price setting during low and high inflation evidence from mexico this paper provides new insight into the relationship between inflation and the setting of individual prices by examining a large data set of mexican consumer prices covering episodes of both low and high inflation when the annual rate of inflation is low below 10 15 the frequency of price changes comoves weakly with inflation because movements in the frequency of price decreases and increases partly offset each other in contrast the average magnitude of price changes correlates strongly with inflation because it is sensitive to movements in the relative shares of price increases and decreases when inflation rises beyond 10 15 few price decreases are observed and both the frequency and average magnitude are important determinants of inflation i show that a menu cost model with idiosyncratic technology shocks predicts the average frequency and magnitude of price changes well over a range of inflation similar to that experienced by mexico

irving fisher on the international transmission of booms and depressions through monetary standards the role of monetary standards in the international transmission of economic fluctuations particularly the role of the gold standard in the depression has attracted considerable recent attention for instance from choudhri and kochin 1980 hamilton 1988 temin 1989 1993 eichengreen 1992 and bernanke 1995 however this literature has overlooked a pioneering precursor irving fisher are booms and depressions transmitted internationally through monetary standards 1935 which has also been neglected in the literature on fisher i examine fisher s contribution in the context of later research on the topic and explore the place of fisher 1935 in fisher s work

consequences of bank distress during the great depression the consequences of bank distress for the economy during the depression remain an area of unresolved controversy since john m keynes 1931 and irving fisher 1933 macroeconomists have argued that bank distress magnified the extent of the economic decline during the depression as the intermediaries controlling money and credit banks were in a special position to transmit their distress to other sectors but the mechanism through which banking distress mattered for the economy has been hotly contested milton friedman and anna j schwartz 1963 saw the contraction in the money multiplier driven in their view by panicked depositors withdrawals of deposits as the primary mechanism through which banking distress affected the real economy they described the mechanism transmitting banking distress to the real sector as operating at the national level through changes in the aggregate supply of money and interest rates bank distress reduced the money supply available to the public either through the closure of banks and the consequent freezing of bank deposits or the withdrawals of deposits by depositors that feared bank failure ben s bernanke 1983 building on fisher 1933 emphasized the transmission of monetary shocks via their effects on the balance sheets of borrowers and on the supply of credit by banks borrowers balance sheets were worsened by debt deflation as the result of fixed dollar debt obligations borrowers net worth and cash flow declined with the rising value of debt service costs relative to income borrowers with positive net present value projects but weak balance sheets had less internally generated retained earnings to invest and could not qualify for credit furthermore bernanke argued that the contraction of the money supply produced contraction of nominal income and prices relative to fixed debt service which weakened borrowers balance sheets and in turn weakened banks not only did firms financial distress reduce the number of qualified borrowers the contraction in banks net worth forced a reduction in the supply of bank loans to qualified borrowers many firms and individuals relied on banks for credit and as those banks suffered losses of capital due to asset value declines and contractions in deposits as depositors reacted to bank weakness by withdrawing their funds even borrowers with viable projects and strong balance sheets experienced a decrease in the effective supply of loanable funds bernanke termed the combined weakening of borrowers balance sheets and the contraction in bank credit supply a rise in the cost of credit intermediation the scarcity of perfect substitutes for the positive net present value investments of firms with weak balance sheets and for the credit supplied by existing banks implies that the weakening of firms and banks balance sheets the disappearance of banks and the contraction in surviving banks lending made it more difficult for the economy to channel funds to their best use thus what began as a contraction in aggregate demand became a contraction in aggregate supply which magnified adverse economic shocks and prolonged and deepened the depression the financial distress of firms and banks and the decline in bank lending were not only symptoms of the depression but means for magnifying the shocks that caused the depression bernanke s statistical evidence in support of this story is derived from time series analysis at the national level in calomiris graduate school of business 601 uris hall columbia university 3022 broadway new york ny 10027 and national bureau of economic research e mail cc374 columbia edu mason department of finance drexel university 3141 chestnut street philadelphia pa 19104 e mail joe mason drexel edu we thank valerie ramey david wheelock charles himmelberg steve zeldes gary gorton two referees and seminar participants at columbia university wharton northwestern university and the 2001 economic history association meetings for helpful comments on an earlier draft we gratefully acknowledge support from the national science foundation the university of illinois and the federal reserve bank of st louis

best policy response to environmental shocks applying a stochastic framework abstract the paper develops a general framework for the analysis of environmental shocks in growing economies endogenous capital investments allow identifying the dual role of capital as a buffer against shocks and a source of pollution we study the effects of recurring natural disasters on optimal growth and efficient environmental policies emissions may cause continuous fluctuations entail discrete and recurring jumps or trigger so called tipping points with large costs to the economy closed form solutions are provided for all the model variants we discuss possible applications in environmental economics and identify current research gaps

the transatlantic productivity gap is r d the main culprit the literature has pointed to different causes to explain the productivity gap between europe and united states in the last decades this paper tests the hypothesis that the lower european productivity performance in comparison with the us can be explained not only by a lower level of corporate rd however using different estimation techniques the r d coefficients for the us firms always turn out to be significantly higher to see to what extent these transatlantic differences may be related to the different sectoral structures in the us and the eu we differentiated the analysis by sectors the result is that both in manufacturing services and high tech sectors us firms are more efficient in translating their r d investments into productivity increases

inflation and welfare in a monetary economy it is in everyone s private interest to try to get someone else to hold non interest bearing cash and reserves but someone has to hold it all so these efforts must simply cancel out all of us spend several hours per year in this effort and employ thousands of talented and highly trained people to help us these person hours are simply thrown away wasted on a task that should not have to be performed at all

procyclical labor productivity and competing theories of the business cycle some evidence from interwar u s manufacturing industries we study the phenomenon of short run increasing returns to labor srirl in a sample of 10 interwar u s manufacturing industries our main findings are that srirl was common in the interwar period and that the pattern of srirl across industries was similar to that observed in the postwar period we argue that since presumably the depression was not caused by technical regress these findings are inconsistent with the claim of real business cycle theorists that srirl is in general due to procyclical technical shocks we propose tests for discriminating between two other leading explanations of srirl but find that our conclusions differ by industry

was the deflation during the great depression anticipated evidence from the commodity futures market futures prices were well above spot prices for most commodities during most of the great depression evidently the spectacular declines in agricultural prices caught many people by surprise based on the historical correlations between commodity prices and consumer prices commodity markets anticipated stable consumer prices during the first year of the great depression the dramatic drop in nominal treasury bill yields thus should be read as a drop in ex ante real rates later in the great depression markets anticipated deflation but not as severe as actually occurred copyright 1992 by american economic association

deflation and depression is there an empirical link are deflation and depression empirically linked no concludes a broad historical study of inflation and real output growth rates deflation and depression do seem to have been linked during the 1930s but in the rest of the data for 17 countries and more than 100 years there is virtually no evidence of such a link

were price changes during the great depression anticipated abstract this paper reassesses whether the large swings in prices during the 1930 s were anticipated we argue that uncertainty about monetary fiscal and exchange rate policies induced systematic differences between the rate of price change expected by economic agents at the time and the time series forecasts of inflation our analysis of nominal interest rates and ex post inflation strongly supports this view in fact our results suggest that the deflation of the early depression years and the inflation that followed were both largely unanticipated

the impact of high tech capital on productivity evidence from australia i introduction the bulk of the empirical research on the relationship between high tech capital investment and productivity has been based on data for the united states given the relatively large size of the high tech capital sector in the u s economy it is likely that the united states is a special case most economies resemble australia s in being net importers of high tech capital not producing high tech capital was often cited as a weakness in these economies relative to the united states however since the end of the late 1990s tech boom there has been a reappraisal of whether the production or the use of high tech capital is most beneficial hence to shed light on this debate the main purpose of this paper is to empirically examine the relationship between high tech capital use and the multifactor productivity mfp of 10 industries in the australian market sector using annual data for 1966 2002 alternative specifications of production functions are considered and estimated alternative measures of high tech capital are included with combinations of computers software and electronics capital in the first production function high tech capital is allowed to be more or less productive than other capital to determine whether there is a relationship between high tech capital and mfp it is also possible to test whether there are excess returns to high tech capital for robustness testing purposes a second production function is specified with high tech capital as a separate input into production other potential sources of mfp growth such as public capital research and development stocks and microeconomic reform are also included in the production functions we find evidence of a positive relationship between high tech capital and mfp in the market sector there is less evidence however of excess returns to high tech capital which suggests that current investment levels are not inadequate the results by industry suggest that the benefits of investing in high tech capital are not distributed evenly across the economy with only some industries experiencing a positive relationship between high tech capital and mfp the structure of this article is as follows in section ii the theoretical contribution of high tech capital to mfp and the evidence to date is reviewed in section iii the methodology is outlined in section iv data sources and trends are described in section v the results are presented and interpreted and section vi concludes ii the impact of high tech capital on output and productivity the theory and evidence the impact of investment in high tech capital has been the subject of debate between new economy sceptics and optimists for several years it is widely accepted that mfp has increased substantially in u s high tech producing industries in which the rate of technological change has been phenomenal over the past 40 years several publications have found a quantifiable contribution by computer producing industries to u s output growth 1 however australia is not generally regarded as a producer of computers data from the organisation for economic co operation and development oecd 1998 indicate that the high tech share of australian manufacturing value added was 4 5 in 1995 compared to 15 8 in the united states therefore the substantial u s economy wide mfp improvements specifically associated with its computer producing industry are unlikely to be replicated in the australian economy over the past 30 years there has been rapid accumulation of high tech capital in many countries australia was the third most intensive user of high tech capital in the oecd in 1995 behind the united states and new zealand simon and wardrop 2002 find that this rapid accumulation of high tech capital may have substantially contributed to australia s economic growth during the 1990s this accumulation has been driven by technological change in high tech producing industries lowering the price of high tech capital

new evidence on canadian wage rates 1900 1930 this paper shows there are serious errors in published canadian nominal wage data and presents hourly wage series developed from firm records for machinists helpers and laborers employed by the canadian pacific railway between 1900 and 1930 this new evidence suggests that real wage growth in canada was faster than previously believed and that there were substantial changes in wage inequality

financial factors in the great depression eginning with irving fisher 1933 and john maynard keynes 1931 b 1963 macroeconomists have argued that financial markets were important sources and propagators of decline during the great depression turning points during the depression often coincided with or were preceded by dramatic events in financial markets stock market collapse waves of bankruptcy and bank failure and contractions in the money stock but the mechanism through which financial factors contributed to the depression has been a source of controversy as has been the relative importance of financial factors in explaining the origins and persistence of the depression this essay reviews the literature on the role of financial factors in the depression and draws some lessons that have more general relevance for the study of the depression and for macroeconomics i argue that much of the recent progress that has been made in understanding some of the most important and puzzling aspects of financial real links in the depression followed a paradigm shift in economics a central neglected theoretical piece of the story for financial factors was the allocative effects of imperfections in capital markets which can imply links between disruptions in financial markets and subsequent economic activity also the increasing emphasis on learning and path dependence in economics has helped to explain why financial shocks during the 1930s were so severe and why policy makers failed to prevent the depression

not only nokia what finland tells us about new economy growth new economy growth is there a relation between information technologies and the growth rate of productivity is this relation mainly due to the efficiency enhancing effects of few leading industries or rather to the pervasive spreading of it throughout the economy our country study on finland in the 1990s is a contribution to shed light on these issues we find that nokia the world leader in cellular phone production directly and substantially contributed to enhance productivity growth in finland productivity growth gains outside nokia and few other it related service industries have been small temporary or non existent at all though we also provide two pieces of evidence against the existence of technological spillovers between nokia and the other fast growing industries in the finnish economy as shown by the finnish input output table the thinness of the inter industry linkages between the nokia industry and the rest of the economy indicates that productivity gains of the size recorded in the few other fast growing service industries can be associated to nokia s productivity boom only to a very small extent parallel statistical analysis also shows a striking association between the timing and the industry distribution of productivity gains and the declining pace of the price of machinery and equipment investment goods in those industries this is evidence that tfp growth increases in those industries should be mostly attributed to the decline in the world price of computing power altogether we interpret our findings as showing that even in a country endowed with a world class national champion and a policy environment commonly thought of as conducive to growth a new economy takes a long time to show up unlike commonly held tenets it diffusion has shown a limited potential in speeding up this process in finland francesco daveri and olmo silva

new estimates of the canadian money stock 1871 1967 in this paper the authors construct historical data series beginning in 1871 for canadian m1 m2 and monetary base the new series are at a monthly frequency and use the bank of canada s definition of the monetary aggregates institutional and reporting changes however make perfect backwards extrapolation of the bank s series impossible there are only end of month data rather than average weekly since january 1994 daily data and the authors cannot precisely match savings accounts at chartered banks and trust companies that are included in the modern monetary aggregates their adjustments for these changes and their impact on the aggregates are documented

the new economy in europe 1992 2001 despite the fast catching up in ict diffusion experienced by most eu countries in the last few years information technologies have so far delivered little productivity gains in europe in the second half of the past decade growth contributions from ict capital rose in six eu countries only the uk denmark finland sweden ireland and greece quite unlike the united states this has not generally been associated to higher labour or total factor productivity growth rates the only exceptions being ireland and greece particularly worrisome the large countries in continental europe germany france italy and spain showed stagnating or mildly declining growth contributions from ict capital together with definite declines in tfp growth compared to the first half of the 1990s it looks like that the celebrated solow paradox on the lack of correlation between ict investment and productivity growth has fled the us to migrate to europe

the transatlantic productivity gap a survey of the main causes abstract during the last 2 decades europe s economy experienced a productivity slowdown whereas the united states us economy exhibited a marked acceleration the result is that since the early 1990s the relative productivity levels between the two regions have continuously diverged leading to a transatlantic productivity gap much of the explanation for this is the strong performance of the us in the so called new economy or knowledge economy and in particular the underinvestment in r d and as a result productivity and innovation has been at the forefront in the european policy agenda however various explanations for the us european union transatlantic productivity gap suggest that the picture is rather more complex than simply the effects on or the result of particular technology driven sectors

ict capital and services complementarities the italian evidence this article investigates whether information and communication technologies icts hardware and services play a complementary role in boosting economic growth the main argument is that investments in ict fixed capital are a necessary but not sufficient condition leading to productivity gains above all in late adopter countries their effective implementation indeed requires on the one hand a changing economic structure characterized by a growing weight of service sectors and on the other hand complementary investments in ict services directed to ease the integration of the new technologies within firms boundaries the analysis is conducted on a late industrialized country like italy and shows that in lagging countries the weak impact of ict adoption is the result of three converging forces relatively high share of manufacturing sectors low adoption levels of icts in traditional manufacturing sectors inadequate investments in ict services

the spectre of deflation a review of empirical evidence what explains the widespread fear of deflation this article reviews the history of thought economic history and empirical evidence on deflation with a view to answering this question it also outlines informally the main effects of deflation in applied monetary models the main finding is that for both historical and contemporary deflations there are many open empirical questions that could be answered using the tools economists use to study inflation and monetary policy more generally qu est ce qui explique la peur tres repandue de la deflation ce memoire fait un tour d horizon de l histoire de la pensee economique de l histoire economique et des resultats empiriques quant aux effets de la deflation en vue de repondre a cette question on fait aussi echo informellement aux effets principaux de la deflation dans les modeles monetaires appliques ce qui ressort principalement de ce travail est que tant pour les deflations dans l histoire que dans le monde contemporain il y a bien des questions empiriques encore irresolues auxquelles on pourrait donner une reponse en utilisant l outillage mental que les economistes utilisent pour etudier l inflation et la politique monetaire plus generalement sp c tre n thing that is thought to be seen but has no material existence haunting presentiment of ruin war madness etc

wage adjustment under low inflation evidence from u s history data from recent years indicate that employers are especially unlikely to cut the nominal wage rate paid for a job adjustments to real or relative wages that require absolute cuts in money wages are very rare relative to the frequency one might expect to observe based on distributions of wage changes that do not require money wage cuts erica l groshen and mark e schweitzer 1995 1997 david e lebow et al 1999 a worker who remains with the same employer from one year to the next is accordingly unlikely to report an absolute reduction in the nominal wage he receives david card and dean hyslop 1997 shulamit kahn 1997 joseph g altonji and paul j devereux 1999 the existence and causes of downward nominal wage rigidity have implications for macroeconomic outcomes and for practical issues in monetary policy presumably efficient operation of labor markets requires many downward adjustments of relative wages and occasional decreases in the overall wage level relative to product prices if the average rate of wage inflation were close to zero some of these relative or real wage adjustments would be blocked by a floor under current levels of nominal wage rates george a akerlof et al 1996 assert that downward nominal wage rigidity reflects fundamental preferences of workers and argue that it implies a central bank should target a rate of price inflation greater than zero because a target of zero inflation will impose permanent real costs on the economy p 2 the notion that downward nominal wage rigidity is a fundamental constraint so that inflation serves to grease the wheels of the labor market is controversial even among those who accept the possibility of nominal rigidities in general it has been argued that downward nominal wage rigidity as distinct from such phenomena as menu costs which would discourage adjustment of a wage in either direction david romer 1993 may be an artifact of an inflationary monetary regime and would disappear in the absence of persistent inflation nominal wage reductions would no longer be seen as unusual if the average nominal wage was not growing workers would not see them as unfair and firms would not shy away from imposing them robert j gordon 1996 p 62 see also n gregory mankiw 1996 william poole 1998 william b english 2000 to see whether downward nominal wage rigidity would exist in a noninflationary regime it may be useful to examine data from times and places where there was no persistent wage inflation for the united states at least that excludes data from years since the second world war throughout the postwar period price inflation or real wage growth has been sufficient to keep average wage inflation above zero before the second world war on the other hand long run trend rates of price inflation were often close to zero or negative robert b barsky 1987 if wage inflation was correspondingly low u s historical data may offer tests of the proposition that downward nominal wage rigidity exists even in noninflationary

optimal monetary policy what we know and what we don t know in this article i examine the current state of knowledge about optimal monetary policy i distinguish between two literatures basic and applied the basic literature is explicit about the frictions that generate a positive value for money and make it socially beneficial the applied literature is not i describe the recent lessons about monetary policy that we have learned from each literature and discuss how the two distinct approaches may be usefully combined

viewpoint understanding the great depression bernanke 2000 and james 2001 it is now commonplace to view the depression from an international perspective and to test causal hypotheses by comparing the experiences of countries that endured more and less severe cyclical downturns this is in contrast with the earlier generation of scholarship notably the influential work of friedman and schwartz 1963 and temin 1976 which viewed the depression as centred in the united states and focused on shocks and policies in that country specific hypotheses associated with the global perspective continue to be disputed but there seems little question that the international view serves as a point of departure for a growing portion of recent scholarship whether this new research has produced a scholarly consensus is another matter in this paper i ask whether it is possible to arrive at such a consensus by synthesizing the old and new literatures i describe a perspective that views the great depression as a global phenomenon emphasizing linkages among countries and the destabilizing influence of the international monetary and financial system but that at the same time acknowledges the uniquely important character of events and policies in the united states i thereby suggest that the opposition between the old and new or u s centric and global views of the great depression may ultimately prove artificial the task for macroeconomic and historical scholarship

house prices borrowing constraints and monetary policy in the business cycle i develop a general equilibrium model with sticky prices credit constraints nominal loans and asset prices changes in asset prices modify agents borrowing capacity through collateral value changes in nominal prices affect real repayments through debt deflation monetary policy shocks move asset and nominal prices in the same direction and are amplified and propagated over time the financial accelerator is not constant across shocks nominal debt stabilises supply shocks making the economy less volatile when the central bank controls the interest rate i discuss the role of equity debt indexation and household and firm leverage in the propagation mechanism finally i find that monetary policy should not target asset prices as a means of reducing output and inflation volatility

debt deflation theory and evidence abstract in the early 1990s the most severe recessions occurred in those countries which had experienced the largest increases in private debt burdens was this an accident of history or did it reflect deeper forces affecting market economies the paper comprises three parts first it presents three stylised facts about debt and its impact on consumption growth in the 1930s and the 1990s second it discusses the reception of irving fisher s work on debt deflation by his contemporaries and argues that it is helpful to think of debt deflation as a real business cycle phenomenon third there is a theoretical discussion of the reaction of debt and consumption to shocks in the context of a model of precautionary saving central to the model is the role of distributional shocks which implies that aggregate demand may be a nonmonotonic function of the price of assets in terms of the consumption good multiple equilibria may exist leading to the possibility of financial instability the analysis of debt deflation requires the construction of real business cycle models without a representative consumer

the diffusion of mobile telecommunications services in the european union we study the technological and regulatory determinants of the diffusion of mobile telecommunications services in the european union using a logistic model of diffusion we find that the transition from the analogue to the digital technology during the early 1990s and the corresponding increase in spectrum capacity had a major impact on the diffusion of mobile telecommunications countries which granted first licenses at later points in time show a significant but slow catching up effect implying international convergence only by around 2006 the impact of introducing competition has also been significant during both the analogue and the digital period though the effect was smaller than the technology effect

a behavioral explanation for nominal wage rigidity during the great depression nominal wages in manufacturing were left unchanged by the large decline in nominal demand that marked the first two years of the great depression this rigidity in nominal wages is explained using the tools of the behavioral theory of the firm the emphasis is on the reasons firms changed their decision rules linking fluctuations in final sales to changes in nominal wages

sticky prices in the euro area a summary of new micro evidence this paper summarises the vast evidence on micro price setting recently obtained for euro area countries we consider studies with micro data on consumer and producer prices as well as survey information the main findings are 1 prices in the euro area are sticky and stickier than in the us 2 downward price rigidity is only slightly more marked than upward price rigidity 3 heterogeneity and asymmetries are observed in price setting and 4 the relevance of theories that explain price stickiness such as implicit or explicit contracts marginal costs and coordination failure is confirmed whereas menu costs pricing thresholds and costly information explanations are judged much less relevant by firms jel c25 d40 e31

information technology and the world economy this paper addresses the impact of investment in information technology it on the recent resurgence of world economic growth we describe the growth of the world economy seven regions and 14 major economies during the period 1989 2003 we allocate the growth of world output between input growth and productivity and find surprisingly that input growth greatly predominates the contributions of it investment have increased in all regions but especially in industrialized economies and developing asia differences in per capita output are explained by differences in per capita input rather than by variations in productivity

accounting for global warming risks resource management under event uncertainty abstract optimal management of atmospheric pollution is discussed with a special emphasis on the uncertainty concerning the occurrence of undesirable events associated with the greenhouse effect the uncertainty considered here stems from our ignorance of the exact pollution level required to trigger the event rather than from the genuinely stochastic nature of the processes involved taking atmospheric pollution level as the state variable it is found that uncertainty implies the existence of an equilibrium interval within which the emission rate of the greenhouse gases should be kept equal to the natural removal rate of these gases processes initiated outside the equilibrium interval must converge monotonically to its nearest endpoint the determination of the interval requires no knowledge of the optimal policy in contrast ignoring event occurrence risk implies a single equilibrium level attracting the optimal process from any initial level

an exploration of the effects of the interaction between ict and labor force on economic growth in transition economies abstract complementary investments serve as one of the prerequisites for the successful translation of investments in information and communication technologies ict into macroeconomic outcomes in this study we investigate the presence of complementarity between investments in telecoms and full time telecom staff in the context of transition economies te using translog formulation of cobb douglas production function we determined the presence of statistically significant interaction effect between the two variables the direction of the effect however varies between the two subgroups of tes in our sample thus suggesting the presence of the level dependent threshold

new economy in growth and development the benefits from the new economy should accrue as improvements in productivity and economic growth but while the use of information and communication technology seems to have had a substantial impact on the performance of the united states economy the evidence for other countries is much weaker this study does not find any significant correlation between ict investment and economic growth in the period 1985 99 for a sample of 42 countries for which ict spending data are available even more surprisingly and in contrast with some previous studies the relationship is not statistically significant for the subsamples of industrial or high income countries either there are at least three possible explanations for this apparent productivity paradox the most obvious one is the fact that not many countries other than the us have yet invested much in ict the second reason is that even if they have done so they may not have invested enough in complementary infrastructure like education and skills in order to reap the benefits from ict investment technology by itself is not a solution to any development problem it only provides an opportunity the third and the most controversial explanation is that the neoclassical method applied in assessing the

growth technological change and ict diffusion recent evidence from oecd countries in this paper we present an overview of gdp and productivity growth patterns in oecd countries over the past decade on the basis of harmonized data our evidence suggests that fast growing countries generally shared three characteristics improvements in labour utilization a generalized enhancement in human capital and rapid shifts in the composition of physical capital towards information and communication technology ict equipment particularly we show that technological change embodied in new ict capital goods has been a primary source of output and productivity growth in ict using sectors the international comparison allows relating growth patterns to institutional and policy indicators thereby offering some preliminary insights into the potential sources of growth disparities cross country evidence yields some tentative support to the idea that institutional factors affecting competition in the product market are likely to affect productivity patterns especially in a period of rapid diffusion of a general purpose technology such as ict copyright 2002 oxford university press

does the new economy measure up to the great inventions of the past abstract during the four years 1995 99 u s productivity growth experienced a strong revival and achieved growth rates exceeding that of the golden age of 1913 72 accordingly many observers have declared the new economy to be an industrial revolution even more important than the second industrial revolution of 1860 1900 which made the golden age of productivity growth possible this paper dissects the recent productivity revival subtracts out a cyclical component and concludes that there is no revival of the productivity growth trend in the 88 percent of the private economy lying outside of the durables manufacturing sector the paper explains this surprising finding by pointing to limitations in computers and the internet in comparison with the great inventions of the past

adaptation mitigation and risk an analytic approach abstract the adaptation vs mitigation dilemma is considered by analyzing a simple dynamic model of managing a polluting process subject to the risk of abrupt occurrences of harmful events the occurrence hazard can be mitigated by reducing the polluting emissions while the occurrence damage can be controlled via investments in adaptation activities a full dynamic characterization of the optimal mitigation adaptation processes is presented the adaptation and mitigation policies interact strongly and the evolution in time of each is affected by the option to implement the other the conditions under which adaptation investments should begin promptly take place after some delay or be avoided altogether are derived in terms of some key model parameters

insurance and climate driven extreme events abstract we investigate how insurance affects agents decisions when being faced by endogenous climate driven extreme events this is not only important in order to understand how the possibility of insurance augments mitigation and saving decisions but it also improves our understanding of how insurance should be provided since there are no studies as of now that rely on such an integrated approach we extend the literature along two lines firstly we develop a neoclassical growth framework with endogenous extreme events and an insurance sector secondly we introduce a simulation method that allows us to explicitly take these extreme events into account and which yields additional numerical insights in doing so we can fully characterize and quantify the impact of different insurance policies for mitigation and economic growth decisions our analytical results and computational experiments show that i transparency of the insurance sector is the decisive requisite for abatement activities implying substantial policy opportunities ii a decentralized economy will under invest in abatement without adequate policy interventions iii precautionary beliefs on the frequency of extreme events lead to more sustainability iv a social security system which prices insurance fairly is preferable to an insurance industry which provides insurance with an overhead

pollution control in an uncertain environment abstract the effects of the threat of occurrence of environmental catastrophes on optimal pollution control are considered recent analysis of irreversible events is extended to two types of reversible events single occurrence and multiple occurrence recurrent events while it is possible that the threat of irreversible events induces more pollution we show that reversible events under quite general conditions induce more conservation less pollution the analysis is carried out via a simple method the h method to identify optimal steady states by comparing steady state policies with small variations from them for recurrent events the optimal state process must approach a unique steady state from any initial level in this case the h method characterizes the dynamic behavior of the optimal state process without actually solving for it

optimal saving under poisson uncertainty abstract this paper studies optimal saving and investment behaviour of a household that can either invest in a riskless or a risky saving technology when risk results from a poisson process the focus is on behaviour of households in a general equilibrium setup poisson processes are introduced since they allow us to understand and model endogenous cycles jointly with long run growth it turns out that a very simple intuitive and tractable characterization of equilibrium is possible journal of economic literature classification numbers c61 o33 o41

climate change and insurance a critical appraisal several issues relating to insurance and the damage costs of climate change are discussed it is argued that the option of insuring climate change is severely limited because the associated damages are hardly quantifiable and little diversifiable in addition binding contracts are a problem on long time scales and in an international context hedging consumption smoothing over time precautionary investments and liability are not to be presented under the heading of insurance not only because this unnecessarily and confusingly expands the traditional definition of insurance but also because this could create a false sense of security the impact of climate change on the profitability of the commercial insurance sector is not likely to be severe as the insurance companies are capable of shifting changed risks to the insured provided that they are properly and timely informed on the consequences of climate change

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

regulating environmental threats environmental consequences of natural resource exploitation often entail threats of future occurrences of detrimental abrupt events rather than or in addition to inflicting a damage gradually the possibility of abrupt occurrence of climate change related calamities is a case in mind the uncertainty associated with the realization of these threats and their public bad nature complicate the design of optimal economic response we derive a pigouvian hazard tax schedule that implements the socially optimal outcome the tax is based on the expected cost of the hazard generating activities and serves to reduce hazardous emissions well in advance of the catastrophic occurrence a numerical example illustrates possible effects of the proposed regulation scheme implications for climate policy are discussed

regime shifts and uncertainty in pollution control we develop a simple model of managing a system subject to pollution damage such as climate change under the risk of an abrupt and random jump in the damage function the model allows the full dynamic characterization of the optimal emission policies under uncertainty the results imply precautionary behavior in contrast with the ambiguous outcomes reported in the literature for models of catastrophic occurrences the framework is used to analyze the adaptation vs mitigation dilemma and provides a simple criterion to determine when adaptation activities should be undertaken

economic development on a finite planet with stochastic soil degradation abstract world economic development is associated with growing food consumption agricultural land however suffers from over exploitation and is subject to environmental shocks which are projected to become more severe due to climate change we present a stochastic model of a dynamic economy where soil is an essential input and natural disasters are sizeable multiple and random expansion of economic activities raises effective soil units but contributes to an aggregate loss of soil protective ecosystem services which exacerbates soil degradation at the time of a shock we provide closed form analytical solutions and show that optimal development is characterized by a constant growth rate of stocks and consumption until an environmental shock arrives causing all variables to jump downwards optimal soil management consists of spending a constant fraction of output on preservation measures which is an increasing function of the shocks hazard rate degradation intensity of agricultural practices and the damage intensity of environmental impact we derive the optimal propensity to save and discuss the impact of human pressure and risk exposure on soil and output we also discuss quantitative impacts of climate change on optimal soil management

dynamic linkages between diffusion of information communication technology and labour productivity in south asia at present diffusion of information communication technology ict is a significant area of concern for sustainable development and growth of a country regions with abundant labour such as south asia require significant improvements in the diffusion of ict to achieve higher productivity for their labour which in turn can increase the pace of economic growth in this context the objective of this study is to investigate whether ict could be used to improve labour productivity for countries in south asia this study first investigates the general status of diffusion of ict among south asian countries the initial results based on descriptive statistics indicate that there is a significant gap among the south asian countries with maldives having the highest ict facilities second using robust panel data methodologies this study concludes that south asia s drive for higher productivity of its abundant labour force can substantially be improved in the long run by increasing diffusion of ict in the prese

openness and innovation home and export demand effects on manufacturing innovation panel data evidence for ireland and switzerland abstract recent studies in the tradition of schmookler have re emphasised the potential role of demand in stimulating innovation here we reconsider the role of home and export market demand in stimulating manufacturing innovation using comparable panel data for two small open economies ireland and switzerland our analysis is based on the estimation of reduced form innovation production functions using panel data estimators over the sample period 1994 2005 for a range of innovation indicators however we find little evidence of any significant market demand effects with innovation performance instead determined largely by firm level capability effects and characteristics in policy and strategy terms this suggests the continued value of measures to improve innovation capability regardless of market demand conditions in more methodological terms our results suggest the validity of the usual assumption implicit in modelling innovation outputs that supply side factors predominate

the information technology revolution and the stock market technological progress comes in waves the british industrial revolution 1760 1850 ushered in cort s puddling and rolling process for making iron crompton s mule for spinning cotton and the watt steam engine the second industrial revolution 1890 1930 witnessed the rise of electricity the internal combustion engine and the chemical industry the birth of information technology it may herald the start of a third industrial revolution a new technology or product is often developed by the single entrepreneur who initially finds it hard to get funds develop the product and find customers but if the product is good customers eventually line up and investors flock in other firms then move in to make the product and may drive the innovator out or acquire him whether he reaches the initial public offering ipo stage or is acquired by a listed firm though it takes time for the innovator to add value to the stock market indeed the innovation may at first reduce the market s value because some firms usually large or old will cling to old technologies that have lost their momentum figure 1 plots the market value of u s equity relative to gdp this paper argues that a the market declined in the late 1960 s because it felt that the old technologies either had lost their momentum or would give way to it and that b it innovators boosted the stock market s value only in the 1980 s if the stock market provides a forecast of future events then the recent dramatic upswing represents a rosy estimate about growth in future profits for the economy this translates into a forecast of higher output and productivity growth holding other things equal such as capital s share