commutes neighborhood effects and earnings an analysis of racial discrimination and compensating differentials abstract recent tester studies indicate that minority workers face restricted residential and employment opportunities because of racial discrimination in housing and labor markets these restrictions may create a spatial mismatch between where urban minorities reside and where metropolitan area jobs are located resulting in reduced proximity of minority workers to jobs prior studies of racial discrimination and urban spatial mismatch however have paid little attention to the possibility that differences in employment commutes may be partially offset by compensating variations in neighborhood amenities quality adjusted house prices and earnings such effects could help to mitigate the impact of discrimination on minority workers using a unique subset of the 1985 and 1989 american housing surveys we estimate a fixed effects commute time model that controls for quality adjusted house prices neighborhood amenities and earnings results indicate that although blacks have longer commutes than comparably skilled white and asian workers roughly one third of the estimated difference is offset by neighborhood amenity and housing price differentials however even after controlling for neighborhood fixed effects and earnings educated black workers have significantly longer commutes than comparably skilled asian and white workers additional findings indicate that regardless of race household mobility is an important mechanism through which the market attains a spatial equilibrium providing further support for arguments that restricted proximity to residential opportunities and jobs reduces the economic welfare of minority households

bounds for the correlations of expected inflation with real and nominal interest rates abstract this paper derives bounds for the correlations of the unobservable expected rate of inflation with nominal and expected real interest rates for quarterly u s data from 1955 to 1990 the bounds suggest that expected changes in cpi inflation have a weak positive correlation with changes in the nominal t bill yield and a strong negative correlation with expected changes in the real t bill yield

race specific urban wage premia and the black white wage gap abstract we establish a novel empirical fact about the black white wage gap looking both across and within metropolitan areas increasing city size or employment density is associated with a larger black white wage gap the estimated effects represent between 9 and 18 of recent estimates of the black white wage gap using a variety of techniques we demonstrate that our within city relationship is unlikely to be driven by racial differences in unobserved ability finally we present evidence suggestive of a role for race specific networks in explaining these differences in the black white wage gap

equilibrium price dispersion with sequential search abstract the paper studies equilibrium pricing in a product market for an indivisible good where buyers search for sellers buyers search sequentially for sellers but do not meet every seller with the same probability specifically a fraction of the buyers meetings lead to one particular large seller while the remaining meetings lead to one of a continuum of small sellers in this environment the small sellers would like to set a price that makes the buyers indifferent between purchasing the good and searching for another seller the large seller would like to price the small sellers out of the market by posting a price that is low enough to induce buyers not to purchase from the small sellers these incentives give rise to a game of cat and mouse whose only equilibrium involves mixed strategies for both the large and the small sellers the fact that the small sellers play mixed strategies implies that there is price dispersion the fact that the large seller plays mixed strategies implies that prices and allocations vary over time we show that the fraction of the gains from trade accruing to the buyers is positive and nonmonotonic in the degree of market power of the large seller as long as the large seller has some positive but incomplete market power the fraction of the gains from trade accruing to the buyers depends in a natural way on the extent of search frictions

the behavior of prices and inflation an empirical analysis of disaggregat price data this paper analyzes the effects of inflation on the dispersion of prices as well as other aspects of price behavior using disaggregated data on prices of foodstuffs in israel during 1978 84 we find that the effect of expected inflation on intramarket price variability is stronger than the effect of unexpected inflation we show that even in times of high inflation price quotations are not trivially short and price changes are not synchronized across firms these facts taken together confirm that there is some staggering in the setting of prices we find that the distribution of real prices is far from being uniform as many menu cost based models assume or conclude in fact as inflation increases to very high levels this distribution is not even symmetric when the annual inflation rate reaches 130 percent there are equal chances of finding real prices above or below the market average but upward deviations in the real price are further away from zero than downward ones furthermore as the annu

measuring racial discrimination with fair housing audits caught in the act a survey technique called a fair housing audit provides a direct measure of racial discrimination in housing this paper examines the econometric issues raised by audit data measures the discrimination uncovered by a 1981 boston study and tests hypotheses about the causes of discrimination the estimated level of discrimination is high black housing seekers are told about 30 percent fewer available housing units than are whites the hypothesis tests indicate that the primary cause of this discrimination is that housing agents illegally promote their economic interests by catering to the racial prejudice of their current or potential white customers

using price distributions to estimate search costs we show how the equilibrium restrictions implied by standard search models can be used to estimate search cost distributions using price data alone we consider both sequential and nonsequential search strategies and develop estimation methodologies that exploit equilibrium restrictions to recover estimates of search cost heterogeneity that are theoretically consistent with the search models we illustrate the method using online prices for several economics and statistics textbooks

intraurban wage gradients evidence by race gender occupational class and sector abstract a general functional form is used to estimate intraurban wage gradients for various groups of workers with 1980 data from the philadelphia detroit and boston metropolitan areas as predicted by the standard monocentric model of urban land use the following results are obtained for most groups of white workers negative and statistically significant wage gradients steeper wage gradients for higher wage earners and an increase in the steepness of wage gradients as the cbd is approached positive wage gradients are not found for black workers despite the fact that suburban employers hire large numbers of these workers who reside within the central city this result is taken as support for the hypothesis that blacks have been disadvantaged by job suburbanization and continued housing market segregation

could a monetary base rule have prevented the great depression abstract this paper continues an ongoing investigation of the properties of a policy rule that specifies settings of the monetary base that are designed to keep nominal gnp growing smoothly at a noninflationary rate counterfactual historical simulations for 1923 1941 are conducted with the rule and a small model of nominal gnp determination estimated with u s quarterly data with residuals fed in as estimates of the behavioral shocks that occurred the simulation results indicate that nominal gnp would have been kept reasonably close to a steady three percent path over 1923 1941 if the rule had been in effect

maximum likelihood estimation of search costs abstract in a recent paper hong and shum 2006 using price distributions to estimate search costs rand journal of economics 37 257 275 present a structural method to estimate search cost distributions we extend their approach to the case of oligopoly and present a new maximum likelihood method to estimate search costs we apply our method to a data set of online prices for different computer memory chips the estimates suggest that the consumer population can be roughly split into two groups which either have quite high or quite low search costs search frictions confer a significant amount of market power to the firms despite more than 20 firms operating in each of the markets we estimate price cost margins to be around 25 the paper also illustrates how the structural method can be employed to simulate the effects of the introduction of a sales tax

price dispersion and the border effect abstract cross country price differences could reflect regional market segmentation within countries or national segmentation at the border in a search based model of price setting identifying national versus regional segmentation requires data on regional trade flows a calibration to u s and canadian data implies predominantly regional frictions u s producers are three times more likely to sell in their home region than another u s region and canadian producers are seven times more likely to sell in their home region than another canadian region frictions vis a vis foreign regions are only slightly higher models that ignore regional segmentation can misstate the severity of frictions at the border

analytical solutions to a structural signal extraction model lucas 1972 revisited abstract i construct in this article a simple adaptation of lucas 1972 article on the neutrality of money a closed form solution is derived which allows to understand a number of positive and normative properties of the model

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

endogenous search price dispersion and welfare abstract this paper studies the welfare cost of inflation in a frictional monetary economy with endogenous consumer search equilibrium entails price dispersion where sellers compete for buyers by posting prices we identify three channels through which inflation affects welfare the real balance channel is the source of welfare loss its interaction with the price posting channel generates a welfare cost larger than lucas 2000 the search channel reduces the welfare cost by more than one half through general equilibrium effect the aggregate effect of these three channels on welfare is non monotonic additionally the welfare cost of inflation fluctuations is negligible

wage premia in employment clusters how important is worker heterogeneity this article tests whether the correlation between wages and concentration of employment can be explained by unobserved worker productivity residential location is used as a proxy for unobserved productivity and average commute time to workplace is used to test whether location based productivity differences are compensated away by longer commutes analyses using confidential data from the 2000 decennial census find that estimates of agglomeration wage premia within metropolitan areas are robust to comparisons within residential location and that estimates do not persist after controlling for commuting costs suggesting that the productivity differences across locations are due to location not individual unobservables

driving to opportunity local rents wages commuting costs and sub metropolitan quality of life we examine variation in local rents wage levels commuting costs household characteristics and amenities within metropolitan areas for 2071 areas covering the united states by density and central city status we demonstrate the sensibility of estimating wage levels by workplace not residence and recover decentralized rent gradients that fall with commuting costs we construct and map a willingness to pay index which indicates the quality of life typical households receive from local amenities when households are similar mobile and informed this index varies considerably within metros and is typically high in areas that are dense suburban sunny mild safe entertaining and have elevated school funding

search sticky prices and inflation this paper examines equilibrium in a deflationary environment in a market with free entry where consumers search and firms set prices on individual units of the commodity prices attached to newly produced goods are continuously adjusted prices attached to previously produced goods can only be changed at a cost deflation cuts into the market power created by the need to search for the good thus consumers welfare is inverse u shaped in deflation

an analysis of the correlates of discrimination facing young hispanic job seekers this study examines the extent and correlates of discrimination faced by young accented hispanic males in chicago and san diego using the outcomes of job applications by matched pairs of anglo and hispanic job seekers this is one of the first examples of audits being used in the labormarket area the audit methodology provides a powerful basis for examining discriminatory hiring practices because it permits direct comparison of hiring outcomes for pairs of anglo and hispanic jobseekers with similar labor market qualifications in this paper we first present differences in anglo hispanic success rates in filing applications obtaining interviews and obtaining jobs this builds on the descriptive analysis presented in harry cross et al 1990 we then focus on the correlates of differential success in obtaining interviews and in subsequent job acquisition i the audit methodology

sticky prices a new monetarist approach why do some sellers set nominal prices that apparently do not respond to changes in the aggregate price level in many models prices are sticky by assumption here it is a result we use search theory with two consequences prices are set in dollars since money is the medium of exchange and equilibrium implies a nondegenerate price distribution when the money supply increases some sellers may keep prices constant earning less per unit but making it up on volume so profit stays constant the calibrated model matches price change data well but in contrast to typical sticky price models money is neutral jel e52 e31 e42

unemployment and urban labour markets two quite distinct views on how metropolitan labour markets work have co existed for over three decades both claim empirical support and after a brief period of confrontation they continue to co exist today giving quite conflicting signals to policy makers according to the first model the urban labour market consists of a number of spatially defined sub markets so that local unemployment exists primarily because of deficiencies in highly localised demand for labour by this argument unemployment rates remain high in the absence of a renewed supply of appropriate jobs within short commuting distances of the jobless the solution according to this model is to attract private and public sector production into such areas in contrast a second model views the city as a single market in which transactions between labour and capital take place regardless of the location of residence and employment sites according to this perspective the spatial incidence of unemployment simply reflects the residential

menu costs and phillips curves this paper develops a model of a monetary economy in which individual firms are subject to idiosyncratic productivity shocks as well as general inflation sellers can change price only by incurring a real menu cost we calibrate this cost and the variance and autocorrelation of the idiosyncratic shock using a new u s data set of individual prices due to klenow and kryvtsov the prediction of the calibrated model for the effects of high inflation on the frequency of price changes accords well with international evidence from various studies the model is also used to conduct numerical experiments on the economy s response to various shocks in none of the simulations we conducted did monetary shocks induce large or persistent real responses

on low frequency estimates of long run relationships in macroeconomics abstract a number of recent studies have attempted to test propositions concerning long run economic relationships by means of frequency domain time series techniques that concentrate attention on low frequency comovements of variables the present paper emphasizes that many of these propositions involve expectational relationships that are not inherently related to specific frequencies or periodicities thus the association of low frequency time series test statistics with long run economic propositions is not generally warranted that such an association can be misleading is demonstrated by analysis of examples taken from notable papers by geweke lucas and summers

money output and the expected real interest rate this paper tests the exclusion of lagged growth rates of money and output from regression equations with serially correlated disturbances for the expected real interest rate the authors empirical approach is an extension of the empirical strategies of eugene f fama 1975 and frederic s mishkin 1981 which invoke the orthogonality of the inflation forecast error to predetermined regressors under the maintained hypothesis of rational expectations they discuss the implications of their tests for simple real business cycle models copyright 1991 by mit press

the morphology of price dispersion this paper is a study of the shape and structure of the distribution of prices at which an identical good is sold in a given market and time period we find that the typical price distribution is symmetric and leptokurtic with a standard deviation between 19 and 36 only 10 of the variance of prices is due to variation in the expensiveness of the stores at which a good is sold while the remaining 90 is due in approximately equal parts to differences in the average price of a good across equally expensive stores and to differences in the price of a good across transactions at the same store we show that the distribution of prices that households pay for the same bundle of goods is approximately normal with a standard deviation between 9 and 14 half of this dispersion is due to differences in the expensiveness of the stores where households shop while the other half is mostly due to differences in households choices of which goods to purchase at which stores we find that households with fewer employed members pay lower prices and do so by visiting a larger number of stores rather than by shopping more frequently

price setting with menu cost for multi product firms we model the decisions of a multiproduct firm that faces a fixed menu cost once it is paid the firm can adjust the price of all its products we characterize analytically the steady state firm s decisions in terms of the structural parameters the variability of the flexible prices the curvature of the profit function the size of the menu cost and the number of products sold we provide expressions for the steady state frequency of adjustment the hazard rate of price adjustments and the size distribution of price changes all in terms of the structural parameters we study analytically the impulse response of aggregate prices and output to a monetary shock the size of the output response and its duration both increase with the number of products they more than double as the number of products goes from 1 to 10 quickly converging to the response of taylor s staggered price model

commutes quits and moves abstract this paper analyzes the effects of commuting distance on quit and move propensities in metropolitan areas with conventional wage and housing price gradients most workers ordinarily move in order to lengthen commutes and quit in order to shorten them however quits and moves by workers whose residential choices are constrained by segregation should be relatively insensitive to commutes descriptive statistics and simultaneous probit estimates of move and quit propensities for white and black employees of a single firm confirm these predictions they demonstrate that long commutes encourage white quits and discourage white moves commute increases of one standard deviation would increase white quit propensities and reduce white move propensities by approximately 10 in contrast commutes by black employees have no significant effects on their quit and move propensities

menu costs and the neutrality of money a model of endogenous price adjustment under money growth is presented firms follow s s pricing policies and price revisions are imperfectly synchronized in the aggregate price stickiness disappears and money is neutral the connection between firm price adjustment and relative price variability in the presence of monetary growth is also investigated the results contrast with those obtained in models with exogenous fixed timing of price adjustment

lucas s signal extraction model abstract this is a version of lucas s 1972 expectations and the neutrality of money with finite supports for the exogenous random variables and with aggregate real shocks the finite supports simplify the proofs and permit solutions for examples to be computed the presence of aggregate shocks permits the model to display output aggregate demand and output inflation correlations that more closely duplicate those found in some data sets correlations that have been interpreted as evidence against the model

race segregation and postal employment new evidence on spatial mismatch abstract the spatial mismatch hypothesis posits that employment decentralization isolated urban blacks from work opportunities this paper focuses on one large employer that has remained in the central city over the twentieth century the u s postal service we find that blacks substitute towards postal work as other employment opportunities leave the city circa 1960 the response is particularly strong in segregated areas where black neighborhoods are clustered near the central business district furthermore this pattern only holds for non mail carriers many of whom work in central processing facilities more recently the relationship between black postal employment and segregation has declined suggesting that spatial mismatch has become less important over time

mobility and redistribution the ability of individuals to move freely from one jurisdiction to another is generally seen as a constraint on the amount of redistribution that each jurisdiction within a system of governments can undertake in this paper we look at this proposition by developing a positive analysis of income redistribution by local governments in a federal system we ask how much redistribution occurs when only local governments can have tax transfer instruments individuals can move freely among jurisdictions and voters in each jurisdiction are fully aware of the migration effects of redistributive policies local redistribution is shown to induce sorting of the population with the poorest households located in the communities that provide the most redistribution while the threat of out migration affects the potential for redistribution our results suggest that significant local redistribution is nonetheless feasible numerical computations indicate that the proportion of residents who are renters is a major factor affecting the local choice of level of redistribution

wages rents and the quality of life this study focuses on the role of wages and rents in allocating workers to locations with various quantities of amenities the theory demonstrates that if the amenity is also productive then the sign of the wage gradient is unclear while the rent gradient is positive the theory is extended to include the housing market and nontraded goods these extensions require little modification of the conclusion the empirical work on wages shows that the regional wage differences can be explained largely by these local attributes with the use of site price data implicit prices are estimated and quality of life rankings for the cities are computed

marriage and class here we consider a matching model where agents are heterogeneous and utilities nontransferable we utilize this framework to study how equilibrium sorting takes place in marriage markets we impose conditions that guarantee the existence of a steady state equilibrium and then characterize it several examples are developed to illustrate the richness of equilibria the model reveals an interesting sorting externality that can support multiple steady state equilibria even with constant returns to matching excerpt

five facts about prices a reevaluation of menu cost models are price decreases 3 the frequency of price increases covaries strongly with inflation whereas the frequency of price decreases and the size of price increases and price decreases do not 4 the frequency of price change is highly seasonal it is highest in the first quarter and then declines 5 we find no evidence of upwardsloping hazard functions of price changes for individual products we show that the first second and third facts are consistent with a benchmark menu cost model whereas the fourth and fifth facts are not

economic theory and the world of practice a celebration of the s s model it was the question of how best to balance the costs of ordering and of running out of stock against the costs of holding excess inventory that inspired kenneth arrow theodore harris and jacob marschak to introduce the s s model in 1951 in this celebratory article we show how this model not only answered important practical questions but also opened the door to a quite startling range of important and challenging follow up questions many of great practical importance and analytic depth the s s model has become one of the touchstone models of economics opening new vistas of applied economic theory to all who internalize its structure today it is universally applied to solve questions faced in inventory control the core model elements uncertainty and fixed costs of adjustment are ubiquitous which has resulted in its becoming the general purpose economic model of discrete adjustment the s s model has also become a profound source of inspiration for macroeconomists seeking to understand the role that discrete microeconomic adjustments play in macroeconomic fluctuations looking forward we foresee rapid growth in the use of s s modeling to aid households making complex and costly financial decisions such as when and how to terminate a mortgage in the projected era of household operations research new modeling challenges will arise due to enriched feedback from the world of practice

a linearized version of lucas s neutrality model the model developed in robert lucas s influential expectations and the neutrality of money has not been widely used for extensions or modifications of the original analysis in part because of its difficulty of manipulation the present paper describes a linearized version that unlike other models prominent in the rational expectations literature retains the original s mainfeatures yet is comparatively easy to manipulate two examples of modifications facilitated by this linearization are included these involve an autoregressive money growth specification and the assumption of lump sum rather than proportional monetary transfers this abstract was borrowed from another version of this item

equilibrium price dispersion in retail markets for prescription drugs this study seeks to establish the empirical importance of price dispersion due to costly consumer search by examining retail prices for prescription drugs posted prices in two geographically distinct markets are shown to vary considerably across pharmacies within the same market even after one controls for variation due to pharmacy differences pharmacy heterogeneity accounts for at most one third of the observed price dispersion the empirical analysis hinges on the observation that consumers incentives to price shop depend on characteristics of the drug therapy cross sectional patterns in price distributions across drugs are consistent with the predictions of a search model prices for repeatedly purchased prescriptions for which the expected benefits of search are highest exhibit significant reductions in both dispersion and price cost margins

state dependent or time dependent pricing does it matter for recent u s inflation in the 1988 2004 micro data collected by the u s bureau of labor statistics for the cpi price changes are frequent every 4 7 months depending on the treatment of sale prices and large in absolute value on the order of 10 the size and timing of price changes varies considerably for a given item but the size and probability of a price change are unrelated to the time since the last price change movements in aggregate inflation reflect movements in the size of price changes rather than the fraction of items changing price due to offsetting movements in the fraction of price increases and decreases neither leading time dependent models taylor or calvo nor 1 st generation state dependent models match all of these facts some 2 nd generation state dependent models however appear broadly consistent with the empirical patterns

money and interest in a cash in advance economy the authors analyze an aggregative general equilibrium model in which the use of money is motivated by a cash in advance constraint applied to purchases of a subset of consumption goods the system is subject to both real and monetary shocks which are economy wide and observed by all they develop methods for verifying the existence of characterizing and explicitly calculating equilibria copyright 1987 by the econometric society

shopping externalities and self fulfilling unemployment fluctuations we propose a novel theory of self fulfilling fluctuations in the labor market a firm employing an additional worker generates positive externalities on other firms because employed workers have more income to spend and have less time to shop for low prices than unemployed workers we quantify these shopping externalities and show that they are sufficiently strong to create s complementarities in the employment decisions of different firms and to generate multiple rational expectations equilibria equilibria differ with respect to agents rational expectations about future unemployment we show that negative shocks to agents expectations lead to fluctuations in vacancies unemployment labor productivity and the stock market that closely resemble those observed in the us during the great recession

instability of endogenous price dispersion equilibria a simulation models of price posting by firms and search by consumers such as burdett and judd 1983 often feature equilibria with endogenous price dispersion however such equilibria are strategically fragile in order to investigate how robust they are in the absence of an external coordination mechanism i simulate various protocols firms may use to update their prices despite firms being myopic some protocols yield results close to the benchmark model if firms rush to update before observing competitors actions profits are higher on average but volatile and cyclical with cost dispersion prices become more stable as they are more closely tied to costs all results are robust to moderate menu costs

a residence time model of housing markets abstract this paper estimates a semi markov model of housing markets in which families move from one home to another spend a random amount of time in each home and choose whether to own or to rent at each move limiting conditions of the semi markov process are used to characterize the steady state frequency of owner occupied housing and to simulate the impact of changes in housing tax policy this approach differs markedly from previous studies of housing tax policy which focus on the entire population as opposed to the movers and ignore the effect of household residence times see king 1980 rosen 1979 white and white 1977 or laidler 1969 residence times further influence the analysis by affecting the relative cost of owning to renting in the tenure choice model homeowners pay legal and realtor fees at the time they move out of their homes which renters do not have to pay the discounted value of these fees declines with length of stay and provides a structural explanation of why families with longer residence times have a greater propensity to own results from the empirical analysis suggest that the semi markov model closely predicts conditions in the united states and provide important insights into the effects of housing tax policy residence times are also found to influence household tenure choice through their impact on the discounted legal and realtor fees paid by homeowners

wages rents and amenities differences among workers and regions what explains persistent regional earnings differences this paper argues that regional differences in amenities can account for the wage differences in contrast cost of living variations do not account for wage differences but actually exacerbate them this conclusion results from a model in which variations in rents and wages are equalizing differences for amenity differences empirical results are consistent with the model

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

the adjustment of prices to monetary shocks when trade is uncertain and sequential trade is both uncertain and sequential money surprises are not neutral because prices at the beginning of the trading process cannot depend on its end in contrast with fixed price models in this paper sellers can change prices during trade in contrast with lucas s article here there is no asymmetry in the information about the money supply the price quoted by individual sellers may adjust slowly to changes in the targeted money supply but the distribution of quoted prices adjusts perfectly to these changes and the real price distribution is independent of the anticipated rate of change in the money supply

the return of the liquidity effect a study of the short run relation between money growth and interest rates in this article i use band pass filters to investigate the short run relationship between money growth and interest rates i find a negative correlation between short run movements in money growth and interest rates which i interpret as evidence that the liquidity effect dominates the anticipated inflation effect

interactive property valuations this paper estimates models of social interactions within residential neighborhoods using data on neighborhood clusters for standard metropolitan areas in the united states from the american housing survey for 1985 and 1989 it examines eects of social interactions in the form of reaction functions for homeowners valuation of their properties at the level of the immediate residential neighborhood with neighborhoods consisting of a randomly chosen dwelling unit and about ten nearest neighbors the paper identifies the eect of endogenous social interactions to be significant and large ranging from 0 587 to 0 770 and much more important then the dynamic autoregressive structure of the model when both variables are present and both are significant the interactive regressions that it reports improve upon commonly used hedonic regressions as well the paper provides empirical support for the notion common in the real estate world of the importance of neighboring properties in property valuations

search price setting and inflation a model of monopolistic competition in an inflationary environment is developed which embodies optimal sequential search price dynamics and entry on the part of consumers and firms respectively equilibrium price strategies are s s these bounds increase continuously with consumer search costs and so does price dispersion indeed the whole equilibrium varies smoothly from the competitive bertrand to the monopolistic diamond 1971 end of the spectrum the latter s paradoxical result is explained as a limiting case where frictions on firms side of the market price adjustment costs but not on buyers search costs tend to zero a positive relationship between smooth and perfectly anticipated inflation and price dispersion or uncertainty is established

aggregation and optimization with state dependent pricing the literature on the aggregation of s s policies has ignored the impact of aggregate behavior on the individual s optimization problem in the case of pricing the feedback effects are clear not only do pricing strategies determine the evolution of the price level but the evolution of the price level also influences the optimal pricing strategies in this paper we provide a consistent treatment of aggregation and optimization we use this model to analyze three issues in the menu cost pricing literature the relationship between strategic complementarity and the real effects of money the relationship between the variance of the money supply and the correlation between money and output and the relationship between the cost of price adjustment and the size of price adjustment questions concerning the dynamics of aggregate variables such as prices employment investment and consumption represent the core of business cycle analysis one striking feature of these variables is the radical difference between properties of these aggregates and the nature of the individual behavior that underlies them the behavior of a firm s prices investment and employment and the behavior of an individual s consumption all involve frictional elements that lead to discrete adjustment at the microeconomic level heterogeneity among individuals however tends to smooth the behavior of the corresponding aggregates in recent years a large body of research has developed to examine the manner in which microeconomic frictions influence aggregate dynamics one of the centerpieces of this research has been the s s model developed by arrow harris and marschak 1951 the key element of this model is the state dependence of individual decisions agents act when a state variable crosses some critical threshold which balances the cost and benefits of adjustment the aggregate implications of this form of microeconomic behavior have been analyzed by blinder 1981 caplin 1985 and mosser 1991 in the context of inventory dynamics by caplin and spulber 1987 caballero and engel 1991 1993 and caplin and leahy 1991 in the context of prices and by bertola and caballero 1990 caballero 1993 and eberly 1994 in the context of con sumer durables one of the most limiting aspects of these models is that they focus exclusively on the impact that microeconomic inertia has on aggregate dynamics they 1we would like to thank michael harrison loannis karatzas john leahy sr andreu mas colell a co editor and four anonymous referees for helpful discussions and comments and the national science foundation and the sloan foundation for financial support

the real effects of monetary shocks in sticky price models a sufficient statistic approach abstract we prove that the ratio of kurtosis to the frequency of price changes is a sufficient statistic for the real effects of monetary shocks measured by the cumulated output response following the shock the sufficient statistic result holds in a large class of models which includes taylor 1980 calvo 1983 reis 2006 golosov and lucas 2007 nakamura and steinsson 2010 midrigan 2011 and alvarez and lippi 2014 several models in this class are able to account for the positive excess kurtosis of the size distribution of price changes that appears in the data we review empirical measures of kurtosis and frequency and conclude that a model that successfully matches the microevidence on kurtosis and frequency produces real effects that are about four times larger than in the golosov lucas model and about 30 percent below those of the calvo model we discuss the robustness of our results to changes in the setup including small inflation and leptokurtic cost shocks jel e23 e31

the q s s pricing rule we introduce menu costs in the search theoretic model of imperfect competition of burdett and judd when menu costs are not too large the equilibrium is such that sellers follow a q s s pricing rule according to the rule a seller lets inflation erode the real value of its nominal price until it reaches some point s then the seller pays the menu cost and resets the real value of its nominal price to a point randomly drawn from a distribution with support s q where s s q a q s s equilibrium differs with respect to a standard s s equilibrium 1 in a q s s equilibrium sellers sometimes keep their nominal price constant to avoid paying the menu cost other times because they are indifferent to changes in the real value of their price an exploratory calibration reveals that menu costs account less than half of the observed duration of nominal prices 2 in a q s s equilibrium higher inflation leads to higher real prices as sellers pass onto buyers the cost of more frequent price adjustments and to lower welfare

inflation and efficiency in search markets this paper examines how inflation affects efficiency and output in monopolistically competitive search markets it formalizes the conventional wisdom linking higher inflation price dispersion and increased resources devoted to search it also brings to light the induced exit of arms which reduces rent dissipation but the most important effect of inflation is how it alters the distribution of real transactions prices whether this reduces or promotes efficiency and output is shown to depend critically on preferences and market structure and especially on whether search costs are large or small relative to consumer surplus

residential choice mobility and the labor market abstract there is substantial evidence suggesting that the process of suburbanization creates new job opportunities that are not equally exploited by all workers in order to explain this phenomenon a simple model is developed which incorporates borrowing constraints as an important restriction on moving decisions obstructing the necessary labor flows between jurisdictions required to equalize net wages in essence people who cannot borrow will be restricted in terms of their capability of changing residence location and therefore will have limited possibilities of working in distant labor markets or they will be subject to excessive commuting furthermore the labor allocation induced by households behavior facing these constraints affects consumer welfare production and producers profits the outcomes with perfect credit markets and with borrowing restrictions are calculated and the economic welfare levels are compared as wages are flexible they adjust to reflect the relative scarcity of workers present in each jurisdiction consequently some of the negative effects of the borrowing constraints are compensated so the outcomes cannot be easily compared some numerical examples are constructed to have an idea of the possible outcomes under different conditions finally it is found that allowing for moving cost deductions from taxable income may help to alleviate the problem

a new suggestion for simplifying the theory of money we propose a new search theoretic model of monetary exchange with indivisible assets based on price posting instead of bargaining and incorporating noisy search this yields some familiar results plus a lot more the model admits multiple steady states due to the self referential nature of liquidity it admits cyclic chaotic and stochastic equilibria and compared to bargaining versions the dynamics are more general and have better microfoundations it generates price dispersion with interesting efficiency implications plus sticky prices and rational inattention parametric examples yield closed form solutions based on these results we suggest this should become a benchmark model in monetary economics

household location and tiebout do families sort according to preferences for locational amenities abstract if households sort efficiently across locations then at a given location families receive the same marginal benefit from the locational amenities we test for such sorting by imposing cross equation restrictions on hedonic regressions that difference away location versus house specific effects estimates are obtained using a unique subset of the american housing survey in which adjacent housing units are grouped together and observed in both 1985 and 1989 rejection of the cross equation restrictions unambiguously implies an inefficient sorting of households in contrast the data support the cross equation restrictions which is a necessary but not sufficient condition for efficient sorting

neighborhood income distributions this paper studies the distribution of income within neighborhoods and contrasts it with the national income distribution it relies on a unique feature of the american housing survey whose 1985 1989 and 1993 waves of interviews provide data for small residential neighborhoods these consist of a dwelling unit and up to ten of its nearest neighbors most previous work on neighborhoods has used information for much larger groupings of the population such as census tracts the paper employs a variety of parametric and nonparametric econometric tools to study income sorting across us residential neighborhoods it documents the patterns of dependence among neighbors income and imperfect sorting with moderate but very significant correlation among incomes of neighbors and of considerable income mixing in u s neighborhoods

sticky prices and costly credit we develop a theory of money and credit as competing payment instruments then put it to work in applications agents use cash and credit because the former latter is subject to the inflation tax transaction costs frictions that make the choice of payment method interesting also imply equilibrium price dispersion we derive closed form solutions for money demand and show how to simultaneously account for the price change facts cash credit shares in micro data and money interest correlations in macro data the effects of inflation on welfare price dispersion and markups are discussed as are nonstationary equilibria with dynamics in the price distribution

self confirming price dispersion in monetary economies abstract in a monetary economy we show that price dispersion arises as an equilibrium outcome without the need for costly simultaneous search or any heterogeneity in preferences production costs or search technologies a distribution of money holdings among buyers makes sellers indifferent across a set of posted prices leading to a non degenerate price distribution this price distribution in turn makes buyers indifferent across a range of money balances rationalizing the non degenerate distribution of money holdings we completely characterize the distribution of posted prices and money holdings in any equilibrium equilibria with price dispersion admit higher maximum prices than observed in any single price equilibrium and feature an increasing density of prices in contrast to existing theories price dispersion reduces welfare by creating mismatch between posted prices and money balances inflation exacerbates this welfare loss by shifting the distribution towards higher prices

state dependent pricing and the general equilibrium dynamics of money and output economists have long suggested that nominal product prices are changed infrequently because of fixed costs in such a setting optimal price adjustment should depend on the state of the economy yet while widely discussed statedependent pricing has proved difficult to incorporate into macroeconomic models this paper develops a new tractable theoretical state dependent pricing framework we use it to study how optimal pricing depends on the persistence of monetary shocks the elasticities of labor supply and goods demand and the interest sensitivity of money demand

liquidity a new monetarist perspective this essay surveys the new monetarist approach to liquidity work in this literature strives for empirical and policy relevance plus rigorous foundations questions include what is liquidity is money essential in achieving desirable outcomes which objects can or should serve in this capacity when can asset prices differ from fundamentals what are the functions of commitment and collateral in credit markets how does money interact with credit and intermediation what can and should monetary policy do the research summarized emphasizes the micro structure of frictional transactions and studies how institutions like monetary exchange credit arrangements or intermediation facilitate the exchange process

can commutes be used to test the spatial mismatch hypothesis this paper uses a simple spatial model of urban employment to demonstrate that the relationship between spatial mismatch and commuting times is indeterminate if employment probabilities decline as

two illustrations of the quantity theory of money of two central implications of the quantity theory of money that a given change in the rate of change in the quantity of money induces i an equal change in the rate of price inflation and ii an equal change in nominal rates of interest the illustrations were obtained by comparing moving averages of the three variables in question using quarterly u s time series for the period 1953 77 readers may find the results of interest as additional confirmation of the quantity theory as an example of one way in which the quantity theoretic relationships can be uncovered via atheoretical methods from time series which are subject to a variety of other forces or as a measure of the extent to which the inflation and interest rate experience of the postwar period can be understood in terms of purely classical monetary forces the theoretical background of the study is reviewed very briefly as it is familiar material in the next section the data processing methods are described and rationalized in section ii the illustrations

optimal price dynamics and speculation with a storable good this paper analyzes as a dynamic game the optimal price and storage strategies of respectively a the seller of a storable good who must keep pace with inflation but incurs a cost to changing his price b his customers who speculate on the timing of price adjustments to buy and store just before a unique markov perfect equilibrium is shown to exist and is fully characterized rt generally involves a phase of mixed strategies during which the seller tries to deter speculation by injecting uncertainty into its price dynamics while speculators store in increasing numbers with possibly a final run on the good the stochastic price policies of a large number of such firms are shown to aggregate back to a price index growing at the rate of general inflation in response to which they arose the model thus establishes that a a constant rate of aggregate inflation can at the same time generate and cover up significant uncertainty and social costs at the microeconomic level b speculation can be destabilizing and socially wasteful even in the absence of shocks and imperfect information most importantly they provide a theoretical foundation for the frequently encountered claim that inflation causes price uncertainty