the inflation targeting regime in the united kingdom a view from threadneedle street the recent financial crisis and subsequent deterioration in macroeconomic outcomes have raised question marks over the framework for monetary policy in the united kingdom this paper examines the performance of the uk s monetary policy framework in the light of these questions far from concluding that inflation targeting needs to be replaced we argue in the paper that the regime has provided a clear policy compass that facilitated strong and decisive monetary policy decisions during the financial crisis we argue that it should remain the mainstay of the uk macroeconomic policy framework even so lessons need to be learnt to prevent financial market excesses from destabilizing the economy in future the single most important being the need to expand the range of instruments available to policy makers copyright 2010 oxford university press

central bank design abstract starting with a blank slate how could one design the institutions of a central bank for the united states this paper explores the question of how to design a central bank drawing on the relevant economic literature and historical experiences while staying free from concerns about how the fed got to be what it is today or the short term political constraints it has faced at various times the goal is to provide an opinionated overview that puts forward the trade offs associated with different choices and identifies areas where there are clear messages about optimal central bank design

remaking macroeconomic policy after the global financial crisis a balance sheet approach this paper describes the origins of the global financial crisis and how the prevailing new keynesian macroeconomic orthodoxy failed to anticipate its severity this failure we argue stemmed from an incomplete understanding of the pivotal role of financial institutions in the amplification of the crisis and its transmission to the wider economy low global interest rates and a consequent search for yield in the pre crisis period encouraged financial institutions to build highly leveraged balance sheets which in turn generated extremely large asset price movements when a small event the downturn in the us sub prime mortgage market triggered the crisis the paper then briefly describes the element of the broadly successful and coordinated macroeconomic policy response to the crisis before turning to the medium term challenges facing policymakers in sustaining global recovery at the national level we focus on the resolution of fiscal imbalances which contributed in part to the crisis and which then worsened because of the policy actions which have been taken to deal with it at the international level we emphasise the need to rectifying the imbalances between savings and investment in many significant countries this will require greater coordination of macroeconomic policy across the world s major economies it will also involve strengthening the role and the governance of the international monetary fund

import substituting industrialization and protection of the small scale the indian experience in the textile industry abstract indian policies on investment for long run growth were based on a theoretical model which was under discussion during the development of the second five year plan in 1956 this model called for the protection of the small scale industrial sector from competition of large scale domestic procedures and foreign firms while the bulk of new investment went into the production of capital goods in the large scale sector after a review of the logic behind this model of economic growth the paper investigates its far reaching effect on economic well being with a case study of the textile industry

deregulation technology imports and in house r d efforts an analysis of the indian experience abstract this paper analyses the effects of the deregulation policy introduced in india in the mid 1980s on the relationship between technology imports and in house r d efforts using appropriate statistical techniques it examines the interactions between policy regime economic environment and the determinants of inter industry variation in technology imports in indian manufacturing in doing so it introduces r d efforts as one of the main determinants literature suggests that there is simultaneity in the relationship between technology imports and r d efforts to tackle this problem lagged r d expenditure intensity is adopted as a proxy for in house r d efforts the empirical results reveal that technology imports were only weakly related with the past in house r d efforts in the protective regime deregulation promoted complementarity between technology imports and r d efforts significantly the results also suggest that after deregulation the impact of product differentiation demand conditions and technology related factors increased significantly in determining the inter industry patterns of technology imports thus unlike in a regulated regime where technology imports are viewed important for filling gaps in domestic technological capabilities in a deregulated regime technology upgradation seems to be the major role of technology imports

international technology transfer and the technology gap abstract we build a quality ladders product cycle model that explores how the quality of technology transferred through foreign direct investment fdi is linked to innovation and imitation when the absorptive capacity of ldcs is limited successful imitation of low quality levels makes fdi involving high quality levels possible through reduction of the technology gap a subsidy to imitation or a tax on low quality fdi production encourages imitation relative to innovation thus releasing the constraint faced by foreign firms seeking to produce in the south these forces that stimulate high quality fdi raise southern welfare through lower prices faster innovation and higher wages

should the federal reserve pay competitive interest on reserves in 2008 the federal reserve began paying interest on reserves how should the fed use this new policy instrument as the fed reduces its balance sheet should it continue to satiate reserve demand and pay competitive interest on reserves here we argue that this may be an inefficient use of the new policy instrument using a standard dynamic stochastic general equilibrium model dsge augmented to include a banking sector and an interbank market our benchmark calibration implies an optimal tax on reserves of about 20 to 40 basis points in the steady state and a fluctuating tax rate in response to shocks

the impact of paying interest on reserves in the presence of government deficit financing this paper reexamines the impact that paying interest on reserves has on price level indeterminacy volatility and economic well being unlike the previous literature this model includes an after tax deficit financed by assets bonds and reserves whose returns are linked i show that the number of steady state equilibria and the corresponding level of indeterminacy are equal to or greater than those arising in the no interest economy when the level of indeterminacy is the same the economic volatility is reduced by paying interest however greater indeterminacy in the interest economy results in greater volatility finally paying interest on reserves can enhance welfare jel d6 e3 e5 i introduction the issue of paying interest on reserves was introduced by friedman almost 50 years ago in a program for monetary stability friedman s original motivation was to make the 100 reserve requirement of the chicago plan more palatable to a banking system subject to only a fractional reserve system the goal of the chicago plan and the proposal to pay interest on reserves was to establish greater price level stability and to reduce excessive price level fluctuations 1 in the subsequent decades there has been considerable research regarding the implications of paying interest on reserves 2 three studies in particular sargent and wallace 1985 smith 1991 and freeman and haslag 1996 have examined in detail whether friedman s proposal would bring about the desired reductions in price level indeterminacy and volatility as well as the welfare implications of switching from a system of not paying interest on reserves to one which did 3 however these works suffered from two specific limitations first they did not equate the interest paid on reserves to returns on assets of similar risk and duration second they assumed that the government either ran a balanced budget or had a surplus by assuming that the budget was not in deficit these works sidestepped two important issues a the impact that deficit financing has on the means for financing interest payments and b the complications that arise from simultaneously attempting to finance a deficit and set the real return on reserves one of the key results of this previous literature was that how interest payments were financed was crucial to the likelihood of indeterminacy and volatility arising however if the sum of government expenditures and interest payments on bonds and reserves exceeds tax revenue then the issue of how interest payments on reserves are financed via taxes or earnings on assets is no longer relevant instead the appropriate concern is whether the government can simultaneously finance the deficit by issuing bonds or printing money link the return on reserves to other assets such as bonds and maintain sufficient returns on bonds and reserves such that both assets are desired by consumers the objective of this paper is to reexamine in the presence of an after tax deficit the impact of switching from a system where reserves earn no interest to one where they do this is accomplished in the context of a two period overlapping generations model with multiple assets and an after tax government deficit that must be financed by a combination of debt and seigniorage income the primary goal is to compare the level of economic indeterminacy economic volatility and welfare gains in an economy where interest is paid on reserves to one where reserves earn no interest more specifically this paper addresses the following three questions first in the presence of a government deficit and a return on storage that dominates all other rates of return does paying interest on reserves reduce potential indeterminacy of equilibria second under the same conditions does the amount of economic volatility increase or decrease third are there any welfare justifications for switching to a sys tem where reserves earn interest

equilibrium policy in an overlapping generations economy abstract this paper offers a mechanism for reducing the number of stationary equilibria that arise in a simple two period lived overlapping generations economy since each equilibrium is associated with a different combination of monetary and fiscal policies i assume that at each date the agent in his second period of life determines how that period s monetary and fiscal instruments will be set i show that the set of stationary equilibria where this occurs is a proper and nonempty subset of the set of stationary competitive equilibria and that at least one such equilibrium is a pareto optimum

a simple general equilibrium model of large excess reserves abstract in a general equilibrium macroeconomic model with a banking system that can hold large excess reserves and is subject to possibly binding capital constraints i study how the quantity of government provided monetary assets is related to the price level in steady state when the central bank does not pay interest on reserves the price level moves one for one with the monetary base if instead the central bank can pay interest on reserves at market rates the price level can decouple from the quantity of monetary assets in the economy a larger monetary base need not imply a higher price level however for large enough levels of reserves the capital constraint binds and the tight link between money and prices reemerges

a theory of real wage growth in ldcs abstract a general equilibrium framework is presented to explain a variety of developmental experiences the demand side is modelled by assuming a system of preferences that incorporate engel s law in a stark way the framework explains why poverty might be impervious to industrial progress in some countries it also explains why countries which have been able to boost the exports of manufactured goods have been more successful in raising real wages in their economies than countries which have continued to export primary goods the framework indicates how the initial conditions in terms of the level and distribution of wealth influence the growth of real wages in an economy

interest rates and currency prices in a two country world abstract this paper is a theoretical study of the determination of prices interest rates and currency exchange rates set in an infinitely lived two country world which is subject both to stochastic endowment shocks and to monetary instability formulas are obtained for pricing all equity claims nominally denominated bonds and currencies and these formulas are related to earlier closely related results in the theories of money finance international trade

what s different among banks abstract based on commercial paper being a nearly perfect substitute for certificates of deposits cds and cd reserve requirements creating a higher cost of funds for banks fama shows that the banking industry must have some monopoly power relative to other financial institutions his analysis does not resolve whether this monopoly power is vested in banks collectively vis a vis other financial institutions or if the monopoly power extends to the level of individual banks using an event study framework to examine the elimination of a reserve requirement we find significant evidence of monopoly power at the level of individual banks

monetary policy with interest on reserves abstract i analyze monetary policy with interest on reserves and a large balance sheet i show that conventional theories do not determine inflation in this regime so i base the analysis on the fiscal theory of the price level i find that monetary policy can peg the nominal rate and determine expected inflation with sticky prices monetary policy can also affect real interest rates and output though higher interest rates raise output and then inflation the conventional sign requires a coordinated fiscal monetary policy contraction i show how conventional new keynesian models also imply strong monetary fiscal policy coordination to obtain the usual signs i address theoretical controversies a concluding section places our current regime in a broader historical context and opines on how optimal fiscal and monetary policy will evolve in the new regime

heterogeneous beliefs and trading inefficiencies abstract heterogeneous beliefs are introduced into the monetary economy of lagos and wright 2005 and the implications for monetary equilibria are considered an endogenous fraction of agents hold rational expectations and the remaining agents employ an adaptive learning rule similar to evans and honkapohja 2001 and brock and hommes 1997 three primary results follow from the finding that heterogeneous beliefs can destabilize a stationary monetary equilibrium and lead to non linear dynamics bounded around the monetary steady state first heterogeneous beliefs can lead to equilibria that are welfare reducing due in part to a lower acceptance rate in decentralized meetings second when buyers who are uncertain about their beliefs behave like bayesians by placing a prior on sellers beliefs uncertainty impacts dynamic stability and welfare third the model s unique predictions provide an explanation of new findings about the acceptance rate in monetary laboratory experiments

interest on reserves and inflation abstract the payment of interest on reserves has been a common practice in inflationary economies this policy may seem paradoxical since it involves returning part of the seigniorage generated by the inflation process with the intention to finance the fiscal deficit this paper argues that the motivation for this policy can be captured by the discretionary regime where the policymaker pays interest on reserves because he is concerned with the erosion of real liquidity by inflation which is in part beyond his control however this policy is an unlikely outcome in the commitment regime where the policymaker is in full control of inflation

technology imports and r d efforts of korean manufacturing firms abstract this paper analyzes the relationship between technology imports and r d efforts of korean manufacturing firms by a two stage method in the first stage using a sample representing the whole population of firms the paper shows that firms importing technology tend to commit themselves to r d efforts through having formal r d institutes in the second stage it shows that among firms with formal r d institutes technology imports have non complementary relationship with r d efforts moreover when technology imports are considered interactively with international inventive activity they turn out to have rather a substitutive relationship with r d efforts

foreign investment and technology transfer a simple model abstract this paper develops a model in which international technology transfer through foreign direct investment emerges as an endogenized equilibrium phenomenon resulting from the strategic interaction between subsidiaries of multinational corporations and host country firms the model explicitly recognizes two types of costs the costs to the multinational of transferring technology to its subsidiaries and the learning costs of domestic firms the analysis points to the importance of the learning efforts of host country firms in increasing the rate at which mncs transfer technology the paper also explores some of the reasons why learning investment in host country firms may be suboptimal

foreign ownership and technology adoption evidence from indian firms abstract firms in developing countries rely on foreign technology purchases to improve their technology we use a theoretical framework developed by katz and shapiro to examine the ongoing technology adoption behavior of foreign owned and domestic firms using firm level data on indian firms from 1989 to 1993 we test this theoretical model we find that foreign ownership firm size and market structure are among the variables that impact a firm s probability of adopting new technology we also find that the 1991 liberalization of technology transfer policies in india appears to have had a larger impact on foreign owned firms than domestic firms

village labor markets in sheikan district sudan abstract this paper examines salient features of village labor markets in western sudan labor markets are well established contrary to conventional impressions that labor markets do not exist in villages of the semi arid tropics wages vary considerably and are not uniform across workers or villages or the agricultural season transactions are short term and casual there is no long term attached labor most transactions are on a task basis rather than time rate work parties are primarily held by wealthier villagers and are considerably less expensive than hired labor these observations contrast with other descriptions of village labor markets

in search of a smoking gun macroeconomic policies and the crisis this paper looks at macroeconomic factors behind the current crisis the first part looks at how global macroeconomic trends including sustained strong growth low real interest rates and high saving rates provided an environment conducive to increased financial risk taking the second part examines macroeconomic policies and the international monetary system assessing whether too easy monetary policy contributed to asset price bubbles whether excessive reserve accumulation contributed to a glut of global savings whether the us dollar s reserve currency status aggravated financial excesses and whether policies in capital importing countries were sufficiently countercyclical we do not find a single factor that can explain the crisis and account for differences in countries experiences leading up to it instead the contribution of macroeconomic policy choices seems complex and ambiguous however there are still important policy lessons for in particular rebalancing economies away from export dominated growth and having monetary policy place greater weight on macrofinancial stability copyright 2009 oxford university press

agents as empirical macroeconomists thomas j sargent s contribution to economics thomas j sargent has fundamentally changed and in the words of art rolnick who interviewed him in 2010 irrevocably transformed the field of macroeconomics whether as sole author as co author with collaborators as an author influenced by others or as a teacher of the profession influencing others this paper is about his contribution to our field the nobel memorial prize to thomas j sargent and christopher a sims has been awarded for the empirical research on cause and effect in the macroeconomy or more broadly for macroeconometrics one often likes to distinguish between theorists on the one hand and empiricists and econometricians on the other thomas j sargent holds a unique position in between a key theme in a large part of his work has been to put the agents in his model on equal footing with the econometrician who is observing data from the model i e to assume that agents are themselves empirical macroeconomists or macroeconometricians in this paper i use this theme to examine his work and his contributions to the study of economics

inward technology transfer and competitiveness the role of national innovation systems this paper examines the role of national innovation systems in the inward transfer of technology that has underpinned the transformation of japan and other east asian economies since 1945 the economies that have benefited most from inward technology transfer have national innovation systems that have strengthened their national absorptive capacity this capacity relies primarily on investments in scientific and technical training and on economic policies that enforce competition among domestic firms the particular channels for inward technology transfer the identity of any strategic industries targeted for public intervention and the overall level of a nation s trade restrictions are ail of secondary importance a central theme of global economic change during the postwar period has been the application in less developed countries of technologies developed within economically advanced regions this phenomenon underpinned the post 1945 transformation of japan and other east asian economies and influenced the reconstruction of western european economies after world war ii the application of externally developed technologies within latecomer economies is hardly unique to the postwar period however samuel slater s introduction of british textile manufacturing is but one example of inward technology transfer in the nineteenth century us economy and david 1992 traces the origins of patent monopolies to efforts by medieval european city states and nations to attract experts in industrial arts to practice their craft within these jurisdictions both international technology flows and government efforts to influence them for national competitive advantage thus have ample historical precedent several characteristics nevertheless distinguish the post 1945 era from earlier historical periods the influence of international technology transfer on national economic development has increased as the postwar development of such economies as taiwan and south korea has relied much less on natural resource endowments than nineteenth

can we improve the structure of financial systems 1993 the main theme of this paper is that several of the characteristics of our present western monetary and banking systems have been crucially dependent on the particular temporal process of historical development and are not an essential feature of more fundamental preferences or technological conditions they exist in part because we take them for granted it is the purpose of this paper to examine what might change in both theory and practice if some of these inessential characteristics were to be changed

testing for complementarities in reduced form regressions a note abstract in many cases it is important to know whether choice variables for a decision maker are mutual complements but a structural model cannot be estimated a unified framework for testing for complementarity through reduced form regressions is provided

firm size and export behaviour an indian case study in the context of indian industry this article argues that in the presence of capital market imperfections and sub optimal contractual arrangements small firms face higher transaction or selling costs in the domestic market one of the strategic responses by small firms towards overcoming the mobility barriers imposed by high transaction costs in the domestic market is to break into the competitive world market small firms that could realise a critical level of production efficiency and possible information externalities that arise through inter firm linkages might be the ones that could succeed in exports the empirical observations derived from the analysis of firm level survey data provide reasonable support to the main arguments

the real bills doctrine versus the quantity theory a reconsideration two competing monetary policy prescriptions are analyzed within the context of overlapping generations models the real bills prescription is for unfettered private intermediation or central bank operations designed to produce the effects of such intermediation the quantity theory prescription in contrast is for restrictions on private intermediation designed to separate money from credit although our models are consistent with quantity theory predictions about money supply and price level behavior under these two policy prescriptions the models imply that the quantity theory prescription is not pareto optimal and the real bills prescription is

the limits to discretionary fiscal stabilization policy the use of discretionary fiscal policy as a counter cyclical tool has declined in popularity over the last 30 years this paper examines the extent to which this decline is justified in terms of developments in macroeconomic theory over this period both a small calibrated model and a larger econometric model suggest that the intertemporal consumer will smooth away most of the impact of temporary tax changes even when additional discounting and credit constraints are allowed for however this analysis suggests a more powerful role for other forms of fiscal policy such as government objections to the use of discretionary fiscal stabilization policy and makes a tentative suggestion as to how these might be overcome copyright 2000 by oxford university press

aggregate fiscal policy under the labour government 1997 2010 this paper explores the labour government s fiscal policy performance at the macroeco nomic level this analysis is in two halves the first covers the period up until the great recession which involved a single policy regime subject to two simple fiscal rules after discussing the theoreti cal and practical issues raised by these rules i examine the extent to which they were followed by the government and whether subsequent developments highlighted shortcomings of these rules to what extent was the eventual failure of these rules down to over optimistic forecasts or unforeseeable events the second half involves the response to the great recession and the abandonment of the fiscal rules

technology expenditures factor intensity and efficiency in indian manufacturing the effects of expenditure on r d and purchase of technology on costs in indian manufacturing is investigated using firm level data expenditures for r d royalties and technical fees are treated as potentially inducing both hicks neutral efficiency shifts and substitution between capital and labor in an indirect cos t function framework the effects of technology expenditure are found to vary by industry by type of expenditure and by domestic or foreign origin of seller technology expenditures associated with higher levels of hicks neutral efficiency are generally also associated wit h higher capital labor ratios copyright 1992 by mit press

interest on reserves abstract in a general equilibrium setting we study versions of the proposal to pay interest on reserves at the market rate we argue that the proposal makes the demand for total reserves indeterminate whether interest is paid on total reserves or on required reserves only one consequence is that tax financing of the proposal gives rise to a continuum of equilibria equilibria which differ in real returns and consumption allocations another consequence is that financing through earnings on the central bank s portfolio either gives rise to an equilibrium with a zero nominal interest rate or to no equilibrium

where to draw lines stability versus efficiency what kinds of assets should financial intermediaries be permitted to hold what kinds of liabilities should they be allowed to issue should a government or a central bank offer explicit deposit insurance or implicit deposit insurance by acting as a lender of last resort this paper reviews how tensions involving stability versus efficiency and regulation versus laissez faire have for centuries run through macroeconomic analysis of these questions

who is interested in biotech r d strategies knowledge base and market sales of indian biopharmaceutical firms this paper addresses three main questions on indian pharmaceutical firms that have integrated biotechnology in their marketing production or research activities i what kind of labour stocks of the knowledge base have an impact on market sales ii which components of the r d strategy are strategic substitutes and which are strategic complements iii what are the distinguishing features of firms that have already integrated biotechnology in their research activities the paper shows that market sales are an increasing function of qualified labour stocks internal r d and foreign collaborations are strategic substitutes while patents and publications are strategic complements firms that are active in biotechnology research are likely to be younger and implementing more aggressive learning strategies

imitative innovation and international joint ventures a dynamic analysis abstract in this paper we deal with some dynamic issues of international joint venture in the context of a developing country we provide a rationale for international joint venture formation as well as its subsequent instability where instability is interpreted as payoff readjustments between the partners in the venture although the joint venture is formed in response to government restrictions on foreign equity holdings in the first period its subsequent instability is caused by both the change in government policy as well as the outcome of imitative technological innovation undertaken by the host partner it is also shown that uncertainty about the government policy in the second period plays an important role in the formation of joint venture in the first period

industrial growth in india performance and prospects abstract the objective of this paper is to analyse the trends in industrial growth since the mid fifties and examine the factors that contributed to industrial stagnation after the mid sixties more specifically the paper focuses on the pathology of the organised industrial sector while also documenting the broad trends in the unorganised sector section 1 presents a brief review of the long term trends in the growth of value added and productivity in the industrial sector section 2 analyses the major factors that contributed to the dual phenomenon of a slowdown in the growth of heavy industries and continued slow growth of consumer goods industries after the mid sixties in the light of this analysis an attempt is made in section 3 to draw some implications for policy if industrial growth is to be revived in the future

are reserve requirements relevant for economic stabilization abstract the level of the required reserve ratio and the payment of interest on required reserves are irrelevant for economic stability 1 when the central bank appropriately adjusts its interest elasticity of supply of reserves or currency to offset changes in the required reserve ratio or in the interest rate paid on required reserves or 2 when economic agents form their price level expectations rationally conditional on the current interest rate

monetary and fiscal policy switching a growing body of evidence finds that policy reaction functions vary substantially over different periods in the united states this paper explores how moving to an environment in which monetary and fiscal regimes evolve according to a markov process can change the impacts of policy shocks in one regime monetary policy follows the taylor principle and taxes rise strongly with debt in another regime the taylor principle fails to hold and taxes are exogenous an example shows that a unique bounded non ricardian equilibrium exists in this environment a computational model illustrates that because agents decision rules embed the probability that policies will change in the future monetary and tax shocks always produce wealth effects when it is possible that fiscal policy will be unresponsive to debt at times active monetary policy like a taylor rule in one regime is not sufficient to insulate the economy against tax shocks in that regime and it can have the unintended consequence of amplifying and propagating the aggregate demand effects of tax shocks the paper also considers the implications of policy switching for two empirical issues

should central banks target consumer prices or the exchange rate in this article we consider two arguments suggesting that monetary authorities in an open economy should target output price inflation and not consumer price inflation the first suggests that output price inflation corresponds to the distortions caused by price rigidity the second shows how policy rules involving consumer price inflation can induce instability because of the feedback from interest rates to consumer price inflation via the exchange rate we examine both arguments in the context of an open economy which is subject to a range of shocks we show that both arguments remain robust but that there is a case for including a terms of trade or real exchange rate gap term in the authorities welfare function alongside the output gap and output price inflation

what should fiscal councils do fiscal watchdogs so called fiscal councils have been proposed as a method to counter deficit bias of fiscal policy the paper analyses theoretically what role fiscal councils could play and surve

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

macroeconomic policy in light of the credit crunch the return of counter cyclical fiscal policy this paper begins by arguing that the 2007 8 credit crunch does not require a fundamental reevaluation of monetary policy the crunch occurred because regulation was too lax and we need to develop new and more effective tools of regulatory control to focus on current account imbalances or mistakes in setting interest rates as a prime cause of the credit crunch is unconvincing and has the danger of diverting attention away from the need to increase financial regulation the current recession does require a re evaluation of the role fiscal policy can play when interest rates hit a zero bound an expansionary fiscal policy is required because monetary policy makers are reluctant to promise higher future inflation and the impact of quantitative easing is likely to be small although rising debt may place a limit on how much conventional fiscal policy can do not all expansionary fiscal measures require additional borrowing there are two important lessons for the future first although monetary policy should remain the primary tool to stabilize the business cycle the combination of fiscal implementation lags and uncertainty means that some precautionary fiscal action may be appropriate during the early phase of some economic downturns second to play this backstop stabilization role effectively a policy that results in the government debt to gdp ratio declining albeit gradually and erratically in normal times seems appropriate

excess reserves and economic activity abstract this paper examines endogenous excess reserve holdings in the banking sector of an otherwise standard dsge environment excess reserves act as an extensive margin of bank lending that is inactive in traditional limited participation models where banks hold minimal reserves by assumption the results suggest that this extensive margin of bank lending can dampen and even overturn the standard liquidity effect of monetary contractions when the liquidity effect is overturned a monetary contraction results in an increase in output in addition the model predicts that changes in the interest rate paid on reserves can deliver large short run responses

patenting by manufacturing firms in india its production and impact this paper attempts to simultaneously study the production and impact of patenting in a less developed country using panel firm level data for the period 1975 79 for india the authors results suggest that despite the limited protection of intellectual property rights in india patenting is associated with a significant increase in total factor productivity growth at the firm level after controlling for unobserved fixed firm effects r d manpower appears to be the only input that significantly influences the probability of patenting copyright 1989 by blackwell publishing ltd

r d rivalry with licensing or imitation the authors study the rivalry between two firms to develop an innovation in a dynamic setting that allows for post development dissemination of the innovation such as licensing or imitation this dissemination may cause the noninnovating firm to benefit from the discovery when this occurs conventional results in the economics of r d no longer need apply they find that industry leaders will tend to develop minor innovations but will develop major innovations only if imitation is difficult copyright 1987 by american economic association

liberalization outward orientation and in house r d activity of multinational and local firms a quantitative exploration for indian manufacturing abstract in an increasingly globalizing and knowledge based world economy the declining importance of r d activity in india is a matter of concern this paper analyzes the determinants of r d behaviour of indian enterprises over the 1990s in the context of the reforms of 1991 and their impact on the r d behaviour of mne affiliates and local enterprises the analysis suggests that although average levels of spending have fallen increased competition due to liberalization seems to have pushed local firms to rationalize their r d activity and make it more efficient also r d spending seems to rise more than proportionally with firm size after a certain threshold level has been reached the analysis brings out differences in the nature of r d activity of mne affiliates and local firms local firms direct their r d activity primarily towards the assimilation of imported technology and to providing a backup to their outward expansion via exports and fdi mne affiliates on the other hand focus on exploiting the advantages of india as an r d platform for their parents the paper is concluded with some policy implications of the findings

developing countries imports of technology in house technological capabilities and efforts an analysis of the indian experience abstract this paper examines whether enterprises decisions to import technology are influenced by their in house technological capabilities and whether the imports subsequently lead to an increase in the r d intensities it is argued that in a competitive market situation these decisions could be linked in a sequential relationship but protectionist regulatory policies may make such a relationship quite unlikely empirical tests with data of indian enterprises in the electrical and electronic industries circa 1990 found results consistent with the predictions for the protected regulatory situation

technology production and technology purchase in indian industry an econometric analysis an econometric analysis of the decisions of indian firms to invest in their own r d and to purchase technology through licensing agreements is undertaken these decisions are treated as being jointly determined by characteristics of indian industries indian prices and the supply of purchasable foreign technology the study finds that industrial structure firm size and public and private ownership influence the mix of own r d and technology purchase the pool of purchasable foreign technology indices both increased adaptive r d and technology purchase by indian firms copyright 1989 by mit press

empirical analysis of the environmental and energy policies in some developing countries using widely employed macroeconomic indicators the cases of brazil china and india abstract this paper proposes an empirical analysis concerning the environmental and energy policies of some important developing countries brazil china and india today present in the international scenario with very different features than in the past the research is carried out using two of the most important macroeconomic indicators several times proposed in the field of policy analysis emission intensity ratio and energy intensity ratio moreover the emission intensity ratio is used in order to verify the empirical existence of the so called environmental kuznets curve for the three countries for what concerns this last point final results do not correspond closely to the theoretical strict formulations hypothesised in the classical environmental kuznets curve model this paper follows completing and concluding the previous one carried out by the same author for some industrialised countries after a brief but ineluctable premise considering the theoretical basic assumptions to define the question and regarding general statements the specific cases are analysed main findings show that resulting trends in these developing countries are different and furthermore they differ from those already observed in industrialised ones

trade unions v statistical discrimination theory and application to post apartheid south africa a simple model of statistical discrimination is analyzed which captures some stylized facts of the south african labor market it shows that this type of discrimination disappears when the wage rates are determined by efficient bargaining between a representative firm and a union with endogenous membership this may explain why the wage gap between black and white workers in post apartheid south africa is smaller among unionized workers than among non unionized ones

the limits to fiscal stimulus the paper considers the case for an internationally coordinated further fiscal stimulus during the second half of 2009 although this makes some of the analysis period specific most of the issues and principles considered are timeless for a fiscal stimulus to be both effective there must be idle resources due to a failure of effective demand for it to be desirable there must be no alternative policy instruments including monetary policy for boosting demand there must be no complete financial crowding out and no complete direct crowding out through ricardian equivalence debt neutrality through minsky equivalence or through a high degree of substitutability between private and public exhaustive expenditure in private preferences or production possibilities finally for international coordination to be desirable there must be cross border externalities from national fiscal stimuli the paper considers each of these conditions in turn

market structure and innovation a survey economics we all recite deals with allocation of limited resources towards satisfaction of unlimited wants resources are typically identified as land labor and capital plus a technology that determines their transformation into consumer goods disparity between the available goods and services and the desired gives rise to scarcity and the question of what how and for whom to produce the focus then shifts to description and evaluation of alternative resource allocation mechanisms for making the choices the pareto criterion by which an allocation of resources is deemed efficient if any reallocation improving the position of some individual worsens the position of others is a commonly employed gauge of a mechanism s performance in the absence of externalities increasing returns to scale and uncertainty a perfectly competitive market system yields a pareto optimal allocation of resources this underlies the view that individual self interest is compatible with society s interest the further conclusion that pareto optimality may not be achieved via the market system in the presence of monopoly elements provides an economic rationale for antitrust laws the objective of a resource allocation mechanism appears to be according to the analysis described above to make the best of available resources the alternative objective of relaxing constraints through expanding the resource base or developing new technology seems to be beyond its scope thus until rather recently technical advance had been regarded in the mainstream of economic theory as unmotivated by the quest for profits and substantially unaffected by resource allocation instead as j schmookler observed technology had been viewed as a parameter like the weather affecting the outcome of resource allocations but itself unaffected by them 84 1965 evidence that technological progress has significantly contributed to growth in productivity together with a substantial increase in research and development activity largely financed by government and carried out by industry see f machlup 51 1962 may have spurred reconsideration of this view once technical advance is regarded as an economic variable it is natural to in

financial intermediation and price level control abstract because currency and deposits are not perfect substitutes in all transactions there are simplified financial systems in which control of the supply of currency is sufficient to control the price level most important in a currency supply approach price level control does not imply control of financial intermediation thus price level goals never have to be weighed against the availability of credit to finance real activity

on the diffusion of new technology a game theoretic approach this paper is an attempt at a rigorous albeit not exceedingly general analysis of the diffusion of new technology in particular consider an industry composed of two firms each using the current best practice technology the firms are assumed to be operating at nash equilibrium output levels generating a market price given demand and profit allocations when a cost reducing innovation is announced each firm must determine when if ever to adopt it based in part upon the discounted cost of implementing the new technology and in part upon the behavior of the rival firm if either firm adopts before the other it can expect to make substantial profits at the expense of the other firm on the other hand the discounted sum of purchase price and adjustment costs may decline with the lengthening of the adjustment period as various quasi fixed factors become more easily variable therefore although waiting costs the firm more in terms of foregone profits it may save money on the cost of purchasing the new technology thus the firm must weigh the costs and benefits of delaying adoption as well as take account of its rival s strategic behavior

contracting for tacit knowledge the provision of technical services in technology licensing contracts abstract recent research on the economic payoff from new technology has emphasized the importance of tacit knowledge or know how this paper shows that arm s length contract can overcome the problems in contracting for know how by bundling complementary inputs with know how in a technology package and leveraging the superior enforceability of contracts over the latter in the empirical part of this paper the relationship between bundling and transfer of know how is analyzed using indian data the results imply that tied sales of inputs may increase the efficiency of contracts involving the transfer of know how a striking result in the context of the current north south debates on intellectual property rights is the packaging of patents with know how

nominal prices and interest rates in general equilibrium endowment shocks the outstanding problem of neoclassical monetary theory has been to determine the effect of changes in the money stock on nominal prices and interest rates the classic result is that in the absence of money illusion contracts fixed in nominal terms and other such impedimenta money is neutral thus a doubling of the money stock results in a doubling of the nominal price level and in no change in nominal interest rates except at most for a temporary liquidity effect while the price level is rising to its new level during the adjustment period the nominal interest rate might temporarily drop this neutrality result has conventionally been proved in a static framework in intertemporal models it is necessary to distinguish between static neutrality and dynamic neutrality if a model displays dynamic neutrality fluctuations in the money stock immediately induce a proportional change in the nominal price level and no change in nominal interest rates or any real variable this property is different from and stronger than static neutrality which in dynamic models states only that if the money stock at all dates is doubled so will be the price level at all dates the effects of exogenous shocks in the monetary growth rate on nominal prices and interest rates are analyzed a representative individual rational expectations framework is adopted and a demand for money is generated by entering money in the utility function the effects of monetary shocks on inflation and interest rates are shown to depend on the autocorrelation of the monetary growth rate for example under serial independence the inflation rate equals the monetary growth rate and the nominal interest rate is nonrandom while under positive negative autocorrelation the nominal interest rate is affected positively negatively by positive growth rate shocks i am grateful to the staff of the federal reserve bank of philadelphia to the finance groups at the university of southem california and virginia polytechnic institute and to c j lacivita dan peled john seater and jon sonstelie for valuable comments on earlier drafts

preemption and rent equalization in the adoption of new technology we study the adoption of a new technology to illustrate the effects of preemption in games of timing we show that the threat of preemption equalizes rents in a duopoly but that this result does not extend to the general oligopoly game if the gain to preemption is sufficiently small then the optimal symmetric outcome which involves late adoption is an equilibrium this contrasts with reinganum s result that in precommitment equilibria there must be diffusion we develop a new and richer formalism for modeling games of timing which permits a continuoustime representation of the limit of discrete time mixed strategy equilibria

structure organizational behavior and technical efficiency the case of an indian industry abstract the differences in certain aspects of organizational behavior across large and small firms could be explained as a response mechanism to structural conditions like capital market imperfections and high market transaction costs this in turn could explain the relative production efficiency of large and small firms this paper examines the issue on the basis of firm level survey data for an indian industry

optimal fiscal and monetary policy under sticky prices this paper studies optimal fiscal and monetary policy under sticky product prices the theoretical framework is a stochastic production economy without capital the government finances an exogenous stream of purchases by levying distortionary income taxes printing money and issuing one period nominally risk free bonds the main findings of the paper are first for a miniscule degree of price stickiness i e many times below available empirical estimates the optimal volatility of inflation is near zero this result stands in stark contrast with the high volatility of inflation implied by the ramsey allocation when prices are flexible the finding is in line with a recent body of work on optimal monetary policy under nominal rigidities that ignores the role of optimal fiscal policy second even small deviations from full price flexibility induce near random walk behavior in government debt and tax rates third sluggish price adjustment raises the average nominal interest rate above the one called for by the friedman rule finally an interest rate feedback rule whereby the nominal interest rate depends on inflation and output fits well the data emanating from the ramsey economy however the fitted rule is not of the taylor type for the implied inflation coefficient is less than one and close to zero and the output coefficient is negative jel classification e52 e61 e63

strategic investments and the development of multinationals a model of multinational behavior is presented in which either the existence or absence of multinationals can be a nash equilibrium outcome the key determinant is the relationship between plant scale economies a force for geographic centralization and multiplant economies plus transport costs leading to multinationality the model predicts that multinational enterprise production arises when firm specific and transportation costs are large relative to plant scale economies the latter are both a technological and a strategic variable in the entry decision copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

monetary and fiscal policy interaction the current consensus assignment in the light of recent developments in the last few years papers have begun to analyse optimal monetary and fiscal policy in models incorporating nominal rigidities where social welfare is derived from the utility of agents this article examines whether this analysis provides support for the consensus assignment where monetary policy controls demand and inflation and fiscal policy controls government debt we argue that the basic structure of new keynesian models implies that monetary policy dominates fiscal policy as a means of controlling inflation no similar dominance appears to operate for fiscal policy and debt if debt has to return to its initial level after shocks

dynamic consequences of stabilization policies based on a return to a gold standard prior to the 1930 s rapid inflations often occurred in conjunction with wartime finance and were commonly halted by imposing or re imposing a gold standard in a general equilibrium framework i study the consequences of different methods of gold resumption for the dynamic path of the economy including the behavior of the price level and the welfare of economic agents in particular i examine the implications of varying a the length of time between the end of the war and the return to gold b the par at which gold convertibility is re established and c whether or not the government accumulates gold reserves over an extended period of time before the stabilization i show that a gradual post war deflation which permits resumption of gold convertibility as scheduled can occur even if the money supply is not contracted and the government does not actively accumulate gold reserves furthermore different policy choices regarding the resumption plan affect not only the speed of postwar deflation but also the speed of the wartime inflation in terms of welfare i find that wartime generations unanimously prefer rapid resumption at high parity while among postwar generations borrowers and lenders often have opposing interests but on average they tend to benefit from delaying resumption and devaluing the currency journal of economic literature classification numbers e40 e50 e63 e65

sovereign debt the assessment this article serves as an introduction to two issues of the oxford review of economic policy one entitled sovereign debt understanding bond markets during the eurozone crisis and the second sovereign debt lessons from the past reforms for the future we begin by documenting recent trends in advanced country sovereign indebtedness and reviewing events that preceded the sovereign debt crisis in the eurozone the mechanisms through which rising sovereign debt may impact bond yields economic growth and inflation are discussed and the evidence for such effects is reviewed our discussion highlights that there is no unique threshold beyond which sovereign debt exerts adverse macroeconomic effects and that in order to understand the consequences of a given debt load one must analyse its structure in terms of internal and external creditors currency denomination the time to maturity of the bonds and the legal code governing debt issuance as well as various economic and political constraints measuring the fiscal space of the sovereign we then turn our attention to episodes in which sovereign debt proves excessive and default occurs we review explanations for the protracted and inefficient nature of defaults and describe some lessons from historical studies examining default outcomes in the final part of the paper we discuss proposals for averting future debt crises including jointly issued bonds such as eurobonds contingent convertible bonds and elements of a sovereign debt restructuring mechanism in the course of our discussion we draw on each of the 11 articles included in the two issues of this journal devoted to sovereign debt copyright 2013 oxford university press