distinguished lecture on economics in government lessons from past productivity booms the u s economy has been enjoying substantially faster productivity growth for the past eight years than it did over the preceding two decades from 1995 to 2003 labor productivity rose at an average annual rate of about 3 percent up from an average annual rate of around 1 5 percent between 1973 and 1995 in both 2002 and 2003 output per hour increased more than 4 percent the significance of the improvement since 1995 can hardly be overstated even after one takes into account the possibility that the increases of the past two years in part reflect cyclical influences and thus overstate the underlying trend if productivity were to continue to rise at an average annual rate of 3 percent the standard of living in the united states would double roughly every 24 years if on the other hand productivity growth were to revert to an average annual pace of 1 5 percent a doubling in the standard of living would occur every 47 years a number of observers argue that the present era of robust trend productivity growth will soon come to an end others contend that the potential gains to productivity from the technological advances associated with the computer revolu

railways and the local economy evidence from qingzang railway abstractthis article empirically examines the causal effect of railway infrastructure on local economic development using the construction of qingzang railway as a natural experiment we apply the difference in difference method and find that the qingzang railway significantly stimulated the economy of the counties along its path railway counties the local gdp per capita increased by about 33 after the railway had begun to operate the effect manifested primarily through the positive railway effect on the manufacturing industry in addition the effect did not vary significantly with the initial economic status of the railway counties the gdp per capita of the off railway counties that are adjacent to the railway counties was not significantly affected

procyclical labor productivity and competing theories of the business cycle some evidence from interwar u s manufacturing industries we study the phenomenon of short run increasing returns to labor srirl in a sample of 10 interwar u s manufacturing industries our main findings are that srirl was common in the interwar period and that the pattern of srirl across industries was similar to that observed in the postwar period we argue that since presumably the depression was not caused by technical regress these findings are inconsistent with the claim of real business cycle theorists that srirl is in general due to procyclical technical shocks we propose tests for discriminating between two other leading explanations of srirl but find that our conclusions differ by industry

dealing with debt abstract this paper explores the menu of options for renormalizing public debt levels relative to nominal activity in the long run should governments eventually decide to do so although debt ratios may need to rise further in some cases a vision of longer term options is key to weighing alternative medium term stabilization strategies orthodox ones the standard fare of officialdom include enhancing growth running primary budget surpluses and privatizing government assets heterodox polices include restructuring debt contracts generating unexpected inflation taxing wealth and repressing private finance advanced countries have relied far more on heterodox approaches than many observers choose to remember

when does a central bank s balance sheet require fiscal support abstract using a simple general equilibrium model we argue that it would be appropriate for a central bank with a large balance sheet composed of long duration nominal assets to have access to and be willing to ask for support for its balance sheet by the fiscal authority otherwise its ability to control inflation may be at risk this need for balance sheet support a within government transaction is distinct from the need for fiscal backing of inflation policy that arises even in models where the central bank s balance sheet is merged with that of the rest of the government

the macroeconomics of the great depression a comparative approach recently research on the causes of the great depression has shifted from a heavy emphasis on events in the united states to a broader more comparative approach that examines the interwar experiences of many countries simultaneously in this lecture i survey the current state of our knowledge about the depression from a comparative perspective on the aggregate demand side of the economy comparative analysis has greatly strengthened the empirical case for monetary shocks as a major driving force of the depression an interesting possibility suggested by this analysis is that the worldwide monetary collapse that began in 1931 may be interpreted as a jump from one nash equilibrium to another on the aggregate supply side comparative empirical studies provide support for both induced financial crisis and sticky nominal wages as mechanisms by which nominal shocks had real effects still unresolved is why nominal wages did not adjust more quickly in the face of mass unemployment this abstract was borrowed from another version of this item

the estimation of prewar gross national product methodology and new evidence the paper develops new methodology for the estimation of prewar gnp taps previously unused data sources and develops new estimates for the periods 1869 1908 and 1869 1928 primary among the new data sources are direct measures of output in the transportation communications and construction sectors and estimates of the consumer price index new measures of real gnp nominal gnp and the gnp deflator are developed the new estimates of real gnp are as volatile on average over the business cycle as the traditional kuznets kendrick series but dampen the amplitude of some cycles while raising the amplitude of others the new estimates of the gnp deflator are distinctly less volatile than the traditional series and in fact no more volatile than those in the postwar period

the nairu in theory and practice airu stands for the nonaccelerating ine ation rate of unemployment it is beyond dispute that this acronym is an ugly addition to the english language there are however two issues that fail to command consensus among economists which we address in this essay the e rst issue is whether the concept of the nairu is a useful piece of business cycle theory we believe it is and we begin this paper by attempting to explain why in our view the nairu is approximately a synonym for the natural rate of unemployment this concept follows naturally from any theory that says that changes in monetary policy and aggregate demand more generally push ine ation and unemployment in opposite directions in the short run once this short run tradeoff is admitted there must be some level of unemployment consistent with stable ine ation the second issue is why the nairu changes over time and in particular why it fell in the second half of the 1990s this question is more dife cult and the answer is open to debate most likely various factors are at work including demographics and government policies yet one hypothesis stands out as particularly promising e uctuations in the nairu appear related to e uctuations in productivity in the 1970s the nairu rose when productivity growth slowed in the 1990s the nairu fell when productivity growth sped up developing and testing models that explain the links among ine ation unemployment and productivity remains a challenge for students of business cycle theory

globalizing carbon lock in this paper extends the arguments surrounding carbon lock in elaborated in unruh energy policy 28 2000 817 30 2002 317 to countries currently undergoing industrialization it argues that for numerous reasons industrializing countries are unlikely to leapfrog carbon intensive energy development on the contrary carbon lock in may be globalizing and could further constrain climate change mitigation options it is then argued that many policy recommendations ignore carbon lock in possibly limiting their potential for successful implementation the paper then discusses four policy approaches that appear to have advantages given lock in conditions it is recognized however that relative ease of implementation does not necessarily equate with superiority instead it is merely a path dependent outcome of past development decisions pursuing policies on the basis of relative implementation ease may help address the issue of climate change but could also result in sub optimal outcomes along other dimensions of sustainable development

the absent minded driver abstract the example of the absent minded driver was introduced by piccione and rubinstein in the context of games and decision problems with imperfect recall they claim that a paradox or inconsistency arises when the decision reached at the planning stage is compared with that at the action stage though the example is provocative and worth having their analysis is questionable a careful analysis reveals that while the considerations at the planning and action stages do differ there is no paradox or inconsistency journal of economic literatureclassification numbers d81 c72

distinguished lecture on economics in government the new economy post mortem or second wind there was an acceleration of u s productivity after 1995 investment in information technology hardware and software contributed importantly to this but was not its sole cause in part heavy it investment perhaps overinvestment was the result of the booming economy and cheap capital besides it the expansion of productive firms boosted productivity together with the competitive pressure this put on other firms to innovate and improve productivity growth has been surprisingly strong in 2001 and the likely trend for the future is in the range of 2 2 to 2 7 percent a year the economy should get a second wind

measuring the benefits of a large public investment the case of the u s federal aid highway system abstract this paper presents an analysis of an important component of the benefits of federal aid highway infrastructure investments in the united states specifically it focuses on the effects of those investments since 1950 on costs and productivity of firms in the u s road freight transport industry using a theoretical and statistical model of regional truck firm costs the paper documents that the rapid growth of highway infrastructure which occured between 1950 and 1973 had a strong and positive effect on productivity growth in trucking furthermore the results indicate the benefits of these investments to be substantial large enough to justify between one third and one half of the cost of the federal aid highway system over this period on the basis of benefits to trucking alone

a non standard monetary policy shock the ecb s 3 year ltros and the shift in credit supply abstract we study the macroeconomic effects of the 3 year long term refinancing operations ltros introduced by the ecb in december 2011 with the aim of reducing the obstacles to credit supply through the mitigation of liquidity and funding risks in the euro area banking system therefore we interpret the measure as a credit supply shock which is identified both recursively and with sign restriction methods using the euro area bank lending survey bls the size of the shock due to the ltros is computed using both the april 2012 bls and the special ad hoc questions on the ltros conducted in february 2012 the counterfactual exercises suggest that the 3 year ltros lifted prospects for real gdp and loan provision to non financial corporations and increased goods prices over the next two to three years thereby avoiding a major credit crunch

the dynamo and the computer an historical perspective on the modern productivity paradox the dynamo and the computer an historical perspective on the modern productivity paradox author s paul a david source the american economic review vol 80 no 2 papers and proceedings of the hundred and second annual meeting of the american economic association may 1990 pp 355 361 published by american economic association stable url http www jstor org stable 2006600 accessed 08 12 2010 01 40

cooperation in games with forgetfulness companies and managers are apt to forget information yet classic game theory analysis assumes that all players have perfect recall this paper expands the literature by examining how introducing forgetfulness into a multiplayer game theoretic framework can help or hinder cooperative behavior we find that forgetfulness impacts the ability of firms to cooperate in countervailing directions on one hand forgetfulness can diminish the ability to punish deviators making cooperation more difficult on the other hand under some conditions forgetfulness can make meting out severe punishments even below stage minimax punishments credible and decrease the ability for players to effectively deviate facilitating cooperation even in circumstances where cooperation cannot be sustained under perfect recall we apply our model to a number of strategic games that commonly appear in the literature this paper was accepted by preyas desai marketing

the forgetful passenger when there is absent mindedness probabilities may change even when no new information becomes available a similar phenomenon occurs in general imperfect recall situations journal of economic literatureclassification numbers d81 c72

persistence of shocks and their sources in a multisectoral model of uk output growth this paper develops a multisectoral framework for the measurement of persistence of shocks to sectoral and aggregate output and provides a decomposition of the contribution of shocks from different sources to the overall persistence measure the framework is applied to u k output data distinguishing four types of macroeconomic shocks innovations in money supply growth stock returns exchange rates and oil prices among the macro shocks exchange rate shocks have the largest persistence effects on aggregate output through their effects on manufacturing sectors the contribution of the identified macro shocks to total persistence was small however compared to that of sector specific shocks copyright 1992 by royal economic society

market reactions to ecb policy innovations a cross country analysis abstract regulators have been paying increasing attention to governing and steering market fluctuations with their role in shaping the economic cycle being ever more crucial the combined effect of the financial and sovereign debt crises as well as the approach to the zero lower bound has made actions even more pressing forcing the european central bank to resort to unconventional instruments to revive the economies and counter deflationary pressures by using a combined event study and panel regression methodology we investigate whether european monetary union equity markets react heterogeneously to standard and non standard european central bank policy innovations our results show that conventional policies unevenly affect financial indices in the eurozone and hence are bound to generate asymmetries that reflect on real economies while unconventional measures albeit with different intensities exercise a homogeneous pressure on all markets our evidence highlights the beneficial impact of unconventional measures and suggests that they can play a useful role even in non crisis times

don t fool yourself to believe you won t fool yourself again abstract a possible solution to the absent minded driver problem is that the decision maker optimizes taking into account the utility he will actually have in the future and not the utility level he should have

consumer inattention and bill shock regulation for many goods and services such as electricity health care cellular phone service debit card transactions or those sold with loyalty discounts the price of the next unit of service depends on past usage as a result consumers who are inattentive to their past usage but are aware of contract terms may remain uncertain about the price of the next unit i develop a model of inattentive consumption derive equilibrium pricing when consumers are inattentive and evaluate bill shock regulation requiring firms to disclose information that substitutes for attention when inattentive consumers are sophisticated but heterogeneous in their expected demand bill shock regulation reduces social welfare in fairly competitive markets which may be the effect of the federal communication commission s recent bill shock agreement if some consumers are attentive while others naively fail to anticipate their own inattention however then bill shock regulation increases social welfare and can benefit consumers hence requiring zero balance alerts in addition to the federal reserve s new opt in rule for debit card overdraft protection may benefit consumers

does the new economy measure up to the great inventions of the past abstract during the four years 1995 99 u s productivity growth experienced a strong revival and achieved growth rates exceeding that of the golden age of 1913 72 accordingly many observers have declared the new economy to be an industrial revolution even more important than the second industrial revolution of 1860 1900 which made the golden age of productivity growth possible this paper dissects the recent productivity revival subtracts out a cyclical component and concludes that there is no revival of the productivity growth trend in the 88 percent of the private economy lying outside of the durables manufacturing sector the paper explains this surprising finding by pointing to limitations in computers and the internet in comparison with the great inventions of the past

the european sovereign debt crisis the origin and propagation of the european sovereign debt crisis can be attributed to the flawed original design of the euro in particular there was an incomplete understanding of the fragility of a monetary union under crisis conditions especially in the absence of banking union and other european level buffer mechanisms moreover the inherent messiness involved in proposing and implementing incremental multicountry crisis management responses on the fly has been an important destabilizing factor throughout the crisis after diagnosing the situation we consider reforms that might improve the resilience of the euro area to future fiscal shocks

the unconventional monetary policy of the european central bank effectiveness and transmission analysis since the beginning of the financial crisis in summer 2007 the european central bank ecb has redirected traditional monetary policy based on interest rates to an unconventional monetary policy focused on the quantitative expansion of its balance sheet in this context the present paper aims to assess the effectiveness of unconventional monetary policy instruments with regard to inflation and economic growth to this end the methodology is based on the estimation of a structural vector autoregressive model for the period 2007 q1 2018 q4 using four variables eonia the total amount of assets on the ecb s balance sheet the eurozone inflation rate and the eurozone economic growth rate the results show a slight impact of the different balance sheet policies on inflation and economic activity behaviour especially during the last year of the financial crisis the robustness of these results is supported by the estimation of the same model replacing eonia rates with shadow rates therefore the results support the existence of monetary transmission for the period during which the unconventional monetary policy was developed as well as the effectiveness of the monetary policy adopted by the ecb in its commitment to price stability

u s industry adjustment to economic deregulation conomic deregulation does not happen overnight it takes time for lawmakers and regulators to dismantle regulatory regimes and then it takes more time for the deregulated industries to adjust to their new competitive environment federal regulatory agencies and the u s congress began liberalizing pricing entry and exit in the transportation financial energy and communications industries during the mid 1970s but while some smaller industries such as intercity bus transportation and air cargo have been fully deregulated during that time the only major american industries fully deregulated to date are airlines and motor carriers as to the pace of industry adjustment consider airlines economic deregulation of the airline industry began in 1974 when the civil aeronautics board first encouraged experiments with discount fares it was completed in 1983 when all regulations on fares entry and exit were eliminated yet more than 20 years after the deregulatory process began the airline industry continues to shed inefficiencies that accumulated over decades of regulation and to find new ways to market their service indeed the airlines latest marketing innovation selling discount fares on the internet would be illegal if fares were still regulated it is not surprising that deregulated or partially deregulated industries are slow to achieve maximum efficiency when regulatory restrictions on pricing operations and entry especially from new firms have been enforced for decades managers and employees of regulated firms settle into patterns of inefficient production and missed opportunities for technological advance and entry into new markets deregulation frees an industry from the state s control over prices entry and exit although of course firms are still subject to antitrust laws and safety regulations after deregulation some costs usually fall in short order but it takes

the euro crisis the crisis in greece and other mainly southern eurozone countries has been discussed primarily as a fiscal issue current account deficits of the same countries have received less attention in spite of the relatedness of current account and fiscal deficits we argue that the failure of many countries within the eurozone to develop adequate internal adjustment mechanisms is also an important factor behind the crisis after reviewing the major perspectives that have been offered on the crisis we present data that support our argument by demonstrating the lack of price and cost convergence in the eurozone since 1999 ironically it seems that the surplus countries have carried out more of the adjustment pointed to by the endogenous optimum currency area oca theory than the deficit countries we recommend that the responsibility of a european debt surveillance authority should include surveillance of intra euro payment flows imbalances and adjustment in labour and goods markets and setting benchmarks for the eurozone guarantees of sovereign debt based on ability to adjust internally thereby a potential moral hazard problem of an implicit eurozone guarantee of countries sovereign debt could be avoided

the effectiveness of the ecb s unconventional monetary policy comparative evidence from crisis and non crisis euro area countries abstract during the european financial crisis the european central bank implemented a series of unconventional monetary policy measures we argue that these programs lowered the bond yield spreads of euro area countries this hypothesis is tested using pooled ols estimations and two different datasets monetary policy event dummies and the purchase volumes of the securities markets programme smp overall we find significantly negative effects on bond yield spreads for both datasets leading us to accept the hypothesis while the omt reduces the spreads of both crisis and non crisis countries ltros and the lowering of the deposit rate to 0 percent are mainly effective in non crisis countries the smp lowers the spreads of crisis countries but it has the opposite effect on non crisis countries this converse effect is explained by the risk that increasingly accumulates on the ecb s balance sheet through the smp and that way constitutes a fiscal risk for non crisis countries the results are confirmed by pooled ols estimations that measure the effect of unconventional monetary policy on central government debt

the inefficiency of regulating a competitive industry productivity gains in trucking following reform this study confirms the higher productivity levels predicted by advocates of regulatory reform in trucking and shows that these gains have been substantial cost simulations suggest that following a year of higher expenditures efforts to remain competitive have yielded considerable cost savings that increase over time from 1 percent in 1981 to 23 percent in 1984 the indirect effects of reform through the independent variables initially decrease costs but later lead to higher costs the cumulative effect has been a less than 1 percent increase in costs in 1980 becoming by 1984 a significant 16 percent productivity gain copyright 1990 by mit press

innovative activity over the business cycle this paper examines cyclical patterns of innovative activity in the united kingdom over the period 1948 83 innovative activity turns out to have many of the properties of a random walk but does show a tendency to cluster during booms there is clear evidence of a long term secular relation between the level of innovative activity and the level of economic activity although this may have changed in the 1980s finally the data provide no reason for thinking that these clusters of innovation cause cyclic variations in economic activity but variations in economic activity do granger cause changes in innovative activity copyright 1995 by royal economic society

announcements of ecb unconventional programs implications for the sovereign spreads of stressed euro area countries abstract this paper studies the effects of ecb communications about unconventional monetary policy operations on the sovereign spreads of greece ireland italy portugal and spain relative to germany between 2008 and 2012 more than fifty events concerning non standard operations are identified and classified with respect to the specific ecb program the empirical results suggest that the ecb announcements about unconventional monetary policies substantially reduced long term government bond yield spreads relative to german counterparts in all countries except greece particularly among the different types of measures news about the securities markets programme strongly affected the perceived sovereign risk of the five stressed euro area countries while the announcements of the outright monetary transactions seem to have a significant impact only in italy and spain

quantitative easing and unconventional monetary policy an introduction this article assesses the impact of quantitative easing and other unconventional monetary policies followed by central banks in the wake of the financial crisis that began in 2007 we consider the implications of theoretical models for the effectiveness of asset purchases and look at the evidence from a range of empirical studies we also provide an overview of the contributions of the other articles in this feature

the eurozone crisis how banks and sovereigns came to be joined at the hip the eurozone sovereign and banking crisis evolved in three phases following the onset of the subprime tremors in july 2007 the risk premia spreads on bonds issued by eurozone sovereigns rose from historically low levels but they rose largely in tandem across the eurozone membership along with global banking stresses the rescue of the us investment bank bear stearns in march 2008 oddly enough marked the start of a distinctively european banking crisis accompanied by increased differentiation of countries within the eurozone with the greater expectation of public support for distressed banks the spreads that a sovereign paid tended to rise following evidence of stress in its domestic financial sector this was especially so in countries with lower growth prospects and higher debt burdens but there was as yet no feedback from banks to sovereigns finally as the limits of fiscal support for domestic banks became clearer and coinciding with the nationalization of anglo irish in january 2009 but gathering steam with evidence of the greek sovereign s distress in may 2010 sovereign weaknesses also came to be quickly transmitted to a more pessimistic assessment of the financial sector s prospects creating the potential of mutual destabilization ashoka mody and damiano sandri