investigating first stage exchange rate pass through sectoral and macro evidence from euro area countries in this paper we evaluate the first stage pass through namely the responsiveness of import prices to the exchange rate changes for a sample of euro area ea countries our study aimed to shed further light on the role of microeconomic factors versus macroeconomic factors in influencing the extent of the exchange rate pass through erpt as a first step we conduct a sectoral analysis using disaggregated import prices data we find a much higher degree of pass through for more homogeneous goods and commodities such as oil and raw materials than for highly differentiated manufactured products such as machinery and transport equipment our results confirm that cross country differences in pass through rates may be due to divergences in the product composition of imports the higher share of imports from sectors with lower degrees of pass through the lower erpt for an economy will be in a next step we investigate for the impact of some macroeconomics factors or common events experienced by ea members on the extent of pass through using the system generalised method of moments within a dynamic panel data model our estimates indicate that decline of import price sensitivity to the exchange rate is not significant since the introduction of the single currency our findings suggest instead that the weakness of the euro during the first 3 years of the monetary union significantly raised the extent of the erpt this outcome could explain why the sensitivity of import prices has not fallen since 1999 we also point out a significant role played by the inflation in the eurozone as the responsiveness of import prices to exchange rate fluctuations tends to decline in a low and more stable inflation environment overall our findings support the view that the extent of pass through is comprised of both macro and microeconomic aspects that policymakers should take into account

incentives productivity and labor contracts the relationship between age earnings profiles and worker incentives is examined by contrasting wage and salary workers with the self employed it is argued that the steepness of wage and salary workers age earnings profiles reflects the desire to provide work incentives to those workers since self employed workers do not face this agency problem they are used as a benchmark to gauge productivity empirical support of the proposition is provided and the effects of human capital accumulation are separated empirically from incentive effects the most important conclusion is that under some strong assumptions most of the slope in age earnings profiles is accounted for by the desire to provide incentives rather than by on the job training

can we explain inflation persistence in a way that is consistent with the microevidence on nominal rigidity this paper adopts the impulse response methodology to under stand inflation persistence it has often been argued that existing models of pricing fail to explain the persistence that we observe we adopt a common general framework which allows for an explicit modelling of the distribution of contract lengths and for different types of price setting we also evaluate how far the theories are consistent with recent evidence on price and wage rigidity we find that allowing for a distribution of durations can take us a long way to solving the puzzle of inflation persistence but not all the way yet

exchange rate pass through in developing and emerging markets a survey of conceptual methodological and policy issues and selected empirical findings abstractglobal integration has increased the international linkages of financial markets for emerging market countries a key channel for the international transmission of inflation and economic cycles is from exchange rate movements to domestic prices known as exchange rate pass through erpt this article reviews the conceptual methodological and policy issues connected with erpt in emerging market and developing countries and critically surveys selected empirical studies a key contribution is to categorise and compare the heterogeneous methodologies used to extract erpt measures in the empirical literature single equation models and systems methods are contrasted frequent misspecifications that produce unreliable erpt estimates are highlighted the discerning policy maker needs to ascertain by which methods erpt measures were calculated the controls and restrictions applied and the time frame and stability of the estimates

oil price shocks and the macroeconomy this paper examines the impact of oil price shocks and attempts to explain why the rise in oil prices up to 2008 had little impact on the world economy it makes three main arguments first that oil prices have never been as important as is popularly thought second that the most important route through which oil prices affect output is monetary policy when oil prices pass through to core inflation monetary authorities raise interest rates slowing growth based on the second argument the third argument is that high oil prices have not reduced growth in recent years because they no longer pass through to core inflation so the monetary tightening previously seen in response to high oil prices is absent it also argues that oil prices had little impact on the global recession of 20089

testing for wage leadership processes in the chilean economy the purpose of this study is to examine the influence of government regulations on wage determination as well as the existence of a wage leadership process by public sector wages on private sector wages specifically the hypothesis to be tested by applying granger type causality test is that private sector wages have followed those of the public sector in a time path the results obtained show that the leadership role of public wages has graducally become weaker as state intervention in the labour market declined

direct measurement of popular price expectations expectations are an important determinant of economic behavior the analysis of economic expectations however has suffered from inadequate measurement throughout the literature expectations have been treated as unobservable and have therefore been measured only indirectly the object of this paper is to develop and test a direct measure of the expectations of inflation a particularly critical economic variable a direct measure of inflationary expectations is here taken to be one constructed from a sample survey in which individuals are asked to state their expectations explicitly the paper focuses on a popular forecast of the rate of change of consumer prices in the forthcoming year as calculated from responses to the survey of consumer finances scf this measure is presented in section i the scf and others like it have existed for some time but a few recent studies notwithstanding most economists continue to regard survey measures as inherently unreliable their principal criticism is that the opinions an individual expresses

how international exchange technology and institutions affect workers an introduction in a world of deepening trade links rapid technological change and weakening institutions workers in rich and poor countries alike are concerned about their incomes and the security of their work in contrast to the substantial quantity of analysis on industrial countries relatively little careful work has been done on these issues in developing countries especially in the context of the recent globalization of economic relations empirical work suggests that disequalizing trends in some developing countries may have been caused by the entry of low income countries such as china into world production or by the greater quality and technological requirements of contemporary trade in goods whatever the source these results raise questions about the viability of institutional mechanisms for supporting the income security and working conditions of workers many labor market regulations are already ineffective owing to weak enforcement capabilities however in most developing countries there will be a rising fraction of workers in formal labor contracts rising demands for formal mechanisms for dealing with income insecurity and a potentially larger role for unions in an important segment of the workforce thus it is of increasing importance to set the policy and institutional framework in a fashion that is both consistent with competitive pressures and supportive of workers participation and security

mexico stabilization debt and growth mexico rudiger dornbusch mexico today is at a crossroads as the de la madrid presidency which has been dominated by the debt crisis comes to an end a number of major policy difficulties remain inflation is still a problem and the continuation of stagnation in a country where the population grows by 3 a year is clearly unsustainable the outlook for inflation is dependent on the government s ability to keep its budget under control the stabilization programme has been quite successful in this respect but the cost in terms of foregone growth is staggering the issue here is how to collect the disinflation benefits of policy restraint analysing the peculiar process of rapid inflation both in mexico and elsewhere the author calls for an incomes policy as for growth it is closely linked to the external situation mexico which triggered the debt crisis in 1982 has made remarkable progress in achieving a non interest current account surplus yet its external debt remains huge and requires a continuation of net transfers abroad the experience though is that debt service comes at the expense of productive investment and growth the author proposes to escape from the unacceptable choice between debt service and growth by adopting what he calls interest rescheduling a debt equity swap applied to interest payments rather than to the principal

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

nominal price rigidity money supply endogeneity and business cycles abstract this paper investigates the ability of nominal price rigidity to explain the co movement of inflation with the cyclical component of output observed in the post war u s data a dynamic general equilibrium model is constructed with the introduction of monopolistic competition and nominal price rigidity in a standard real business cycle model allowing for an endogenous money supply rule it is then demonstrated that sticky price models can explain the observed associations between movements in inflation and output much better than flexible price models this result depends little on whether money supply is assumed to be endogenous or not

real wages over the business cycle evidence from panel data one topic on which keynes did not disagree with classical economists was the cyclical behavior of real wages keynes 1936 as well as various classical writers predicted that real wages should move countercyclically quoting the general theory p 17 in general an increase in employment can only occur through the accompaniment of a decline in real wages thus i am not disputing this vital fact which the classical economists have rightly asserted as indefeasible this prediction is based on the premise of competition and a given short run capital stock increases in employment then correspond to more intensive use of capital and through diminishing product lower real wages for this reason evidence by dunlop 1938 and tarshis 1939 that real wages move procyclically was viewed as paradoxical both dunlop and tarshis based their findings on an observed positive correlation between real and money wages which given the procyclical movement of money wages implies a positive correlation between

inflation and labor market adjustment the implications of downward nominal and ex ante real wage rigidity and of wage contracting for the dispersion of relative wage changes in the presence of price inflation are examined rigidity implies that unexpected inflation will raise the variability of relative wage changes contracting implies unexpected inflation reduces variability using data on manufacturing industries for 1955 81 and on private nonfarm industries for1965 81 these hypotheses are studied the dispersion in relative wage cnanges is reduced by greater price inflation most of the reduction is a response to unexpected inflation expected inflation has little impact on dispersion these findings hold for subperiods within the sample and are robust to different choices of measures of price expectations including those of the livingston survey the survey research center household data and arma forecasts they stand in striking contrast to the commonly accepted result that price inflation is associated with greater dispersion of relative price changes they suggest that inflation reduces the ability of relative wages to signal disequilibria among labor markets this abstract was borrowed from another version of this item

high exchange rate volatility and low pass through abstract two specifications of an open economy model are shown to generate high exchange rate volatility and low exchange rate pass through erpt in the model price discrimination causes erpt to be incomplete in both the short and the long run in the short run a small amount of nominal rigidities is enough to reduce erpt sharply still exchange rate depreciation worsens the terms of trade consistent with the evidence possible biases from omitted variables and measurement error in the erpt empirical literature due to data limitations are investigated using model generated time series estimates of erpt coefficients can be quite different from true parameters and are sensitive to the shocks driving the economies estimates can nonetheless detect key structural features of the models

low inflation pass through and the pricing power of firms abstract recently there has been a significant decline in the degree to which firms pass through changes in costs to prices a decline that is frequently characterized as a reduction in the pricing power of firms the decline appears to be associated with the decline in inflation in many countries the decline has important implications for monetary policy because it affects both forecasts of inflation and the effects of changes in monetary policy on inflation some have argued that the decline in pricing power helped to keep inflation low in the face of apparently strong demand pressures in the united states in the late 1990s this paper puts forth the view that the decline in pass through or pricing power is due to the low inflation environment that has recently been achieved in many countries first a microeconomic model of price setting is used to show that lower pass through is caused by lower perceived persistence of cost changes evidence is then presented showing that inflation is positively correlated with persistence of inflation suggesting that the low inflation itself has caused the low pass through an economy wide model consistent with the micromodel is then presented to illustrate how such changes in pricing power affect output and inflation dynamics in favorable ways but can disappear quickly if monetary policy and expectations change

economic conditions and alcohol problems this study investigates the relationship between macroeconomic conditions and two alcohol related outcomes liquor consumption and highway vehicle fatalities fixed effect models are estimated for the 48 contiguous states over the 1975 1988 time period alcohol consumption and traffic deaths vary procyclically with a major portion of the effect of economic downturns attributed to reductions in incomes rather than employment the intake of hard liquor is the most sensitive to the state of the macroeconomy there is no evidence however that fluctuations in economic conditions have a disproportionate impact on the drunk driving of young adults

the impact of minimum wages in mexico and colombia there are diverging views about how minimum wages affect labor markets in developing countries advocates of minimum wages hold that they redistribute resources in a welfare enhancing way and can thus reduce poverty improve productivity and foster growth opponents on the other hand contend that minimum wage interventions result in a misallocation of labor and lead to depressed wages in the very sectors the rural and informal urban sectors where most of the poor are found with the effect of wasting resources and reducing the growth rate data from colombia and mexico for the 1980s provide an opportunity to evaluate the impact of minimum wages in mexico in the 1980s the minimum wage fell in real terms roughly 45 percent by 1990 mexico s minimum wage was about 13 percent of the average unskilled manufacturing wage during the same period the minimum wage in colombia increased at nearly the same rate reaching roughly 53 percent of the average unskilled wage the author charts how the mandated minimum wage affected the demand for skilled and unskilled labor in both countries during that decade findings are as follows in mexico minimum wages have had virtually no effect on wages or employment in the formal sector the main reason the minimum wage is not an effective wage for most firms or workers in the informal sector in turn there is considerable noncompliance with the mandated minimum wage especially among part time and female workers as a result significant numbers of workers are paid at or below minimum wages in colombia minimum wages have a much stronger impact on wages judging from their proximity to the average wage and both cross section and time series estimates the estimates imply that the elasticity of low paid unskilled employment with respect to minimum wages is in the range of 2 to 12 percent

new estimates of the optimal tax on alcohol in this paper i use a new data set to estimate the optimal alcohol tax rate as a benchmark the empirical results imply that the optimal tax rate is over 100 percent of the net of tax price however alcohol taxation is a second best solution to the problems associated with alcohol abuse i conclude that the optimal alcohol tax rate would be much lower if punishment for drunk driving were more certain and severe government provision of information about the health consequences of heavy drinking would also remove part of the efficiency rationale for alcohol taxes

incomes policy and wage differentials periodic incomes policies have by now become a feature of most western economies it has also become clear that there is a trade off between the features of an incomes policy that make it initially acceptable and the features that make it ultimately effective for example most british incomes policies of the 1970s have provided higher permissible proportionate wage increases for low wage than for high wage workers as we argue in section ii below the primary advantage and perhaps cause of such policies is that they can more readily secure the ex ante support of a majority of workers for any specified overall increase in the wage bill or inflation target if they are effective however such policies also result in the narrowing of wage differentials and this results in new problems some economists consider such wage equalization the inevitable cost that an economy must bear for the sake of an effective incomes policy others believe the arbitrary narrowing of wage differentials creates industrial relations problems that ultimately cause the incomes policy to fail in either case it is important to know how much equalization has been caused by the actual incomes policies and how this compares with what would have been expected from strictly adhered to policies in consequence the first and major part of this paper contains a simple analysis of the movement of differentials in britain in the last decade most incomes policies have been explicitly equalizing but how much equalization occurred compared with the equalization that would have occurred if the policies had been explicitly adhered to we show that the 1973 formula of 1 plus 4 per cent was associated with the full equalizing effect it implied but the 1975 6 a week was largely submerged in other changes and was associated with less than a third of the equalization implied by the formula indeed such mild equalization as occurred between 1975 and 1977 may be explained partly by the lower inflation rate which reduced that part of the inequality of instantaneous earnings that is caused by different groups of workers settling at different times of year against this higher unemployment may have been tending to increase inequality at the same time in 1974 threshold payments were associated with an effect of about one half of their predicted level the main force that offset the equalizing nature of the threshold formula and the 6 a week was we believe the pressure of employers bidding up the relative earnings of the more skilled workers having looked at the overall picture we then examine more closely which groups have gained and lost from recent changes in relative wages and what equalization has occurred within the different groups the groups are defined by occupation and by collective agreement our general conclusion is that however finely the labour force is subdivided equalization between groups has played a very small role in the overall equalization and the main changes

exchange rate pass through and inflation a nonlinear time series analysis abstract this paper investigates the relationship between the exchange rate pass through erpt and inflation by estimating a nonlinear time series model based on a simple theoretical model of erpt determination we show that the dynamics of erpt can be well approximated by a class of smooth transition autoregressive star models using the past inflation rate as a transition variable we employ several u shaped transition functions in the estimation of the time varying erpt to us domestic prices the estimation result suggests that declines in the erpt during the 1980s and 1990s are associated with lowered inflation

the effect of minimum wages on actual wages in formal and informal sectors in costa rica summary as in many economies wage gaps between formal and informal sectors have been persistent in costa rica using 12 years of microdata we test whether increases in minimum wages raise actual wages we find they not only raise wages in large urban and rural enterprises traditionally referred to as formal but they also raise wages of workers covered by minimum wage legislation in what are traditionally regarded as informal sectors where the legislation is often considered not to be enforced small urban and small rural enterprises furthermore minimum wages raise wages in these informal sectors more than in larger firms and hence work to reduce wage differentials between the larger and smaller firms however minimum wages have no significant impact on wages in the informal sector not covered by minimum wage legislation the self employed

a reconsideration of import substitution this paper studies the origins of an import substitution strategy of development summarizes the consequences of that strategy and reviews the problems that led to its failure the fundamental difficulty was its discouragement of the indigenous social learning necessary for sustained independent development the emergence of an outward oriented minimal government strategy is due to the success of korea and taiwan this strategy fails to recognize that social learning requires a strong role for national agents and that this role can be penalized by undue openness an effective strategy must protect and induce domestic learning without penalizing exporting

gains from anchoring inflation expectations evidence from the taper tantrum shock abstract have improvements in monetary policy frameworks increased emerging market resilience to external shocks this paper exploits the may 2013 taper tantrum episode in the united states to study the reaction of 18 large emerging markets to an external shock conditioning on their degree of inflation expectations anchoring we find that while the tapering announcement negatively affected growth prospects regardless of the level of anchoring countries with weakly anchored inflation expectations experienced larger exchange rate pass through to consumer prices and higher inflation these findings suggest that gains in inflation expectations anchoring can improve central bank s policy trade offs when facing external shocks

declining exchange rate pass through to u s import prices the potential role of global factors this paper documents a robust and sustained decline in exchange rate pass through to u s import prices from well above 0 5 during the 1970s and 1980s to around 0 2 over the last decade we attribute this decline to the rising prominence of competition from china a shift in import pricing behavior since the asian financial crisis and the reduced share of material intensive goods in u s imports we also find evidence that foreign exporters are increasingly setting their prices with an eye on u s prices these results in turn suggest a new and more general hypothesis linking the decline in pass through to the evolving nature of competition in global markets and structural changes in international production patterns

heterogeneity in the tax pass through to spirit retail prices evidence from belgium abstract on 1st november 2015 the belgian government increased the excise tax on alcoholic beverages for spirits with 40 of alcohol and bottle size of 70 cl this tax change is equivalent to an amount of 2 43 per bottle of spirits this paper studies the impact of this tax reform at the store level on the posted retail price of six major brands of spirits using a difference in differences method the estimation is based on a balanced panel of scanner data from a major supermarket chain with a 33 market share and uses the retail prices of the same brands sold in france by the same supermarket chain as a control group having information on each store location we show spatial variations in the tax pass through for homogeneous products we find that these variations are strongly related to the intensity of local competition and to a lesser extent to the proximity to the borders mainly with luxembourg which is the low price country we find that the tax was quickly passed through during the first month of tax implementation and that it was mostly over shifted however we also find that both the border and the competition effects are not instantaneous but arise several months after the tax reform these findings have important implications for alcohol control policies as they highlight that the incidence of alcohol taxation can vary greatly across space and affect differently households depending on where they live

inflation targeting and exchange rate pass through this paper analyzes how endogenous imperfect exchange rate pass through affects inflation targeting optimal monetary policies in a new keynesian small open economy the paper shows that an inverse relation exists between the pass through and the insulation of the economy from foreign and monetary policy shocks and that imperfect pass through tends to decrease the variability of the terms of trade furthermore with cpi inflation targeting in the short run delayed pass through constrains monetary policy more than incomplete pass through and interest rate smoothing amplifies this effect when the pass through decreases the variability in economic activity tends to rise and the trade off between the stabilization of cpi inflation and output worsens in direct relation to how strictly the central bank is targeting cpi inflation in contrast with domestic inflation targeting optimal monetary policy is not constrained and opposite results occur consequently imperfect pass through favors the choice of domestic to cpi inflation targeting

are alcohol tax hikes fully passed through to prices evidence from alaska on 1 october 2002 the state of alaska increased taxes on malt beverages from 0 35 per gallon to 1 07 per gallon increased taxes on wine from 0 85 per gallon to 2 50 per gallon and increased taxes on distilled spirits from 5 60 per gallon to 12 80 per gallon the net effect is that the tax on a standard serving rose from about 3 cents for beer 2 cents for wine and 4 cents for spirits to a uniform tax of 10 cents per standard serving of each type of alcohol beverage this paper uses primary data on alcoholic beverage prices in alaska to study a very basic question what was the impact of the tax hikes on prices an alcohol tax hike is often viewed as a public health policy tool to discourage excessive alcohol consumption and alcohol related problems such as drunk driving the impact of a tax hike on alcoholic beverage prices is a key link in the chain of the causality from the tax to public health economic theory and previous empirical studies mainly of taxes on goods other than alcoholic beverages do not provide very much guidance on what to expect following a tax hike it is an empirical question to answer the question i conducted telephone surveys just before and a year after the tax hike of on premise and off premise alcohol retail establishments across alaska

the role of employer employee interactions in labor market cycles evidence from the self employed self employed workers are less likely to be affected by implicit contracts efficiency wages and other forces that mute wage cyclicality and exacerbate employment cyclicality this observation motivates our comparison of the cyclical experience of the self employed with wage and salary workers who clearly have an employer we find negligible or small differences in annual hours cyclicality between the two groups but hourly wages and annual earnings are much more cyclical for the self employed these results are consistent with efficient contracting models where employers smooth workers income without causing inefficiencies in hours of work

labor markets and institutions in economic development new developments in development in the 1980 s contravened several widely held tenets about how labor markets and other institutional arrangements affect the performance of low income countries if you believe that massive urban rural earnings differentials due to urban bias plague developia new evidence will ease your concerns urban workers suffered mightily in the lost growth decade in many countries if you fear that government or union interventions in labor markets impede stabilization or structural adjustment think again countries with diverse interventions reduced real wages under the gun of economic crisis if you believe that clear property rules and privatization are necessary for rational economic behavior and transition to a market economy the decade s growth success china should challenge your priors if you fear that industrial policy is the road to disaster state interventions in taiwan korea and singapore tell a different story finally if you think that military dictatorships that suppress labor necessarily produce high income inequality the income distributions of korea and taiwan should give you pause these emerging patterns and facts run so counter to conventional views on development as to raise major doubts about the depth of our knowledge and the extent to which narrow perfect competition or political economy perspectives illuminate the growth process

the pass through of beer taxes to prices evidence from state and federal tax changes i introduction alcohol excise taxes are a common form of taxation used by the federal government and state governments alike serving the dual purpose of raising revenue and protecting the public health through reduced consumption 1 from a policy perspective it is crucial to understand how alcohol taxes are passed through to prices if higher taxes are to be levied standard economic theory predicts that taxes are at most fully passed through in a competitive market where firms are price takers however the market for beer in the united states can be best categorized as an oligopoly and beer stands out as the most prevalent type of alcohol consumed in the country 2 theories in imperfect competition suggest various possibilities of tax shifting including over and under shifting to prices in oligopolistic markets as fullerton and metcalf 2002 discuss an over shifting of tax can occur because of both the existence of market power and the strategic behavior of firms under shifting is also possible when the burden of higher taxes is shifted to labor in the form of lower wages or to other factors of production ultimately the amount of the tax pass through is an empirical question and therefore the main goal of this study is to provide new estimates of the magnitude of the beer tax pass through to prices in the united states when legislators consider changing beer taxes precise and recent estimates of the pass through rate are required to understand how the tax change will affect retail prices to our knowledge there are only a few existing studies that empirically estimate the pass through rate of alcohol taxes to prices in the united states using quarterly state level data from 1982 to 1997 young and kwapisz 2002 find that taxes on beer spirits and wine are over shifted to retail prices specifically the authors estimate that a 1 increase in the tax per barrel of beer increases the retail beer price by a range of 1 67 1 88 kenkel 2005 uses the 2002 tax hike in alaska to perform before after analyses and concludes that alcohol taxes are more than fully passed through to prices kenkel finds that the average pass through rate for off premise consumption is 2 14 2 03 and 1 57 for budweiser bud light and heineken respectively although a novel study in various ways the lack of a control group and the study s focus just on alaska raises questions regarding the external validity of the results stehr 2007 uses price data from the third quarter editions of the american chamber of commerce research association accra from 1990 to 2004 and finds that the magnitude of the pass through of beer taxes to prices is 0 94 this point estimate suggests that beer taxes are almost fully passed through to prices and a confidence interval around the estimate includes values greater than one however stehr s study only includes state and year fixed effects in the model as additional control variables and excludes other potential determinants of both alcohol prices and taxes also it is unclear as to why the study only uses the third quarter editions of accra when tax changes may occur any time during the year reflecting on the existing studies in the united states it must be emphasized that the most recent data used ends in 2004 since then the beer industry has experienced two major mergers of leading producers sabmiller and coors in 2007 followed by anheuser busch and inbev in 2008 given this restructuring within the industry new estimates of the tax pass through rate are warranted in terms of studies outside the united states bergman and hansen 2010 analyze the tax pass through rate in denmark using the liquor tax cut in 2003 the beer tax increase in 1997 and the beer tax cut in 2005 the authors find evidence of over shifting during the incidence of tax hikes and under shifting during the events of tax cuts carbonnier 2013 studies differences between the ad valorem taxes and per unit excise taxes in france and finds that the per unit excise taxes are over shifted whereas ad valorem taxes are under shifted to prices

the relation between price and marginal cost in u s industry an examination of data on output and labor input reveals that some u s industries have marginal cost well below price the conclusion rests on the finding that cyclical variations in labor input are small compared with variations in output in booms firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs the paper documents the disparity between price and marginal cost where marginal cost is estimated from annual variations in cost it considers a variety of explanations of the findings that are consistent with competition but none is found to be completely plausible

intertemporal substitution in labor supply evidence from micro data the sensitivity of the supply of labor to intertemporal variation in the wage is an important issue in macroeconomics the analysis of social security and pensions and the study of life cycle patterns of work this paper explores two approaches to the measurement of intertemporal substitution that have appeared in the literature the first approach is to use consumption to control for wealth and unobserved expectations about future wages in the labor supply equation the second approach is to estimate a first difference equation for hours in which labor supply from the previous period serves as a control for wealth and wage expectations the results indicate that intertemporal substitution elasticity for married men is positive but small

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

sticky goods prices flexible asset prices monopolistic competition and monetary policy a monetary general equilibrium asset pricing model with sticky goods prices is developed goods prices are set by monopolistically competitive firms that maximize stock market value equilibria with underutilization of resources excess capacity in some states result in contrast to previous monetary asset pricing models the degree of competition affects capacity utilization monetary policy can affect output and resource utilization in addition to real asset prices depending upon the amount of information available to the monetary authority

imperfect credibility and inflation persistence in this paper we formulate a dynamic general equilibrium model with staggered nominal contracts in which households and rms use optimal ltering to disentangle persistent and transitory shifts in the monetary policy rule the calibrated model accounts quite well for the dynamics of output and insation during the volcker disinsation and implies a sacri ce ratio very close to the estimated value our approach indicates that insation persistence and substantial costs of disinsation can be generated in an optimizing agent framework without relaxing the assumption of rational expectations or relying on arbitrary modi cations to the aggregate supply relation jel classi cation e31 e32 e52

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

has the inflation process changed does it change inflation has been low in many countries for at least a decade but have inflation processes changed in ways that would help make low inflation permanent using both aggregate and disaggregated inflation data we find that the means of inflation processes have become smaller over the past two decades and that allowing for these changes in the mean their persistence has not declined much changes in monetary policy frameworks and recessions appear to have contributed to a reduction in the mean of inflation but do not appear to have a meaningful impact on persistence and there is some evidence that the shifts in inflation expectations are the proximate cause of the changes in the mean of inflation these findings suggest that policy makers should focus on maintaining credibility and carefully monitoring inflation expectations for any indication that they are rising stephen g cecchetti and guy debelle

debt relief growth and price stability in mexico inspired by the negotiation of the foreign debt of mexico in 1989 this paper provides a framework to show that prior to debt relief an ldc government which is indebted both domestically and externally has an additional incentive not to default on its external obligations however repayment of the external debt is shown to involve a delicate tradeoff between growth and inflation on the one hand the government increases its ability to keep domestic interest rates relatively low thereby promoting investment and growth on the other hand the government worsens the budget deficit problem thereby introducing additional inflationary pressures the way to improve this tradeoff is by negotiating a debt relief operation on the foreign debt

financing vs forgiving a debt overhang abstract this paper examines the tradeoffs facing creditors of a country whose debt is large enough that the country cannot attract voluntary new lending if the country is unable to meet its debt service requirements out of current income the creditors have two choices they can finance the country lending at an expected loss in the hope that the country will eventually be able to repay its debt after all or they can forgive reducing the debt level to one that the country can repay the post 1983 debt strategy of the imf and the us has relied on financing but many current calls for debt reform call for forgiveness instead the paper shows that the choice between financing and forgiveness represents a tradeoff financing gives the creditors an option value if the country turns out to do relatively well creditors will not have written down their claims unnecessarily however the burden of debt distorts the country s incentives since the benefits of good performance go largely to creditors rather than itself the paper also shows that the tradeoff itself can be improved if both financing and forgiveness are made contingent on states of nature that the country cannot affect such as oil prices world interest rates etc

why are wages cyclical in the 1970 s this article investigates cyclicality in real wages between 1969 and 1982 using panel study of income dynamics data there is little evidence that movements in and out of the labor market induced aggregate wage cyclicality during these years however cyclicality in the movement of workers between heterogeneous labor market sectors affected aggregate wage cyclicality while sector location is important sector selectivity is not correlated with wages yet even within sectors cyclicality is present in real wages over this time period and is the result of cyclicality in overall wage levels as well as in the coefficients associated with particular worker characteristics

national television and the market for local products the case of beer information technology lowers the cost of distributing information to dispersed consumers because national firms reap larger benefits from new media than firms serving only local consumers media innovations may reduce the market for local products this paper considers the effect of television on the market for local beer using market level data on television penetration local breweries and brewery production from 1945 1960 results show that increases in television penetration are associated with fewer local breweries and less local beer production the results indicate that the industrial organization of media markets can affect the structure of markets for local products

determinants of hourly earnings in ecuador the role of labor market regulations ecuadorian labor costs are said to be high because of the existence of many mandated benefits using the 1994 living standards measurement survey we show that the effect of these benefits is actually mitigated by a reduction of base earnings that is of the foundation on which they are paid the reduction is larger in the private than in the public sector and is negligible for unionized workers we also show that in spite of mandated benefits interindustry wage differentials are comparable to those of bolivia a country characterized by flexible labor markets but otherwise similar to ecuador

consumer discrimination and self employment self employment rates and incomes differ significantly by race we show that these differentials arise in markets with consumer discrimination and incomplete information about the price of the good and the race of the seller equilibrium income distributions have two properties mean black incomes are lower than mean white incomes and the returns to ability are lower for black than for white sellers able blacks therefore are less likely to self select into the self employment sector than able whites using the 1980 census data we find that observed racial differences in the self employment income distributions are consistent with the theoretical predictions

wages and unemployment in an urban african labour market this paper argues that urban labor markets in africa exhibit a wage curve similar to those found in the united states britain canada and other developed countries drawing on data from the ivory coast the author finds that urban wages are depressed by higher levels of unemployment this result is robust to changes in model specification and level of aggregation it is consistent with the model of wage determination developed by c shapiro and j stiglitz 1984 and d blanchflower and a oswald 1995 but not with claims that urban wages are invariant to unemployment copyright 1996 by royal economic society

ownership agency and wages an examination of franchising in the fast food industry this paper estimates the difference in compensation between company owned and franchisee owned fast food restaurants the contrast is of interest because contractual arrangements give managers of company owned outlets less of an incentive to monitor and supervise employees estimates based on two data sets suggest that employee compensation is slightly greater at company owned outlets than at franchisee owned outlets the earnings gap is 9 percent for assistant and shift managers and 2 percent for full time crew workers furthermore the tenure earnings profile is steeper at company owned restaurants these findings suggest that monitoring difficulties influence the timing and generosity of compensation

some recent developments in labor economics and their implications for macroeconomics this paper reviews three recent directions of research on labor markets and the macroeconomy models of sectoral shifts and unemployment efficiency wage theories and insider outsider models of wage and employment determination sectoral shifts models show how permanent intersectoral shifts in labor demand and the slow process of labor reallocation across sectors may play an important role in explaining aggregate fluctuations efficiency wage and insider outsider models have in common the property that in equilibrium firms may pay wages in excess of market clearing these models provide potential explanations for persistent involuntary unemployment and segmented labor markets copyright 1988 by ohio state university press

implicit contracts a survey 7mplicit contracts resolve the distribution of uncertainty and utilization of specific human capital between risk averse workers and less risk averse firms incomplete contracts are required to yield involuntary layoffs in contract markets otherwise contracts are efficient and pareto optimal by construction there is a close relation between contract theory and neoclassical labor market theory contracts smooth consumption but increase the volatility of labor supply and labor utilization to demand disturbances because contractural insurance eliminates the income effects of socially diversifiable risks this result is similar to the intertemporal substitution hypothesis however the price mechanism in a contract is substantially different contracts embody a nonlinear two part pricing scheme the lump sum part allocates the income consumption consequences of risks and the marginal pricing part allocates production and labor utilization this implicit pricing mechanism is in all respects flexible though the observed average hourly wage combines both parts and may give the outward appearanceof rigidity furthermore the observed average wage rate in a contract does not reflect marginal conditions necessary for structural econometric estimation indivisibilities appear necessary to account for the split between work sharing and layoffs contracts with private information are also considered in the nonlinear pricing context this abstract was borrowed from another version of this item

implications for minimum wage policies of an s shaped labor supply curve abstract a model of family labor supply provides a rationale for raising minimum wages when the labor supply response is negative at low wages under those circumstances the labor market can be caught in a malthusian poverty trap of excess supply unemployment overextended workdays child labor and falling wages raising minimum wages may therefore help resorb this excess supply and stabilize the labor market setting a virtuous cycle in motion in a two sector context such a policy would increase wages in both the covered and uncovered sectors evidence from a study of costa rica in particular is consistent with those conclusions

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

inflation and labour market adjustment the uk experience in this paper the author considers a proposed method for testing for the presence of keynesian rigidities in the wage adjustment process but illustrates that if any other factors exist that may cause noninstantaneous wage adjustment then this method cannot be applied further he presents evidence that for the united kingdom at least a wage setting process that allows for these factors will provide a reasonable explanation of the influence of inflation on labor market adjustment over the period 1963 79 copyright 1988 by the london school of economics and political science

how international exchange technology and institutions affect workers in a world of deepening trade links rapid technological change and weakening institutions workers in rich and poor countries alike are concerned about their incomes and the security of their work in contrast to the substantial quantity of analysis on industrial countries relatively little careful work has been done on these issues in developing countries especially in the context of the recent globalization of economic relations empirical work suggests that disequalizing trends in some developing countries may have been caused by the entry of low income countries such as china into world production or by the greater quality and technological requirements of contemporary trade in goods whatever the source these results raise questions about the viability of institutional mechanisms for supporting the income security and working conditions of workers many labor market regulations are already ineffective owing to weak enforcement capabilities however in most developing countries there will be a

the myth of incomes policy in the netherlands an assessment is made about whether the dutch government conducted an effective incomes policy in the postwar period targeted wage rate development is compared with actual wage outcomes and an empirical model of wage formation is used to estimate whether wage rates were lower when the incomes policy was on it is concluded that two periods of incomes policy were effective 1955 1959 and 1980 1981 however the net effect of the policy in 1955 1959 was very moderate due to a wage explosion in 1964

efficiencies brewed pricing and consolidation in the u s beer industry merger efficiencies provide the primary justification for why mergers of competitors may benefit consumers surprisingly there is little evidence that efficiencies can offset incentives to raise prices following mergers we estimate the effects of increased concentration and efficiencies on pricing by using panel scanner data and geographic variation in how the merger of the brewers miller and coors was expected to increase concentration and reduce costs all else equal the average predicted increase in concentration led to price increases of 2 but at the mean this was offset by a nearly equal and opposite efficiency effect

minimum wage effects under endogenous compliance evidence from peru latin american labor markets feature large informal sectors in practice however the simple duality formal informal has many different shades firms tend to comply more with certain legislation than with other recent evidence has suggested that minimum wages have significant effects on the informal sector bell 1997 for mexico gindling and terrell 2004 for costa rica lemos 2004 and fajnzylver 2001 for brazil and maloney and nunez 2004 for colombia further some of this evidence suggests effects throughout a large part of the wage distribution this has been interpreted as evidence of lighthouse or numeraire effects we test this hypothesis using panel data from peru to identify effects throughout the wage distribution although there are some effects on informal sector workers overall results provide little support for numeraire or lighthouse effects labor monthly earnings are affected only at the bottom of the distribution 0 25 0 60 of the minimum wage made up mostly of informal workers and for formal workers earning between the old the new minima negative effects on the probability of retaining employed status after a minimum wage shock are either weak or non significant for wage earners below the minimum wage but significant for formal workers trapped between minima and for both formal and informal earning between 1 2 and 2 times the minimum wage independent workers earning below minimum suffer negative effects on both earnings and employment

inflation stabilization and the vanishing size wage effect the author examines wage patterns under an incomes policy in mexico in 1987 94 the policy specified increases in the minimum wage rate but also guided salary negotiations more generally the author finds indications of a substantial but largely temporary effect on wage rates and evidence consistent with more intensive monitoring of compliance in large firms than in smaller ones for example three years after policy implementation public sector wages had fallen approximately 10 relative to private sector wages and wages in the largest private firms had fallen 15 relative to those in the smallest private firms these relative wage effects are consistent with the centralized administration of the policy

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