the bond old bond spread abstract i document the profits on a trade that is long the old 30 year treasury bond and short the new 30 year treasury bond and is rolled over every auction cycle from june 1995 to november 1999 despite the systematic convergence of the spread over the auction cycle the average profits are close to zero the difference in repo market financing rates between the two bonds is a significant cost of carry in this trade i show that variation in the bond old bond spread is driven by the treasury supply of 30 year bonds as well as aggregate factors affecting investors preference for liquid assets

the case for divisia monetary statistics a bayesian time varying approach abstract the zero lower bound and quantitative easing policies have rekindled interest in the link between monetary aggregates and the business cycle this paper argues on the basis of bayesian time varying coefficient var models that use divisia indexes that money is more closely linked to the business cycle as well as forecasting economic activity more accurately than existing literature claims moreover the relationship between money and economic activity is considerably more pronounced during periods of economic distress such as in the great recession

software industry development in the third world policy guidelines institutional options and constraints abstract this paper examines the constraints and opportunities facing developing country software industries it investigates the sources of competitive advantage in software production and scrutinizes the assertion that developing countries will have a competitive advantage in software development due in large part to a presumed labor intensity it concludes that certain countries either possess or can acquire a competitive advantage in the development of software but that governments should temper their efforts in this field with a degree of realism that takes into account what is attainable given existing constraints finally the paper offers some policy guidelines with which governments can help fashion a strategy for this sector s development

the origins of ethnolinguistic diversity this study explores the determinants of ethnolinguistic diversity within as well as across countries shedding light on its geographic origins the empirical analysis conducted across countries virtual countries and pairs of contiguous regions establishes that geographic variability captured by variation in regional land quality and elevation is a fundamental determinant of contemporary linguistic diversity the findings are consistent with the proposed hypothesis that differences in land endowments gave rise to location specific human capital leading to the formation of localized ethnicities jel j15 j24 z13

asymmetric price adjustment and economic fluctuations this paper considers a possible explanation for asymmetric adjustment of nominal prices the authors present a menu cost model in which positive trend inflation causes firms relative prices to decline automatically between price adjustments in this environment shocks that raise firms desired prices trigger larger price responses than shocks that lower desired prices the authors use this model of asymmetric adjustment to address three issues in macroeconomics the effects of aggregate demand the effects of sectoral shocks and the optimal rate of inflation copyright 1994 by royal economic society

consumption and the credit market abstract this paper uses a kalman filter model to allow the fraction of current income consumers to vary over time and shows that these consumers are liquidity constrained by relating this percentage to measures of credit market tightness

the big push natural resource booms and growth a simple application of big push reasoning suggests that natural resource booms can be important catalysts for development in poorer countries in this paper we present evidence from seven latin american countries that natural resource booms are sometimes accompa nied by declining per capita gdp we present a model with natural resources increasing returns in the spirit of big push models and expectations to clarify some of the reasons this may happen q 1999 elsevier science b v all rights reserved

in defense of base drift the federal reserve has been criticized for allowing the base from which it calculates its target growth paths for the monetary aggregatesto drift from year to year in response to past deviations from target drift in the base implies that target misses permanently affect the levels of the monetary aggregates using a simple theoretical model this paper shows that the optimal degree of base drift consistent withprice stability depends on the importance of permanent versus transitory income and velocity disturbances neither zero base drift nor complete base drift are likely to be compatible with price stability copyright 1986 by american economic association

conditional exchange rate volatility and the volume of foreign trade evidence from seven industrialized countries there has long been a concern over the volatility of exchange rates and their impact on the volume of foreign trade however very little attention has been paid to the choice of an appropriate volatility variable as well as the proper specification of the trade equation the sample standard deviation of the exchange rate has been used as a proxy for exchangerate uncertainty in empirical studies that examine the effects of exchange rate uncertainty on the volume of foreign trade see for example akhtar and hilton 1 and gotur 27 these studies have provided conflicting evidence on this issue it has been argued that use of the sample standard deviation is inappropriate because the empirical distribution of exchange rates is not normal 22 10 in this regard subsequent empirical research 12 36 40 41 11 has employed a moving standard deviation of the rate of change of the exchange rate as a proxy for exchange rate uncertainty chowdhury 11 obtained a clear pattern of results that support the hypothesis that the higher volatility of exchange rates led to a reduction in international trade transactions after the breakdown of the bretton woods system in march 1973 other studies have reported ambiguous results 2 the moving standard deviation used in these studies has been criticized in the literature for a ignoring relevant information on the random process generating exchange rates 18 b underestimating the effect of volatility on decisions 52 c distorting the measurement of the volatility variable by smoothing the series 9 and d injecting an element of arbitrariness into the calculation through decisions about the order m of the moving average 43 3

potential information and target variables for uk monetary policy the relationship between traditional monetary policy goal variables nominal gdp real gpd and the inflation rate and a number of financial market variables is investigated the question examined is which if any of these financial market variables monetary aggregates interest rates and interest rate spreads are potentially useful as either information variables or intermediate targets while the implications concerning the usefulness of the financial variables considered are pessimistic concerning nominal gdp more robust relationships are found for real gdp and inflation the latter finding is of interest given the current uk monetary policy strategy of inflation targeting our results are however more supportive of the usefulness of several financial variables as information variables than as intermediate targets

organizations space and capital in the development of korea s electronics industry suarez villa l and han p h 1990 organizations space and capital in the development of korea s electronics industry reg studies 25 327 343 this paper analyses the effect of foreign and domestic capital on the organization of production and the spatial distribution of korea s electronics industry an assessment of korea s international advantages and their impact on trade labour employment and foreign capital is followed by factor analyses using data collected through establishment surveys these provide a set of significant organizational dimensions based on a differentiation of capital and regional location where scale is found to be a most important factor in production domestic capital contributes more than foreign capital to the integration of electronics in korea s productive structure but has a lower export emphasis and tends to concentrate more in the primate metropolitan region suarez villa l et han p h 1991 organisations espace et capital dans le developpement de l electroniqu

money income prices and interest rates including data from the 1980s sharply weakens the postwar time series evidence indicating significant relationships between money however defined and nominal income or between money and either real income or prices separately focusing on data from 1970 onward destroys this evidence altogether evidence indicating cointegration of real income and real money balances with due allowance for the effect of interest rates also deteriorates when the sample extends through the 1980s a positive finding is that the spread between the commercial paper rate and the treasury bill rate consistently contains highly significant information about future movements in real income copyright 1992 by american economic association

open vs sealed bid auctions testing for revenue equivalence under singapore s vehicle quota system using data from the auction of vehicle quota licenses in singapore we study if revenue equivalence holds when the auction format was switched from a sealed bid format may 1990 to june 2001 to an open bidding format since july 2001 our econometric analysis indicates the change in auction format led to a change in bidding behavior on average the quota license premium under the open bidding format is about us 1000 about 7 5 of the category e license price in june 2001 lower compared to the forecast level that would have prevailed if there had been no change in the auction format

does the federal reserve affect asset prices abstract the federal reserve is probably one of the institutions most closely monitored by investors this indicates that investors believe the actions of the fed have implications for asset prices to this date the trading activities of the fed in the financial markets have not been examined to see how the fed influences asset prices using daily data on open market operations omos and asset prices this study fills this void one finding of the paper is that omos granger cause both short and long term interest rates furthermore the sign of the relationship confirms the existence of the liquidity effect given that its trades represent a small portion of the market volume how the fed influences bond prices is a puzzle the only reasonable explanation is that the fed s trades have high information content judging by the impulse response paths the reaction of interest rates to open market operations is fast additionally it appears that monetary policy has a lasting impact on interest rates

us domestic currency in forecast error variance decompositions of inflation and output we find that domestic currency currency corrected for foreign holdings has a substantial share in forecast error variance decomposition of us inflation we also find that domestic currency has higher share of the forecast error variance decomposition of us real output than any other narrow monetary aggregate we consider

a theory of political transitions we develop a theory of political transitions inspired by the experiences of western europe and latin america nondemocratic societies are controlled by a rich elite the initially disenfranchised poor can contest power by threatening revolution especially when the opportunity cost is low for example during recessions the threat of revolution may force the elite to democratize democracy may not consolidate because it is redistributive and so gives the elite an incentive to mount a coup highly unequal societies are less likely to consolidate democracy and may end up oscillating between regimes and suffer substantial fiscal volatility

the output effect of a transition to price stability when velocity is time varying this paper explores the effect of time varying velocity on output responses to policies for reducing stopping inflation we study a dynamic general equilibrium model with sticky prices in which we introduce time varying velocity specifically we endogenize time varying velocity into the model developed by ireland 1997 for analyzing optimal disinflation the nonlinear solution method reveals that depending on velocity the disinflationary boom found by ball 1994 may disappear even under perfect credibility and that early output losses may be much larger than previously thought indeed we find that a gradual disinflation from a low inflation may even be undesirable

the equilibrium fed funds rate and the indicator properties of term structure spreads i introduction interest rate spreads figure prominently in the economics literature as monetary policy indicators for instance while some writers have focused on the predictive power of the spread between the six month commercial paper rate and the six month treasury bill rate others have emphasized spreads between short and long term interest rates 1 this paper follows the latter tradition my analysis is motivated by the work of bernanke and blinder 1992 who compare the difference between the federal funds rate and the ten year government bond rate with other interest rate spreads and find it to be a particularly useful predictor of future economic activity the rationale for using term structure spreads as monetary policy indicators is relatively straightforward 2 when assessing the stance of monetary policy it is not just the level of the federal funds rate that matters but how it relates to some implicit notion of equilibrium interest rates this insight is not new and can be found in the seminal work of wicksell 1898 xxv who wrote that it is not a high or low rate of interest in the absolute sense which must be regarded as influencing demand the causative factor is the current rate on loans as compared with what i shall be calling the natural rate of interest the direct empirical implementation of the wicksellian insight is however obviously hampered by the fact that the natural rate of interest is not an observable variable as suggested by laurent 1988 and bernanke and blinder 1992 the slope of the term structure is often used as a proxy for the spread between a short term interest rate and its unobservable equilibrium level thus the yield curve steepens as short term interest rates are perceived to be below their equilibrium levels i follow a more direct approach to measuring the stance of monetary policy instead of using the slope of the term structure as a proxy for the gap between observed and equilibrium federal funds rates i introduce a model based method to constructing a measure of the level of the equilibrium funds rate as described below this equilibrium rate is calculated for the real sectors of the economy conditional on the observed rate of inflation thus the equilibrium rate is constructed to be independent of the inflation objectives of monetary policy and the implied difference between actual and equilibrium rates the funds rate spread constitutes my monetary policy indicator this paper provides an overview of the proposed methodology and compares the funds rate spread with traditional indicators of the monetary policy stance ii a model based measure of the spread i rely on the estimated structure of a macroeconometric model to measure the equilibrium federal funds rate the theoretical framework is the mit penn ssrc mps model which is housed at the federal reserve board this is a large scale quarterly model of the u s economy it consists of more than 100 behavioral equations about 200 identities and over 100 exogenous variables in its theoretical foundations the long run properties of the model are akin to a neoclassical growth model whereas the dynamic structure is essentially keynesian 3 the approach used in this paper is a departure from the traditional literature in at least two dimensions first i use an explicit theoretic framework to compute the equilibrium measure as opposed to the empirically based approach of using long term interest rates second by focusing on the equilibrium level of the federal funds rate i have a more direct way to gauge the stance of monetary policy the equilibria analyzed here correspond to intermediate run dynamics a time frame that seems most relevant for the conduct of monetary policy conceptually the equilibrium notion i explore is a simple one for a given position of the mps model s is block the equilibrium federal funds rate is defined as the one consistent with unemployment at its natural rate after all lags in the model have fully worked through

shifts in us savings long run asset accumulation versus consumption smoothing recently savings rates have fluctuated considerably in the usa the implications of these movements have interested both policy makers and economists this paper considers two reasons why savings may change i a change in the economy s desired long run capital stock and ii the economy s desire to smooth its consumption through time to identify both kinds of movements in us savings the permanent income hypothesis pih is modified to incorporate discrete breaks evidence suggests that discrete breaks in saving occurred during 1972 74 and again during the mid 1980s and when breaks are accounted for it is found that rises falls in saving anticipate falls rises in output suggesting that people use savings to help smooth consumption over time consistent with the pih

risk and macroeconomic activity this article explores the macroeconomic role that risk plays using the baa aaa spread as the measure of risk first it shows that meaningful upward movements in this spread are associated with recessions and their severity second it includes the baa aaa spread in a structural vector autoregression var to identify a shock to risk and finds that it causes a statistically significant and economically important decrease in output as well as increased holdings of real money balances third it uses historical decompositions to show that the shock to risk explains an important part of the declines in output during four post 1970 recessions notably the shock to risk explains almost none of the decline in output during 2001 prior to the september 11 2001 terrorist attacks but does clarify why the recovery was relatively weak afterwards and it explains the bulk of the decline in output during 2008 and 2009

learning by disinflating disinflationary episodes are a valuable source of information for economic agents trying to learn about the economy in this paper we are particularly interested in how policymakers can themselves learn by disinflating the approach differs from the existing literature which typically focuses on the learning of private agents during a disinflation we build a model where both the policymaker and private agents learn and ask what happens if the policymaker has to disinflate to satisfy a new central bank mandate specifying greater emphasis on inflation stabilisation in this case our results show that inflation may fall dramatically before it gradually rises to its new long run level the potential for inflation to undershoot its long run level during a disinflationary episode suggests that caution should be exercised when assessing the success of any change in the policymaker s mandate jel classification d83 e52 e58 keywords disinflation escape dynamics learning monetary policy

asymmetries in housing and financial market institutions and emu despite convergence pressures differences in housing and financial market institutions across the 15 member states of the european union are still enormous this paper argues that they have profound effects on the responsiveness of output and inflation in the different countries to changes in short term interest rates as well as to asset market shocks of external origin the economic reasoning behind this claim is set out and the institutional differences are described the paper assesses the sometimes conflicting empirical evidence on this issue barriers to convergence and implications for labour market flexibility are discussed the uk ireland finland and sweden tend to cluster at one extreme of the relevant institutional characteristics the paper concludes with a set of proposals for institutional reforms which would significantly reduce the tensions within emu and the potential for instability in these economies entailed by emu membership

the impact of imperfect credibility in a transition to price stability in this paper we study the impact of a temporary lack of credibility in a transition to price stability we quantify the effects of a period of disinflation on temporary output losses and the impact of the lack of credibility on the optimal speed of disinflation we demonstrate that the disinflationary booms found by ball 1994 and ireland 1997 may or may not disappear in an environment with imperfect credibility depending on the speed of learning relative to the speed of disinflation finally we enquire whether the speed of the volcker disinflation was excessive or not

malaria suitability urbanization and persistence evidence from china over more than 2000 years abstract we show that the climatic potential for plasmodium falciparum malaria transmission constituted a locational fundamental that influenced the spatial distribution of urbanization since the early start of the southward expansion of the han chinese around 200 bce this effect is still detectable in today s distribution of urbanization and economic activity even though the risk of malaria falciparum has been successfully eliminated we do not find any indication of convergence between high and low malaria potential regions after eradication our identification strategy relies on a climate based measure of plasmodium falciparum malaria transmission intensity which is fitted to experimental data on mosquito and parasite development from laboratory studies this measure is exogenous with respect to human population densities

the success of the fed and the death of monetarism i introduction there has been a significant reduction in the macroeonomic volatility in the u s economy during the last 20 yrs the standard deviation of the central bank s target variables like inflation and nominal gross domestic product gdp declined substantially however at the same time the standard deviation of monetary aggregates has increased 1 this unique macroeconomic phenomenon is also associated with the disappearance of correlation between inflation and money growth this is in contrast to the monetarist argument that suggests that an important cause of economic instability is excess variation in the growth rate of money the most famous monetarist prescription for monetary policy is milton friedman s proposal that the growth rate of money should be constant there is however no evidence of falling variations in the growth rate of money over the last 20 yrs in fact the standard deviation of the rate of growth of monetary base has increased from 1 63 during 1960 1982 to 3 1 during 1983 2003 milton friedman in an interview with taylor 2001 pointed out that there was a breakdown in the relationship between money and gdp after 1980 which came along with a dramatic reduction in the variability of growth rate of gdp friedman says i am puzzled about is whether and if so how they suddenly learned how to regulate the economy does alan greenspan have an insight into the movements in the economy and other shocks that the people don t have friedman further says it looks as if somehow in 1991 1992 they were able to install a good thermostat instead of a bad one is alan greenspan a good thermostat compared to other fed chairmen taylor 2001 there is widespread consensus on the effect of monetary policy on inflation in the long run however there is no consensus on how monetary policy affects real output in the short run there is now a consensus among economists that the original monetarist proposition that there is no long run trade off between inflation and unemployment is correct monetarism can also be viewed as the platform from which the rational expectation revolution took off however the monetarist proposition that economic fluctuation is caused by excessively variable monetary growth has largely been abandoned authors like estrella and mishkin 1997 and feldstein and stock 1994 find that monetary aggregates do not have a significant informational content after 1979 and hence cannot be used as an information variable for the stance of monetary policy their finding is also consistent with dwyer 2002 and dwyer and hafer 1999 who find that there is little correlation of inflation and money growth across countries on quarterly and annual bases after 1979 the literature finds significant correlation e g lucas 1980 between money growth and inflation in the pre 1979 period but this correlation has disappeared after 1979 see table 1 and figures 1 4 if stabilization policy makes inflation a constant then there will be no correlation between inflation and policy as no variable is correlated with a constant according to kochin 1973 if the monetary authority is able to stabilize the economy by optimally setting the variability of the control variables e g monetary aggregates and interest rate then there will be no correlation between the goal variable e g inflation and nominal gdp and the control variable even if the policy is not perfect if the policy is too variable and even if it is well timed then a countercyclical policy adopted by the central bank might lead to greater variability in the goal variable as argued by friedman 1953 poole 1993 1994 and tanner 1993 also argue that one predictable consequence of optimal monetary policy is that the correlation between monetary policy instruments and policy goals will be driven to zero poole further contends that it is obvious to any careful reader of theil 1964 that optimally variable policy will give rise to a zero correlation between policy and goal variable

another look at long run money demand abstract this paper investigates the long run demand for m1 in the postwar united states previous studies based on data ending in the late 1980s are inconclusive about the parameters of postwar money demand this paper obtains precise estimates of these parameters by extending the data through 1996 the income elasticity of money demand is approximately 0 5 and the interest semi elasticity is approximately 0 05 these parameters are significantly smaller in absolute value than the corresponding parameters for the prewar period a caveat is that the analysis assumes there is no trend in money demand resulting from technological change

disease and development the effect of life expectancy on economic growth we exploit the major international health improvements from the 1940s to estimate the effect of life expectancy on economic performance we construct predicted mortality using preintervention mortality rates from various diseases and dates of global interventions predicted mortality has a large impact on changes in life expectancy starting in 1940 but no effect before 1940 using predicted mortality as an instrument we find that a 1 percent increase in life expectancy leads to a 1 7 2 percent increase in population life expectancy has a much smaller effect on total gdp however consequently there is no evidence that the large increase in life expectancy raised income per capita

inflation and output dynamics with state dependent pricing decisions this paper studies a state dependent pricing model in which firms face a fixed cost of changing their pricing plans a pricing plan specifies an entire sequence of time varying future prices allowing firms to choose a pricing plan rather than a single price generates inflation inertia in the response of the economy to small changes in the growth rate of money allowing firms to choose when to change their pricing plan generates a non linear response of inflation and output to small and large changes in the money growth rate the non linear solution method also reveals that the model generates an asymmetric response of output and inflation to monetary expansions and contractions

money demand and the effects of fiscal policies this paper reexamines the choice of the scale variable in the money demand function a variety of evidence suggests that consumer spending is a better scale variable than gnp changing the money demand specification along these lines can profoundly affect the standard keynesian analysis of a tax cut copyright 1986 by ohio state university press

software industry entry strategies for developing countries a walking on two legs proposition abstract two themes run through the following analysis first countries without a relatively active and up to date software sector will find it increasingly difficult to catch up in terms of capital outlays labor skills and the growing importance of technology changes organization and management in software production they will not have for example software management experience to undertake increasingly large and complex software development projects a quality consciousness and the institutional and support infrastructure for marketing and forming product development alliances with dominant international firms in the sector second the learning curves for domestic and international market activities are quite different the domestic software market being an important base for skills experience and establishing a track record that may later be applied to exports two developing countries india and brazil have used different development strategies for their software industries and as could be expected with disparate results both the brazilian and the indian software industries are trying to walk on one leg the domestic leg in the case of brazil and the export leg in the case of india both countries have at least some potential for moving to a two legged model assessment of these two industries suggests that countries need to pay more attention to domestic opportunities since these have high returns in terms of gaining experience and innovation in software production and provide training that allows a broadening of software exports

stochastic trends and economic fluctuations are business cycles mainly the result of permanent shocks to productivity this paper uses a long run restriction implied by a large class of real business cycle models identifying permanent productivity shocks as shocks to the common stochastic trend in output consumption and investment to provide new evidence on this question econometric tests indicate that this common stochastic trend cointegration implication is consistent with postwar u s data however in systems with nominal variables the estimates of this common stochastic trend indicate that permanent productivity shocks typically explain less than half of the business cycle variability in output consumption and investment copyright 1991 by american economic association

disease and development revisited acemoglu and johnson 2007 present evidence that improvements in population health do not promote economic growth we show that their result depends critically on the assumption that initial health has no causal effect on subsequent economic growth we argue that such an effect is likely primarily because childhood health affects adult productivity in our augmented model which includes initial health the instrumental variable proposed by acemoglu and johnson has no significant predictive power for improvements in health and does not identify the effect of contemporaneous improvements in health on economic growth this abstract was borrowed from another version of this item

disease and development a reply to bloom canning and fink bloom canning and fink 2014 argue that the results in acemoglu and johnson 2006 2007 are not robust because initial level of life expectancy in 1940 should be included in our regressions of changes in gdp per capita on changes in life expectancy we assess their claims controlling for potential lagged effects of initial life expectancy using data from 1900 employing a nonlinear estimator suggested by their framework and using information from microeconomic estimates on the effects of improving health there is no evidence for a positive effect of life expectancy on gdp per capita in this important historical episode this abstract was borrowed from another version of this item

endogenous financial innovation and the demand for money this paper embeds two key ideas about the nature of financial innovation taken from the empirical literature into a familiar equilibrium monetary model it provides formal support for several alternative econometric specifications for money demand that attempt to capture the effects of financial innovation and demonstrates that a popular theoretical model of money demand when suitably modified can account for some unusual monetary dynamics found in the data thus it helps to establish both the theoretical relevance of recent empirical work and the empirical relevance of recent theoretical work on the demand for money copyright 1995 by ohio state university press

the variability of velocity of money in a search model abstract we construct a dynamic equilibrium model where there is costly search in the goods market and the labor market incorporating shocks to money growth and productivity we calibrate the model to the us time series data to examine the model s quantitative predictions on aggregate variables and in particular on the variability of consumption velocity of money despite the fact that money is the only asset the model captures most of the variability of velocity in the data it also generates realistic predictions on the moments of other variables and provides persistent propagation of the shocks the model generates these results largely because costly search gives an important role to the extensive margin of trade

monetary policy and the transaction role of money in the us the declining importance of money in transactions can explain the well known fact that u s interest rate policy was passive in the pre volcker period and active after 1982 we generalise a standard cashless new keynesian model woodford2003 by incorporating an explicit transaction role for money in the pre volcker period we estimate that money did play an important role and determinacy required a passive interest rate policy however after 1982 money no longer played an important role in facilitating transactions correspondingly the conventional view prevails and an active policy ensured equilibrium determinacy

credit growth monetary policy and economic activity in a three regime tvar model we employ a threshold vector autoregression tvar methodology in order to examine the nonlinear nature of the interactions among credit market conditions monetary policy and economic activity we depart from the existing literature on the subject along two dimensions first we focus on a model in which the relevant threshold variable describes the state of economic activity rather than credit market conditions second in contrast to the existing tvar literature which concentrates exclusively on single threshold models we allow for the presence of a second threshold which is overwhelmingly supported by all relevant statistical tests our results indicate that the dynamics of the interactions among credit market conditions monetary policy and economic activity change considerably as the economy moves from one phase of the business cycle to another and that single threshold tvar models are too restrictive to fully capture the nonlinear nature of those interactions the impact of most shocks tends to be largest during periods of sub par economic growth and smallest during times of moderate economic activity by contrast credit risk shocks have the largest impact when output growth is considerably above it long term trend

growth and violence argument for a per capita measure of civil war the economics literature typically uses counts of casualties as a measure of conflict intensity despite the fact that the units of observation vary considerably in population size when analysing the impact of conflict on economic growth the use of counts relies on the assumption that a given number of casualties affects large and small populations in the same way using within and between country evidence this paper demonstrates that this standard assumption can be rejected a per capita model of conflict intensity that captures local effects of violence provides a more consistent empirical framework for both between country and within country studies

on consequences and criticisms of monetary targeting the purpose of this paper is to review and evaluate the most important existing criticisms of policy strategies that feature adherence to money stock targets four main categories of criticism and counterargumerits are analyzed the first of these involves the claim that accurate money stock control is infeasible while the second contends that such control can only be obtained along with extreme volatility of interest rates the third emphasizes difficulties resulting from technical change and deregulation and the fourth concerns strategic issues of rules vs discretion activist vs non activist policy and the logical function of intermediate targets this abstract was borrowed from another version of this item

conflict and distribution abstract we develop a behavioral model that links the level and pattern of social conflict to the societywide distribution of individual characteristics the model can be applied to groups that differ in characteristics such as wealth ethnicity religion and political ideology we settle questions of existence and uniqueness of conflict equilibrium conflict is seen to be closely connected with the bimodality of the underlying distribution of characteristics however in general the conflict distribution relationship is nonlinear and surprisingly complex our results on conflict patterns also throw light on the phenomena of extremism and moderation journal of economic literature classification numbers d63 d72 d74

money and economic activity revisited abstract recent literature has concluded that money no longer plays a fundamental role in determining us economic activity especially when post 1982 data are included in the analysis we re examine the issue using annual and quarterly data sets ranging back to the civil war cointegration tests show that an equilibrium relationship holds between money and income in all data samples of 35 years or longer but frequently fails to hold for many shorter samples however when the normal monetary lags are explicitly imposed a cointegrating relationship is frequently captured even in quite short samples examining the issue in a standard five variable var model we find that money is the most important variable in explaining real output for the full 1874 1993 as well as 1952 1993 periods even allowing for interest rate effects finally using monthly data over the troublesome 1983 1994 sample we show that when appropriate adjustments are made to capture recent structural changes such as the growing importance of the international economy on us output money still granger causes economic activity

identifying sources of macroeconomic and exchange rate fluctuations in the uk abstract using quarterly data for the period 1985 1 2011 1 this paper uses a stylised open economy structural var model to identify the types of shocks responsible for macroeconomic fluctuations in the uk economy the stylised model implies a set of short run restrictions that allow for the identification of the shocks the importance of each shock is determined by examining forecast error variance decompositions impulse response functions and implied long run or permanent effects the results presented here imply that two shocks called the technology and is shocks are relatively more important than other shocks monetary shocks do exhibit long run monetary neutrality but clearly monetary policy is not responsible for a meaningful share of output and employment fluctuations during the sample period the estimated var and structural disturbances imply that the model accurately reflects the uk economy there is little evidence of a price puzzle or an exchange rate puzzle evidence against uncovered interest rate parity in response to an unexpected monetary policy tightening

money income and dynamic lag patterns in traditional vector autoregression var models a fixed lag length is imposed on all variables and across all observation periods this practice however is prone to potential model misspecifications more specifically underparameterization due to too short lag lengths results in estimation bias while overparameterization due to too long lag lengths results in a loss of degrees of freedom and thus estimation efficiency the significance of such problems can be exemplified by recent results of money income causality tests based on conventional var methodology the empirical relationship between money and income during the postwar period has long been found fragile by litterman and weiss 7 and sims 8 recently friedman and kuttner 3 argued that since the late 1970s monetary aggregates have ceased to predict real income in a four lag var system including an interest rate variable further by extending the sample period from 1985 to 1988 they 4 weakened stock and watson s 9 statistical support for money income causality the robustness of friedman and kuttner s findings however has been questioned for example thoma 10 documented subsample instability in causality statistics particularly in the 1980s becketti and morris 1 argued for longer lag lengths in the vars webb 11 further suggested that two lag lengths one for the dependent variable and another for all independent variables be considered in each equation the objective of this paper is to provide some explanations for these puzzles first the marginal significance levels or p values of money income granger causality tests are shown to vary remarkably over subsamples as well as different lag specifications second as an extension to the standard var estimation strategy a lag selection procedure is applied to determine the optimal lag structure that can vary across both variables and observation periods the empirical results suggest that previous findings on the collapse of the money income causal relationship is attributable to lag length misspecification especially for money the rest of the paper is organized as follows the next section discusses temporal instability in causality test statistics section iii outlines a new lag selection method and section iv presents

fractional monetary dynamics we test for fractional dynamics in us monetary series their various formulations and components and velocity series using the spectral regression method we find evidence of a fractional exponent in the differencing process of the monetary series both simple sum and divisia indices in their components with the exception of demand deposits savings deposits overnight repurchase agreements and term repurchase agreements and the monetary base and money multipliers no evidence of fractional behaviour is found in the velocity series granger s journal of econometrics 25 1980 aggregation hypothesis is evaluated and implications of the presence of fractional monetary dynamics are drawn

early life health and cognitive function in old age child health in the united states improved dramatically over the twentieth century data from the national center for health statistics indicate the infant mortality rate was 23 times greater in 1900 than in 2004 the mortality rate of one to four year old children although lower in absolute terms had a larger proportionate decline the value in 1900 was 66 times that in 2004 the proximate cause of the mortality decline was a reduction in infectious disease between 1900 and 1998 the percentage of deaths of children age 1 to 19 due to infectious disease is estimated to have declined from 61 6 percent to 2 percent bernard guyer et al 2000 major causes of child death included diarrhea pneumonia and other respiratory infections diphtheria typhoid measles scarlet fever whooping cough and tuberculosis guyer et al 2000 the mortality decline was accompanied by reductions in morbidity among surviving children there were also declines in the prevalence of a host of illnesses such as hookworm and trachoma which were not deadly but which impaired children s quality of life c hoyt bleakley 2007 shannen k allen and richard d semba 2002 early life exposures to infectious disease may also have adverse effects on health and well being into old age if true then the benefits of the twentieth century decline in infectious disease in the united states are still being realized we examine whether the disease environments experienced by american children in the first half of the twentieth century are associated with their cognitive abilities at older ages we match region level historical data on mortality from a variety of infectious diseases as well as total infant mortality with information on the cognitive function of older americans followed by the health and retirement study hrs we find evidence that the burden of disease in early life measured using either mortality rates by cause or the overall infant mortality rate is significantly associated with performance on cognitive tests in old age

financial market variables do not predict real activity i introduction the past decade has seen an extensive empirical reassessment of the information content of financial market variables believed to be sensitive to monetary policy particularly provocative are papers suggesting that some interest rates and interest rate spreads contain more information about economic activity than monetary aggregates this paper reviews important methodological pitfalls in these studies we then show that none of the commonly employed indicators of monetary policy contain incremental information useful in forecasting real economic activity as measured by industrial production two conclusions are possible either monetary policy innovations have no significant real effects or we collectively have failed in our efforts to measure monetary policy the money income causality literature spawned by christopher sims in the 1970s has broadened in recent years to encompass a diverse set of measures of monetary policy more comprehensive and sophisticated empirical assessment strategies and a richer array of explanations for observed correlations between financial market variables and economic activity early contributors to this literature such as stock and watson 1989 friedman and kuttner 1992 and bernanke and blinder 1992 present evidence that particular interest rates and spreads not only dominate monetary aggregates as predictors of economic performance but are remarkably powerful predictors stock and watson 1989 and friedman and kuttner 1992 demonstrate that the spread between the interest rates on commercial paper and treasury bills is highly significant in explaining movements in real activity while bernanke and blinder 1992 made an equally convincing case for the federal funds rate these conclusions are qualified however in subsequent work both bernanke 1990 and stock and watson 1993 for example point out that the predictive power of the paper bill spread and interest rates more generally weakened during the second half of the 1980s and the early 1990s the results reported in these and related papers form the empirical core of the debate over the relative merits of various interest rates spreads and monetary aggregates as indicators of the stance of monetary policy subsequent empirical work has seen a shift from atheoretical to structural vector autoregressions strongin 1992 gordon and leeper 1994 and bernanke and mihov 1995 for example focus on more refined measures of monetary policy derived from explicit models of the reserve market and central bank operating procedures these papers address concerns that go beyond discriminating among variables on the basis of predictive power they grapple directly with the fundamentally difficult issue of identifying monetary policy shocks by positing and estimating structural models that take the form of identified vars the usefulness of these efforts as well as earlier efforts to measure monetary policy is in turn questioned by rudebusch 1996 who finds that the studies econometric results are fragile and at odds with other evidence on the nature of the fed s reaction function and monetary policy surprises the first part of our paper illustrates some of the methodological pitfalls common in the literature cited above and complements recent work by bernanke 1990 hess and porter 1993 thoma and gray 1995 rudebusch 1996 and emery 1996 we begin by demonstrating the advantages of rolling recursive regression techniques that directly and comprehensively address the question of sample sensitivity these techniques are used to illustrate the extreme sensitivity to sample period of the causality statistics and variance decompositions commonly used to assess the explanatory power of financial market variables indeed in the applications under review here such in sample measures of fit are sometimes heavily influenced by individual monthly observations

software industry an opportunity for latin america abstract many developing countries are looking for entry points to the expanding informatics market software has been viewed in some of them as offering an opportunity to exploit low wage and capital requirements this paper presents the main characteristics of the software market and industry in latin america it analyzes the local supply of traded software including the origin scope of activities and size of firms their main products and technology in use export experiences from several latin american countries are also briefly presented recognizing that further research on the issue is still required on the basis of this empirical evidence the comparative advantages and obstacles that the region faces to establish a solid software industry are discussed it is argued that considerable efforts would be required to transform current expectations into reality a basic point is that even if good software can be developed marketing and distribution barriers particularly for packaged software are difficult to penetrate the main policy issues relating to the building up of a software industry are summarized taking the heterogeneity of markets and products into account

monetary policy lessons of recent inflation and disinflation by 1975 most economists agreed that the money demand function in the united states was reasonably stable and could serve as a reliable basis for the formulation of monetary policy those suspicious of monetarism were on the defensive in the light of the apparently inexorable increase of m1 velocity of about three percent per year with deviations of only a few tenths of a percent experience with rising money growth and rising inflation through 1980 only confirmed monetarist views as figure 1 shows all this had changed by 1986 with disinflation in the 1980s m1 velocity departed convincingly from its 1953 79 trend the money demand function seems to have fallen apart and is apparently not a reliable basis for monetary policy after all consequently the first major section following this introduction is devoted to the decline of velocity after 1981 and the demise of the standard money demand function some authors including i believe benjamin friedman conclude that this evidence leaves us so uncertain about the nature of money demand that policymakers cannot rely at all on any presumed money demand regularities in contrast my working hypothesis is that the money demand continues to be a stable function of relatively few variables but that the interest elasticity of money demand is substantially higher than previously thought others have sought money demand explanations in terms of regime shifts but that literature will not be discussed here events have not been kind to keynesian monetary policy positions either keynesians tend to concentrate on interest rates especially real interest rates as the best guide to the effects of monetary policy on the economy the real rate is discussed

the computer industry in the third world policy options and constraints abstract the paper examines the conditions for the development of an indigenous computer industry in third world countries it argues that within the existing international division of labor in the industry the opportunities for local computer production are limited for most developing countries increasing levels of automation are likely to result in diminished competitiveness for any but the largest manufacturers only countries with large internal markets can expect to sustain an integrated computer manufacturing base for most countries a niche oriented approach concentrating on the development of software and the configuration of systems for local and possibly regional vertical markets is apt to be the most viable entry strategy selective backward integration into hardware manufacture may be possible but the types of equipment manufactured locally must be carefully selected with a view not only to the potential domestic market but also to the suitability of the existing infrastructure and supplier networks to support cost effective manufacture for the establishment of an industry which is at least semi autonomous technologically policymakers need to take measures to strengthen the r d infrastructure to upgrade scientific and technical education and to induce those nationals working for computer multinationals whether at home or abroad to start up their own local computer ventures skilled and experienced computer specialists as well as a computer literate population are perhaps the two most valuable assets for the development of an indigenous computer industry

congressional oversight committee influence on u s monetary policy revisited abstract grier 1991 shows that monetary policy is influenced by congress in that increases in the liberality of the senate banking committee leadership are significantly positively correlated with monetary base growth chopin cole and ellis 1996 claim that the house leadership statistically dominates the senate leadership for predicting money growth but that the direction of the effect is perverse a more liberal house leadership is associated with a lower rate of base growth in this paper i show that chopin cole and ellis s claims are unfounded properly measured both house and senate leadership have a significant positive effect on base growth over grier s 1991 original sample in later periods money growth regressions are not sufficiently stable to support hypothesis tests

a political model of monetary policy with application to the real fed funds rate abstract we construct an empirical model of u s monetary policy assuming that the federal reserve is an ordinary federal bureaucracy we use the real federal funds rate as our policy measure and show the existence of significant executive legislative and bureaucratic influence on the real rate of interest from 1961 to 1996 we find that presidential party is an adequate statistical measure of executive influence and that the voting scores of the senate banking committee leadership best represent legislative influence we argue that political changes cause systematic and predictable changes in monetary policy

population and conflict medical innovations during the 1940s quickly resulted in significant health improvements around the world countries with initially higher mortality from infectious diseases experienced larger increases in life expectancy population and subsequent social conflict this cross country result is robust across alternative measures of conflict and is not driven by differential trends between countries with varying baseline characteristics a similar effect is also present within mexico initial suitability conditions for malaria varied across municipalities and anti malaria campaigns had differential effects on population growth and social conflict both across countries and within mexico increased conflict over scarce resources predominates and this effect is more pronounced during times of economic hardship specifically in countries with a poor growth record and in drought stricken areas in mexico at least during this time period a larger increase in population made social conflict more likely

are the effects of monetary policy asymmetric huntley schaller by building on the hamilton 1989 markov switching model we examine questions like does monetary policy have the same effect in expansions and recessions given that the economy is currently in a recession does a fall in interest rates increase the probability of an expansion does monetary policy have an incremental effect on the growth rate within a given state or does it only affect the economy if it is sufficiently strong to induce a state change e g from recession to expansion as suggested by models with sticky prices or finance constraints interest rate changes have larger effects during recessions jel e52 e32 much of the recent work in macroeconomics has proceeded under the assumption that variables follow linear stochastic processes with constant coefficients as a result some of the richness of the burns mitchell analysis such as its focus on asymmetries between recessions and expansions may well have been lost blanchard and fischer 1989 7 i introduction for decades macroeconomists have debated whether monetary policy has the same effect on real output in expansions and recessions as far back as the 1930s keynes and pigou debated whether monetary policy would have less effect on output during a severe economic downturn in the 1960s there were active debates on a very different proposition namely whether the rightward portion of the aggregate supply curve was vertical so that monetary policy would have less effect on real output during expansions in this article we provide a new type of evidence on whether monetary policy has different effects depending on whether the economy is in an expansion or recession empirical evidence on this issue is particularly relevant in light of new theoretical work in macroeconomics that predicts asymmetric effects of demand shocks conditional on the state of the economy two examples of this work are s s type models of price adjustment and models in which there are agency costs of financial intermediation 1 the intuition for the latter class of models is simple 2 when there is information asymmetry in financial markets agents may behave as if they were constrained for a variety of reasons these finance constraints are more likely to bind during recessions when the net worth of agents is low an increase in interest rates will then have two effects on investment the standard effect of increasing the cost of capital and therefore reducing investment demand and an additional effect of reducing liquidity e g by increasing debt service obligations and thus reducing investment demand for constrained agents as a result monetary policy actions that change interest rates will have greater effects during a recession 3 the s s type price adjustment models of ball and mankiw 1994 caballero and engel 1992 and tsiddon 1993 lead to a convex aggregate supply curve and therefore also imply that monetary policy will have stronger effects during recessions one of the more frequently cited empirical papers on the potentially asymmetric effects of monetary policy is cover 1992 which finds evidence that positive monetary shocks have different effects from negative monetary shocks we are looking at a different type of asymmetry namely between booms and recessions we study asymmetries using an extension of the markov switching model developed by hamilton 1989 estimated over the period 1955 93 in hamilton s econometric specification the growth rate of output depends on a state variable that corresponds to an expansion or recession this approach has several advantages first unlike linear projections it allows for nonlinearities and asymmetries second in estimating the recession coefficients it gives greater relative weight to observations that most clearly correspond to recessions and similarly for the expansion coefficients

results of a study of the stability of cointegrating relations comprised of broad monetary aggregates abstract we find strong evidence of a stable money demand relationship for mzm and m2m through the 1990s though the m2 relation breaks down somewhere around 1990 evidence has been accumulating that the disturbance is well characterized as a permanent upward shift in m2 velocity which began around 1990 and was largely over by 1994 taken together our results support the hypothesis that households permanently reallocated a portion of their wealth from time deposits to mutual funds although this reallocation may have been induced by depository restructuring we argue that the substitution could be explained by appropriately measured opportunity cost

efficient tests of long run causation in trivariate var processes with a rolling window study of the money income relationship this paper develops a simple sequential multiple horizon non causation test strategy for trivariate var models with one auxiliary variable we apply the test strategy to a rolling window study of money supply and real income with the price of oil the unemployment rate and the spread between the treasury bill and commercial paper rates as auxiliary processes ours is the first study to control simultaneously for common stochastic trends sensi tivity of causality tests to chosen sample period null hypothesis over rejection sequential test size bounds and the possibility of causal delays evidence sug gests highly significant direct or indirect causality from m1 to real income in particular through the unemployment rate and m2 once we control for cointe gration

primary commodity prices manufactured goods prices and the terms of trade of developing countries what the long run shows the authors revisit in this article the empirical foundation of the alleged secular decline in the prices of primary commodities relative to those of manufactures they use a newly constructed index of commodity prices and two modified indexes of manufactured good prices and find that from 1900 to 1986 the relative prices of all primary commodities fell on trend by 0 5 percent a year and those of nonfuel primary commodities by 0 6 percent a year they thus confirm the sign but not the magnitude of the trend implicit in the work of prebisch but even the more limited secular decline shown by their relative price indexes may be magnified by an incomplete account of quality improvements in manufactures they then show that the evolution of terms of trade of nonfuel primary commodities is not the same as that of the net barter terms of trade of non oil exporting developing countries finally they find that despite the decline that has probably occurred during the current century in the terms of trade of nonfuel primary commodities the purchasing power of total exports of these products has increased considerably similarly the fall that may have occurred after world war ii in the net barter terms of trade of developing countries seems to have been more than compensated for by the steady improvement in their income terms of trade

malaria eradication and economic outcomes in sub saharan africa evidence from uganda this study evaluates the economic consequences of a 1959 1960 malaria eradication campaign in southwestern uganda the effort constitutes a rare large scale and well documented attempt to eliminate malaria in sub saharan africa and produced an immediate disease reduction we use this quasi experimental health shock to identify long term changes in educational and economic outcomes comparing the treatment district to a similar synthetic control we find malaria eradication raised educational attainment by about a half year for both males and females increased primary school completion among females and generated an almost 40 rise in the likelihood of male wage employment

a money demand function with output uncertainty monetary uncertainty and financial innovations in a general equilibrium framework incorporating the money in the utility function approach we show that output uncertainty and monetary uncertainty as well as output interest rates and financial innovations affect money demand the estimated long run relationships are consistent with our postulated relation but not with the conventional one our model delivers a high income elasticity consistent with cross sectional evidence and helps resolve m1 demand puzzles the model estimated in dynamic error correction form exhibits a good level of stability and forecastability providing little support for the recent de emphasis of monetary aggregates due to the instability of money demand

a closer look at long run u s money demand linear or nonlinear error correction with m0 m1 or m2 i introduction the stability of money demand has been a long standing issue 1 lucas 1988 informally analyzes the stability of a log linear m1 money demand function and concludes that real money demand is a stable function and he supports earlier findings of meltzer 1963 with an income or wealth elasticity of around unity 2 with the development of cointegration methods engle and granger 1987 numerous empirical studies have applied these techniques to long run u s money demand examples are baba hendry and starr 1992 haferand jansen 1991 hoffman and rasche 1991 and miller 1991 who find support for a cointegrated money demand model with either m1 or m2 3 king et al 1991 also find support for cointegration with m2 and a short term interest rate in contrast to these studies others have argued against a stable u s money demand function in the postwar period for example friedman and kuttner 1992 do not find support for cointegration particularly when the period march 1970 to april 1990 is considered similarly miyao 1996 studies the behavior of the m2 money demand function over the period from 1959 to 1993 with quarterly data and various interest rates in levels and in logs miyao concludes that m2 is not a useful intermediate target for monetary policy in the 1990s 4 however carlson et al 2000 reach the conclusion that m2 does have predictive content for nominal economic activity and that the real m2 money demand function is stable but only after accounting for financial innovation in the first half of the 1990s two recent papers ball 2001 and stock and watson 1993 focus on especially long data sets for the united states and m1 stock and watson 1993 analyze various estimation methods for cointegrating relationships and illustrate their performance for money demand functions with annual data from 1900 to 1987 they pay particular attention to the postwar period and use monthly data in addition to annual data for this period they employ a semi log linear real m1 money demand model with real net national product and the level of the 6 mo commercial paper rate for the postwar period they also consider the 90 day treasury bill rate and the 10 yr treasury bond rate they compare and contrast their results to those of various others they also carry out recursive estimations to check their results for stability stock and watson 1993 conclude that a long span of data is needed to estimate long run money demand functions precisely their overall evidence is in favor of a stable long run money demand function with an income elasticity near one and an interest rate semielasticity near 0 10 however the postwar data are found to be not very informative a lack of low frequency variation in the postwar data as suggested by lucas 1988 does not allow a disentangling of the effects of output and interest rates on money demand for this time period estimates are imprecise and sensitive to subsample specifications due to substantial colinearity ball 2001 revisits the m1 money demand model of stock and watson 1993 using the same data set but extended through 1996 he applies the same array of estimation techniques as stock and watson did ball obtains precise estimates over the postwar period for his extended data set an income elasticity of approximately 0 5 and a semielasticity of 0 05 for the interest rate he does not find support for a velocity specification the m1 model is not stable over the period 1900 1996 lutkepohl terasvirta and wolters 1999 apply a nonlinear error correction model with smooth transition adjustment to capture instabilities in the linear cointegration model the long run equilibrium is described by a linear cointegrating relation and the adjustment to this long run equilibrium is nonlinear they analyze german m1 money demand granger and terisvirta 1993 terasvirta 1998 and van dijk terasvirta and franses 2002 provide details on the econometric theory for estimating and testing such nonlinear models

unit roots interest rate spreads and inflation forecasts recent research suggests that long term interest rate spreads provide information that can be useful in forecasting inflation but that the spread between the three month and six month treasury bill rates appears to have little forecasting ability this paper uses the concepts of unit roots and cointegration to examine the failure of the short term t bill spread to forecast inflation the results suggest that the interest rate spread has little forecasting value because inflation and the interest rate spread exhibit distinctly different time series properties

optimal monetary policy optimal monetary policy maximizes the welfare of a representative agent given frictions in the economic environment constructing a model with two sets of frictions costly price adjustment by imperfectly competitive firms and costly exchange of wealth for goods we find optimal monetary policy is governed by two familiar principles first the average level of the nominal interest rate should be sufficiently low as suggested by milton friedman that there should be deflation on average yet the keynesian frictions imply that the optimal nominal interest rate is positive second as various shocks occur to the real and monetary sectors the price level should be largely stabilized as suggested by irving fisher albeit around a deflationary trend path since expected inflation is roughly constant through time the nominal interest rate must therefore vary with the fisherian determinants of the real interest rate although the monetary authority has substantial leverage over real activity in our model economy it chooses real allocations that closely resemble those which would occur if prices were flexible in our benchmark model there is some tendency for the monetary authority to smooth nominal and real interest rates

population size and civil conflict risk is there a causal link does an expansion of the population size expose nation states to a higher risk of suffering from civil conflict obtaining empirical evidence for a causal relationship is difficult due to reverse effects and omitted variable bias this article addresses causality issues by using randomly occurring drought as an instrumental variable to generate exogenous variation in population size for a panel of 37 sub saharan countries over the period 1981 2004 instrumental variable estimates yield that a 5 increase in population size raises the risk of civil conflict by around six percentage points

is bank supervision central to central banking whether central banks should play an active role in bank supervision and regulation is being debated both in the united states and abroad while the bank of england has recently been stripped of its supervisory responsibilities and several proposals in the united states have advocated removing bank supervision from the federal reserve system other countries are considering enhancing central bank involvement in this area many of the arguments for and against these proposals hinge on the effect this change would have on the ability of the central bank to conduct monetary policy we find that confidential supervisory information on bank ratings significantly improves

dynamics and stability of constitutions coalitions and clubs a central feature of dynamic collective decision making is that the rules that govern the procedures for future decision making and the distribution of political power across players are determined by current decisions for example current constitutional change must take into account how the new constitution may pave the way for further changes in laws and regulations we develop a general framework for the analysis of this class of dynamic problems under relatively natural acyclicity assumptions we provide a complete characterization of dynamically stable states as functions of the initial state and determine conditions for their uniqueness we show how this framework can be applied in political economy coalition formation and the analysis of the dynamics of clubs the explicit characterization we provide highlights two intuitive features of dynamic collective decision making 1 a social arrangement is made stable by the instability of alternative arrangements that are preferred by sufficiently many members of the society 2 efficiency enhancing changes are often resisted because of further social changes that they will engender

on inflation and output with costly price changes a simple unifying result this paper determines the real effects of credible disinflation when price setting is staggered the results are surprising a fairly quick disinflation causes a boom this finding suggests that nominal price rigidity alone does not explain why disinflation is costly in actual economies this abstract was borrowed from another version of this item

the effects of real and nominal uncertainty on inflation and output growth some garch m evidence in this paper we use garch m methods to test four hypotheses about the effects of real and nominal uncertainty on average inflation and output growth in the united states from 1948 to 1996 we find no evidence that higher inflation uncertainty or higher output growth uncertainty raises the average inflation rate we also find no support for the idea that more risky output growth is associated with a higher average real growth rate our key result is that in a variety of models and sample periods inflation uncertainty significantly lowers real output growth copyright 2000 john wiley sons ltd

collateral constraints and the amplification mechanism abstract kiyotaki and moore j polit economy 105 1997 211 have offered a theory for how common shocks to credit constrained firms are amplified through changes in collateral values and transmitted as fluctuations in output i clarify and extend their model by showing that their collateral amplification mechanism is not robust to the introduction of markets that allow these firms to hedge against common shocks a theory of incomplete hedging is proposed in which the supply of hedging available in the economy is constrained by the aggregate value of collateral i illustrate how the constraint reinstates amplification effects and discuss empirical implications of this new mechanism

the effects of money growth on inflation and interest rates across spectral frequency bands band spectral regression techniques are used to identify the frequency bands that are most important in the relationships between money growth and inflation and between money growth and the nominal interest rate the results show that cycles in the growth rate of m1 from one to two years long produce higher frequency cycles in inflation and two distinct sets of higher frequency cycles in changes in the nominal interest rate the results support models where predictable changes in money growth produce liquidity and anticipated inflation effects on nominal interest rates copyright 1994 by ohio state university press

a short note on updating the grilli and yang commodity price index the grilli and yang commodity price index is one of the most widely used commodity price series in the applied economics literature this note provides some practical advice on updating this data series by listing the base period index values identifying relevant data sources and describing a method for computing subindex weights in 1988 enzo grilli and maw cheng yang published their seminal article on the long run development of an index of 24 primary commodity prices gycpi deflated by an index of manufactured goods unit values the sample of average annual primary commodity prices covers about 54 percent of the primary commodity trade in the index reference period 1977 79 the deflators considered for manufacturing prices were the u s manufacturing price index usmpi and the manufacturing unit value index muv 1widely used and discussed the grilli and yang data set has been extended by a number of researchers the data have been employed in a variety of contexts in later studies thus the gycpi data continue to enjoy wide popularity in their own right and as a benchmark for new approaches to empirical studies

the long run effects of oil wealth on development evidence from petroleum geology we estimate the long run effects of oil wealth on development by exploiting spatial variation in sedimentary basins areas where petroleum can potentially form instrumental variables estimates indicate that oil production impedes democracy and fiscal capacity development increases corruption and raises gdp per capita without significantly harming the non resource sectors of the economy we find no evidence that oil production increases internal armed conflict coup attempts or political purges in several specifications failure to account for endogeneity leads to substantial underestimation of the adverse effects of oil suggesting that countries with higher quality political institutions and greater fiscal capacity disproportionately select into oil production

detrending and the money output link international evidence 1 introduction and background the question of whether there exists an empirical link between nominal money and real output has been subjected to a variety of modern econometric techniques producing conflicting results for example stock and watson 1989 use a vector autoregressive var model that accounts for several important economic variables and find that money exerts a statistically significant effect on real economic activity friedman and kuttner 1992 1993 on the other hand show that using the same specification as stock and watson but extending their sample through the 1980s obviates the money income link friedman and kuttner s results indicate that interest rates are relatively more useful in explaining movements in output thoma 1994 also reports that changes in money do not have a statistically significant impact on output in the united states more recent studies both theoretical and empirical also have shown money to have little or no direct effect on economic cycles rudebusch and svensson 1999 2002 for example conclude that the behavior of money real or nominal has no marginally significant impact on deviations of real output from potential the output gap once past movements in the gap and real rates of interest are accounted for such findings on the basis of what meyer 2001 refers to as the consensus macro model have achieved an influential position among macroeconomists and policymakers 2 other studies challenge the argument that money does not affect real output an early study by christiano and ljungqvist 1988 using a bivariate var model reports the existence of a statistically significant money to output relation in u s data davis and tanner 1997 using monthly u s data extending back to the mid 1800s find that even after interest rate effects are allowed for money remains statistically significant in explaining short run movements in real output using a rolling regression approach swanson 1998 reports a statistically significant relation between money measured as simple sum aggregates and as divisia measures and output even after an interest rate spread variable is added to the model hafer and kutan 1997 considered whether different stationarity properties of the data have influenced reported outcomes since most prior studies assume difference stationarity hafer and kutan demonstrate that estimating var models that include money and interest rate variables under the existence of trend stationarity can dramatically affect the conclusion indeed they find that using a trend stationarity assumption yields the finding that money significantly affects real output movements in the united states a common characteristic of this literature is its focus on the united states there are a few exceptions for example krol and ohanian 1990 apply the stock watson specification to data for canada germany japan and the uk although money actual and detrended significantly affects output in the uk krol and ohanian find no such affect in japan canada and germany they conclude that although detrending the growth rate of u s money affects conclusions about the role of money little is gained from this approach when applied to the other countries another exception to the u s focus is a recent study by hayo 1999 using data from 14 european union eu countries plus canada japan and the united states hayo shows that money output test results are not sensitive to the use of data in levels versus data in differences an obvious question to ask then is whether nominal money is relatively more useful than interest rates in explaining movements in real output across a wider variety of countries that includes industrial and developing economies although the studies of krol and ohanian and hayo represent a broader analysis they too focus on the money output relation in relatively industrialized financially developed countries