money and capital abstract the effects of money anticipated inflation on capital formation is a classic issue in macroeconomics previous papers adopt reduced form approaches putting money in the utility function or imposing cash in advance but using otherwise frictionless models we follow instead a literature that tries to be explicit about the frictions making money essential this introduces new elements including a two sector structure with centralized and decentralized markets stochastic trading opportunities and bargaining these elements matter quantitatively and numerical results differ from findings in the reduced form literature the analysis also reduces a gap between microfounded monetary economics and mainstream macro

foreign direct investment and employment home country experience in the united states and sweden we compare the relation between foreign affiliate production and parent employment in us manufacturing multinationals with that in swedish firms us multinationals appear to have allocated some of their more labour intensive operations selling in world markets to affiliates in developing countries reducing the labour intensity in their home production swedish multinationals produce relatively little in developing countries and most of that has been for sale within host countries with import substituting trade regimes the great majority of swedish affiliate production is in high income countries the united states and europe and is associated with more employment particularly blue collar employment in the parent companies the small swedish owned production that does take place in developing countries is also associated with more white collar employment at home the effects on white collar employment within the swedish firms have grown smaller and weaker over time

currency competition a partial vindication of hayek abstract this paper establishes the existence of equilibria for environments in which outside money is issued competitively such equilibria are typically believed not to exist because of a classic overissue problem if money is valued in equilibrium an issuer produces money until its value is driven to zero by backward induction money cannot have value in the first place this paper shows that overissuance is not a problem if agents believe that if an issuer produces more than some threshold number of notes then only those notes issued up to the threshold will be valued additional notes will be worthless this result is very general applying to any monetary economy in which equilibria with and without valued money exist if the money supply is finite the paper also compares the allocation achieved by a monopolist to that achieved with competitive issuance in both a search and an overlapping generations environment the results depend on the environment considered but two general conclusions arise first it is ambiguous whether competitive issuers can achieve a more desirable allocation than a monopolist second with competitive issuance a licensing agency can always improve on pure laissez faire and achieve the efficient allocation in the long run

the joint production of confidence endogenous regulation and nineteenth century commercial bank clearinghouses during the nineteenth century deposits increased relative to bank notes c ausing increased information asymmetry problems in banking this pape r describes how bank clearinghouses lowered these costs by monitoring bank activities and establishing mechanisms of managerial control i n effect regulating bank behavior such actions enforced the loca l one to one exchange rate between deposits and specie clearinghouse s increased regulation during financial panics creating and enforcin g a risk sharing device loan certificates for addressing panic rela ted information problems this paper concludes that the market s capacity to control bank managers depends on the banking product mix and more generally on information costs copyright 1987 by ohio state university press

general equilibrium with nonconvexities and money in a general equilibrium economy with nonconvexities there are sunspot equilibria with good welfare properties sunspots can ameliorate the effects of the nonconvexities for these economies we show that agents act as if they have quasi linear utility functions we use this result to construct a new model of monetary exchange along the lines of lagos and wright where trade occurs in both centralized and decentralized markets but instead of quasi linear preferences we assume general preferences but with indivisible labor this suggests that modern monetary theory is more robust than one might have thought it also constitutes progress on the classic problem of integrating monetary economics and general equilibrium theory

a search model of money and circulating private debt with applications to monetary policy a search theoretic model is used to examine the coexistence of money and circulating private debt money is still valued even though there coexists credit which circulates among agents and dominates in the rate of return when there coexist multiple equilibria the equilibrium with credit pareto dominates the one without credit if money supply is not extremely plentiful this article also provides some predictions about the effects of monetary policies a policy of open market operations whereby government discounts less for second hand debt decreases the value of money credit and interest rate prevailing in the market this policy can also improve welfare by making credit trade feasible when the only equilibrium entails no credit without intervention

banking a new monetarist approach we develop a model where i banks take deposits and make investments ii their liabilities facilitate third party transactions other models have i or ii not both although we argue they are intimately connected we show that they both emerge from limited commitment we describe an environment characterize desirable allocations and interpret the outcomes as banking arrangements banks are essential without them the set of feasible allocations is inferior as a technical contribution we characterize dynamically optimal credit allocations with frictions show they involve backloading and analyse how this interacts with banking we also confront the theory with economic history copyright 2013 oxford university press

money credit and banking in monetary models where agents are subject to trading shocks there is typically an ex post inefficiency since some agents are holding idle balances while others are cash constrained this problem creates a role for financial intermediaries such as banks who accept nominal deposits and make nominal loans in general financial intermediation improves the allocation the gains in welfare come from the payment of interest on deposits and not from relaxing borrowers liquidity constraints we also demonstrate that when credit rationing occurs increasing the rate of inflation can be welfare improving

on the future of macroeconomics a new monetarist perspective this article argues that a pressing goal for macroeconomics is to incorporate financial considerations but we need models with solid microfoundations in particular the use of assets in facilitating exchange as well as different credit or other financial arrangements should be outcomes of not inputs to theories as a preview i suggest that mainstream macro does a good job explaining many phenomena and a financial crisis does not disprove such theory but understanding crises requires better incorporating factors related to money credit banking and liquidity the approach called new monetarist economics can help a lot in this regard

international pollution control cooperative versus noncooperative strategies abstract international pollution control involving two neighboring countries is modeled as a simple two player dynamic game each country produces a good that is consumed by domestic households production of each consumption good results in emissions of pollutants households in each country derive utility from the consumption of the domestically produced good but incur costs through the total stock of pollution stock externality in this setting we characterize cooperative as well as noncooperative pollution control strategies of the governments of the two countries that maximize the discounted stream of net benefits of a representative consumer it turns out that when the governments are restricted to use linear strategies noncooperative behavior results in overall losses for both countries if on the contrary governments use nonlinear markov perfect strategies and the discount rate is small enough a pareto efficient steady state pollution stock can be supported as a differentiable subgame perfect equilibrium thus the emergence of first best solutions cooperative outcomes does not require any institutional arrangements threats retaliation etc but can be brought about through the use of nonlinear markov perfect equilibrium strategies

the evolution of a free banking system the institutional features of models of unregulated monetary systems have often been arbitrarily and implausibly assumed this paper instead provides realistic grounding for important features by constructing a logical evolutionary account of free banking sophisticated and orderly arrangements are shown to emerge from competition and the pursuit of less costly methods of payment the emergence of standardized commodity money is followed by the development in turn of basic money transfer banking easily transferable bank liubilities and clearinghouses the features of an evolved free banking system differ from those assumed in recent models of competitive payments systems

search bargaining money and prices the goal of this paper is to extend existing search theoretic models of fiat money which until now have assumed that the price level is exogenous by explicitly incorporating bilateral bargaining this allows us to determine the price level endogenously and leads to additional insights concerning the role of money for example we find that monetary equilibria are generally inefficient in the sense that output and prices differ from the solution to a social planner s problem although the difference can become small as the discount rate or search friction vanishes we also find that there exist nonstationary inflationary equilibria

inside and outside money as alternative media of exchange we study a random matching model of money in which a subset of people called bankers have known histories and the rest called nonbankers have unknown histories earlier we showed that if there are no outside assets then an optimal arrangement has bankers issuing objects banknotes that are used in trades involving nonbankers here the same model is used to compare such exclusive use of inside money to the exclusive use of outside money we show that the set of implementable outcomes using outside money is a strict subset of the set using inside money

outward fdi and the investment development path of a late industrializing economy evidence from ireland b arry f g org h and m cdowell a 2003 outward fdi and the investment development path of a late industrializing economy evidence from ireland reg studies 37 341 349 the investment development path idp hypothesis holds that a country s net outward direct investment position is systematically related to its level of economic development ireland is an interesting test case because of the importance of inward foreign direct investment fdi over the last three decades and the recent increase in outward fdi by irish owned multinationals we find empirical support for the idp concept for the irish case our sectoral analysis suggests that ireland s outward fdi flows are disproportionately horizontal and oriented towards non internationally tradable sectors also the firm specific assets of irish multinationals lie neither in r d nor in the type of product differentiation associated with high advertising expenditures b arry f g org h et m cdowell a 2003 l investissement direct a l etranger

inflation indexed bonds and nominal bonds financial innovation and precautionary motives this paper introduces a two period monetary general equilibrium model with proportional transaction costs on nominal and inflation indexed bonds this paper demonstrates that financial innovation on indexed bonds causes equilibrium interest rates of the nominal bond to increase when agents have precautionary saving motives this result implies that ignoring precautionary motives would underestimate savers welfare gain and overestimate borrowers welfare gain from innovation on indexed bonds

the boundaries of multinational enterprises and the theory of international trade this paper begins with a review of empirical evidence on multinational firms conceptual underpinnings of a theory are developed relying in particular on the notion of knowledge capital as a mobile joint input into geographically separated production facilities this idea is embedded in a simple two country general equilibrium model that supports multinational production in equilibrium under conditions consistent with the empirical evidence the final section examines internalization and shows why certain properties of knowledge capital also imply a preference for transferring technologies internally within the firm rather than through arm s length markets

on the social usefulness of fractional reserve banking abstract in this paper we argue that if monetary policy has insufficient deflation private agents have incentives to set up alternative payment systems like fractionally backed bank deposits which pay interest on the means of payment in a competitive environment with free entry these alternative systems are inherently fragile in the sense that they are subject to socially costly bank runs these social costs are not internalized by private individuals and banks and may exceed their social benefits we argue that as communication technologies improve the social benefits of fractional reserve banking decrease but the private benefits may still exceed the private costs so that such systems continue to be used in such situations 100 reserve requirements are optimal

money in search equilibrium in competitive equilibrium and in competitive search equilibrium we compare three market structures for monetary economies bargaining search equilibrium price taking competitive equilibrium and price posting competitive search equilibrium we also extend work on the microfoundations of money by allowing a general matching technology and entry we study how equilibrium and the effects of policy depend on market structure under bargaining trade and entry are both inefficient and inflation implies first order welfare losses under price taking the friedman rule solves the first inefficiency but not the second and inflation may actually improve welfare under posting the friedman rule yields the first best and inflation implies second order welfare losses

trade tropical deforestation and policy interventions trade interventions are increasingly advocated as a means for controlling timber related tropical deforestation this paper analyzes the impact on deforestation of such policy instruments in a dynamic framework the forest is modelled as a potentially renewable resource and timber is extracted for purposes of export and domestic consumption optimality conditions for a variety of model specifications are derived and the impacts of changes in the terms of trade and market structure on long run deforestation are analyzed the results of this analysis suggest that trade interventions that seek to affect the terms of trade against the export of tropical timber products are in the long run a second best policy option for influencing the deforestation process

learning matching and growth we examine an endogenous growth model in which market frictions are an integral part of the economic environment workers invest in education when young which raises their productivity onice employed the level of schooling also acts as a key determinant of the rate of economic growth by influencing workers ability to accumulate additional human capital on the job once schooling is completed workers search for employment the division of the surplus between vacancies and searching workers is characterized as is the optimal level of education the economy may display multiple steady state growth paths

on the multiplicity of efficiency inducing tax rules abstract we derive corrective tax rules for a monopoly whose production processes generate emissions that add to a stock of pollution which evolves over time in our model the monopolist maximizes the discounted sum of its instantaneous profits and the government designs a tax rule that corrects for both the externalities associated with pollution and the market power of the monopolist we show that there exists a continuum of time independent tax rules that guide the monopolist to achieve the socially optimum production path

currency elasticity and banking panics theory and evidence existing models of banking panics contain no role for monetary factors and fail to explain why some banking systems experienced panics while others did not a monetary model is constructed where seasonal variations in the demand for liquidity and credit play a critical role in generating banking panics these panics occur when there are restrictions on the issue of currency in private banks but they do not occur if banks are unrestricted empirical evidence from canada and the united states for the period 1880 1910 is largely consistent with the predictions of the model

money intermediation and banking the business of money creation is conceptually distinct from that of intermediation yet these two activities are frequently but not always combined together in the form of a banking system we develop a simple model to examine the question when is banking essential there is a role for money due to a lack of record keeping and a role for intermediation due to the existence of private information both money and intermediation are essential when monitoring costs associated with intermediation are sufficiently low the two activities can be separated from one another however when monitoring costs are sufficiently high a banking system that combines these two activities is essential

banks private money and government regulation abstract we study competition between inside and outside money in economies with trading frictions and financial intermediation claims on banks circulate if the redemption rate is low when the quantity of fiat money is scarce coexistence of inside and outside money dominates equilibria with a unique medium of exchange if outside money is ample banks choose to redeem claims in outside money which increases welfare under binding reserve requirements tightening monetary policy leads to credit rationing our results support recent trends toward lower reserve requirements however we also identify situations where restrictions on note issue are beneficial

on the essentiality of banks we compare allocations sustained by credit with allocations sustained by bank notes inside money in a search model with decentralized trade and limited monitoring we demonstrate that there exists a credit arrangement that is superior to inside money however in contrast with inside money this arrangement is not robust to an expansion of trade that is not accompanied by an adequate increase in the degree of monitoring therefore banks are essential when trade is intense and monitoring is limited as a historical application we argue that our model helps explain the origins of banking in medieval and early modern europe

prospects for ireland in an enlarged eu the ceec share of irish exports has grown fivefold since transition began with export sales expanding in all sectors even at current income levels there remains scope for a further doubling of exports and trade will grow even more substantially if accession facilitates the ceec in converging more rapidly on eu living standards most analyses predict that the eu15 sectors that face the greatest threats of enlargement induced disruption are food and textiles clothing and footwear in the case of irish food processing however the prognosis of the present paper is positive since irish agricultural output differs quite strongly from that of the cee economies the adjustment costs associated with industrial dispution furthermore are highest in economies with rigid labour markets whereas the flexibility of the irish labour market seems to have improved substantially over the last decade or so outward fdi from ireland has grown strongly over the celtic tiger era and irish multinational firms have been reasonably active in acquiring companies in their sectors in cental and eastern europe the main worry for ireland is that the more successful accession states may divert fdi inflows away from ireland micro level analysis of the conditions pertaining in some of ireland s most important foreign dominated sectors information technology pharma chem and instrument engineering suggests that these threats may be overstated the leading cee economies rather than drawing fdi away from ireland may instead contribute to the further development of eu wide production networks making the networks themselves more competitive as global players the net cost to ireland of agreements already reached on the financing of enlargement is quite manageable the cost to ireland would escalate dramatically however if costs and benefits were to be redistributed within the eu in line with current income levels entailing a substantial transformation of the cap transfer mechanism

bidding for money we analyze monetary exchange in a model that allows for directed search and multilateral matches we consider environments with divisible goods and indivisible money and compare the results with those in models that use random matching and bilateral bargaining two different pricing mechanisms are used ex ante price posting and ex post bidding auctions also we consider settings both with and without lotteries we find that the model generates very simple and intuitive equilibrium allocations that are similar to those with random matching and bargaining but with different comparative static and welfare properties

demandable debts as a means of payment banknotes versus checks we examine whether transactable forms of privately issued demandable debt are better used as banknotes or checks the distinction between the two is that a check must be redeemed by the issuing bank with each use whereas a banknote can circulate we find that the answer to the question depends on the cost of early redemption if this cost is small banknotes will not circulate so the question is moot if this cost is large incentive problems may prevent the circulation of banknotes for intermediate values of the early redemption cost banknotes will be preferred over checks

foreign transfers and tropical deforestation what terms of conditionality the purpose of this paper is to propose a nonparametric interest rate term structure model and investigate its implications on term structure dynamics and prices of interest rate derivative securities the nonparametric spot interest rate process is estimated from the observed short term interest rates following a robust estimation procedure and the market price of interest rate risk is estimated as implied from the historical term structure data that is instead of imposing a priori restrictions on the model data are allowed to speak for themselves and at the same time the model retains a parsimonious structure and the computational tractability the model is implemented using historical canadian interest rate term structure data the parametric models with closed form solutions for bond and bond option prices namely the vasicek 1977 and cir 1985 models are also estimated for comparison purpose the empirical results not only provide strong evidence that the traditional spot interest rate models and market prices of interest rate risk are severely misspecified but also suggest that different model specifications have significant impact on term structure dynamics and prices of interest rate derivative securities

trading uncertainty and market form this paper examines purely random multilateral matching among a large number of informationally isolated individuals who desire to trade the structure of links among traders is characterized by means of random graphs defined by a parameter that is chosen by prospective traders trading groups of all sizes including pairs as a special case result but the size distribution may contain a mass point at infinity that is within a certain subset of the entire economy trading uncertainty is entirely eliminated the equilibrium price distribution consists of a mass point and of a mixture of densities copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

payment system settlement and bank incentives in this article we consider the relative merits of net versus gross settlement of interbank payments net settlement economizes on the costs of holding non interest bearing reserves but increases moral hazard problems the put option value of default under net settlement can also distort banks investment incentives absent these distortions net settlement dominates gross although the optimal net settlement scheme may involve a positive probability of default article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

an evolutionary analysis of low carbon strategies based on the government enterprise game in the complex network context abstract low carbon development patterns have gradually attracted more attention because of strong shocks to society and the economy from environmental problems developing a low carbon economy is essential for every country to improve sustainable economic development and doing so is at the forefront of low carbon research policy and government intervention play a key role in the development of a low carbon economy using game based learning theory for reference this paper builds an evolutionary model of low carbon strategies based on the game between the government and enterprises in the context of a complex network it then studies the effects of government incentives on enterprises regarding the diffusion of low carbon policies and how enterprises compete and transform in the newman watts small world network we introduce government policy encouragement as a factor in the decision making process of companies adoption of a low carbon strategy thus enriching the literature on the diffusion of low carbon strategies the model proposed in this paper can be used as a tool to evaluate the diffusion and application of low carbon strategies among companies the findings suggest that enterprises expectation of government incentives including subsidy and regulation determines whether low carbon strategies can be diffused and the diffusion speed the more quick enterprises adjust their expectations in the government enterprise game the more enterprises will learn and follow to adopt effective low carbon strategy when enterprises attach great importance to the expected earnings from government incentives the less effective low carbon strategy adopted initially can be replaced by another more effective one

a unified framework for monetary theory and policy analysis search theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential however tractable versions of these models typically make strong assumptions that render them ill suited for monetary policy analysis we propose a new framework based on explicit micro foundations within which macro policy can be studied the framework is analytically tractable and easily quantifiable we calibrate the model to standard observations and use it to measure the cost of inflation we find that going from 10 percent to 0 percent inflation is worth between 3 and 5 percent of consumption much higher than previous estimates

cooperation for sustainable forest management an empirical differential game approach we model the role of the world s forests as a major carbon sink and consider the impact that forest depletion has on the accumulation of co2 in the atmosphere two types of agents are considered forest owners who exploit the forest and draw economic revenues in the form of timber and agricultural use of deforested land and a non forest owner group who pollutes and suffers the negative externality of having a decreasing forest stock we retrieve the cooperative solution for this game and show the cases in which cooperation enables a partial reduction in the negative externality we analyze when it is jointly profitable to abate emissions when it is profitable to reduce net deforestation and when it is optimal to do both abate and reduce net deforestation assuming that the players adopt the nash bargaining solution to share the total dividend of cooperation we determine the total amount that the non forest owners have to transfer to forest owners next we define a time consistent payment schedule that allocates over time the total transfer

money and prices a model of search and bargaining abstract this paper makes commodities divisible and incorporates bargaining into the search theoretic model of money to determine the purchasing power of money or price it is shown that two monetary equilibria always coexist where fiat money is universally accepted the two equilibria differ in price output welfare and the velocity of money sunspot monetary equilibria exist in which money is universally accepted in all states of the economy multiplicity has novel implications on the effectiveness of currency substitution and exchange market intervention journal of economic literature classification numbers c78 e40

on the welfare properties of fractional reserve banking monetary economists have long recognized a tension between the benefits of fractional reserve banking such as the ability to undertake more profitable long term investment opportunities and the difficulties associated with it such as the risk of insolvency for each bank and the associated losses to bank liability holders i show that a specific banking arrangement a joint liability scheme provides an effective mechanism for ensuring the ex post transfer of reserves from liquid banks to illiquid banks so it is possible to select a socially efficient reserve ratio in the banking system that preserves the safety of bank liabilities as a store of value and maximizes the rate of return paid to bank liability holders

on the private provision of fiat currency this paper considers whether fiat money can be provided by a revenue maximizing monopolist in an environment where money is essential two questions arise concerning the private supply of money is it feasible and is it optimal concerning the feasibility question i show that the revenue maximizing policy is time consistent if the trading history of the issuer is public information and if money demanders respond to the revelation of defection by playing autarky concerning the optimality question the model suggests that any private organization of the market for fiat currency is suboptimal

the transition from barter to fiat money how did it become possible to exchange apparently valueless pieces of paper for goods this paper provides an equilibrium account of the transition between barter and fiat money regimes the explanation relies on the intervention of a self interested government that must be able to promise credibly to limit the issue of money to achieve credibility the government must offset the benefits of seigniorage by internalizing some of the macroeconomic externalities generated by the issue of fiat money the government s patience and the extent of its involvement in the economy are key determinants of whether the transition can be accomplished copyright 1995 by american economic association

money banking and monetary policy abstract an important function of banks is to issue liabilities like demand deposits that are relatively safe and liquid we introduce a risk of theft and a safe keeping role for banks into modern monetary theory this provides a general equilibrium framework for analyzing banking in historical and contemporary contexts the model can generate the concurrent circulation of cash and bank liabilities as media of exchange or inside and outside money it also yields novel policy implications for example negative nominal interest rates are feasible and for some parameters optimal for other parameters strictly positive nominal rates are optimal

private money and bank runs this paper studies bank runs in a model with private money we show that allowing claims on demand deposits to circulate as a medium of exchange can help prevent bank runs in our model there exists a unique banking equilibrium where no one demands early withdrawals of real goods and agents in need of liquidity use private money to finance consumption with private money the unique equilibrium not only eliminates bank runs but also improves banking efficiency the implications of our model are consistent with the evidence from the banking history of the united states ce memoire etudie les ruees sur les banques dans un modele avec monnaie privee on montre que permettre aux droits sur des depots bancaires de circuler comme moyen d echange pourrait aider a prevenir les ruees sur les banques dans le modele presente il existe un equilibre bancaire unique ou personne ne demande de retraits prematures de biens reels et ou les agents qui ont besoin de liquidites utilisent la monnaie privee pour financer leur consommation avec la monnaie privee l equilibre unique non seulement elimine les ruees sur les banques mais encore ameliore l efficacite des banques les implications de ce modele s arriment bien aux observations qu on tire de l histoire bancaire des etats unis

the economics of tropical deforestation this paper provides a survey of first wave economic studies of tropical deforestation and land use these studies of tropical forest land conversion are generally at the cross country level we also conduct a synthesis cross country analysis of tropical agricultural land expansion the results show that agricultural development is the main factor determining land expansion but institutional factors have an important influence income effects tend to vary from region to region and do not always display an environmental kuznets curve relationship copyright 2001 by blackwell publishers ltd

private and public circulating liabilities abstract legal and technological changes have made private banknote issue or its electronic equivalent possible we construct a model where private liabilities circulate either by themselves or alongside outside money we provide results on existence and multiplicity of equilibria and characterize dynamics near steady states our results support friedman in that circulating private liabilities are associated with endogenous volatility but implementing friedman s advice the government should ban private currency substitutes causes significant inefficiency the proposal of hayek that the government should leave currency creation to the market also is often constrained suboptimal both public and private circulating liabilities are required for optimality journal of economic literature classification numbers e3 e4 e5

international aspects of pollution control pollution is a by product of production is only gradually dissolved by the environment and crosses national borders the market outcome ignores the adverse effects of pollution and thus yields higher levels of output and pollution than would prevail under a supranational social planner which does care about pollution in practice governments often do not cooperate and this leads to outcomes of pollution and production in between the market outcomes and the outcomes under supra national social planning absence of precommitment leads to lower emission charges less cleaning up activities and more pollution appropriate levels of emission charges under the various outcomes are a result of this analysis attention is also paid to investment in clean technology the debate between optimists who believe that higher production is compatible with sound environmental policy and pessimists can be analysed in this way