animal spirits and credit cycles in this paper we extend the behavioral macroeconomic model as proposed by de grauwe 2012 to include a banking sector the behavioral model takes the view that agents have limited cognitive abilities as a result it is rational to use simple forecasting rules and to subject the use of these rules to a fitness test agents are then driven to select the rule that performs best the behavioral model produces endogenous and self fulfilling movements of optimism and pessimism animal spirits our main result is that the existence of banks intensifies these movements creating a greater scope for booms and busts thus banks do not create but amplify animal spirits we find that increases in the equity ratios of banks tend to reduce the importance of animal spirits over the business cycle the other policy conclusion we derive from our results is that the central bank has an important responsibility for stabilising output output stabilization is an instrument to tame the animal spirits this has the effect of improving the trade off between inflation and output volatility

the political economy of urban food security in sub saharan africa abstract sub saharan african cities in the late 1990s face a daunting set of problems including rapid growth increasing poverty deteriorating infrastructure and inadequate capacity for service provision even as a renewed debate is shaping up around issues of urban development there is little attention given to the question of urban food security whereas in the 1970s and 1980s urban food problems in africa commanded political attention the nature of urban food insecurity in the 1990s is such that it has tended to lose political importance this is largely because in the 1970s the problem was one of outright food shortages and rapid price changes that affected large portions of the urban population simultaneously the impact of structural adjustment continued rapid growth and an increase in poverty make urban food insecurity in the 1990s primarily a problem of access by the urban poor under circumstances where the urban poor spend a very large portion of their total income on food urban poverty rapidly translates into food insecurity the lack of formal safety nets and the shifting of responsibility for coping with food insecurity away from the state towards the individual and household level has tended to atomize and muffle any political response to this new urban food insecurity this paper briefly reviews urban food insecurity and generates a set of empirical questions for an analysis of food and livelihood security in contemporary urban sub saharan africa and then examines historical and contemporary evidence from kampala uganda and accra ghana to suggest some tentative conclusions

ants rationality and recruitment this paper offers an explanation of behavior that puzzled entomologists and economists ants faced with two identical food sources were observed to concentrate more on one of these but after a period they would turn their attention to the other the same phenomenon has been observed in humans choosing between restaurants after discussing the nature of foraging and recruitment behavior in ants a simple model of stochastic recruitment is suggested this explains the herding and epidemics described in the literature on financial markets as corresponding to the equilibrium distribution of a stochastic process rather than to switching between multiple equilibria

the state and economic stagnation in tropical africa abstract politics while only one strand in the explanation of africa s massive economic problems is nonetheless a significant factor a central conundrum facing postcolonial political leaders is how to govern and hold together unintegrated peasant societies in the absence of legitimacy personal rule a particular mode of patrimonial governance provides an answer permitting regime survival and the advancement of political insiders but personal rule has an economically destructive tendency that only shrewd political leadership and propitious world economic conditions can check if uncontrolled certain political practices corrode bureaucratic and legal rationality and promote the misallocation of scarce public resources the result can be a downward spiral of interrelated political and economic decline that is increasingly difficult to reverse

reducing bureaucratic corruption interdisciplinary perspectives on what works abstract this article offers the first comprehensive review of the interdisciplinary state of knowledge regarding anti corruption policies with a particular focus on reducing corruption among civil servants drawing on the work of economists political scientists sociologists and anthropologists we examine seven policy categories 1 rewards and penalties 2 monitoring 3 restructuring bureaucracies 4 screening and recruiting 5 anti corruption agencies 6 educational campaigns and 7 international agreements notably rigorous empirical evaluation is lacking for the majority of commonly prescribed anti corruption policies nevertheless we find growing evidence of the effectiveness of policies based on monitoring including anti corruption audits and e governance in addition adequate civil service wages seem to be a necessary but insufficient condition for control of corruption an emerging skepticism regarding the effectiveness of anti corruption agencies also is apparent in the literature we conclude with broader lessons drawn from our review such as the recognition that when corruption is a systemic problem it cannot be treated in the long term with individual level solutions

micro data heterogeneity and the evaluation of public policy nobel lecture this paper summarizes the contributions of microeconometrics to economic knowledge four main themes are developed 1 microeconometricians developed new tools to respond to econometric problems raised by the analysis of the new sources of micro data produced after the second world war 2 microeconometrics improved on aggregate time series methods by building models that linked economic models for individuals to data on individual behavior 3 an important empirical regularity detected by the field is the diversity and heterogeneity of behavior this heterogeneity has profound consequences for economic theory and for econometric practice 4 microeconometrics has contributed substantially to the scientific evaluation of public policy

dynamic predictor selection in a new keynesian model with heterogeneous expectations abstract this paper introduces dynamic predictor selection into a new keynesian model with heterogeneous expectations and examines its implications for monetary policy we extend branch and mcgough 2009 by incorporating endogenous time varying predictor proportions along the lines of brock and hommes 1997 we find that periodic orbits and complex dynamics may arise even if the model under rational expectations has a unique stationary solution the qualitative nature of the non linear dynamics turns on the interaction between hawkishness of the government s policy and the extrapolative behavior of non rational agents

divestment investment sanctions and disinvestment an evaluation of anti apartheid policy instruments pressure for divestment and mandatory disinvestment sanctions directed against south africa are an instance of domestic interest groups in one country seeking policy change in another the link from shareholder divestment to disinvestment by firms is tenuous however since south africa active firms do not seem to suffer as a consequence of divestment pressure and legislated sanctions are likely to have unpredictable and sometimes perverse effects on the extent of apartheid practices

adaptation and distress in the urban economy a study of kampala households abstract though uganda underwent fairly rapid economic growth after independence in 1962 the civil strife and external shocks of the 1970s and 1980s led to rapid decline the impacts on kampala households reflect in many ways those on the rest of the country and have led to extensive diversification of incomes mainly to reduce the risks perceived in today s unstable environment a decrease in the share of wages in total incomes compensated by allowances of various types increased engagement in informal sector activities and even farming in the urban sector the main tasks of economic management are twofold to stabilize wage employment and to ameliorate the social misery caused by the decline the limited resource base and the continued external disturbances make the prospects for sustained recovery precarious

taking stock a rigorous modelling of animal spirits in macroeconomics modelling animal spirits this paper is a survey of the burgeoning literature that seeks to take the enigmatic concept of the animal spirits more seriously by building heterodox macro dynamic models that can capture some of its crucial aspects in a rigorous way two approaches are considered the discrete choice and the transition probability approach where individual agents face a binary decision and choose one of them with a certain probability these assessments are adjusted upward or downward in response to what the agents observe which leads to changes in the aggregate sentiment and the macroeconomic variables resulting from the corresponding decisions typical applications of the two approaches alternatively give rise to what will be called a weak and a strong form of animal spirits on the whole the literature included in this survey provides examples of applications of a modelling tool that demonstrates a considerable flexibility within a canonical framework

media exposure and internal migration evidence from indonesia abstract this paper investigates the impact of television on internal migration in indonesia we exploit the differential introduction of private television throughout the country and the variation in signal reception due to topography to estimate the causal effect of media exposure our estimates reveal important long and short run effects an increase of one standard deviation in the number of private tv channels received in the area of residence as an adolescent reduces future inter provincial migration by 1 7 2 7 percentage points and all migration inter and intra provincial by 3 9 6 8 percentage points short run effects are similar in magnitude we also show that respondents less exposed to private television are more likely to consider themselves among the poorest groups in society as we discuss in a stylized model of migration choice under imperfect information these findings are consistent with indonesian citizens over estimating the net gains from internal migration when access to television is limited

rational forecasts or social opinion dynamics identification of interaction effects in a business climate survey this paper develops a methodology for estimating the parameters of dynamic opinion or expectation formation processes with social interactions we study a simple stochastic framework of a collective process of opinion formation by a group of agents who face a binary decision problem the aggregate dynamics of the individuals decisions can be analyzed via the stochastic process governing the ensemble average of choices numerical approximations to the transient density for this ensemble average allow the evaluation of the likelihood function on the base of discrete observations of the social dynamics this approach can be used to estimate the parameters of the opinion formation process from aggregate data on its average realization our application to a well known business climate index provides strong indication of social interaction as an important element in respondents assessment of the business climate

internal adjustments to falling civil service salaries insights from uganda abstract real basic salaries of civil servants in many developing countries have fallen during the past 15 years little is known however as to how the civil service personnel structure and pay system have responded to the salary cuts civil service basic salaries fell drastically in uganda during 1975 1988 the adaptive responses of the civil service are identified allowances have not increased to cushion the salary cuts as is alleged to have happened in many developing countries the adaptive responses have had negative effects on efficiency and equity within the civil service they have reversed the decline in the public wage bill the raison d etre for deep salary slashes in the first place

interest profits and suboptimality in a demand constrained macro model keynes argues that under pessimistic expectations investment demand falls short of full employment savings consequently income adjusts to bring savings into line with investment resulting in unemployment and or excess capacity classical theory as reconstituted in postwar textbooks counters that investment and full employment savings are equilibrated by adjustment of the interest rate thus current output will obtain its optimal level at full employment and full capacity despite pessimistic expectations of future demand the only way this can fail is if some type of wage or price rigidity prevents the stock of real money balances from accommodating the demand for them at the fullemployment interest rate fig i illustrates the keynesian and classical views in a traditional loanable funds diagram here the full employment supply of savingsis given by s investment demand under optimistic expectations is i and the full employment interest factor unity plus the interest rate is r pessimistic expectations shift investment demand to it reducing the full employment interest factor to r in the classical model or reducing employment income and hence savings to s in the simplest keynesian model general equilibrium theory provides a third view on interest rate determination here competition over prospective profits leads the interest rate to adjust to the return on capital adjusted for risk so prospective profits are eliminated provided capital is mobile to reconcile this view with either the keynesian or classical view depicted in fig i it should first be noted that the general equilibrium model of interest rates is a multi period model while the textbook models of fig i are not they are one period models with views of the future imprecisely summarised in the investment demand function furthermore in those models views of the future are not analysed for prospective profits or their consequences graphically the inframarginal triangle between the investment demand curve and the interest rate line is not analysed or explained how can such prospective profits survive competitive activities the present paper proposes to examine this issue in as simple a model as possible the key simplifications are as follows first the simplest multi period

why do the young and educated in ldcs concentrate in large cities evidence from migration data do the young and educated in ldcs have a greater preference to locate in big cities if so this may help to explain how cities spatially concentrate the educated and young and why the rising share of these workers in many ldcs may contribute to city growth this paper explores migration flows into and out of egypt s three largest cities we study whether the higher shares of such workers in cities arise because these workers perceive relatively greater benefits from living in cities given relative urban rural wage rates or because the relative demand for these workers rises with city size

a dynamic migration model with uncertainty we study a dynamic version of the harris todaro migration model where a finite population of infinitely lived bayesian agents choose consumption and migration decision rules as a function of their histories the agents do not know the production functions in the two sectors and learn about them through wage draws that they receive from the stochastic production functions the government knows the true production functions but is uninformed about the agents beliefs and the actual wage draws they observe the government maximizes its welfare function using wage subsidies in the two sectors and a migration tax we solve the agents dynamic programming problem and then use the solution to solve the government s dynamic programming problem we study the effects of government policies on the population distribution and illustrate the model by numerically solving a particular parametric example

divergent cultures when public organizations perform well in developing countries abstract throughout the developing world there are organizations that perform relatively well despite dauntingly unfavorable contexts and despite overall poor public sector performance this article explores evidence from 29 organizations in six countries to suggest that the concept of organizational culture provides a useful hypothesis to explain why some of them performed relatively well while others did not organizational mystique management style and performance expectations contributed to positive organizational cultures in better performing organizations while some autonomy in personnel management provided a facilitating context for these characteristics to be developed

governing access to forests in northern ghana micro politics and the rents of non enforcement summary decentralization of natural resource management is often presented as a novelty however successive attempts to decentralize authority were undertaken during the development of forest policy in the northern territories of the gold coast colony between the 1930s and 1950s from 1960 however this was rolled back forest policy was thenceforth characterized by centralization exclusion and restrictive legislation new forest policies of local management from the 1990s attempt to change this but differ from colonial decentralization in terms of institutional fragmentation and the absence of effective fiscal decentralization the assumed illegality of people s use of the resources and the non enforcement of the law provides a context for monetary and political rent seeking for political agents

migration theories and evidence an assessment abstract this paper presents a critical survey of theories of migration their welfare and policy implications and their empirical relevance we also develop some extensions to the theory beginning with the harris and todaro ht model in particular the ht model is extended to examine risk averse behaviour within families where the migration of members of families serves to diversify risk the welfare implications of the individual migration decision and government intervention in the form of employment subsidies are examined recent evidence on international migration is presented it is shown that migration does not flow automatically in response to wage differentials characteristics of migrants and the process of self selection are found to be important determinants of the rate of migration

the projection dynamic and the geometry of population games abstract the projection dynamic is an evolutionary dynamic for population games it is derived from a model of individual choice in which agents abandon their current strategies at rates inversely proportional to the strategies current levels of use the dynamic admits a simple geometric definition its rest points coincide with the nash equilibria of the underlying game and it converges globally to nash equilibrium in potential games and in stable games

temporary migration and endogenous risk sharing in village india when people can self insure via migration they may have less need for informal risk sharing at the same time informal insurance may reduce the need to migrate to understand the joint determinat

rent seeking and market structure comment if the firms in an industry are to be successful in raising money to influence government two conditions must be met 1 there must be sufficient rents available from government decisions regarding that industry to make such expenditures worthwhile and 2 the industry must be sufficiently concentrated to avoid a free rider problem in fund raising this argument though seemingly intuitively appealing has been under recent empirical attack this paper seeks to restore the parapets

incremental protection and efficient political choice between tariffs and quotas this paper offers a new political economy explanation for the increasing use in recent years of quotas instead of or in combination with tariffs as a form of trade protection we show that under domestic monopoly the comparative efficiency of tariffs and quotas in achieving political objectives will vary depending on the nature of the mark et and the level of protection at high levels of protection quotas can become more politically efficient than tariffs we also show that at low levels of protection a price equivalent quota may not exist

behavioral heterogeneity in u s inflation dynamics in this article we develop and estimate a behavioral model of inflation dynamics with heterogeneous firms in our stylized framework there are two groups of price setters fundamentalists and rando

structural stochastic volatility in asset pricing dynamics estimation and model contest abstract in the framework of small scale agent based financial market models the paper starts out from the concept of structural stochastic volatility which derives from different noise levels in the demand of fundamentalists and chartists and the time varying market shares of the two groups it advances several different specifications of the endogenous switching between the trading strategies and then estimates these models by the method of simulated moments msms where the choice of the moments reflects the basic stylized facts of the daily returns of a stock market index in addition to the standard version of msm with a quadratic loss function we also take into account how often a great number of monte carlo simulation runs happen to yield moments that are all contained within their empirical confidence intervals the model contest along these lines reveals a strong role for a tamed herding component the quantitative performance of the winner model is so good that it may provide a standard for future research

corruption and rent seeking the rent seeking theory was one of thefirst economic instruments developed tomodel corruption in the public sector comparing corruption with lobbying itproposes that the former is the lesser oftwo evils since lobbying entails the wastage of resources inthe competition forpreferential treatment this study showsthat the traditional rent seeking theorymisunderstands three factors first theimpact of a corrupt monopoly on the rent ssize second corruption as a motivationfor supplying preferential treatment andthird that corruption involves a narrowerrange of interests than those ofcompetitive lobbying taking these factorsinto consideration the opposite argumentis valid corruption has worse welfareimplications than alternative rent seekingactivities

explaining positive deviance in public sector reforms in development summary public sector reforms are commonplace in developing countries much of the literature about these reforms reflects on their failures this paper asks about the successes and investigates which of two competing theories best explain why some reforms are positive deviants solution and leader driven change sldc and problem driven iterative adaptation pdia the theories are used to analyze data emerging from a case survey involving thirty cases from princeton university s innovations for successful society iss program the bulk of evidence from this study supports a pdia explanation but there is reason to believe that sldc hypotheses also have value

job matching and occupational choice this paper presents a model of job matching the generalizes the existing literature by allowing for different jobs types or occupations such differences affect the value of job specific experience inducing a career profile where certain types are sampled before others more specifically the analysis shows that it is optimal for the young and inexperienced to gravitate toward jobs exhibiting a certain kind of risk then after deriving the equilibrium job turnover rate for an economy in which people do not switch occupations panel data are used to estimate its underlying parameters the hypothesis that people do not switch occupations is rejected against the alternative that they do thus providing empirical support for the theoretical extension undertaken here

on the road marriage and mobility in malaysia migration choices of husbands and wives in a dynamic and developing country are studied in the context of an economic model of the household data are drawn from the second wave of the malaysia family life survey exploiting the retrospective histories we compare moves that take place before marriage with those made during the marriage among the latter moves that are made with the spouse are distinguished from those made alone the evidence indicates that male mobility is primarily economic in motivation and related to labor market factors moves by women however seem to be more closely related to fertility or family considerations migration is apparently not simply an individual decision the attributes of the spouse are an important influence on mobility albeit in an asymmetric manner moving toward a broader definition of the household we find the characteristics of the parents parents in law and also the relative age and gender of siblings all influence mobility in a rich if complex way

ideological conviction and persuasion in the rent seeking society abstract the paper develops a model of rent seeking in a democratic political context where voting as well as rent seeking matters in this context the paper demonstrates that voter ideology is a constraint on the rent seeking game as well as a possible avenue of rent seeking in a setting where there are both rent seeking and ideological interest groups rent seekers can free ride on the efforts of ideologues which tends to reduce rent seeking effort in a setting where complementary economic and ideological interest groups coordinate their efforts both rent seeking and ideological conflict tend to increase

monopolistic competition business cycles and the composition of aggregate demand abstract we develop a dynamic general equilibrium model with monopolistically competitive firms and endogenous markups and show the possibility of equilibria with persistent fluctuations driven by self fulfilling revisions of expectations for some parameter values such fluctuations are characterized by time series properties similar to those observed in u s postwar business cycles in contrast with the existing literature our results do not rely on the presence of increasing returns or nominal rigidities a key ingredient of the model is the link between markups and the composition of aggregate demand some econometric evidence on the latter is also reported journal of economic literature classification number d43 d58 e32

a sequential study of migration and job search this paper designs a multiarmed bandit mab sequential model for the analysis of the migration job search process the implications either are compatible with well known migration behavior or when novel are also plausible for example regions with large wage variability attract migrants and regions with large nonpecuniary returns increase both in migration and out migration a major advantage of this approach is the relative ease with which martingale estimators can be derived from the martingale structure of the model these martingale methods are exemplified for the return migration phenomenon

africa s overgrown state reconsidered bureaucracy and economic growth how close is the link between outsized states and economic stagnation in africa this article shows that african public bureaucracies are not as large as often portrayed that they have been getting smaller and that reducing their size alone has not bee n a prescription for economic revival to the contrary the countries with higher levels of public employment such as botswana and mauritius are apt to have the better economic records these findings suggest that a superabundance of public personnel is not in itself a major impediment to growth in africa too much attention has been paid to quantitative or first generation bureaucratic problems and too little attention has been given the second generation issues of bureaucratic quality

are output growth rate distributions fat tailed some evidence from oecd countries this work explores some distributional properties of aggregate output growth rate time series we show that in the majority of oecd countries output growth rate distributions are well approximated by symmetric exponential power densities with tails much fatter than those of a gaussian fat tails robustly emerge in output growth rates independently of i the way we measure aggregate output ii the family of densities employed in the estimation iii the length of time lags used to compute growth rates we also show that fat tails still characterize output growth rate distributions even after one washes away outliers autocorrelation and heteroscedasticity

a robust rational route to randomness in a simple asset pricing model abstract we investigate asset pricing dynamics in an adaptive evolutionary asset pricing model with fundamentalists trend followers and a market maker agents can choose between a fundamentalist strategy at positive information cost or choose a trend following strategy for free price adjustment is proportional to the excess demand in the asset market agents asynchronously update their strategy according to realized net profits in the recent past as agents become more sensitive to differences in strategy performance the fundamental steady state becomes unstable and multiple steady states may arise as the traders sensitivity to differences in fitness increases a bifurcation route to chaos sets in due to homoclinic bifurcations of stable and unstable manifolds of the fundamental steady state

the nature of the agricultural firm abstract models explaining the choice between rent wage and share contracts in agriculture abstract from the large variations within the classes of rent share and owner managed forms of organization regarding the extent to which a specific form accommodates specialization between labor and management as a result modern explanations of agricultural organizations are misleadingly dependent on risk aversion or the assumption that landowners have an absolute advantage in production decisions viewing the agricultural firm as a constitution instead of as a nexus of contracts facilitates an agency explanation of alternative organizational forms and their amenability to specialization

discrete choice with social interactions this paper provides an analysis of aggregate behavioural outcomes when individual utility exhibits social interaction effects we study generalized logistic models of individual choice which incorporate terms reflecting the desire of individuals to conform to the behaviour of others in an environment of noncooperative decisionmaking laws of large numbers are generated in such environments multiplicity of equilibria in these models which are equivalent to the existence of multiple self consistent means for average choice behaviour will exist when the social interactions exceed a particular threshold local stability of these multiple equilibria is also studied the properties of the noncooperative economy are contrasted with the properties of an economy in which a social planner determines the set of individual choices finally a likelihood function based on the theoretical model is given and conditions for the econometric identifiability of the model are established

structural reforms animal spirits and monetary policies abstract we use a new keynesian behavioral macroeconomic model to analyze how structural reforms affect the economy there are two types of structural reforms the first one increases price flexibility the second one increases competition in the labor market and raises potential output we find that in a rigid economy business cycle movements are dominated by movements of animal spirits increasing price flexibility reduces the power of animal spirits and the boom bust nature of the business cycle we study the trade offs between output and inflation volatility faced by the central bank we find that flexibility improves these trade offs making it easier for the central bank to stabilize output and inflation

why and when do governments initiate public enterprise reform initiating public enterprise reform is a complex decision influenced by economic factors as well as the ideological biases and personalities of political leaders nevertheless the use of a contracting framework yields important generalizations about what drives the decision this article argues that the decision depends fundamentally on the potential efficiency gains from the reform and its associated transactions costs costs arise because of asymmetries in information and opportunism problems that usually plague contract negotiations the article identifies observable variables that may affect either the potential gains or the transactions costs uses them to construct a simple probit decision making model and tests the model using data from fifteen developing countries over a twenty year period

a new keynesian model with heterogeneous expectations abstract within a new keynesian model we incorporate bounded rationality at the individual agent level and we determine restrictions on expectations operators sufficient to imply aggregate is and as relations of the same functional form as those under rationality this result provides dual implications the strong nature of the restrictions required to achieve aggregation serve as a caution to researchers imposing heterogeneous expectations at an aggregate level may be ill advised on the other hand accepting the necessary restrictions provides for tractable analysis of expectations heterogeneity as an example we consider a case where a fraction of agents are rational and the remainder are adaptive and find specifications that are determinate under rationality may possess multiple equilibria in case of expectations heterogeneity

inflation expectations and macroeconomic dynamics the case of rational versus extrapolative expectations the motivation of this paper is to understand the effects of coupling a macroeconomic model of inflation rate dynamics relying on an aggregate expectation to a heterogeneous expectations framework a standard macroeconomic textbook model consisting of okun s law an expectations augmented phillips curve and an aggregate demand relation is extended to allow agents the possibility of selecting between different types of forecasting strategies to predict the future inflation rate rules that have produced low prediction errors in the recent past are favored by agents here we consider trend following and rational expectations using a mixture of analytical and numerical tools we investigate the model s dynamics and discuss the conditions under which the extended model leads to endogenous fluctuations in macroeconomic variables some preliminary results are offered for the case in which a taylor like monetary policy rule is included in the model jel classification c61 c62 e31 e32

sequential migration theory and evidence from peru abstract the standard human capital model of labor migration has been successful in explaining several empirical regularities of the migration process however there are a number of empirical facts that have not yet been explained or empirically tested among them that migrants usually perform more than one move in their lifetime return migration accounts for a very important share of total migration rates and there is a high positive correlation between in and out migration rates in the more advantageous regions this paper presents both a simple model explaining these facts and an empirical analysis using data from peru

herding a synchronous updating and heterogeneity in memory in a cbs abstract this paper considers a simple continuous beliefs system cbs to investigate the effects on price dynamics of several behavioural assumptions i herd behaviour ii a synchronous updating of beliefs and iii heterogeneity in time horizons memory among agents the recently introduced concept of a cbs allows one to model the co evolution of prices and the beliefs distribution explicitly while keeping track of the unpredictable nature of individual preferences technical report cendef working paper 03 05 university of amsterdam tinbergen institute discussion paper 2003 073 1 as a benchmark model we take a simple cbs which in a market with many traders exhibits a random walk driven by news using the explicit nature of the dynamics of the cbs we show that the introduction of herding modifies the random walk to an arima 0 1 1 process which is observationally equivalent to a reduction of the number of market participants in terms of returns the model predicts ma 1 structure with a negative coefficient a synchronous updating leads to an ma 1 model for returns with garch 1 1 innovations and predicts a relation between the arch and garch coefficients heterogeneity in memory leads to long range dependence in returns in the empirical section we perform a modest reality check concerning the predicted sign of the ma coefficient and the relation between the arch and garch coefficients for exchange rate data

trust in a rent seeking world health and government transformed in northeast brazil abstract this article draws lessons from a set of innovative programs carried out by a state government in brazil now widely acclaimed for excellence in public management key to the high performance was strong worker commitment to the job and what the state did to elicit a topic of little note in the development literature but of central importance in the literature of industrial performance and workplace transformation in the industrialized countries the state created an unusual sense of calling among the program s workers new prestige in the communities where they worked and an informed citizenry that both monitored the workers and trusted them

net migration and state labor market dynamics existing empirical estimates of net migration models are not identified because they lack an explicit measure of expected future conditions i find that using actual one period ahead net migration at the state level to control for expectations reduces the strength of the relationship between current wages and net migration by more than one third i use the case of michigan to show how existing empirical models mischaracterize the response of migration to shocks that are expected to be transitory i add migration to a labor market model and simulate responses to permanent and transitory demand shocks

booms and busts in economic activity a behavioral explanation booms and busts in economic activity are a regular occurrence they lead to a strong empirical regularity i e that output gaps and output growth are non normally distributed mainstream macroeconomic models explain this phenomenon by invoking exogenous shocks that are non normally distributed this is not a very satisfactory explanation as it shifts our ignorance one step further i propose an explanation based on a behavioral macroeconomic model in which agents are assumed to have limited cognitive abilities and thus develop different beliefs this model produces waves of optimism and pessimism in an endogenous way animal spirits and provides for a better endogenous explanation of the observed non normality in output movements i also analyze the implications for monetary policy

taking stock a rigorous modelling of animal spirits in macroeconomics this paper is a survey of the burgeoning literature that seeks to take the enigmatic concept of the animal spirits more seriously by building heterodox macro dynamic models that can capture some of its crucial aspects in a rigorous way two approaches are considered the discrete choice and the transition probability approach where individual agents face a binary decision and choose one of them with a certain probability these assessments are adjusted upward or downward in response to what the agents observe which leads to changes in the aggregate sentiment and the macroeconomic variables resulting from the corresponding decisions typical applications of the two approaches alternatively give rise to what will be called a weak and a strong form of animal spirits on the whole the literature included in this survey provides examples of applications of a modelling tool that demonstrates a considerable flexibility within a canonical framework

the role of the target saving motive in guest worker migration a theoretical study the return migration decision is modeled as a decision problem under uncertainty in each period the guest worker has to decide whether to return home and to invest the capital in a small business or to stay in the host country and earn money as a worker for at least one further period it is shown that the properties of the optimal saving and return migration strategies can be elegantly derived by formulating the migrant s decision problem as a stopped markovian decision process this framework provides a lot of interesting testable hypotheses concerning remigration behaviour of a target saver

a life cycle model of outmigration and economic assimilation of immigrants in germany this paper estimates a structural dynamic life cycle model of outmigration where in each period immigrants choose whether to work in the host country not to work but remain in the host country or outmigrate the model incorporates several features of existing life cycle theories of outmigration but distinguishes itself by introducing uncertainty in about future earnings and preferences which allows immigrants to revise their duration decisions throughout their migration experience because immigrants simultaneously face a migration and a work decision in each period the economic assimilation rates commonly used to assess the performance of immigrants in the host economy are endogenously determined and estimated a feature previously ignored in the literature we overcome the problem of not directly observing outmigration movements by using panel attrition as a proxy variable and use a simple method to correct for the fact that part of the attrition is not a consequence of outmigration estimates are used to predict changes in life cycle patterns of outmigration behavior estimation results indicate that outmigration does not depend exclusively on earnings differentials estimated assimilation rates are found to be robust to selection effects immigrants are found to be forward looking decision makers and simulations show that predicted migration durations are very sensitive to changes in their economic environment and differ considerably from those of a myopic model

structure of public support for national agricultural research systems a political economy perspective abstract this paper initiates development of a set of stylized facts concerning the structure of public support for national agricultural research systems nars within a neoclassical political economy framework the aim is to place public funding of nars in the broader context of the overall level of direct government assistance to agriculture using a newly constructed data set on nars expenditures over the 1970 1985 period we observe a growing disparity in agricultural research intensity ratios which measure the level of public support for nars in relation to agricultural gross domestic production aggdp between low and high income countries this growing disparity appears to be driven by much larger increases in support for agricultural research by high income countries coupled with a significantly slower growth in the size of their agricultural sector despite the propensity of low and middle income countries to increase real support to agricultural research as per capita incomes rise the public agricultural expenditure ratio which measures public expenditures on agriculture relative to the size of the agricultural sector aggdp increases substantially public expenditures on agriculture were indexed on agricultural and non agricultural populations to give a rough indication of the increasing incentives for rural distributional coalitions to seek a redistribution of public expenditures in their favor a relative research expenditure rre ratio is developed which measures the proportion of total public expenditure on agriculture spent on agricultural research it provides an indication of the relative importance given to research on agriculture within the constraints imposed by overall public spending on agriculture in contrast to the agricultural research intensity ratios the rre ratios suggest that agricultural research appears to command as large a share of the public purse devoted to agriculture in low and middle income countries as it does in high income countries expectations derived from the neoclassical political economy literature that research may have fared relatively better in high compared with low income countries were not supported by the data

heterogeneous expectations in monetary dsge models this paper derives a general new keynesian framework with heterogeneous expectations by explicitly solving the micro foundations underpinning the model the resulting reduced form is analytically tractable and encompasses the representative rational agent benchmark as a special case we specify a setup in which some agents as a result of cognitive limitations make mistakes when forecasting future macroeconomic variables and update their beliefs as new information becomes available while other agents have rational expectations we then address determinacy issues related to the use of different interest rate rules and derive policy implications for a monetary authority aiming at stabilizing the economy in a dynamic feedback system in which macroeconomic variables and heterogeneous expectations co evolve over time

an investigation of the labor market earnings of panamanian males evaluating sources of inequality this paper presents empirical evidence on the determinants of labor market earnings and inequality for males in panama using newly available microdata we estimate earnings equations based on the measurement framework of mincer 1974 and compare them with those for other countries at various stages of economic development we present evidence on two aspects of inequality in less developed economies labor market segmentation and social stratification we present tests of the segmentation hypothesis including several of the dual labor market hypotheses and discuss their inherent ambiguity we also present evidence on the importance of family background for earnings determination and educational attainment

optimal monetary policy in a new keynesian model with animal spirits and financial markets this article presents a macro finance interaction model that integrates a nkm with bounded rationality and an agent based financial market model we derive four interactive channels between the two sectors where two channels are strictly microfounded we analyze the impact of the different channels on economic stability and derive optimal conventional and unconventional monetary policy rules we find that coefficients of optimal taylor rules do not significantly change if financial market stabilization becomes part of the central bank s objective function additionally we show that rule based backward looking monetary policy creates huge instabilities if expectations are boundedly rational our model is externally validated by showing that it generates fat tailed output growth rates

international capital markets and interest groups capital market integration has increased the scale and mobility of capital movements within and among nations to unprecedented levels integration is fairly recent frankel concludes from his review of the literature that barriers in the major world financial markets were sufficiently low that by 1989 financial markets could be viewed as being fully integrated the scale and mobility of capital flows among nations has numerous implications to currency values interest rates wealth and through current capital account linkages to relative product and factor prices capital flows that have real economic effects also affect the functioning of policy instruments and how effective they are in remunerating an interest group at the expense if any of others this paper provides insights into the process and linkages by which the integration of capital markets has altered economic policy through interest group pressures on government if economic policy is viewed as the outcome of interest groups seeking through the power of the state that which cannot be provided by the market alone then capital market adjustments that affect the return to policy instruments can also affect the returns to lobbying resources and hence the balance of political influence among the various groups 2 this type of explanation for economic policy has been forwarded under the rubric of models of rent seeking krueger 1974 3 the paper is organized as follows 4 selected historical evidence linking capital markets to pressures for legislation in the united states and other countries is briefly reviewed in some cases capital market adjustments have eased pressures for protection while in other cases adjustments either forced policy change because of a liquidity constraint or made unprofitable the lobbying for sustaining policy in face of these adjustments the discussion in the next section provides deeper insight into capital market lobbying linkages discussion focuses on the results from a simple model of rent seeking where government intervenes in markets and provides sector specific public goods

microfoundations for switching behavior in heterogeneous agent models an experiment we run a laboratory experiment to study how human subjects switch between several profitable alternatives framed as mutual funds in order to provide a microfoundation for so called heterogeneous agent models the participants in our experiment have to choose repeatedly between two three or four experimental funds the time series of fund returns are exogenously generated prior to the experiment and participants are paid for each period according to the return of the fund they choose for most cases participants decisions can be successfully described by a discrete choice switching model often applied in heterogeneous agent models provided that a predisposition toward one of the funds is included the estimated intensity of choice parameter of the discrete choice model depends on the structure of the fund returns in particular it increases with correlation between past and future returns this suggests human subjects do not myopically chase past returns but are more likely to do so when past returns are more predictive of future returns a feature that is absent in the standard heterogeneous agent models

income inequality consumption credit and credit risk in a data driven agent based model abstract the issue of income inequality occupies a prominent position in the research agenda of academic and policy circles alike especially after the crisis of 2008 due to its potential causal link with the development of credit bubbles and therefore the emergence of financial crises this paper examines the long run effect of income inequality on consumption consumer credit and non performing loans through the means of a data driven agent based model the data driven nature of the model enhances its ability to match historical series and thus makes it suitable for policy simulations tailored for specific economies the analysis indicates that higher income inequality has a detrimental impact on consumption and is associated with lower volumes of consumer credit however the ratio of non performing loans as a share of total loans seems to be independent of income inequality

real business cycles and the animal spirits hypothesis abstract we calibrate a quantitative equilibrium macroeconomic model with an aggregate technology that is subject to increasing returns and show that this model may display fluctuations at business cycle frequencies even when there are no shocks to the fundamentals of the economy these fluctuations are due to the self fulfilling beliefs of investors which we call animal spirits we compare the impulse response functions predicted by our model and by two other more standard models with a four variable vector autoregression on u s data our animal spirits economy is the most successful of the three at matching broad features of the dynamic responses in the data journal of economic literature classification numbers e00 e3 e32

sticky information and model uncertainty in survey data on inflation expectations abstract this paper compares three reduced form models of heterogeneity in survey inflation expectations on the one hand we specify two models of forecasting inflation based on limited information flows of the type developed in mankiw and reis 2002 sticky information versus sticky prices a proposal to replace the new keynesian phillips curve quarterly journal of economics 117 4 1295 1328 we present maximum likelihood results that suggests a sticky information model with a time varying distribution structure is consistent with the michigan survey of inflation expectations we also compare these sticky information models to the endogenous model uncertainty approach in branch 2004 the theory of rationally heterogeneous expectations evidence from survey data on inflation expectations economic journal 114 497 non parametric evidence suggests that models which allow the degree of heterogeneity to change over time provide a better fit of the data

distributional coalitions and the politics of economic reform in latin america for much of the discipline of economics a closed economy is seen as the result of efforts of distributional coalitions and rent seekers to maintain sector specific protections accordingly economic liberalization is explained by the policy consistency of uncompromising reform elites students of the politics of economic adjustment in the developing world in turn have argued that reform programs concentrate costs in the present and disperse benefits in the future hence losers are prepared to engage in collective action whereas prospective winners facing uncertainty about payoffs remain disorganized they thus posit the cohesiveness and insularity of policymakers as the main variable for explaining successful reform both economists and political scientists therefore adopt a collective action approach that overlooks how groups organize in support of liberalization in the recent latin american experience however these reforms have preserved market reserves for firms that provided vital political support to and often colluded with policymaking elites this setting has thus reproduced incentives for rent seeking behavior even in the presence of comprehensive liberalization this evidence supports two interrelated theoretical claims first distributional coalitions may proliferate when the state withdraws from the economy not only when it intervenes second interest based variables retain explanatory power in political economy which state autonomy arguments disregard irrespective of whether the economy is closed or open which neoclassical perspectives overlook to highlight the centrality of interest groups favoring marketization therefore the article suggests modifications to the dominant theories of collective action and the literature on the politics of economic adjustment

managing monetary policy in a new keynesian model with many beliefs types this paper considers a standard new keynesian model with heterogeneous expectations on the future level of inflation and output a biased perception of the target pursued by the central bank may arise due to idiosyncrasies in information processing leading to heterogeneous beliefs about the target we consider an arbitrarily large number of agents beliefs and apply the concept of large type limit we find that an increase in the sensitivity of agents in selecting the optimal prediction strategy or in the spread of beliefs is crucial for the extent of the central bank to stabilize the economy when the predictors are largely dispersed around the target the taylor principle is a requisite for stability since it prevents the self fulfilling reinforcement mechanism between the realizations of the relevant macroeconomic variables and the forecasts of the agents when the set of beliefs is somehow anchored to the target stability can be achieved with weaker monetary policy

unproductive accumulation in the usa a new analytical framework in this paper i offer an innovative analysis of unproductive accumulation in the united states economy from 1947 to 2011 i develop a new theoretical and empirical framework to analyze the accumulation of capital in its productive and unproductive forms i also develop a methodology to compute marxist categories predicated on the idea that the production of knowledge and information is an unproductive activity that relies on the creation of knowledge rents in particular i provide new empirical estimates to uncover the shifting balance between productive and unproductive forms of accumulation the accumulation pattern observed during the 1947 1979 phase that prioritized productive accumulation gave way after the 1980s to a contrasting pattern prioritizing unproductive accumulation unproductive activity has been growing at a fast pace in terms of incomes fixed assets and employment among all forms of unproductive activity my approach places special attention on how the production of knowledge and information has constituted a rising share of total unproductive income and capital stock additionally productive stagnation and rapid unproductive accumulation have been related to greater exploitation of productive workers and to widening income inequality