making the same mistake again or is this time different the world faces an economic crisis of unprecedented proportions but much of the policy response has certainly not lacked for precedent national governments and international organisations including the international monetary fund imf have looked to crises of the past for solutions to the present and austerity has become a familiar theme the inability to effectively resolve the current crisis however gives rise to the question is this time different this article provides a broad overview to the origins and development of the recent economic crisis and the resort to policies of austerity although there is historical precedent for the resort to austerity such as the uk treasury view during the 1920s and 1930s this time things are different many of the current problems are deeply rooted and reflect the impact of the shift towards free market economics that started in the 1970s 2 the origins of the crisis since the beginning of the 1970s the private sector finance in particular has reorganised on an increasingly global scale it has innovated in terms of both structure and products and it has experienced significant growth as tridico 2012 this issue shows this financialisation was characterised by a ballooning of stock exchanges as many firms decided not only to list their shares but also to become involved in speculative finance in response to pressures on firms to maximise shareholder value together with the progressive erosion of worker and trade union rights and influence labour markets became more flexible and real wages stagnated concurrently profits rebounded leading to burgeoning inequality in this context aggregate demand and consumption were bolstered by easy credit and the wealth effects of speculative bubbles first in stocks and shares and then in housing

substitute goods auctions and equilibrium this paper identifies two notions of substitutes for auction and equilibrium analysis weak substitutes the usual price theory notion guarantees monotonicity of t tonnement processes and convergence of clock auctions to a pseudo equilibrium but only strong substitutes which treats each unit traded as a distinct good with its own price guarantees that every pseudo equilibrium is a walrasian equilibrium that the vickrey outcome is in the core and that the law of aggregate demand is satisfied when goods are divisible weak substitutes along with concavity guarantees all of the above properties except for the law of aggregate demand

the role of the media in fiscal consolidation programmes the case of ireland a number of european countries have implemented austerity programmes since the onset of the current economic crisis this paper focuses on fiscal consolidation a central aspect of such programmes using the case of ireland it investigates the significant role of the mass media in presenting such policies to the public a role which has so far remained unexamined conceiving of the irish experience over the past few decades as a case of neoliberalisation it uses a critical political economic conceptualisation of news organisations to consider 431 editorials and opinion articles discussing fiscal consolidation in three leading irish newspapers between 2008 and 2012 it finds that the majority of articles present viewpoints in favour of fiscal consolidation and display a preference for spending cuts over tax hikes which substantiates the claim that ireland has adopted neoliberal policies to address the crisis only a minority of articles oppose fiscal consolidation these mostly contest specific spending cuts but usually fail to criticise fiscal consolidation itself by calling for economic alternatives such as keynesian stimulus differences between newspapers are also discussed highlighting their ideological cleavages

quantity competition with access fees abstract we analyze an oligopoly model where firms choose both quantities and access fees per unit prices are determined endogenously to equate quantity demanded with quantity supplied at each firm in a nash equilibrium of the game played by firms the per unit prices equal marginal cost and access fees may or may not extract all consumer surplus as the number of firms increases access fees fall below net consumer surplus and toward zero existence is guaranteed if marshallian consumer surplus is not too concave with open entry quantity competition with access fees may be less efficient than without access fees

walrasian equilibrium with gross substitutes in this paper we study the problem of efficient production and allocation of indivisible objects among a set of consumers we assume that the agents preferences depend on the bundle of objects and the quantity of money they consume furthermore we assume that preferences are quasilinear in money and that agents have a large endowment of money with indivisibilities it is well known that many familiar properties of the utility functions fail to ensure existence in their striking analysis of the matching problem kelso and crawford 5 introduce the gross substitutes gs condition which ensures the non emptiness of the core we propose two new conditions and show that with quasilinearity they are equivalent article id jeth 1999 2531 available online at http www idealibrary com on

a reexamination of purchasing power parity a multicountry and multiperiod study abstract this paper re examines the purchasing power parity ppp theory in a multiple exchange rate world owing to a lack of precision in estimating the parameters many authors concluded that ppp did not hold very well in the 1970s using a time series cross sectional estimation procedure we are unable to reject the hypothesis that ppp holds in several currencies simultaneously in addition the parameters are precisely estimated this result follows from the estimation procedure which allows us to exploit the cross sectional variation in the data and the contemporaneous correlation in the deviations from ppp

deviations from purchasing power parity in the long run this paper demonstrates that deviations from purchasing power parity reveal a remarkable and possibly startling consistency with martingale behavior during both fixed and flexible rate periods for a wide variety of countries and in both monthly and annual data since this pattern appears to be much more general than one would expect on the basis of models founded on international commodity arbitrage the paper proposes an alternative explanation which instead relies on financial arbitrage in bonds as the underlying mechanism this paper will demonstrate that deviations from purchasing power parity ppp reveal a remarkable and possibly startling consistency with martingale behavior during both fixed and flexible exchange rate periods for a wide variety of countries and in both monthly and annual data this pattern appears to be much more general than one would expect on the basis of models founded on international commodity arbitrage the paper therefore proposes an alternative explanation which does not presuppose free trade in goods but which instead relies on financial arbitrage in bonds as the underlying mechanism the major implication of the theory and the results is that ppp is as likely to be violated in the long as in the short run as an empirical matter deviations from ppp can be observed for most currencies at any instant see kravis et al 21 stockman 37 and genberg 15 among others these deviations are typically both cumulative and persistent the real exchange rate can remain on either side of parity for lengthy but variable time intervals of a year or more as a consequence the current consensus shared

purchasing power parity in the long run a cointegration approach this paper utilizes cointegration analysis to examine purchasing power parity relationships over a long time horizon the results indicate that the exchange rate is cointegrated strongly with the wholesale price index ratio and somewhat weakly with the consumer price index ratio the cointegrating coefficient between the exchange rate and the price ratio is close to one when cointegration is confirmed the hypothesis that the real exchange rate follows a random walk is rejected in most cases finally a new test for common trends finds no such common trends in exchange rates or price ratios copyright 1990 by ohio state university press

housing markets with indivisibilities abstract a model of a rental housing market in which houses are treated as indivisible commodities is presented a recursive equation that determines a competitive equilibrium is provided and it is argued that this competitive equilibrium is representative of the set of all competitive equilibria using this representative equilibrium several propositions on comparative statics are considered that have to do with how the competitive rents change when certain parameters of the model change

fiscal deficits economic growth and government debt in the usa a simple model illustrates interactions between the primary fiscal deficit total deficit minus interest payments economic growth and debt the deficit income ratio responds countercyclically to growth while growth may respond positively a keynes case or negatively ala merkel to the deficit the recent great recession in the usa was atypical in that there was a weak countercyclical fiscal response the increase in government net borrowing was significantly less than the decrease in private borrowing an historically unprecedented asymmetry econometric esti mates verify the historical pattern and further suggest that there is a strong positive effect on growth of a higher primary deficit even when possible increases in the interest rate are taken into account

unit roots and the real exchange rate before world war i the case of britain and the usa abstract unit root and cointegration tests indicate that the dollar pound real exchange rate was stationary during the us greenback and gold standard periods purchasing powwer parity ppp performed about equally well in the two periods and better than in recent years deviations from ppp were corrected by changes in british prices and us gold dollar prices greenback prices did not adjust the similarity of the adjustment parameters in the two periods suggests that expectations of a return to gold were embedded in the greenback price of gold

competitive equilibrium with indivisibilities abstract this paper studies an exchange economy with a finite number of agents in which each agents is initially endowed with a finite number of personalized indivisible commodities we observe that the equivalence theorem of the core and the competitive equilibrium may not hold for this economy when the coalitional form game is generated in the standard manner we provide an alternative definition of the coalitional form game to resolve this problem so that the balancedness of the new defined game provides a useful necessary and sufficient condition for the existence of competitive equilibrium for the original economy journal of economic literature classification numbers c71 d41 d51

a competitive market model for indivisible commodities abstract a general competitive market model for trading indivisible goods is introduced there are a group of traders and several indivisible goods each trader is initially endowed with several units of each indivisible good and some amount of money traders have preferences over the bundle of indivisible goods and the quantity of money they consume it is shown that the market has a walrasian equilibrium if and only if an associated linear program problem has an optimal solution with its value equal to the potential market value and that the equilibrium prices of the goods and the profits of the traders are the optimal solutions of the linear program problem

the basic paradigms of eu economic policy making need to be changed the anaemic growth of the european union euro area derives from its economic paradigms the principle one size fits all behind european central bank policy activates centrifugal forces diverging trends in unit labour costs external competitiveness and external balances follow german policy actively supports this excessive external surplus procedures against countries generating large surpluses at the expense of domestic consumption and the partners rising debt should be instituted the stability and growth pact needs modification the 3 fiscal deficit gdp mark may prevent automatic stabilisation insistence on the budgetary positions being close to balance or in surplus lacks rationale when the private sector s propensity to save is larger than its propensity to invest that requirement cannot be observed a permanent fiscal deficit may be a secular necessity problems related to rising public debt may also need to be addressed for the euro area these problems could be rendered far less serious than often believed

the average shadow price for milps with integral resource availability and its relationship to the marginal unit shadow price abstract the economic significance of the average shadow price for integer and mixed integer linear programming milp problems has been established by researchers kim and cho eur j operat res 37 1988 328 crema eur j operat res 85 1995 625 in this paper we introduce a valid shadow price aspira for integer programs where the right hand side resource availability can only be varied in discrete steps we also introduce the concept of marginal unit shadow price musp we show that for integer programs a sufficient condition for the marginal unit shadow price to equal the average shadow price is that the law of diminishing returns should hold the polyhedral structures that will guarantee this equivalence have been explored identification of the problem classes for which the equivalence holds complements the existing procedure for determining shadow price for such integer programs the concepts of aspira and musp introduced in this paper can play a vital role in resource acquisition plans and in defining efficient market clearing prices in the presence of indivisibilities

real and nominal exchange rates in the long run an empirical investigation abstract this paper reports on econometric tests of the hypothesis that purchasing power parity holds as a long run relationship using data on eight industrialized countries during the flexible exchange rate period the empirical work proceeds by i testing whether nominal exchange rates and relative price levels are co integrated and ii conducting impulse response analysis of long run exchange rate and relative price level changes to explain the data keynesian models suggest that shocks during the estimation period were due principally to exogenous shifts in aggregate demand while equilibrium models suggest that monetary factors have been relatively more important

an efficient dynamic auction for heterogeneous commodities this paper proposes a new dynamic design for auctioning multiple heterogeneous commodities generalizing earlier work that treated identical objects an auctioneer wishes to allocate one or more units of each of k heterogeneous commodities to n bidders the auctioneer announces a vector of current prices bidders report back quantities demanded at these prices and the auctioneer adjusts the prices units are credited to bidders at the current prices as their opponents demands decline and the process continues until every commodity market clears bidders rather than being required to behave as price takers are permitted to strategically exercise their market power nevertheless with pure private values the proposed auction yields walrasian equilibrium prices an efficient outcome results as from a vickrey clarke groves mechanism but bidders are only required to evaluate their demands along a one dimensional path of prices rather than reporting their utilities over the entire k dimensional consumption set the auction is also more transparent and potentially simpler for bidders to understand and has the advantage of assuring the privacy of the upper portions of bidders demands theoretically the new auction provides a new foundation for convergence to walrasian equilibrium in an exchange economy practically it provides an efficient method for simultaneously auctioning two or more related types of securities for example three month and six month treasury bills it is also potentially useful for auctioning multiple types of communications spectrum for example licenses for paired and unpaired spectrum

the end of the uk s liberal collectivist social model the implications of the coalition government s policy during the austerity crisis this paper reviews change and continuity in social policy up to summer 2011 contrasting the liberal collectivist approach of new labour with the reinforced neoliberalism of the coalition government given the ongoing uncertainty of economic conditions and the obvious difficulty of forecasting the stability of coalition policy it is not possible to arrive at a firm conclusion as to the sustainability of the recent change of policy direction nevertheless in a critical assessment of policy in three areas labour market governance the life course and the public sector the paper argues that the uk is witnessing an intensified neoliberal policy emphasis a redrawing or abolition of minimum standards and failures to meet changing patterns of social needs while the collectivist elements of new labour s social policy approach were contradictory in many respects the coalition government through a withdrawal of the state and obtuse pronouncements about the big society is seeking to embed in the uk a stronger neoliberal approach to social policy flawed assumptions about the scope for traditional families and localised big society programmes to compensate for state withdrawal mean the trajectory of change is not clear cut preferences for collectivist and publicly accountable solutions to issues of social policy are unlikely to be easily eroded however ongoing policy change during the austerity crisis is already inflicting radical change with adverse impacts upon many groups of society

us government deficits and debt amid the great recession what the evidence shows this paper examines three sets of major questions regarding the current u s government s fiscal defi cit and outstanding debt tied to the 2009 economic stimulus program the american recovery and reinvest ment act arra first i consider the claim that high levels of government borrowing drives up interest rates these high rates then produce a heavy burden of government debt as well as heavy inflationary pressures the evidence we review regarding each of these concerns demonstrates that none have emerged as serious matters since the enactment of the arra given this conclusion the paper then questions why the arra did not then succeed in generating a strong economic recovery i first consider the possible impact of ricardian equivalence the position that government stimulus programs by their nature are self defeating after argu ing against this position i advance three reasons for the failure of the arra to achieve a strong recovery 1 the arra relied too heavily on tax cuts as a means of bolstering private spending 2 household wealth de clined dramatically during the recession tied to the collapse of the financial bubble this in turn weakened the willingness of households to increase spending and 3 credit markets were locked up especially for smaller businesses despite the highly expansionary monetary policy stance adopted by the federal reserve building on these findings i then develop a series of policy proposals aimed at promoting both a strong recovery in the short term and at reducing any remaining structural deficit issues in the longer term the short term program focuses on extending loan guarantees especially to small businesses and taxing the excess reserves held by commercial banks the longer term agenda focuses on reducing government costs for health care and the military and on increasing revenue through establishing taxes on financial market transactions

the long run behavior of the real exchange rate a reconsideration using a new statistical test this paper provides empirical evidence that the real exchange rate is not a random walk if the real exchange rate were a random walk deviations from purchasing power parity could be expected to become unbounded as the forecast horizon became longer recently christopher a sims proposed a test based on bayesian posterior odds ratios that is designed to discriminate between a unit root and a large but stationary autocorrelation coefficient this paper applies the sims test to real exchange rate data for six industrial countries the results reject the random walk hypothesis copyright 1992 by ohio state university press

an equilibrium model of exchange rate determination and asset pricing with nontraded goods and imperfect information this paper presents a two country model with maximizing households stochastic production stochastic money growth and perfect capital mobility because of the presence of nontraded goods households in different countries consume different goods analytic solutions are presented for the nominal exchange rate the real exchange rate nominal interest rates and real interest rates it is shown that the model is compatible with some important features of the real world behavior of exchange rates when households are imperfectly informed about the distribution of money growth the exchange rate exhibits patterns of overshooting and is more volatile than the ratio of the money stocks copyright 1987 by university of chicago press

is ireland really the role model for austerity this paper describes the causes and consequences of ireland s economic crisis in the context of the policy solution implemented to contain that crisis protracted fiscal austerity i describe the causes of the recent crisis in ireland and look at the logic of austerity with a simple model i compare the current crisis to the crisis of the 1980s when fiscal austerity was touted as the trigger for the celtic tiger i discuss the measures implemented to date in the current crisis tracing their effects on sectors of ireland s macroeconomy i show that ireland is not the role model for austerity policies

the package assignment model we study assignment problems where individuals trade packages consisting of several rather than single objects although buyers reservations values are non additive efficient assignments can be formulated as a linear programming problem in which the pricing functions expressing duality may be non linear in the objects constituting the packages the interconnections among the linear programming formulation walrasian equilibrium and the core are established in the single seller auction version a necessary and sufficient condition is given for the vickrey payoff point to be implementable by a pricing equilibrium journal of economic literature classification numbers c62 d44 d51

dangerous interconnectedness economists conflicts of interest ideology and financial crisis this study investigates potential conflicts of interest among academic economists and some measures to address them we investigated the financial affiliations of 19 prominent academic financial economists who were associated with two economist groups proposing financial reform measures in the wake of the 2008 financial crisis we assessed whether they had private financial affiliations and identified the degree to which these economists disclosed these affiliations in their academic and media publications from 2005 to 2009 and again from january 2011 through april 2011 we found that private affiliations were common but that these academic economists disclosed these affiliations infrequently and inconsistently we advocate the adoption of a code of ethics by the economics profession similar to those commonly implemented by other disciplines prescribing more transparent conduct for economists facing such potential conflicts of interest

cores and competitive equilibria with indivisibilities and lotteries abstract lotteries are introduced in the exchange model of shapley and scarf j math econ 1 1974 23 37 in competition traders buy and sell probabilities on houses when considering the core feasible allocations of the economy and blocking allocations of coalitions may involve lotteries among other results we show that the set of lottery equilibrium allocations is non empty and does not contain all competitive equilibrium allocations the core of the shapley scarf model is a strict subset of the lottery core and lottery equilibrium allocations are contained in the lottery core journal of economic literature classification numbers c62 c71

is there trend reversion in purchasing power parity abstract this study presents some empirical evidence on purchasing power parity ppp using residualbased co integration tests engle and granger s 1987 tests and the ratio of the variance of higher order differences to the variance of the first difference of the residuals of the cointegrating regression are used monthly data over a span of 30 years do not provide any empirical support to the theory conversely in the annual data long run equilibrium tendencies are evident since ppp has been widely used to provide an anchor for the equilibrium exchange rate our results indicate that such an assumption is not completely inadequate

cointegration how short is the long run abstract when testing for cointegration and faced with short sample periods it is common for researchers to turn to more frequently sampled observations that is to move from annual to quarterly or monthly data in order to increase the number of observations we argue that such a gain in the degrees of freedom is more apparent than real essentially cointegration is a long run concept and hence requires long spans of data to give tests for cointegration much power rather than merely large numbers of observations using monte carlo simulations we demonstrate this for four popular tests for cointegration

long run purchasing power parity in the 1920s abstract this paper presents an empirical analysis of long run purchasing power parity ppp during the 1920s float using recently developed methodology on the cointegration of economic time series our results are generally supportive of ppp as a long run equilibrium condition on which exchange rates tended to converge over the period for dollar sterling however there is some evidence of a non stationary drift away from fundamentals during the last year or so before britain s return to the gold standard perhaps due to speculation our results also appear to reconcile some apparently conflicting evidence in the literature

systems of bilateral real exchange rates it is agrued that purchasing power partly should not be tested as a series of separate bilateral relationship instead a country s set of bilateral real exchange rates should be tested as a complete system this study implements such an approach on two different datasets for the group of seven major industrial countries the results contrast sharply with the related work carried out by abuaf and jorion 1990 a tentative theoretical framework is sketched against which the results can be interpreted

a note on america s 1920 21 depression as an argument for austerity this note argues that recent interest in the 1920 21 depression in the usa as a historical precedent for austerity is inappropriate most of the austerity measures preceded the depression which had already begun receding by the time warren harding implemented the relatively modest spending and tax cuts that are cited by modern proponents of austerity the evidence suggests that the 1920 21 depression was the result of a variety of supply constraints rather than a deficiency of effective demand and is therefore a poor test of the efficacy of keynesian fiscal policy

arima and cointegration tests of ppp under fixed and flexible exchange rate regimes real exchange rates between the united states and its major trading partners were calculated for the bretton woods and flexible exchange rate periods unit root tests indicate that purchasing power parity performed poorly in both periods tests for cointegration reveal limited instances in which it is possible to estimate the deviations from ppp as an error correcting model the estimated error correcting models indicate that foreign but not u s prices responded to deviations from ppp frenkel s 1981b finding that purchasing power parity ppp worked better during the 1920s than the 1970s caused considerable controversy for example davutyan and pippenger 1985 contend that the socalled collapse of ppp is a result of an increase in the relative importance of real versus monetary shocks they argue that the 1970s as opposed to the 1920s was characterized by real supply shocks and the international coordination of monetary policies the argument is that ppp did not fail rather there was an increase in the volatility of those factors giving rise to deviations from ppp hakkio 1984 reestimated ppp over the 1920s and 1970s using cross country tests i e sure estimates to improve the efficiency of his estimates he was able to support the hypothesis that ppp worked better in the 1970s than in the 1920s on the other hand papers by adler and lehman 1983 dornbusch 1980 frenkel 1981a junge 1985 and krugman 1978 report findings contrary to the ppp hypothesis moreover kenen and rodrik 1986 find that the volatility of real exchange rates has increased throughout the flexible rate period this paper tries to shed some light on the importance and persistence of the observed deviations from purchasing power parity under alternative exchange rate systems while it is interesting to compare ppp in the 1920s versus the 1970s it is equally useful to compare the 1960s versus the 1970s and 1980s if real supply shocks and lack of monetary coordination are characteristic of the latter period ppp should perform better in the 1960s to illustrate the issues involved consider the following econometric model of relative purchasing power

competitive equilibria in two sided matching markets with general utility functions we present an exact characterization of utilities in competitive equilibria of two sided matching markets in which the utility of each agent depends on the choice of partner and the terms of the partnership potentially including monetary transfer examples of such markets include sellers and buyers or jobs and workers demange and gale showed that the set of competitive equilibria in this type of market forms a complete lattice with each extreme point of the lattice representing an equilibrium with the highest utilities for the agents on one side and the lowest utilities for the agents on the opposite side our characterization is based on establishing a connection between the competitive equilibria of a market and the competitive equilibria of certain strict subsets of that market each obtained by removing exactly one agent this characterization captures the effect of competition when agents are added to the market or removed from the market it gives a precise procedure for constructing competitive eq

russia austerity and deficit reduction in historical and comparative perspective this paper looks at russian experience with austerity programmes since the breakdown of the former soviet union in 1991 downsizing of the state was one of the major elements in a reform package designed to transform the centrally planned economy into a market one together with deregulation privatisation macroeconomic stabilisation and the opening up of the closed economy this downsizing however proved to be the single most important reason for the collapse of state institutions which in turn deepened the transformational recession contributed to the dramatic rise of income inequalities corruption and crime and the decline in life expectancy the story of the successes and failures of transition is not really the story of consistent shock therapy and inconsistent gradualism the major plot of the postsocialist transformation novel is the preservation of strong institutions in some countries very different in other respects from central europe and estonia to china uzbekistan and belarus and the collapse of these institutions in other countries at least 90 of this story is about government failure the strength of state institutions and not about market failure liberalisation copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

job matching and coalition formation with utility or disutility of co workers abstract this paper studies the job matching market in kelso and crawford 1982 econometrica50 1483 1504 with one exception that co workers may generate utility or disutility in the workplace we provide a simple idea to show how a great number of sufficient conditions for a nonempty core in the literature can be extended to this labor market a generalized competitive equilibrium with a tax subsidy system is also discussed journal of economic literature classification number d71

the existence and computation of competitive equilibria in markets with an indivisible commodity abstract this paper considers an exchange economy called a generalized assignment market in which sellers and buyers trade one indivisible commodity possibly with product differentiation for a perfectly divisible commodity the existence of a competitive equilibrium in this economy is proved using kakutani s fixed point theorem this existence theorem is applied to a production economy in which sellers are formulated as producers with convex cost functions two examples of housing markets are provided and their competitive equilibria are numerically calculated

existence and welfare properties of equilibrium in an exchange economy with multiple divisible indivisible commodities and linear production technologies abstract in this paper we consider a class of economies with a finite number of divisible commodities linear production technologies and indivisible goods and a finite number of agents this class contains several well known economies with indivisible goods and money as special cases it is shown that if the utility functions are continuous on the divisible commodities and are weakly monotonic both on one of the divisible commodities and on all the indivisible commodities if each agent initially owns a sufficient amount of one of the divisible commodities and if a no production without input like assumption on the production sector holds then there exists a competitive equilibrium for any economy in this class the usual convexity assumption is not needed here furthermore by imposing strong monotonicity on one of the divisible commodities we show that any competitive equilibrium is in the core of the economy and therefore the first theorem of welfare also holds we further obtain a second welfare theorem stating that under some conditions a pareto efficient allocation can be sustained by a competitive equilibrium allocation for some well chosen redistribution of the total initial endowments journal of economic literature classification numbers d4 d46 d5 d51 d6 d61

real exchange rates under the gold standard purchasing power parity is one of the most important equilibrium conditions in international macroeconomics empirically it is also one of the most hotly contested numerous recent studies for example have sought to determine the validity of purchasing power parity using data from the post bretton woods float and have reached different conclusions we assert that most such studies are flawed for two reasons first the post 1973 data contain by definition only a very limited amount of the low frequency information relevant for examination of long run parity second the dynamic econometric techniques used to model deviations from parity are typically quite crude with respect to admissible low frequency dynamics both deficiencies are rectified in the present paper with dramatic results we construct a new data set of 16 real exchange rates covering more than a century of the classic gold standard period and we study deviations from parity using long memory models that allow for subtle forms of mean

iceland s rise fall stabilisation and beyond iceland is an unusually pure example of the dynamics that blocked regulation and caused financial fragility across the developed world for 20 years this essay describes the statist and corporatist political economy of the country as it soared from near the bottom of the western european income hierarchy at the end of the world war ii to up near the top by the 1980s it illustrates how a group of neoliberal politicians and allied civil servants drove through selective deregulation and privatisation in the 1990s and 2000s in the space created for newly privatised banks icelandic financiers grew the banks and linked private equity firms through mergers and acquisitions abroad to the point where by 2007 tiny iceland supported three banks in the world s biggest 300 banks with assets eight times the gdp second highest in the world after switzerland as profits from these overseas operations were partly redistributed back to iceland the economy boomed in the grip of super minsky processes the government the banks and the media interpreted the boom as testimony to the validity of neoliberal policies and went out of their way to hide increasing financial fragility from view preventing a negative or self correcting policy feedback loop the accident waiting to happen happened in the wake of the lehman collapse in september 2008 the essay charts the zigzags of the government s response and the citizens response and discusses the prospects for a resumption of growth on a more sustainable basis it suggests that iceland illustrates in miniature the ratcheting down of mass living standards underway across the western world now that the cushion of debt has been removed even as financiers and others in the top few percentiles of national income distributions increase their share of national income but economic institutions and politics matter in iceland the large devaluation spread the cut in a relatively apolitical way the government let the banks go bust rather than bail them out at taxpayers expense it imposed capital controls on outflows and it used fiscal transfers to protect the bottom half of the population from disproportionate cuts

competitive equilibrium in an exchange economy with indivisibilities abstract we analyze an exchange economy in which i all commodities except money are indivisible ii agents preferences can be described by a reservation value for each bundle of indivisible objects and iii all agents are price takers we obtain a necessary and sufficient condition under which market clearing prices exist implications for market mechanisms are discussed journal of economic literatureclassification numbers d51 c78

contradictions of austerity the global economic and financial crisis has been marked by the following paradox a much more severe depression than the global slump of 2008 09 was prevented by determined state intervention in the form of bank bailouts and fiscal stimuli yet this bout of apparently successful keynesianism has been followed by a turn to fiscal austerity justified in terms reminiscent of the treasury view against which keynes relentlessly polemicised in the 1930s this article explores the sources of this policy shift among the factors considered are the ideology of neoliberalism the economic and political power of the banks and the relative weight of finance in individual economies the broader context of financialisation is also considered the conclusion is reached that an oscillation between bouts of austerity and laxer policies encouraging the development of asset bubbles may be built into neoliberalism as an economic policy regime the implication is that alternatives to austerity must embrace broad institutional transformation copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

a competitive partnership formation process a group of heterogeneous agents may form partnerships in pairs all single agents as well as all partnerships generate values if two agents choose to cooperate they need to specify how to split their joint value among one another in equilibrium which may or may not exist no agents have incentives to break up any existing partnerships or form new partnerships this paper proposes a dynamic competitive adjustment process that always either finds an equilibrium or exclusively disproves the existence of any equilibrium in finitely many steps when an equilibrium exists partnership and revenue distribution will be automatically and endogenously determined by the process moreover several fundamental properties of the equilibrium solution and the model are derived

nominal exchange rate regimes and the real exchange rate abstract two assumptions about the real exchange rate are common in the literature on international finance 1 the real exchange rate is a random walk 2 the time series properties of the real exchange rate depend on the nominal exchange rate regime this paper presents evidence that indicates that the random walk behavior of the real exchange rate is only a characteristic of the post world war ii period moreover our findings also suggest that what is crucial to the real exchange rate behavior is the particular historical period rather than the nominal exchange rate arrangement

multi item auctions a collection of items is to be distributed among several bidders and each bidder is to receive at most one item assuming that the bidders place some monetary value on each of the items it has been shown that there is a unique vector of equilibrium prices that is optimal in a suitable sense for the bidders in this paper we describe two dynamic auction mechanisms one achieves this equilibrium and the other approximates it to any desired degree of accuracy

bundling decisions by a multiproduct monopolist with incomplete information this paper analyzes bundling decisions of a rnultiproduct monopolist facing uncertain demand the monopolist sells his products using an auction mechanism and the market is analyzed as a game with incomplete information in which the buyers as well as the seller are strategic agents with a small number of buyers a profit maximizing seller will bundle all his output this makes buyers uniformly worse off compared to the case where the same monopolist does not bundle in the sense that any buyer is worse off regardless of his demand for the monopolist s outputs with a larger number of buyers the seller will have a tendency to unbundle his output and high demand buyers are worse off than they would be if the monopolist bundled his output low demand buyers on the other hand are always better off when the monopolist unbundles his output regardless of the number of competing buyers despite the fact that high demand buyers are the typical purchasers of the monopolist s output the net effect of increasing the number of buyers is greater market efficiency since bundling creates market inefficiencies both ex post and ex ante

cointegration and tests of purchasing power parity nonstationarity in the levels of spot exchange rates and domestic and foreign price indices makes the use of conventional tests of the absolute version of purchasing power parity ppp inappropriate if ppp is true inter country commodity arbitrage ensures that deviations from a linear combination of spot exchange rates and domestic and foreign price levels should be stationary under these conditions exchange rates and price levels should form a cointegrated system we find the null hypothesis of no cointegration cannot be rejected for all five countries thus violating the long run absolute version of ppp

a double sided multiunit combinatorial auction for substitutes theory and algorithms combinatorial exchanges have existed for a long time in securities markets in these auctions buyers and sellers can place orders on combinations or bundles of different securities these orders are conjunctive they are matched only if the full bundle is available on business to business b2b exchanges buyers have the choice to receive the same product with different attributes for instance the same product can be produced by different sellers a buyer indicates his preference by submitting a disjunctive order where he specifies the quantity he wants of each particular good and what limit price he is willing to pay for each good thus providing a subjective valuation of each attribute only the goods with the best prices will be traded this article considers a doubled sided multiunit combinatorial auction for substitutes that is a uniform price auction where buyers and sellers place both types of orders conjunctive and orders and disjunctive xor orders we show that linear competitive prices exist we also propose an algorithm to clear the market which is particularly efficient when the number of traders is large and the goods are divisible

package auctions and exchanges we report recent advances concerning the package allocation problem in which traders seek to buy or sell combinations of goods the problems are most difficult when some goods are not substitutes in that case competitive equilibrium typically fail to exist but the core is non empty and comprises the competitive solutions also in that case the vickrey auction fails to select core allocations and yield revenues that are less than competitive the ausubel milgrom auction generally selects core allocations and when goods are substitutes prescribes the vickrey allocation we also evaluate the problems and promise of mechanisms for the package exchange problem

the four fallacies of contemporary austerity policies the lost keynesian legacy the contemporary wide scale austerity measures are likely to fail in most countries the first fallacy derives from the false diagnosis that the present crisis is the outcome of lax public spending policy when it is actually the outcome of a private credit led speculative boom the second fallacy assumes the possibility or even the generality of the so called expansionary fiscal contractions this neglects the short term negative effects on domestic demand and overestimates the generality of ricardian equivalence the importance of crowd in effects related to lower interest rates and the positive impact on trade balances the third fallacy one size fits all is problematic since greece and portugal cannot replicate the hard won german success their productive institutional and political configurations differ drastically and thus they require different policies the fourth fallacy states that the spill over from one country to another may resuscitate the inefficient and politically risky beggar my neighbour policies from the interwar period

the tragedy of uk fiscal policy in the aftermath of the financial crisis the evolving response of the uk fiscal authorities to the financial crisis and recession are briefly outlined with a focus on the fiscal austerity programme introduced by the incoming coalition government during 2010 the reasoning for that programme is critically examined and largely dismissed it is argued that the drive for major cuts in public expenditure comes from seeking to achieve a balanced structural budget and reductions in estimated potential output the significance of the latter are discussed the paper is completed by a brief consideration of alternatives

testing purchasing power parity under the null hypothesis of co integration this paper analyzes monthly data on the exchange rates and price indices of the eleven major industrial countries over the modern period of floating exchange rates it presents tests that are based upon the null hypothesis of cointegration the paper finds evidence that most country pairs not involving north american currencies have exchange rates and price indices that are cointegrated it estimates the error correction representation for the series that are cointegrated and it shows that the dynamic adjustment of the relationship between exchange rates and prices is accomplished almost entirely in the market for foreign exchange copyright 1991 by royal economic society

a long run view of the european monetary system abstract this papaer analyzes the exchange rates and consumer price indices of six countries participating in the european monetary system ems during the entire period of floating exchange rates the analysis shows that most of these real exchange rates have unit roots even when one allows for the possibility of a structural break at the time of the advent of the ems further proces and exchange rates are not co integrated during the ems period the data suggest that the 12 realignments of the ems have not served fully too offset the member countries inflation differentials

duality in comparative statics in rental housing markets with indivisibilities we present certain duality results on comparative statics on competitive rent vectors in the rental housing market model in the model apartments as indivisible goods are classified into a finite number of categories and are traded for one composite commodity our concern is about certain general properties of the behavior of rents with parameter changes in particular the rent changes are intimately related to the boundary income changes of the categories of apartments both changes are endogenously determined in equilibrium we will show that these changes exhibit nice dual structures we will also apply our model and comparative statics to a rental housing market in the tokyo metropolitan area

pricing and allocation for quality differentiated online services we explore the problem of pricing and allocation of unique one time digital products in the form of data streams we look at the short term problem where the firm has a capacitated shared resource and multiple products or service levels we formulate the allocatively efficient generalized vickrey auction gva for our setting and point out the computational challenges in determining the individual discriminatory transfer payments we propose an alternative uniform price computationally efficient revenue maximizing knapsack formulation called the multiple vickrey auction mva while not incentive compatible the mva mechanism achieves bounded posterior regret and can be solved in real time it has the added benefit of realizing imputed commodity prices for the various services a feature lacking in the discriminatory gva approach for service providers that are concerned about the incentive compatibility but want imputed service prices we suggest a maximal mva mmva uniform pricing scheme that trades off revenue maximization for allocative efficiency for sake of completeness we discuss the properties of a first price pay your bid scheme while np hard and not incentive compatible this formulation has the perceived benefit of cognitive simplicity on the parts of sellers and bidders

an empirical examination of long run purchasing power parity using cointegration techniques this paper presents an empirical analysis of long run purchasing power parity ppp for five major exchange rates using recently developed econometric techniques on the cointegration of economic time series our empirical results are extremely unfavourable to the ppp hypothesis as a long run equilibrium condition even with an allowance made for measurement error and or tranportation costs in particular we are unable to reject the hypothesis of non cointegration of the exchange rate and relative prices for any of the countries concerned far from finding a stable long run proportionality between exchange rates and relative prices our results therefore suggest that they tend to drift apart without bound

the macroeconomic stabilisation effects of social security and 401 k plans this paper investigates how various retirement institutions impact the macroeconomy we find that for every 1 percentage point increase in the output gap net flows of various government programmes including social security decrease by 0 34 percentage points while net flows of 401 k plans increase by 0 05 percentage points in levels for every 1 increase in real gross domestic product net flows from various government programmes shrink by 45 cents whereas net flows from 401 k plans increase by 4 6 cents in other words 401 k plans reduce the automatic stabilisation impact of government programmes by 10 15 moreover we find that social security has a net negative effect on household consumption while 401 k retirement accounts work the opposite way in fact the destabilising effect of 401 k plans on consumption is twice as strong as the one attributed to social security these results highlight a significant problem with 401 k retirement plans and any retirement plan that is dependent on financial markets copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

the self regulating profession slayton and treblicock 1978 the formal analysis of the economics of the self regulating profession has received little attention from theorists if a profession is self regulating in the sense that its current members being the sole suppliers of a certain type of service are free to determine in one way or another whether or not to admit a potential recruit then it might seem prima facie that such a profession could simply be regarded as a monopolistic seller of the service in question so that the effects of self regulation would appear to involve an unambiguous welfare loss the whole rationale for self regulation however rests on the notion that it provides a vehicle through which the quality of the service may be maintained in markets where the consumer cannot readily measure this quality himself it is the analysis of the interplay of these two elements the enhanced price of such services associated with the monopolistic power of the profession and the improved quality of the service which may accompany a reduction in supply which forms the focus of the present paper it is tempting to begin the analysis of such a profession by first positing some particular

common stochastic trends in a system of exchange rates univariate tests reveal strong evidence for the presence of a unit root in the univariate time series representation for seven daily spot and forward exchange rate series furthermore all seven spot and forward rates appear to be cointegrated that is the forward premiums are stationary and one common unit root or stochastic trend is detectable in the multivariate time series models for the seven spot and forward rates respectively this is consistent with the hypothesis that the seven exchange rates possess one longrun relationship and that the disequilibrium error around that relationship partly accounts for subsequent movements in the exchange rates a general consensus has emerged in recent years that many macroeconomic time series such as gnp consumption expenditures disposable income etc can be characterized by a stochastic trend model in particular nelson and plosser 22 described this property as one of being difference stationary so that the first difference of a time series is stationary an alternative trend stationary model where a stationary component is added to a deterministic trend term has generally been found to be less appropriate 1 similarly it has long been recognized that many financial time series such as foreign exchange rates are nonstationary e g in meese and singleton 21 the issue of nonstationary is not merely a statistical curiosity but has several important implications for the modeling of exchange rates for instance many models of exchange rate determination under rational expectations require stationarity assumptions when solving out the expected future values of the fundamentals further there has been some controversy over the appropriate transformations to use when conducting tests of whether the forward rate is an unbiased and efficient predictor of the future spot exchange rate 2 some authors e g frenkel 11 12 have conducted tests in levels while geweke and feige 14

the great austerity war what caused the us deficit crisis and who should pay to fix it rapidly rising deficits at both the federal and state and local government levels along with long term financing problems in the social security and medicare programs have triggered a one sided austerity focused class war in the us similar class conflicts have broken out around the globe a coalition of the richest and most economically powerful segments of society and conservative politicians who represent their interests has demanded that deficits be eliminated by public sector austerity severe cuts at all levels of government in spending that either supports the poor and the middle class or funds crucial public investment these demands constitute a deliberate attempt to destroy the new deal project begun in the 1930s whose goal was to subject capitalism to democratic control the right wing coalition seeks to replace that project with a modernized version of the free market capitalism of the 1920s in this paper i argue that our deficit crisis is the result of a shift from the new deal based economic model of the early post war period to today s neoliberal free market model a shift initiated under ronald reagan and continued under the presidents who succeeded him the new model has generated slow growth rising inequality and rising deficits rising deficits in turn created demands for austerity after tracing the long term evolution of our current deficit crisis i show that this crisis can be resolved by raising taxes on upper income households and large corporations cutting war spending and adopting a canadian or european style health care system there is no need to accept austerity calls for austerity should be seen as what they are an attack by the rich and powerful against the basic interests of the american people