decomposing productivity growth in the u s computer industry in this paper we examine the sources of the productivity growth in the u s computer industry from 1978 to 1999 we estimate a joint production model of output quantity and quality that distinguishes two types of technological changes process and product innovations based on the estimation results we decompose total factor productivity tfp growth rate into the contributions of process and product innova tions and scale economies we find that product innovation associated with better quality accounts for about 30 of the tfp growth in the computer industry furthermore the tfp acceleration in the computer industry in the late 1990s is mainly derived from a rapid increase in product innovation

taxation in matching markets what is the impact of taxation in matching markets in matching markets because agents have heterogeneous preferences over potential partners welfare depends on which agents are matched to each other in equilibrium taxes in matching markets can generate inefficiency by changing who is matched to whom even if the number of workers at each firm is unaffected for markets in which workers refuse to match without a positive wage higher taxes decrease match efficiency however in more balanced matching markets where transfers may flow in either direction such as the student college market lowering taxes may decrease match efficiency because an agent can transfer enough to buy an inefficient partner only to be bought back when taxes are lowered further simulations show that in matching markets traditional deadweight loss estimates based on the change in taxable income can be substantially biased in either direction jel classification h20 j24 c78 d13

can producer currency pricing models generate volatile real exchange rates if the elasticities of substitution between traded and nontraded and between home and foreign traded goods are sufficiently low then the real exchange rate generated by a model with full producer currency pricing is as volatile as in the data

consumer search incomplete exchange rate pass through and optimal interest rate policy this paper studies utility maximizing monetary policy in a two country economy with consumer search frictions search frictions provide a microfoundation for incomplete exchange rate pass through and international deviations from the law of one price lop i show that optimal interest rate policy targets deviations from the lop and acts to mitigate the effect of search frictions in a quantitative setting with internationally correlated technology and preference shocks optimal policy generates positive cross country correlation of nominal interest rates

euro dollar real exchange rate dynamics in an estimated two country model an assessment abstract several theoretical contributions using two country models have combined alternative forms of pricing under nominal rigidities with different asset market structures to explain real exchange rate dynamics we estimate a two country model using data for the united states and the euro area and study the importance of such alternative assumptions in fitting the data a model with local currency pricing and incomplete markets does a good job in explaining real exchange rate volatility and fits the dynamics of domestic variables well the complete markets assumption delivers a similar fit only when the structure of shocks is rich enough

labor supply at the extensive and intensive margins the eitc welfare and hours worked some previous studies have emphasized differences between labor supply responses on the extensive margin participation and intensive margin hours worked e g james j heckman 1993 jean kimmel and thomas j kniesner 1998 recent tax and welfare policy changes provide a potentially more convincing way of identifying these responses than is available in other nonexperimental data the earned income tax credit eitc changes during the 1990 1996 period sharply altered the budget sets of single mothers over a short period of time these changes in incentives are likely to be unrelated to differences across individuals in the desire to work and thus are likely to be exogenous to labor supply decisions this lack of exogeneity is harder to claim for wage differences across people which are the main alternative source of identifying variation in addition to preference heterogeneity wages are driven by supply and demand factors that one must account for to obtain valid estimates using wage variation the eitc unequivocally encourages single parents to work at least some hours during a year because it shifts out the budget set at all positive hours points this first prediction is clearly confirmed by the data in addition theory implies that the eitc will decrease hours worked among those already working because most recipients are on the plateau or phase out portions of the credit schedule for these recipients the eitc reduces or does not affect the after tax wage while at the same time discouraging work through the income effect of the credit payment however recent hours worked patterns for eitc eligible individuals do not appear to fit this second prediction hours and weeks worked by likely recipient groups have not fallen this paper analyzes this puzzling finding building on earlier work by nada eissa and jeffrey liebman 1996 and meyer and dan t rosenbaum 1999 this study shows that nearly all of the laborsupply adjustment of single mothers occurs at the extensive margin not the intensive margin this finding raises the issue of what model features are needed to explain both participation and hours but leaves the answer to be provided in future work this finding also suggests that the large literature simulating alternative policies for low wage workers such as the eitc may be misleading because nearly all work has used models that imply similar responses on participation and hours margins

tastes and technology in a two country model of the business cycle explaining international trade on international financial markets allows people to insure country specific risk and smooth consumption intertemporally equilibrium models of business cycles with trade on global financial markets typically yield international consumption correlations near one and excessive volatility of investment the authors incorporate nontraded goods in the model and find that the implications for aggregate consumption investment and the trade balance are consistent with business cycle properties of industrialized countries however the model driven by technology shocks alone yields counterfactual implications for comovements between consumption and prices at the sectoral level taste shocks produce price quantity relationships more consistent with the data copyright 1995 by american economic association

the exchange rate pass through to import and export prices the role of nominal rigidities and currency choice abstract using both regression and var based estimates the paper finds that the exchange rate pass through to import prices for a large number of countries is incomplete and larger than the pass through to export prices previous studies have reported similar results which give rise to the puzzle that while local currency pricing is needed to account for incomplete import price pass through it would not imply a lower export price pass through recent explanations of this puzzle have emphasized markup adjustment in response to exchange rate changes this paper suggests an alternative explanation based on the presence of both producer and local currency pricing using a dynamic general equilibrium model the paper shows that a mix of producer and local currency pricing can explain the pass through evidence even with a constant markup the model can also explain the observed variability of key variables as well as the fact that the regression and var estimates tend to be similar

openness and optimal monetary policy abstract we show that the composition of international trade has important implications for the optimal volatility of the exchange rate above and beyond the size of trade flows using an analytically tractable small open economy model we characterize the impact of the trade composition on the policy trade off and on the role played by the exchange rate in correcting for price misalignments contrary to models where openness can be summarized by the degree of home bias we find that openness can be a poor proxy of the welfare impact of alternative monetary policies using input output data for 25 countries we document substantial differences in the import and non tradable content of final demand components and in the role played by imported inputs in domestic production the estimates are used in a richer small open economy dsge model to quantify the loss from an exchange rate peg relative to the ramsey policy conditional on the composition of imports we find that the main determinant of the losses is the share of non traded goods in final demand

distribution capital and the short and long run import demand elasticity the elasticity of substitution between home and foreign goods is one of the most important parameters in international economics the international macro literature which is primarily concerned with short run business cycle fluctuations assigns a low value to this parameter the international trade literature which is more concerned with long run changes in trade flows following a change in relative prices assigns a high value to this parameter this paper constructs a model where this discrepancy between the short and long run elasticities is due to frictions in distribution goods need to be combined with a local non traded input distribution capital which is good specific home and foreign goods may be close substitutes but if distribution capital is slow to adjust then agents cannot shift their consumption in the short run following a change in relative prices and home and foreign goods appear as poor substitutes in the short run in the long run this distribution capital can be reallocated and agents can shift their purchases following a change in relative prices thus the observed substitutability gets larger as time passes

the role of expenditure switching in the global imbalance adjustment abstract in theory nominal exchange rate movements can lead to expenditure switching when they generate changes in the relative prices of goods across countries this paper explores whether the expenditure switching role of exchange rates has changed in the current episode of significant global imbalances we develop a multi sector two country model for the united states and the g6 countries with the rest of the world captured by exogenous price and demand shocks and estimate the model over two sub samples which cover the periods before and after the early 1990s our results indicate that both u s imports and exports have become much less responsive to exchange rate movements in recent years mainly due to changes in firms pricing behavior and global trade pattern these findings suggest that the exchange rate would have to move by a much larger amount now than in the 1970s and 1980s to reduce the u s trade deficit by a given amount

international risk cycles abstract recent work in international finance suggests that exchange rate puzzles can be accounted for if 1 aggregate uncertainty is time varying and 2 countries have heterogeneous exposures to a world aggregate shock we embed these features in a standard two country real business cycle framework and calibrate the model to equity risk premia in low and high interest rates countries unlike traditional real business cycle models our model generates volatile exchange rates a large currency forward premium excess comovement of asset prices relative to quantities and an imperfect correlation between relative consumption growth and exchange rates our model implies however that high interest rate countries have smoother quantities equity returns and interest rates than low interest rate countries contrary to the data

the home bias in equities and distribution costs we show that incorporating distribution costs into a general equilibrium model of international portfolio choice helps to explain the home bias in international equity investment our model is able to replicate observed investment positions for a wide range of parameter values even if agents have an incentive to hedge labor income risk by purchasing foreign equity this is because the existence of a retail sector affects both the correlation of domestic returns with the domestic price level and the correlation between financial and non financial income

an examination of the equilibrium specification and structure of production for canadian telecommunications multiple output models of canadian telecommunications production are estimated under different production equilibria a specification test is conducted between the short and long run equilibrium models and the long run equilibrium is rejected in order to capture the nature of the disequilibrium a dynamic cost of adjustment model is estimated for bell canada there are significant adjustment costs and it is estimated that for 1 00 of marginal capital costs the carrier must incur an additional cost of 0 30 to install the new capital into the production process

modelling the sectoral allocation of labour in open economy models indivisible labour is not the only type of nonconvexity affecting labour supply decisions another type of nonconvexity arises in economies with sectors whenever individuals can work in only one sector at a time i introduce this restriction into an open economy model with a tradeable and a nontradeable sector and i use lotteries to convexify the consumption possibilities set this approach implies that the aggregate elasticity of labour supply becomes infinite i compare the performance of the model with an analogous model in which the labour supply elasticity is finite i find that the infinite labour supply elasticity helps explain the persistence of net exports however all the other consequences of the labour supply elasticity for the model implied second order moments depend on whether the pricing assumption is producer currency pricing pcp or local currency pricing lcp

testing for indeterminacy an application to u s monetary policy reply this paper considers a prototypical new keynesian model in which the equilibrium is undetermined if monetary policy is passive the likelihood based estimation of dynamic equilibrium models is extended to allow for indeterminacies and sunspot fluctuations we construct posterior weights for the determinacy and indeterminacy region of the parameter space and estimates for the propagation of fundamental and sunspot shocks according to the estimated model u s monetary policy post 1982 is consistent with determinacy whereas the pre volcker policy is not we find that before 1979 indeterminacy substantially altered the propagation of shocks

openness imperfect exchange rate pass through and monetary policy abstract this paper analyses the implications of imperfect exchange rate pass through for optimal monetary policy in a linearised open economy dynamic general equilibrium model calibrated to euro area data imperfect exchange rate pass through is modelled by assuming sticky import price behaviour the degree of domestic and import price stickiness is estimated by reproducing the empirical identified impulse response of a monetary policy and exchange rate shock conditional on the response of output net trade and the exchange rate it is shown that a central bank that wants to minimise the resource costs of staggered price setting will aim at minimising a weighted average of domestic and import price inflation

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

the yield curve in a small open economy abstract long term nominal interest rates in a number of inflation targeting small open economies have tended to be strongly correlated with those of the united states this observation has recently led support to the view that in these economies the long end of the yield curve has decoupled from its short end and naturally to a concern that monetary policy may have lost some of its autonomy we set up and estimate a two country small open economy model in which the expectations hypothesis and uncovered interest rate parity hold to study the co movement of long term nominal interest rates of different currencies we show that differences in the persistence of domestic and foreign disturbances a hypothesis for which we find support in recent data can explain the observed pattern of correlations these correlations are not evidence of weaker monetary policy

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

new directions for stochastic open economy models the paper develops a simple stochastic new open economy macroeconomic model based on sticky nominal wages explicit solution of the wage setting problem under uncertainty allows one to analyze the effects of the monetary regime on welfare expected output and the expected terms of trade despite the potential interplay between imperfections due to sticky wages and monopoly the optimal monetary policy rule has a closed form solution to motivate our model we show that observed correlations between terms of trade and exchange rates are more consistent with our traditional assumptions about nominal rigidities than with a popular alternative based on local currency pricing 2000 elsevier science b v all rights reserved

the taxation of superstars how are optimal taxes affected by the presence of superstar phenomena at the top of the earnings distribution to answer this question we extend the mirrlees model to incorporate an assignment problem in the labor market that generates superstar effects perhaps surprisingly rather than providing a rationale for higher taxes we show that superstar effects provide a force for lower marginal taxes conditional on the observed distribution of earnings superstar effects make the earnings schedule convex which increases the responsiveness of individual earnings to tax changes we show that various common elasticity measures are not sufficient statistics and must be adjusted upwards in optimal tax formulas finally we study a comparative static that does not keep the observed earnings distribution fixed when superstar technologies are introduced inequality increases but we obtain a neutrality result finding tax rates at the top unaltered

estimating labour supply responses using tax reforms the 1980 s tax reforms and the changing dispersion of wages offer one of the best opportunities yet to estimate labor supply effects nevertheless changing sample composition aggregate shocks the changing composition of the tax paying population and discontinuities in the tax system create serious identification and estimation problems we develop grouping estimators that address these issues our results reveal positive and moderately sized wage elasticities we also find negative income effects for women with children

optimal linear income taxation in models with occupational choice the purpose of this paper is to investigate the implication of occupational choice for linear income taxation occupational choice is restricted to entrepreneurship versus wage earning different settings are considered concerning the introduction of uncertainty and that of individuals heterogeneity in ability or risk aversion for each setting an optimal tax formula is derived and shown to be made up of various components pertaining to insurance redistribution and efficiency

the effects of exports technical change and markup on total factor productivity growth evidence from singapore s electronics industry abstract this paper illustrates a new technique to measure the effect of export demand on the conventional tfp growth index at the industry level we apply the technique to singapore s electronics industry and find that rapid growth in exports accounts for most of the tfp growth in this industry

on the benefits of a monetary union does it pay to be bigger this paper revisits the question of the appropriate domain of a currency area using a new keynesian open economy model in which the world is split into two areas each framed as a continuum of small open regions we show that the adoption of a common currency like the euro can be beneficial for the members of the monetary union since the spill over effects generated by the inflationary policies of the small open economies are likely to outweigh the costs of not tailoring monetary policy to country specific shocks we also show that while the enlargement of the monetary union to another group of small open economies can bring about welfare gains for all countries involved monetary integration of two large economies such as the euro area and the u s will not these findings can help to rationalize the process of the creation and enlargement of multi country currency areas like the eurozone

on the effectiveness of private and public capital this study assesses the effectiveness of private and public capital investments in the performance of manufactures within the framework of the duality theory the response of costs of production and input utilization to changes in the stocks of private and public capital is measured by the appropriate elasticities obtained from a cost function instead of considering private capital either as a variable or fixed input on a priori grounds its nature is checked that is the study discriminates between a long and a short run situation the empirical exercise is made for the manufacturing industries in the spanish regions

stability and competitive equilibrium in trading networks we introduce a model in which agents in a network can trade via bilateral contracts we find that when continuous transfers are allowed and utilities are quasi linear the full substitutability of preferences is sufficient to guarantee the existence of stable outcomes for any underlying network structure furthermore the set of stable outcomes is essentially equivalent to the set of competitive equilibria and all stable outcomes are in the core and are efficient by contrast for any domain of preferences strictly larger than that of full substitutability the existence of stable outcomes and competitive equilibria cannot be guaranteed

a rank ordered logit model with unobserved heterogeneity in ranking capabilities in this paper we consider the situation where one wants to study the preferences of individuals over a discrete choice set through a survey in the classical setup respondents are asked to select their most preferred option out of a selected set of alternatives it is well known that in theory more information can be obtained if respondents are asked to rank the set of alternatives instead in statistical terms the preferences can then be estimated more e ciently however when individuals are unable to perform part of this ranking task using the complete ranking may lead to a substantial bias in parameter estimates in practice one usually opts to only use a part of the reported ranking in this paper we introduce a latent class rank ordered logit model in which we use latent segments to endogenously identify the ranking capabilities of individuals each segment corresponds to a difierent assumption on the ranking capability using simulations and an empirical application we show that using this model for parameter estimation results in a clear e ciency gain over a multinomial logit model in case some individuals are able to rank at the same time it does not sufier from biases due to ranking inabilities of some of the respondents

inattentive consumers and international business cycles this paper presents and studies the properties of a sticky information exchange rate model where consumers and producers update their information sets infrequently introducing inattentive consumers has important implications through a mechanism resembling the limited participation models exchange rate volatility observed in the data can be addressed for reasonable values of risk aversion the model generates more persistence in output consumption and employment which brings us closer to the data impulse responses to monetary shocks are hump shaped consistent with the empirical evidence forecast errors of inattentive consumers provide a channel to reduce the correlation of relative consumption and real exchange rate the decline in the correlation is quantitatively small for our benchmark model model generates a substantial amount of consumer forecast errors when producers are attentive and productivity shocks are persistent this specification results in a large decline of the correlation of real exchange rate and relative consumption due to consumer inattentiveness when trade elasticity is set to values at the low end of macro estimates or at higher values consistent with sectoral estimates the correlation is in the negative territory with inattentive consumers

do central banks respond to exchange rate movements some new evidence from structural estimation l auteure etudie l incidence des mouvements du taux de change sur la conduite de la politique monetaire en australie au canada en nouvelle zelande et au royaume uni elle elabore et estime un modele structurel d equilibre general a deux secteurs dans lequel les prix et les salaires sont rigides et les variations du taux de change se repercutent de facon limitee

ramsey policies in a small open economy with sticky prices and capital this paper analyzes jointly optimal fiscal and monetary policies in a small open economy with capital and sticky prices we allow for trade in consumption goods under perfect international risk sharing we consider balanced budget fiscal policies where authorities use distortionary taxes on labor and capital together with monetary policy using the nominal interest rate first as long as a symmetric equilibrium is considered the steady state in an open economy is isomorphic to that of a closed economy second whereas sticky prices allocations are almost indistinguishable from flexible prices allocations the open economydimension delivers results that are qualitatively similar to those of a closed economy but with significant quantitative changes fluctuations in terms of trade implied by complete international financial markets affect i consumption through changes in the consumption price index cpi ii hours through changes in the cpi based real wage and iii capital accumulation through the relative price of capital goods these wedges affect the volatility and persistence of optimal tax rates and resulting allocations are quite different as compared to a closed economy

insulation impossible monetary policy and regional debt spillovers in a federation this paper studies the effects of monetary policy in the presence of debt spillovers within a monetary union when capital markets are integrated the fiscal policy of any member country will generally influence equilibrium wages and interest rates across the whole union we ask whether there exists a monetary policy which can offset these spillovers within a general class of monetary policy rules there does not exist one that completely insulates agents in one region from fiscal policy in the other these debt spillovers will affect welfare through two channels intertemporal efficiency and redistribution

who marries whom and why this paper proposes and estimates a static transferable utility model of the marriage market the model generates a nonparametric marriage matching function with spillover effects it rationalizes the standard interpretation of marriage rate regressions and points out its limitations the model was used to estimate u s marital behavior in 1971 72 and 1981 82 the marriage matching function estimates show that the gains to marriage for young adults fell substantially over the decade unlike contradictory marriage rate regression results the marriage matching function estimates showed that the legalization of abortion had a significant quantitative impact on the fall in the gains to marriage for young men and women

technical change markup divestiture and productivity growth in the u s telecommunications industry this paper examines the sources of productivity growth for the u s telecommunications industry from 1935 to 1987 these years encompass both the pre and post at t divestiture periods we formulate a structural model that accounts for both changes in the cost and the demand side of the industry we measure the contributions of aggregate demand information intensity of the economy price cost margins relative factor prices direct and indirect effects of technological progress and r d investment on total factor productivity tfp growth rate we show that tfp growth rate as conventionally measured is a seriously biased measure of rate of technical change in this industry

border prices and retail prices abstract we analyze retail prices and at the dock import prices of specific items in the bureau of labor statistics bls cpi and ipp databases using both databases simultaneously to identify items that are identical in description at the dock and when sold at retail this identification allows us to measure the distribution wedge associated with bringing traded goods from the point of entry into the united states to their retail outlet we find that overall u s distribution wedges are 50 70 around 10 to 20 percentage points higher than that reported in the literature we discuss the implications of this for measuring the size of the pure tradeables sector exchange rate pass through and real exchange rate determination we find that distribution wedges are very stable over time but there is considerable variation across items there is some variation across the country of origin for the imported item for our major trading partners but not as much as the cross item variation we also investigate the determinants of distribution wedges finding that wedges do not vary systematically with exchange rates but are related to other features of the micro data

the cause of an integral correction mechanism of the real exchange rate abstract i find that rabanal and rubio ramirez 2015 s international real business cycle model can explain an integral correction mechanism of the real exchange rate an input adjustment cost in their model implies that the real exchange appreciates following a positive domestic productivity shock and reverts to steady state quickly but presents a long run cyclical movement these particular dynamics help explain the ppp puzzle

the evolution of price dispersion in the european car market car prices in europe are characterized by large and persistent differences across countries the purpose of this paper is to document and explain this price dispersion using a panel data set extending from 1980 to 1993 we first demonstrate two main facts concerning car prices in europe i the existence of significant differences in quality adjusted prices across countries with italy and the u k systematically representing the most expensive markets 2 substantial year to year volatility that is to a large extent accounted for by exchange rate fluctuations and the incomplete response of local currency prices to these fluctuations these facts are analysed within the framework of a multiproduct oligopoly model with product differentiation the model identifies three potential sources for the international price differences price elasticities generating differences in markups costs and import quota constraints local currency price stability can be attributed either to the presence of a local component in marginal costs or to markup adjustment that is correlated with exchange rate volatility the latter requires that the perceived elasticity of demand is increasing in price we find that the primary reason for the higher prices in italy is the existence of a strong bias for domestic brancs that generates high markups for the domestic firm fiat in the u k higher prices are mainly attributed to better equipped cars and or differences in the dealer discount practices the import quota constraints are found to have a significant impact on japanese car prices in italy france and the u k with respect to local currency price stability a large percentage of the documented price inertia can be attributed to local costs and a smaller fraction to markup adjustment that is indicative of price discrimination based on these results we conjecture that the emu will substantially reduce the year to year volatility observed in the car price data but without further measures to increase european integration it will not completely eliminate existing cross country price differences

state dependent pricing local currency pricing and exchange rate pass through this paper presents a two country dsge model with state dependent pricing as in dotsey et al 1999 in which firms discriminate across countries by setting prices in local currency in this model a domestic monetary expansion has greater spillover effects to foreign prices and foreign economic activity than an otherwise identical model with time dependent pricing in addition the predictions of the state dependent pricing model match the business cycle moments better than the predictions of the time dependent pricing model when driven by monetary policy shocks

optimal labour taxation and search abstract this paper explores the optimal role of the tax system in alleviating labour market imperfections and raising revenue for this purpose the standard search model of the labour market is extended by introducing scarce entrepreneurial talent and arbitrage between the supply and demand sides of the labour market we study how these extensions affect the following two major implications of the standard model 1 only the ad valorem component of the wage tax should be employed to raise revenue 2 the optimal tax system should not distort labour market tightness

deep habits and exchange rate pass through abstract habit persistence at the level of individual goods varieties can explain incomplete exchange rate pass through to international prices deep habits give rise to a dynamic import demand function that leads to import price markup adjustments independently of nominal pricing frictions augmenting a two country dsge model with deep habits we obtain low exchange rate pass through to import prices even when nominal local currency price rigidities are negligibly low as nominal pricing frictions become more important the presence of deep habits further impedes the pass through of exchange rate fluctuations estimating model variants with limited information as well as full information methods we find that the deep habits model requires much lower degrees of nominal price rigidities to match empirical measures of the pass through of exchange rate fluctuations to us import prices

optimal income transfer programs intensive versus extensive labor supply responses this paper analyzes optimal income transfers for low incomes labor supply responses are modeled along the intensive margin intensity of work on the job and along the extensive margin participation into the labor force when behavioral responses are concentrated along the intensive margin the optimal transfer program is a classical negative income tax program with a substantial guaranteed income support and a large phasing out tax rate however when behavioral responses are concentrated along the extensive margin the optimal transfer program is similar to the earned income tax credit with negative marginal tax rates at low income levels and a small guaranteed income carefully calibrated numerical simulations are provided

intertemporal dependence impatience and dynamics abstract this paper develops simple geometric methods for analyzing consumer behavior under recursive but intertemporally dependent tastes since the preferences studied need not be time additive they allow the marginal utility of consumption on a given date to vary with consumption on other dates intertemporal dependence is induced by the presence of a variable individual rate of time preference the optimal consumption responses to transitory and anticipated changes in incomes and interest rates are easily derived and are similar in many respects to the responses implied by the standard constant time preference model intuitive explanations of the first order conditions describing optimal paths are provided

revisiting the exchange rate pass through a general equilibrium perspective abstract a large literature estimates the exchange rate pass through to prices erpt using reduced form approaches whose results are an important input for central banks we show two shortcomings of these empirical measures for monetary policy analysis which are quantitatively important and may lead to imprecise and biased inflation predictions first while the literature describes a single erpt which we will label unconditional there are different erpt conditional on each shock that hits the economy second these crucially depend on expected monetary policy so that empirical erpt measures should not be taken as given in evaluating policy actions we use a simple model of a small and open economy to understand the intuition behind these two critiques showing that these results seem to hold under many alternative specifications we then highlight the quantitative relevance of these distinctions using a large scale dsge model of a small open economy

redistributive taxation in the roy model we consider optimal redistribution in a model where individuals can self select into one of several possible sectors based on heterogeneity in a multidimensional skill vector we show that when the government does not observe the sectoral choice or underlying skills of its citizens the constrained pareto frontier can be implemented with a single non linear income tax we derive formulas for this optimal tax schedule if sectoral inputs are complements a many sector model with self selection leads to optimal income taxes that are less progressive than the corresponding taxes in a standard single sector model under natural conditions however they are more progressive than in a multi sector model without occupational choice or without overlapping wage distributions as in stiglitz 1982

exchange rates and traded goods prices abstract this paper presents a partial equilibrium model of the determination of domestic and export prices by a monopolistic competitive firm the model stresses the role of exchange rate uncertainty and expectations the most important result of the analysis is that the stochastic properties of deviations from the law of one price are crucially affected by the currency of denomination of export prices using data on domestic and dollar export prices of japanese goods i find that deviations from the law of one price are due to exchange rate surprises but also to price staggering and ex ante price discrimination

causes of nonlinearities in low order models of the real exchange rate abstract this paper investigates the extent to which modern dsge models which feature local currency pricing home bias nontraded goods and incomplete markets can generate nonlinear real exchange rate dynamics that are consistent with those found in the time series literature using data from the current floating period our key findings are as follows first if the true model can be appropriately characterized as a set of linear equations then linearity tests that utilize univariate autoregressions of the real exchange rate suffer from an omitted variables problem which leads them to overestimate the true incidence of nonlinearity consequently studies that fail to control for this problem may spuriously find evidence of nonlinearities in the data despite the fact that the data generating process may be linear second we propose a strategy that can largely eliminate this distortion finally we find that dsge models solved using higher order approximations are capable of generating true structural nonlinearities in real exchange rates both asymptotically and in short samples

brics how important is the exchange rate pass through this paper analyses the exchange rate pass through erpt into domestic consumer prices in brics brazil russia india china and south africa countries from mid 1990s onwards by using three different econometric approaches i e the single equation approach the var approach and the time varying parameter approach it is also studied the role of macroeconomic determinants in erpt our results suggest that a erpt is higher for the emerging markets with mostly floating exchange rates brazil russia and south africa than for the other brics countries b exchange rate explains on average around the 40 of the price variance for brazil russia and south africa and c inflation volatility exchange rate volatility and openness seem to be the key macroeconomic determinants in brics countries

matching with contracts we develop a model of matching with contracts which incorporates as special cases the college admissions problem the kelso crawford labor market matching model and ascending package auctions we introduce a new law of aggregate demand for the case of discrete heterogeneous workers and show that when workers are substitutes this law is satisfied by profit maximizing firms when workers are substitutes and the law is satisfied truthful reporting is a dominant strategy for workers in a worker offering auction matching algorithm we also parameterize a large class of preferences satisfying the two conditions

taxation and the allocation of talent taxation affects the allocation of talented individuals across professions by blunting material incentives and thus magnifying nonpecuniary incentives of pursuing a calling estimates from the literature suggest that high paying professions have negative externalities whereas low paying professions have positive externalities a calibrated model therefore prescribes negative marginal tax rates on middle class incomes and positive rates on the rich the welfare gains from implementing such a policy are small and are dwarfed by the gains from profession specific taxes and subsidies these results depend crucially on externality estimates and labor substitution patterns across professions both of which are very uncertain given existing empirical evidence

goods prices and exchange rates what have we learned import prices typically change by a smaller proportion than the exchange rate between the exporting and importing country recent research indicates that common currency relative prices for similar goods exported to different markets are highly correlated with exchange rates between those markets this evidence suggests that incomplete pass through is a consequence of third degree price discrimination while distance matters for market segmentation borders have independent effects the source of the border effect has not been clearly identified furthermore there is little evidence yet to suggest substantial market power is implied by the observed price discrimination

tax avoidance and the deadweight loss of the income tax traditional analyses of the income tax greatly underestimate deadweight losses by ignoring its effect on forms of compensation and patterns of consumption the full deadweight loss is easily calculated using the compensated elasticity of taxable income to changes in tax rates because leisure excludable income and deductible consumption are a hicksian composite good microeconomic estimates imply a deadweight loss of as much as 30 of revenue or more than ten times harberger s classic 1964 estimate the relative deadweight loss caused by increasing existing tax rates is substantially greater and may exceed 2 per 1 of revenue

volatility and persistence of simulated dsge real exchange rates abstract we investigate the time series properties of both filtered and unfiltered real exchange rate series produced by dsge models that feature local currency pricing home bias nontraded goods and incomplete markets detrended series produced by several specifications approach the empirically observed volatility although none of the models generates enough persistence conversely several models produce unfiltered series that possess the same degree of persistence as the data but none can match its volatility

accounting for incomplete pass through recent theoretical work has suggested a number of potentially important factors in causing incomplete pass through of exchange rates to prices including markup adjustment local costs and barriers to price adjustment we empirically analyze the determinants of incomplete passthrough in the coee industry the observed pass through in this industry replicates key features of pass through documented in aggregate data prices respond sluggishly and incompletely to changes in costs we use microdata on sales and prices to uncover the role of markup adjustment local costs and barriers to price adjustment in determining incomplete pass through using a structural oligopoly model that nests all three potential factors the implied pricing model explains the main dynamic features of short and long run pass through local costs reduce long run pass through by a factor of 59 relative to a ces benchmark markup adjustment reduces pass through by an additional factor of 33 where the extent of markup adjustment depends on the estimated super elasticity of demand the estimated menu costs are small 0 23 of revenue and have a negligible eect on long run pass through but are quantitatively successful in explaining the delayed response of prices to costs we nd that delayed passthrough in the coee industry occurs almost entirely at the wholesale rather than the retail level

on the international transmission of technology shocks abstract using vector autoregressions on u s time series and an aggregate of industrialized countries we find that technology shocks appreciate the terms of trade and lower the trade balance they induce an s shaped cross correlation function for both variables the s curve in calibrating a prototypical international business cycle model under complete and incomplete financial markets we find two distinct sets of parameter values while both model specifications deliver the s curve the underlying transmission mechanism of technology shocks is fundamentally different most importantly only in the incomplete markets economy the terms of trade appreciate and thus amplify the relative wealth effects of technology shocks as suggested by the evidence

step away from the zero lower bound small open economies in a world of secular stagnation abstract we study how small open economies can escape from deflation and unemployment in a situation where the world economy is permanently depressed building on the framework of eggertsson et al 2016 we show that the transition to full employment and at target inflation requires real and nominal depreciation of the exchange rate however because of adverse income and valuation effects from real depreciation the escape has a beggar thy self effect that may end up lowering welfare while eliminating underemployment we show that as long as the economy remains financially open domestic asset supply policies or reducing the effective lower bound on policy rates may be ineffective or even counterproductive however closing domestic capital markets does not necessarily enhance the monetary authorities ability to rescue the economy from stagnation

the effects of progressive income taxation on job turnover abstract we examine whether the level of the income tax rate and the convexity of the income tax schedule affect job mobility as measured by moving to a better job while the predicted effect of the level of the tax rate is ambiguous we predict that an increase in the convexity of the tax schedule decreases job search activity by taxing away some of the benefits of a successful job search using data from the panel study of income dynamics we estimate that both higher tax rates and increased tax rate progressivity decrease the probability that a head of household will move to a better job during the coming year our estimates imply that a five percentage point reduction in the marginal tax rate increases the average probability of moving to a better job by 0 79 percentage points a 8 0 increase in the turnover propensity and that a one standard deviation decrease in our measure of tax progressivity would increase this probability by 0 86 percentage points a 8 7 increase in the turnover propensity this estimate is robust to sensitivity analysis examining the importance of different sources of identification and variation in estimated effects across subgroups in the population our estimated importance of tax policy for job turnover suggests a potential role in explaining the responsiveness of taxable income to marginal tax rates

expectations and exchange rate dynamics a state dependent pricing approach abstract this paper presents a two country dsge model with state dependent pricing as in dotsey et al dotsey m king r g and wolman a l 1999 state dependent pricing and the general equilibrium dynamics of money and output quarterly journal of economics 114 655 690 and variable demand elasticity as in kimball kimball m s 1995 the quantitative analytics of the basis neomonetarist model journal of money credit and banking 27 1241 1277 following a domestic monetary expansion the model predicts i positive hump shaped responses of domestic output and consumption ii positive spillover effects on foreign output and consumption iii a high international output correlation relative to consumption correlation iv a delayed increase in domestic and foreign inflation v a delayed nominal exchange rate overshooting vi a deterioration in the terms of trade and vii a j curve in the trade balance the model matches the impulse responses from an identified var more closely than an otherwise identical model with time dependent pricing

international comparisons of pricing to market behavior this paper measures the degree of price discrimination across export destinations that is associated with exchange rate changes using u s u k german and japanese industry level data given the industries sampled more price discrimination across destinations is observed in the u k german and japanese data for industries that match across source countries however behavior is very similar across source countries furthermore destination specific price adjustment on exports to the united states from germany and japan is similar to price adjustment observed on shipments to other destinations most variation in the data appears to be related to industry copyright 1993 by american economic association