperfectly informed about the available brands all these studies assume that consumers possess perfect information the present paper assumes that consumers are imperfectly informed and indeed obtains qualitatively different results first regardless of how significant are the production economies of scale the optimal variety is below a predetermined level that depends on the parameters of consumer utility and information second when consumer population is sufficiently large or economies to scale in production are sufficiently weak the market would offer excessive variety the explanation is that consumers imperfect information limits the extent to which they can exploit the variety offered in the market it is therefore a social waste to increase variety to a level that consumers cannot benefit from

imperfect commitment altruism and the family evidence from transfer behavior in low income rural areas in this paper we examine empirically whether risk pooling is more advantageous among altruistic compared to selfish agents in a framework where individuals cannot make binding commitments in particular we incorporate altuism into a model of risk sharing under imperfect commitment and use simulation methods to establish tests of the roles of both altruism and commitment problems in determining the extent of insurance and the intertemporal movements in interhousehold transfers the tests are carried out using three panel data sets from two countries of rural south asia that provide detailed information on transfers and enable the measurement of income shocks the estimates provide strong support for the notion that imperfect commitment substantially constrains informal transfer arrangements whether kin based or not but also provide evidence that altruism plays an important role in ameliorating commitment constraints and thus in increasing the gains from income pooling

the effect of government ideology on an exchange rate regime some international evidence this paper comprehensively investigates the effect of government ideology on the type of exchange rate regime that a country implements via multinomial logit and multinomial probit models for 147 countries in the period 1974 2009 our results clearly indicate that a left wing government increases the likelihood that a country implements a flexible regime in the classifications of exchange rate regimes nevertheless evidence is weaker when using the de jure imf course classification which is set up by ilzetzki et al 2008 in a deeper investigation we find that left wing governments are more likely to choose a flexible regime relative to a fixed one in our sample of oecd non oecd and non eurozone countries as the impacts from government ideology on the determinant of the choice of exchange rate regime in eurozone countries disappear more importantly we present many explanations for exchange rate regime choices when macroeconomic conditions political constraints and institutions impact the choice of exchange rate regime