fighting with one hand tied behind the back political budget cycles in the west german states theories of political budget cycles have been contested because scholars find that incumbents can manipulate deficits in the pre election period only if fiscal transparency is low i argue that these findings do not generally rule out the possibility of fiscal electioneering governments may increase spending on highly visible policies the composition of the budget serves as a second best strategy it increases political support without straining the budget balance an empirical analysis of the west german states reveals alternative electoral budget strategies and ultimately point to the importance of analyzing how governments choose between alternative fiscal instruments

the world on a cross of gold for many years the yin and yang of the debate about the causes of the great depression were the monetary history of the united states 1867 1960 by milton friedman and anna schwartz 1963 and peter temin s 1976 book did monetary forces cause the great depression as all monetary economists know in their book friedman and schwartz made the depression a central case study in support of their contention that historically monetary instability has been a major source of fluctuations in the real economy in their famous chapter on the great contraction which was later released as a separate volume friedman and schwartz attributed the collapse of production and prices in the united states particularly the disastrous 1931 33 slide to a precipitous decline in the u s money supply the proximate cause of this monetary contraction was not any direct action by the monetary authorities but rather a series of severe banking crises between late 1930 and early 1933 spasmodic panics induced the public to convert deposits into currency raising the aggregate currency deposit ratio and causing a decline in the ratio of inside money to the monetary base despite the largely unintended nature of the monetary contraction however friedman and schwartz placed the major portion of blame for the depression on the shoulders of the federal reserve which

debt deleveraging and the liquidity trap a fisher minsky koo approach in this paper we present a simple new keynesian style model of debt driven slumps that is situations in which an overhang of debt on the part of some agents who are forced into rapid deleveraging is depressing aggregate demand making some agents debt constrained is a surprisingly powerful assumption fisherian debt deflation the possibility of a liquidity trap the paradox of thrift a keynesiantype multiplier and a rationale for expansionary fiscal policy all emerge naturally from the model we argue that this approach sheds considerable light both on current economic difficulties and on historical episodes including japan s lost decade now in its 18th year and the great depression itself

the impact of climate change on incomes and convergence in africa abstract climate change is projected to detrimentally affect african countries economic development while income inequalities across economies is among the highest on the planet however it is projected that income levels would converge on the continent hitherto there is limited evidence on how climate change could affect projected income convergence accelerating slowing down or even reversing this process here we analyze convergence considering climate change damages by employing an economic model embedding the three dimensions of risks at the country level exposure vulnerability and hazards the results show 1 with historical mean climate induced losses between 10 and 15 percent of gdp per capita growth the majority of african economies are poorly adapted to their current climatic conditions 2 western and eastern african countries are projected to be the most affected countries on the continent and 3 as a consequence of these heightened impacts on a number of countries inequalities between countries are projected to widen in the high warming scenario compared to inequalities in the low and without warming scenarios to mitigate the impacts of economic development and inequalities across countries we stress 1 the importance of mitigation ambition and africa s leadership in keeping global mean temperature increase below 1 5 c 2 the need to address the current adaptation deficit as soon as possible 3 the necessity to integrate quantitatively climate risks in economic and development planning and finally 4 we advocate for the generalization of a special treatment for the most vulnerable countries to access climate related finance the analysis raises issues on the ability of african countries to reach their sdgs targets and the potential increasing risk of instability migration across african countries of decreased trade and economic cooperation opportunities as a consequence of climate change exacerbating its negative consequences

poverty comparisons over time and across countries in africa abstract we use demographic and health surveys dhs to compare poverty at two or more points in time within and between african countries our welfare measure is an index resulting from a factor analysis of various household characteristics durables and household heads education an advantage of this measure is that for intertemporal and intraregional comparisons we need not rely on suspect price deflators and currency conversion factors the wide availability and similarity of questionnaires of the dhs facilitate comparisons over both time and countries our results generally show declines in poverty during the previous decade largely due to improvements in rural areas

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

precautionary saving over the business cycle we study the macroeconomic implications of time varying precautionary savings within a general equilibrium model with borrowing constraints aggregate shocks and uninsurable idiosyncratic unemployment risk our framework generates limited cross sectional household heterogeneity as an equilibrium outcome thereby making it possible to analyse the role of precautionary saving over the business cycle in an analytically tractable way the time series behaviour of aggregate consumption generated by our model is closer to the data than that implied by the hand to mouth and representative agent models and it is comparable to that produced by the krusell and smith 1998 model

potential unemployment insurance duration and labor supply the individual and market level response to a benefit cut we examine how a 16 week cut in potential unemployment insurance ui duration in missouri affected search behavior of ui recipients and the aggregate labor market using a regression discontinuity

agroclimatic shock income inequality and poverty evidence from burkina faso abstract this paper examines the impacts of agroclimatic shock on income inequality and poverty using household farm data from three agroecological zones of burkina faso together with income source decompositions of the gini coefficient and the foster greer thorbecke poverty index before and after a severe drought our findings reveal that because the poor lack acces to off farm income off farm income increases inequality and fails to shield poor households against agroclimatic risks the direction of the empirical relationship between changes in inequality and poverty after the drought depends critically on environmental variables and on apparent constraints on income diversification at different points in the income distribution

wage rigidity and job creation recent research in macroeconomics emphasizes the role of wage rigidity in accounting for the volatility of unemployment fluctuations we use worker level data from the cps to measure the sensitivity of wages of newly hired workers to changes in aggregate labor market conditions the wage of new hires unlike the aggregate wage is volatile and responds almost one to one to changes in labor productivity we conclude that there is little evidence for wage rigidity in the data

market externalities of large unemployment insurance extension programs we provide evidence that unemployment insurance affects equilibrium conditions in the labor market which creates significant market externalities we provide a framework for identification of such equilibrium effects and implement it using the regional extension benefit program rebp in austria which extended the duration of ui benefits for a large group of eligible workers in selected regions of austria we show that non eligible workers in rebp regions have higher job finding rates lower unemployment durations and a lower risk of long term unemployment we discuss the implications of our results for optimal ui policy jel e24 j64 j65 r23

rainfall shocks and within community wealth inequality evidence from rural ethiopia summary household level impacts of environmental shocks are often negative but may vary considerably due to heterogeneous vulnerability this paper considers how differential vulnerability among households affects inequality within rural communities in ethiopia this study makes novel use of the demographic and health surveys dhs and a nasa agro climatology dataset results show that rainfall deficits have an equalizing effect on within community livestock inequality in parts of ethiopia but regional differences are observed a non significant effect is observed with respect to asset inequality as an initial study on this topic this paper outlines an agenda for future data collection and analysis efforts

the cyclicality of the opportunity cost of employment the flow opportunity cost of moving from unemployment to employment consists of forgone public benefits and the forgone consumption value of nonworking time we construct a time series of the opportunity cost of employment using detailed microdata and administrative or national accounts data to estimate benefits levels eligibility take up consumption by labor force status hours taxes and preference parameters the opportunity cost is procyclical and volatile over the business cycle the estimated cyclicality implies far less unemployment volatility in leading models of the labor market than that observed in the data irrespective of the level of the opportunity cost

employment prospects and the propagation of fiscal stimulus abstract this paper studies a mechanism that amplifies the effects of a rise in government purchases through private consumption fiscal stimulus increases aggregate demand boosts job creation and as a consequence improves job finding rates this in turn reduces individual unemployment risk faced by households decreases precautionary motives and crowds private spending in additionally higher job finding rates affect aggregate labor market flows which raises the ratio between employed and unemployed workers as the former feature higher spending than the latter then mechanically aggregate consumption increases a calibrated model with uninsured idiosyncratic risk frictional labor market and sticky prices is used to isolate and to quantify the joint impact of these two forces the so called employment prospects channel i find that when it is shut off the drop in the values of both impact and cumulative multipliers is substantial and ranges from 32 to 38 under various monetary and fiscal policy rules

labor market matching with precautionary savings and aggregate fluctuations we analyze a bewley huggett aiyagari incomplete markets model with labor market frictions consumers are subject to idiosyncratic employment shocks against which they cannot insure directly the labor market has a diamond mortensen pissarides structure firms enter by posting vacancies and match with workers bilaterally with match probabilities given by an aggregate matching function wages are determined through nash bargaining we also consider aggregate productivity shocks and a complete set of contingent claims conditional on this risk we use the model to evaluate a tax financed unemployment insurance scheme higher insurance is beneficial for consumption smoothing but because it raises workers outside option value it discourages firm entry we find that the latter effect is more potent for welfare outcomes we tabulate the effects quantitatively for different kinds of consumers we also demonstrate that productivity changes in the model in steady state as well as stochastic ones generate rather limited unemployment effects unless workers are close to indifferent between working and not working thus recent findings are corroborated in our more general setting

business cycles in the equilibrium model of labor market search and self insurance i introduce risk aversion labor leisure choice capital individual productivity shocks and market incompleteness to the standard model of labor search and matching and investigate the model s cyclical properties i find that the model can generate the observed large volatility of unemployment and vacancies with a reasonable replacement rate of unemployment insurance benefits of 64 labor leisure choice plays a crucial role through additional utility from leisure when unemployed and further amplification from adjustments of hours worked on the other hand the borrowing constraint or individual productivity shocks do not significantly affect the cyclical properties of unemployment and vacancies

the power of forward guidance revisited in recent years central banks have increasingly turned to forward guidance as a central tool of monetary policy especially as interest rates around the world have hit the zero lower bound standard monetary models imply that far future forward guidance is extremely powerful promises about far future interest rates have huge effects on current economic outcomes and these effects grow with the horizon of the forward guidance we show that the power of forward guidance is highly sensitive to the assumption of complete markets if agents face uninsurable income risk and borrowing constraints a precautionary savings effect tempers their responses to changes in future interest rates as a consequence forward guidance has substantially less power to stimulate the economy in addition we show that the business cycle dynamics of our incomplete markets model differ substantially from its complete market counterpart this contrasts with the well known results of krusell and smith 1998 we present approximate representations that can easily be incorporated into standard business cycle models

the reductionist gamble open economy politics in the global economy international political economy ipe should transition to third wave scholarship because open economy politics oep which dominates current american ipe scholarship can generate inaccurate knowledge oep can produce inaccurate knowledge because it studies domestic politics in isolation from international or macro processes this methodological reductionism is often inappropriate for the phenomena ipe studies because governments inhabit a complex social system as a result the political choices that oep strives to explain are typically a product of the interplay between domestic politics and macro processes when oep omits causally significant macro processes from empirical models the models yield biased inferences about the domestic political relationships under investigation although scholars tolerated such errors when the gains from oep were large these errors are less tolerable now that oep has matured consequently the field should transition toward research that is nonreductionist problem driven and pluralistic

cash on hand and competing models of intertemporal behavior new evidence from the labor market this paper presents new tests of the permanent income hypothesis and other widely used models of household behavior using data from the labor market we estimate the excess sensitivity of job search behavior to cash on hand using sharp discontinuities in eligibility for severance pay and extended unemployment insurance ui benefits in austria analyzing data for over one half million job losers we obtain three empirical results 1 a lump sum severance payment equal to two months of earnings reduces the job finding rate by 8 12 on average 2 an extension of the potential duration of ui benefits from 20 weeks to 30 weeks similarly lowers job finding rates in the first 20 weeks of search by 5 9 and 3 increases in the duration of search induced by the two programs have little or no effect on subsequent job match quality using a search theoretic model we show that estimates of the relative effect of severance pay and extended benefits can be used to calibrate and test a wide set of intertemporal models our estimates of this ratio are inconsistent with the predictions of a simple permanent income model as well as naive rule of thumb behavior the representative job searcher in our data is 70 of the way between the permanent income benchmark and credit constrained behavior in terms of sensitivity to cash on hand

does reducing unemployment insurance generosity reduce job match quality abstract this paper analyzes how a change in slovenia s unemployment insurance law affected the quality of jobs workers found after periods of unemployment taking advantage the natural experiment we show through difference in differences estimation results that reducing the potential duration of unemployment benefits had no detectable effect on wages on the probability of securing a permanent rather than a temporary job or on the duration of the post unemployment job

empirics of world income inequality this article employs a common general formula for inequality indexes to answer several basic questions about intercountry income inequality in recent decades has inequality across nations increased or declined and why have earlier studies yielded mixed results have different rates of population growth played a significant role in the trend have large nations dominated the trend are the results robust over different inequality measures and different income series two findings stand out first different rates of population growth in rich and poor nations played the predominant role in determining change in the distribution of per capita income across nations second the centuries old trend of rising inequality leveled off from 1960 to 1989 the dependency theory thesis of a polarizing world system receives no support

motivations to remit evidence from botswana in this article a theory of motivations to send remittances is described and tested with data from botswana altruism is one of the motivations tested and found to be an insufficient explanation for remittances among migrants in botswana a refinement of the model stipulates a modified altruism or enlightened self interest in this model the relationship between the migrant and family is tempered by an implicit understanding of mutual benefit the household strategy may be to encourage some members to migrate as a means of spreading risk and sharing gains the household strategy is similar to an insurance policy where migration is to places where market potential is high the risks incurred might be high the example is given of migration during a drought in botswana migrant remittances were greater in households with more cattle or households with more to lose drought alone was not statistically related to remittances increases in remittances were related to increased levels of education it is suggested that repayment was the motive for parents investment in migrants education migrants gains are identified as the potential for an inheritance the security of channeling investments through a trusted family member and security in having a home to return to it is pointed out that the altruism and family remittances from urban migration were strategies that bridged the simple dynamic of either urban development or rural development impacting on family welfare it is suggested that household models of economy adopt some measure to express the relationship of household wealth to remittances from urban migrants

policies for agricultural productivity growth and poverty reduction in rural ethiopia summary increasing the productivity of smallholder agriculture holds the key to poverty reduction the empirical literature is limited to ascertain the linkages and the implications for policy uptake in ethiopia we examine the impact of growth in agricultural productivity on household poverty dynamics in rural ethiopia using a panel dataset 1994 2009 findings suggest that government policies aimed at reducing poverty should adopt a growth plus approach designing policy interventions to support agricultural productivity growth plus to protect assets and enhance market access for rural households in the country

the effect of unemployment benefits and nonemployment durations on wages abstract we estimate that unemployment insurance ui extensions reduce reemployment wages using sharp age discontinuities in ui eligibility in germany we show this effect combines two key policy parameters the effect of ui on reservation wages and the effect of nonemployment durations on wage offers our framework implies if ui extensions do not affect wages conditional on duration then reservation wages do not bind we derive resulting instrumental variable estimates for the effect of nonemployment durations on wage offers and bounds for reservation wage effects the effect of ui on wages we find arises mainly from substantial negative nonemployment duration effects jel j31 j64 j65

consumption versus asset smoothing testing the implications of poverty trap theory in burkina faso abstract despite solid theoretical foundations for the notion that poor borrowing constrained households will intertemporally manage assets to smooth consumption the consumption smoothing hypothesis has not always withstood empirical scrutiny this paper reassesses the intertemporal asset management problem with a poverty trap model and shows that we would expect to see asset smoothing not consumption smoothing in the neighborhood of critical asset levels at which optimal accumulation behavior bifurcates we then employ threshold estimation techniques to empirically confirm the co existence of consumption and asset smoothing regimes using a household panel data set from west africa households above the estimated threshold almost completely insulate their consumption from weather shocks whereas those below the threshold do not these results not only indirectly provide evidence of the existence of poverty traps but also speak to the level and incidence of the costs of uninsured risk

the economics of poverty traps and persistent poverty empirical and policy implications the moral and economic imperatives to intervene in poverty traps motivate the identification of poverty traps and their structural causes so as to inform the design of appropriate policy responses however empirical identification remains challenging because of poverty traps complexity after reviewing mechanisms that can generate poverty traps we focus on one multiple financial market failures emphasising its heretofore underappreciated testable implications including specific behaviours that are rational only in the presence of a poverty trap we therefore recommend tests for these behaviours rather than more econometrically challenged efforts to directly test for poverty traps in estimated asset dynamics

the inequality of social capital and the reproduction of chronic poverty summary this paper draws on ethnographic research in tanzania to question ideas inherent to mainstream development policy that building social capital can be readily created used or substituted for other missing assets and thereby overcome poverty the poorest experience clusters of interlocking disadvantage that make it highly unlikely that they can draw on social capital to ameliorate their poverty or that increased association and participation at community level is necessarily beneficial to them moreover social relationships collective action and local institutions may structurally reproduce the exclusion of the poorest as such a politically neutral and undersocialized policy focus on strengthening associational life and public participation of the poor is unlikely to lead to their greater inclusion nor to significant poverty alleviation

income smoothing and consumption smoothing one way that risk averse households protect consumption levels is to borrow and use insurance mechanisms another way common in low income economies is to diversify economic activities and make conservative production and employment choices households thus tend toward limiting exposure only to shocks that can be handled with available credit and insurance typically both types of mechanisms are studied independently but much more can be learned by studying them together first we obtain a more complete picture of risks costs and insurance possibilities second it opens the way to considering biases in standard tests of credit and insurance

consumption versus expenditure previous authors have documented a dramatic decline in food expenditures at the time of retirement we show that this is matched by an equally dramatic rise in time spent shopping for and preparing meals using a novel data set that collects detailed food diaries for a large cross section of u s households we show that neither the quality nor the quantity of food intake deteriorates with retirement status we also show that unemployed households experience a decline in food expenditure and food consumption commensurate with the impact of job displacement on permanent income these results highlight how direct measures of consumption distinguish between anticipated and unanticipated shocks to income whereas measures of expenditures obscure the distinction

asset smoothing consumption smoothing and the reproduction of inequality under risk and subsistence constraints abstract a growing literature asks whether low wealth agents can accumulate assets over time or whether they are trapped in poverty this paper develops a stochastic dynamic programming model with endogenous asset price risk to explore savings and portfolio decisions in a resource poor environment characterized by risk and subsistence constraints optimal portfolio strategies are found to bifurcate despite divisible assets and fully rational agents wealthier agents acquire a higher yielding portfolio and pursue conventional consumption smoothing poorer agents acquire a less remunerative portfolio and pursue asset smoothing rather than consumption smoothing asset based risk coping thus results in positive correlation between initial wealth and portfolio rate of return

solving the incomplete markets model with aggregate uncertainty using the krusell smith algorithm and non stochastic simulations abstract this article describes the approach to computing the version of the stochastic growth model with idiosyncratic and aggregate risk that relies on collapsing the aggregate state space down to a small number of moments used to forecast future prices one innovation relative to most of the literature is the use of a non stochastic simulation routine

golden fetters the gold standard and the great depression barry eichengreen oxford university press new york 1992 pp xix 448 39 95

drought transfer entitlements and income distribution the botswana experience abstract using 1974 75 and 1985 86 income distribution survey data with the latter supplemented by drought relief data this paper presents an analysis of intertemporal rural household income distribution in botswana despite the fact that the 1974 75 survey was conducted during one of the best agricultural production periods on record and the 1985 86 survey was conducted in the midst of one of the worst after the rural income economy had been weakened by a severe and prolonged drought botswana s rural income inequality did not appear to have increased significantly there was no marked reduction in rural household real incomes the explanation for this outcome is found to lie in the income maintenance strategy pursued by rural households with strong support from transfer entitlement guarantees from private and public sources supplementing rural household incomes

the optimal inflation path in a sidrauski type model with uncertainty abstract in this paper it is shown that in a sidrauski type model with uncertainty the chicago rule remains valid as a prescription for the average rate of inflation although there is a systematic difference between the perfect foresight and the uncertainty case quantitatively however the difference turns out to be very small the paper shows how to calculate the optimal monetary policy as a function of the state variables using the method of parameterized expectations in terms of expected utility the optimal policy is as good as the simple policy that reduces the money supply at the rate of time preference

household heterogeneity and the transmission of foreign shocks abstract we study the role of heterogeneity in the transmission of foreign shocks we build a heterogeneous agent new keynesian small open model economy hanksome that experiences a current account reversal households portfolio composition and the extent of foreign currency borrowing are key determinants of the magnitude of the contraction in consumption associated with a sudden stop in capital inflows the contraction is more severe when households are leveraged and owe debt in foreign currency in this setting the revaluation of foreign debt causes a larger contraction in aggregate consumption when debt and leverage are concentrated among poorer households closing the output gap via an exchange rate devaluation may therefore be detrimental to household welfare due to the heterogeneous impact of the foreign debt revaluation our hanksome framework can rationalize the observed fear of floating in emerging market economies even in the absence of contractionary devaluations

unemployment fears and deflationary spirals the interaction of incomplete markets and sticky nominal wages is shown to magnify business cycles even though these two features in isolation dampen them during recessions fears of unemployment stir up precautionary sentiments which induces agents to save more the additional savings may be used as investments in both a productive asset equity and an unproductive asset money but even a small rise in money demand has important consequences the desire to hold money puts deflationary pressure on the economy which provided that nominal wages are sticky increases wage costs and reduces firm profits lower profits repress the desire to save in equity which increases the fear of unemployment and so on this is a powerful mechanism which causes the model to behave differently from both its complete markets version and a version with incomplete markets but without aggregate uncertainty in contrast to previous results in the literature agents uniformly prefer non trivial levels of unemployment insurance

famine and household coping strategies abstract households faced with risks to their entitlement to food will plan strategically to minimize their impact the task of doing this will be particularly demanding during famines this paper reviews the evidence on household strategies for coping with famine in africa and identifies some distinctive patterns in these strategies which can be used to examine household objectives at times of crisis the management of resources to meet these objectives and limits to the effectiveness of coping strategies in particular it examines the role of asset management and trade offs between maintaining current food consumption levels and protecting the future income generating capacity of the household

unemployment benefits unemployment duration and post unemployment jobs a regression discontinuity approach structural unemployment appears to be strongly correlated with the potential duration of unemployment across organization for eco nomic co operation and development oecd countries stephen nickell and richard layard 1999 the idea is that extended benefit duration discourages searching for a job and thus leads to prolonged unemployment in this paper i propose testing this idea by studying discontinuous changes in benefit dura tion at the age of 50 which are embedded in the austrian unemployment insurance system in particular job seekers who become unem ployed at 50 years of age or older and satisfy a previous work requirement are eligible for 52 weeks of extended benefits rather than 39 weeks moreover due to special restructuring demands in the state owned steel sector austria temporarily implemented a regional extended benefit program rebp covering job seekers who enter unemployment at 50 years of age or older who had been living in certain regions of austria for at least six months and who satisfy a previous work requirement those individuals were eligible for 209 weeks of benefits instead of 39 weeks austrian unemployment insurance rules create a rich design allowing us to study the effects of small increases in benefits by 13 weeks 39 to 52 weeks in regions that were excluded from the extended benefit program and large benefit extensions by 170 weeks 39 weeks to 209 weeks in regions with access to the extended benefit program because these benefit entitlement rules were discontinuous in age the corresponding causal effects can be identified in a regression discontinuity framework this paper contributes to two strands of the literature the first strand is concerned with measuring the effects of potential benefit dura tion on unemployment duration recent con tributions to this literature include david card unemployment benefits unemployment duration and post unemployment jobs a regression discontinuity approach

comparison of solutions to the incomplete markets model with aggregate uncertainty abstract this paper compares numerical solutions to the model of krusell and smith 1998 income and wealth heterogeneity in the macroeconomy journal of political economy 106 867 896 generated by different algorithms the algorithms have very similar implications for the correlations between different variables larger differences are observed for i the unconditional means and standard deviations of individual variables ii the behavior of individual agents during particularly bad times iii the volatility of the per capita capital stock and iv the behavior of the higher order moments of the cross sectional distribution for example the two algorithms that differ the most from each other generate individual consumption series that have an average maximum difference of 1 63 11 4

solving the incomplete markets model with aggregate uncertainty using explicit aggregation we propose a method to solve models with heterogeneous agents and aggregate uncertainty the law of motion describing aggregate behavior is obtained by explicitly aggregating the individual policy rule the algorithm is simpler and faster than existing algorithms that rely on parameterization of the cross sectional distribution and or a computationally intensive simulation step explicit aggregation establishes a link between the individual policy rule and the set of necessary aggregate state variables an insight that can be helpful in determining what state variables to include in other algorithms as well

fiscal policymaking and the central bank institutional constraint una vez mas new latin american evidence evidence on the degree to which central bank independence can constrain government budget deficits remains surprisingly scarce this paper finds empirical support for the importance of the central institutional constraint for a 14 country sample of latin american countries over 1990 2012 these results suggest that greater central bank autonomy has indeed helped reign in fiscal excesses in a region that has been plagued by inflationary deficit expansion for much of the post war period the ability to potentially discipline government policy adds to an independent central bank s inherent role in adding to the checks and balances essential to a well functioning democracy

income and wealth heterogeneity in the macroeconomy how do movements in the distribution of income and wealth affect the macroeconomy we analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity our main finding is that in the stationary stochastic equilibrium the behavior of the macroeconomic aggregates can be almost perfectly described using only the mean of the wealth distribution this result is robust to substantial changes in both parameter values and model specification our benchmark model whose only difference from the representative agent framework is the existence of uninsurable idiosyncratic risk displays far less cross sectional dispersion and skewness in wealth than u s data however an extension that relies on a small amount of heterogeneity in thrift does succeed in replicating the key features of the wealth data furthermore this extension features aggregate time series that depart significantly from permanent income behavior

labor market dynamics under long term wage contracting abstract recent research seeking to explain the strong cyclicality of us unemployment emphasizes the role of wage rigidity this paper proposes a micro founded model of wage rigidity an equilibrium business cycle model of job search where risk neutral firms post optimal long term contracts to attract risk averse workers equilibrium contracts feature wage smoothing limited by the inability of parties to commit to contracts the model is consistent with aggregate wage data if neither worker nor firm can commit producing too rigid wages otherwise wage rigidity does not lead to a substantial increase in the cyclical volatility of unemployment

partially independent central banks politically responsive governments and inflation theories of central bank independence have more exact implications regarding inflation in different political economic environments than generally understood or empirically examined they imply that inflation in any given country time will be a weighted average of what it would be if the central bank completely controlled monetary policy and what it would be if the government completely controlled it with the degree of central bank independence weighting the former an equation embodying this theoretical expectation is estimated by constrained least squares from a time series cross section of inflation rates in developed democracies since the bretton woods era the results confirm that the antiinflationary benefit of central bank independence is not constant but rather depends on every variable in the broader politicaleconomic environment to which wholly autonomous central banks and governments would respond differently conversely the inflationary impacts of all such political economic variables depend on the degree of central bank independence

rulers of the game central bank independence during the interwar years central bank independence is associated with restrictive monetary choices that can be deflationary within fixed exchange rate regimes because central banks act to counteract domestic inflation they put a premium on domestic price stability at the expense of international monetary stability evidence from fifteen countries between 1925 and 1938 shows that the more independent central banks took more deflationary policies than were necessary for external adjustment central banks in general were more restrictive under left wing governments than they were under more conservative regimes and often were more restrictive than required for external equilibration this suggests that policies of independent central banks designed to enhance domestic price stability may force deflationary pressures onto other states in the system and potentially destabilize a fixed exchange rate regime

shareholders unanimity with incomplete markets macroeconomic models with heterogeneous agents and incomplete markets e g krusell and smith 1998 usually assume that consumers rather than rms own and accumulate physical capital this assumption while convenient is without loss of generality only if the asset market is complete when nancial markets are incomplete shareholders will in general disagree on the optimal level of investment to be undertaken by the rm this paper derives conditions under which shareholders unanimity obtains in equilibrium despite the incompleteness of the asset market in the general equilibrium economy analyzed here consumers face idiosyncratic labor income risk and trade rms shares in the stock market a rm s shareholders decide how much of its earnings to invest in physical capital and how much to distribute as dividends the return on a rm s capital investment is affected by an aggregate productivity shock the paper contains two main results first if the production function exhibits constant returns to scale and short sales constraints are not binding then in a competitive equilibrium a rm s shareholders will unanimously agree on the optimal level of investment thus the allocation of resources in this economy is the same as in an economy where consumers accumulate physical capital directly second when short sales constraints are binding instead the unanimity result breaks down in this case constrained shareholders prefer a higher level of investment than unconstrained ones

unemployment insurance in europe unemployment duration and subsequent employment stability the disincentive effect of unemployment insurance on unemployment duration has been the focus of the empirical literature the potential effect of unemployment insurance on post unemployment outcomes which may be regarded as beneficial by improving job matching has attracted much less attention this paper provides evidence on the effect of unemployment benefits on unemployment and employment duration in europe using individual data from the european community household panel for eight countries country specific estimates based on multivariate discrete time duration models controlling for observed and unobserved individual heterogeneity suggest that although receiving benefits has an adverse effect in the sense of increasing unemployment duration there is also a positive effect by increasing subsequent employment duration this beneficial effect of unemployment insurance on employment stability is pronounced in countries with relatively generous benefit systems and for recipients who have remained unemployed for at least six months these findings are in line with theories suggesting a matching effect of unemployment insurance

the un importance of unemployment fluctuations for the welfare cost of business cycles abstract this paper studies the cost of business cycles within a real business cycle model with search and matching frictions in the labor market we endogenously link both the cyclical fluctuations and the mean level of unemployment to the aggregate business cycle risk the key result of the paper is that business cycles are costly fluctuations over the cycle induce a higher average unemployment rate since employment is nonlinear in the job finding rate and the past unemployment rate we show this analytically for a special case of the model we then calibrate the model to u s data for the calibrated model too business cycles cause higher average unemployment the welfare cost of business cycles can easily be an order of magnitude larger than lucas s 1987 estimate the cost of business cycles is the higher the lower the value of nonemployment is or equivalently the lower is the disutility of work the ensuing cost of business cycles rises further when workers skills depreciate during unemployment

money s role in the monetary business cycle a small structural model of the monetary business cycle implies that real money balances enter into a correctly specified forward looking is curve if and only if they enter into a correctly specified forward looking phillips curve the model also implies that empirical measures of real balances must be adjusted for shifts in money demand to accurately isolate and quantify the dynamic effects of money on output and inflation maximum likelihood estimates of the modelos parameters take both these considerations into account but still suggest that money plays a minimal role in the monetary business cycle

solving heterogeneous agent models by projection and perturbation the paper proposes a numerical solution method for general equilibrium models with a continuum of heterogeneous agents that combines elements of projection and of perturbation methods the basic idea is to solve first for the stationary solution of the model without aggregate shocks but with fully specified idiosyncratic shocks afterwards one computes a first order perturbation of the solution in the aggregate shocks this approach allows to include a high dimensional representation of the cross sectional distribution in the state vector the method is applied to a model of household saving with uninsurable income risk and liquidity constraints techniques are discussed to reduce the dimension of the state space such that higher order perturbations are feasible

to specialize or diversify agricultural diversity and poverty dynamics in ethiopia recent agricultural development policies have begun to shift focus from the promotion of a few staple crops toward encouraging crop diversity the belief is that crop diversification is an effective strategy for dealing with a variety of issues including poverty alleviation however there is a lack of empirical evidence to justify these positions we contribute to filling this research gap by providing quantitative evidence on the impact of diversity in crop cultivation on household poverty using household panel data from ethiopia we develop a diversity index to measure the effect of crop diversity on poverty status to control for endogeneity and selection bias resulting from unobserved heterogeneity we utilize a recently developed parametric method for estimating dynamic binary response models with endogenous contemporaneous regressors our results provide evidence that households which grow a diverse set of crops are less likely to be poor than households that specialize in their crop production additionally crop diversity reduces the probability that a non poor household will fall into poverty and the probability that a poor household will remain in poverty we conclude that crop diversification is a viable way to deal with the exigencies of being poor

vulnerability seasonality and poverty in ethiopia most studies examining the dynamics of welfare have found large fluctuations in consumption over relatively short periods suggesting substantial short run movements in and out of poverty the consequence is that cross section poverty research may not be able to identify the poor in this study we explore this short run variability further we use a data set on a panel of 1450 households in different communities in rural ethiopia surveyed thrice over 18 months on average year to year poverty is very similar however we find high variability in consumption and poverty over the seasons and year by year econometric analysis suggests that consumption is affected by idiosyncratic and common shocks including rainfall and household specific crop failure while households respond to seasonal incentives related to changing labour demand and prices the results imply that a larger number of households are vulnerable to shocks than implied by the standard poverty statistics while some of the non poor in the

mobile capital domestic institutions and electorally induced monetary and fiscal policy the literature on global integration and national policy autonomy often ignores a central result from open economy macroeconomics capital mobility constrains monetary policy when the exchange rate is fixed and fiscal policy when the exchange rate is flexible similarly examinations of the electoral determinants of monetary and fiscal policy typically ignore international pressures altogether we develop a formal model to analyze the interaction between fiscal and monetary policymakers under various exchange rate regimes and the degrees of central bank independence we test the model using data from oecd countries we find evidence that preelectoral monetary expansions occur only when the exchange rate is flexible and central bank independence is low preelectoral fiscal expansions occur when the exchange rate is fixed we then explore the implications of our model for arguments that emphasize the partisan sources of macroeconomic policy and for the conduct of fiscal policy after economic and monetary union in europe

shocks and their consequences across and within households in rural zimbabwe abstract increasing attention is now being paid to poverty dynamics in developing countries this work links the extent to which households smooth consumption or smooth assets given income shocks the empirical evidence on the churning of households in and out of poverty and the possibility that temporary shocks can have permanent consequences using longitudinal data from rural zimbabwe this paper extends the discussion of these issues by disaggregating the impact of shocks by levels of asset holdings by disaggregating the impact of shocks on individual level welfare and by assessing the extent to which such shocks have permanent consequences by doing so it assesses the validity of distinguishing between asset and consumption smoothing and provides insights into whether poverty dynamics assessed at the household level provide an adequate picture of dynamics at the individual level

unemployment insurance and capital accumulation abstract in this paper i examine a model economy with production search and unemployment insurance the introduction of capital into the economy of wang and williamson j monetary econom 49 7 2001 1337 generates the result that optimal replacement ratios are always zero the result arises from the decline in aggregate activity caused by unemployment insurance both capital and labor inputs to production fall when benefits rise unlike most of the literature i compute explicitly the cost of the transition path agents are made better off by switching to a steady state with no unemployment insurance but the welfare gain is approximately cut in half only the very poor and unemployed suffer welfare losses along the transition path i then briefly investigate the implications of negative replacement ratios

stochastic wealth dynamics and risk management among a poor population we use herd history data collected among pastoralists in southern ethiopia to study stochastic wealth dynamics among a poor population although covariate rainfall shocks plainly matter household specific factors including own herd size account for most observed variability in wealth dynamics we find no support for the tragedy of the commons hypothesis past studies may have conflated costly self insurance with stocking rate externalities biophysical shocks move households between multiple dynamic wealth equilibria the lowest suggesting a poverty trap according to nonconvex path dynamics these findings have broad implications for development and relief strategies among a poor population vulnerable to climatic shocks a vast economic literature on risk management rests explicitly or implicitly on the classic friedmanite permanent income hypothesis studies of portfolio management consumption smoothing social insurance and the like all depend on the canonical assumption that stochastic income realisations are drawn from a stationary income distribution leading to consumption smoothing off a stable asset base the possibility of asset accumulation connects this literature to the immense literature on the theory and empirics of economic growth

on the impossibility of central bank independence four decades of time and intellectual inconsistency the intellectual justification for modern central banking time inconsistency celebrated its fortieth anniversary in 2017 alongside the cambridge journal of economics however the key progeny of the time inconsistency literature central bank independence has fundamental flaws that have been thus far neglected in mainstream research in the first instance the argument for independence relies on a utilitarian rather than institutional analysis one that neglects the genesis of central banks and their relation to other institutions within a country second central bank independence neglects the complex interdependencies of the global monetary and financial system applying an institutional lens to the concept of central bank independence i conclude that independence fails under the reality of globalization as much as it does in a domestic context with central banks reliant on all manner of political institutions they are never really independent operationally or in terms of policy

political and monetary institutions and public financial policies in the industrial countries institutions and policies vittorio grilli donato masciandaro and guido tabellini why do countries as similar as the industrialized oecd countries go through such different experience in terms of public deficits and debts or in terms of inflation the answer cannot come from macroeconomic policy responses to different disturbances nor from the principles of optimal taxation but rather from politics this article focuses on the role that particular institutions exert in providing constraints and incentives which shape the actions of policymakers the electoral process and political traditions affect the ability of governments to deal with deficits and mounting debts what seems to matter most it is found is the effect of the durability of governments governments with short horizons act myopically and never quite tackle the hard choices such governments typically exist in countries with an electoral system favouring many small political parties central bank independence promotes low inflation with no apparent costs in terms of real economic performance irrespective of the political institutions in fact there is no link between monetary and fiscal discipline these findings carry powerful implications for countries facing high indebtedness or stubborn inflation but also for the construction of the european economic and monetary union

measuring socio economic status in the millennium villages the role of asset index choice how are poverty analyses and poverty traps assessments affected by the choice among conventional methods of asset index construction to address this question this article uses panel data from four sites in the millennium villages project mvp in malawi tanzania mali and ghana to study the relationship between eight asset indices and the sensitivity of findings related to poverty rates poverty transitions and poverty traps to the index used we find that although estimations of poverty rates and transitions are largely consistent across indices evidence of poverty traps can be conditional on which asset index is used the asset indices studied include structural income principal components factor analysis and a reduced set of assets reflecting the portfolio assessed in the demographic health survey dhs data

short waves in hungary 1923 and 1946 persistence chaos and lack of control abstract monetary policies follow a complex and chaotic process one that is enhanced when monetary growth is taken to the extreme as in hyperinflation while we have a basic understanding of the complex dynamics of hyperinflation a less explored phenomenon accompanying hyperinflationary episodes is the effect that they have on institutional development building on recent advances in economic history examining monetary policy and institutions this analysis uses more explicit recourse to complexity theory and in particular complex adaptive systems to examine two separate hyperinflationary episodes in hungary 1923 and 1946 delving into the institutional and cultural roots of the inflationary policies of the hungarian government and detailing the institutional effects which succeeded hyperinflation this paper shows that the twin experiences of hungary were both chaotic and created a chaotic and complex aftermath the results of which are still being felt indeed hungary s 1923 and especially its 1946 hyperinflation shows that some economic chaos cannot be restrained by political institutions and in fact the institutions themselves were changed when staring into the abyss hungary also found that the abyss stared back

the wealth of the unemployed many studies have investigated the adequacy of unemployment insurance ui benefits as a form of income replacement but few have looked at other resources with which the unemployed can finance their unemployment spells this paper focuses on one form of resources own wealth holdings the author finds that the median worker s financial assets can cover roughly two thirds of the income loss from an unemployment spell wealth holdings vary tremendously however and almost one third of workers are unable to replace even 10 of their income loss moreover predicted wealth holdings decline precipitously with realized unemployment durations both absolutely and especially relative to actual income loss this finding together with the finding that individuals who are eligible for more generous ui draw down their wealth more slowly than do others during unemployment spells suggests that ui benefit adequacy could be increased if the benefits were targeted to those with longer unemployment spells

the role of automatic stabilizers in the u s business cycle most countries have automatic rules in their tax and transfer systems that are partly intended to stabilize economic uctuations this paper measures how eective they are at lowering the volatility of u s economic activity we identify seven potential stabilizers in the data and include four theoretical channels through which they may operate in a business cycle model calibrated to the u s data the model is used to compare the volatility of output in the data with counterfactuals where some or all of the stabilizers are shut down our rst nding is that proportional taxes like sales property and corporate income taxes contribute little to stabilization our second

unemployment insurance benefit levels and consumption changes abstract we use a canadian survey of the unemployed to examine how household expenditures after a job loss respond to the level of income replacement provided by ui we isolate a liquidity constraint or transitory income effect from the permanent income shock of job loss and from the costs of working we find significant effects of varying the replacement ratio among the third of the sample who did not have assets at the job loss we conclude that the consumption smoothing benefit of ui is concentrated wholly on a sub group of the unemployed

consumption smoothing migration and marriage evidence from rural india a significant proportion of migration in low income countries particularly in rural areas is composed of moves by women for the purpose of marriage we seek to explain these mobility patterns by examining marital arrangements among indian households in particular we hypothesize that the marriage of daughters to locationally distant dispersed yet kinship related households is a manifestation of implicit interhousehold contractual arrangements aimed at mitigating income risks and facilitating consumption smoothing in an environment characterized by information costs and spatially covariant risks analysis of longitudinal south indian village data lends support to the hypothesis marriage cum migration contributes significantly to a reduction in the variability of household food consumption farm households afflicted with more variable profits tend to engage in longer distance marriage cum migration the hypothesized and observed marriage cum migration patterns are in dissonance with standard models of marriage or migration that are concerned primarily with search costs and static income gains

precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society

does extending unemployment benefits improve job quality contrary to standard search models predictions past studies have not found a positive effect of unemployment insurance ui on reemployment wages we estimate a positive ui wage effect exploiting