commodity prices policy target or information variable note the relationship between growth of the monetary aggregates and growth of nominal gnp has become less dependable in the 1980s deposit deregulation and large fluctuations in interest rates have produced sharp changes in the income velocity of money these velocity shifts have at times caused the federal reserve to miss or modify its money growth ranges because of the undependable relationship between money growth and economic activity some policymakers and economic analysts have argued that the federal reserve should pay more attention to commodity price fluctuations this paper examines the proper role for commodity prices in the formation of monetary policy

human capital inequality life expectancy and economic growth this article presents a model in which inequality affects per capita income when individuals decide to invest in education taking into account their life expectancy which depends to a large extent on the human capital of their parents our results show the existence of multiple steady states depending on the initial distribution of education the low steady state is a poverty trap in which children raised in poor families have low life expectancy and work as non educated workers the empirical evidence suggests that the life expectancy mechanism explains a major part of the relationship between inequality and human capital accumulation increases in life expectancy and human capital accumulation have accelerated since the post world war ii period in most parts of the world however in spite of the convergence in life expectancy across countries during this period see for example becker et al 2005 in 2000 there was still an immense gap between the rich and the poor world life expectancy was 78 years in oecd countries but only 47 years in sub saharan africa where the gap with rich countries is increasing nowadays due to aids being widespread likewise the striking disparities in human capital are also evident whereas the secondary school enrolment rate was almost 100 in rich countries more than 70 of children in sub saharan africa were not enrolled in secondary schooling and therefore entered the labour market as unskilled workers from childhood these disparities in schooling are also accompanied by huge differences in the distribution of education thus the human capital gini coefficient in sub saharan africa 0 56 is twice as high as that of oecd countries 0 21 in this article we argue that high human capital inequality low life expectancy and low human capital accumulation rates reinforce each other and may explain the persistence of poverty in a great part of the world

the effect of life expectancy on fertility saving schooling and economic growth theory and evidence we construct a simple growth model where agents with uncertain survival choose schooling time life cycle consumption and the number of children we show that rising longevity reduces fertility but raises saving schooling time and the growth rate at a diminishing rate cross section analyses using data from 76 countries support these propositions life expectancy has a significant positive effect on the saving rate secondary school enrollment and growth but a significant negative effect on fertility through sensitivity analyses the effect on the saving rate is inconclusive while the effects on the other variables are robust and consistent these estimated effects are decreasing in life expectancy

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

who targets inflation explicitly abstract several countries have recently adopted explicit inflation targeting eit this paper applies probit analysis on data for 22 countries to show that the degree of central bank independence is positively correlated with the probability that inflation targeting is adopted there is also evidence depending on whether iceland and norway are included in the sample that the probability that eit is introduced is influenced by membership in the european union the commodity concentration and composition of exports which are correlated with measures of the importance of supply and external shocks and the degree of openness

endogenous lifetime and economic growth abstract endogenous mortality is introduced in a two period overlapping generations model probability of surviving from the first period to the next depends upon health capital that is augmented through public investment high mortality societies do not grow fast since shorter lifespans discourage savings development traps are possible productivity differences across nations result in persistent differences in capital output ratios and relatively larger gaps in income and mortality high mortality also reduces returns on education where risks are undiversifiable when human capital drives economic growth countries differing in health capital do not converge to similar living standards threshold effects may also result

public versus private investment in human capital endogenous growth and income inequality in this paper we present an overlapping generations model with heterogeneous agents in which human capital investment through formal schooling is the engine of growth we use simple functional forms for preferences technologies and income distribution to highlight the distinction between economies with public education and those with private education we find that income inequality declines more quickly under public education on the other hand private education yields greater per capita incomes unless the initial income inequality is sufficiently high we also find that societies will choose public education if a majority of agents have incomes below average

the stability of the demand for international reserves abstract empirical studies based on data from the 1960s and 1970s yielded estimated demands for international reserves that have been regarded as stable functions of a limited set of variables exept during the period surrounding the collapse of the bretton woods system this paper examines the stability of these estimated demands by extending the samles to include data from the 1980s the new estimation results indicate that the emergenceof external payments difficulties and reduced access to international financial markets of many countries have been accompanied by changes in the changes in the estimated demands for reserves that were as large as those that occurred during the collapse ofthe bretton woods system

the political intergenerational welfare state abstract using a three period overlapping generations economy framework we characterize an intergenerational welfare state with endogenous education and pension under voting we show that although politically establishing pay as you go payg social security in isolation in a dynamically efficient economy will always reduce the capital investment and therefore the social welfare as expected in contrast politically implementing education pension policy package instead can improve both human and physical capital accumulation and social welfare over laissez faire however for this the political influence of the old has to be small thus limiting the size of the payg social security program

public and private expenditures on health in a growth model abstract this paper introduces endogenous longevity into an otherwise standard overlapping generations model with capital in the model a young agent may increase the length of her old age by incurring investments in health such private health investments are assumed to be more productive if accompanied by complementary tax financed public health programs the presence of the public input in private longevity is shown to expose the economy to aggregate endogenous fluctuations and even chaos and such volatility is impossible in its absence the model is capable of generating dramatic reversals in life expectancy as has been observed in many countries

distributional effects of public education in an economy with public pensions we study how the allocation of government expenditures between two major outlays education and pay as you go social security affects human capital distribution in an economy with heterogeneous agents we consider an overlapping generations economy where the government maintains both programs and allocates tax revenues to finance them in our model human capital is one of the factors of production it is itself produced as a combined result of public inputs and private inputs parents decisions to invest time and material resources in education of their children are motivated by altruism heterogeneous in its strength across the population which leads to heterogeneity of incomes we investigate the effect of an increase in public funding for education on the human capital distribution we show that in this framework contrary to some earlier results increased spending on public education may lead to higher inequality our results depend crucially on the interaction of education funding with the social security budget and on the elasticity of substitution in the learning technology

a monetary approach to the crawling peg system theory and evidence this paper develops and estimates a model of the joint determination of the exchange rate international reserves and the rate of inflation under a crawling peg system the framework presented which is an extension of previous work on the monetary approach generates short run deviations from purchasing power parity that occur simultaneously with movements in both international reserves and the exchange rate the model is estimated by full information maximum likelihood on the basis of quarterly data for brazil

monetary policy dollarization and parallel market exchange rates the case of the dominican republic abstract excessive money creation may give rise to inflation tax revenues and to a depreciation of the domestic currency this in turn leads to a shift away from the domestic currency into a foreign currency e g the us dollar hence the term dollarization from the domestic monetary authority s point of view dollarization is an unwelcomed phenomenomn thus the monetary authorities will attempt to arrest the dollarization phenomenon while maintaining the excessive money growth this paper develops and tests a model which analyzes the effects of monetary policy on dollarization and the parallel market exchange rates

government education spending and human capital formation abstract given the interest rate an increase in government education spending increases human capital but in general equilibrium more government education spending increases the interest rate which could reduce the time people spend learning and therefore could reduce human capital if the initial education spending is relatively high

the evolution of modern educational systems technical vs general education distributional conflict and growth abstract we study the evolution of an educational system founded on a hierarchical differentiation between vocational and general education with vocational playing an inferior role in the society the dynamics are best summarized by the ratio of the fraction of the population in vocational to that in general education which we interpret as a measure of the degree of stratification of the society we show that this ratio first rises and then declines with the level of development displaying an inverted u shape which reflects the complex interaction between economic and political forces including aggregate income growth wealth inequality and political participation

the role of commodity prices in formulating monetary policy commodity prices often provide signals about the future direction of the economy especially inflation it has been argued therefore that the information in commodity prices should be used in formulating monetary policy this paper investigates whether a systematic monetary policy response to contemporaneous commodity price shocks would have helped stabilize the postwar u s economy the authors findings suggest that responding to unexpected commodity price movements would have lowered the average rate of inflation and reduced its variability while the path of real growth would be relatively unchanged copyright 1991 by mit press

socially optimal social security and education subsidization in a dynastic model with human capital externalities fertility and endogenous growth abstract this paper considers socially optimal government policies in a dynastic family model with physical capital human capital endogenous fertility and positive spillovers from average human capital such spillovers reduce human capital investment but raise fertility from their social optimum we first characterize the social optimum with a non convex feasible set due to the quantity quality tradeoff concerning children we then show that social security and education subsidization together financed by labor income taxes can fully eliminate the efficiency losses of the spillovers and achieve the social optimum under plausible conditions however none of the policies can do so alone

inflation and employment is there a third way high post war inflation precipitated a counter reformation in theory from keynesianism and established the conventional wisdom that a level of unemployment existed at which prices stabilised the policy application of this notion failed to improve economic performance and although inflation fell mass unemployment and poverty returned the explanation for this from within the new orthodoxy was that demand and supply conditions in the labour market had changed and unemployability explained joblessness a study of the trend in import prices suggests however that the fall in inflation can be more readily explained by falls in import prices and other changes which redistributed resources from the periphery to the core this suggests that monetary control works indirectly on inflation by lowering economic activity and by reducing the bargaining power of the relatively weak the enormous economic and social costs of this suggest that institutional ways of controlling prices offer major benefits copyright 2000 by oxford university press

announcements inflation targeting and central bank incentives this paper studies the incentives a central bank faces in announcing inflation targets when the central bank has private information about the economy and the public is uncertain about the central bank s preferences targeting rules in the absence of announcements reduce the inflationary bias of discretionary policy but they distort the central bank s response to private information about the economy this distortion is eliminated when the central bank is allowed to announce the inflation target announcements also affect credibility although the way they do so depends on the exact definition of credibility that is employed in standard models of monetary policy in which dynamic inconsistency plays a prominent role announcements from the central bank about its policy inten tions are not believable the central bank has an incentive to lie yet central banks often do make announcements and they are legally required to do so in some cases the bank of england for example must issue periodic inflation reports the chairman of the federal reserve is required by the humphrey hawkins act to testify before congress twice each year to explain the fed s policy actions and to detail the fed s outlook for future economic develop ments similarly the reserve bank of new zealand is required under the reserve bank act of 1989 to publish policy statements that spell out its plans the january 1994 legislation governing the banque de france requires its gov ernor to appear before parliament and the european central bank must under the maastricht treaty report at least annually to the european parlia ment if public statements about policy intentions are not credible the question naturally arises as to why central banks are frequently required to make them the answer of course is that announcements do provide the public with some information given the growing interest in policy transparency particu larly among those central banks that have adopted some form of inflation targeting it is perhaps surprising that there has been relatively little explicit analysis of how inflation targeting requirements might combine with reporting requirements to influence the informational content of announcements the conduct of stabilization policies and the central bank s credibility the purpose of this paper is to analyse the way inflation targeting affects the incentives the central bank faces in announcing targets when the central bank has private information about the economy and the public is uncertain about the central bank s preferences inflation targeting has seen increased popularity in recent years but a fixed target for inflation is generally suboptimal in the face of supply shocks while state contingent targets are viewed as not feasible an important result of this paper is that allowing the central bank to announce its own inflation target

inflation targeting as a monetary policy rule the purpose of the paper is to survey and discuss in ation targeting in the context of monetary policy rules the paper provides a general conceptual discussion of monetary policy rules attempts to clarify the essential characteristics of in ation targeting compares in ation targeting to other monetary policy rules and draws some conclusions for the monetary policy of the european system of central banks jel classi cation e42 e52

childhood preventive care adult healthcare and economic growth the role of healthcare financing we analyze the impact of healthcare financing on economic growth focusing on the issue of the joint public private financing of healthcare co payment we use an overlapping generations model with endogenous growth based on health human capital accumulation where families pay for childhood preventive care and the government can either fully finance or co finance adulthood curative care from a growth maximizing perspective distortionary taxes give an advantage to co financing nevertheless we prove that if agents are assumed to be heterogeneous in preferences full financing can become the best option

public education under capital mobility the paper considers a two country model of overlapping generations economies with intergenerational transfers motivated by altruism and investment in human capital we examine in a non stationary competitive equilibrium the optimal provision of education with and without capital market integration first we explore how regimes of education provision public private or mixed arise and how they affect the dynamics of autarkic economies second we study the effects of capital market integration in equilibrium on the optimal provision of education third we show that capital market integration enhances government intervention in the provision of public education to improve the welfare of its constituents and consider various solutions to such a competition

predicting u s recessions financial variables as leading indicators this paper examines the out of sample performance of various financial variables as predictors of u s recessions series such as interest rates and spreads stock prices and monetary aggregates are evaluated individually and in comparison with other financial and nonfinancial indicators the analysis focuses on out of sample performance from one to eight quarters ahead results show that stock prices are useful with one to three quarter horizons as are some well known macroeconomic indicators beyond one quarter however the slope of the yield curve emerges as the clear individual choice and typically performs better by itself out of sample than in conjunction with other variables

the choice of an optimum exchange currency regime for a small economy an econometric analysis abstract this paper investigates empirically the issue of a fixed versus a flexible exchange currency regime for a small economy the west african monetary union the econometric analysis implements a mundellian trade off between economic development and monetary stability which measures the main cost and benefit of the various exchange currency regimes examined the empirical results indicate that the fixed trade weighted basket peg is optimal by the tower and willet criterion and that it meets some of kenen s criteria for an efficient exchange currency regime

the economics of schooling production and efficiency in public schools n recent years public and professional interest in schools has been heightened by a spate of reports many of them critical of current school policy these policy documents have added to persistent and long standing concerns about the cost effectiveness and fairness of the current school structure and have made schooling once again a serious public issue as in the past however any renewed interest in education is likely to be short lived doomed to dissipate as frustration over the inability of policy to improve school practice sets in this frustration about school policy relates directly to knowledge about the educational production process and in turn to underlying research on schools although the educational process has been extensively researched clear policy prescriptions flowing from this research have been difficult to derive 2 there exists however a consistency to the research findings that does have an immediate application to school policy schools differ dramatically in quality

the dynamics of chronic inflation in brazil 1968 1985 this article develops an error correction model with the aim of analyzing the behavior of prices during a period of chronic inflation in brazil the degree of inflationary inertia is estimated and tests for the importance of disequilibria in the domestic money foreign goods labor and domestic goods markets on inflation are carried out

inflation targeting some extensions previous analyses of the implementation of inflation targeting are extended to monetary policy responses to different shocks consequences of model uncertainty and effects of interest rate smoothing and stabilization model uncertainty output stabilization and interest rate stabilization or smoothing all call for a more gradual adjustment of the conditional inflation forecast toward the inflation target the conditional inflation forecast is the natural intermediate target during inflation targeting the optimal way of reacting to shocks is hence to check how they affect the inflation forecast and then take the appropriate action jel classification e42 e52 e58

demographic structure and the political economy of education subsidies this paper investigates the politico economic impact of a society s age structure on the extent of public funding of education education subsidies serve to internalize positive spillovers of human capital investment but redistribute resources from the working old to the non working young thus creating a conflict of interest between the two generations the political process is characterized by a representative democracy

a note on the international transmission of inflation abstract this paper investigates the relative impact of u s inflation and domestic monetary factors on the joint determination of inflation and the balance of payments of mexico between 1950 and 1979 it also tests the hypothesis that the u s money supply has an additional direct impact on mexico s balance of payments

balance of payments dynamics and exchange rate management abstract this paper studies the dynamics of the balance of payments in response to policy disturbances under the assumption that the central bank devalues the country s currency over time at a constant pre announced rate depending on the magnitudes of the parameters of the model i find that a given disturbance may result in qualitatively different short run behavior of the balance of payments accounts in each case however the adjustment process will lead the economy to a stable long run equilibrium provided the government finances its spending according to a certain set of rules

does school quality matter returns to education and the characteristics of public schools in the united states this paper estimates the effects of school quality measured by the pupil teacher ratio average term length and relative teacher pay on the rate of return to education for men born between 1920 and 1949 using earnings data from the 1980 census we find that men who were educated in states with higher quality schools have a higher return to additional years of schooling rates of return are also higher for individuals from states with better educated teachers and with a higher fraction of female teachers holding constant school quality measures however we find no evidence that parental income or education affects average state level rates of return

the short run dynamics of prices and the balance of payments the purpose of this study is to analyze theoretically and empirically the short run behavior of prices and the balance of payments in a small open economy with a fixed exchange rate following the presentation of the theoretical framework the experience of mexico during 1950 73 is analyzed the model is based on what is known as the monetary approach to the balance of payments this approach as is frequently presented deals with long run equilibrium situations when all relative prices are fixed this long run equilibrium view was applied to test empirically the theory for several countries 2 using the assumption that there are no serious barriers to the international movement of capital and that all goods are traded 3 these assumptions imply that goods and capital markets are perfectly arbitraged and therefore that price levels and interest rates in all the countries always move together

inflation targeting a new framework for monetary policy he world s central bankers and their staffs meet regularly in venues from basle to washington to share ideas and discuss common problems perhaps these frequent meetings help explain why changes in the tactics and strategy of monetary policymaking such as the adoption of money growth targets in the 1970s the intensification of efforts to reduce inflation in the 1980s and the recent push for increased institutional independence for central banks tend to occur in many countries more or less simultaneously whatever their source major changes in the theory and practice of central banking are of great importance for both individual countries and the international economy in this article we discuss a new strategy for monetary policy known as inflation targeting which has sparked much interest and debate among central bankers and monetary economists in recent years this approach is characterized as the name suggests by the announcement of official target ranges for the inflation rate at one or more horizons and by explicit acknowledgment that low and stable inflation is the overriding goal of monetary policy other important features of inflation targeting include increased communication with the public about the plans and objectives of the monetary policymakers and in many cases increased accountability of the central bank

healthcare investment and income inequality abstract this paper examines how the relative shares of public and private health expenditures impact income inequality we study a two period overlapping generation s growth model in which longevity is determined by both private and public health expenditure and human capital is the engine of growth increased investment in health reduces mortality raises return to education and affects income inequality in such a framework we show that the cross section earnings inequality is non decreasing in the private share of health expenditure we test this prediction empirically using a variable that proxies for the relative intensity of investments private versus public using vaccination data from the national sample survey organization for 76 regions in india in the year 1986 87 we link this with region specific expenditure inequality data for the period 1987 2012 our empirical findings though focused on a specific health investment vaccines suggest that an increase in the share of the privately provided health care results in higher inequality

more equal but less mobile education financing and intergenerational mobility in italy and in the us a centralised and egalitarian school system reduces the cost of education for poor families and so it should reduce income inequality and make intergenerational mobility easier in this paper we provide evidence that italy compared to the usa displays less income inequality as expected given the type of school system but also less intergenera tional upward mobility between occupations and between education levels we explore some of the reasons which can explain this puzzling result and conclude that in a world in which family background is important for labor market success a centralised and egalitarian tertiary education does not necessarily help poor children and may take away from them a fundamental tool to prove their talent and to compete with rich children 1999 elsevier science s a all rights reserved

intergenerational transfers production and income distribution abstract we consider an overlapping generations economy where the aggregative production process uses physical capital and human capital intergenerational transfers from parents to their children are motivated by altruism we distinguish between two types of transfers investment of parents in the education of their offspring and capital transfer the gift bequest motive we show that the intensity of each type of altruism and hence the composition of the two types of transfers affect significantly the equilibrium output and the intragenerational income distributions comparing competitive equilibria from the same initial distributions of capital transfers and human capital we derive a the economy with the higher education inclined altruism attains lower output and more equal intragenerational income distributions if either the production function s elasticity of substitution is not large or the altruism is weak b for more bequest inclined altruism the effects are usually reversed c under public provision of education higher bequest inclined altruism results in lower output and less equal distribution of income in all dates

stabilization policies in developing countries what have we learned abstract the paper reviews the recent experience with stabilization programmes in latin america in the light of traditional and monetarist models of inflation and the exchange rate the traditional model links both inflation and payments problems to budget deficits the monetarist model too believes that inflation is caused by fiscal deficits but it takes a more optimistic view of stabilization full purchasing power parity and perfect capital mobility make stabilization just a question of the appropriate exchange rate policy and the proper rate of domestic credit creation the traditional view is substantially right as a long run model but it fails in the dynamics the monetarist model is as we know now fundamentally wrong as a short run description of the possibilities of inflation control there is need and room for a paradigm that places emphasis on the debt money mix in financing the budget on the stickiness of inflation rates and on the place of short run real exchange rate and real interest rate variations that these are key features of the transition phase is amply borne out by the devasting and unsuccessful experiences with monetarist stabilization in argentina chile and brazil

international experiences with different monetary policy regimes any views expressed in this paper are those of the author only and not those of columbia university or the national bureau of economic research abstract this paper examines the international experiences with four basic types of monetary policy regimes 1 exchange rate targeting 2 monetary targeting 3 inflation targeting and 4 monetary policy with an implicit but not an explicit nominal anchor the basic theme that emerges from this analysis is that transparency and accountability are crucial to constraining discretionary monetary policy so that it produces desirable long run outcomes because the devil is in the details in achieving transparency and accountability what strategy will work best in a country depends on its political cultural and economic institutions as well as on its past history

calculation and decomposition of income inequality in low and middle income countries a survey data analysis this article estimates income inequality in a sample of four low and middle income lmi countries namely albania nepal tajikistan and tanzania using the household survey data nepal living st

the effect of health on economic growth a production function approach abstract we estimate a production function model of aggregate economic growth including two variables that microeconomists have identified as fundamental components of human capital work experience and health our main result is that good health has a positive sizable and statistically significant effect on aggregate output even when we control for experience of the workforce we argue that the life expectancy effect in growth regressions appears to be a real labor productivity effect and is not the result of life expectancy acting as a proxy for worker experience

political shocks international reserves and the real exchange rate the argentine case abstract exogenous shocks to international reserves are introduced as an indicator for exchange rate adjustments these reserves shocks are identified for argentina in the 1970s and they appear to have been induced by political upheavals as well as by changes in the external terms of trade granger and modified sims causality tests indicate that the shocks to reserves did lead the real exchange rate from the seemingly erratic series of mini and maxi devaluations a rule of crawling galloping peg is estimated with the reserves shocks as significant independent variables that affected the pace of devaluations the crawling peg used as an instrument to pursue an international reserves target was the channel through which changes in the political and economic environment of the country were transmitted to fluctuations of its real exchange rate

honey i shrunk the kids benefits revisiting intergenerational conflict in oecd countries intergenerational conflict may arise when the interests of different age groups do not align we examine cross country data to find evidence for this conflict in oecd countries we derive our results from a fgls estimation model which is complemented by a system gmm estimation to account for potential endogeneity the data are from a panel of 22 oecd countries over the time period 1985 2005 we find little support for intergenerational conflict in general however those who are close to statutory retirement age dislike public expenditure on families and education because once they retire they will have less income compared to their work income this effect is transitory however implying a change in voting behavior during retirement age

the effects of poor neonatal health on children s cognitive development we make use of a new data resource merged birth and school records for all children born in florida from 1992 to 2002 to study the relationship between birth weight and cognitive development using singletons as well as twin and sibling fixed effects models we find that the effects of early health on cognitive development are essentially constant through the school career that these effects are similar across a wide range of family backgrounds and that they are invariant to measures of school quality we conclude that the effects of early health on adult outcomes are therefore set very early

an empirical inquiry into the short run dynamics of output prices and exchange market pressure abstract in this paper we develop a short run disequilibrium model for the interaction of output prices and exchange market pressure in this model we consider the trade off between movements in exchange rates and movements in international reserves and we also incorporate and test purchasing power parity as a long run hypothesis the specification adopted preserves the properties of the monetary approach to exchange rates and the balance of payments in the long run the theoretical model is applied to the small open economy of greece for the period 1975 1981

exchange market pressure in postwar brazil an application of the girton roper monetary model this study applies lance girton and don roper s hereafter g r monetary model of exchange market pressure to the postwar brazilian monetary experience the model was designed specifically for the canadian managed float during the period 1952 62 the object of their model is to explain what they term exchange market pressure that is the pressure on foreign exchange reserves and the exchange rate when there exists an excess of domestic money supply over money demand in a managed floating exchange rate regime the basic theoretical proposition is that any such excess supply of money can be relieved by an exchange depreciation a loss in foreign reserves or in the context of a managed float by some combination of the two in this sense the g r managed float model used here is firmly rooted in the modern monetary approach to exchange rates and the balance of payments brazil provides a particularly good example for testing this approach not only because it is in many senses a unique example of a postwar managed float system but also because it can be treated as a small open economy in the sense that world prices and monetary conditions faced by brazil are taken as given this particularly suits the purpose of most modern monetary models which make this assumption and obviates the problems of monetary dependence and neutralization dealt with in the pioneering g r paper specifically the small country assumption permits us to devise a simple one country equation of managed floating which depends upon four essential ingredients 1 money demand 2 money supply 3 purchasing power parity and 4 monetary equilibrium 2 furthermore in brazil a much greater proportion of exchange market pressure was absorbed by exchange rate depreciation than in the canadian case where changes in reserves were large relative to exchange rate movements in short postwar brazil provides a singularly good opportunity to test the monetary model of exchange market pressure section i briefly states the essential elements of the monetary model and derives the equation to be tested for the brazilian experience from 1955 to 1975 section ii reports empirical results for the exchange market pressure model and section iii examines the applicability of the relative version of purchasing power parity for the time period considered section iv summarizes the results and discusses the merits of the monetary approach in light of the brazilian experience

education and the poverty trap an overlapping generations model is constructed in which individual wealth is related to educational attainment and in which liquidity constraints may induce children to invest in a sub optimal level of education given their ability financing for education is obtained from within the family abilities differ among children and may be related to parental ability stationary state equilibria are found to exist in which children of poorer families are caught in a poverty trap because of an inability to finance their education the role of redistributive policy is studied in this context

educational policy in a credit constrained economy with skill heterogeneity an overlapping generations model where agents choose whether to become educated when young is presented education enhances productivity but needs to be financed by borrowing because of the possibility of default lenders may ration credit we characterize the steady state equilibrium with and without credit constraints and show that credit constraints are associated with lower education and a lower real interest rate we then study the role of public policy in remedying the inefficiency which occurs with credit market imperfections and examine whether public education can improve on the constrained equilibrium

devaluations and income distribution in latin america although the adoption of floating exchange rates by industrial countries may have reduced their foreign trade preoccupations most developing countries ldcs retain some form of fixed rates and have to confront with seemingly increasing frequency the dilemmas raised by large balance of payment deficits in spite of the clamor that arises over the allegedly negative impact on real wages and income distribution of the typical stabilization package of exchange rate devaluation and domestic contraction little rigorous study of the problem has been attempted since diaz alejandro s pathbreaking work of over two decades ago 12 in this article we present a model in which devaluations and domestic contraction2 lower the real wage and worsen the distribution of income and test that hypothesis for nine latin american countries for the theoretical presentation of our argument we construct a pair of aggregate supply curves one modeling labor supply along classical lines the other utilizing what is called the new classical macroeconomics the demand side is composed alternatively of a straightforward function representing changing domestic demand or of formulations of devaluations utilizing either of two markedly different assumptions about what happens to the money supply although these models have different implications about what happens to aggregate output 47 they all agree as to the effects on real wages a brief argument is then presented as to why changes in real wages should determine changes in labor s share of output or the functional distribution of income empirical tests support our hypotheses we also discuss the relation between labor s share and the size distribution of income and the broader question of intersectoral income redistribution due to these demand shifts we end the paper with some concluding remarks on related issues

leading economic indicators new approaches and forecasting records preface 1 editors introduction part i new concepts and methods 2 toward a theory of leading indicators frank de leeuw 3 a time series framework for the study of leading indicators salih n neftci 4 a probability model of the coincident economic indicators james h stock and mark w watson 5 an international application of neftci s probability approach for signalling growth recessions and recoveries using turning point indicators michael p niemira 6 on predicting the stage of the business cycle roy h webb 7 bayesian methods for forecasting turning points in economic time series sensitivity of forecasts to asymmetry of loss structures arnold zellner and chansik hong 8 new developments in leading economic indicators geoffrey h moore part ii forecasting records and methods of evaluation 9 forecasting cyclical turning points the record in the past three recessions stephen k mcnees 10 turning point predictions errors and forecasting procedures hermon o stekler 11 forecasting peaks and troughs in the business cycle on the choice and use of appropriate leading indicator series stephen j silver 12 using a consensus of leading economic indicators to find right ball park for real gnp forecasts edward f renshaw 13 some australian experience with leading economic indicators allan p layton 14 turning point prediction with the composite leading index an exante analysis francis x diebold and glenn d rudebusch 15 forecasting recessions under the gramm rudman hollings law victor zarnowitz and geoffrey h moore 16 leading indicators of inflation howard l roth part iii new economic indicators 17 commodity prices as a leading indicator of inflation james m boughton and william h branson 18 a leading indicator of inflation based on interest rates susmita dasgupta and kajal lahiri 19 using composite leading indicators of consumption to forecast sales and to signal turning points in stock market michael p niemira 20 economic indicators for australia s service sector ernst a boehm 21 purchasing management survey data their value as leading indicator philip a klein and geoffrey h moore 22 an agenda for inventories input to leading composite index feliks tamm index

exchange rate indexation in a monetary model theory and evidence abstract using a familiar monetary model with nontraded goods we derive the stability properties of the price level and reserve stock when the exchange rate is partially or completely indexed to the home price level divided by foreign prices in the stable case it is shown that indexing results in a system with properties of both fixed and flexible regimes our method is to impose conditions of short run but not long run equilibrium in a discrete period model the model is tested with monthly data from brazil

alternative indicators for predicting the probability of declining inflation evidence from the us the performance of inflation indicators for predicting the probability of inflation falling inside constant and moving targets is considered with a probit model using us data given the federal reserve system s emphasis on achieving price stability particular attention is given to the target that future inflation will be below recent inflation in contrast with earlier years the unemployment and capacity utilisation rates do not perform well in forecasting the direction of inflation in the mid and late 1990s we suggest that extending the keynesian phillips curve analysis to consider changes in labour market conditions technological advance and worker skills and openness will increase understanding of these issues

demand for international reserves and exchange rate intervention policy in an adjustable peg economy abstract this paper develops and estimates a model of the joint determination of the official and black market exchange rates private and government demand for international reserves and the rate of inflation under an adjustable peg system the framework presented combines and extends aspects of the monetary approach to the balance of payments and exchange rate determination with the theory of the demand for international reserves the role of expectations about devaluation is taken into account the model is estimated by full information maximum likelihood on the basis of quarterly data for turkey

capital taxation under political constraints this paper studies optimal dynamic tax policy under the threat of political reform a policy will be reformed ex post if a large enough coalition of citizens supports reform thus sustainable policies are those that will continue to attract enough political support in the future we find that optimal marginal capital taxes are either progressive or u shaped so that savings are subsidized for the poor and or the middle class but are taxed for the rich u shaped capital taxes always emerge when individuals political behavior is purely determined by economic motives

early and late human capital investments borrowing constraints and the family we develop a dynastic human capital investment framework to study the importance of family borrowing constraints and uninsured labor market risk as well as the process of intergenerational ability

optimal monetary growth with accommodating fiscal policy in a small open economy abstract this paper emphasizes how the choice of the optimal monetary growth rate in a small open economy under perfect capital mobility depends upon the accommodating policy chosen to maintain the overall budget constraint in the economy when this occurs through lump sum taxation the optimal monetary growth rate is shown to be the distorted friedman monetary rule if the adjustment occurs through the income tax rate the optimal monetary growth rate involves a phelps type tradeoff between the income tax rate and the inflation tax rate the framework is suited for analyzing optimal macroeconomic policy in general and the latter part of the paper considers an optimal monetary fiscal package

dynamics of monetary intervention under managed floating abstract this paper studies the dynamics of the money stock in the presence of official intervention under fixed exchange rates and certain types of managed floating in response to an external disturbance the long run change in the stock of domestic currency is found to be the largest in magnitude under fixed rates however in the context of the present model managed floating may entail relatively larger short run movements this is the case when foreign disturbances originate in the commodity market and under certain conditions even if they originate in the asset market

electoral uncertainty income inequality and the middle class we investigate how electoral competition affects the income distribution in society we utilise a standard probabilistic voting setup where parties compete at two stages our model delivers that greater electoral competition in a district results in equalisation of incomes therein we check for these relationships using data from indian national elections which are combined with consumption expenditure data rounds from the national sample survey organization 1987 8 and 2004 5 to yield a district level panel our ols 2 sls and iiv analyses consistently inform that close elections lead to lower inequality and polarisation indicating a larger middle class

the effect of microenterprise lending on child schooling in guatemala many recent theoretical models which portray human capital investment as a primary engine of economic growth underemphasize the structure of the microeconomic decision making process which gives rise to human capital investment in both developed and developing countries human capital investment tends to be a household level decision made in the form of child schooling for families in developing countries which operate household enterprises the decision involves an economic trade off between future returns to schooling and the current return to childrens labor in the enterprise the author explores how access to credit in developing countries can affect the child schooling decision a 2 period household model is presented which endogenously generates an optimal level of child schooling by households accounting for the possibility of asymmetric information in credit and labor markets comparative statics are then conducted to show the conditions under which child schooling will increase or decrease when credit constraints are relaxed a brief background of the schooling system in guatemala and a brief description of the survey data collected in guatemala are provided followed by the presentation of empirical tests and a summary of empirical findings with suggestions made for further research