what accounts for the changes in u s fiscal policy transmission using vector autoregressions on u s time series for 1957 79 and 1983 2004 we find government spending shocks to have stronger effects on output consumption and wages in the earlier period we try to account for this observation within a dsge model featuring price rigidities and limited asset market participation specifically we estimate the structural parameters of the model for both periods by matching impulse responses model based counterfactual experiments suggest that most of the changes in fiscal policy transmission are accounted for by increased asset market participation and the more active monetary policy of the volcker greenspan period

optimal interest rate rules asset prices and credit frictions we study optimal taylor type interest rate rules in an economy with credit market imperfections our analysis builds on the agency cost framework of carlstrom and fuerst 1997 agency costs net worth and business fluctuations a computable general equilibrium analysis american economic review 87 893 910 which we extend in two directions first we embed monopolistic competition and sticky prices second we modify the stochastic structure of the model in order to generate a countercyclical premium on external finance this is achieved by linking the mean distribution of investment opportunities faced by entrepreneurs to aggregate total factor productivity we model monetary policy in terms of simple welfare maximizing interest rate rules we find that monetary policy should respond to increases in asset prices by lowering interest rates however when monetary policy responds strongly to inflation the marginal welfare gain of responding to asset prices vanishes within the class of linear interest rate rules that we analyze a strong anti inflationary stance always attains the highest level of welfare

long run purchasing power parity in the 1920s the greek experience a test is made for the existence of long run purchasing power parity ppp for three drahma bilateral exchange rates during the 1920s maximim likelihood estimation techniques of cointegration vectors are employed and they produce strong evidence in favour or ppp

financial market segmentation and choice of exchange rate regimes we study the choice of exchange rate regime in a small open economy with segmented asset markets subjected to financial sector shocks we show that the state contingent optimal policy facilitates risk sharing between asset market participants and non participants and is countercyclical our results establish that contrary to existing literature flexible exchange rates mimic optimal policy and welfare dominates fixed exchange rates

fiscal spending and green economic growth evidence from china abstract the green economy is considered as an efficient way for sustainability but the connection between fiscal spending and green economic growth has not been systematically explained this paper attempts to fill this research gap based on the panel data of 282 prefecture level cities from 2005 to 2016 we first construct the green economic growth index by using the non radial direction distance function then by employing the system gmm estimation we further evaluate the effect of fiscal education spending and r d spending on green economic growth finally we explore the potential mechanism and discuss our findings we obtain the following conclusions 1 the green economic growth index fluctuated in the study period we attribute it to the political tournament of local governments 2 the system gmm estimation results confirm the existence of composition effect and technique effect in the full sample but the sub sample analysis suggests that there is a heterogeneous effect in different areas with different resources abundant degree 3 mechanism analysis illustrates that fiscal r d spending and education spending foster the green economic growth through technological activities and human capital intensive activities respectively but they exhibit distinct roles in different areas based on these findings we propose some targeted policy suggestions for promoting green economic growth

money interest rates and exchange rates with endogenously segmented markets we analyze the effects of money injections on interest rates and exchange rates when agents must pay a baumol tobin style fixed cost to exchange bonds and money asset markets are endogenously segmented because this fixed cost leads agents to trade bonds and money infrequently when the government injects money through an open market operation only those agents that are currently trading absorb these injections through their impact on these agents consumption these money injections affect real interest rates and real exchange rates the model generates the observed negative relation between expected inflation and real interest rates as well as persistent liquidity effects in interest rates and volatile and persistent exchange rates

interest rates and currency prices in a two country world abstract this paper is a theoretical study of the determination of prices interest rates and currency exchange rates set in an infinitely lived two country world which is subject both to stochastic endowment shocks and to monetary instability formulas are obtained for pricing all equity claims nominally denominated bonds and currencies and these formulas are related to earlier closely related results in the theories of money finance international trade

purchasing power parity a quantitative reassessment of the 1920s experience abstract the purpose of this paper is to test the hypothesis of purchasing power parity the basic methodology is to start by estimating a general distributed lag equation relating the excchangr rate to its own past and to current and past relative price levels successively more restricted version are then proposed and tested against the general model two interesting facts come out of this one is that the proportionality restrictin is not supported by the data and the other is that all the models estimated by frenkel 1978 are rejected in favor of less restricted models

redistributive shocks and productivity shocks abstract a productivity innovation reduces labor share at impact making it countercyclical it subsequently produces a long lasting increase that peaks five years later at a level larger in absolute terms than the initial drop before slowly returning to average i e labor share overshoots we estimate a bivariate shock process to the production function that under competition in factor markets accounts for this overshooting we pose this process in an otherwise standard real business cycle economy and we find that the contribution of productivity innovations to the variance of hours is 1 of that in the standard rbc model

buffer stocks and labor demand further evidence this paper presents estimates of a multivariate flexible accelerator model of labor demand hours and the number of production workers which shows that stocks of finished goods unfilled orders and materials inventories have significant impacts upon labor demand univariate time series models are used to capture expectations of the determinants of desired stocks new orders real wages and real raw materials prices and these magnitudes are found to follow a random walk without drift expected new orders and errors in forecasting new orders are found to have an important impact upon labor inputs real wage forecasting errors are found to be important for hours demand

why u s wage and employment behavior differs from that in britain and japan if a poll were to be conducted among american academic economists to select the most mystifying economic phenomenon of our time surely the sticky nominal wage rate would emerge at or near the top of the list the slow and partial response of the nominal wage rate to changes in aggregate nominal spending has been a central postulate of macroeconomic theory for the past 45 years from keynes general theory down to the standard postwar textbook keynesian paradigm to the more modern fixed wage price models of robert barro and herschel grossman i976 and edmond malinvaud i977 unwilling passively to accept nominal wage rigidity as an unexplained assumption many labour market theorists have followed the lead of costas azariadis i975 and martin baily i974 in building models to explain rigid wages and layoff unemployment as the rational outcome of a profit maximising calculus as i pointed out in an early critique of the azariadis baily model i976a their assumptions cannot explain cycles in employment but rather why workers would want fixed incomes i e a fixed wage rate and fixed employment soon thereafter barro i977 went one step further and argued that contract theory is a facade which cannot explain why workers would choose a rigid wage and variable employment in preference to the classical equilibrium quantity of employment that equates the marginal product of labour with the marginal value of time now an examination of the evidence has led me to the realisation that rigid wages cannot provide the underpinnings for a universally valid theory of the business cycle simply because wages are not universally rigid i document below with postwar quarterly data that the share of fluctuations in the manufacturing wage bill taking the form of nominal wage changes as compared to changes in hours worked is five to ten times greater in britain and japan than in

cyclical productivity in europe and the united states evaluating the evidence on returns to scale and input utilization this paper studies procyclical productivity growth at the industry level in the united states and three european countries france germany and the netherlands industry specific demand side instruments are used to examine the prevalence of non constant returns to scale and unmeasured input utilization for the aggregate us economy unmeasured input utilization seems to explain procyclical productivity however this correction still leaves one in three us industries with procyclical productivity this failure of the model can also be seen in europe and is mostly concentrated in services industries

interest rates and inflation a consensus has emerged among practitioners that the instrument of monetary policy ought to be the short term interest rate that policy should be focused on the control of inflation and that inflation can be reduced by increasing short term interest rates at the center of this consensus is a rejection of the quantity theory such a rejection is a difficult step to take given the mass of evidence linking money growth inflation and interest rates increases in average rates of money growth are associated with equal increases in average inflation rates and interest rates these observations need not rule out a constructive role for the use of short term interest rates as a monetary instrument one possibility is that increasing short term rates in the face of increases in inflation is just an indirect way of reducing money growth sell bonds and take money out of the system another possibility is that while control of monetary aggregates is the key to low long run average inflation rates an interest rate policy can improve the short run behavior of interest rates and prices the shortrun connections among money growth inflation and interest rates are very unreliable so there is much room for improvement these possibilities are surely worth exploring but doing so requires new theory the analysis needed to reconcile interest rate policies with the evidence on which the quantity theory of money is grounded cannot be found in old textbook diagrams

external effects in u s procyclical productivity abstract in this paper we highlight a new dimension of the aggregate procyclical productivity phenomenon we show that estimates of the degree of returns to scale are larger for manufacturing as a whole than for two digit industries since this difference must be due to factors that are only internalized at the most aggregate level we term it an external effect this result rules out explanations based on own input variation such as true increasing returns and unmeasured factor utilization tied to own activity as the sole explanations for aggregate procyclical productivity we explore several potential explanations of this external effect

aggregate and welfare effects of redistribution of wealth under inflation and price level targeting abstract an unanticipated rise in the price level redistributes wealth from lenders to borrowers its size depends on the monetary policy regime as inflation targeting it and price level targeting pt have different implications for the price level path following price level movements the effects of an unexpected 1 price level increase are measured and assessed under both regimes overall the redistribution of wealth and the implied aggregate and welfare effects are larger under it than they are under pt the youngest the poorest and the government gain at the expense of the rest of the population and when the government gain is given to households as lump sum transfers the effects on gdp are negative and long lasting

reassessing discretionary fiscal policy in 1992 president bush proposed legislation intended to speed up the recovery from the 1990 91 recession congress rejected this proposal for countercyclical fiscal policy stimulus in early 1993 president clinton proposed his own stimulus package but congress rejected this proposal too many reasons were given for deciding against these two discretionary fiscal policy proposals but perhaps the most common one was the large federal budget deficit in the early 1990s with the rapid disappearance of budget deficits in recent years this reason to vote against a discretionary fiscal stimulus is unlikely to be mentioned in the next economic cycle discretionary countercyclical fiscal policy again appears to be a politically feasible option but should america use it after so many years of disuse much has happened in macroeconomics since the 1960s and 1970s when discretionary countercyclical fiscal policy was last considered a serious option in the united states first monetary policy making has changed substantially over the last two decades the federal reserve s interest rate decisions have become more explicit more systematic and more reactive to changes in both inflation and output the fed has placed a greater emphasis on keeping inflation low the experience with this new policy has been very favorable inflation has been low since the early 1980s and the real economy has been more stable the 1980s and 1990s saw two lengthy expansions separated by a relatively short and mild recession in terms of the tradeoff between output variability and inflation

further results on long run purchasing power parity in the 1920s abstract we reexamine long run purchasing power parity ppp for the dollar sterling exchange rate in the 1920s using a three variable cointegration regression and the new statistics tabulated by engle and yoo 1987 consistent with taylor and mcmahon s 1988 results we reject cointegration for the dollar sterling exchange rate the u k and the u s a price levels for the sample period february 1921 to may 1925 contrary to taylor and mcmahon however we find only weak evidence of cointegration for the shorter sample period february 1921 to may 1924

on inflation as a regressive consumption tax abstract evidence on the portfolio holdings and transaction patterns of households suggests that the burden of inflation is not evenly distributed we build a monetary growth model consistent with key features of cross sectional household data and use this framework to study the distributional impact of inflation at the aggregate level our model economy behaves similar to standard monetary growth models within the representative agent abstraction inflation has however important distributional effects since it is effectively a regressive consumption tax thus neglecting the distributional consequences of inflation may prove misleading in assessing the effects of inflation in our economy

production smoothing in the japanese vehicle industry abstract physical data from the japanese vehicle industry covering monthly observations from 1985 1 to 1994 12 are investigated across nine goods ranging from bicycles to large buses smaller variance of production is found relative to sales across all goods for unadjusted data and in 17 out of 18 cases for seasonally adjusted data such evidence in favor of the production smoothing model psm is confirmed by full information maximum likelihood employed jointly on inventories and sales equations the estimates suggest the industry operates in the range of increasing marginal costs in six out of nine goods positive costs of being away from targeted inventory are also present in six out of these nine goods which make the psm a good description of this industry

some empirical estimates of the demand for hours in u s manufacturing industries this paper presents estimates of hours equations based upon optimizing behavior of firms in a dynamic context the order stock distinction is the point of departure for this paper firms will be presumed here to produce to stock or to order hours equations will be derived which link hours worked to levels of inventories of finished goods or unfilled orders early work on the demand for labor ignored the effects of inventones and unfilled orders on the choice of labor input levels however some evidence on this subject was provided by the important and well known work of nadiri and rosen 1973 1 using a theoretical framework first studied by lucas 1967 they estimate dynamic factor demand schedules for six quasi fixed factors of production i e factor inputs which are subject to adjustment costs among these six inputs are employment hours per man and total inventories it is well known that the accumulation of any input will then depend upon the gaps between desired and actual levels of all quasi fixed factors thus the demand for hours per man is taken to depend among other things upon lagged hours employment and total inventories the cyclical interaction between inventories and the demand for labor arises through adjustment parameters attached to these lagged stocks completing the specification of the model by including the determinants of desired stocks sales the wage relative to capital costs and a time trend they apply the model to industrial aggregate data their results provide little evidence that inventories are an important determinant of the demand for hours of the eighteen industries examined only six produce negative and significant inventory coefficients further relative factor prices are found to be significant in only six industries apart from aggregation bias issues there are several misspecifications which could account for these results there is no reason why the impact of each inventory stock should have an identical impact upon hours for example it is reasonable to suppose that if the firm holds excess finished goods relative to desired levels it will reduce hours per worker but if the firm holds stocks of materials which exceed desired levels the firm may wish to increase hours so as to offset the output effects through the production function of declining stocks of materials similar comments can be offered about work in process inventories thus disaggregating by stage of fabrication would appear to be appropriate to sort out inventory effects on hours demand second nadiri and rosen ignore the impact of order backlogs upon hours following belsley 1969 it is well known that many of the firms in these industries produce not to stock but to order for firms producing goods requiring special attention order backlogs replace finished goods as a buffer against fluctuations in demand thus order backlogs should appear directly in the hours equation finally the dynamics of labor demand and factor prices may require a distributed lag representation to capture the response of labor demand to shifts in expected real wages as suggested by neftci 1978 in a different context the effects of real wages on hours may be captured if allowance is made for a distributed lag relationship between hours and real wages this paper presents two models which are designed to address some of these issues extending received for publication june 30 1982 revision accepted for publication january 7 1983 pennsylvania state university the research reported in this paper was partially supported by the employment and training administration u s department of labor under research and development grant no 91 24 77 34 and by the federal reserve bank of philadelphia the views expressed herein are those of the author and do not necessarily reflect those of the sponsoring institutions or the federal reserve system in any way i wish to thank professors c f christ l j maccini h rose and m ali khan for their constructive criticisms of this research two anonymous referees also provided excellent comments john hinrichs of the bureau of economic analysis kindly provided the deflated inventory data used here diane mayer and donna robinson provided expert research assistance any remaining errors are the responsibility of the author l see nadiri and rosen 1973 for a survey of the employment demand literature

procyclical labour productivity increasing returns to labour and labour hoarding in car assembly plant employment this paper empirically examines the sources of procyclicality in labor productivity for a panel of u s auto assembly plants from 1978 85 an employment demand equation derived from a cost minimization model is estimated to test for the presence of increasing returns and labor hoarding on the employment dimension the data used match employment and wage data from the bls current establishment survey to publically available data on output and the nature of production at these plants statistical evidence in favor of both increasing returns and hoarding is found these findings suggest that the observed procyclicality of labor productivity in this industry is due to both the nature of technology increasing returns as well as attempts by plant managers to maintain a reserve of experienced workers labor hoarding copyright 1992 by royal economic society

liquidity loanable funds and real activity abstract this paper develops a general equilibrium model of two traditional explanations of the monetary black box linking money and real activity the liquidity effect and the loanable funds effect these effects are modeled with a monetary production economy in which central bank injections of cash are funnelled into the economy through the credit market since only borrowers have direct access to the newly injected cash monetary injections cause nominal interest rates to fall if firms are borrowers then monetary injections also increase current and future real activity

search limited participation and monetary policy a model is developed that employs recent developments in the literature on search models of money to capture the distributional effects of monetary policy in a tractable way deterministic and stochastic versions of the model are studied money is not neutral and these nonneutralities persist whether or not the change in the money supply is anticipated or unanticipated at the optimum monetary policy is geared to correcting distortions in the search sector of the economy while correcting for the persistent effects of past monetary policy actions there is no consensus among macroeconomists concerning the role of monetary policy in the short run however an influential idea is that limited participation in financial markets is an important mechanism behind the short run macroeconomic effects of central bank actions that is there is a component of economic activity that is centralized and interconnected this economic activity involves financial transactions among banks and other financial intermediaries and the agents who hold the assets and liabilities of these financial intermediaries when the central bank injects outside money into the economy or withdraws it the economic agents who are immediately affected by the monetary injection or withdrawal are the participants in these centralized transactions other economic agents who are engaged in more decentralized and less interconnected transactions will not be affected directly by the first round effects of central bank actions thus there will be a distributional effect of monetary injections and withdrawals as first captured in heterogeneous agent models by grossman and weiss 1983 and rotemberg 1984 this distributional effect will matter in interesting ways for the price level nominal interest rates aggregate output foreign exchange rates and the distribution of consumption across the population the grossman weiss and rotemberg models are not analytically tractable because of the difficulty in tracking the distribution of wealth over time however lucas 1990 fuerst 1992 and alvarez and atkeson 1997 among others

should central banks respond to movements in asset prices in recent decades asset booms and busts have been important factors in macroeconomic fluctuations in both industrial and developing countries in light of this experience how if at all should central bankers respond to asset price volatility we have addressed this issue in previous work bernanke and gertler 1999 the context of our earlier study was the relatively new but increasingly popular monetary policy framework known as inflation targeting see e g bernanke and frederic mishkin 1997 in an inflation targeting framework publicly announced medium term inflation targets provide a nominal anchor for monetary policy while allowing the central bank some flexibility to help stabilize the real economy in the short run the inflation targeting approach gives a specific answer to the question of how central bankers should respond to asset prices changes in asset prices should affect monetary policy only to the extent that they affect the central bank s forecast of inflation to a first approximation once the predictive content of asset prices for inflation has been accounted for there should be no additional response of monetary policy to assetprice fluctuations in use now for about a decade inflationtargeting has generally performed well in practice however so far this approach has not often been stress tested by large swings in asset prices our earlier research employed simulations of a small calibrated macroeconomic model to examine how an inflation targeting policy defined as one in which the central bank s instrument interest rate responds primarily to changes in expected inflation might fare in the face of a boom and bust cycle in asset prices we found that an aggressive inflationtargeting policy rule in our simulations one in which the coefficient relating the instrument interest rate to expected inflation is 2 0 substantially stabilizes both output and inflation in scenarios in which a bubble in stock prices develops and then collapses as well as in scenarios in which technology shocks drive stock prices intuitively inflation targeting central banks automatically accommodate productivity gains that lift stock prices while offsetting purely speculative increases or decreases in stock values whose primary effects are through aggregate demand conditional on a strong policy response to expected inflation we found little if any additional gains from allowing an independent response of central bank policy to the level of asset prices in our view there are good reasons outside of our formal model to worry about attempts by central banks to influence asset prices including the fact that as history has shown the effects of such attempts on market psychology are dangerously unpredictable hence we concluded that inflationtargeting central banks need not respond to asset prices except insofar as they affect the inflation forecast in the spirit of recent work on robust control the exercises in our earlier paper analyzed the performance of policy rules in worst case discussants robert shiller yale university glenn rudebusch federal reserve bank of san francisco kenneth rogoff harvard university

long run purchasing power parity in the 1920s abstract this paper presents an empirical analysis of long run purchasing power parity ppp during the 1920s float using recently developed methodology on the cointegration of economic time series our results are generally supportive of ppp as a long run equilibrium condition on which exchange rates tended to converge over the period for dollar sterling however there is some evidence of a non stationary drift away from fundamentals during the last year or so before britain s return to the gold standard perhaps due to speculation our results also appear to reconcile some apparently conflicting evidence in the literature

energy price slump and policy response in the coal chemical industry district a case study of ordos with a system dynamics model we employ system dynamics method towards a coal chemical industry district economy evolution model using coal industry the coal chemical industry their downstream industries and the manufacture related service industry moreover we construct energy price and policy response scenarios based on ordos management experience the results show that the energy price slump had a negative impact on the overall economic development of the coal chemical industry district despite promoting non resource industries furthermore policies had different effects on the industry s output value and profit in the long term developing alternative industries ai helps increase the industrial output value and profit decreasing value added tax vat has immediate results and a distinctive effect on industrial short term production value and profit its long term effect being limited the effect of production limit pl on industrial profit is stronger than output value and financial support fs is more conducive to improve the latter however coal mining and coal chemical loan increases decrease the gross industrial profit level technology innovation ti has the best individual policy overall effect on production value and profits furthermore the simultaneous implementation of pl ti and ai can generate the synergy effect for each of them and the simultaneous implementation of vat and one or couple of other policies will generate the crowding out effect both for vat and other policies

excess labor and the business cycle this paper compares the medoff fay estimates of labor hoarding during troughs which are based on data from manufacturing plants with aggregate estimates of excess labor on hand the two sets of estimates seem consistent which provides a strong argument in favor of the excess labor hypothesis this is one of the few examples in macroeconomics where a hypothesis has been so strongly confirmed using detailed micro data this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abs this abstract was borrowed from another version of this item

resource abundance and economic growth in the united states abstract it is a common assumption that regions within the same country converge to approximately the same steady state income levels the so called absolute convergence hypothesis focuses on initial income levels to account for the variability in income growth among regions empirical data seem to support the absolute convergence hypothesis for us states but the data also show that natural resource abundance is a significant negative determinant of growth we find that natural resource abundance decreases investment schooling openness and r d expenditure and increases corruption and we show that these effects can fully explain the negative effect of natural resource abundance on growth

asset market participation monetary policy rules and the great inflation this paper argues that limited asset market participation is crucial in explaining u s macroeconomic performance and monetary policy before the 1980s and their changes thereafter in an otherwise conventional sticky price model standard aggregate demand logic is inverted at low enough asset market participation interest rate increases become expansionary passive monetary policy ensures equilibrium determinacy and maximizes welfare this suggests that federal reserve policy in the pre volcker era was better than conventional wisdom implies we provide empirical evidence consistent with this hypothesis and study the relative merits of changes in structure and shocks for reproducing the conquest of the great inflation and the great moderation

purchasing power parity during the 1920s abstract in this note the purchasing power parity theory during the 1920s is tested using the co integration approach the results do not support the theory although exchange rates and prices are non stationary in the levels no equilibrium relationship holds among them

economic transition policies in chinese resource based cities an overview of government efforts resource based cities in china have made momentous contributions to the development of the national economy for decades however with the depletion of natural resources their sustainable development is challenging and transition is important the chinese government has made great efforts to help resource based cities the purpose of this study is to investigate transition policies and their implementation firstly we reviewed previous studies and summarized the essential elements of some successful resource based cities which are useful experiences for chinese resource based cities secondly we studied the development of resource based cities over the past 10 years with a focus on economic development industrial structure government revenue and environmental conditions we found that resource based cities were less developed compared to other cities the main reasons are the after effects of a planned economy an unreasonable tax system planning mistakes and misguided resources exploitation policies thirdly we analyzed several aspects of the policy responses after the introduction of transition policies including designating 69 resource exhausted cities supporting cities with funds and projects formulating transition plans and evaluating transition performance however there are some deficiencies in the process of policy implementation finally some recommendations were provided to improve transition performance and sustainable development for resource based cities

financial market segmentation stock market volatility and the role of monetary policy we explore the role of monetary policy in a world of segmented nancial markets where the agents who trade stocks encounter nancial income risk although the rest do not in such an economy we ask the question of how the monetary authority operates when it aims to maximize total welfare we nd that optimal monetary policy has the novel role of sharing the nancial market risk traders face among all agents in the economy this nding holds for any concave utility function and is not sensitive to the degree of market segmentation when risk is shared perfectly in this way consumption is equalized between the two groups and agents if given the choice would be indierent between participating or not in the nancial markets we also explore the implications that this policy has for the volatility of stock prices and of ination when compared to the policies of constant money supply ination targeting and nominal interest rate pegging we nd that optimal monetary policy is not necessarily associated either with minimal stock price volatility or with minimal ination volatility

labor hoarding and the business cycle this paper investigates the sensitivity of solow residual based measures of technology shocks to labor hoarding behavior using a structural model of labor hoarding and the identifying restriction that innovations to technology shocks are orthogonal to innovations in government consumption we estimate the fraction of the variability of the solow residual that is due to technology shocks our results support the view that a significant proportion of movements in the solow residual are artifacts of labor hoarding behavior specifically we estimate that the variance of innovations to technology is roughly 50 percent less than that implied by standard real business cycle models in addition our results suggest that existing real business cycle studies substantially overstate the extent to which technology shocks account for the variability of postwar aggregate u s output

employment tenure and earnings profiles in japan and the united states comments the relationship between job tenure and annual earnings in japan has received considerable attention from social scientists examining employment contracts and the japanese compensation system in their widely cited article masanori hashimoto and john raisian 1985 using data for 1980 showed that japanese men have greater job tenure than comparable workers in the united states and that the earnings of japanese men rise more rapidly with increased tenure they found that an additional year of tenure increases earnings in both small and large firms in japan more than does an additional year of general market experience their results for the united states indicate that general market experience increases earnings more than an additional year of job tenure the 1970 s and 1980 s were a period of substantial change in japanese labor markets due to the rapid aging of the population and the restructuring of the economy following the oil crisis the present analysis extends the work of hashimoto and raisian by estimating earnings equations for japanese men for the years 1971 1976 1981 and 1986 specifically we wish to investigate whether hashimoto and raisian s findings have been stable over time or whether changes in the labor market have altered the importance of tenure relative to total labor market experience in the japanese labor market i changes in the labor market

limited asset markets participation monetary policy and inverted aggregate demand logic abstract this paper incorporates limited asset markets participation in dynamic general equilibrium and develops a simple analytical framework for monetary policy analysis aggregate dynamics and stability properties of an otherwise standard business cycle model depend nonlinearly on the degree of asset market participation while moderate participation rates strengthen the role of monetary policy low enough participation causes an inversion of results dictated by conventional wisdom the slope of the is curve changes sign the taylor principle is inverted optimal welfare maximizing discretionary monetary policy requires a passive policy rule and the effects and propagation of shocks are changed however a targeting rule implementing optimal policy under commitment delivers equilibrium determinacy regardless of the degree of asset market participation our results may justify fed s behavior during the great inflation period

excess labour and the business cycle a comparative study of japan germany the united kingdom and the united states against the background of firm specific human capital theory this paper investigates empirically the relative propensity of manufacturing industries in japan germany the united kingdom and the united states to hold excess labour over the business cycle both stock and utilization dimensions of the labour input are integrated into the study throughout discussion is linked to earlier research that has analysed the relative international performance of the japanese labour market

getting depleted resource based cities back on their feet again the example of yichun in china abstract sustainable consumption and production or lack thereof can leave very distinct marks at the city level among the cities aiming at sustainable development resource based cities rbcs are of special concern due to the tight interrelations economy urban development natural resources and environmental context have in them excessive exploitation and inefficient resource utilization often cause pollution and ecological risks as natural resources are getting exhausted their resource based industries will collapse threaten wider urban development and lead to economic recession in this article we focus on the economic and ecological dilemmas that the rbcs face in china we first present an overview of china s policy implementation for rescuing and transforming rbcs then a particular rbc yichun which is classified as recessionary is analyzed to understand the challenges that it faces during its transition the method of eco efficiency is used to uncover yichun s environmental performance in relation to its economic development subsequently we explore the barriers in terms of industrial transformation conflicts between national provincial and local governmental actions and the effects of the circular economy in yichun at the end of this article we formulate several recommendations to facilitate yichun s sustainable development we propose that yichun specifically needs to consider the energy consumption and pollution when selecting alternative industries furthermore one size fits all policies do not help to solve the problems in yichun policies need to be contextualized locally through well reflected coordination between higher and lower tiers of government

increasing returns labour utilization and externalities procyclical productivity in the united states and japan this paper investigates procyclical productivity and attempts to discriminate among several competing explanations the study focuses on the united states and japan since the different industrial relations in these two economies serve to cast a sharper light on the procyclical productivity debate labour hoarding evaluated through the introduction of a labour utilization proxy proves to be an important influence the interpretation of the role of external economies remains an open issue

industrial policy reform in six large newly industrializing countries the resource curse thesis abstract all six large newly industrializing countries nics in this study favored an autarkic industrial policy aip in the 1950s aip required however the rapid build up of heavy and chemical industry hci which caused foreign exchange shortages if the hci matured slowly this is because the import and subsidy demands of the growing protected hci sector became too burdensome for the competitive primary sector whose rents shrank in relative importance as the economic structure evolved the two least well endowed nics abandoned aip early in favor of a competitive industrial policy cip which relied on labor intensive exports to earn foreign exchange and resulted in rapid economic growth in contrast the resource bonus of the four best endowed nics sustained aip longer but the longer aip lasted the harder it became to reform and the slow maturing hci sector adversely affected economic growth in this way the resource bonus became a curse rather than a blessing

accumulation of human capital and the business cycle characteristics of business cycles are quite different across developed countries real wages and working hours are less sensitive to exogenous shocks in the united states than they are in britain and japan using a model with a microeconomic foundation this paper provides an economic explanation of these differences the cost of on the job training plays a crucial role workers seldom quit their jobs when the sunk training cost is high in such economies variances in employment and output become small and shocks tend to be absorbed by working hours and real wages thus these characteristics do not necessarily indicate that the economy is more efficient

inventories layoffs and the short run demand for labor this paper presents a theoretical and empirical analysis of the short run employment layoff and inventory strategies of firms on average more than two thirds of all layoffs in american manufacturing end in a rehire by the employer of origin martin feldstein 1975 david lilien 1980 these temporary layoffs have recently accounted for about half of all ongoing employer initiated spells of unemployment in that sector see table 1 and have led to a revised interpretation both of the involuntary nature of these separations costas azariadis 1975 feldstein 1976 martin baily 1977 and of the durability of employment relationships evidently a significant proportion of unemployed workers know that the conditions that generated their separations are temporary and so they expect to be recalled within some reasonable time the point of departure for this paper is in interpreting these findings as evidence of a privately and socially efficient stock of excess capacity held against contingent future demands that is as an inventory of a productive input this view leads to empirically refutable hypotheses regarding both the role of temporary layoffs and the circumstances under which they will be important in particular both excess capacity idle resources and inventories are devices by which firms may economize on the costs of rapid adjustments when faced with unstable market conditions george stigler 1939 in such an environment the demands for layoffs and for other buffer stocks are jointly determined elements of long run technology the choice among alternative stocks will depend on relative profitabilities and firms may choose to hold stocks of inputs as a substitute for inventory accumulation especially if the costs of varying capacity or of storage are important this reasoning implies that i the structure of short run employment and layoff decisions will vary across firms and industries and ii differences in these structures will be systematically related to the role of inventories in firms dynamic strategies some perspective is warranted at least since charles holt et al 1960 economists have recognized the production smoothing role of inventories and the necessity of predicting future demand in making current decisions david belsley 1969 gerald childs 1967 michael ward 1978 similarly one of the contributions of recent work on implicit labor contracts is in viewing the exchange of labor services as a bilateral and durable commitment both these lines of analysis are concerned with the methods firms use to respond to fluctuating demand yet the underlying interrelated nature of employment and inventory decisions has rarely been recognized roger miller 1968 m ishaq nadiri and sherwin rosen 1973 r g crawford 1979 robert hall 1972 this paper aims to provide a framework for evaluating these decisions and in so doing to explain some interesting features of observed labor markets the notion of substitution between inventories of human and physical capital suggests a more disaggregated look at the data table 2 shows the importance of temporary layoffs in the distribution of unemployment among manufacturing industries it reports layoff and total unemployment rates for twelve representative industries over the period 197376 and average layoff rates and recall frequencies for 1958 76 among all 21 twodigit manufacturing industries the correlation between layoff and rehire rates is 6 and the table illustrates this evidently industries with larger than normal layoff rates also tend to have larger rehire frequencies from firm initiated spells of unemployment this university of chicago i am indebted to gary becker robert cotterman sherwin rosen jose scheinkman michael ward finis welch the managing editor and an anonymous referee for discussions and comments at various stages the usual disclaimer applies

measuring the reaction of monetary policy to the stock market movements in the stock market can have a significant impact on the macroeconomy and are therefore likely to be an important factor in the determination of monetary policy however little is known about the magnitude of the federal reserve s reaction to the stock market in part because the simultaneous response of equity prices to interest rates makes it difficult to estimate this paper uses an identification technique based on the heteroskedasticity of stock market returns to measure the reaction of monetary policy to the stock market we find a significant policy response with a 5 percent rise fall in the s p 500 index increasing the likelihood of a 25 basis point tightening easing by about a half

does market incompleteness matter for asset prices in this paper we argue that market incompleteness resulting from limited stock market participation is important for understanding the behavior of asset prices jel e32 e44 g12

an empirical examination of long run purchasing power parity using cointegration techniques this paper presents an empirical analysis of long run purchasing power parity ppp for five major exchange rates using recently developed econometric techniques on the cointegration of economic time series our empirical results are extremely unfavourable to the ppp hypothesis as a long run equilibrium condition even with an allowance made for measurement error and or tranportation costs in particular we are unable to reject the hypothesis of non cointegration of the exchange rate and relative prices for any of the countries concerned far from finding a stable long run proportionality between exchange rates and relative prices our results therefore suggest that they tend to drift apart without bound

estimating the federal reserve s implicit inflation target a state space approach abstract existing estimates of the federal reserve s implicit inflation target typically rely on the assumption that it is constant for the duration of the period of analysis this paper relaxes this assumption and estimates the implicit inflation target using a time varying parameter model and the kalman filter in applying this method to the volcker greenspan period it finds significant time variation in the implicit target that is consistent with hypotheses about opportunistic disinflation and the recent deflation scare