on the stability of demand for money in a developing economy some empirical issues in recent years a number of developing countries have undergone extensive reforms in the financial sector the effects of this underlying financial innovation process on the stability of demand for money have seldom been studied in the context of developing countries nevertheless these changes in the financial sector highlight the transition from one regime to the other this need necessarily follows that such a process has to be accounted for in the long run demand for money estimation here we use a three step testing procedure to study the implication of the reform process on the stability of demand for money to account for the abovementioned changes we specify the demand for money in an open economy framework using data from india an estimation procedure accounting for these changes in the specification of demand for money suggests that financial deregulation and innovation did affect the empirical stability of demand for money in india

the effect of regime shifts on the long run relationships for swedish money demand when the possibility of an unknown structural break is allowed and it is taken into account we find a significant long run relationship between swedish money demand and its determinants that is not found when no break is considered the estimated elasticities show that money demand is more responsive to its determinants in the period after the break than before possible underlying reasons for the occurrence of this break and its implications are explained

production function regressions returns to scale and externalities a number of recent papers have used simple linear regressions in an attempt to identify market structure the extent of returns to scale and possible external effects in u s manufacturing industries the results obtained from these regressions have important implications for several branches of modern macroeconomics as a result the macro literature frequently cites specific numerical evidence from caballero and lyons 1992 and hall 1990 which suggests that there are quantitatively significant increasing returns to scale or external effects in u s manufacturing in contrast it is the argument of this paper that this evidence is not convincing the most robust evidence suggests that the typical u s manufacturing industry displays constant returns with no external effects on the other hand there is significant heterogeneity across industries

tests for parameter instability in regressions with i 1 processes this article derives the large sample distributions of lagrange multiplier lm tests for parameter instability against several alternatives of interest in the context of cointegrated regression models the fully modified estimator of phillips and hansen is extended to cover general models with stochastic and deterministic trends the test statistics considered include the supf test of quandt as well as the lm tests of nyblom and of nabeya and tanaka it is found that the asymptotic distributions depend on the nature of the regressor processes that is if the regressors are stochastic or deterministic trends the distributions are noticeably different from the distributions when the data are weakly dependent it is also found that the lack of cointegration is a special case of the alternative hypothesis considered an unstable intercept so the tests proposed here may also be viewed as a test of the null of cointegration against the alternative of no cointegration the tests are applied to three data se

from flexibility to insecurity how vertical separation amplifies firm level uncertainty this article presents a model where firms may endogenously externalize part of their production process we start from the premise that adaptation to uncertainty cannot be contracted upon in the worker employer relationship vertical separation then balances flexibility gains against hold up costs of opportunistic behavior by outside contractors in equilibrium the degree of separation is shown to depend on the degree of product market competition contractor s bargaining power and the volatility of demand shocks our main result is that an increase in the degree of vertical separation amplifies the elasticity to demand shocks of firms sales and employment it does not however amplify aggregate uncertainty evidence from firm level data is shown to be largely consistent with the main implications of our theory jel l16 l23 l24

industrial specialization and the returns to labor comparative advantage and the division of labor make geographic concentration of production within a nation profitable and cause many cities to be specialized in one or a few main industries specialized cities however suffer greater unemployment risk the theory of compensating wage differentials predicts that individuals living in more specialized cities will be compensated in the form of higher wage rates we study the effects of specialization on wages and unemployment in the united states we find evidence of compensating wage differentials that firms choose to locate in more specialized higher wage cities is indirect evidence of the gains to specialization

economic reforms and long run money demand in china implications for monetary policy although money demand equations have been estimated for many western countries only recently have researchers investigated the demand for money in centrally planned economies like china chow 7 who helped pioneer the analysis of chinese macro data estimates a simple money demand function derived from the quantity theory using annual data from 1952 through 1983 he concludes that the quantity theory provides a reasonable first approximation in explaining the demand for money in china 7 325 portes and santorum 27 use real and nominal adjustment specifications and test for the homogeneity of money demand with respect to the price level and real income feltenstein and farhadian 11 estimate a money demand function based on cagan s 3 work and blejer et al 1 estimate an error correction model using data for only the 1980s both studies find that the demand for real balances is explained by real income and an opportunity cost measure

the relevance of p star analysis to uk monetary policy recent articles have attempted to restore the use of a simple measure of the money supply as an indicator of future price levels p star and to reestablish a causal link from money to prices in this paper we argue that the p star approach is flawed it is certainly more complex than traditional monetarist approaches but the fundamental questions of causality are in no way either affected or resolved we argue that the p star relationship does not have a causal link with prices but rather the causality runs from prices to money we also find that there is some causality running from money to real income so that monetary conditions do seem to have some predictive power for future levels of activity copyright 1994 by royal economic society

fiscal policy monetary targets and the price level in a centrally planned economy an application to the case of china this paper presents a planned economy monetary model of china a money supply equation links changes in broad money to government transactions evaluated at official prices the demand for real money balances by consumers equals the nominal demand for money deflated by an unobserved true price index the model explains money demand as the divergence between the then official and true price indices changes in the money supply are explained by government transactions while money demand is explained by real income and the anticipated true rate of inflation the true rate of inflation is 2 5 times the official rate copyright 1987 by ohio state university press

outsourcing and trade in a spatial world abstract this paper provides an analysis of outsourcing and trade in a spatial model a la hotelling in this setting we discuss the trade off between transport cost related disadvantages and outsourcing related production cost advantages of a large economy and we investigate how the existence of national transport costs influences both the structure of industrial production and the pattern of final goods trade in addition the model gives a rich picture of the possible welfare effects of trade liberalization in particular we show that a final goods exporting country definitely gains from economic integration while a final goods importing country may lose finally when lowering domestic outsourcing activities trade liberalization may reduce world welfare even if pro competitive effects lead to a decline in consumer prices

stability of the money demand function in asian developing countries previous studies that estimated the money demand function in asian developing countries either employed traditional estimation techniques or recently popularized cointegration technique while the first group suffers from spurious regression problems the second group interpreted their finding of cointegration as a sign of stability of estimated parameters this study after incorporating the cusum and cusumsq tests into cointegration analysis shows that in some asian countries even though real m1 or m2 monetary aggregates are cointegrated with their determinants the estimated parameters are unstable

money demand in china in the reform period an error correction model based on integration and cointegration test findings this paper constructs an error correction ecm model to evaluate the dynamic adjustment process of money demand in china in the reform period 1979 to 1990 the cointegration tests suggest that some long run relationship exists among money demand real income price and the real interest rate the ecm model shows that the dynamic adjustment process of money demand maintains stable and significant relationships to most of its determinants

externalities endogenous productivity and poverty traps abstract we present a version of the neoclassical model with an endogenous industry structure we construct a distribution of firms productivity that implies multiple steady state equilibria even with an arbitrarily small degree of increasing returns to scale while the most productive firms operate across all the steady states in a poverty trap less productive firms operate as well this results in lower average firm productivity and total factor productivity the distributions of employment by firm size across steady states are consistent with the empirical observation that poor countries have a higher fraction of employment in small firms than rich countries differences in output and total factor productivity across steady states are increasing in the degree of returns to scale the capital share and the frisch elasticity of labor supply

wage competition with heterogeneous workers and firms we study imperfect competition in the labor market when both workers and firms are heterogeneous when firms cannot observe workers skill firms pay workers equal wages but workers absorb training costs when firms can identify worker types firms pay different net wages to different workers voters select the level of general education that is financed by a lump sum tax workers are on average better off when firms can observe workers skill for a given level of general human capital but the median voter prefers a higher level of general human capital when firms cannot observe worker types

market structure and cyclical fluctuations in u s manufacturing the relevance of imperfect competition for models of economic fluctuations has received increased attention from researchers in both macroeconomics and industrial organization the authors outline a new methodology for estimating industry markups of price over marginal cost and the influence of market structure on cyclical movements in total factor productivity measures of industry concentration import competition and unionization are important for explaining markups in some industry groups much of the estimated markup of price over marginal cost is accounted for by noncapital fixed costs finally the authors show that their estimated margins fluctuate substantially over the cycle in particular markups are countercyclical especially in concentrated durable goods industries copyright 1988 by mit press

agglomeration opportunism and the organization of production abstract recent economic analysis of outsourcing has emphasized its international dimension in contrast this paper focuses on local outsourcing the paper specifies and solves a model where the organization of production vertically integrated or not and the location of production agglomerated or not are jointly determined the paper shows that agglomeration reduces opportunism a thick market effect and so serves as a substitute for integration this force will lead firms to agglomerate the paper also shows that the normative properties of equilibrium with local outsourcing are not as clear cut as for international outsourcing since local agglomeration is achieved at the cost of congestion local markets may be too thick which would not be the case for an increase in the thickness of a world market finally the many changes in economic and social circumstance that have been labeled globalization do not impact only vertically integrated firms they also impact cities and industry clusters to the extent that agglomeration is a substitute for vertical integration

compensating wage differentials and the duration of wage loss a formal model of occupational choice is developed that shows the extent to which the compensation for increased duration exceeds that for increased risk using the panel study of income dynamics linked to industry data on injuries and unemployment we find nearly all the compensating wage differential for losses due to workplace injuries is for increases in the duration of loss and similarly for losses due to cyclical unemployment the compensating differentials for risk of injury are larger for union than for nonunion workers while those for cyclical unemployment are smaller for union workers

financial development and economic growth the role of stock markets utilizing time series methods and data from five developed economies we examine the relationship between stock market development and economic growth controlling for the effects of the banking system and stock market volatility our results support the view that although both banks and stock markets may be able to promote economic growth the erects of the former are more powerful they also suggest that the contribution of stock markets on economic growth may have been exaggerated by studies that utilize cross country growth regressions

the effect of implicit contracts on the movement of wages over the business cycle evidence from micro data in this paper we address the question of whether wages are affected by labor market conditions in a manner more consistent with a contract approach than with a standard spot market model from a simple implicit contract model we derive implications about the links between wages and past labor market conditions using individual data from the current population survey and the panel study of income dynamics we find that an implicit contract model with costless mobility describes these links better than either a simple spot market model or an implicit contract model with costly mobility

cointegration how short is the long run abstract when testing for cointegration and faced with short sample periods it is common for researchers to turn to more frequently sampled observations that is to move from annual to quarterly or monthly data in order to increase the number of observations we argue that such a gain in the degrees of freedom is more apparent than real essentially cointegration is a long run concept and hence requires long spans of data to give tests for cointegration much power rather than merely large numbers of observations using monte carlo simulations we demonstrate this for four popular tests for cointegration

customer and supplier driven externalities the purpose of this paper is to provide empirical evidence helpful for distinguishing different types of externalities we pursue this by extending the productionfunction framework of robert e hall 1990 and caballero and lyons 1990 1992 to exploit two key dimensions of the data disaggregate input output relationships and differences between estimates emphasizing time series versus cross sectional aspects of the data we obtain three main results first from the within estimates using annual data which emphasize the time series properties common across sectors we find a strong reduced form relationship between industry productivity and the activity level input growth of customers in sharp contrast supplier activity levels are insignificant the second result derives from between estimates which emphasize the cross sectional dimension of the data here we find the opposite is true there is a strong reduced form relationship between industry productivity and the activity level of suppliers but no relationship with customer activity levels we interpret the first two results as suggesting that over shorter horizons the linkage between an industry and its customers is pivotal in the transmission of external effects while in the long run external effects are mostly related to intermediate goods linkages the third result concerns the transition from short to long run we find that as the number of periods over which the variables are averaged is incrementally increased from one year toward the full sample period 27 years the significance of customers versus suppliers smoothly reverses itself the remainder of the paper is organized in four sections section i presents the core model and the econometric methods for disentangling the external effects section ii describes the data and estimation section iii presents the main results and our conclusions are presented in section iv

wages implicit contracts and the business cyle evidence from canadian micro data evidence of macroeconomic conditions impacting the earnings of men in canada in a manner consistent with an implicit contracting framework is found using data from eleven cross sectional surveys spanning the years 1981 1992 the estimates are similar to those found by beaudry and dinardo 1991 using u s data their analysis is extended to incestigate whether the effects of macroeconomic conditions differ by age evidence is found that the wages of young men and men near retirement are most sensitive to changes in the macroeconomic conditions over their job tenure this abstract was borrowed from another version of this item

accounting for development through investment prices abstract cross country income gaps are large in the data can observed investment prices account for these gaps our model adds an extensive margin to the neoclassical growth model by allowing for entry of firms when combined with a returns to variety effect our model provides an amplification mechanism from investment prices to output using cross country data on relative investment prices the model can explain up to 5 to 6 fold income differences between the richest and poorest countries in our sample while simultaneously reducing the implied cross country tfp differences

monetary policy lessons of recent inflation and disinflation by 1975 most economists agreed that the money demand function in the united states was reasonably stable and could serve as a reliable basis for the formulation of monetary policy those suspicious of monetarism were on the defensive in the light of the apparently inexorable increase of m1 velocity of about three percent per year with deviations of only a few tenths of a percent experience with rising money growth and rising inflation through 1980 only confirmed monetarist views as figure 1 shows all this had changed by 1986 with disinflation in the 1980s m1 velocity departed convincingly from its 1953 79 trend the money demand function seems to have fallen apart and is apparently not a reliable basis for monetary policy after all consequently the first major section following this introduction is devoted to the decline of velocity after 1981 and the demise of the standard money demand function some authors including i believe benjamin friedman conclude that this evidence leaves us so uncertain about the nature of money demand that policymakers cannot rely at all on any presumed money demand regularities in contrast my working hypothesis is that the money demand continues to be a stable function of relatively few variables but that the interest elasticity of money demand is substantially higher than previously thought others have sought money demand explanations in terms of regime shifts but that literature will not be discussed here events have not been kind to keynesian monetary policy positions either keynesians tend to concentrate on interest rates especially real interest rates as the best guide to the effects of monetary policy on the economy the real rate is discussed

the long run stability of the demand for money italy 1861 1996 this paper examines the stability of the demand for money in italy using a newly extended data set for the period 1861 1996 we examine how the evolution of the financial system in italy and policy shifts have affected the behavior of the long run demand for money and present tests of structural stability we find the demand for broad money to be remarkably stable despite periods of considerable economic turbulence in addition we present evidence on the monetary transmission mechanism our results shed light on attempts to model long run relationships in other countries such as the uk and the us

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

outsourcing labor market pooling and labor contracts this paper considers the interaction between input sharing and labor market pooling in urban areas in particular it examines the impact of the size of a city and business risks on the organizational structures of firms located in urban agglomerations and it also discusses the impact of organizational structure on incentives to insure workers against income risks it is shown that manufacturing firms suffer from a coordination game in their decision to outsource production the existence of idiosyncratic risks causes manufacturers to refrain from outsourcing the incentives to offer wage and employment protection to workers are more pronounced when manufacturers outsource the production of their inputs to a local market which mitigates the impact of labor market pooling

the demand for broad money in the united kingdom 1878 1993 using annual data from friedman and schwartz 1982 hendry and ericsson 1991a developed an empirical model of the demand for broad money in the united kingdom over 1878 1975 we update that model over 1976 1993 accounting for changed data definitions and clarifying the concept of constancy with appropriate measures of opportunity cost and credit deregulation the model s parameters are empirically constant over the extended sample which was economically turbulent policy implications follow for parameter nonconstancy and predictive failure causation between money and prices monetary targeting deregulation and financial innovation and the effect of policy on economic agents behavior

aggregate returns to scale and embodied technical change theory and measurement using stock market data abstract we develop a new general equilibrium growth accounting framework that features increasing returns to scale imperfect competition and incorporates technological revolutions into the description of technical progress we propose a way to tell apart revolutionary changes in technology and incremental innovations using stock market data we use our framework to jointly estimate the overall embodied tfp change during 1953 1995 and the aggregate output elasticity we find that the it revolution raised the aggregate tfp level by about 20 we suggest a 1 09 1 11 range for the aggregate returns to scale

stability of money demand function revisited in china as china s economic reforms have undergone significant structural changes after 1979 it has been rather difficult to formulate a stable money demand function over the period following that year while previous literature on the long run relationship of money demand in china shows the existence of stable money demand this article revisits the stability of the china money demand function over the period after 1979 to employ the unit root tests and the cointegration tests with structural break the empirical evidence demonstrates that economic and financial deregulation did affect the stability of demand for money in china over the period 1977 to 2002 moreover the estimated long run income and interest elasticity are respectively 1 01 1 11 and 0 14 0 08 using the real m1 m2 equation in addition real income and the interest rate are found to be weakly exogenous we overall do find structural breakpoints mainly in 1980 and 1993 and they look to match clearly with corresponding critical financia

cointegration and unit roots this paper provides an updated survey of a burgeoning literature on testing estimation and model specification in the presence of integrated variables integrated variables are a specific class of non stationary variables which seem to characterise faithfully the properties of many macroeconomic time series the analysis of cointegration develops out of the existence of unit roots and offers a generic route to test the validity of the equilibrium predictions of economic theories special emphasis is put on the empirical researcher s point of view

factor mobility risk and redistribution in the welfare state economic integration reduces the costs of factor mobility producing efficiency gains and contributing to equalization of net factor returns this raises the cost of income redistribution policy thus threatening a basic function of the welfare state a simple model of costly factor mobility under uncertainty shows that greater factor mobility enables factor owners to pool industry specific region specific or occupation specific risks due to uncertain technology or terms of trade economic integration may thus reduce some of the potential social insurance benefits of redistributive policy

instability in cointegration regressions a brief review with an application to money demand in portugal this study addresses some modelling questions related to the possibility of structural change in models with nonstationary variables focusing on cointegration issues some methodological aspects are discussed attempting to integrate coherently the several steps of the modelling strategy these range from unit root to cointegration testing and to testing for instability in the cointegration vector an empirical example with portuguese data tries to illustrate the usefulness of this approach where a simple money demand function is estimated using an error correction model ecm if a break is explicitly allowed in the cointegration vector the forecasting performance of the ecm improves

urban economic theory land use and city size this book examines the economic reasons why people choose to live where they live and develops through analysis of the bid rent function a unified theory of urban land use and city size the first part of the book explicates the basic theory of urban land use and optimal city size residential location behavior of households is examined in a microeconomic framework and equilibrium and optimal patterns of residential land use are discussed the corresponding equilibrium and optimal city sizes are studied in a variety of contexts part two extends the classical theories of von thunen and alonso with the addition of externality factors such as local public goods crowding and congestion and racial prejudice the rigorous mathematical approach and theoretical treatment of the material make urban economic theory of interest to researchers in urban economics location theory urban geography and urban planning

a stable demand for money despite financial crisis the case of venezuela the demand for broad money in venezuela is investigated over a period of financial crisis and substantial exchange rate fluctuations the analysis shows that there exist a long run relationship between real money real income inflation the exchange rate and an interest rate differential that remains stable over major policy changes and large shocks the long run properties emphasize that both inflation and exchange rate depreciations have negative effects on real money demand whereas a higher interest rate differential has positive effects the long run relationship is finally embedded in a dynamic equilibrium correction model with constant parameters these results have implications for a policy maker in particular they emphasize that with a high degree of currency substitution in venezuela monetary aggregates will be very sensitive to changes in the economic environment

results of a study of the stability of cointegrating relations comprised of broad monetary aggregates abstract we find strong evidence of a stable money demand relationship for mzm and m2m through the 1990s though the m2 relation breaks down somewhere around 1990 evidence has been accumulating that the disturbance is well characterized as a permanent upward shift in m2 velocity which began around 1990 and was largely over by 1994 taken together our results support the hypothesis that households permanently reallocated a portion of their wealth from time deposits to mutual funds although this reallocation may have been induced by depository restructuring we argue that the substitution could be explained by appropriately measured opportunity cost

what determines aggregate returns to scale abstract this paper develops a unified framework that incorporates four features important in existing models with increasing returns fixed costs decreasing marginal costs product variety and market power when fixed costs are not allowed to vary and profits are imposed to be zero in every period only the degree of returns to variety determines the degree of aggregate increasing returns to scale when fixed costs respond to changes in aggregate activity or the zero profit condition does not hold in the short run aggregate returns depend not only on product variety but also on diminishing marginal costs or market power the degree of market power however does not affect input prices which are critical to determine the uniqueness of equilibrium

specialization and diversification in a system of cities abstract when do cities specialize in production and when do they diversify when do both specialized cities and diversified cities coexist what determines the size and number of cities of different types in an economy these questions are addressed in a general equilibrium model of a closed economy consisting of a system of cities the economy produces two goods which are traded within the system at no transportation costs in the context of this model the factor which leads to the formation of specialized cities is internal scale economies due to the existence of fixed cost in production whereas the reason for the formation of diversified cities is the existence of economies of joint production i e economies of scope the model presented generates three possible equilibrium configurations 1 pure specialization in which each city specialized in the production of one good 2 pure diversification in which all cities in the economy produce both goods 3 mixed system in which specialized and diversified cities coexist in the economy the conditions under which each configuration emerges are identified thus the model represents an explanation of urban hierarchy in spatial economies

local labor markets job matching and urban location we present a new way of modeling local labor markets by linking the space of workers skills and the physical space of cities the key lesson of our analysis is that firms exploit workers in these two spaces by setting wages that are below the competitive level the degree of monopsony power depends on the elasticity of the firm s labor pool which is inversely related to the costs workers incur in commuting and acquiring skills our analysis thus shows how socioeconomic ghettos emerge as workers with poor skill matches are also those who incur the highest commuting costs

does firm size matter evidence on the impact of liquidity constraints on firm investment behavior in germany abstract this paper examines the link between liquidity constraints and investment behavior for german firms of different sizes from 1970 to 1986 results indicate that medium sized firms appear to be more liquidity constrained in their investment behavior than either the smallest or largest firms in the study suggesting that the unique german infrastructure designed to assist the small firm has indeed succeeded in alleviating to some degree such liquidity constraints findings also support the hypothesis that the emerging competition and internationalism which characterized the german financial markets in the 1980s have been improving access to capital for some groups of firms

firm dynamics and markup variations implications for sunspot equilibria and endogenous economic fluctuations this paper analyzes how the interaction between firms entry and exit decisions and variations in competition gives rise to self fulfilling expectation driven fluctuations in aggregate economic activity and in measured total factor productivity tfp the analysis is based on a dynamic general equilibrium model in which net business formation is endogenously procyclical and leads to endogenous countercyclical variations in markups this interaction leads to indeterminacy in which economic fluctuations occur as a result of self fulfilling shifts in the beliefs of rational forward looking agents when calibrated with empirically plausible parameter values and driven solely by self fulfilling shocks to expectations the model can quantitatively account for the main empirical regularities characterizing postwar u s business cycles and for 65 of the fluctuations in measured tfp

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

outsourcing in a global economy we study the determinants of the location of subcontracted activity in a general equilibrium model of outsourcing and trade we model outsourcing as an activity that requires search for a partner and relationship specific investments that are governed by incomplete contracts the extent of international outsourcing depends inter alia on the thickness of the domestic and foreign market for input suppliers the relative cost of searching in each market the relative cost of customizing inputs and the nature of the contracting environment in each country