scarce collateral the term premium and quantitative easing abstract a model of money credit and banking is constructed in which the differential pledgeability of collateral and the scarcity of collateralizable wealth lead to a term premium an upward sloping nominal yield curve purchases of long maturity government debt by the central bank are always a good idea but for unconventional reasons a floor system is preferred to a channel system as a floor system permits welfare improving asset purchases by the central bank

creating the u s dollar currency union 1748 1811 a quest for monetary stability or a usurpation of state sovereignty for personal gain the desirability of politically creating currency unions among otherwise sovereign states is an ongoing debate a key backdrop in this debate is the supposed empirical success of the u s dollar currency union the fact that otherwise sovereign states within the united states are not constitutionally allowed to issue their own currency thus creating a single currency for the whole united states the u s dollar is the archetype that underlies many policy choices and recommendations such as the creation of the european currency union and the condemnation of the separate currencies issued by individual states within argentina during their recent crisis the benefits of the u s currency union and by analogy the benefits of other politically manufactured currency unions are assumed to be obvious namely a reduction in monetary instability and exchange rate transaction costs within the union thereby stimulating long run economic growth these alleged benefits for the united states however are not derived from market evidence but from simple theoretical assertions and from a literature that takes as fact the rhetoric of the winning side at the u s constitutional convention independent of theory and rhetoric little is known about how and why the u s currency union was created or about whether it improved macro performance these deficiencies are addressed here prices indices exchange rates and market generated transaction data from 1748 through 1811 are used to determine when the market moved from state currencies to the u s dollar and to assess the nonwartime performance of prices exchange rates and purchasing power parity before versus after this transition this evidence suggests that the u s currency union had more to do with usurpation of state sovereignty by rent seeking bankers than with solutions to monetary instability and transactions costs

rational ponzi games when can a government run a rational ponzi game i e issue debt and never pay back any interest or principal the transversalit y condition of each individual implies that such schemes require an i nfinity of lenders given this horizons are unimportant ponzi games cannot be ruled out by assuming that agents have infinite horizons the authors point out both the basic similarity of and some key diff erences between rational ponzi games and asset price bubbles or fiat money regarding international debt the analysis implies that what matters for the feasibility of rational ponzi games are conditions in the lenders not the borrowers economy copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

chinese villages and townships as industrial corporations ownership governance and market discipline1 public firms in a reforming socialist economy face two problems the old soft budget constraint syndrome and new principal agent problems china s township village government owned enterprises tves outperform state owned enterprises soes in growth rate and productivity three explanations are proposed in the literature 1 tves represent informal or ambiguous private property rights which are most efficient in partial reform 2 the small size and scale of township village governments as industrial corporations allows officials to monitor tves directly and to limit their wherewithal for cross subsidizing 3 strict market disciplines facing tves render indirect market monitoring to mitigate agency problems effectively analyses of jiangyin data show that a while both superior to local soes village and township enterprises share similar productivity and b the scale of township village corporations slightly increases productivity i conclude that local state corporatism should be revised to inc

why haven t developing countries privatized deeper and faster abstract despite a decade of privatization in the developing world the vast majority of state owned enterprise soe assets continue to be in government hands bureaucrats in business world bank 1995 correctly identifies politics as one reason for the slow pace of privatization but it underestimates the role of institutional and economic constraints success stories of privitization are rare in low income countries and the long term promise of privatization in sectors posing regulatory complications remains to be established countries in crisis may reform soes quickly and deeply despite these uncertainties but others may opt for gradual reform which need not be altogether bad if speedy privatization results in poorly conceived schemes the cure can be worse than the illness finally bureaucrats are likely to stay in business for years to come and therefore it is important to improve their effectiveness in the roles they are unlikely to shed in the future a market friendly approach to soe reform need not be government un friendly

mass privatization state capacity and economic growth in post communist countries why did the transition from socialism to capitalism result in improved growth in some countries and significant economic decline in others scholars have advanced three main arguments 1 successful countries rapidly implemented neoliberal policies 2 failures were not due to poli cies but to poor institutional environments and 3 policies were counterproductive because they damaged the state we present a state centered theory and empirically demonstrate for the first time one of several possible mechanisms linking neoliberal policies to poor economic performance mass privatization programs where implemented created a massive fiscal shock for post communist governments thereby undermining the development of private sector gover nance institutions and severely exacerbating the transformational recession we performed cross national panel regressions for a sample of 25 post communist countries between 1990 and 2000 and found that mass privatization programs negatively affected economic growth state capacity and property rights protection we further tested these findings with firm level data from a rep resentative survey of managers in 3 550 companies operating in 24 post communist countries within countries that implemented mass privatized programs newly privatized firms were sub stantially less likely to engage in industrial restructuring but considerably more likely to use bar ter and accumulate tax arrears than their state owned counterparts

barriers to efficiency and the privatization of township village enterprises abstract qian 2000 and others suggest that post 1994 tax and banking reforms in china combined with the development of markets for allocating resources influenced the economic performance of township village enterprises tves and private enterprises pes this paper uses chinese provincial level data to search for evidence of advantages and or disadvantages offered to tves and pes before and after the 1994 reforms we define a sectoral net income based measure of overall efficiency and decompose the measure into components that highlight the existence of credit constraints output target constraints and labour hiring constraints the results offer empirical support for qian and others explanation of why private enterprises eventually emerged as the dominant institution for allocating resources in post 1994 rural china

insider privatization with a tail the screening contract and performance of privatized firms in rural china abstract this paper studies insider privatization in rural china and provides an explanation of why some firms have performed well after privatization but others have not we show theoretically that the underperformance of insider privatized firms could be due to the manager cum owner s lack of incentives after privatization a screening theory predicts that the buyout price is correlated with the postprivatization incentives and a firm s postprivatization performance increases with both the buyout price and postprivatization incentives drawing on data we collected in china we find evidence supporting the theory we also find that the buyout price decreases with the degree of information asymmetry

worker attitudes and the cost of production hypothesis tests in an equilibrium model worker attitudes and the cost of production hypothesis tests in an equilibrium model i introduction u s labor productivity growth resulting in a tripling of real gnp from the end of world war ii to 1973 began to slow down in the mid 1960s and continued to slow throughout the 1970s by the decade of the 1980s productivity growth as measured by the u s department of labor s office of productivity and technology had fallen from the 3 5 percent annual levels of the previous two decades to less than 1 percent per year a number of authors have tried to link worker morale and attitudes to labor productivity katz kochan and gobielle 1984 seek to attribute declines in labor efficiency as they measure it and product quality to deterioration in labor morale as measured by the frequency of grievances disciplinary actions absenteeism contract disputes and by the general climate of worker employer relations at the plant leve weisskopf bowles and gordon 1984 attribute the slowdown to a decline in effective labor input per hour of purchased labor they use a single equation macroeconomic model of aggregate production for the u s this paper introduces an index of worker attitude constructed from various indicators and estimates the effect of changes in this index on three measures of economic growth performance labor productivity multifactor productivity and the costs of production the study is based on the automobile industry in the united states the model includes all purchased inputs rather than the katz kochan and gobielle 1984 and weisskopf bowles and gordon 1984 approaches that studied labor productivity in isolation cost functions and input cost share equations are estimated simultaneously this procedure eliminates single equation sensitivity to small changes in specification and corrects for use of other inputs with labor a major contribution of this paper is the simultaneous estimation of the index of worker attitude and its effects on production the result is an index of worker attitude that is based on effective attitude measures as evidenced by slower productivity rather than a measure of worker attitudes taken from direct surveys of the workers such surveys may or may not measure an index of effective attitudes because the attitudes measured may not lead to slower production statistical results see norsworthy and zabala 1985a 1985b are very strong and consistent with the neoclassical theory of production and the attitude indicators are similar to those discussed in zabala 1983 the fact that these models perform in a similar fashion at different levels of aggregation is persuasive evidence major u s industries are performing better now than in recent times of economic recession but many are operating at lower levels of production and with substantially smaller labor forces than in recent periods of prosperity competition from western europe and japan is extremely strong in both foreign and domestic markets the results in this paper suggest strongly that u s industry could be made significantly more competitive by improved human resource management the following two hypotheses concerning attitudes on productivity and costs are tested first that worker attitudes have no effect on the cost of production second that the effects of worker attitude are factor neutral having no effect on the relative efficiencies of capital production worker labor nonproduction labor and materials each of these hypotheses is tested in the context of two translog cost function models with alternate factor share equations omitted finally the attitude indexes derived from the factor neutral and factor bias models are found to have similar properties and to be strongly correlated through time there are also plausible correlations with labor productivity total factor productivity and the total unit cost of production

financial intermediation real exchange rates and unconventional policies in an open economy we discuss unconventional policies in an open economy where financial intermediaries face occasionally binding collateral constraints the model highlights interactions among the real exchange rate interest rates and financial frictions the real exchange rate can affect international credit constraints via a net worth effect and a novel leverage ratio effect unconventional policies are non neutral if financial constraints bind credit programs are most effective when targeted towards financial intermediaries sterilized interventions matter because the increased availability of tradables associated with sterilization relaxes financial frictions

enterprise ownership enterprise organisation and worker attitudes in chinese rural industry some new evidence china s township and village enterprises tves have performed remarkably well during the post 1979 period however agreement on their organisational and behavioural characteristics and the reasons for their success remains elusive for some tves are simply private enterprises in disguise and behaviourally equivalent for others tves represent a unique form of enterprise organisation based on collective ownership the success of which poses a serious challenge to the conventional prescriptions favouring privatisation this paper reports findings from a small survey of private and collective rural enterprises in heilongjiang north east china we find strong evidence that differences in ownership are reflected in different forms of organisational behaviour residual payment stuctures and in different worker attitudes and degrees of commitment to the enterprise casual observation shows however that the majority of rural collectively owned firms are de facto privately owned firms kornai 1992 p 442 china s experience shows that community ownership can be an effective way of overcoming market failure for an important segment of the rural non farm sector privatisation proved to be an unimportant part of the explanation for the accelerated growth of this sector nolan 1995 p 222

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

investment stability and taxation in a long run macroeconomic model abstract this paper investigates for a one sector model in which the consumer investor s preferences are randomly changing the relationship between an economy s size and variability it is observed that means and variances of the stationary probability distributions on capital stock and output move together for given parameter changes unless some specific form of government intervention is introduced

american colonial monetary regimes the failure of the quantity theory and some evidence in favour of an alternate view recent developments in monetary economics suggest that the manner in which money is introduced is more important even for price level movements than the quantity of money colonial american experience provides a laboratory for testing this view it is shown that the nature of backing rather than the quantity of money determined its value large secular inflations were ended by changing the nature of backing despite continued large note issues and despite the absence of a metallic standard extremely large note issues and note withdrawals are shown not to have produced inflation currency depreciation or deflation currency appreciation

new institutional economics in the post socialist transformation debate the paper suggests that there is a tension between the basic tenant of new institutional economics nie and the manner in which it has been applied in the debate on post socialist transformation this tension is explored in the context of four main perspectives on nie i property rights ii transaction costs economics iii new economic history and iv evolutionary economics there are two main arguments the first is that the transformation phase should be seen as open ended rather than a closed process where the pure market is the inevitable end result the second is that although the nie literature touches on most of the issues which are relevant to post socialist transformation the insights that it offers are still too general for policy guidance

chinese institutional innovation and privatization from below one of the most distinctive features of china s transition to a market economy has been the role played by rural township and village enterprises tve s in the face of sustained rapid growth of tve s the share of total industrial output produced by state owned enterprises soe s has fallen below half despite steady state sector growth and the absence of significant privatization yet most tve s are collectives a form of publicly owned enterprise this feature seems to make them unique in no other transitional economy has public ownership played such a dynamic role china presents the unusual picture of an economy that has made a transition to a primarily market economy but in which publicly owned enterprises still produce the bulk of manufacturing output surprisingly also the collective ownership form does not have a precise legal definition in china leading to some uncertainty about ultimate property rights martin weitzman and chenggang xu 1993 point out that public ownership with vaguely defined ownership ought to represent a recipe for economic disaster to them tve success suggests instead advantages to the internal institutional form of tve s which are seen to facilitate cooperation through implicit contracts among community members locked into an ongoing relationship victor nee 1992 advances a similar interpretation arguing that long time community residents create forms of income sharing that may be optimal in the absence of an independent legal system an alternative perhaps complementary view is presented here the success of tve s i argue is due largely to a set of external conditions to which tve s are an effective adaptation tve s are responses to one of the most distinctive characteristics of the chinese transition as a whole the early creation of product markets which exist for a prolonged period without well developed markets for factors of production or assets tve s are a flexible and effective but basically ordinary adaptation to this environment

structural change and the macroeconomic effects of oil shocks empirical evidence from the united states and japan abstract this paper investigates whether the usa and japan have become better insulated from oil price disturbances due to more favorable structural conditions new production technologies allowing greater energy substitution the development of energy commodity markets reduced energy intensity of production more market oriented energy policies and so on we decompose the influences of oil shocks on real gnp growth and inflation movements in the context of a simultaneous equation model where identification is partly achieved by restricting the long run dynamics we find that oil shocks accounted for a greatly reduced fraction of real gnp growth and inflation variance in both countries primarily because of superior insulation characteristics rather than reduced importance of oil disturbances our estimates suggest that a similar percentage oil price hike would have exerted about one quarter the contractionary effect on real gnp and upward push in inflation in the 1980s compared with the previous two decades jel e31 e32 f30

bank regulation as an antidote to price level instability abstract we use an overlapping generations model with a risky storage technology to describe a new type of sunspot equilibrium characterized by excessive price level volatility and overinvestment in stored goods the features of this equilibrium lead us to interpret it as involving speculation and as arising when banks create excessive quantities of money this interpretation provides welfare justification for imposing quantity limits on the bank money stock we argue that the monetary regime established in england under peel s act imposed such a quantity limit our findings support quantity theorists traditional view that the possibility of overissue provides a rationale for bank regulation

overcoming distrust how state owned enterprises adapt their foreign entries to institutional pressures abroad state owned so enterprises are subject to more complex institutional pressures in host countries than private firms these institutional pressures arise from a weak legitimacy of state ownership in some countries which arises from a combination of ideological conflicts perceived threats to national security and claimed unfair competitive advantage due to support by the home country government these institutional pressures directed specifically at so firms induce them to adapt their foreign entry strategies to reduce potential conflicts and to enhance their legitimacy testing hypotheses derived from this theoretical argument for subsidiaries of listed chinese firms we find that so firms adapt mode and control decisions differently from private firms to the conditions in host countries and these differences are larger where pressures for legitimacy on so firms are stronger these findings not only extend institutional theory to better explain differential effects on different entrants to an organizational field but demonstrate how foreign investors of idiosyncratic origins may proactively build legitimacy in host societies

short and long interest rate targets can both short and long term interest rates be targeted independently can the target of the term structure help solve the problem of multiplicity of equilibria that occurs when only the short rate is targeted both questions are addressed and the answer is yes to both

the macroeconomic effects of large scale asset purchase programmes the effects of asset purchase programs on macroeconomic variables are likely to be moderate we reach this conclusion after simulating the impact of the federal reserve s second large scale asset purchase program lsap ii in a dsge model enriched with a preferred habitat framework and estimated on u s data our simulations suggest that such a program increases gdp growth by less than half a percentage point although the effect on the level of gdp is very persistent the program s marginal contribution to infl ation is very small one key reason for our fi ndings is that we estimate a small degree of fi nancial market segmentation if we enrich the set of observables with a measure of long term debt the semi elasticity of the risk premium to the amount of debt in privatesector hands is substantially smaller than that reported in the recent empirical literature in this case our baseline estimates of the effects of lsap ii on the macroeconomy decrease by at least a factor of two throughout the analysis a commitment to an extended period at the zero lower bound for nominal interest rates increases the effects of asset purchase programs on gdp growth and infl ation

open market operations in an overlapping generations model previous overlapping generations models implied effects for open market operations that conflict dramatically with the observed positive correlation between money and the price level and have been criticized for failing to model the medium of exchange role of money the purposes of this paper are to develop an overlapping generations model that gives money a medium of exchange role and that is consistent with the evidence and to point out the crucial role of the assumptions made in earlier models about the interaction of monetary and fiscal policy and about the supply side effects of open market operations

the relevance or otherwise of the central bank s balance sheet abstract this paper explores the impacts on an economy of a central bank changing the size and composition of its balance sheet one of the ways in which such asset purchases could influence prices and demand is via portfolio balance effects we develop and calibrate a simple olg model in which risk averse households hold money and bonds to insure against risk central bank asset purchases have the potential to affect households choices by changing the composition and return of their asset portfolios we find that the effect is weak and that its size depends on how fiscal policy is conducted that is not to say that the big expansion of central bank balance sheets in recent years has been ineffective our finding is rather that the portfolio balance channel evaluated in an environment of normally functioning though nonetheless incomplete asset markets is weak that is not inconsistent with the evidence that large scale asset purchases by central banks since 2008 have had significant effects because those purchases were made when financial markets were to varying extents dysfunctional nonetheless our results are relevant to those purchases because they may be unwound in an environment where financial markets are no longer dysfunctional

non standard monetary policy asset prices and macroprudential policy in a monetary union abstract this paper evaluates the interaction of non standard monetary measures and macroprudential policy in a monetary union by developing a two region model of the euro area ea and simulating the eurosystem s asset purchase programme app in each region some households are subject to a borrowing constraint and the local real estate is used as collateral our results are as follows first in one region a large loan to value ltv ratio can amplify the positive effect of the union wide app on domestic households borrowing second during the app implementation overly optimistic i e non fundamental expectations about local real estate prices would further augment households borrowing in that region third region specific macroprudential measures that stabilize private debt can counteract the effects of the optimistic expectations and favor a macroeconomic expansion driven only by fundamentals i e the app without the need to scale back the latter fourth both the app and the region specific macroprudential policy bring about a welfare improvement

investigating inflation persistence across monetary regimes under inflation targeting estimates of the indexation parameter in hybrid new keynesian phillips curves are either equal to zero or very low in the united kingdom canada sweden and new zealand analogous results hold for the euro area under the european monetary union and for switzerland under the new monetary regime under stable regimes with clearly defined nominal anchors inflation appears to be purely forward looking these results question the notion that the intrinsic inflation persistence found in post wwii u s data is structural in the sense of lucas carnegie rochester conference series on public policy 1 1976 19 46 and suggest that hardwiring inflation persistence in macroeconomic models is potentially misleading

from privatization to deindustrialization implications of chinese rural industry and the ownership debate revisited summary this paper examines the evolution of chinese rural industry since the rural reform in the late 1970s and revisits the debate on the role of ownership based on a case study of w county in southern jiangsu province as well as drawing on national data the author shows that the community based market dynamic had been a key factor in the expansion of rural enterprises and that its weakening in recent years has led to the closing of village enterprises and deindustrialization of the countryside large scale land expropriation sponsored by local government is the principal factor responsible for the change

private money creation liquidity crises and government interventions abstract the joint supply of public and private liquidity is examined when financial intermediaries issue both riskless and risky debt and the economy is vulnerable to liquidity crises government interventions in the form of asset purchases and deposit insurance are equivalent in the sense that they sustain the same equilibrium allocations increase welfare and if fiscal capacity is sufficiently large eliminate liquidity crises in contrast restricting intermediaries to investing in low risk projects always eliminates liquidity crises but reduces welfare under some conditions deposit insurance gives rise to an equilibrium in which intermediaries that issue insured debt i e traditional banks coexist with others that issue uninsured debt i e shadow banks despite the two being ex ante identical

monetary fiscal policy interactions and fiscal stimulus abstract increases in government spending trigger substitution effects both inter and intra temporal and a wealth effect the ultimate impacts on the economy hinge on current and expected monetary and fiscal policy behavior studies that impose active monetary policy and passive fiscal policy typically find that government consumption crowds out private consumption higher future taxes create a strong negative wealth effect while the active monetary response increases the real interest rate this paper estimates markov switching policy rules for the united states and finds that monetary and fiscal policies fluctuate between active and passive behavior when the estimated joint policy process is imposed on a conventional new keynesian model government spending generates positive consumption multipliers in some policy regimes and in simulated data in which all policy regimes are realized the paper reports the model s predictions of the macroeconomic impacts of the american recovery and reinvestment act s implied path for government spending under alternative monetary fiscal policy combinations

the decline of township and village enterprises in china s economic transition summary a paradoxical phenomenon in china s transitional economy is that markets developed under predominant public ownership which nevertheless has declined with the development of markets previous studies reveal that initial political and economic conditions of reform and fiscal decentralization gave rise to local public enterprises leading role in early marketization this paper explains the subsequent fall of such a role building and expanding on recent studies of privatization we argue that market development and competition have constrained the abilities of local public enterprises to address revenue and employment imperatives whereas local governments sales oriented growth strategies have exacerbated governance problems panel data are analyzed to provide provisional test of pertinent hypotheses

a model of commodity money abstract commodity money is modeled as one or two of the capital goods in a one consumption good and one or two capital good overlapping generations model among the topics addressed using versions of the model are i the nature of the inefficiency of commodity money ii the validity of quantity theory predictions for commodity money systems iii the circumstances under which one commodity emerges naturally as the commodity money iv the role of inside money money backed by private debt in commodity money systems and v the circumstances under which a government can choose the commodity to serve as the commodity money

friends with benefits how political connections help to sustain private enterprise growth in china by analysing data from a survey of 511 chinese private enterprises we find that their owners respond to government discrimination by developing political connections with government officials a one standard deviation increase in the insecurity of property rights has the effect of increasing the number of friends in the government by a substantial 22 these friends significantly help to mitigate by half the negative effect arising from the difficulties of obtaining land and excessive regulations on enterprise growth this explains why an institutional environment of weak property rights has not stopped private enterprises in china from developing rapidly

the simple macroeconomics of an oil dependent economy abstract this paper constructs and analyzes a simple macrodynamic model of a small economy that is completely dependent upon opec for oil imports the impact and dynamic behavior of wages prices output and exchange rates is analyzed under several alternative scenarios initially it is assumed that oil is denominated in dollars and the consequences of an increase in oil prices are investigated under a system of free floating in later sections the effects of this disturbance are re examined under various kinds of managed float systems

a note on the existence of monetary equilibria in overlapping generations models with storage abstract wallace s result for an og model with nonstochastic storage is extended by provision of a necessary and sufficient condition for fiat currency to be valued in equilibrium in an og model with stochastic storage it is shown that a monetary equilibrium exists if and only if the real rate of return on currency that would obtain in the stationary monetary equilibrium exceeds the risk free real rate of return that obtains in the nonmonetary equilibrium

the transmission of monetary policy through redistributions and durable purchases this paper studies a redistribution channel for the transmission of monetary policy using a tractable olg setting in which the government is a net debtor we show that standard open market operations omo conducted by central banks have signi cant revaluation eects that alter the level and distribution of wealth in the economy and the real interest rate expansionary omo generate a negative wealth eect the private sector as a whole is a net creditor to the government increasing households incen tives to save for retirement and pushing down the real interest rate this in turn leads to a substitution towards durables generating a temporary boom in the durable good sector with search and matching frictions a form of productive investment is added to the model and the fall in interest rates causes an increase in labour demand raising aggregate employment the mechanism can mimic the empirical responses of key macroeconomic variables to monetary policy interventions the model shows that dierent monetary interventions e g omo versus helicopter drops can have sharply dierent eects on activity

the relevance of financial policy when the asset market is incomplete equilibrium allocations are not invariant to changes in the financial policies of firms in the presence of secondary assets such as options whose payoffs depend nonlinearly on the price of equity the range of attainable reallocations of revenue varies as a firm alters its position in the asset market corporate financial policy is thus relevant when assets are nominal monetary policy implemented through open market operations is also effective

public ends private means abstract this paper is an empirical investigation into the practices of the second bank of the united states during the decade preceding andrew jackson s veto of the bank a new monthly data set derived from financial publications and second bank records of the time is employed to investigate whether the bank operated in the public interest as argued by its supporters or to further its own monopolistic interests as argued by its detractors the paper analyzes the role played by this early central bank and provides an intriguing example of one experiment in the private provision of public goods

input price shocks and the slowdown in economic growth the case of u k manufacturing this paper provides a theoretical and empirical analysis of the effects of input price shocks on economic growth with a focus on united kingdom manufacturing in the 1970s the theoretical model predicts a discrete decline in output and productivity after an input price rise and a longer run slowdown in productivity growth real wage growth and capital accumulation these features characterize the united kingdom and most other oecd economies after 1973 the empirical results confirm the important role of input prices in recent u k adjustment but also point to an important role for other supply and demand factors two types of explanations have been offered for the sharp deterioration in u k economic performance in the past decade focusing respectively on demand and supply factors a standard keynesian view holds that macroeconomic demand management has been either too expansionary or too contractionary and that rising unemployment and falling output reflect the burden of anti inflationary policies an alternative view holds that various supply shocks are the main source of the poor output performance in this interpretation higher raw material prices particularly oil competition from the newly industrializing countries nics and perhaps an independent decline in productivity growth all have lowered output growth and raised unemployment

expenditure constraints and profit maximization in u s agriculture the u s agricultural sector is undergoing some of its most severe financial problems since the great depression numerous reports have emerged of large numbers of farmers being unable to obtain short term oper

market liberalization and firm performance during china s economic transition this paper examines the impact of market liberalization on firm performance through institutional changes during the economic reform in china the conceptualization focuses on the decentralization of control ownership restructuring and industrial policy as the primary institutional changes to implement market liberalization in china these institutional changes affect firm performance by shaping managerial incentives affecting transaction and agency costs and making selective resource allocations across and within industries using a large scale data set including 23 577 firms between 1992 and 1996 the study examines how market liberalization affects the profitability and productivity of chinese firms and the relationship between ownership change and the performance of state owned enterprises

can the fiscal authority constrain the central bank abstract the fiscal theory of the price level ftpl suggests in its extreme form that the fiscal authority always constrains central bank behavior a fisherian model is used to show that fiscal policy can be irrelevant for the central bank and that a central bank can act independently even when constrained to monetize the government debt in a model with secured credit and scarce collateral which can explain low real interest rates the valuation of consolidated government debt needs to account for inefficiency and liquidity premia the fiscal authority may wish to tolerate inefficiency so as to finance public goods provision this article is part of a special issue entitled fiscal and monetary policies

measuring the energy input substitution and output effects of energy price changes and the implications for the environment abstract previous studies of decomposition of factor inputs have limited their analysis on the estimation of substitution and output effects however this paper develops a two step approach to estimate the substitution and output effects of changes in energy demand resulting from changes in prices and further examines the implications of these effects on co2 emissions using european industrial dataset over the period 1995 2007 in our empirical estimations instead of relying only on isur model like previous studies we introduced a multilevel model which is a more befitting model to our data our analysis covers industry as a whole and for different sector types the primary results emerged from our analysis suggest a strong evidence using the multilevel model generally our results show that production inputs are substitutable we find the substitution and output effects to be negatively related to co2 emissions however the substitution effects dominate from policy perspectives our results suggest that output adjustments may not play a significant role in reducing emissions we find the overall effects of changes in energy demand to be moderate then we argue that increment in energy taxes should be complemented by cleaner factor substitution and sustainable growth to achieve a desirable carbon reduction

some colonial evidence on two theories of money maryland and the carolinas recent developments in monetary economics stress the nature of monetary injections emphasizing that they have implications for the relationship between money and prices in contrast traditional approaches posit stable money demand functions that are independent of how money is injected the former approach implies that certain proportionality relations between money and prices need not obtain this permits the two approaches to be empirically distinguished but only if an appropriate experiment is conducted the colonial period is one such experiment colonial evidence suggests that the nature of injections is crucial to the effect on prices of changes in the money supply

a nonparametric approach to expenditure constrained profit maximization a nonparametric approach to expenditure constrained profit maximization is developed a deterministic frontier profit function is constructed with and without expenditure constraints foregone profit is used as dual evidence for the existence of expenditure constraints individual evaluations on performance and expenditure constraints are produced empirical analysis is based on survey data for california rice farms seventeen of the eighty two surveyed farms experience profit loss as a result of expenditure constraints

dynamic coalition formation and equilibrium policy selection a model of policy formulation is proposed in which the government and the private sector form dynamic coalitions for the purpose of choosing policy actions however current players cannot commit their future selves to any particular actions defining an equilibrium to be an unblocked sequence of actions we show that an equilibrium exists and is unique even though in general cooperative outcomes are not time consistent our framework has the implication that when private agents and the government have identical preferences there are no distortions associated with the use of non lump sum taxes some empirical implications of this result are discussed

outside versus inside bonds a modigliani miller type result for liquidity constrained economies when agents are liquidity constrained two options exist sell assets or borrow we compare the allocations arising in two economies in one agents can sell government outside bonds and in the other they can borrow by issuing inside bonds all transactions are voluntary implying no taxation or forced redemption of private debt we show that any allocation in the economy with inside bonds can be replicated in the economy with outside bonds but that the converse is not true however the optimal policy in each economy makes the allocations equivalent

the ties that bind monetary policy and government debt management the financial crisis and subsequent economic recession led to a rapid increase in the issuance of public debt but large scale purchases of bonds by the federal reserve and other major central banks have significantly reduced the scale and maturity of public debt that would otherwise have been held by the private sector we present new evidence that tilting the maturity structure of private sector holdings significantly influences term premia even outside crisis times our framework helps explain both the bond yield conundrum and the effectiveness of quantitative easing we suggest that these findings raise two important policy questions one is should a central bank contrary to recent orthodoxy use its balance sheet as an additional complementary instrument of monetary policy to influence as part of the monetary transmission mechanism the long term interest rate the second is how should central banks and governments ensure that debt management properly takes account of the implications for both monetary and financial stability

post the washington consensus economic governance and industrial strategies for the twenty first century recent events in the global economy have led to a growing dissatisfaction with the neo liberal economic paradigm that has dominated economic policy over the last 30 years and the increasing concentration of and abuse of economic power within the corporate sector that has ensued however amidst calls for a new approach to economic management there is a danger that a new policy framework may overlook underlying economic governance structures that exist and may evolve within the economy such oversight has implications for development this paper seeks to demonstrate that the long run efficacy of industrial strategy depends upon designing appropriate economic governance structures that serve the wider public interest it does so by exploring past experiences of industrial strategy drawing lessons from the usa the uk japan the third italy and the emerging and transition economies we also offer some suggestions for ways forward

irrelevance of open market operations in some economies with government currency being dominated in rate of return this paper describes an environment in which government issued currency is dominated in rate of return and in which there obtains a modigliani miller theorem for government open market operations earlier modigliani miller theorems for government finance have been stated for environments in which government issued currency is not dominated in rate of return in equilibrium since government issued currency is widely observed to be dominated in return it is useful to study how modigliani miller theorems hinge on absence of rate of return dominance

do open market operations matter theory and evidence from the second bank of the united states abstract modigliani miller theorems for open market operations describe conditions under which central bank portfolio rearrangements will have no consequences for allocations relative prices or the time path of the price level such theorems for government owned central banks have limited applicability and hence are difficult to test we develop a modigliani miller theorem for privately owned central banks and test its implications using data from the second bank of the united states the data are consistent with an absence of price level effects due to open market operations and are inconsistent with standard versions of the quantity theory of money

the effect of ecb monetary policies on interest rates and volumes abstractthis article assesses the transmission of ecb monetary policies conventional and unconventional to both interest rates and lending volumes or bond issuance for three types of different economic agents through five different markets sovereign bonds at 6 month 5 year and 10 year horizons loans to nonfinancial corporations and housing loans to households during the financial crisis and for the four largest economies of the euro area we look at three different unconventional tools excess liquidity longer term refinancing operations and securities held for monetary policy purposes following the decomposition of the ecb s weekly financial statements we first identify series of ecb policy shocks at the euro area aggregate level by removing the systematic component of each series and controlling for announcement effects we second include these exogenous shocks in country specific structural var in which we control for credit demand the main result is that only the pass through from the ecb r

hyperinflations their origins development and termination abstract this paper summarizes and critically surveys research on hyperinflation appraisal and review of the literature considers the origins development termination and the lessons to be learned from hyperinflations the historical evidence as well as the econometric evidence is analyzed it is concluded that while the lessons to be learned from such episodes perhaps have been overstated a number of useful implications may be derived from studying hyperinflations such as an understanding of the forces which link monetary and fiscal policies to inflation and policy makers role in influencing individuals expectations

economic impact of oil price shocks on the turkish economy in the coming decades a dynamic cge analysis as a small open economy turkey depends on both imported oil and natural gas importing almost two thirds of its primary energy demand this paper analyzes the economic effects of oil price shocks for turkey as a small open oil and gas importing country to analyze the potential long term effects of oil price shocks on macroeconomic variables of interest including gdp consumer price inflation indirect tax revenues trade balance and carbon emissions we developed turgem d a dynamic multisectoral general equilibrium model for the turkish economy using turgem d we analyzed the impact of oil price shocks under three distinct scenarios reference high and low oil prices the simulation results show that these oil prices have very significant effects on macro indicators and carbon emissions in the turkish economy

some real evidence on the real bills doctrine versus the quantity theory researchers interested in testing between the real bills doctrine and the quantity theory approach to inflation in the face of rapid deficit financing money growth are confronted by an observation equivalence problem this paper identifies a data set which resolves the dilemma and tests the two inflation models the results provide clear evidence supporting the real bills doctrine that the value of assets backing money determines its value over the quantity theory i introduction one of the more interesting developments in monetary theory in the early 1980s was the re emergence of the real bills doctrine the doctrine identifies the value of assets backing the money supply as the prime determinant of the money s value its adherents claim that the monetization of worthless debt is responsible for inflation and not the increase in the money supply itself 1 that is an increase in the money supply will not lead to inflation so long as the money issue is backed by real assets sargent 1982 attributes the ends of four major inflations to exactly this phenomenon 2 in contrast the quantity theory claims that changes in the money supply should have inflationary consequences regardless of its backing the new interest in the old doctrine parallels a quite different line of work centering on what looks like a similar theme this second track focuses too on the rate of inflation and the fiscal wellbeing of the government though here the transmission mechanism from deficit to inflation is rather conventional in this essentially monetarist vision if the deficit is out of control and the monetary authority is to some degree subservient to the fiscal authority there must be some eventual monetization of the resultant debt resulting in inflation to the extent that higher rates of inflation are expected in the future higher rates of inflation may occur now 3 both lines of thought argue that a deficit that is out of control is responsible for inflation it is the transmission mechanism between this excessive deficit and the price level that distinguishes the two models the real bills doctrine proposes a radical departure from traditional monetary theory by suggesting that money is in effect efficiently priced the central bank is seen as being similar to any other financial intermediary purchasing debt and issuing liabilities and those liabilities money are then priced according to the value of the assets they were used to purchase the value of the assets backing the money thus money gets priced efficiently and its value is not determined by its relative or expected relative quantity but rather by the real characteristics of its backing that is ceterus paribus an increase in the money supply will not per se be inflationary the increase in the money supply will only be inflationary if the assets purchased with the money issue are of such low value as to reduce the average value of the assets backing the currency this paper provides some evidence in favor of the real bills vision of price level determination over the quantity theory the next section describes the observational equivalence problem confronting researchers interested in distinguishing between the real bills and quantity theory approach to inflation in the face of rapid deficit financing money growth and the institutional setting which resolves the observational equivalence dilemma section iii describes some tests designed to discriminate between these two hypotheses of the inflation process and their resuits and section iv contains my conclusions ii the observational equivalence of the real bills doctrine and the quantity theory a central theme of both of the real bills and quantity theory hypotheses is that fiscal deficits that are out of control will be inflationary though for very different reasons apart from any insight gained with regard to the inflation process testing the basic proposition that deficits are inflationary is problematic for two reasons first there is the standard problem of government accounting standards and practices in general and consequently of the appropriate definition of the fiscal deficit

the role of the reference technology in measuring productive efficiency after a twenty year lull the measurement of productive efficiency is enjoying a revival in particular the index of efficiency developed by debreu i95i and later utilised by farrell i957 has received considerable attention these measures have been used fairly extensively in empirical work in both the operations research and economic literature these types of indexes have also appeared in the growing literature on testing for regularity conditions in production e g in afriat i972 diewert and parkan i983 and varian 1984 since the farrell type measure is the focus in this paper a brief review is useful in the farrell framework overall efficiency oe can be decomposed into two multiplicative components allocative efficiency ae and technical efficiency te

reconsolidation of state power into urbanising villages shareholding reforms as a strategy for governance in the pearl river delta region shareholding cooperatives scs are the officially recognised organisations responsible for managing villagers collectively owned assets in recent years massive land requisitions in the pearl ri

the effectiveness of alternative monetary policy tools in a zero lower bound environment this paper reviews alternative options for monetary policy when the shortterm interest rate is at the zero lower bound and develops new empirical estimates of the effects of the maturity structure of publicly held debt on the term structure of interest rates we use a model of risk averse arbitrageurs to develop measures of how the maturity structure of debt held by the public might affect the pricing of level slope and curvature term structure risk we find that these treasury factors historically were quite helpful for predicting both yields and excess returns over 1990 2007 the historical correlations are consistent with the claim that if in december 2006 the fed were to have sold off all its treasury holdings of less than 1 year maturity about 400 billion and use the proceeds to retire treasury debt from the long end this might have resulted in a 14 basis point drop in the 10 year rate and an 11 basis point increase in the 6 month rate we also develop a description of how the dynamic behavior of the term structure of interest rates changed after hitting the zero lower bound in 2009 our estimates imply that at the zero lower bound such a maturity swap would have the same effects as buying 400 billion in long term maturities outright with newly created reserves and could reduce the 10 year rate by 13 basis points without raising short term yields

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

regional institutions ownership transformation and migration of industrial leadership in china the case of the chinese synthetic dye industry 1978 2008 scholars have emphasized the gradual ownership transformation of enterprises as a key driver of the chinese economy s unprecedented growth however little work has been done on the issue of whether this transformation process takes place evenly across the various regions in china this article describes the important role of regional institutions in shaping the ownership based competitiveness of local enterprises and the migration of industries across regions in the case of the chinese synthetic dye industry the passing of leadership from state owned enterprises soes to collectively owned enterprises coes and then to private enterprises pes was accompanied by a concurrent leadership migration from one region to another the article contends that this simultaneous occurrence was not accidental four institutional constraints the degree of central supervision the local labor arrangements the local social welfare provision and the degree of ambiguity in property rights retarded the rise of new ownership forms in the previously dominant regions this gave other regions the opening to take over leadership positions by providing a more favorable institutional context for new ownership forms these findings are likely to apply to all of the chinese manufacturing industries that existed prior to 1978 and that subsequently did not experience significant technological changes and were not highly protected by the government

duality the output effect and applied comparative statics except for kako agricultural production studies using cost functions have analyzed technology via allen elasticities technological change parameters and homotheticity tests kako used a transcendental logarithmic translog cost function to decompose empirically changes in derived factor demand into three separate components output level factor substitution effects and technical change kako s work allows further investigation of technical change on derived factor demands however kako s output effect is different from the traditional concept the production analog of the income effect in consumer theory this note outlines a theoretical and econometric approach for measuring the output effect the output effect is important because it presents a more complete picture of factor employment adjustments than do demand elasticities generated from cost functions elasticities generated from cost functions restrict the producer to a given level of output producers however may also adjust output as factor prices change the output effect captures this adjustment this paper demonstrates a method for deriving the output effect from the cost function first the general assumptions and the model are outlined then the cost function is related to the indirect production function and the output effect obtained results are presented for the special case of a homothetic production function the paper concludes with an empirical application to the u s meat products industry

energy capital substitution wage flexibility and aggregate output supply abstract this paper analyzes the relationship between factor substitution labor market conditions and aggregate output supply in order to study the transmission mechanism of energy price change to the rest of the economy it shows that the energy capital complementarity vs substitutability issue may turn out to be crucial in shaping the direction of the adjustment of aggregate output supply following energy price changes how crucial it is it is shown to depend on the beliefs of firms regarding the stock of capital on the degree to which labor markets clear and on the wage elasticity of labor supply some empirical evidence is presented about the relationship between energy price changes and output supply

money inflation and output under fiat and commodity standards we examine the behavior of money inflation and output under fiat and commodity standards to better understand how changes in monetary policy affect economic activity using long term historical data for 15 countries we find that under fiat standards the growth rates of various monetary aggregates are more highly correlated with inflation and with each other than under commodity standards money growth inflation and output growth are also higher in contrast we do not find that money growth is more highly correlated with output growth under one standard than under the other

the dynamics of inflation with constant deficit under expected regime change a model that describes the dynamics of inflation with a fully anticipated stabilization program is developed it is shown that with a constant deficit an economy tends to stay at the neighborhood of the lower of the two state inflation rates that are compatible with the deficit further increasing inflation rates prior to the stabilization are compatible only with deficits that are lower than the maximal feasible staedy state deficits and with a stabilization program that reduces the demand for real balances if these conditions are not met inflation decreases towards the stabilization date it is argued that the data generated by actual inflationary episodes fit the conditions described above and corroborate the model this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

backing the quantity theory and the transition to the us dollar 1723 1850 among the thirteen original colonies pennsylvania was most successful at issuing paper money with only minimal effects on prices so much so that the colony s experience is sometimes seen as violating the classical quantity theory of money quantity theorists usually attribute this apparent anomaly to mismeasurement of the money stock in contrast i use data on money prices and real activity in pennsylvania from 1723 to 1774 and for the united states as a whole from 1790 to 1850 when the money stock is better measured to show that the long run behavior of money and prices is well explained by the quantity theory in both periods despite the differences in institutional arrangements once growth in monetized transactions is taken into account this abstract was borrowed from another version of this item

is poor worker morale costly to firms in 1985 and 1990 studies norsworthy and zabala reported evidence supporting the hypothesis that declining worker morale has reduced productivity and productivity growth this study partly replicat

unconventional policies and exchange rate dynamics abstract we study exchange rate dynamics under cooperative and self oriented policies in a two country dsge model with unconventional monetary and exchange rate policies the cooperative solution features a large exchange rate adjustment that cushions the impact of negative shocks and a moderate use of unconventional policy instruments self oriented policies nash equilibrium however entail limited exchange rate movements and an aggressive use of unconventional policies in both countries our results suggest that sizable exchange rate depreciations are not always a symptom of beggar thy neighbor policies they could also reflect a desirable process of external adjustment that improves global welfare

quantitative easing and unconventional monetary policy an introduction this article assesses the impact of quantitative easing and other unconventional monetary policies followed by central banks in the wake of the financial crisis that began in 2007 we consider the implications of theoretical models for the effectiveness of asset purchases and look at the evidence from a range of empirical studies we also provide an overview of the contributions of the other articles in this feature

why do entrepreneurs enter politics evidence from china this article examines the determinants of the entrepreneur s political participation by employing a unique matched firm institution data set from china we find that the likelihood of an entrepreneur s participation can be explained by the underdevelopment of markets and market supporting institutions according to our estimates the probability of entering politics decreases by 8 20 from the mean when the institutional indices improve by one standard deviation our findings support the view that the institutional environment shapes the private entrepreneur s motivation to participate in politics they also provide an example of how private entrepreneurs respond to state market failure in developing and transition countries jel g1 h00 o10 p2 p3

public versus private ownership of firms evidence from rural china why are many of china s successful rural enterprises publically owned by local communities using a set of provincial data we find that the share of community public firms township village enterprises or tves relative to private enterprises is higher where the central government s influence is greater the community government s power is stronger and the level of market development is lower we also find that tves help achieve the community government s goals of increasing government revenue rural nonfarm employment and rural income however tves do not increase rural income given the levels of nonfarm employment and local public goods provision indicating possible inefficiency as compared with private enterprises