stabilization policy a reconsideration i introduction in 1936 keynes s general theory explained how fiscal and monetary policy could be used to end depressions since that time no developed country has ever seen a downturn on the scale of the 1930s the general theory was not just a how to book on the avoidance of depressions it was an argument for stabilization policy itself the years since the general theory have seen a revolt against keynesian economics in a revisionist mode milton friedman argued that countercyclical policy cannot affect the average level of unemployment and output robert lucas and thomas sargent 1979 went further contending that it is not only impossible to increase average output it is also impossible to stabilize it more recently lucas 1987 2003 has argued that policies to stabilize output even if effective would yield negligible welfare gains thus stabilization policy should not be a macroeconomic priority lucas s conclusion notwithstanding stabilization policy has long been an explicit or implicit objective of monetary policy in most industrial countries even including those countries with inflation targets the volatility of output has in fact declined in most major industrial countries since the mid 1980s and monetary policy arguably deserves at least partial credit see bernanke 2004 mirroring practice monetary policy research commonly takes it as given that along with price stability stabilization policy the minimization of squared deviations of output around potential is an appropriate policy objective see for example clarida et al 1999 in this article we explore the economic rationale for stabilization as a policy goal concluding that it does in fact deserve high policy priority we survey a large body of literature that critiques the validity of key assumptions in lucas s argument we also offer suggestive evidence that stabilization policy can significantly reduce average levels of unemployment by providing stimulus to demand in circumstances where unemployment is high but underutilization of labor and capital does little to lower inflation a monetary policy that vigorously fights high unemployment should however also be complemented by a policy that equally vigorously fights inflation when it rises above a modest target level the federal reserve act thus wisely enunciated price stability and maximum employment as twin goals for monetary policy ii the case against stabilization policy macroeconomic analysis typically assumes that social welfare depends negatively on both inflation above a modest target level here assumed zero and unemployment above some minimum socially efficient level for example a standard social welfare function is the discounted sum of period losses l sub t of the form see among others barro and gordon 1983 pp 592 93 1 l sub t a u sub t 1 k u sup 2 b pi sup 2 sub t where u sub t and pi sub t are the unemployment and inflation rates in period t and u sup is the natural rate of unemployment the coefficient k is positive reflecting the desirability of unemployment below the natural rate because real economies deviate in many respects from perfect competition the natural rate of unemployment is likely to exceed the socially optimal unemployment rate for example with monopolistic competition goods are underproduced because they are priced above marginal cost so potential output is inefficiently low and equilibrium unemployment is too high standard macroeconomic analysis additionally assumes that inflation is determined by an expectations augmented accelerationist phillips curve of the form 2 pi sub t pi sup e sub t f u sub t u sup epsilon sub t where pi sup e sub t is the expected inflation rate at time t with expectations formed at t 1 and epsilon sub t captures supply shocks to the phillips curve at t

spurious volatility in historical unemployment data this paper shows that the stabilization of the unemployment rate between the pre 1930 and post 1948 eras is an artifact of improvements in data collection procedures prewar methods are used to construct postwar unemployment data that are consistent with the historical data the constructed postwar series is nearly as volatile as the pre 1930 unemployment data the constructed postwar data are systematically more volatile than the actual postwar data because the cyclical behavior of the labor force and productivity are misspecified in the construction procedures the relationship between the actual and constructed postwar unemployment series is used to construct new historical data

nonmonetary effects of the financial crisis in propagation of the great depression this paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period our approach is complementary to that of friedman and schwartz who emphasized the monetary impact of the bank failures we focus on non monetary primarily credit related aspects of the financial sector output link and consider the problems of debtors as well as those of the banking system we argue that the financial disruptions of 1930 33 reduced the efficiency of the credit allocation process and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand evidence suggests that effects of this type can help explain the unusual length and depth of the great depression this abstract was borrowed from another version of this item

central bank independence a critical view from a developing country perspective abstract merely establishing an independent central bank may not bring about its professed benefits in developing countries with shallow financial markets where there is limited scope for a truly independent monetary policy the benefits of an independent central bank may be eroded by conflicts between fiscal and monetary policy and by inherent problems of central bank institutional design so that problems of dynamic inconsistency associated with monetary policy are not solved but merely transformed less developed countries wishing to establish a low inflation path should concentrate on instituting financial policy reforms that bolster opposition to inflation and institutional arrangements that force discipline on fiscal policy directly rather than indirectly through monetary policy

money still makes the world go round the zonal view many leading monetary economists have come to regard the monetary aggregates as obsolete measures of the monetary policy stance this critique has led some to view money as having lost its central role in the conduct of monetary policy we say to those advocating excising money from monetary policy not so fast to better understand the potential role for money we develop a zonal view of monetary policy which reflects the historical regularity for the relative informativeness of the quantitative measures of monetary policy such as the monetary aggregates and real interest rates to depend on the inflation zone in which a central bank finds itself the zones range from high inflation zone 1 to deep deflation zone 5 with intermediate zones of moderate inflation zone 2 low inflation zone 3 and low deflation zone 4 we find considerable support for this view in the historical data which stretches back to the 19 th century seen from this perspective the past experience of central banks casts doubt on the singular importance often attributed to the short term real interest rate as an indicator of the stance of monetary policy this applies especially in the current low inflation environment in which many central banks find themselves the zonal view has far reaching implications for monetary policy frameworks for the analytical efforts to understand the monetary policy transmission mechanism and for central bank communication strategies this paper was prepared for the 21 st congress of the european economic association held in vienna on august 27 2006 the views expressed in the paper are solely those of the authors

psychological factors and stock option exercise we investigate stock option exercise decisions by over 50 000 employees at seven corporations controlling for economic factors psychological factors influence exercise consistent with psychological models of beliefs employees exercise in response to stock price trends exercise is positively related to stock returns during the preceding month and negatively related to returns over longer horizons consistent with psychological models of values that include reference points employee exercise activity roughly doubles when the stock price exceeds the maximum price attained during the previous year

monetary union and the assignment problem proposals for the creation of an independent central bank in a european monetary union do not always take into account the interactions between monetary and fiscal policy this analysis describes a system of two similar economies forming either a joint fiscal and monetary union or a simple monetary union policy authorities aim to achieve target values for inflation and the budget balance if the monetary and fiscal authorities pursue their targets independently of each other there is a risk that unstable interactions will be set up the results indicate a hazard of the separation of monetary and fiscal management

game theory for central bankers a report to the governor of the bank of england you asked me to review this book for you and try to digest what lessons it might hold for you i can well understand why you delegated this exercise to me you were no doubt already aware that alex cukierman ac is an eminent theoretician who has been applying currently fashionable game theoretic modeling techniques to the study of monetary policy and you may have had some concerns whether you would find the book user friendly in the rest of this review following both your instructions and my own inclinations i shall concentrate primarily upon the lessons and light that his work provides for monetary issues in general and for the conduct of central banking in particular neither you nor i have either the interest or the mathematical competence to assess how far this book represents an advance in the application or technical procedures of game theory as such in that respect the author will no doubt regard this as only a partial and one sided review of his work nevertheless ac hopes that you and other practitioners will read at least some part of the book and he has gone to considerable lengths to try to structure the book into modules of differing levels of technical difficulty and abstraction so that you will read the easy bits thus

exercise behavior valuation and the incentive effects of employee stock options abstract we use a large database on eso exercises to document characteristics of exercise behavior and calibrate a utility based model for measuring how differences in exercise behavior are manifested in option values and incentives option values and incentives computed from the model calibrations are compared to those computed from models used to value tradable options our analysis provides guidance to both academics and practitioners about how differences in exercise behavior and model choice affect measures of eso values and incentives and underscores the importance of gaining a thorough understanding of the underlying economic forces that affect the behavior of eso holders

great powers hierarchy and endogenous regimes rethinking the domestic causes of peace this paper blends recent research on hierarchy and democratization to examine the theoretical and empirical costs of treating regime type exogenously in the literature most identified with studying its impact on international politics it argues that the apparent peace among democratic states that emerges in the aftermath of world war i is not caused by domestic institutional attributes normally associated with democracy instead this peace is an artifact of historically specific great power settlements these settlements shape subsequent aggregate patterns of military conflict by altering the organizational configuration of the system in three critical ways by creating new states by altering hierarchical orders and by influencing regime type in states these claims are defended with a series of tests that show first how the statistical relationship between democracy and peace has exhibited substantial variation across great power orders second that this statistical relationship breaks down with theoretically motivated research design changes and third that great powers foster peace and similar regime types within their hierarchical orders in short the relationship between democracy and peace is spurious the international political order is still built and managed by great powers

tariffs and aggregate economic activity lessons from the great depression abstract we argue against the prevailing view that the macroeconomic role of tariffs during the great depression was small to understand the economic channels through which tariffs could have large effects we build a multi sector dynamic equilibrium trade model that captures key features of trade in the 1930s a substantial share of trade was in material inputs and the persistence of the tariff increases had the potential for significant effects on capital accumulation both of these features are important in generating the conclusion that even when trade only represents a small share of output tariffs can have a significant impact on gdp simulation of the model suggests that the global escalation of the tariff war precipitated the collapse of world trade along with declines of several percent in international output and investment

siting noxious facilities are markets efficient abstract this paper explores the economics and politics of the siting of noxious facilities in the base case facilities are sited by markets subject to majority agreement in the host jurisdiction by contrast with the existing market siting literature which assumes that all the disamenities of a facility will be contained in the host jurisdiction and fully reflected in the jurisdiction s willingness to accept here facilities impose disamenities on individuals as a function of distance and the process of majority agreement is explicitly modeled the principal finding is that when voters are uniformly distributed within a jurisdiction an individual who is median distance from a facility suffers less than average mean disamenity therefore a majority would be willing to serve as facility host for a price host fee that is strictly less than the aggregate disamenity that the facility imposes on the jurisdiction further by threatening the equilibrium host with a site just across its border a firm can induce majority acceptance of a nontrivial facility at zero host fee even when this threat site strategy is infeasible though market determined host fees will not signal efficient sites thus markets will produce an excessive number of noxious facilities and place them in the wrong sites these results are robust to alternative specifications of bargaining power and market structure if however host majority agreement is subject to the veto of a higher jurisdiction e g in response to cries of nimby then efficiency may be either improved or reduced

currencies and the allocation of risk the welfare effects of a monetary union in a general equilibrium model with incomplete asset markets nominal securities and mean variance preferences a monetary union is desirable when the gain from eliminating excess volatility of nominal variables exceeds the cost of reducing the number of currencies with which to hedge risks copyright 1998 by american economic association

financial factors in the great depression eginning with irving fisher 1933 and john maynard keynes 1931 b 1963 macroeconomists have argued that financial markets were important sources and propagators of decline during the great depression turning points during the depression often coincided with or were preceded by dramatic events in financial markets stock market collapse waves of bankruptcy and bank failure and contractions in the money stock but the mechanism through which financial factors contributed to the depression has been a source of controversy as has been the relative importance of financial factors in explaining the origins and persistence of the depression this essay reviews the literature on the role of financial factors in the depression and draws some lessons that have more general relevance for the study of the depression and for macroeconomics i argue that much of the recent progress that has been made in understanding some of the most important and puzzling aspects of financial real links in the depression followed a paradigm shift in economics a central neglected theoretical piece of the story for financial factors was the allocative effects of imperfections in capital markets which can imply links between disruptions in financial markets and subsequent economic activity also the increasing emphasis on learning and path dependence in economics has helped to explain why financial shocks during the 1930s were so severe and why policy makers failed to prevent the depression

the contracting benefits of accounting conservatism to lenders and borrowers abstract this paper examines the ex post and ex ante benefits of accounting conservatism to lenders and borrowers in the debt contracting process i expect conservatism to benefit lenders ex post through the timely signaling of default risk as manifested by accelerated covenant violations and to benefit borrowers ex ante through lower initial interest rates consistent with these predictions i find that more conservative borrowers are more likely to violate debt covenants following a negative price shock and that lenders offer lower interest rates to more conservative borrowers

comment on forward guidance communication commitment or both by marco bassetto forward guidance can be cheap talk in an infinitely repeated game with the public asymmetric information is necessary for cheap talk to be useful the central bank can build credibility over time to make cheap talk credible when to use forward guidance instead of general transparency remains unclear adding a lower bound on interest rates does not change the main conclusions

intra cultural variation evidence and implications for international business this paper discusses the methodological and theoretical significance of intra cultural variation icv the population distribution of a characteristic within a culture a monte carlo study shows that icv has substantial influence on the statistical power of cross cultural tests therefore studying icv is methodologically important if we are to understand inconsistent findings and design cross cultural studies with enough statistical power moreover an examination of the cultural means and icvs of 42 cultures shows that icv is as large as the variation of cultural means across cultures and its relationship to cultural means is not definite a model based on multiple disciplines is proposed to cast icv in a nomological net and to illuminate several avenues for future research practical implications are also discussed

the political economy of the euro crisis this article introduces the special issue on the political economy of the euro crisis which aims to improve our understanding of the causes consequences and implications of the highly unusual nature of this crisis a financial crisis among developed countries within a supranational monetary union the article provides a brief chronology of the crisis discusses its underlying causes and reviews the ways in which comparative and international political economy can help us understand the crisis the article then discusses the individual and collective contributions of the articles in the special issue and discusses possible future research paths on the political economy of the euro crisis we conclude with a brief discussion of how a political economy perspective informs our understanding of the long term prospects for the eurozone and european integration

the ups and downs of capitalism ben bernanke is a leading macroeconomist who has contributed extensively to the literature on business cycles monetary policy the role of financial markets in economic fluctuations inflation targeting and the economics of the great depression he is one of the six economists who form the nber business cycle dating committee a group that determines the dates of recessions in the us in this article interview professor bernanke discusses issues relating to the great depression of the 1930s and problems relating to inflation in the latter half of the twentieth century

culture and ceo compensation the theory and research on chief executive officer ceo compensation tends to be dominated by assumptions and values reflective of those dominant in the national culture of the united states where most of this work is done this suggests that an underlying theme focuses on how ceo compensation is related to instrumental choices made in a competitive capitalist culture this study seeks to expand the understanding of ceo compensation by examining it in the context of other cultures based on the premise that national culture plays a significant part in the nature of compensation strategies we relate cultural dimensions uncertainty avoidance power distance individualism and masculinity femininity developed by hofstede hofstede 1980a 2001 to several dimensions of ceo compensation these dimensions are total ceo pay the proportion of variable pay to total compensation and the ratio of ceo pay to the lowest level employees the main findings of our paper are 1 all of the different dimensions of ceo pay were related to power distance leading us to infer that ceo pay in a culture is most reflective of the strength of the power structure in a society and 2 total compensation and the ratio of variable pay to total pay are related to individualism we conclude that cultural dimensions can contribute to understanding cross national ceo compensation the implication of this conclusion is that there are different ways that ceo compensation fits into the cognitive schema of various cultures and furthermore that these cognitive schema vary across societies that affect the nature of the cultural matrix into which money is incorporated bloch and parry 1989 p 1 moreover our results imply that particular forms of ceo compensation do not mean the same thing in different cultures but rather carry different symbolic connotations depending on the values dominant in a society thus not only does the compensation structure of a firm within a culture have a symbolic meaning within organizations e g trice and beyer 1993 but it can also be seen as an expression of deeper social values hofstede et al 1990 that may differ across countries

could stable money have averted the great contraction i introduction although over fifty years have elapsed since the onset of the great contraction controversy still swirls about the factors responsible for its depth and long duration a basic issue is the hypothesis due to friedman and schwartz 1963 that the great contraction would have been attenuated had the federal reserve not allowed the money stock to decline although the validity of the hypothesis has been a subject of much debate there is little empirical evidence directly addressing it a direct test of the friedman and schwartz hypothesis requires simulating the behavior of output under a counterfactual policy of stable money that approach was adopted by warburton 1966 friedman 1960 and modigliani 1969 none of whom constructed a model of the economy on the basis of which to conduct his test recently mccallum 1990 has used simulations from a macro model to show that his base rule with feedback would have avoided the severe decline in nominal income that occurred between 1929 and 1933 1 the extent to which his rule would have improved the behavior of nominal income depends on the value of the feedback coefficient mccallum s simulations however do not address the issue considered here of how a stable money rule would have performed in this paper we present simulations that focus on the stable money counterfactual our model is based on mccallum s but we use a more general framework than his that a estimates separate relations for output and the price level and b places no prior restrictions on the feedback from output and the price level to money our stable money counterfactual does not change the long term rate of money growth from that actually experienced and thus involves only short run changes in the behavior of the money supply we assume that dynamics embedded in the output and price relation are not especially sensitive to this type of policy change we simulate two variants of milton friedman s 1960 constant money growth rule the first a strong form of the rule assumes that the fed could quickly offset changes in the money multiplier by changes in high powered money and thus keep the money stock on the constant growth rate path in each quarter the second a weaker form of the rule assumes that the money multiplier is observed with a one quarter lag and the fed can only set the expected rate of growth of money conditional on last period information equal to the constant rate our basic simulation is derived from a model estimated for the 1921 1 1941 4 interwar period the results of this simulation buttress the views of friedman and schwartz had a constant money growth rule with an annual rate equal to the average 1921 41 rate of 2 95 percent been followed throughout the interwar period the great contraction would have been avoided real output would have declined from 1929 3 to 1933 1 but the order of magnitude of the cumulative change 11 1 to 21 6 percent and the annual rate of change 3 3 to 6 6 percent when the actual cumulative change was 36 2 percent and the annual rate of change was 12 1 percent would have been comparable to other recessions in the nineteenth and twentieth centuries in the basic simulation we assume that the output and price relations remained stable over the entire interwar period the extraordinary economic conditions of the great contraction could have arguably shifted the output and price relations thus we also present an alternative simulation that uses estimates of these relations based on the 1920s data this simulation shows that a constant money growth rule with an annual rate equal to the 1921 29 average of 3 29 percent would have prevented even a mild recession during the great contraction period section ii contains a brief survey of the continuing debate over the cause and propagation mechanism of the great contraction and its implications for the stable money hypothesis

choosing wisely a multibidding approach reaching decisions about the location of noxious facilities such as dump sites environmentally hazardous plants nuclear power generators and the like is a highly contentious issue for instance in february 2000 the u s senate decided that nationwide nuclear waste would be shipped to the yucca mountain site in nevada conditional to it being approved as a high level nuclear waste repository despite the attractive compensation package the state of nevada voiced vehement opposition president clinton vetoed the bill and in may 2000 the senate failed to overturn it as such the major problem facing the u s nuclear industry on where to site a high level radioactive waste repository remains virtually unresolved neither are decisions about the location of desirable events easily solvable every two years the international olympic committee selects hosts for the summer and winter games a procedure that is constantly under review and revision in order to bring about the best possible outcome until about a year ago the decision was made by a vote based on bids and plans submitted by candidate cities however the recent controversy surrounding the choice of salt lake city to host the 2002 winter games culminated in the design of a new procedure for choosing the host of the 2006 winter games this procedure called for the selection of two finalist cities in this case turin and sion immediately after which the host was selected by secret ballot in this case turin another similar issue is currently the subject of heated debate in spain the spanish government both on the national and local level has recently been discussing various possible projects for transferring water from rivers in the north of spain to the arid southern regions the parties involved have conflicting interests with regard to several aspects of the projects proposed particularly the water rich regions are hesitant to give up parts of their water resources the parties involved have still not agreed upon the choice of a transport mode or the size of the transfer payments that would compensate the localities that are relinquishing part of the water supply these and several other cases belong to a class of problems in which a group of agents has to choose one out of several projects a project is efficient if it maximizes the aggregate welfare of the group members reaching an efficient outcome is trivial when the designer has all the relevant information however it is often the case that the parties concerned possess much more information than the designer hence the designer faces a nontrivial problem if she wishes to optimally choose one of the projects moreover from a normative point of view even if the designer has all the information it is easier to justify the use of a fixed procedure to reach a decision than to modify the procedure for various cases in light of information disclosed or already available to the designer several well known methods are available for the problem of choosing one out of a set of alternatives one class of methods consists of various voting schemes such as majority voting or the borda rule the outcomes generated by these methods need not be efficient due to strategic behavior on the part of the agents another class of methods consists of vickreyclarke groves mechanisms for this class truthtelling is a dominant strategy that always results in the choice of an efficient alternative however these mechanisms are not budgetbalanced and the payments collected from the perez castrillo department of economics code universitat autonoma de barcelona 08193 bellatera barcelona spain wettstein department of economics bengurion university of the negev monaster center for economic research beer sheva 84105 israel we thank herve moulin for his helpful suggestions suresh mutuswami who encouraged us to check for strong nash equilibria and francis bloch mark gradstein moshe justman jordi masso and two anonymous referees for their useful comments perez castrillo gratefully acknowledges financial support from bec2000 0172 and 2000sgr 00054

meltzer s history of the federal reserve this review argues that allan meltzer s account of the fed between 1913 1951 complements friedman and schwartz s in their monetary history meltzer emphasises policy making within the system rather than the evolution of the money supply and its effects on the economy he stresses the uncertainty of the fed s independence before the 1951 accord and the effects of economic ideas notably the real bills and riefler burgess doctrines on policy many virtues in the book are noted and one weakness a failure to explain why inadequate ideas became dominant within the fed when sounder alternatives were available in contemporary monetary thought

trade barriers and the collapse of world trade during the great depression 1 introduction the contraction in world trade during the first phase of the great depression stands out as the strongest adverse shock to international trade in modern history from 1929 to 1932 world import and export volume in the industrialized nations decreased about 30 however it is not well understood which factors were responsible for the collapse the factors that have been highlighted in the literature are declining demand escalating tariff and nontariff trade barriers increasing bilateral trade agreements and international exchange rate policies the importance attributed to each of these factors has often been controversial pollard 1962 p 200 for instance argues that for britain the fall in total foreign trade as a proportion of home production was a part of a secular trend and may well not have been caused by the tariff as such by contrast khan 1946 p 246 claims that within 12 to 18 months uk nominal imports of manufactures from most of europe and the united states were reduced by something like 60 as a result of the tariff similarly saint etienne 1984 p 29 argues that by the mid 1930 s international trade had become in large proportion barter trade as a result of the tariffs and nontariff barriers empirical studies have examined the effects of trade restrictions on incomes to explain the declining trade for individual countries the studies of crucini and kahn 1996 and irwin 1998 find that the tariffs were influential for the u s imports and exports in his study of nominal imports to the european countries friedman 1974 quantified the effects of trade barriers on nominal imports and ultimately income by means of dummies in periods of significant tariffs and nontariff barriers he found that trade restrictions had a significant impact on trade in a few countries however as friedman himself acknowledges the weakness of this approach is that strong and weak forms of trade barriers are restricted to impact equally on imports in the estimates coupled with the small sample problems that plagued his estimates the trade barrier dummies were unlikely to effectively have captured the effects of trade barriers on imports which explains substantial variations of the estimated effects of the tariffs and the nontariff barriers across countries the study of eichengreen and irwin 1995 is probably the most extensive analysis of trade flows in the interwar period using 561 cross sectional bilateral trade flows over three periods 1928 1935 and 1938 they estimate a gravity model of trade patterns they relate the value of bilateral flows to national income population distance contiguity trade and currency block indicators and exchange rate variability to examine the effects on trade of trade and currency blocks and exchange rate variability they observe a declining marginal propensity to import and export during the depression which they attribute to quotas and other binding trade restrictions but do not formally test their importance this paper seeks to estimate the contribution of income tariffs and nontariff barriers on world trade during the depression using panel data for 17 countries over the period from 1920 to 1938 the panel data approach enables the assessment of the influence on trade of nontariff barriers from estimates of import and export functions by using as an identifying assumption that the nontariff barriers were to some degree simultaneously imposed and relaxed across the industrialized nations during the interwar period the estimates and extensive evidence from the literature suggest that this identifying assumption is valid section 3 in section 4 the changes in world trade in the interwar period are decomposed into income effects tariff effects and nontariff barrier effects the trade effects of the tariff changes are furthermore decomposed into deflation inflation induced tariff changes and discretionary tariff induced changes

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

optimal exercise of executive stock options and implications for firm cost this paper conducts a comprehensive study of the optimal exercise policy for an executive stock option and its implications for option cost average life and alternative valuation concepts the paper is the first to provide analytical results for an executive with general concave utility wealthier or less risk averse executives exercise later and create greater option cost however option cost can decline with volatility we show when there exists a single exercise boundary yet demonstrate the possibility of a split continuation region we also show that for constant relative risk averse utility the option value does not converge to the black and scholes value as the correlation between the stock and the market portfolio converges to one we compare our model s option cost with the modified black and scholes approximation typically used in practice and show that the approximation error can be large or small positive or negative depending on firm characteristics

democratic institutions and exchange rate commitments since the collapse of the bretton woods system countries have been able to choose from a variety of exchange rate arrangements we argue that politicians incentives condition the choice of an exchange rate arrangement these incentives reflect the configuration of domestic political institutions particularly electoral and legislative institutions in systems where the cost of electoral defeat is high and electoral timing is exogenous politicians will be less willing to forgo their discretion over monetary policy with a fixed exchange rate in systems where the costs of electoral defeat are low and electoral timing is endogenous politicians are more likely to adopt a fixed exchange rate regime consequently differences in domestic political systems can help account for variations in the choice of exchange rate arrangements we test this argument using constrained multinomial logit and binomial logit on a sample of twenty democracies over the period 1974 95 domestic political institutions have a significant effect on exchange rate regime choice even after controlling for systemic macroeconomic and other political variables

the macroeconomics of the great depression a comparative approach recently research on the causes of the great depression has shifted from a heavy emphasis on events in the united states to a broader more comparative approach that examines the interwar experiences of many countries simultaneously in this lecture i survey the current state of our knowledge about the depression from a comparative perspective on the aggregate demand side of the economy comparative analysis has greatly strengthened the empirical case for monetary shocks as a major driving force of the depression an interesting possibility suggested by this analysis is that the worldwide monetary collapse that began in 1931 may be interpreted as a jump from one nash equilibrium to another on the aggregate supply side comparative empirical studies provide support for both induced financial crisis and sticky nominal wages as mechanisms by which nominal shocks had real effects still unresolved is why nominal wages did not adjust more quickly in the face of mass unemployment this abstract was borrowed from another version of this item

international liquidity in a multipolar world today s global monetary and financial system to a remarkable extent continues to rely on the u s dollar for international liquidity this reflects the currency s historic role the liquidity of american financial markets and the absence of alternatives but with the emergence of emerging markets the capacity of the united states to provide safe assets will be outstripped by the growth of international transactions it is thus likely that other large economies presumably europe and china will eventually join the united states as sources of international liquidity and that other currencies will come to share the dollar s reserve currency status

investigating inflation persistence across monetary regimes under inflation targeting estimates of the indexation parameter in hybrid new keynesian phillips curves are either equal to zero or very low in the united kingdom canada sweden and new zealand analogous results hold for the euro area under the european monetary union and for switzerland under the new monetary regime under stable regimes with clearly defined nominal anchors inflation appears to be purely forward looking these results question the notion that the intrinsic inflation persistence found in post wwii u s data is structural in the sense of lucas carnegie rochester conference series on public policy 1 1976 19 46 and suggest that hardwiring inflation persistence in macroeconomic models is potentially misleading

international aspects of the great depression and the crisis of 2007 similarities differences and lessons we focus on two international aspects of the great depression financial crises and international trade and try to discern lessons for the current economic crisis both downturns featured global banking crises which were generated by boom slump macroeconomic cycles during both crises world trade collapsed faster than world incomes and the trade decline was highly synchronized across countries during the depression income losses and rises in trade barriers explain trade s collapse owing to vertical specialization and more intense trade in durables today s trade collapse is due to uncertainty and small shocks to trade costs hitting international supply chains so far the global economy has avoided the global trade wars and banking collapses of the depression perhaps owing to improved policy even so the global economy remains susceptible to large shocks owing to financial innovation and technological

politics institutions and trade lessons of the interwar era recent studies cast doubt on the value added of international trade agreements and institutions using a new data set that consists of about 35 000 observations on the trade of fifty four nations between 1919 and 1938 we examine whether this skepticism also applies to the infamous interwar trade blocs traditional historical accounts attribute to them a large drop in international trade and a rise in the political tensions that would later erupt in world war ii in this study we show that no bloc raised trade among its members as a whole or decreased trade between members and nonmembers however our findings are not wholly consistent with the skepticism recent studies express we argue that conflicts of interest among the great powers encouraged the emergence of the bloc system and also gave rise to intrabloc trade shifts consistent with the political interests of their great power hubs the political military alliances these conflicts created also reduced trade between their signatories and we argue more generally that the causal chain runs from politics to trade as a result measuring only the effect of agreements and institutions on aggregate trade between their members can generate inaccurate estimates of their value added

avoiding uncertainty in hofstede and globe this paper compares the uncertainty avoidance ua dimension of national culture across the hofstede and globe models looking at relationships in both data and analysis rather than mutual support we detail major differences and anomalies across the studies we show how these anomalies are resulting in contradictory explanations in research on national differences across a range of individual firm and country level phenomena we clarify the ua measurement in both hofstede and globe and find that the two models are measuring different components of the ua construct we propose a two component model of ua namely ua stress and ua rule orientation and confirm its validity with national culture data from the hofstede and globe studies and economic data from the world bank we also explain the negative globe ua practices values relationship using motivational theories a way forward in future ua related research is suggested the hofstede ua index the globe ua practices scores and the globe ua values scores should be used within the specific domains that they represent that is stress rule orientation practices and rule orientation aspirations respectively resolving the contradictions in ua between and within hofstede and globe will help cross cultural researchers develop more robust theories and more practical recommendations for international business management

trade blocs currency blocs and the reorientation of world trade in the 1930s we analyze the impact of commercial and financial policies on the reorientation of trade in the 1930s we report evidence that commercial policies attenuated prior connections between income growth and trade and that exchange rate instability marginally discouraged international trade in contrast the tendency toward regionalization commonly ascribed to the formation of trade and currency blocs was already evident to a considerable extent prior to the regional policy initiatives of the 1930s this reorientation is more properly attributed to ongoing historical forces such as commercial and financial links between countries forged over many years

changes in uk monetary policy rules and discretion in practice abstract in october 1992 following sterling s departure from the exchange rate mechanism britain adopted a new framework for monetary policy that comprised two components first an explicit target for inflation and second institutional changes designed to give greater influence to the bank of england by increasing the transparency and openness of the process by which interest rates are set this paper analyses those changes from the perspective of the debate on rules versus discretion and argues that an appropriate design of institutional arrangements can provide incentives for central bankers to pursue the first best state contingent monetary policy

understanding compensation practice variations across firms the impact of national culture with operations spread worldwide firms that find themselves competing in a global marketplace are looking at the implications of the admonition when in rome this raises the question do cultures of countries have an impact on the generally accepted methods of managing human resources the answer to this question is the focus of this article by developing culture specific propositions for four categories of compensation practices based on status performance social benefits and programs and employee ownership plans we seek to determine the extent to which hofstede s four dimensions of culture are associated with specific compensation practices support is found for most of the propositions the implications of the finding for the management of human resources by multinational firms are discussed

national culture and life insurance consumption this cross disciplinary study examines the way national culture affects consumption patterns of life insurance across countries life insurance is a service that is abstract complex and focused on unsure future benefits because of the uncertainty and ambiguity inherent in the life insurance product consumers are more likely to respond according to their cultural prescriptions our research hypotheses are tested empirically using hofstede s cultural dimensions and data from 1976 2001 across 41 countries the findings show that individualism indeed has a significant positive effect on life insurance consumption whereas power distance and masculinity femininity have significant negative effects the results are robust even after controlling for economic institutional and demographic determinants

viewpoint understanding the great depression bernanke 2000 and james 2001 it is now commonplace to view the depression from an international perspective and to test causal hypotheses by comparing the experiences of countries that endured more and less severe cyclical downturns this is in contrast with the earlier generation of scholarship notably the influential work of friedman and schwartz 1963 and temin 1976 which viewed the depression as centred in the united states and focused on shocks and policies in that country specific hypotheses associated with the global perspective continue to be disputed but there seems little question that the international view serves as a point of departure for a growing portion of recent scholarship whether this new research has produced a scholarly consensus is another matter in this paper i ask whether it is possible to arrive at such a consensus by synthesizing the old and new literatures i describe a perspective that views the great depression as a global phenomenon emphasizing linkages among countries and the destabilizing influence of the international monetary and financial system but that at the same time acknowledges the uniquely important character of events and policies in the united states i thereby suggest that the opposition between the old and new or u s centric and global views of the great depression may ultimately prove artificial the task for macroeconomic and historical scholarship

inflation forecasts and monetary policy proposals for inflation targeting as a strategy for monetary policy leave open the important operational question of how to determine whether current policies are consistent with the long run inflation target an interesting possibility is that the central bank might target current private sector forecasts of inflation either those made explicitly by professional forecasters or those implicit in asset prices we address the issue of existence and uniqueness of rational expectations equilibria when the central bank uses private sector forecasts as a guide to policy actions in a dynamic model which incorporates both sluggish price adjustment and shocks to aggregate demand and aggregate supply we show that strict targeting of inflation forecasts is typically inconsistent with the existence of rational expectations equilibrium and that policies approximating strict inflation forecast targeting are likely to have undesirable properties we also show that economies with more general forecast based policy rules are particularly susceptible to indeterminacy of rational expectations equilibria we conclude that although private sector forecasts may contain information useful to the central bank ultimately the monetary authorities must rely on an explicit structural model of the economy to guide their policy decisions this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

business cycles in international historical perspective business cycle models seek to answer the question of why economies go through cycles of recession and recovery or boom and bust any theory of the business cycle makes two sorts of claims what shocks are most important in disturbing the economy and what economic structure is necessary for propagating these shocks for example one common explanation of business cycles begins with monetary shocks and then seeks to explain why monetary shocks are not purely neutral as neoclassical theory would have it and instead have real effects at least in the short term early models in this vein were often implicitly or explicitly based on the proposition that markets do not clear continuously early equilibrium real business cycle theories instead emphasized the importance of real shocks especially to technology which may cause socially efficient fluctuations even when markets are always in equilibrium more recent models have attempted to marry the equilibrium approach to macroeconomics with the substantive keynesian ideas that money is not neutral and that economic fluctuations are costly new keynesian theories of the business cycle admit the possibility of a number of economic shocks including monetary and technology shocks but then focus on explaining how nominal price rigidities within the economy can turn these shocks into recessions or booms other models show that business cycles driven by keynesian animal spirits are consistent with rigorous microfoundations and rational expectations seeking empirical evidence for and against these various approaches we turn business cycle theories loose on perhaps the greatest macroeconomic laboratory

golden fetters the gold standard and the great depression barry eichengreen oxford university press new york 1992 pp xix 448 39 95

the new deal and modern memory summary economists and other social scientists may never be able to explain fully why the greatdepression happened when it did or why it initially was so severe numerous hypotheses havebeen advanced as we have seen and each of them contributes important insights into thecauses of the macroeconomic calamity in which most of the world was mired in 1929 1933 if however one is forced to adopt a monocausal theory it must center on the actions of america scentral bank which presided over an extraordinary expansion in bank credit in the mid to late1920s and then took the punch bowl off the table for the purposes of this article though the key question is why did the great depressionlast longer in the united states than it did in any other nation the answer as laid out in thenext section is presidential politics 23 there will come seven years of great plenty throughout all the land of egypt but after them will arise seven years offamine and all the plenty will be forgotten in the land of egypt the famine will consume the land genesis 41 29 30 nkjv

the siting of hazardous waste facilities in federal systems the political economy of nimby this paper offers a new political economy explanation for thepervasive problem of siting hazardous waste treatment facilitiesin federal system we first show that a decentralized systemyields the first best waste treatment capacity level and that acentralized structure gives rise to free riding behavior amonglocal jurisdictions in our model each community seeks toinfluence the central government through political contributions this leads to suboptimal levels of treatment capacity thecapacity is increasing in the compensation level if the marginalbenefit of treatment capacity is sufficiently large and in thegovernment s weight on aggregate social welfare relative tolobbying activities the centralized system can replicate thedecentralized system with a sufficiently high compensation level since compensation has proved difficult a centralized systemfaces greater obstacles than a decentralized system

the nation in depression t he economic cataclysm of the 1930s was an international phenomenon experienced by countries in all parts of the globe countries as diverse as the united states germany chile and japan all experienced significant depressions in the 1930s thus the title of charles kindleberger s classic book the world in depression 1973 captures an important feature of the great depression these international aspects especially the importance of the gold standard in causing the downturn and transmitting depression from one country to another have been emphasized in recent years in excellent books by peter temin 1989 and barry eichengreen 1992 these books have rightly received widespread attention and have successfully changed the focus of much analysis of the great depression from the united states to the world economy while such a change from american provincialism is surely healthy and warranted adopting an international perspective on the great depression risks losing sight of the many ways in which the u s depression differed in timing and severity from depressions elsewhere more important it may obscure the many uniquely american causes of america s great depression this paper examines the ways in which the u s experience during the 1930s resembled that of other countries in some regards and fundamentally differed in other aspects i also evaluate the evidence on the causes of the great depression in the united states and the sources of the eventual recovery i suggest that the path of american output and unemployment before 1931 can be explained quite well with only domestic factors even after 1931

blood and treasure exiting the great depression and lessons for today although avoiding the policy mistakes of the 1930s helped define how policy makers responded to the 2007 8 financial crisis and ensuing recession policy applications to the recovery phase are less well understood we draw on the experience of the us in the 1930s to shed light on exit strategies movements back to institutional conditions associated with steady state growth including stable inflation and broadly non interventionist credit and capital market policies we describe how policy responses to the deflation and banking crises of the 1930s coloured the exit policy debate after the great depression we show that a full exit from the great depression defined as the point at which interventionist credit and capital market policies and institutions were wound down did not occur in the 1930s it took until the 1950s for this to occur and for the federal reserve to regain its independence and return unfettered to its longer run

political and economic determinants of interest rate behavior are central banks different i introduction do politicians manipulate the instruments of macroeconomic policy to improve their electoral prospects or in response to the preferences of their own party these questions are addressed but not yet resolved by the literature on political business cycles 1 to generate a political business cycle politicians must control the instruments of macroeconomic policy monetary policy plays an important role in the determination of inflation output and employment the objects of concern to politicians and voters yet politicians do not directly control the instruments of monetary policy in industrialized countries instead these instruments are controlled by the central banks which vary widely across countries in their degree of statutory independence we wish to examine empirically whether monetary policy is influenced by the timing of elections or a change in the party in power after controlling for unexpected changes in economic fundamentals our paper assesses therefore one aspect of independence namely whether a central bank makes monetary policy decisions without measurable political influence 2 in this study we attempt to look at what central banks actually do as opposed to what they are legislated to do to distinguish between the form and substance in discussions of central bank independence as in mayer 1976 3 our paper enlarges and improves on cowart 1978 and woolley 1983 both of whom studied the role of political factors in monetary policy for a sample of industrialized countries our methodology is to compare the responsiveness of interest rate changes to economic and political factors in seventeen countries as we discuss below there are differences in opinion about whether an interest rate variable or a monetary aggregate is a better representation of monetary policy actions we compare the results of qualitative measures of differences in central bank design e g rankings of banks in order of independence as determined by legislative criteria with the results of a quantitative comparison of differences in central bank behavior this exercise should help identify the important qualitative features in the reform of existing central banks or in the design of new central banks 4 in our empirical work the relevant relationships are estimated with a recursive vector autoregression technique to control for temporal instability in the economy between 1960 and 1990 and the endogeneity of the variables in question this methodological innovation has important consequences for the understanding of reaction functions and more generally for measuring the impact of macroeconomic shocks on monetary policy we also stress results for separate subsamples of fixed and flexible exchange rates as well as for the full sample our methodology measures the influence of politics on monetary policy relative to the choices and information actually available to the central bank when the monetary policy decision was made our study does not measure the influence of politics on the instruments of fiscal policy as in alesina et al 1991 our study also does not measure the direct influence of fiscal variables on the instruments of monetary policy although there is some evidence on this issue in for example parkin 1986 and burdekin and wohar 1990 burdekin and wohar estimate the relationships between deficits money base growth and inflation for a sample of countries and time period comparable to ours all these studies find some evidence that central banks do accommodate fiscal policy by financing deficits via money growth especially since the end of bretton woods we return to the issue of fiscal policy in considering the interpretation of our results but stress that the effects of fiscal policy are partly captured in our specifications because we measure monetary policy relative to the state of the economy 5 a brief review of the literature which measures statutory central bank independence is given in section ii

central bank independence and macroeconomic performance some comparative evidence this note uses information on a sample of sixteen oecd countries to assess the relationship between central bank independence and macroeconomic performance as previous work suggests politically controlled central banks are more likely to pursue policies that lead to high and variable inflation however the authors find little evidence that political control of central bank policy has any impact on measures of the level or variability of growth unemployment or the ex ante real interest rate copyright 1993 by ohio state university press

nominal wage stickiness and aggregate supply in the great depression building on earlier work by eichengreen and sachs we use data for 22 countries to study the role of wage stickiness in propagating the great depression recent research suggests that monetary shocks transmitted internationally by the gold standard were a major cause of the depression accordingly we use money supplies and other aggregate demand shifters as instruments to identify aggregate supply relationships we find that nominal wages adjusted quite slowly to falling prices and that the resulting increases in real wages depressed output these findings leave open the question of why wages were so inertial in the face of extreme labor market conditions

lessons from the political economy of the new deal the new deal produced a fundamental change in the structure of american government the national government came to play a much larger role in the financing of social welfare programmes while administration of the programmes was largely located at the states both the purely national and the shared federal parts of the welfare system were characterized by impersonal rules the political economy of how the rules came about and how the new deal experience may have contributed to americans changing their views on the danger of dealing with the national government is the primary focus the paper closes with speculations about the possible effect of changing views on american participation in the second world war after 1939

british monetary and fiscal policy in the 1930s current economic turbulence has revived interest in interwar macroeconomic instability and policy this paper provides a guide to the current state of knowledge on british macroeconomic policy between 1929 and the eve of the second world war for today s economists and policy makers mindful that some will seek lessons from this earlier age it makes clear the very particular economic and policy context of the time including the marked difference between british and american economic performance and policies and the challenge posed by the massive rise in debt brought about by the first world war knowledge transfer is possible here for policy learning but what transpires is that lessons are typically stronger as negatives than as positives namely what should not be done in general as against what might be done this largely situation specific the focus is the role and effectiveness of the monetary and fiscal policies pursued together with an assessment of the principal policy not adopted namely the keynesian solution of significant loan financed public works to remedy mass unemployment the analysis is comparative with respect to us macroeconomic economic performance and policy it explores the different macroeconomic shocks of the contraction phase the term great depression is not really appropriate to the british experience in the two countries comparative policy regimes and then in turn analyses the policy mix and policy effectiveness of monetary and fiscal policy including for britain the counterfactual keynesian solution a business cycle periodization is adopted with the key role for the abandonment of the gold standard in terms of regaining freedom of choice in macroeconomic policy itself experiencing significant developments after 1931 the traditional role of the cheap money induced housing boom in britain s post 1932 economic recovery is reaffirmed the impact of the fiscal policies actually pursued are then discussed as are assessments of the likely effectiveness of the keynesian solution had the 1929 liberal party s we can conquer unemployment spending package been implemented

this is what happened to the oil price macroeconomy relationship abstract many of the quarterly oil price increases observed since 1985 are corrections to even bigger oil price decreases the previous quarter when one looks at the net increase in oil prices over the year recent data are consistent with the historical correlation between oil shocks and recessions

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

rulers of the game central bank independence during the interwar years central bank independence is associated with restrictive monetary choices that can be deflationary within fixed exchange rate regimes because central banks act to counteract domestic inflation they put a premium on domestic price stability at the expense of international monetary stability evidence from fifteen countries between 1925 and 1938 shows that the more independent central banks took more deflationary policies than were necessary for external adjustment central banks in general were more restrictive under left wing governments than they were under more conservative regimes and often were more restrictive than required for external equilibration this suggests that policies of independent central banks designed to enhance domestic price stability may force deflationary pressures onto other states in the system and potentially destabilize a fixed exchange rate regime

deflation and monetary policy in a historical perspective remembering the past or being condemned to repeat it inflation is currently low and stable in industrialized countries but might deflation replace inflation as a major policy concern we present a broad cross country historical study of deflation over the past two centuries in order to shed light on current policy challenges in the light of the relevant theoretical approaches we empirically characterize good bad and ugly deflations assess similarities between the current low inflation environment and that of the gold standard period and discuss lessons from the historical record as to policies to escape undesirable deflation and the relative merits of interest rate and monetary instruments michael bordo and andrew filardo

macroprudential policy what can it achieve this paper examines both the objectives and the available instruments for new macroprudential policy making bodies it argues that the objective financial stability is best understood as avoiding widespread disruption of financial flows achieving this objective requires that policy makers carry out two different but related tasks first they must ensure the resilience of the financial system to external shocks second they must respond in a timely fashion to future unsustainable expansions of credit and growth of asset prices these are old policy challenges what has changed is the emergence of new vulnerabilities in our innovative and relatively lightly controlled financial system exposed by the recent global financial crisis macroprudential policy can be effective in addressing these vulnerabilities but will not remove the major political and institutional obstacles to the effective control of unsustainable credit expansions 136 words

the regulation of labor author s botero juan djankov simeon la porta rafael lopez de silanes florencio shleifer andrei abstract we investigate the regulation of labor markets through employment collective relations and social security laws in 85 countries we find that the political power of the left is associated with more stringent labor regulations and more generous social security systems and that socialist french and scandinavian legal origin countries have sharply higher levels of labor regulation than do common law countries however the effects of legal origins are larger and explain more of the variation in regulations than those of politics heavier regulation of labor is associated with lower labor force participation and higher unemployment especially of the young these results are most naturally consistent with legal theories according to which countries have pervasive regulaory styles inherited from the transplantation of legal systems

a century of us central banking goals frameworks accountability several key episodes in the 100 year history of the federal reserve have everal key episodes in the 100 year history of the federal reserve have been referred to in various contexts with the adjective great attached to been referred to in various contexts with the adjective great attached to them the great experiment of the federal reserve s founding the great them the great experiment of the federal reserve s founding the great depression the great infl ation and subsequent disinfl ation the great moderation depression the great infl ation and subsequent disinfl ation the great moderation and the recent great recession here i ll use this sequence of great episodes and the recent great recession here i ll use this sequence of great episodes to discuss the evolution over the past 100 years of three key aspects of federal to discuss the evolution over the past 100 years of three key aspects of federal reserve policymaking the goals of policy the policy framework and accountability reserve policymaking the goals of policy the policy framework and accountability and communication the changes over time in these three areas provide a useful and communication the changes over time in these three areas provide a useful perspective i believe on how the role and functioning of the federal reserve have perspective i believe on how the role and functioning of the federal reserve have changed since its founding in 1913 as well as some lessons for the present and for changed since its founding in 1913 as well as some lessons for the present and for the future the future

keeping the keynesian faith this wide ranging discussion takes in the development of macroeconomics and the influence of ideas and events on that development the nature and causes of the great depression keynesianism lessons from the high inflation period of the 1970s the role of macroeconomic policy and the idea of the new economy

restarting globalization after world war ii structure coalitions and the cold war the present period of economic globalization originated following world war ii given the strongly protectionist tendencies prevailing at the time how did this happen structural economic and military causes along with intervening coalitional and institutional factors are considered trade policy change is examined in the five largest trading economies britain france the federal republic of germany japan and the united states structural economic causes best explain why protectionist tendencies were so strong and why they were weakest in the united states and the federal republic the liberalizing trend inaugurated in the united states and the federal republic was also facilitated by coalitional side payments to agriculture cold war related military interests appear to have been the strongest impetus behind the unilateral form of the liberalization

capital controls and recovery from the financial crisis of the 1930s abstract we examine the first widespread use of capital controls in response to a global or regional financial crisis in particular we analyze whether capital controls mitigated capital flight in the 1930s and assess their causal effects on macroeconomic recovery from the great depression we find evidence that they stemmed gold outflows in the year following their imposition however time shifted difference in differences dd estimates of industrial production prices and exports suggest that capital controls did not accelerate macroeconomic recovery relative to countries that went off gold and floated countries imposing capital controls also appear to perform similar to the gold bloc countries once the latter group of countries finally abandoned gold time series analysis suggests that countries imposing capital controls refrained from fully utilizing their newly acquired monetary policy autonomy

the great crash and the onset of the great depression this paper argues that the collapse of stock prices in october 1929 generated temporary uncertainty about future income which led consumers to forgo purchases of durable goods that the great crash generated uncertainty is evidenced by the decline in surety expressed by contemporary forecasters that this uncertainty affected consumer behavior is shown by the fact that spending on consumer durables declined drastically in late 1929 while spending on perishable goods rose slightly this effect is confirmed by the fact that there is a significant negative relationship between stock market variability and the production of consumer durables in the prewar era

stock based pay in new economy firms abstract ittner lambert and larcker j accounting economics 2003 this issue present compelling evidence that new economy firms rely more on stock based compensation than do old economy firms based on 1998 and 1999 data from a proprietary sample of companies i complement the ill results by analyzing data over a longer time period 1992 2001 and more importantly document the effect of the 2000 market crash on stock based pay in new economy firms finally i offer evidence supporting the conjecture that differences in pay practices between new and old economy firms reflect accounting considerations perceived costs and competitive inertia

uncertainty avoidance and the timing of employee stock option exercise we examine the impact of the cultural norm of uncertainty avoidance on employee stock option eso exercise behavior using proprietary data from a multinational firm we find that employees from countries with higher levels of uncertainty avoidance exercise their stock options earlier these findings lend support to a maintained assumption in the eso literature that employee attitudes toward uncertainty influence stock option exercise behaviors our findings further help to explain prior findings of cross cultural differences in firms compensation practices by indicating that employee responses to option based pay and firms consequent financial reporting costs vary as functions of employee uncertainty avoidance

is the walsh contract really optimal the purpose of this paper is to show thatthe linear penalization to inflation foundin walsh 1995 is not the government soptimal choice when the fixed part of thetransfer scheme is any given constant and thepayment to the central bank represents acost for the government

employee stock option exercises an empirical analysis this paper describes the exercise behavior of over 50 000 employees who hold longterm options on employer stock at eight corporations employees typically exercise options years before expiration commonly sacrificing half of the black scholes value exercise is strongly associated with recent stock price movements the market to strike ratio proximity to vesting dates time to maturity volatility and the employee s level within the company these findings have implications for compensation planners the fasb as it develops a new accounting standard for options and financial statement users and preparers who apply and interpret the new fasb standard

prosperity and depression prosperity and depression are relative concepts today both france and japan are depressed relative to the united states equivalently the united states is prosperous relative to these countries i say these countries are depressed relative to the united states because their output per working age person is 30 percent less than the u s level an interesting and important policy question is why are these countries depressed the answers for these two countries turn out to be very different the united states is prosperous relative to france because the u s intratemporal tax wedge that distorts the trade off between consumption and leisure is much smaller than the french wedge i will show that if france modified its intratemporal tax wedge so that its value was the same as the u s value french welfare in consumption equivalents would increase by 19 percent consumption would have to increase by 19 percent now and in all future periods to achieve as large a welfare gain as that resulting from this tax reform the united states is prosperous relative to japan because production efficiency is higher in the united states in the united states total factor productivity is approximately 20 percent higher than in japan if japan suddenly became as efficient in production as the united states its welfare gain in consumption equivalents would be 39 percent equally interesting and important are big changes over time in relative output per working age person across countries why are new zealand s and switzerland s economies depressed by over 30 percent relative to their 1970 trend corrected levels both of these countries have small populations but depressions are not restricted to small countries japan with its 125 million people is now depressed by 20 percent relative to its 1991 trend corrected level on the prosperity side why are ireland and south korea so prosperous now relative to their 1970 trend corrected levels this lecture is concerned primarily with big international differences among relatively rich industrial countries and changes in these differences over time the countries that receive primary attention all have market economies and healthy well educated populations in the countries considered the variations in aggregate output per working age person are large and reasonably good measures of the factor inputs are available this permits in many cases the identification of the change in policy or the difference in policy that gave rise to prosperity or depression this is in contrast to business cycle theory which provides little guidance to policy except for the important policy implication that a stabilization effort will have either no effect or a perverse effect the output variations studied and analyzed in this lecture are big an order of magnitude larger than the much studied business cycle fluctuations the variations studied however are an order of magnitude smaller than the muchstudied differences between the richest and poorest countries surprisingly only recently have depressions been systematically studied from the perspective of growth theory which is the theory used university of minnesota and federal reserve bank of minneapolis i thank my colleagues at the university of minnesota and the federal reserve bank of minneapolis for helpful discussions and comments in particular i thank tim kehoe ellen mcgrattan and nancy stokey for their help i also thank martin weale and franck portier for providing some british and french tax information used in this lecture thanks also go to sami alpanda and james macgee for research assistance and helpful discussions this lecture draws heavily on collaborative research with fumio hayashi i thank the economic and social research institute cabinet office government of japan and the u s national science foundation for financial support the views expressed herein are those of the author and not necessarily those of the federal reserve bank of minneapolis or the federal reserve system

kicking the habit moving from pegged rates to greater exchange rate flexibility why do governments find it so difficult to move from pegged exchange rates to greater exchange rate flexibility i first establish that there is a problem to be solved that there are powerful incentives for greater flexibility deriving from changes in the international economic and financial environment but that policymakers find it difficult to engineer a smooth transition i offer practical suggestions and a framework under which the probability of a smooth transition can be maximised drawing examples from recent economic history i then attempt to understand the experience of selected countries which have undertaken this transition

are community nuisance fiscal zoning arrangements undermined by state property tax reforms evidence from nuclear power plants and school finance equalization the conventional view of fiscal zoning is that communities make land use accommodations only for nuisance entities that generate sufficient net fiscal benefits state reforms that redistribute property tax revenues have been accused of undermining these decisions ex post this paper tests this critique by examining communities with nuclear power plants sited before the school finance equalization reforms of the 1970s and 1980s hedonic regressions reveal these reforms to disproportionately reduce housing prices in nuclear plant communities but increase them among neighboring areas this pattern of interjurisdictional capitalization is consistent with the concerns raised by critics of these reforms jel h71 h73

economies of scope and scale in green advocacy environmental advocacy is a large and growing activity whilst a number of economists have analysed the advocacy process no systematic attempt has been made to understand the factors influencing the organisation of the sector we explore the relationship between economies of scale and scope in advocacy under the most popular specification of a tullock type contest economies of scope arise when and only when the scale of that activity is sufficiently large the incentives for merger are socially efficient implying no need for policy intervention

sovereign risk credibility and the gold standard 1870 1913 versus 1925 31 author s obstfeld maurice taylor alan m abstract what determines sovereign risk we study the london bond market from the 1870s to the 1930s our findings support conventional wisdom concerning the low credibility of the interwar gold standard before 1914 gold standard adherence effectively signalled credibility and shaved up to 30 basis points from country borrowing spreads in the 1920s however simply resuming prewar gold parities was insufficient to secure benefits countries that devalued before resumption were treated more favorably and markets scrutinized other signals public debt and british empire membership were important determinants of spreads after world war one but not before

monetary factors in the great depression this paper examines the role of monetary policy in the early stages of the great depression and considers the mechanism whereby this policy may have affected real activity i conclude that the depression was preceded by a dramatic shift towards a highly contractionary monetary policy the economic impact of this policy seems unlikely to have come through the conventional keynesian channels of a shortage of liquidity and high ex ante real interest rates but instead may have operated through unanticipated deflation and after 1930 through the disruption of financial intermediation as a consequence of the banking panics

the first year of the eurosystem inflation targeting or not this paper is a brief evaluation of the eurosystem s monetary policy regime after its first year in particular of the extent to which it is similar to inflation targeting as practiced by an increasing number of central banks i examine the eurosystem s goals framework for monetary policy decisions and communication with outsiders criteria for evaluation are whether the goals are unambiguous and appropriate whether the decision framework is efficient in collecting and processing information and reaching decisions that are appropriate relative to the goals and whether the communication is effective in motivating decisions simplifying external evaluation and thereby improving transparency and accountability i also consider whether the actual instrument setting has been appropriate given the informaion available at the times of decision