optimal inflation tax under precommitment theory and evidence the authors develop and test the orthogonality conditions implied by a dynamic model of the inflation tax a distinguishing feature of the analysis is that the welfare loss from inflation the money demand function and the time path of inflation are jointly derived from first principles of government and private sector intertemporal optimization quarterly data for argentina brazil and israel are used in implementing the model although the overidentifying restrictions of the model are not rejected in most cases there are several data points characterized by higher rates of inflation than the optimal rates under precommitment copyright 1992 by american economic association

a cointegration test of the optimal seigniorage model abstract this paper tests mankiw s journal of monetary economy 1987 20 327 341 optimal seigniorage model under quadratic cost functions of taxation and inflation the rates of inflation and taxes have unit roots and they must be cointegrated the hypothesis of optimal policy is rejected in five countries

optimal seigniorage the gold standard and central bank financing this paper extends the theory of optimal seigniorage to allow for money production costs an important implication is tha t high money production costs along with a requirement that the monet ary branch of government self finance its operation severs the connecti on between the tax rate on output and the tax rate on money using u s data the authors find that tax rates on output and money move together only during periods when the government controls both tax rates and there is a close correspondence between revenue produced b y the monetary authority and revenue transferred to the treasury copyright 1993 by ohio state university press

the relative value of farm animal welfare abstract this paper examines the viability of an alternative to willingness to pay method of eliciting values for farm animal welfare improvements the matching method common in the health and safety literature appears to perform well generating results that as might be expected are driven both by scheme specific variables and individual respondent characteristics however the results do not converge well with equivalent willingness to pay based values from the same population one interpretation of this result is that benefit cost ratios from stated preference studies are arbitrary phenomena with obvious implications for any policymaking based on such findings

of birds and books more on hypothetical referenda recently cummings et al 1997 have reported a test of whether a hypothetical referendum using a majority rule is incentive compatible motivated in part by the national oceanic and atmospheric administration s noaa initially proposed rules for using contingent valuation in natural resource damage assessments these authors conclude that results from our experiments which involve a relatively simple good that is valued in a simple and controlled setting suggest that this hypothesis the incentive compatibility of a hypothetical referendum using majority rule be rejected p 619 this note questions the relevance of the authors results for the recommendations in the noaa rules and in the process identifies the general difficulties posed in measuring the amount of a public good 1 the noaa rules for contingent valuation were proposed by a distinguished panel of social scientists including two nobel laureates in economics kenneth arrow and robert solow arrow et al 1993 the guidelines were intended to enhance the reliability of contingent valuation estimates of willingness to pay for restoring injured natural resources as part of damage assessments required by the comprehensive environmental response compensation and

designing monetary policy when unemployment persists this paper investigates how unemployment persistence affects the optimal delegation of monetary policy to an independent central banker cb two opposing forces are shown to be at work with more persistence the government s incentive to stabilize the economy is greater but if the cb is forward looking its incentive to create inflation surprises is also greater we show that owing to the second effect the government may wish not to delegate at all unlike the case where there is no persistence in the event that the government does delegate the paper identifies conditions under which either effect dominates in the government s choice of conservatism of the cb we compare delegation to discretion and precommitment using a diagrammatic approach that may be of independent interest we also present some preliminary empirical evidence on the cross country relationship between unemployment persistence and inflation that appears consistent with the model s predictions

debt restructuring with a public good endogenous government expenditure is introduced into lucas and stokey s 1983 model of optimal wage taxation so long as the government can precommit to taxes or to expenditures a debt maturity structure that keeps the value of the debt invariant to interest rate changes will make the optimal policies time consistent in the absence of partial precommitment debt restructuring cannot enforce time consistency but it can still limit the costs of time inconsistency numerical examples show 1 average debt is smaller than under the precommitment solution 2 the debt structure is much longer than under partial precommitment and 3 restricting the government to one period debt overstates the welfare losses from time inconsistency

what happens when food marketers require restrictive farming practices the dimensions that define a food product have expanded rapidly to include characteristics of the production process marketing arrangements and implications that production and consumption of the product have for the environment some market intermediaries have responded by requiring that their suppliers abide by restrictive production practices we examine the economic effects of such restrictions and apply this analysis to limitations on the use of antibiotics in u s pork production results from conceptual and simulation analyses show that in the absence of demand growth less pork is sold due to higher costs in the restricted segment and both pork consumers on average and producers are harmed demand growth of between 6 11 from adding new consumers who will consume the restricted antibiotic free product but not the conventional product is needed to return consumer surplus to the level in the base case and between 2 4 demand growth was required to return producer surplus to base when restricted and conventional products are modeled using a vertical differentiation framework results depend importantly on the ease with which consumers can switch to a seller who offers their desired product type significant distributional impacts among consumers are present when switching costs are prohibitive

deficits government expenditures and tax smoothing in the united states 1929 1988 abstract barro s tax smoothing hypothesis tsh implies that the government runs a budget deficit whenever it anticipates the growth rate of national income to increase or the growth rate of its expenditure to decline we test this implication of the hypothesis by examining the implied cross equation restrictions on a vector autoregression var model using u s data for the period ranging from 1929 to 1988 our formal tests reject the hypothesis for the full sample period but cannot reject it for the post 1947 period further investigations show that the statistical rejection should be attributed to sharp differences in the statistical properties of the pre 1947 and the post 1947 data rather than the failure of the hypothesis itself

inflationary finance in an open economy abstract models of inflationary finance that consider trade and capital flows generally conclude that openness curtails the ability of governments to impose the inflation tax due to currency substitution this paper models two channels that allow central banks to increase inflation tax revenue by opening the economy first central banks can open the capital account subject to a reserve requirement on capital inflows revenue maximization produces a smaller reserve requirement on foreign capital inflows that on domestic deposits second central banks can impose prior import deposits to broaden the monetary base in order to use the inflation tax on imports as an alternative to tariff revenue

time consistent collection of optimal seigniorage a unifying framework this paper reviews the existing literature on the time consistency problem of seigniorage collection when monetary policy is determined by optimal taxation considerations it develops a unifying accounting framework and suggests a general measure for seigniorage which encompasses the standard measures employed in the literature in addition the ex ante optimal solution to the optimal taxation problem is derived and interpreted in relation to the ramsey principle we show that the different recommendations of the public finance literature i e the friedman rule of optimal deflation moderately positive inflation and seigniorage maximizing inflation are specific solutions to the optimal taxation problem the paper continues with a formal illustration of the time consistency problem of the ex ante optimal policy and the characterization of the time consistent solution under discretion as possible solutions to the time consistency problem we consider reputational forces institutional reforms that establish central bank independence and specific ways of asset and debt management in particular it is formally shown that a modified version of the asset and debt management scheme suggested by persson persson and svensson is not only necessary but also sufficient for optimality although this did not hold in their model

the nature of the savings function in developing countries a survey of the theoretical and empirical literature the savings rate marginal or average is regarded as a key performance indicator by development economists and foreign aid practitioners admonish their clients to increase their savings ratio as a primary condition for achieving a satisfactory rate of economic growth however not only have questions been raised regarding the significance of the savings effort as an independent determinant of economic progress but the formulation of policies designed to increase the savings propensity has suffered from a dearth of knowledge regarding the nature of the savings function in developing countries a number of alternative savings hypotheses derived mainly from the literature relating to developed economies have been advanced but the paucity of reliable data has made it difficult to test these hypotheses and obtain results which warrant a reasonable degree of confidence the purpose of this article is a to review the theoretical and empirical literature on the savings function in developing countries b to assess critically the findings with respect to the major hypotheses and c to summarize the state of our knowledge on this important topic we shall begin with a brief review of the nature of the data on savings in developing countries with which economic analysts must work

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

importing credibility through exchange rate pegging this paper employs an optimal taxation framework in order to study the credibility of monetary policy making in an open economy since inflation is in part uncontrollable due to stochastic disturbances the authority s actions cannot be monitored perfectly when the exchange rate floats thus implying that reputational forces may become ineffective in contrast pegging the nominal exchange rate to a low inflation currency allows perfect monitoring because the exchange rate is in principle controllable for this reason exchange rate pegging may import credibility and result in the best reputational equilibrium even though the authority retains the discretion to devalue unexpectedly

time consistency of fiscal and monetary policy a comment in an important recent contribution persson persson and svensson 1987 hereafter pps suggest that through careful restructuring of its nominal and real debt obligations a government may be able to induce future governments to follow the monetary and fiscal policies that it regards as optimal today the pps argument builds on lucas and stokey s 1983 demonstration that in a special nonmonetary setting the time inconsistency of optimal fiscal policy can be avoided through managing the term structure of real government obligations to the public the basic idea of the pps scheme for monetary economies is disarmingly intuitive in addition to continually restructuring nominal and real debt obligations a la lucas stokey each government must ensure that the next government inherits a stream of nominal claims on the public whose present discounted value equals the stock of money this equality pps argue removes the incentive for surprise inflation or deflation because such surprises would not affect the real net worth of the government this note shows that the pps prescription for avoiding time inconsistency appealing as it is is not generally sufficient even under the debt restructuring they recommend optimal policy is likely to be time inconsistent the main reason why their scheme fails is that the restrictions it imposes on government asset stocks satisfy first order but not second order conditions for an optimum because of the complex interactions between the current price level and future interest rates a government can raise its objective function by moving several variables at once away from the levels planned by the previous government even though price level changes alone would not affect government net worth we develop our argument using the model notation and equation numbers of pps to which the reader is referred for details the maximization problem associated with

on a simple rule for the optimal inflation rate in second best taxation abstract the optimal inflation rate is analyzed in the framework of dynamic second best with endogenous factor prices it is shown that when the marginal excess burden of taxation is relatively small the optimal inflation rate is approximated by a simple rule the paper also analyzes the robustness of this rule to the specification of the model money as an input in utility or production

time inconsistency capital mobility and debt restructuring in a small open economy honest government announcements may not be credible governments may have incentives to change their plans when it is time to carry them out or in technical terms the plans may be time inconsistent a dramatic example is the reaction to a hostage crisis governments should announce they will never negotiate with kidnappers to prevent future abductions after the fact however there are strong incentives to break this promise to save the lives of hostages of course intelligent people understand this so without commitment no one expects time inconsistent policies to be undertaken and in general this represents a welfare loss hostage crises occur as shown by kydland and prescott 1977 and calvo 1978 credibility is a problem in tax policy in general governments have an incentive to change tax rates unexpectedly for example to exploit differences between ex ante and ex post elasticities take the taxation of capital ex ante optimal taxes are low to promote elastically supplied investment ex post the supply of capital is inelastic so optimal taxes are high of course if governments can change tax rates at any time then in order to be credible tax plans should be consistent with future incentives as with a hostage crisis this constraint in general represents a welfare loss in a more subtle way the taxation of labor and consumption is also in general time inconsistent optimal tax rates depend on endowments initial plus acquired for example as a rule tax rates should be high on complements to leisure and other endowments that can be directly consumed in a dynamic economy endowments change when assets are accumulated

learning rational expectations in a policy game abstract rational expectations is a maintained assumption in the analysis of economic policy here we examine how two types of learning rational expectations rational and econometric affect the time profile of optimal policy in both cases the government adopts policies which delay convergence to rational expectations there is also a reduction in the inflationary bias in one case permanently in the other temporarily the results also show that reputation effects will be explained by models of learning

animal welfare and social decisions is it time to take bentham seriously abstract this paper analyzes and questions the standard welfare economics assumption of anthropocentric welfarism i e that only human well being counts intrinsically alternatives where also animal welfare matters intrinsically are analyzed both theoretically and empirically the general public s ethical preferences are measured through a survey of a representative sample in sweden and the responses from a clear majority suggest that animal welfare should indeed carry intrinsic weight in public decision making current legislation in many countries is consistent with this a brief review of moral philosophy on animal welfare indicates that a large majority of philosophers believe that animal welfare should count intrinsically it is moreover demonstrated that it is theoretically and practically possible to generalize welfare economics in order to give intrinsic value also to animal welfare the paper concludes that there are strong reasons to sometimes generalize welfare economics in order to take animal welfare into account directly i e in addition to effects through individual utilities the practical implications of doing so are likely to be more important over time as the scientific methods of measuring animal welfare are gradually improving

central banks and seigniorage a study of three economies in transition abstract the paper examines the relations between central banks and other macro sectors in the czech republic hungary romania with respect to the creation and distribution of seigniorage taking austria and germany as a reference in economies in transition transfers of seigniorage from the central bank to the government and to the banking sector may appear as a natural way to soften the financial constraints of both sectors we propose a simple framework for the analysis of central bank seigniorage based on the opportunity cost approach and measure both the amount and allocation of seigniorage for the five countries in 1993 we find central bank seigniorage to be approximately four times our benchmark value in hungary and thirty times in romania the latter due to the high level of the inflation tax in hungary and romania most seigniorage is appropriated as an interest rate subsidy by the government in romania a large part also goes as a subsidy to the financial sector in none of the five countries we find that central banks retain an excessive amount of seigniorage for reserve accumulation or for current expenditures in the last part of the paper we discuss the implications of our findings on seigniorage for the evaluation of central bank independence vis a vis the government

central banking as a political principal agent problem i introduction conventional wisdom holds that during election periods political leaders have incentives to misuse policy instruments to enhance their chances of reelection rogoff and sibert 1988 construct a rational political economy model of monetary policy based on this theme 1 the results of their model can be interpreted in the following way 2 society elects a leader every other period whose competence affects the level of output in the economy and private agents will tend to vote for the incumbent if the level of output is expected to be higher than that which can be provided by an unknown challenger voters have imperfect information regarding the politician s true impact on output and exogenous shocks to output and consequently cannot disentangle the effects of one from the other in an election period this asymmetry of information gives the incumbent an incentive to expand output through the use of inflationary monetary policy in order to appear more competent than he really is however rational voters are aware of this incentive to inflate and adjust their expectations such that in equilibrium no gain in output occurs and the economy suffers from excessive inflation an implication of the rogoff sibert model is that unless a society does away with elections as a way to choose policymakers excessive inflation and a political inflation cycle will be an unavoidable cost of democracy however societies can try and have tried to avoid these ill effects by taking the power of money creation away from the elected officials and giving it to an appointed independent central banker who will presumably pursue the public good but can this approach actually work the problem with this proposal is that the central bankers well being in many respects reappointment post central bank employment opportunities avoidance of public criticism etc often hinges on pleasing their political benefactors giving the central bankers incentives to act in the interest of elected officials 3 as a result the central banker could pursue objectives different from society s and may actually function as a veil for the elected policymaker in the real world this veil is not complete but partial and hence we can characterize the relationship between the monetary authority and society as a principal agent problem the advantage of delegating power to an appointed central banker and then erecting appropriate institutions is that the inflation problems may be resolved without abandoning the electoral process in this paper we develop a rational political business cycle model that starts from the foundations laid down by rogoff and sibert we depart from their model by having monetary policy delegated to a central banker who is appointed by the elected leaden the concern about reappointment is what motivates the agency problem the central banker would like to be reappointed and this desire leads her to partially accommodate the wishes of the current administration which in turn may not coincide with the desires of the electorate we then analyze the problem faced by a central banker who is concerned about her own selfinterest as well as social well being it is this feature that turns the setting of monetary policy into a political principal agent problem the contributions of our approach to modelling the agency problem of central banking are 1 it explicitly incorporates reappointment concerns into the decision process of the central banker which heretofore has not been done in the literature and 2 we explicitly model the source of the agency problem unlike previous research that simply assumes an agency problem exists our key results are as follows in equilibrium the pursuit of her own self interest leads the central banker to create a socially inefficient inflation bias while rogoff and sibert also obtain this result our explicit functionalform model allows us to analyze this bias in more detail and tie it directly to the strength of the relationship between the central banker and the current administration

seigniorage payments for use of the dollar 1977 1995 abstract i compute alternative seigniorage estimates for the us and relate them to total tax receipts and gdp the estimates indicate the proximate size of the prize coveted by emerging and transitional economies unable to provide their residents with stable national monies barro s 1982 conjecture that federal reserve payments to the treasury as percentage of corporate tax receipts would remain at early 1980s levels is examined also

some empirical evidence on embedding effects in contingent valuation of forest protection abstract we test for an embedding effect on a geographically distributed public good and the extent to which improvements in the cvm design reduce the occurrence and magnitude of embedding effects in valuation using both open ended and dichotomous choice cvm for protection of forests in all of southeastern australia and two smaller portions of that area we find the occurrence of embedding effects in only one of the two levels when embedding effects were present there was a reduction in value much smaller than that found by kahneman and knetsch

willingness to pay for other species well being abstract benefit cost analysis of environmental policies typically focuses on benefits to human health and well being for other species economists have attempted to measure human wtp for changes in the numbers of individuals for different types of wildlife and to preserve biodiversity when it comes to humans wtp for improvements in the quality of life for other species however the evidence is limited morbidity and quality of life considerations may be particularly important to the task of valuing non fatal harm to wildlife in the wake of an environmental disaster we argue that the other species morbidity reduction component of wtp should be calculated net of any outrage component associated with the cause of the harm this net wtp is likely to be correlated with the premium that people are willing to pay for chicken products from birds for which the quality of life has been enhanced by improved animal welfare measures this paper uses a conjoint choice stated preference survey to reveal the nature of systematic heterogeneity in preferences for humanely raised versus conventionally raised chicken we also use latent class analysis to distinguish between two classes of people those who are willing to pay a premium for humanely raised chicken and those who are not

characterization of the optimal tax on money when it functions as a medium of exchange abstract this paper compares the relative efficiency of the implicit taxation of money and the explicit taxation of real commodities to finance a given amount of government expenditures in the model used money has the property of reducing transactions costs a sufficient condition for a tax on money to be welfare dominated by a linear tax on consumption expenditures is characterized in terms of a few parameters very familiar in macroeconomics this characterization is especially useful in the cases of heterogeneous consumers and increasing returns to scale in transactions since then the optimal tax on money may in principle be positive

optimal accommodation by strong policymakers under incomplete information abstract this paper examines the optimal behavior of a policymaker who is able to precommit labelled strong when the public entertains the possibility that he is either strong or weak unable to precommit the main result is that in the presence of doubts about their type it is optimal even for strong policymakers to partially accommodate inflationary expectations this contrasts with vickers 1986 who finds that when strength is conceived in terms of the relative concern for employment the strong policymaker inflates less under incomplete than under full information the paper also provides a theory of endogenous announcements

the advantage of tying one s hands ems discipline and central bank credibility abstract it is often argued that the ems is an effective disciplinary device for inflation prone countries in europe since it forces the respective policy makers to pursue more restrictive monetary policies than they would otherwise it is not clear however why these countries should submit themselves to such discipline this paper argues that to answer this question appropriately one must consider that ems membership brings potentially large credibility gains policy makers in inflation prone countries the reason is that not only it attaches an extra penalty to inflation in terms of real appreciation but makes the public aware that the policy maker is faced with such penalty and thus helps to overcome the inefficiency stemming from the public s mistrust of the authorities

the optimal inflation tax in the presence of currency substitution abstract an important result in the optimal inflation tax literature is that if money is modeled as reducing transactions costs the optimal nominal interest rate is zero this paper examines this issue in the context of a small open economy where both domestic and foreign currency circulate as media of exchange it is shown that the presence of foreign money enables the government to reduce the distortion introduced into the economy by a positive foreign nominal interest rate by setting a positive domestic nominal interest rate

seigniorage and tax smoothing in the united states 1914 1986 abstract when monetary and fiscal authorities cooperate to minimize the distortionary costs of financing an exogenous stream of government expenditures barro s tax smoothing model implies a long run relationship between tax revenues and inflation previous empirical tests of this relationship are reinterpreted in light of recent work on cointegration and are shown to hold only when stochastic temporal variation in the excess burden of taxes and seigniorage is transitory in nature a new test that holds in the presence of nonstationary disturbances is developed and applied annual u s data from the period 1914 to 1986 reject the revenue smoothing hypothesis

on visible choice sets and scope sensitivity abstract in this paper we argue that the burgeoning empirical debate over scope sensitivity within contingent valuation studies is fundamentally incomplete in that it has neglected a systematic examination of certain effects of study design upon observed scope sensitivity in particular we highlight the fact that in certain study designs the choice set initially offered or visible to respondents is changed in a stepwise manner as they progress through a valuation exercise while other designs involve advance disclosure regarding the full extent of the final visible choice set prior to any choices or values being elicited the issue of changes in the visible choice set is alluded to by smith j environ econom manage 22 1 71 who identifies this as a primary challenge to kahneman and knetsch s j environ econom manage 22 1 57 well known experimental results kahneman and knetsch contend that it seems highly implausible that this minor procedural change would significantly alter results p 61 but do not test this assertion we present experimental and field tests of the impact upon contingent values of varying the visible choice set through stepwise and advance disclosure these dimensions of design are interacted with changes in the order in which nested goods are presented bottom up versus top down when a stepwise disclosure procedure is adopted the observed scope sensitivity is substantially and significantly affected by the order in which goods are presented but such procedural variance is not observed within advance disclosure designs conjectures regarding the origin and implications of such findings are presented

valuing an eu animal welfare label using experimental auctions the aim of this article is to determine consumers valuation for an eu animal welfare eu caw label for products providing higher animal welfare standards than the current legal requirements using revealed preference data from random nth price auction mechanism and two auction procedures our results generally suggest that consumers are willing to pay a premium for an eu animal welfare eu caw label for cured ham this finding is consistent in both the endowment and full bidding auction approaches we employed in our experiments conducted in spain the average premium that consumers are willing to pay for a cured ham with the eu caw label ranges between 19 and 23 of the average price of the regular cured ham that is currently available in supermarkets

how people respond to contingent valuation questions a verbal protocol analysis of willingness to pay for an environmental regulation abstract this paper investigates what a respondent is thinking when answering a willingness to pay question in a contingent valuation using a think aloud technique from psychology called verbal protocol analysis the willingness to pay responses we observed seem to be constructed from a variety of considerations including an obligation to pay a fair share of the cost of the solution and signaling concern for a larger set of environmental issues the finding that respondents seem to construct their values at the time they are asked rather than reporting a more well defined value is seen as consistent with over two decades of research on the psychology of decision making potential uses of verbal protocols in contingent valuation studies are also discussed

monetary policy and policy credibility theories and evidence within the past decade there has been a significant shift in attitude by many western industrialized countries toward the objectives and conduct of national economic policy the events of the 1970s accelerating inflation and stagnant economic growth motivated the view that inflation had created its own stubborn self sustaining momentum that either was not amendable to the influences of conventional macroeconomic policy or else would yield to such influences only at unacceptable costs this led to the development of a program aimed at reestablishing control over prices while minimizing any adverse consequences of anti inflationary policies on output and employment seen as a new monetary experiment the essential ingredients included prudent financial management abstinence from discretionary intervention commitment to intermediate targets and above all prior announcement of these policies evidence of this program and its effects can be found oni the continents of europe north america and latin america and provide further important lessons in anti inflationary management this paper is a survey of recent theoretical developments in monetary policy which among other issues attempt to explain one rationale for this program and the likely consequences thereof to the extent that the new program of monetary and fiscal reform was deliberately made public and impressed upon citizens as an overriding commitment of governments in advance of its execution reflects a prevailing opinion that economic policies are more effective if they are credible to private economic agents this view emphasized forcefully by william fellner 1976 1979 may be seen as being mainly due to the assimilation of the rational expectations hypothesis

competitive banks and the inflation tax abstract the purpose of this note is to show that the presence of a competitive banking sector has important quantitative implications for the revenue maximizing rate of inflation

recent developments in the theory of rules versus discretion policymaker this perspective on rules versus discretion was changed by kydland and prescott 1977 who looked at rules as a form of commitment a commitment amounts to a binding contract which specifies in advance the actions that someone will take possibly contingent on some exogenous variables that everyone can observe in contrast under discretion a person promises only to take those future actions that will best further his objectives later on such promises are easy to keep thus discretion is the special case of a rule or contract in which none of today s provisions restrict a person s future actions in the area of private business dealings it is natural to think about optimal forms of contracts which would not usually be pure discretion similarly for public policy the perspective becomes the optimal form of rules or prior restrictions even the smart benevolent policymaker is likely to desire and use

is new zealand s reserve bank act of 1989 an optimal central bank contract this paper evaluates the reserve bank of new zealand act of 1989 from a principal agent perspective arguing that the act represents a dismissal rule the optimal dismissal rule requires that the central banker be dismissed whenever inflation exceeds a critical level that depends on aggregate supply disturbances and measurement error in the inflation index this is essentially the structure established by the act the scope for renegotiating the target rate however creates an incentive for the government to set the critical rate too high consequently the inflation bias of discretion is reduced but not completely eliminated copyright 1995 by ohio state university press

measuring the fed s revenue from money creation abstract the national accounts include the fed s payments to the treasury as a component of corporate taxes these payments constituted 22 of reported corporate profits taxes in 1981 alternative concepts of inflationary finance are considered with measurements provided for the post world war ii period

seigniorage inflation and reputation abstract this paper derives a reputational equilibrium for inflation in a model in which the sovereign obtains valuable seigniorage by issuing fiat money in exchange for real resources with contemporaneous perception of actual sovereign behavior and immediate adjustment of real cash balances to new information the friedman elasticity solution for maximal seigniorage is a reputational equilibrium more generally the objective of maximal seigniorage produces an equilibrium inflation rate equal either to a generalization of the friedman elasticity solution or to the rate at which the sovereign discounts future seigniorage adjusted for the growth rate whichever is larger the model formalizes the conjecture that inflation rates in excess of the friedman solution are attributable to high discount rates for future seigniorage

pigs and guinea pigs a note on the ethics of animal exploitation discussions of the morality of animal exploitation must deal with the fact that these activities result in animal populations that would not otherwise exist in this paper simple economic models of animal using food production and research are combined with explicit ethical criteria that are sensitive to animal well being and numbers the authors show that when animal exploitation is morally acceptable lack of regulation results in too many food animals and research that is too animal intensive in addition nonmarket control through bills of rights for farm animals and research practice standards is necessary for ethical optimality copyright 1992 by royal economic society

economic valuation by the method of paired comparison with emphasis on evaluation of the transitivity axiom the paired comparison pc method is used to investigate reliability transitiv ity and decision time for binary choices among goods and sums of money the pc method reveals inconsistent choices and yields individual prefer ence order over the set of items being compared the data reported support the transitivity as sumption and demonstrate high reliability for individual preference order the paper also discusses using the pc method to obtain conser vative median and mean estimates of willingness to accept compensation for public and private goods the pc method may prove useful for valu ing public goods and warrants further study jel 426

sustainable plans and debt abstract this paper presents a simple general equilibrium model of optimal fiscal policy similar to that of lucas and stokey j monet econ 12 1983 55 93 except that we let the government default on its debt we consider sustainable equilibria in which both government and private agent decision rules are required to be sequentially rational we concentrate on trigger mechanisms which specify reversion to the markov equilibrium after deviations by the government and show that such mechanisms cannot support equilibria with positive debt we go on to show by way of examples that there can be more complicated trigger mechanisms which support positive debt journal of economic literature classification numbers e61 e62

credibility and the value of information transmission in a model of monetary policy and inflation abstract in this paper we solve for the optimal stackelberg policy in a model of credibility and monetary policy developed by cukierman and meltzer 1986 unlike the nash solution provided by cukierman and meltzer the dynamic optimization problem facing the monetary authority in this case is not of a linear quadratic form and certainty equivalence does not apply the learning behavior of the private sector regarding the policymaker s preferences becomes intimately linked with the choice of the optimal policy and cannot be separated as in the certainty equivalent case once the dual effect of the optimal stackelberg policy is recognized the monetary authority has an additional channel of influence to consider beyond that taken into account by suboptimal certainty equivalent nash policy rules unlike nash behavior the stackelberg solution implies no inflationary bias while being still weakly time consistent this makes the stackelberg solution credible with only stagewise precommitment of the policymaker in the absence of such a precommitment learning behavior of the private sector does not sufficiently inhibit the incentive of the monetary authority to cheat in this model despite the fact that this learning is explicitly recognized in the stackelberg solution

a positive theory of foreign currency debt abstract this paper makes a case for foreign currency debt as a hedging device in an open economy subject to stochastic shocks to output a government can reduce uncertainty in wealth and in consumption by issuing foreign or domestic currency debt if unexpected domestic and foreign inflation are negatively correlated with domestic output foreign currency debt is desirable in comparison to domestic currency debt if growth rates of output of both countries are closely related and if domestic inflation is relatively uncertain it has an additional advantage if domestic debt creates time consistency problems