outcome based accountability theory and evidence abstract a firm s payoffs can often depend on whether it exceeds a threshold of performance in a principal agent setting we demonstrate that the optimal contract induces efficient effort by basing firing decisions solely on whether the agent was successful even though the absolute level of performance is more informative we test the predictions of our model using thirty seasons of nfl data we find that a coach is 6 percentage points more likely to be fired after a close loss beyond this the margin of victory has no significant impact on firing probabilities despite being more informative about future success also consistent with the predictions of our model coaches maximize team effort by playing their best players when doing so has the largest impact on the probability of winning

the distribution of money and prices in search equilibrium this article considers a search theoretic model of monetary exchange agents bargain over both the amount of money and the quantity of goods to be exchanged in bilateral meetings determining endogenously the distributions of money and of prices i show that money is neutral if changes in the money supply are accomplished via proportional transfers however within the class of lump sum transfers an increase of the rate of monetary expansion tends to decrease the dispersion of wealth and prices and to improve welfare when inflation is low but when inflation is high enough the opposite effects occur

threat of dismissal incentive or sorting many people are fired from their jobs for poor performance however it is difficult to distinguish whether they are fired because they are not well suited for their job sorting explanation or because the firms are trying to provide incentives for effort incentive explanation this article develops a dynamic incentive model of dismissal and proposes a methodology to distinguish between these two explanations the methodology is based on learning by doing and changes in the slope of dismissal probability with respect to tenure using personnel data from a large u s company this study finds significant evidence for the incentive explanation

credit spreads an empirical analysis on the informational content of stocks bonds and cds this paper explores the dynamic relationship between stock market implied credit spreads cds spreads and bond spreads a general vecm representation is proposed for changes in the three credit spread measures which accounts for zero one or two independent cointegration equations depending on the evidence provided by any particular company empirical analysis on price discovery based on a proprietary sample of north american and european firms and tailored to the specific vecm at hand indicates that stocks lead cds and bonds more frequently than the other way round it likewise confirms the leading role of cds with respect to bonds

monetary union price level convergence and inflation how close is europe to the usa abstract the pattern of price dispersion across european and us cities from 1990 to 2004 is documented there is a striking decline in dispersion for traded goods prices in europe most of which took place prior to the launch of the euro dispersion in the euro area is now quite close to that of the usa this evidence provides useful facts for future work assessing the importance of various developments in europe harmonization of tax rates convergence of incomes and labor costs liberalization of trade and factor markets and increased coherence of monetary policy

the behavior of prices and inflation an empirical analysis of disaggregat price data this paper analyzes the effects of inflation on the dispersion of prices as well as other aspects of price behavior using disaggregated data on prices of foodstuffs in israel during 1978 84 we find that the effect of expected inflation on intramarket price variability is stronger than the effect of unexpected inflation we show that even in times of high inflation price quotations are not trivially short and price changes are not synchronized across firms these facts taken together confirm that there is some staggering in the setting of prices we find that the distribution of real prices is far from being uniform as many menu cost based models assume or conclude in fact as inflation increases to very high levels this distribution is not even symmetric when the annual inflation rate reaches 130 percent there are equal chances of finding real prices above or below the market average but upward deviations in the real price are further away from zero than downward ones furthermore as the annu

reconsidering the relationship between inflation and relative price variability it has long been popularly believed that the relationship between inflation and relative price variability rpv is positive and stable using disaggregated cpi data for the united states and japan however this study finds that the relationship is neither linear nor stable over time the overall relationship is approximately u shaped around a nonzero threshold inflation rate rpv therefore changes not with the inflation rate per se but with the deviation of inflation from the threshold inflation rate more importantly the relationship is by no means stable over time but instead varies significantly in a way that coincides with regime changes of inflation or monetary policy the relationship was positive during the period of high inflation of the 1970s and the early 1980s as has been documented by a number of previous studies whereas it takes a u shape profile during the great moderation the results are robust to the use of core inflation which excludes the traditionally volatile prices of food and energy this paper then presents a modified version of the calvo type sticky price model to describe the observed empirical regularities simulation experiments show that the modified calvo model fits the data well and that the underlying relationship hinges upon the degree of price rigidity which is systematically related to inflation regime for countries and periods with low inflation rates the relationship takes a u shape as price adjustment is more sticky in a high inflation environment when price setting becomes more flexible the u shaped profile vanishes

effort observability and worker productivity towards an explanation of economic dualism this paper suggests an explanation of the wage and productivity differentials between formal and informal sectors in developing countries this explanation is based on differences in the observability of effort that arise from technological differences such as size of operation the authors argue that observability of effort is lower in the formal sector and then show that under reasonable conditions this leads to higher wages and higher effort productivity this is because with lower observability the marginal cost of effort is lower when existing employees are induced to work harder than when more workers are hired explanations for intersectoral differences in factor intensities and sector specific unemployment rates also follow from the authors basic assumptions copyright 1989 by royal economic society

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

efficiency wage models of unemployment one view h lorne carmichael persistent wage rigidity and involuntary unemployment appear to be recurrent problems in most economies what could be preventing the wage adjustment necessary to clear the labor market many recent papers claim to have found the answer in efficiency wage models this paper surveys this literature and attempts to evaluate its accomplishments it concludes that the efficiency wage models fail to explain wage rigidity or persistent involuntary unemployment persistent involuntary unemployment of workers is a recurrent problem in labor markets all over the world unemployed workers seem unable to find work even though they are willing to accept lower wages than those being paid employed workers with similar skills what could be preventing wages from adjusting to clear these markets many recent papers known collectively as the efficiency wage literature now claim to have the answer this paper will survey the efficiency wage literature and critically evaluate some of its accomplishments efficiency wage models have already been examined by yellen 1984 katz 1986 and stiglitz 1987 and have received generally favorable reviews this paper is more critical its overall conclusion is that efficiency wage models provide some useful insights into the workings of the labor market but they do not provide a satisfactory account of wage rigidity or involuntary unemployment there are at least five separate versions of the efficiency wage model they share a common structure however and this is outlined in the first section of the paper this section also attempts to relate efficiency wage models to other recent models of unemployment section ii examines and criticizes the different approaches in detail section iii evaluates the achievements of this approach and suggests some directions for future work i a general efficiency wage model efficiency wage models as the name suggests are first of all models of wages they generate unemployment by showing that firms will sometimes want to set wages at non market clearing levels it is useful to begin therefore by reviewing how wages and employment are determined in some related models in a perfectly competitive labor market the wage for each type of labor is adjusted constantly to maintain equality of supply and demand overall employment fluctuates in response to demand changes as workers move up and down their labor supply curves unemployment is voluntary in that anyone who is not working prefers that state to employment at the going wage for people of his skills as well the value of a worker s marginal product is equal to the marginal value of his leisure so there are no unexploited wage bargains between unemployed workers and firms this model is successful in predicting the long term response of wages to shifts in demand and supply but it is clear that in the short run its depiction of voluntary unemployment and flexible wages is unrealistic a natural way to generate more realism is to assume that wages are inflexible in the short run in this case a reduction in demand away from a long run equilibrium will lead to rationing of jobs by employers as they attempt to stay on their labor demand curves the unemployment here is involuntary in that the unemployed would prefer to be working at the going wage and is inefficient in that there are lost gains from trade between these workers and firms the weakness of this model is that it is silent about the mechanism that keeps wages rigid unemployed workers who offer to work for less than the fixed wage ought to find work the early implicit contract models of azariadis 1975 baily 1974 and gordon 1974 provide one explanation for wage rigidity these models introduced the idea that wages can do more than just clear the market for labor wages in an implicit contract model are used to shift the risk generated by uncertain output market conditions from risk averse workers to the risk neutral firm

evidence on the functional relationship between relative price variability and inflation with implications for monetary policy this paper considers the functional relationship between relative price variability rpv and inflation using quarterly personal consumer expenditure data in the us over 1967q1 2003q1 deriving some implications for monetary policy non parametric regression techniques are used to explore the shape of the rpv function and this shape is related to the theory outlined by rotemberg 1982 1983 the empirical rpv function yields a plausible optimal value of inflation in the region of five percentage points which is consistent with this theory and lies within the range of values cited by recent evaluations of sand and grease effects

relative price variability and inflation evidence from us cities we test whether the time series positive correlation of inflation and intermarket relative price variability is also present in a cross section of u s cities we find this correlation to be a robu

wages and labor management in african manufacturing using matched employer employee data on 10 african countries this paper examines the relationship beween wages worker supervision and labor productivity in manufacturing wages increase with rm size for both production workers and supervisors we develop a two tier model of supervision that can account for this stylized fact and we t the structural model to the data employee data is used to derive a rm speci c wage premium that is purged of the effect of worker observables we nd as trong effect of both supervision and wages on effort and hence on labor productivity labor management in sub saharan africa appears problematic with much higher supervisor to worker ratios than in morocco and a higher elasticity of effort with respect to supervision

dollarization and currency exchange abstract we use a dual currency money search model to study dollarization agents hold portfolios consisting of two currencies one of which is risky we use numerical methods to solve for the steady state distributions of currency portfolios transaction patterns and value functions as risk increases agents increasingly use the safe currency as a medium of exchange dollarization occurs furthermore the safe currency trades for multiple units of the risky currency this type of currency exchange and the corresponding nominal exchange rate are often observed in black market or unofficial currency exchange markets in developing countries due to decentralized trading a distribution of exchange rates arises whose mean and variance change in predictable ways when currency risk increases

inflation price dispersion and market structure abstract in this paper we use a novel data set containing prices from bazaars convenience stores and supermarkets in istanbul to re examine the relationship between price dispersion and inflation although existing evidence is mixed we find positive and significant relationships between dispersion on the one hand and lagged dispersion and unexpected product specific inflation on the other we also find evidence that dispersion is initially decreasing in anticipated aggregate inflation but is eventually increasing finally average price duration and dispersion are lowest in the bazaar this is intuitive since menu and search costs should be minimal in that market structure

in search of a euro effect big lessons from a big mac meal we investigate whether the adoption of the euro was accompanied by an increase in prices in member countries and whether it promoted goods market arbitrage in the form of faster convergence to a common price by comparing the experience of eurozone countries to non euro european countries in a difference in differences specification we net out effects on prices unrelated to the euro we conclude that a there is no evidence of significant price increases associated with the adoption of the euro even for food items and b there is little systematic evidence of a significant improvement in goods market integration following the euro s introduction

inflation and relative price variability new evidence for the united states this article provides new evidence on the empirical relationship between inflation and relative prices in the united states in line with the predictions of recent monetary search models we find that the impact of expected inflation on relative price variability rpv has disappeared during the recent period when inflation expectations have been stabilized on a low level endogenous break point tests are applied to identify the timing and to confirm the significance of the changing role of inflation for rpv the empirical findings are robust with respect to different price indices disaggregation levels and measurement concepts

search inflation and capital accumulation abstract this paper constructs a model to integrate the search monetary theory into a neoclassical growth model with divisible goods and money the model is used to examine the relationship between money growth and capital accumulation the framework uncovers a distinct extensive effect that an increase in the money growth rate increases the frequency of successful trades by increasing the number of agents in the market this positive extensive effect on the number of trades can dominate the conventional negative intensive effects of money growth on individuals labor input and real money balance in which case increasing the money growth rate increases aggregate capital and output

the union nonunion wage differential and monitoring costs abstract this paper presents an efficiency wage explanation of the countercyclical behavior of the union nonunion wage differential and identifies conditions under which unions are more likely to gain such a differential

a model of involuntary unemployment and wage rigidity worker incentives and the threat of dismissal this paper analyzes a model that highlights imperfect monitoring and the threat of dismissal as microeconomic underpinnings for the efficiency wage hypothesis my major innovation is to allow the rules for dismissal as well as the wage to be determined endogenously as the equilibrium of a stackelberg game played between firms and workers the key results are as follows a nontrivial equilibrium where positive output is produced must involve involuntary unemployment in that employed workers are strictly better off than are the unemployed in addition the equilibrium wage is rigid with respect to exogenous shifts in productivity

inflation and welfare a search approach this paper extends recent findings in the search theoretic literature on monetary exchange regarding the welfare costs of inflation we present first estimates of the welfare cost of inflation using the welfare triangle methodology of bailey 1958 and lucas 2000 we then derive a money demand function from the search theoretic model of lagos and wright 2005 and we estimate it from u s data over the period 1900 2000 we show that the welfare cost of inflation predicted by the model accords with the welfare triangle measure when pricing mechanisms are such that buyers appropriate the social marginal benefit of their real balances for other mechanisms welfare triangles underestimate the true welfare cost of inflation because of a rent sharing externality we also point out other inefficiencies associated with noncompetitive pricing which matter for estimating the cost of inflation we then illustrate how endogenous participation decisions can mitigate or exacerbate the cost of inflaion and we provide calibrated examples in which a deviation from the friedman rule is optimal finally we discuss distributional effects of inflation

relative price variability and inflation in europe the relationship between inflation and the relative variability of prices has been the subject of careful investigation in the united states using data for product groups at the city level yet in europe where the relationship could have profound effects on the viability of monetary integration no attempt has been made to study the relationship this paper fills the gap by examining data disaggregated to the commodity level across 10 eu countries evidence is found for logistic smooth transitions in the relative price variability measures within countries and within product groups when this deterministic component is removed the stochastic element is not persistent and does not always have the positive relationship with inflation commonly found in us city data

a joint analysis of market indexes in credit default swap volatility and stock markets abstractthis paper analyses the joint dynamics of the cds volatility and stock markets using both var and markov regime switching var models with market index data it shows that the joint behaviour of the three markets is better characterized by the markov model with two regimes corresponding to low and high volatile market conditions the relationship between changes in the market indexes under a regime is consistent with theory and persistent the information transmission process of shocks to the markets is similar for the two regimes with a more important role for cds shock and the volatility in the money market is an important determinant of regime switching the findings have practical implications particularly for hedging strategies with market indexes under different market conditions

money and price dispersion we relax restrictions on the storage technology in a prototypical monetary search model to study price dispersion in this case buyers and sellers enter matches with potentially different willingness to trade across the distribution of possible bilateral matches prices generally will differ even though agents have identical preferences and technologies we provide existence conditions for a particularly simple equilibrium pattern of exchange we prove that in the limiting case where search frictions are eliminated equilibrium prices are uniform we also show that a higher initial money stock can raise the average price level and increase price dispersion

inflation price dispersion and market integration through the lens of a monetary search model monetary search theory implies that the real effects of inflation via its impact on price dispersion depend on the level of search costs and thus on the level of market integration for less integrated markets the inflation price dispersion nexus is predicted to be asymmetrically v shaped which results in an optimal inflation rate above zero for highly integrated markets with low search costs however the impact of inflation on price dispersion should only be small using price data of the european union member states this paper is the first that tests and confirms these predictions of monetary search theory

firm specific human capital as an employer discipline device the inability of employers to monitor perfectly the level of effort of their employees is a potentially serious impediment to labor market efficacy indeed a number of recent studies have concluded that this may lead to involuntary unemployment shapiro and stiglitz 1984 sparks 1986 an inefficient sectoral allocation of workers oi 1990 strand 1986 and discrimination against productively identical workers bulow and summers 1986 this paper shows that the lock in effect of firm specific human capital can help alleviate problems of worker moral hazard and thereby promote labor market performance i introduction as the surveys of akerlof yellen 1986 ch 1 carmichael 1990 lang and kahn 1990 and weiss 1990 amply illustrate the last decade witnessed the emergence of a large body of literature which falls under the general rubric of efficiency wage models of the labor market the hallmark of this approach is that some essential aspect of worker performance depends upon the wage paid by the firm much recent work bulow summers 1986 oi 1990 shapiro and stiglitz 1984 sparks 1986 and strand 1986 has considered the case in which due to monitoring difficulties worker effort depends positively upon the wage the popularity of the approach undoubtedly stems from its ability to apparently explain many stylized features of labor market behavior in an attractively simple and straightforward manner in the papers cited above shapiro and stiglitz 1984 and sparks 1987 show that labor market equilibrium can be characterized by involuntary unemployment bulow and summers 1986 demonstrate that inter alia efficiency wage models are consistent with equilibrium discrimination against productively identical agents and finally oi 1990 and strand 1986 show that efficiency wage payments can generate an inefficient sectoral allocation of workers yet recent research now suggests that the results obtained from this class of model are highly sensitive to the specific assumptions made at the outset about the completeness of contractual arrangements indeed as carmichael 1985 astutely observed if contracts can include bond payments even if financed by borrowing from imperfect capital markets the standard imperfect monitoring variant of the efficiency wage hypothesis fails to predict the emergence of equilibrium involuntary unemployment i e all workers receive their reservation utility however proponents of efficiency wage models have responded to this criticism by arguing that workers would be unwilling to post large bonds with firms due to a problem of employer moral hazard specifically workers recognize that firms may hire them in order to steal their bond payment ex post once this limitation on admissible bond payments is recognized it might then be tempting to conclude that the main results of the efficiency wage literature will re emerge in this paper i consider this issue in an environment which also allows for investment in firm specific human capital the basic structure is similar to hashimoto 1981 following macleod and malcomson 1987 1989 i assume that 1 worker performance measures are sufficiently nebulous to preclude verification by third parties and 2 as in carmichael 1983 the courts are unable to ascertain whether in the event of separation a worker quit or was fired this informational structure generates a potentially serious joint worker employer moral hazard problem workers may shirk and employers may simply hire labor in order to collect any bond payments or exit fees stipulated in the contract as emphasized by both carmichael 1989 1990 and macleod and malcomson 1987 1989 the solution to this contracting problem requires that both parties receive a non negative return from the continuation of the match relative to what can be obtained from its dissolution

european product market integration after the euro using a detailed data set of prices of consumer goods in european cities from 1990 to spring 2003 we investigate the question of whether the introduction of the euro in january 1999 increased integration of consumer markets as reflected by consumer prices in fact we find no tendency for prices to converge after january 1999 this finding holds even when we control for a number of factors that might affect price dispersion on the other hand we find that there has been a significant reduction in price dispersion throughout the decade of the 1990s suggesting that efforts to reduce economic barriers initiated early in the decade may have in fact had the effect of significantly increasing the integration of consumer markets charles engel and john h rogers

predictable dynamics in implied volatility surfaces from otc currency options recent empirical studies report predictable dynamics in the volatility surfaces that are implied by observed index option prices such as those prescribed by general equilibrium models using an extensive data set from the over the counter options market we document similar predictability in the factors that capture the daily variation of surfaces implied by options on 25 different foreign exchange rates we proceed to demonstrate that simple vector autoregressive specifications for the factors can help produce accurate out of sample forecasts of the systematic component of the surface at short horizons profitable delta hedged positions can be set up based on these forecasts however profits disappear when typical transaction costs are taken into account and when trading rules on wide segments of the surface are sought

unemployment and the efficiency wage hypothesis there has been much recent discussion of the reasons why prices in certain markets and in particular in labour markets may not adjust to eliminate excess supply the absence of speedy adjustment of prices is an essential feature of the recent models of disequilibrium macroeconomics but for the most part no explanation for this absence is provided from within those models one explanation that has been around in the literature for some time and has been receiving increasing attention recently is the efficiency wage hypothesis initially applied to developing economies see leibenstein i957 it has more recently been adapted to developed economies by weiss i 980 and used in the context of a keynesian macroeconomic model by hart i 980 similar concepts have been applied to the credit market by stiglitz and weiss i98i the purpose of the present paper is to explore further the conditions under which the notion of an efficiency wage is applicable and can provide an explanation of involuntary unemployment the essential feature of the efficiency wage hypothesis is that the productivity of a firm s employees increases as their wage is increased at least over an economically relevant part of its range if the wage paid by the firm is denoted by w the number of employees by l and the productivity of each employee by p w where p w o then the effective labour force of the firm e can be represented by

pricing credit default swaps with option implied volatility using the industry benchmark creditgrades model to analyze credit default swap cds spreads across a large number of companies during the 2007 09 credit crisis the authors demonstrate that the performance of the model can be significantly improved by calibrating it with option implied volatility rather than with historical volatility moreover the advantage of using option implied volatility is greater among companies with more volatile cds spreads more actively traded options and lower credit ratings

inflation and relative price variability reinstating parks results this paper revisits parks seminal work on the time series relationship between inflation and relative price variability the results reported show that a significant positive association is obtained allowing for an asymmetrical response of relative prices to episodes of positive and negative inflation this finding is maintained after excluding oil shock years extending park s original sample to 1996 using an alternative data set and allowing for a higher degree of disaggregation

price dispersion inflation and welfare we examine the implications of inflation for both price dispersion and welfare in a monetary search economy in our economy if the degree of buyers incomplete information about prices is fixed both price dispersion and real prices are increasing in inflation as the inflation rate approaches the friedman rule both price dispersion and welfare losses vanish if households choose the number of prices to observe then the optimal inflation rate may exceed the friedman rule as inflation induces search and up to a point raises welfare by eroding market power

an efficiency wage model for small firms firm size and wages abstract small firms are those with a unique monitor the owner of the firm according to the model presented wages are identical for very small firms no matter which industry they are in and increase with firm size for somewhat larger firms an empirical test is carried out using french data

inflation and relative price variability in the short and long run new evidence from the united states this paper presents new evidence that a positive association exists between inflation and relative prices and relative inflation rates in very disaggregated data for the united states over the period 1975 through 1992 there is also evidence that the response of relative prices and relative inflation rates to inflation varies inversely with the information content of a given shock to inflation the relationship is studied from two cross sectional perspectives using individual price series collected from forty eight u s cities evidence on the persistence of the effects of inflation on relative prices is also presented results here demonstrate the absence of a long run relationship between inflation and relative price dispersion i e the two series are not cointegrated finally results from vector autoregressions further imply the effect is smaller than indicated by typical estimates copyright 1996 by ohio state university press

charitable giving in the german welfare state fiscal incentives and crowding out there are two ways that government activities influence private charitable giving 1 government spending on the provision of public goods may cause crowding out of private charitable contributions and 2 tax incentives may boost private charitable giving from a sample of german income tax returns we estimate the elasticity of charitable giving relative to tax incentives income and government spending using censored quantile regression analysis we derive results for different points of the underlying distribution of charitable giving evaluating overall treasury efficiency the tax deductibility of charitable donations fosters enough private giving to offset foregone tax revenues

european inflation dynamics abstract we provide evidence on the fit of the new phillips curve npc for the euro area over the period 1970 1998 and use it as a tool to compare the characteristics of european inflation dynamics with those observed in the u s we also analyze the factors underlying inflation inertia by examining the cyclical behavior of marginal costs as well as that of its two main components namely labor productivity and real wages some of the findings can be summarized as follows a the npc fits euro area data very well possibly better than u s data b the degree of price stickiness implied by the estimates is substantial but in line with survey evidence and u s estimates c inflation dynamics in the euro area appear to have a stronger forward looking component i e less inertia than in the u s d labor market frictions as manifested in the behavior of the wage markup appear to have played a key role in shaping the behavior of marginal costs and consequently inflation in europe

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

characterising equilibrium selection in global games with strategic complementarities abstract global games are widely used to predict behaviour in games with strategic complementarities and multiple equilibria we establish two results on the global game selection first we show that for any supermodular complete information game the global game selection is independent of the payoff functions chosen for the game s global game embedding second we give a simple sufficient criterion to derive the selection and establish noise independence in many action games by decomposing them into games with smaller action sets to which we may often apply simple criteria we also report in which small games noise independence may be established by counting the number of players or actions

the economy of high wages an agency problem latitude with respect to the effort they supply and monitoring of effort and output is costly in this paper we examine the agency problem that arises in these circumstances the agent employee is assumed to maximize expected utility which depends on wages and effort a bad we assume that output is a deterministic function of effort that either effort or output can be accurately monitored and that monitoring is costly the firm s problem is to select a level of monitoring and a compensation package that will minimize the cost of obtaining a desired level of effort given the cost of monitoring the agent s preferences and the agent s opportunity cost of accepting employment with the firm his labour supply constraint the firm chooses a compensation scheme from the set in which compensation is contingent on effort if the agent is monitored and is equal to a standard

currency competition in a fundamental model of money abstract we study how two fiat monies one safe and one risky compete in a decentralized trading environment the currencies equilibrium values their transaction velocities and agents spending patterns are endogenously determined we derive conditions under which agents holding diversified currency portfolios spend the safe currency first and hold the risky one for later purchases we also examine when the reverse spending pattern is optimal traders generally favor dealing in the safe currency unless trade frictions and the currency risk is low as risk increases or trading becomes more difficult the transaction velocity and value of the safe money increases

inflation and efficiency in search markets this paper examines how inflation affects efficiency and output in monopolistically competitive search markets it formalizes the conventional wisdom linking higher inflation price dispersion and increased resources devoted to search it also brings to light the induced exit of arms which reduces rent dissipation but the most important effect of inflation is how it alters the distribution of real transactions prices whether this reduces or promotes efficiency and output is shown to depend critically on preferences and market structure and especially on whether search costs are large or small relative to consumer surplus

efficiency wage models of unemployment keynesian economists hold it to be self evident that business cycles are characterized by involuntary unemployment but construction of a model of the cycle with involuntary unemployment faces the obvious difficulty of explaining why the labor market does not clear involuntarily unemployed people by definition want to work at less than the going wage rate why don t firms cut wages thereby increasing profits

cross hedging strategies between cds spreads and option volatility during crises abstract this paper presents a joint analysis of the term structure of credit default swap cds spreads and the implied volatility surface for five european countries from 2007 to 2012 a sample period covering both the global financial crisis gfc and the european debt crisis we analyze to which extent effective cross hedges can be performed between the credit and equity derivatives markets during these two crises we find that during a global crisis a breakdown of the relationship between credit risk and equity volatility may occur jeopardizing any cross hedging strategy which happened during the gfc this stands in sharp contrast to the more localized european debt crisis during which this fundamental relationship was preserved despite turbulent market conditions for both the cds and volatility markets

efficiency wages employment versus welfare this paper analyzes the effects of government policies in an efficiency wage model in such a model wages exceed market clearing rates firms may pay high wages for many reasons levine gives thirteen motivations for efficiency wages 12 in the model used here high wages prevent shirking by workers the model is similar to those of shapiro and stiglitz sparks fairris and alston and others 15 17 7 efficiency wage models are often viewed as providing the microeconomic foundations of involuntary unemployment and keynesian economics 1 2 unemployment is also emphasized in many discussions of government policies 3 4 11 a major example is that of johnson and layard 9 they find that a per capita employment subsidy financed by an ad valorem wage rate tax would reduce unemployment they conclude that this policy would benefit a country because of the employment effect 2 yet this paper shows that the employment effect is misleading here a policy that causes employment to rise fall also must cause income net of effort to fall rise so total welfare falls rises the policy implications discussed by johnson and layard and others are therefore reversed

monetary policy implementation and overnight rate persistence overnight money market rates are the predominant operational target of monetary policy as a consequence central banks have redesigned the implementation of monetary policy to keep the deviations of the overnight rate from the key policy rate small and short lived this paper uses fractional integration techniques to explore how the operational framework of four major central banks afiects the persistence of overnight rates our results suggest that a well communicated and transparent interest rate target of the central bank is a particularly important condition for a low degree of overnight rate persistence

central bank communication and the perception of monetary policy by financial market experts this paper investigates how financial experts perceive the monetary policy of the european central bank ecb assuming a taylor rule type reaction function we use qualitative survey expectations about future interest rates inflation and output to discover the sources of individual interest rate forecast errors based on a panel random coefficient model we show that financial experts have systematically misperceived the ecb s interest rate rule while perception of monetary policy regarding inflation has become more accurate since the ecb s clarification of the monetary policy strategy in 2003 misperception regarding the ecb s reaction to output has increased in the financial crisis

capitalist worker conflict and involuntary unemployment we study a simple model of the determination of the level of employment in which a capitalist decides how many workers to hire and then bargains over the wage with those whom he hires if the capitalist hires all the available workers his position is weak since in the event of a strike he is unable to hire strike breakers for this reason he chooses to leave some workers involuntarily unemployed an increase in unemployment benefits which raises the cost of hiring strike breakers affects the bargaining power of both capitalist and workers under some conditions it leads to a reduction in unemployment casual observation suggests that in every advanced capitalist economy a significant portion of the workforce is persistently unemployed yet in the dominant formal model of such an economy walrasian equilibrium theory such a situation is never a point of rest of the system beginning with clower 1965 and leijonhufvud 1968 on the one hand and with dreze 1975 on the other there has recently been a number of attempts to modify this theory in such a way that there can be unemployment in equilibrium all these attempts non walrasian models retain from walrasian equilibrium theory the view of a capitalist economy as a system of markets which passively mediates the conflicting desires of the individuals in the economy in the walrasian equilibrium analysis this mediation is successful while in the non walrasian models it is not however in both cases the basic image is of an economy in which the individuals interact passively rather than antagonistically both approaches also begin with an exchange economy in some cases the analysis can be extended to incorporate production but it is never the case that the way production is organized is of any consequence it makes no difference whether capital hires labour or labour hires capital to this extent these models do not incorporate a distinguishing feature of a capitalist economy here we study a very simple model in which the struggle over the distribution of output is the centre of attention and in which the fact that capital hires labour rather than vice versa is essential the model views a capitalist economy not as a system for allocating resources but as a way of organizing production which involves a particular set of power relations between its members our premise is that such a viewpoint illuminates some aspects of the phenomenon of unemployment which are otherwise obscured in the model we construct unemployment arises not because the system is incapable of performing the task of coordination but because the capitalists who can decide how many workers to hire are in a better position to secure a large fraction of the output if some workers remain unemployed this sort of reasoning is certainly not new marx s argument concerning the reserve army of the unemployed is perhaps similar though apparently it has not previously been formalized at the basis of our model is the bargaining process between a capitalist and the workers he chooses to employ there are other models of unemployment which are based on such a bargaining process

in search of a stylised fact do real wages exhibit a consistent pattern of cyclical variability the paper surveys the studies on the cyclical behaviour of real wages published from the twenties onwards the traditional simple neoclassical model of the labour market suggests that real wages tend to move countercyclically however from a theoretical viewpoint there are few reasons to expect this behaviour once the simple model is extended to account for imperfect competition uncertainty lagged responses or contracting between firms and workers empirical studies give different answers to the problem the contributions reviewed in the paper are arranged roughly in a chronological order the interwar period the postwar pre econometric studies the econometric work using aggregate data the evidence produced on the basis of longitudinal data the analyses of the shock responsiveness of real wages and finally the most recent papers attempting a reconciliation of the somewhat conflicting evidence derived from aggregate and panel data

market power price adjustment and inflation we study the responses of real and nominal prices to random flutuations in costs and money growth using a monetary search economy in which there are no costs or temporal restrictions on sellers ability to change prices the economy exhibits a form of price stickiness in that the price level may react incompletely to either type of shock as a result of endogenous changes in the average mark up driven by movements in consumers search intensity the average mark up falls as inflation rises a finding consistent with emprical observations as a result of this reduction in market power prices become more responsive to shocks as inflation rises our results are consistent with empirical findings that the degree of price adjustment in response to both cost and money growth shocks is increasing in the average rate of inflation that the variance of inflation increases with its average level and that positive and negative shocks to money growth have asymmetric effects

crash risk of the euro in the sovereign debt crisis of 2009 2010 the economic political instability of a country which is tied to its credit risk often leads to sharp depreciation and heightened volatility in its currency this paper shows that not only the creditworthiness of the euro area countries with weaker fiscal positions but also that of the member countries with more sound fiscal positions are important determinants of the deep out of the money euro put option prices which embedded information on the euro crash risk during the sovereign debt crisis of 2009 2010 we also find evidence of information flow from the sovereign credit default swap market to the currency option market during the crisis