fixed production capacity menu cost and the output inflation relationship this paper analyses the impact of inflation when firms face frictions in both price and quantity adjustments a vast literature examines the consequences of price adjustment costs assuming frictionless quantity adjustments however temporary quantity adjustments may be expensive for example because continual adjustments of the optimal production plant are impossible moreover recent findings suggest that frictions in quantity adjustment may remove the linkage between output and inflation in this paper we show that this is not the case when inflation is anticipated on the contrary a predetermined production capacity may significantly amplify the consequences of price adjustment costs

adapting prices or quantities in the presence of adjustment costs it is often hypothesized that costs of adjusting both price and quantities may have important implications for the macroeconomic adjustment process not least to nominal shocks we analyse this in an explicit intertemporal general equilibrium model considering the empirically relevant case of fixed costs of adjusting prices and fixed and variable costs of adjusting quantities we find that the presence of both price and quantity adjustment costs changes the response to shocks significantly it is an implication that small shocks do not support the menu cost case but rather both fixed prices and quantities rationing a numerical analysis based on available evidence on adjustment costs is used to illustrate the likelihood that the various adjustment patterns actually arise

inflation costly price and quantity adjustments and time spent in the keynesian regime abstract this paper considers a menu cost firm under inflation due to costly quantity adjustments the firm is sometimes in a keynesian regime where sales are demand determined with a positive real interest rate the proportion of time in the keynesian regime is less than the inverse of the absolute value of the average elasticity of demand in that regime

the cyclical behavior of prices abstract the procyclical behavior of prices has been a staple of business cycle lore since the work of the early nber business cycle researchers this paper reexamines that empirical fact the aggregate data do not support procyclical price movements as a stable feature of the business cycle the only episode where it is a robust feature of the data is the period between the two world wars particularly the period of the great depression

selfishness cooperation the evolutionary point of view and its implications for economics abstract the assumed selfishness of market actors could be considered in the context of two perspectives macroeconomic and microeconomic the first concerns the market mechanism as the most effective from the social well being or the wealth of a nation points of view the latter is based on the premises of the nature of human beings i have distinguished between two possible ways of understanding selfish forms of behaviour in the market as rational economic behaviour i e the most effective from the gains and losses point of view i e public interests in the works of a smith or as selfish from the psychological point of view this is mostly presented by j s mill s theory the first approach seems to be concerned with the creation of the most effective market mechanism from the state s point of view in the context of historical processes over 400 years cultural evolution has been promoting selfish behaviour for example it was widely presented in t hobbes works and then for over 200 years the theory of a smith has been supporting and moulding the institutional context of market and social behaviour thus positive economics describes the market created by the ideas of a neo classical paradigm which is based on the normative premises of a smith and j s mill moreover the virtual market behaviour described by effects f e veblen s effect and failures seems to be a manifestation of a discrepancy between market reality and the classical assumptions the social evolution of human beings has been advantageous to the human species moreover from the social point of view pro social behaviour is natural as well as desirable and it has been preferred by the cultural evolution competitiveness assumes that somebody has to lose because someone gains cooperation looks for gains for all the players the choice is political and not imposed by selfishness

adjustment costs inventories and output this paper analyzes the optimal adjustment strategy of an inventory holding firm facing price and quantity adjustment costs in an inflationary environment the model nests both the original menu cost model that allows production to be costlessly adjusted and the later model that includes price and quantity adjustment costs but rules out inventory holdings it is shown that the firm s optimal adjustment strategy may involve stockouts at low inflation rates output is inversely related to the inflation rate and the length of time demand is satisfied increases with the demand elasticity but decreases with the storage cost and the real interest rate

alternative models of individual behaviour and implications for environmental policy abstract most insights of environmental economics are in line with the standard neoclassical economic model of rational behaviour formulated in terms of maximization of utility in general or of profits in particular the standard theory of environmental policy is a case in point however the maximization hypothesis and its methodological foundation have been criticized on many grounds related to a lack of either logical or empirical content moreover over the years a great many alternative models of behaviour have been proposed both criticism and alternatives are surveyed here attention is devoted to relevant insights from the philosophy of science the notion of methodological individualism and other criticism the alternative behavioural models include bounded rationality and satisficing lexicographic preferences habitual behaviour incommensurability and multicriteria evaluation and various models of behaviour under uncertainty major implications of the criticism and alternative models of individual behaviour for environmental policy theory are outlined

sticky price models of the business cycle can the contract multiplier solve the persistence problem we construct a quantitative equilibrium model with firms setting prices in a staggered fashion and use it to ask whether monetary shocks can generate business cycle fluctuations these fluctuations include persistent movements in output along with the other defining features of business cycles like volatile investment and smooth consumption we assume that prices are exogenously sticky for a short time persistent output fluctuations require endogenous price stickiness in the sense that firms choose not to change prices much when they can do so we find that for a wide range of parameter values the amount of endogenous stickiness is small thus we find that in a standard quantitative model staggered price setting alone does not generate business cycle fluctuations

measuring the existence value of wildlife reply we know little about the motives underlying individual responses to contingent valuation cv questions concerning the existence of wildlife yet motives are important because they determine how the resulting value estimates should be interpreted and used in making management decisions for example zero bids are very common in cv but these are often protests that do not represent zero valuation for the resource itself protest zero bids may be particularly prevalent in wildlife existence value studies because some people may view trade offs between money and wildlife as unethical or immoral if protest zero bids are not interpreted correctly existence value estimates obviously will be biased the motives underlying positive cv bids also matter unfortunately these motives have received much less research attention and so may be more controversial our study of wildlife values in new england suggests that many respondents who gave positive bids were motivated by ethical concerns altruism or the desire to do their fair share concerns that indicate they used decision making processes inconsistent with the neoclassical paradigm stevens et al 1991 cv results may therefore fail to measure the economic value of existence in traditional terms the bergson tintner samuelson formulation presented by kohn 1993 is useful in this context because it attempts to disentangle behavior motivated by ethical concerns about existence from preferences about wildlife use each individual is assumed to wear two hats one as citizen the other as consumer from this perspective citizens express social values which may be ethically driven while economic values are expressed by consumers kohn suggests that we make use of this distinction by first asking respondents as citizens to make implicit trade offs between income and the preservation of wildlife respondents are then asked about their willingness to pay for the option of consuming wildlife while this is an interesting proposal the bergson tintner samuelson framework is only one of several alternative theories about behavior involving ethical considerations for discussion these theories can be classified into three groups a theories of social or group interest b natural rights and c theories based upon the neoclassical model of self interest social interest theories include the bergson tintner samuelson formulation outlined by kohn and the dual utilities model proposed by margolis 1982 margolis suggests that people are motivated by two basic concerns a self interest and b social or group interest social interest which pertains to the welfare of society as a whole is assumed to be governed in part by ethics moral duty and commitment expressions of social interest include charity participation in the political process voting and contributions for the provision of public goods margolis maintains that the neoclassical theory of self interest generally fails to adequately explain individual behavior about social interests and he proposes a dual utilities model of individual preferences in which people have irreducibly distinct social and private preferences unlike the framework proposed by kohn there is no grand maximum where social value is traded off against private value rather individuals are assumed to allocate income between social and private preferences so as to do their fair share for the welfare of society as a whole con

a genral model of dynamic labor demand this study derives and estimates a dynamic model of factor demand that includes both fixed and quadratic variable costs of adjustment using quarterly data on the employment of mechanics at seven airlines it finds that both types of adjustment costs characterize the dynamic constraints facing employers using monthly data covering production worker employment in seven manufacturing plants it shows that only fixed costs are important the apparent diversity of the underlying costs of adjustment means it is difficult to draw useful inferences from macroeconometric estimates it suggests the importance of examining broader arrays of microeconomic time series describing labor demand this abstract was borrowed from another version of this item

monetary stability and interest free banking the case of iran previous research has suggested that islamic banking systems may be more stable than western systems however this contention has only been tested empirically for the case of tunisia a country with no significant history of islamic banking this paper replicates the study done on tunisia for the case of iran a country with some history of islamic banking the results are mixed with some evidence both for and against the hypothesis of greater stability for islamic banking it is suggested that a good deal more work must be done to prove claims about the relative stability of islamic banking

why are stabilizations delayed when a stabilization has significant distributional implications e g tax increases to eliminate a large budget deficit socioeconomic groups may attempt to shift the burden of stabilization onto other groups the process leading to stabilization becomes a war of attrition each group attempting to wait the others out and stabilization occurring only when one group concedes and bears a disproportionate share of the burden the authors solve for the expected time of stabilization in a model of rational delay and relate it to several political and economic variables they motivate this approach and its results by comparison to historical and current episodes copyright 1991 by american economic association

the islamic interest free banking system some empirical evidence 1988 the islamic interest free banking system some empirical evidence applied economics vol 20 no 3 pp 417 425

costs of price adjustment and the welfare economics of inflation and disinflation this paper studies the welfare consequences of inflation and disinflation in a model in which monopol istic firms incur a fixed cost of price adjustment it is shown that a moderately increasing price level is associated with higher social welfare than a perfectly stable price level and the model therefore provides theoretical support for the widespread belief that a little bit of inflation is good for the economy nevertheless it is also tr ue that the eradication of a moderate inflation leads to an increase in social welfare copyright 1988 by american economic association

output fluctuations at the plant level this paper examines the short run dynamics of manufacturing costs by detailing how plants in the u s automobile industry change output weekly data show a variety of margins on which firms adjust production these margins which are distinct from the usual factor demand choices differ in their lumpiness their adjustment costs and their variable costs the existence of these margins explains several empirical puzzles of output fluctuations using a theory of the short run dynamic cost function we are able to infer some of the characteristics of the underlying cost function from the dynamic behavior of the different margins

consumption sustainable welfare and human needs with reference to uk expenditure patterns between 1954 and 1994 abstract this paper explores the complex relationship between economic consumption and human welfare or well being conventional economics suggests that increasing levels of economic consumption lead to increasing levels of well being however this view has been criticised on both environmental and social grounds on the one hand the material impacts of increasing consumption are environmentally unsustainable on the other hand material consumption can conflict with crucial social and psychological components of human welfare this paper develops a perspective on human welfare which is based on max neef s characterisation of human needs it discusses the implications of this alternative perspective for the conventional viewpoint and illustrates the importance of it with reference to patterns of consumer expenditure in the uk over the last 40 years the authors suggest that from this perspective modern societies may be seriously adrift in their pursuit of human well being however they also point out that addressing this situation provides far more opportunity for ecologically sustainable development than is generally recognised

output and welfare effects of inflation with costly price and quantity adjustments there exists by now a burgeoning literature concerned with the consequences of a fixed cost of price adjustment due to this cost a monopolistic firm does not necessarily adjust its price even though the current price deviates from the price that would maximize the firm s current profit as a result the production generally differs from what it would be in the absence of a menu cost with the effect of inflation on the average output and welfare under monopolistic competition being ambiguous and depending in a complicated way on the profit and demand functions 1 however one strong result holds unambiguously for all profit and demand functions at low inflation rates the average output and welfare are above their levels at full price stability where firms charge the static monopoly price 2 the driving force is that discounting makes a firm more concerned with its real profits earlier in a period with a constant nominal price than with its real profits later in the period in fact as the inflation rate approaches zero the firm s initial real price converges to the profit maximizing real price while the terminal real price converges to a smaller real price at low inflation rates therefore a firm s price is most of the time below the price that would maximize the current profit since output and welfare under monopolistic competition are inversely related to price average output and welfare are higher than under full price stability the inevitable conclusion is that the economy benefits from a little bit of inflation a critical assumption underlying this result is that firms can continuously adjust their production to satisfy demand so while the menu cost literature explicitly assumes that there is a small fixed cost incurred at each price adjustment it also implicitly assumes that it is costless to continuously adjust the quantity of output 3 this is however a questionable assumption there is some empirical evidence indicating the existence of a cost of quantity adjustment part of which is fixed in that it does not depend on the size of the adjustment 4 the cost of quantity adjustment stems from the need to rearrange and reorganize the factor inputs for the new level of production and includes managerial time and effort a fixed cost of quantity adjustment rules out any continuous adjustment of the production to satisfy the increasing demand that results from a decreasing real price within a period with a constant nominal price under the reasonable assumption that the menu cost does not exceed the fixed cost of quantity adjustment 5 in an inflationary environment a firm chooses to adjust its nomi

beyond the economics of more the place of consumption in ecological economics abstract the relation between consumption and welfare generally assumed by orthodox economists must be re examined by ecological economists present attitudes towards consumption among the latter are often ambiguous resulting in a modified form of consumerism yet questioning the often dubious benefits of consumption is as important for the environmental debate as emphasising its neglected costs beyond basic needs satisfaction it is at most one s consumption level relative to others which counts for welfare so that benefits from consumption cannot be increased in the aggregate thus there is much scope for reducing consumption and thus environmental costs while increasing or maintaining welfare identifying those goods the consumption of which adds little or nothing to welfare and assessing the effect of reducing their consumption on resource use natural and human should be a major concern of an ecological economics aimed at promoting sustainable welfare

output effects of inflation with fixed price and quantity adjustment costs i introduction there is convincing evidence that fixed costs of price adjustment may be large levy et al 1997 found such costs to be 0 7 of a firm s revenue and zbaracki et al 2004 found them to be 1 22 in the presence of fixed costs of price adjustment a monopolistic firm does not adjust its nominal price continuously with the result that the real price and output generally deviate from their static monopoly level at low inflation rates the average output is higher than the static monopoly output if there is positive discounting danziger 1988 and depends on higher order derivatives of the profit and demand functions if there is no discounting benabou and konieczny 1994 1 most of the literature assumes that only price adjustments are costly while output can be continuously adjusted without cost however bresnahan and ramey 1994 document that there may be large fixed costs of quantity adjustments relatedly many publications show that adjusting labor and capital inputs involves significant fixed costs 2 such costs may derive from loss of organizational capital baily et al 2001 jovanovic and rousseau 2001 as well as from job protection rules severance pay and legal and administrative complications in a framework with both price and quantity adjustment costs andersen 1995 and andersen and toulemonde 2004 demonstrate that only intermediate size shock but not large or small shocks may affect output for a constant inflation rate danziger 2001 shows that a firm s permanent production decreases with inflation at low inflation rates if discounting is positive and danziger and kreiner 2002 that output capacity decreases with inflation if the elasticity of demand is constant and there is no discounting see also danziger 2003 the purpose of this article is to provide a simple general characterization of the output effects of a constant inflation rate if both price and quantity adjustments involve fixed costs it is assumed that quantity adjustments are at least as costly as price adjustments which implies that a firm s production is held constant at a permanent level 3 each firm then keeps its nominal price unchanged in periods of equal length and the nominal price is adjusted so that the initial real price is the same in each period thus a firm s optimal strategy consists of the initial real price the duration of the periods with unchanged nominal price and the permanent level of production the article shows that in the absence of discounting the effect of inflation on the aggregate production depends on how fast firms marginal real revenue decreases with demand and that this effect is fully determined by the elasticity of the marginal real revenue with respect to demand thus aggregate production decreases with inflation if the elasticity of the marginal real revenue always exceeds minus unity increases with inflation if the elasticity of the marginal real revenue is always less than minus unity and is invariant to inflation if the elasticity of the marginal real revenue always equals minus unity several studies have found that the comovement between output and prices is typically negative in the long run cooley and ohanian 1991 den haan 2000 den haan and sumner 2004 fiorito and kollintzas 1994 within the framework of the present model the negative comovement indicates that the empirically relevant situation is when the elasticity of the marginal real revenue always exceeds minus unity this will be the case among others if demand functions exhibit a constant price elasticity less than minus unity as assumed in danziger and kreiner 2002 ii the model consider an economy with a unit continuum of identical consumers and a unit continuum of monopolistic firms producing differentiated perishable products each firm and its product are indexed by i which is uniformly distributed on 0 1

adjustment costs and price and quantity adjustment abstract the role of prices and quantities in the adjustment process changes qualitatively when both price and quantity adjustment are costly not only relative adjustment costs but also structural characteristics affect the adjustment process which is asymmetric and implies rationing

central bank independence and macroeconomic performance some comparative evidence this note uses information on a sample of sixteen oecd countries to assess the relationship between central bank independence and macroeconomic performance as previous work suggests politically controlled central banks are more likely to pursue policies that lead to high and variable inflation however the authors find little evidence that political control of central bank policy has any impact on measures of the level or variability of growth unemployment or the ex ante real interest rate copyright 1993 by ohio state university press

in search of homo economicus behavioral experiments in 15 small scale societies we can summarize our results as follows first the canonical model is not supported in any society studied second there is considerably more behavioral variability across groups than had been found in previous cross cultural research and the canonical model fails in a wider variety of ways than in previous experiments third group level differences in economic organization and the degree of market integration explain a substantial portion of the behavioral variation across societies the higher the degree of market integration and the higher the payoffs to cooperation the greater the level of cooperation in experimental games fourth individual level economic and demographic variables do not explain behavior either within or across groups fifth behavior in the experiments is generally consistent with economic patterns of everyday life in these societies

the comovement between real activity and prices in the g7 in this paper we study the short run and long run comovement between prices and real activity in the g7 countries during the postwar period using var forecast errors and frequency domain filters we find several patterns of the correlation coefficients that are robust across countries and time periods typically the correlation coefficients at long run horizons are significantly negative and the correlation coefficients at short run horizons are substantially higher additionally there is evidence of positive correlation at short run forecast horizons for some countries

optimisation and evolution winter s critique of friedman revisited milton friedman s 1953 article remains an often quoted defense of the maximization hypothesis but sidney winter s 1964 critique of friedman is less well known this paper examines critically both the natural selection argument invoked by friedman and others and the main elements of winter s critique in the light of recent development in evolutionary theory winter attempted to identify the circumstances in which the selection of maximizers could occur and these are elaborated critically finally winter s critique is extended by considering the very meaning of rational or maximizing behavior it is argued that the answer to this is neither obvious nor straightforward in an evolutionary context copyright 1994 by oxford university press

sustainable development and girardian economics what is sustainable development why is it an issue ideally what needs to be done and practically what can be done are answered in this chapter by relying on the framework of girardian economics developed by french economist andre orlean and based on rene girard s model of mimetic rivalry under conditions of high uncertainty

income velocity of money in agricultural developing economies t he response of income velocity of money to economic growth has implications for monetary planning in a developing economy velocity is the ratio of nominal income to money stock and decreases only if money stock rises at a faster rate than nominal income a well known hypothesis in this context is that of friedman 1959 which states that in countries experiencing a secular rise in real income per capita the stock of money generally rises over long periods at a decidedly higher rate than does money income i e velocity declines ezekiel and adekunle 1969 and melitz and correa 1970 in their international crosscountry comparisons have found evidence largely in favour of the friedman hypothesis this in its turn has strengthened the hope for active growthoriented monetary planning the extent of resources that can be transferred for investment purposes through non inflationary monetary expansion increases as development proceeds cross section studies involving developed and developing economies do not provide satisfactory indications of what happens to velocity over time in any individual developing economy firstly velocities have not behaved uniformly in all the developing economies secondly international cross country comparisons do not adequately explain why velocity changes in any individual economy is it because money is a luxury good i e income elasticity of demand for money is greater than unity to the agents in the economy is it because economic development brings about structural changes in the economy which lead to the observed behaviour of velocity is it because monetary habits change in a systematic way it is important to have time series analyses of developing economies to provide answers to such questions for example in a study of malaysia and singapore short 1973 found that though velocity did move inversely to per capita income this negative impact was overpowered by the change in monetary habits which the increase in bank offices caused the aim of this paper is to analyse the temporal behaviour of income velocity of money in agricultural developing economies in the literature on velocity and demand for money in developing economies attention is focussed mainly on three issues i the incomeelasticity of demand for money and in particular whether money is a luxury good or not ii the growth of monetisation and changes in monetary habits and iii the effect of the cost of holding money one important factor which has suffered total neglect is the role of sectoral differences in money demand behaviour and the structural shifts in the sectoral composition of income that accompany development money demand behaviour may vary across sectors this is true not only in developing economies but also in developed economies for example goldfeld 1976 has found that the business sector and the household sector in the united states have different money demand functions an implicit specification error is committed in the aggregative money demand or velocity equation whenever the sectoral income composition factor is omitted on a priori grounds this factor should have special significance in developing economies where sectoral shares in national income change over time in the absence of flow offunds accounts and adequate data on sectoral money holdings for most of the developing economies direct estimation of sectoral demand functions is not possible thus an aggregative specification which incorporates the sectoral income composition factor is necessary to analyse the behaviour of velocity

contract adjustment under uncertainty abstract consider trade in continuous time between two players the gains from trade are divided according to a contract and at each point in time either player may unilaterally induce a costly adjustment of the contract players payoffs from trade under the contract as well as from trade under an adjusted contract are exogenous and stochastic we consider players choice of whether and when to adjust the contract payment we show that there exists a nash equilibrium in thresholds where each player adjusts the contract whenever the contract payment relative to the outcome of an adjustment passes the threshold there is strategic substitutability in the choice of thresholds so that if one player becomes more active by choosing a threshold closer to unity the other player becomes more passive

the magnitude of menu costs direct evidence from large u s supermarket chains we use store level data to document the exact process of changing prices and to directly measure menu costs at five multistore supermarket chains we show that changing prices in these establishments is a complex process requiring dozens of steps and a nontrivial amount of resources the menu costs average 105 887 year per store comprising 0 70 percent of revenues 35 2 percent of net margins and 0 52 price change these menu costs may be forming a barrier to price changes specifically 1 a supermarket chain facing higher menu costs due to item pricing laws that require a separate price tag on each item changes prices two and one half times less frequently than the other four chains 2 within this chain the prices of products exempt from the law are changed over three times more frequently than the products subject to the law in principle fixed costs of changing prices can be observed and measured in practice such costs take disparate forms in different firms and we have no data on their magnitude so the theory can be tested at best indirectly at worst not at all alan blinder 1991 p 90

zeros and lumps in investment empirical evidence on irreversibilities and nonconvexities the objective of this paper is to investigate if and how capital adjustment departs from the smooth pattern implied by standard model based on convex adjustment costs using norwegian micro data we start by documenting the intermittent and lumpy nature of investment rates we then present two pieces of econometric evidence on these issues first we estimate a discrete hazard model to determine the probability of having an episode of high investment conditional on the length of the interval from the last high investment episode second we estimate a switching regression model that allows for the response of the investment rate to fundamentals to differ across regimes in both cases we investigate the aggregate implications of our results

price adjustment costs and the output inflation trade off when prices are costly to adjust there is a trade off between the rate of inflation and the firm s average level of output this trade off is the result of fully optimizing behaviour by the firm sufficient conditions are developed for inflation to have no effect on output however these conditions are unlikely to be met in practice this suggests that the superneutrality of money hypothesis is incompatible with the type of demand and cost curves normally encountered in economic theory if the discount rate is positive moderate rates of inflation will always lead to higher levels of output

a dynamic economy with costly price adjustments this paper studies a general equilibrium model of a dynamic economy with menu costs each firm s productivity is exposed to idiosyncratic and aggregate productivity shocks around a trend and the money supply to monetary shocks around a trend all consumption pricing and production decisions are based on optimizing behavior there exists a staggered markov perfect equilibrium with prices determined by a two sided s s markup strategy the paper analyzes the optimal markup strategy and investigates the dynamics of the price index and the aggregate output the welfare consequences of the uncertain aggregate productivity and money supply are also examined

machine replacement and the business cycle lumps and bumps this paper explores investment fluctuations due to discrete changes in a plant s capital stock the resulting aggregate investment dynamics are surprisingly rich reflecting the interaction between a replacement cycle the cross sectional distribution of the age of the capital stock and an aggregate shock using plant level data lumpy investment is procyclical and more likely for older capital further the predicted path of aggregate investment that neglects vintage effects tracks actual aggregate investment reasonably well however ignoring fluctuations in the cross sectional distribution of investment vintages can yield predictable nontrivial errors in forecasting changes in aggregate investment

search price setting and inflation a model of monopolistic competition in an inflationary environment is developed which embodies optimal sequential search price dynamics and entry on the part of consumers and firms respectively equilibrium price strategies are s s these bounds increase continuously with consumer search costs and so does price dispersion indeed the whole equilibrium varies smoothly from the competitive bertrand to the monopolistic diamond 1971 end of the spectrum the latter s paradoxical result is explained as a limiting case where frictions on firms side of the market price adjustment costs but not on buyers search costs tend to zero a positive relationship between smooth and perfectly anticipated inflation and price dispersion or uncertainty is established

aggregate employment dynamics building from microeconomic evidence this paper studies quarterly employment flows of approximately 10 000 u s manufacturing establishments the authors use establishments hours week to construct measures of the deviation between desired and actual employment and use these as the establishments main state variables the main findings are 1 microeconomic adjustment functions are nonlinear with plants adjusting disproportionately to large shortages 2 adjustments are often either large or nil suggesting the presence of nonconvexities in the adjustment cost technologies 3 the bulk of average employment fluctuations is accounted for by aggregate rather than reallocation shocks and 4 microeconomic nonlinearities amplify the impact of large aggregate shocks copyright 1997 by american economic association

the evolution of preferences why sovereign preferences may not lead to sustainable policies and what to do about it abstract the conventional economic paradigm assumes that tastes and preferences are exogenous to the economic system and that the economic problem consists of optimally satisfying those preferences tastes and preferences usually do not change rapidly and in the short term this assumption makes sense sustainability is an inherently long term problem and in the long run it does not make sense to assume tastes and preferences are fixed and given if preferences are expected to change over time and under the influence of education advertising changing cultural assumptions etc the old assumption of consumer sovereignty is not adequate different criteria of optimality are needed how preferences change how they relate to the goal of sustainability and how they can or should be actively influenced to satisfy the new criteria needs to be determined ecological economics has emphasized the three rank ordered goals of ecological sustainability fair distribution and allocative efficiency this paper examines how preferences evolve and change over time and the implications of this for developing policies that meet these three goals in democratic societies

the comovement between output and prices abstract in this paper i analyze the comovement of us prices and output in the postwar period i use a new set of statistics to characterize the comovement between variables the statistics capture important information about the dynamics in the system the estimation procedure does not require assumptions about the order of integration or the types of assumptions needed for var decompositions i find that the comovement between output and prices is positive in the short run and negative in the long run i show that a model in which demand shocks dominate in the short run and supply shocks dominate in the long run can explain these empirical results while sticky price models with only demand shocks cannot

velocity and the variability of money growth evidence from granger causality tests note economists and policy makers were caught off guard by the behavior of the income velocity of money in 1982 the velocity of m1 which had grown at a 3 3 percent average annual rate from 1970 1981 fezl by 4 4 percent in 1982 in the fourth quarter of 1982 the decline was 12 6 percent at an annual rate the 1982 decline in velocity significantly reduced nominal gnp growth and may have helped cause the fall in real gnp the 1982 episode has generated quite a bit of controversy the decline in velocity is important not only for its possible relation to real gnp but also because it has led some economists to seriously question monetarism monetarists believe that there is a predictable link between money growth and nominal gnp growth when velocity declined in 1982 that link appeared to have weakened seemingly undermining the monetarist beliefs in fact robert gordon 1983 has called the 1982 episode the velocity recession and the demise of monetarism milton friedman 1984 has stated that the decline in velocity does not undermine monetarism at all he believes that velocity fell because of the extreme volatility of money growth following the announced change in federal reserve operating procedures in october 1979 figure 1 shows the income velocity of m1 v and the standard deviation of current and seven lags of m1 growth s a large increase in the volatility of money growth in 1980 precedes the decline in velocity in 1982 based on this friedman states that the 1982 episode strengthens not weakens the case for the monetarist proposition of a constant growth rule of the money supply this paper uses the granger causality method to test friedman s hypothesis that the volatility of money growth causes velocity to change we conclude that friedman is correct i e the volatility of money measured by the standard deviation of money growth causes velocity in the granger sense in the next section we review some of the recent explanations offered by economists for the 1982 decline in velocity the concluding section presents our results of the granger tests of friedman s hypothesis

on inflation and output with costly price changes a simple unifying result we analyze the effect of inflation on the average output of monopolistic firms facing a small fixed cost of changing nominal prices using taylor expansions we derive a general closed form solution for the slope of the long run phillips curve this very simple unifying formula allows us to evaluate and clarify the role of three key factors the asymmetry of the profit function the convexity of the demand function and the discount rate these partial equilibrium effects remain important components of any general equilibrium model with s s pricing this abstract was borrowed from another version of this item

environmental norms society and economics abstract environmental norms seem to be on the upsurge everywhere norm orientation is however neglected in neoclassical economics which is fixed on homo economicus as the model of human behaviour the paper addresses the question whether homo economicus needs to give way to a norm oriented concept in environmental economics this question is tackled in an interdisciplinary and evolutionary approach using economics concepts forces are identified which are detrimental to or which promote environmental norms in the process of civilisation this investigation provides some clues on the likely importance of environmental norms in a future ecologically oriented society these clues provide in turn one answer to the fundamental question posed whether the neoclassical concept of human behaviour will likely remain or cease to be the standard tool in environmental economics rather than tackling the question in greatest generality the analysis takes recourse to an example the problem of the commons the commons is particularly suited for this investigation because it is well roamed by all the disciplines which are of relevance for the undertaking

price points and price rigidity abstract we study the link between price points and price rigidity using two data sets weekly scanner data and internet data we find that 9 is the most frequent ending for the penny dime dollar and ten dollar digits the most common price changes are those that keep the price endings at 9 9 ending prices are less likely to change than non 9 ending prices and the average size of price change is larger for 9 ending than non 9 ending prices we conclude that 9 ending contributes to price rigidity from penny to dollar digits and across a wide range of product categories retail formats and retailers

inflation output and labour productivity when prices are changed infrequently when prices are changed infrequently the effect of inflation on output depends on the form of profit and demand functions this paper provides a general taxonomy at small inflation rates output falls rises stays the same if the demand function is concave convex linear in terms of the log of real price this holds when the frequency of price changes is fixed in case of a catalogue firm as well as when it is chosen optimally in case of a menu cost firm with fixed and variable price adjustments costs with some specifications inflation increases output but reduces labor productivity copyright 1990 by the london school of economics and political science

measuring the existence value of wildlife what do cvm estimates really show two research programs are brought together to contribute to the growing body of work on alternatives to standard welfare based approaches to environmental valuation and policy the first is the theoretical literature undermining the new welfare