deposit insurance and external finance i introduction capital markets serve an essential purpose in the growth and development of modern economies they provide for the efficient channeling of funds from savers to investors there are two basic methods for financing capital investment primary issuance of equity or bonds and securing of bank loans looking around the world we see that countries differ substantially in the relative importance of banks and capital markets in providing investment financing equity market capitalization currently ranges from close to zero in countries like austria argentina and greece to nearly two times gross domestic product gdp in the united kingdom south africa and malaysia the importance of bank loan financing is essentially the mirror image of this what accounts for the cross country differences in the importance of banks and capital market financing of investment the purpose of this article is to address this question directly we contend that much of the variation across countries in the depth and breadth of capital markets can be explained by a combination of the existence of deposit insurance and the extent to which a country s banking system is state owned because of the importance of financial intermediation and the difficulties associated with potential bank failures governments in most countries have established a set of institutional structures to ensure the stability of their banking systems primary among these is the creation of deposit insurance by insuring deposits banks liability holders are significantly less likely to request the return of callable deposits reducing the chances of bank runs but at the same time deposit insurance subsidizes bank risk taking activities and allows the payment of lower interest rates to depositors 1 this channels money through banks and away from financial markets direct state bank ownership has a similar impact see barth et al 2001 la porta et al 2000 we present a simple three sector model in which the economy is composed of firms banks and households the firms require operating capital and can obtain it either through equity issuance or from bank loans banks take deposits from households and make loans to firms while households both allocate their wealth and purchase the firms output the model allows us to show how increases in deposit insurance or the percentage of the banking system that is state owned both reduces the size of the capital market and shrinks the amount of bank credit to the private sector and may decrease the number of firms seeking equity financing to examine the predictions of the model we study a data set composed of 49 countries of these 33 currently have explicit deposit insurance and 42 have some state ownership of banks ranging from less than 2 to almost 90 the data confirm the predictions of the model an increase in either state bank ownership or presence of deposit insurance both decreases the size of capital markets and the extent of bank lending for example we would predict that decreasing the percentage of the banking system that is state owned from 36 as it is in italy to zero would increase in the size of the capital market from less than 10 to over 30 of gdp and a raise in the level of bank lending from 57 to close to 90 of gdp our conclusions are in contrast with those in la porta et al 1997 who study the relationship between law and finance la porta et al note the importance of the countries legal system in determining the structure of the financial system in particular they point out that investors provide capital to firms only if they believe they will get their money back for equity holders this means that they must be able to vote out directors and managers who do not pay them for creditors and holders of bonds this means that they must have authority to repossess collateral furthermore these nominal legal rights must be accompanied by confidence that the laws will be enforced

location and attendance in major league baseball this study uses a travel cost model to analyse the attendance impacts on major league baseball mlb of the closest substitute mlb team it is found that the closer two teams are the lower attendance is at each team relative to two teams that are farther apart in addition when a new team moves into the area of an existing team there is an additional initial reduction in attendance for the incumbent team this has implications for actions aimed at changing the number of teams in mlb either by contraction or by possible antitrust approaches that would increase the number of teams especially in megalopolis markets further and consistent with past demand studies pricing is in the inelastic portion of gate demand and fan loyalty is a significant contributor to the estimation of gate attendance

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

inference in nonlinear econometric models with structural change this paper extends the classical test for structural change in linear regression models see chow 1960 to a wide variety of nonlinear models estimated by a variety of different procedures wald lagrange multiplier like and likelihood ratio like test statistics are introduced the results allow for heterogeneity and temporal dependence of the observations in the process of developing the above tests the paper also provides a compact presentation of general unifying results for estimation and testing in nonlinear parametric econometric models

measuring managerial efficiency the case of baseball in economic analysis the role of the entrepreneur is paramount to the production process the entrepreneur is engaged in a darwinian game of efficiently transforming scarce resource inputs into outputs in the modern business organization this role is delegated to managers despite the conceptual importance of the role of management in the production function very little is known about the actual effect on output of variations in managerial skill in part this is due to the lack of proprietory data in part it is due to difficulties in measuring the outputs and inputs of complex production processes in a meaningful way a number of investigators have employed the concept of the frontier production function as developed by forsund and hjalmarsson 1 and timmer 6 and more recently by schmidt and lovell 3 to measure the effect on technical and price efficiency of various property rights structures or institutional constraints to our knowledge estimates of managerial efficiency have not been obtained with firm specific data except for some regulated industries in this study we estimate managerial efficiency by manager and by firm managerial marginal revenue product the rate of change in managerial efficiency over years of experience and relative factor price efficiency we use major league baseball teams over the period 1961 1980 as our data source what is particularly appealing about the choice of major league baseball teams as the industry for analysis is that outputs win percent and inputs player skills are unambiguously measured and the production function is simply specified as shown by scully 5 our results indicate that managerial skill in baseball contributes very substantially to the production process the paper will evolve as follows first the concept of the frontier production function is briefly outlined then estimates of managerial efficiency by manager and by team are provided and discussed a managerial efficiency learning curve is estimated an estimate of managerial marginal revenue product provided and the managerial efficiency

stabilising properties of discretionary monetary policies in a small open economy this article sets out a simple new keynesian open economy model and shows that the conduct of discretionary monetary policy in an open economy differs substantially from the closedeconomy framework the article shows analytically that the existence of the direct exchange rate channel in the open economy phillips curve impairs the perfect stabilising property of monetary policy in the face of demand side disturbances under domestic inflation targeting if cpi inflation is instead the target then the perfect stabilising property of monetary policy breaks down even in the absence of the direct exchange rate channel in the phillips curve

monetary policy and stagflation in the uk the volatile behavior of inflation output and interest rates in the united kingdom prior to the 1990s helps discriminate between rival explanations for the outbreak of stagflation we examine alternative hypotheses with a new keynesian model of aggregate demand and inflation determination estimated on quarterly uk data for 1959 2000 our model features is and phillips curves based on optimizing behavior and fully incorporates the distinction between detrended output and the output gap stressed by optimizing analysis using simulations of our model as well as information on the real time views of policymakers we test alternative explanations for the outbreak of inflation in the united kingdom in the 1960s and 1970s we find that inaccurate estimates of the degree of excess demand in the economy contributed significantly to the outbreak but we also find a major role for the failure at the time to recognize the importance of monetary policy as opposed to nonmonetary devices in controlling inflation

cournot equilibrium in large markets under increasing returns abstract we consider cournot partial equilibria in large markets where firms have decreasing average costs it is shown that the outcome of competition is approximatelyefficient if entry is free

habit formation in consumption and its implications for monetary policy models this paper explores a monetary policy model with habit formation for consumers in which consumers utility depends in part on current consumption relative to past consumption the empirical tests developed in the paper show that one can reject the hypothesis of no habit formation with tremendous condence largely because the habit formation model captures the gradual hump shaped response of real spending to various shocks the paper then embeds the habit consumption specication in a monetary policy model and nds that the responses of both spending and inflation to monetary policy actions are signicantly improved by this modication jel d12 e52 e43

sticky prices as coordination failure this paper links the coordination failure and menu cost approaches to the microeconomic foundations of keynesian macroeconomics if a firm s desired price is increasing in others prices then the gain from price adjustment after a nominal shock is greater if others adjust this strategic complementarity leads to multiple equilibria in the degree of rigidity welfare may be much higher in the equilibria with less rigidity thus nominal rigidity arises from a failure to coordinate price changes jel e12 e30 keynesian macroeconomics waned in the 1970 s because economists grew disenchanted with its weak microeconomic foundations the central difficulty was that keynesian models were based on ad hoc rigidities in nominal wages and prices the 1980 s produced two approaches to reviving keynesian theory the menu cost literature n gregory mankiw 1985 george akerlof and janet yellen 1985 seeks to provide rigorous explanations for nominal rigidities these papers argue that small frictions in price setting are enough to produce large nominal rigidities in contrast the coordination failure literature russell cooper and andrew john 1988 abandons nominal rigidities and seeks alternative foundations for keynesian models the central idea is that many economic activities such as production e g john bryant 1983 trade e g peter diamond 1982 and investment e g nobuhiro kiyotaki 1988 exhibit synergism or strategic complementarity one agent s optimal level of activity depends positively on others activity strategic complementarity can lead to multiple equilibria with high activity equilibria superior to low activity equilibria thus an economy may be stuck in an underemployment equilibrium even though a superior equilibrium exists models with nominal rigidities and models with coordination failures are often presented as competing paradigms 1 this paper shows that this view is incorrect we take a step toward unifying the foundations of keynesian economics by showing that the two sets of ideas are highly complementary nominal rigidity arises from a failure to coordinate price changes this failure has the essential features of coordination failures in previous models flexibility in one firm s price increases the incentives for other firms to make their prices flexible this strategic complementarity leads to multiple equilibria in the degree of nominal rigidity equilibria with less rigidity more active price adjustment are often pareto superior to equilibria with more rigidity these results contribute to our understanding both of coordination failure and of nominal rigidity the range of keynesian phenomena explained by coordination failures is greatly expanded previous coordination failure models contain only real variables and thus ascribe no role to monetary policy or other determinants of nominal spending our results suggest that coordination failure is at the root of inefficient nonneutralities of money theories of nominal rigidities gain new empirical and policy im

some anomalies in the production strategy of a labour managed firm however been given to the appropriate objective function of a labour managed cooperative firm in this paper we show that the conventional formulation of the objective function is incompatible with a homogeneous production function more precisely we prove that a labour managed firm with a production function homogeneous of degree a 1 the level of output depends only on the degree of homogeneity and is otherwise independent of the structural form of the production function in particular the level of output is independent of the price of capital this last result also holds if the production function is homothetic although these shortcomings apply specifically to homogeneous production processes the use of such production functions is so widespread that any objective function of a firm which is incompatible with them significantly reduces its analytical usefulness consequently we think that further research in the theory of labour managed firms will require a reformulation of the objective function in order to remove this anomaly

monetary policy and inflation expectations in latin america long run effects and volatility spillovers this paper uses multiple cointegration analysis to estimate simultaneously a monetary reaction function and the determinants of expected inflation for brazil chile colombia and mexico in addition m garch modeling is used to test for the presence of volatility spillovers between the monetary stance and inflation expectations the analysis shows that there are long term relationships between the interest rate expected inflation and the inflation target and that greater volatility in the monetary stance increases the volatility of expected inflation in brazil colombia and mexico

analysing the technical efficiency of the spanish football league first division with a random frontier model this article analyses technical efficiency of football clubs in the spanish football league division 1 primera liga from the seasons 1995 1996 to 2004 2005 with an unbalanced panel data the random frontier model is used allowing the identification of random variables in the cost frontier it is concluded that the price of capital investment the number of points won and attendance are heterogeneous variables therefore no common public policy aiming to improve efficiency can embrace all of the clubs so that policies by clusters are required

a bayesian stochastic frontier of italian football this study analyses the technical efficiency of serie a italian football clubs during the 2004 2012 seasons with a bayesian stochastic frontier model using unique data extracted from clubs annual reports specifically the focus of the study is on assessing the impact effects on clubs efficiency whether they are big clubs they employ several foreign player they compete in european competitions and their involvement with football scandals in the italian football the empirical results reveal that efficiency varies among the clubs analysed and policy implications are derived

european monetary union adjustment and exchange rate variability abstract this paper uses a three country three good factor specific model of trade with wage rigidities to investigate how european monetary union is likely to affect exchange rate variability focusing on international macroeconomic adjustment under both exogenous and optimizing monetary policies it shows that the relative variability against external currencies of the euro and a basket of predecessor currencies depends on the relative sizes and specialization patterns of countries and the relative importance of different shocks monetary union is likely to decrease increase aggregate european exchange rate variability for shocks to industries in which large small euro area countries specialize

inflation and unemployment the world economy today is vastly different from the 1930s when seymour harris the chairman of this meeting infected me with his boundless enthusiasm for economics and his steadfast confidence in its capacity for good works economics is very different too both the science and its subject have changed and for the better since world war ii but there are some notable constants unemployment and inflation still preoccupy and perplex economists statesmen journalists housewives and everyone else the connection between them is the principal domestic economic burden of presidents and prime ministers and the major area of controversy and ignorance in macroeconomics i have chosen to review economic thought on this topic on this occasion partly because of its inevitable timeliness partly because of a personal interest reaching back to my first published work in 1941

cost efficiency of french rugby clubs this article analyses the cost efficiency of french first league rugby clubs using a stochastic frontier model the frontier estimation confirmed that the model fits the data well with all coefficients correctly signed and in line with the theoretical requirements the results show that one of the clubs is operating efficiently with the majority of clubs clustered around 20 inefficiency policy implications are derived

the demand for league football a demand equation is estimated for total football league attendances for the period 1948 49 to 1979 80 plausible values are obtained for the elasticities of demand with respect to income and to a price variable which includes the cost of travel to the stadium the values imply that football spectating is an inferior good with a low price elasticity equations are also estimated for the league s separate divisions the implications of the results for the football league clubs are discussed

a quantized approach to rational inattention abstract in this paper i propose a model of rational inattention where the choice variable is a deterministic function of the exogenous variables and still only a finite amount of information is being used this holds provided the choice variable is discrete rather than continuous that is the mapping from the realization of the exogenous variables to the endogenous ones is piece wise constant thus limited information is now a source of lumpiness in behavior rather than a source of noise the approach is applied to a simple static model of price setting where individual price setters face aggregate monetary shocks and idiosyncratic productivity shocks the effect of aggregate money shocks on output and prices is studied it is shown that as the variance of idiosyncratic shocks become large the aggregate log price level converges to a linear function of the aggregate money shock with a coefficient which is strictly between 0 and 1 consequently unanticipated aggregate money shocks have real effects on output in contrast to the sticky price model of caplin and spulber 1987 but these effects are smaller than in standard rational inattention models or in the lucas 1972 misperception model

constructing and estimating a realistic optimizing model of monetary policy abstract a dynamic stochastic general equilibrium dsge model with real and nominal both price and wage rigidities succeeds in capturing some key nominal features of u s business cycles additive technology shocks as well as multiplicative shocks are introduced and shown to be crucial monetary policy is specified as an interest rate targeting rule following developments in the structural vector autoregression var literature the interaction between real and nominal rigidities is essential to reproduce the liquidity effect of monetary policy the model is estimated by maximum likelihood on u s data and its fit is comparable to that of an unrestricted first order var besides producing reasonable impulse responses and second moments this model replicates a feature of u s business cycles never captured by previous research with dsge models that an increase in interest rates predicts a decrease in output two to six quarters in the future

inflation and productive activity in a multiple matching model of money abstract this paper investigates the relationship between money growth inflation and productive activity in a dynamic general equilibrium multiple matching framework where trade frictions are manifested by limited consumption variety productive activity and matching in the goods market are endogenized by a time allocation decision of work and search effort we find that a high degree of complementarity between participation in the labor and goods markets creates a channel by which inflation can positively influence production and output this feature arises when household preferences for consumption variety is sufficiently large and it can also lead to the multiplicity of monetary equilibria

the brazilian soccer championship an efficiency analysis this article analyses the top brazilian football league from 2003 to 2011 by estimating a cost function and using a stochastic frontier model among the covariates the number of fans per club and club remoteness is taken into account the brazilian clubs are then ranked according to their technical efficiency during the 2000 2011 period based on the results the policy implication is presented and the economic implications arising from the study are also considered

interactions of commitment and discretion in monetary and fiscal policies we consider monetary scal interactions when the monetary authority is more conservative than the scal with both policies discretionary 1 nash equilibrium yields lower output and higher price than the ideal points of both authorities 2 of the two leadership possibilities scal leadership is generally better with scal discretion monetary commitment yields the same outcome as discretionary monetary leadership for all realizations of shocks but scal commitment is not similarly negated by monetary discretion second best outcomes require either joint commitment or identical targets for both authorities output socially optimal and price level appropriately conservative or complete separation of tasks jel e61 e63

theoretical developments in the light of macroeconomic policy and empirical research macroeconomics is surveyed with emphasis on the implications of the new classical and rational expectations critiques for the keynesian paradigm and the role of macro policies at the background are the main macro developments of the 1 970s and 1 980s as well as the specific lessons of recent high chronic inflation processes a synthesis is emerging in which the basic keynesian view of the existence of market and price coordination failures as well as room for pareto improving policy intervention are maintained at the same time the theoretical underpinnings are undergoing substantial change mainly due to a rational expectations reformulation

banks net interest margin in the 2000s a macro accounting international perspective this paper re examines the determinants of net interest margin nim in the banking industries of 15 developed and emerging economies it presents three main contributions with respect to previous studies first we analyze the determinants of nim in the years leading to the 2008 financial crisis second we account for the role of different accounting standards across countries third we use multi way cluster estimation methodologies which control for cross sectional and time series dependence in macroeconomic and banking variables we find that the introduction of international financial reporting standards ifrss contributed to lower nim variations unexplained by standard accounting variables interest rate volatility is found to be positively and strongly related to nim dynamics whereas inflation risk is often found to be a relevant driver of nim cross country differences

asymmetric effects of money supply shocks and trend inflation in recent years a number of empirical studies have presented evidence that money supply shocks have asymmetric effects that is unexpected negative changes in the money supply slow the economy more than unexpected positive changes accelerate the economy evidence of asymmetry was documented by cover 1992 for the postwar u s economy and his finding was confirmed by de long and summers 1988 morgan 1993 rhee and rich 1995 and karras 1996a b stimulated by these empirical works several attempts have been made to provide microeconomic foundations for the asymmetric effects of money supply shocks 1 among those theories this paper examines the one that focuses on asymmetric price adjustment and let us call it a sticky price theory money supply shocks will have asymmetric effects on real output if prices are less flexible downward than upward this sticky price theory was proposed by tsiddon 1993 ball and mankiw 1994 and caballero and engel 1992 by employing a menu cost model the above researchers show that positive trend inflation can produce the asymmetric effects of money supply shocks the logic of their theory is the following along with price adjustment costs positive trend infla

monetary policy and macroeconomic stability in latin america the cases of brazil chile colombia and mexico abstract in 1999 new monetary policy regimes were adopted in brazil chile colombia and mexico combining inflation targeting with floating exchange rates these regime changes have been accompanied by lower volatility in the monetary stance in brazil colombia and mexico despite higher inflation volatility in brazil and colombia this paper estimates a conventional new keynesian model for these four countries and shows that i the post 1999 regime has been associated with greater responsiveness by the monetary authority to changes in expected inflation in brazil and chile while in colombia and mexico monetary policy has become less counter cyclical ii lower interest rate volatility in the post 1999 period owes more to a benign economic environment than to a change in the policy setting and iii the change in the monetary regime has not yet resulted in a reduction in output volatility in these countries

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

large market cournot equilibria in labour managed economies a basic point in the theory of labour managed market economies is the fundamental role of free entry in order to achieve efficiency see dreze 1974 greenberg 1979 ichiishi 1977 meade 1972 1979 vanek 1970 but modelling a framework of firm selection process can be undertaken with different approaches dreze meade and vanek for example consider a perfectly competitive process greenberg and ichiishi build models of coalition formation in the spirit of core theory in the present study we take the other classical way the cournot oligopoly theory in order to capture the effect of increasing competition in the cournot oligopoly two kinds of models have long been traditionally elaborated in the first the effects of an exogenously increasing number of active firms facing a given demand function are examined see okugushi 1976 ruffin 197 1 seade 1980 in the second initiated by shubik 1959 the number of active firms and the size of the market are simultaneously increased at the same rate in this case what is sought is to isolate some sort of pure effect of an increasing number of competitors and not the combined result of a greater number of firms facing a constant market but in the two kinds of approaches the number of active firms are not explained by the theory what is missing is consideration of the role of potential competitors recently novshek 1980 proposed to give the same status to potential competitors and active firms i e to consider that the potential competitors have a cournot type behaviour hence the very fact that they are not active comes from optimizing behaviour in the same way as for active firms a positive production level comes from maximizing behaviour a potential competitor taking the production of the active firms as given and maximizing his objective function remains potential only because he does not find it attractive to produce hence we get a unified theory which explains the number of active firms for the case of u shaped average cost firms novshek 1980 has shown that in sufficiently large markets first such a free entry cournot equilibrium exists and second it is approximately a perfectly competitive equilibrium state in this paper we study the welfare properties of free entry cournot equilibria in labour managed economies we adopt novshek s notion of free entry which is more appealing than the classical zero profit constraint 2 a recent paper by hill and waterson 1983 shows that with the zero profit definition of free entry and strong assumptions of decreasing marginal labour productivity uniqueness and stability of equilibria cournot equilibria are asymptotically efficient and furthermore have the same number of active firms in both the labour managed and entrepreneurial frameworks under much weaker assumptions the graphical analysis of this paper shows that asymptotic

on the theory of international trade between capitalist and labour managed countries abstract this paper attempts to establish a model of international trade between capitalist and labour managed countries and to reexamine whether or not the basic theorems of the traditional trade theory carry over to environments characterized by the coexistence of capitalist and labour managed countries

performance evaluation of the english premier football league with data envelopment analysis this paper uses data envelopment analysis dea to evaluate the performance of english premier league football clubs from 1998 99 to 2002 03 combining sport and financial variables the paper evaluates how close the clubs are relative to the frontier of best practices analysing how they manage sport as well as financial results managerial implications of the research are devised

the new open economy macroeconomics a survey since the 1995 publication of obsteld and rogoff s redux model there has been an outpouring of research on open economy dynamic general equilibrium models that incorporate imperfect competition and nominal rigidities this paper offers an interim survey of this recent literature 2001 elsevier science b v all rights reserved

what determines aggregate returns to scale abstract this paper develops a unified framework that incorporates four features important in existing models with increasing returns fixed costs decreasing marginal costs product variety and market power when fixed costs are not allowed to vary and profits are imposed to be zero in every period only the degree of returns to variety determines the degree of aggregate increasing returns to scale when fixed costs respond to changes in aggregate activity or the zero profit condition does not hold in the short run aggregate returns depend not only on product variety but also on diminishing marginal costs or market power the degree of market power however does not affect input prices which are critical to determine the uniqueness of equilibrium

a unified theory of the behaviour of profit maximising labour managed and joint stock firms operating under uncertainty a comment in a recent paper of this journal hey i98i addressed the problem of a unified theory which treats three types of firms a profit maximising firm henceforth pmf a labour managed firm henceforth lmf and a joint stock firm henceforth jsf by one framework on the basis of his unified theory he concluded that with respect to the behaviour of the lmf and the jsf the results can be deduced from those of the pmf the purpose of this comment is to point out that his argument in the long run about the behaviour of these three firms does not hold if their production functions are homogeneous we use the same notation as hey to begin with the objective functions of the pmf the lmf and the jsf under certainty are defined respectively as follows

price rigidities and market structure conventional wisdom has it that a large part of the explanation of keynesian unemployment is the observed rigidities of wages and prices what has been lacking however is a satisfactory theory or conjunction of theories which explains how wages and prices can be at non market clearing levels the objective of this paper is to sketch out several alternative theoretical explanations of this phenomenon each in contrast with keynesian theory is consistent with the observation that as the economy goes into a recession real product wages do not increase and may in fact decrease all of the theories assume rational profit maximizing firms and all entail some important departure from the standard competitive paradigm the first three explanations represent minor adaptations of standard models

increasing returns and the foundations of unemployment theory current approaches to macroeconomic theory divide roughly into two basic schools of thought one approach typically associated with rational expectations views the economy as basically at or near walrasian market clearing equilibrium in which case it becomes very difficult to explain away convincingly the undeniable persistence at times of involuntary unemployment another approach views the underemployed economy as being in a state of temporary fixed price disequilibrium in which case aside from having to repress suspicions that the essence of effective demand failure might not have to do with prices fixed at wrong values there is a lot of rationalising to be done about why profitable adjustments are so slow this paper argues that something like an internally consistent theory of steady state involuntary unemployment is possible and even plausible the cornerstone of this third approach is increasing returns to scale which blocks unemployed agents from breaking out of a low level equilibrium trap unless there is overall coordination or stimulation a simple model is presented which contains the basic ideas

small menu costs and large business cycles a macroeconomic model of monopoly i introduction the conflict between modern neoclassical and traditional keynesian theories of the business cycle centers upon the pricing mechanism in neoclassical models prices are fully flexible they represent the continuous optimization of economic agents and the continuous intersection of supply and demand in keynesian models prices are often assumed to be sticky they do not necessarily equilibrate all markets at all times one of the reasons for the resurgence of the equilibrium approach to macroeconomics has been the absence of a theoretical underpinning for this keynesian price stickiness this note shows that sticky prices can be both privately efficient and socially inefficient the business cycle results from the suboptimal adjustment of prices in response to a demand shock to the extent that policy can stabilize aggregate demand it can mitigate the social loss due to this suboptimal adjustment in some keynesian models prices are simply exogenously fixed 2 in others agents must set their prices in advance of the transaction date the act of altering a posted price is certainly costly these costs include such items as printing new catalogs and informing salesmen of the new price yet these menu costs are small and therefore generally perceived as providing only a weak foundation for these fixed price models however this inference is flawed small menu costs can cause large welfare losses the claim that price adjustment costs are small does not rebut the claim that they are central to understanding economic fluctuations

excess capacity in a fixed cost economy abstract this paper proposes a new mechanism that can explain persistent economic slack the theory shows that when producers face negligible marginal costs and desired spending is below the economy s capacity the economy features slack in equilibrium even when prices are flexible and there are no other frictions a heterogeneous household version of the model demonstrates how an economy can enter a capacity trap in response to a temporary negative demand shock when demand by some consumers falls temporarily other consumers permanent income and hence their desired consumption also falls since output is determined by demand the permanent fall in desired consumption causes a permanent state of excess capacity

real business cycles and the animal spirits hypothesis abstract we calibrate a quantitative equilibrium macroeconomic model with an aggregate technology that is subject to increasing returns and show that this model may display fluctuations at business cycle frequencies even when there are no shocks to the fundamentals of the economy these fluctuations are due to the self fulfilling beliefs of investors which we call animal spirits we compare the impulse response functions predicted by our model and by two other more standard models with a four variable vector autoregression on u s data our animal spirits economy is the most successful of the three at matching broad features of the dynamic responses in the data journal of economic literature classification numbers e00 e3 e32

wage setting and the tax system theory and evidence for the united kingdom abstract this paper analyses the effects of a non linear tax system on wage bargaining the main conclusions are an increase in the marginal income or payroll tax rate reduces the pre tax wage in the isoelastic case an increase in the average tax rate increases the pre tax wage by more than the tax increase and a measure of the progressivity of the tax system residual income progression is a sufficient measure of the effect of the tax system on wage pressure empirical evidence is presented to support these propositions and the predictions of the model regarding the effect of recent changes to the u k tax system on the distribution of earnings discussed

assessing the lucas critique in monetary policy models empirical estimates of monetary policy rules suggest that the behavior of u s monetary policymakers changed during the past few decades however for that same time period statistical analyses of lagged representations of the economy such as vars often have not rejected the null of structural stability these two sets of empirical results appear to contradict the lucas critique this paper reconciles these results with the lucas critique by showing that the apparent policy invariance of reduced forms is consistent with the magnitude of historical policy shifts and the relative insensitivity of the reduced forms of plausible forward looking macroeconomic specifications to policy shifts

taxation unemployment and growth dynamic welfare effects of green policies abstract this paper analyzes the effects of environmental tax reforms on a small open economy the labor market is characterized by union wage setting the carbon tax acts as an implicit tariff which gives rise to terms of trade gains the terms of trade effect together with the union wage setting leads to a positive relationship between the capital labor ratio and net foreign wealth in the short run the disinvestments in real and financial capital give temporary room for higher consumption and instantaneous utility the long run effect on instantaneous utility is more uncertain a strong double dividend may exist

accounting for a shift in term structure behavior with no arbitrage and macro finance models this paper examines a shift in the dynamics of the term structure of interest rates in the u s during the mid 1980s we document this shift using standard interest rate regressions and using dynamic a ne no arbitrage models estimated for the pre and post shift subsamples the term structure shift largely appears to be the result of changes in the pricing of risk associated with a level factor using a macro nance model we suggest a link between this shift in term structure behavior and changes in the dynamics and risk pricing of the federal reserve s in ation target as perceived by investors

reaching inflation stability inflation volatility has significantly declined over the last 20 years in the u s to find out why i follow a structural approach i estimate a complete new keynesian model which imposes cross equation restrictions on the time series of inflation the output gap and the interest rate i perform counterfactual analysis with two commonly used measures of inflation consumer price index cpi and gross domestic product deflator gdpd while the change in the propagation mechanism of the economy induced most of the cpi volatility drop it played a smaller role in the reduction of gdpd volatility our maximum likelihood estimates imply that the most important factor behind the drop in inflation volatility was the more forward looking price setting behavior of the 1980s and 1990s

a performance assessment of the angolan soccer league abstractthis article analyses the technical efficiency of the angolan soccer league from 2008 to 2014 using a translog distance stochastic frontier model the greene stochastic frontier model presented in 2005 and kumbhakar stochastic frontier model presented in 1990 are adopted and the covariates used include luanda location funding by the oil company sonangol club supported by rich fans and club relegated during the period policy implications are then derived