duopoly supergames with product differentiation abstract when goods are complements or very close substitutes more tacit collusion is supported by trigger strategies in price setting supergames than in quantity setting supergames for moderate or poor substitutes the situation is reversed this contrasts with the static situation where price setting strategies always lead to higher welfare

public employment and the business cycle we add a public employment sector to the basic search and matching model in order to study the business cycle impact of public wage and employment policies the government is assumed to follow exogenous rules for public wages and employment calibrated to match some cyclical features of us policies these features include a positive public wage premium and mildly procyclical public wages and employment we find that the presence of the public sector increases the volatility of employment and output

the quantitative analytics of the basic neomonetarist model this paper constructs a dynamic macroeconomic model with less than perfect price flexibility which has a classical side consistent with real business cycle theory augmented by investment adjustment costs increasing returns to scale and a new flexible formalization of imperfect competition something akin to the classical dichotomy is justified by a mode of approximation appropriate for a model in which one state variable adjusts quickly while another state variable adjusts slowly even with investment adjustment costs monetary expansions are found to raise the real interest rate the determinants of real rigidity and the macroeconomic rate of price adjustment are investigated copyright 1995 by ohio state university press

tracing the causes of the banking crisis we add the bernanke gertler gilchrist model to a modified version of the smets wouters model of the u s in order to explore the causes of the banking crisis the innovation of this article is estimating the model using unfiltered data allowing for non stationary shocks in order to replicate how the model predicts the crisis we find that traditional shocks account for most of the fluctuations in macroeconomic variables the non stationarity of the productivity shock plays a key role crises occur when there is a run of bad shocks based on this sample they occur on average once every 64 years and when they occur around 10 are accompanied by financial crisis financial shocks on their own even when extreme do not cause crises provided the government acts swiftly to counteract such a shock as happened in this sample

collusion in differentiated duopolies revisited abstract in a letter previously published in this journal rothschild 1992 rothschild r 1992 on the sustainability of collusion in differentiated duopolies economics letters 40 33 37 claims to obtain results in contrast with those obtained by deneckere 1983 deneckere r 1983 duopoly supergames with product differentiation economics letters 11 37 42 we show however that taking correctly into account non negativity constraints on output rothschild s formulation yields the same conclusions as deneckere s

economic welfare in delivered pricing duopoly bertrand and cournot abstract we investigate two delivered pricing models we find that in the bertrand cournot model the equilibrium distance between two firms locations is too large small for maximum social welfare while it is too small for maximum consumer surplus in both models

cyclical effects of government s employment and goods purchases distinguishing between the goods purchase and employee compensation components of government spending is important shocks to government goods purchases and shocks to government employment have the opposite effects on private output private employment and private investment moreover with this distinction in place quantitative analysis reveals that government spending is no longer a significant driving source of the u s business cycle on the contrary the components of government spending are procyclical in the u s data primarily because of their positive responses to the output fluctuations generated by technology shocks copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

working wives and expenditure on services the major focus of this research is the relationship between a wife s employment and expenditure on time saving services multiple regression analysis of data from the 1972 1973 consumer expenditure survey indicates that two measures of the extent of a wife s participation in the labor force were influential in determining monetary outlay on services that are expected to be sensitive to the value of time other factors such as family income education and stage of the family life cycle also exert an impact on expenditure findings indicate that family expenditure on services is a complex process influenced by many factors besides a wife s employment

fiscal policy in unionized labor markets abstract this paper investigates the effects of fiscal policy on economic activity public finances welfare and income distribution in a dynamic general equilibrium model with a unionized labor market the paper shows that debt financed increases of public employment wages of public sector employees unemployment benefits and labor taxes put pressure on unions wage claims leading to higher private sector wages lower employment capital and output in addition increases of public employment public wages and unemployment benefits increase workers utility relative to the pre policy change equilibrium during the transition but not in the long run instead workers utility decreases at any time horizon when labor taxes increase capitalists always benefit from increases in taxes on labor but their welfare decreases when public spending goes up finally the paper investigates the extent to which the way the government balances its budget affects these results

how economic contractions and expansions affect expenditure patterns in this study we attempt to understand how household budget allocations across various expenditure categories change when the economy is in recession or expansion the common assumption is that a household s tastes would not change as a function of economic conditions and therefore any adjustments in expenditure patterns during economic contractions expansions would simply be due to changes in the consumption budget standard economic models translate these budgetary effects into lateral movements along a set of fixed engel curves which relate category expenditure shares to total expenditures we propose and test a conceptual framework based on the notion of relative consumption which prescribes that for any given total consumption budget expenditure shares for positional goods services will decrease during a recession while shares for nonpositional goods services will increase i e shifting the entire engel curve upward or downward depending on the nature of the expenditure category and the economic conditions

optimal public sector wages i build a dynamic stochastic general equilibrium model with search and matching frictions to determine the optimal public sector wage policy public sector wages are crucial in achieving efficient allocation of jobs high wages induce too many unemployed to queue for public sector jobs in turn raising unemployment the optimal wage depends on the frictions in the two sectors following technology shocks public sector wages should be pro cyclical and deviations from the optimal policy significantly increase the volatility of unemployment

a bayesian approach to optimal monetary policy with parameter and model uncertainty abstract this paper undertakes a bayesian analysis of optimal monetary policy for the u k we estimate a suite of monetary policy models that include both forward and backward looking representations as well as large and small scale models we find an optimal simple taylor type rule that accounts for both model and parameter uncertainty for the most part backward looking models are highly fault tolerant with respect to policies optimized for forward looking representations while forward looking models have low fault tolerance with respect to policies optimized for backward looking representations in addition backward looking models often have lower posterior probabilities than forward looking models bayesian policies therefore have characteristics suitable for inflation and output stabilization in forward looking models

public sector wage policy and labor market equilibrium a structural model we develop and estimate a structural model that incorporates a sizable public sector in a labor market with search frictions the wage distribution and the employment rate in the public sector are taken as exogenous policy parameters overall wage distribution and employment rate are determined within the model taking into account the private sector s endogenous response to public sector employment policies job turnover is sector specific and transitions between sectors depend on the worker s decision to accept alternative employment in the same or different sector by comparing the value of employment in the current and prospective jobs the model is estimated on british data by a method of moments we use the model to simulate the impact of various counterfactual public sector wage and employment policies

real income equivalence among one earner and two earner families in an earlier paper we proposed a technique for making income comparisons across various household sizes in this paper we employ a modified version of that method to convert nominal income to some real equivalent comparable across families of a given size but with one or two family earners we begin with a discussion of some of the conceptual difficulties involved in making cross family size or structure comparisons in income we then describe spending pattern differences between one and two earner families the final section discusses our effort to convert nominal income into comparable real income units we conclude that nominal income differences between two and one earner families far overstate differences in standards of living excerpt

limited information estimation and evaluation of dsge models we advance the proposition that dynamic stochastic general equilibrium dsge models should not only be estimated and evaluated with full information methods these require that the complete system of equations be specified properly some limited information analysis which focuses upon specific equations is therefore likely to be a useful complement to full system analysis two major problems occur when implementing limited information methods these are the presence of forward looking expectations in the system as well as unobservable non stationary variables we present methods for dealing with both of these difficulties and illustrate the interaction between full and limited information methods using a well known model copyright 2009 john wiley sons ltd

the public private sector gender wage differential in britain evidence from matched employee workplace data this article shows that little of the gender earnings gap in the public and private sectors in britain are explained by differences in employee characteristics the differences in workplace characteristics however make a significant sizeable contribution it is shown that performance related pay and company pension schemes are associated with higher relative earnings in the private sector whilst increased provision of family friendly employment practices in the public sector is associated with higher relative earnings for women

is housing collateral important to the business cycle evidence from china abstract this paper investigates whether housing collateral is important to the business cycle in china we develop two models one without housing collateral as benchmark and one variant allowing for it indirect inference procedure tests these two models compatibility with the data we find that the benchmark model passes the test while the collateral model is strongly rejected according to the benchmark model shocks from the housing market have limited impact on the chinese business cycle by contrast the exogenous spending shock from government and net exports the monetary policy shock and the goods sector cost productivity shock all in turn most likely connected to world business cycle shocks especially the global financial crisis are found to be the main drivers

partial agglomeration or dispersion in spatial cournot competition 1 introductionsince the seminal work of hotelling 1929 a rich and diverse literature on spatial competition has emerged location models can be classified into two types one type is shipping or spatial price discrimination model where sellers bear transport costs the other is shopping or mill pricing model where buyers pay for transport for each type one can have either bertrand type price setting or cournot type quantity setting 1most studies on location theory use shopping mill pricing models with bertrand competition although cournot and bertrand types of non spatial models are equally popular the body of literature on spatial competition that uses cournot type models is relatively small economists have recently considered shipping models with cournot competition hamilton thisse and weskamp 1989 and anderson and neven 1991 carry out pioneering works on location models 2 they use linear city models and show that all firms agglomerate at the central point pal 1998 shows that their result is crucially dependent on the assumption of a linear city he investigates a circular city duopoly model3 and finds that an equidistant location pattern appears in equilibrium that is locational dispersion appears 4 matsushima 2001a extends pal s model to an n firm oligopoly and shows another equilibrium where half of the firms locate at one point and the other half locate at the opposite point partial agglomeration these results indicate the multiplicity of equilibria in spatial cournot models with a circular city the multiplicity of equilibria restricts the applicability of the model because the model does not give us a distinct prediction in this article we take a close look at pal 1998 and matsushima 2001a we try to solve this problem by extending their linear transport cost model to one with nonlinear transport cost 5 we consider a simplified model the numbers of firms and markets and so possible locations are four four firms choose location a b c or d see if each of the four firms chooses a different location we call this outcome pal type if two firms locate at a and the other two locate at c we call this outcome matsushima type we find that the pal type equilibrium is much more robust because i pal type equilibrium always exists as long as transport cost is increasing in distance while matsushima type equilibrium fails to exist when the transport cost function is significantly convex or concave proposition 1 ii if firms choose their locations sequentially the unique equilibrium outcome is pal type under nonlinear transport cost functions proposition 2 and iii the profit of each firm in pal type is never smaller than that in matsushima type and the former is strictly larger if the transport cost function is nonlinear proposition 3 we also compare the welfare implications of pal type and matsushima type models if the transport cost function is linear the two outcomes yield exactly the same profits consumer surplus and total social surplus however this equivalence does not hold if the transport cost function is nonlinear either convex or concave in this case pal type yields greater total social surplus and profit of each firm while matsushima type yields greater consumer surplus these results indicate that the welfare implications are sensitive to whether or not the transport cost function is linear anderson and neven 1991 show that in the linear city model a strong concavity in transport cost changes the equilibrium outcome this result is related to our results but we emphasize that our results are different from theirs first we show that both concavity and convexity of the transport cost function affect the results while in anderson and neven 1991 only strong convexity changes the result second in our propositions 2 and 3 even a slight nonlinearity changes the results

how much nominal rigidity is there in the us economy testing a new keynesian dsge model using indirect inference we evaluate the smets wouters new keynesian model of the us postwar period using indirect inference the bootstrap and a var representation of the data we find that the model is strongly rejected while an alternative new classical version of the model fares no better adding limited nominal rigidity to it produces a weighted model version closest to the data but on data from 1984 onwards the great moderation the best model version is one with a high degree of nominal rigidity close to new keynesian our results are robust to a variety of methodological and numerical issues

job matching temporary public employment and equilibrium unemployment abstract the paper presents a theoretical analysis of the macroeconomics effects of temporary public employment programs relief jobs the framework is a matching model where wages are determined by nash bargains between individual firms and workers public employment programs have a direct job placement effect which tends to reduce unemployment there is also an effect on wage pressure the direction of this effect hinges on whether the programs are aimed at increasing unemployment outflow of reducing unemployment inflow a policy targeted at unemployment outflow has in general ambiguous effects on equilibrium unemployment since the job placement effect and the wage effect work in opposite directions by contrast a policy targeted at unemployment inflow will always reduce unemployment since the job placement effect is reinforced by the induced wage moderation

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

the role of energy prices in the great recession a two sector model with unfiltered data we investigate the role of energy shocks during the great recession we study the behaviour of the uk energy and non energy intensive sectors firms in a real business cycle rbc model using unfiltered data the model is econometrically estimated and tested by indirect inference output contraction during the great recession was largely caused by energy price and sector specific productivity shocks all of which are non stationary and hence tend to dominate the sample variance decomposition we also found that the channel by which the energy price shock reduces output in the model is via the terms of trade these fall permanently when world energy prices increase and as substitutes for energy inputs are strictly limited there are few reactions via production channels therefore there is no other way to balance the deteriorating current account than through lower domestic absorption

liquidity constraints and the substitutability between private and government consumption the role of military and non military spending i introduction using data for a number of economies we investigate i the relationship between private consumption and two types of government spending military and non military and ii the severity of liquidity constraints because of their importance for macroeconomic modeling in theory and practice 1 both issues have been the subjects of considerable theoretical and empirical investigation on the issue of liquidity constraints the most influential research has relied on hall s 1978 euler equation approach to the permanent income hypothesis in an attempt to reconcile hall s and flavin s 1981 methodologies hayashi 1982 modified hall s martingale result to allow for the possibility that a subset of consumers are liquidity constrained and showed that liquidity constraints can result in consumption s excess sensitivity to current income campbell and mankiw 1989 1990 1991 and jappelli and pagano 1989 have applied hayashi s methodology using data from the u s and several other oecd countries on the substitutability issue aschauer 1985 has modified hall s euler equation to allow for substitutability between government spending and private consumption and found that the two are substitutes for the u s karras 1994 however using a similar approach and data for 30 countries concludes that private and government consumption are better described as complementary or unrelated liquidity constraints and substitutability have been combined in studies by graham and himarios 1991 cushing 1992 and graham 1993 using u s data and by evans and karras 1996 for a number of countries a crucial limitation of most of these studies is the use of aggregate government consumption data which counterintuitively imposes a common substitutability parameter on all components of government spending 2 using recently available time series data for a large number of countries the present paper relaxes this restriction by decomposing government consumption into military and non military components enabling us to separately identify their relationship to private consumption the allocation of government consumption between military and non military functions has varied greatly across countries the appendix reports the average size of military and non military government shares in gdp as well as the military non military ratio by country over the 1970 1989 period average military expenditure as a fraction of gdp for example has ranged in our sample from 0 11 in mexico to 12 30 in jordan similarly the fraction of government consumption absorbed by military expenditure has ranged from 1 09 in mauritius to 66 82 in poland this sizable variability is promising in terms of cross sectional identification power but it also suggests that the estimated parameters must not be assumed to be common across countries the estimated model is derived in section ii which combines liquidity constraints and substitutability by nesting the approaches of hayashi 1982 and aschauer 1985 in the same section we discuss data sources and the estimation strategy which permits the estimated parameters to vary by country in a way that helps determine how they are influenced by country specific factors section iii estimates the model for a panel of the 66 countries for which annual data on all series are available for the 1970 1989 period the paper s main conclusions are given in section iv ii methodology and data we assume that consumers in economy i at time t derive utility from effective consumption c sup which we define as 1 mathematical expression omitted where c is private consumption g sup m and g sup nm are the military and non military components of government consumption the parameters theta sup m and theta sup nm measure the degree of substitutability between c and g sup m and c and g sup nm respectively

the public pay gap in britain small differences that don t matter the existing literature on inequality between private and public sectors focuses on cross section differences in earnings levels forward looking agents however care about income and job mobility too which we show are substantially different between the two sectors using data from the bhps we estimate a model of income and employment dynamics allowing for unobserved heterogeneity in the propensity to be employed in eitherjob sector we detect a positive average public premium both in income flows and in the present discounted sum of future income flows we also find that income inequality is lower but more persistent in the public sector there is an ongoing debate as to whether public sector workers experience better or worse pay conditions than their private counterparts a recurring message in the recent literature is that although raw differences can be large most are likely to reflect differences in the composition of the workforce both in terms of observed characteristics such as age and education and in terms of unobserved characteristics nevertheless a look at labour markets in the two sectors suggests that individuals do perceive some differences between the sectors katz and krueger 1991 document the fact that blue collar workers are willing to queue to obtain public sector jobs whereas highlyskilled workers are notoriously hard to recruit and retain in the public sector the focus of most of the literature on public pay gaps is on cross section differences in earnings levels 2 yet the public private differences are arguably equally marked in terms of income mobility income volatility and job loss risk than in terms of mean income levels public sector employers are widely perceived to offer more job security 3 there is also plentiful evidence of relative wage compression in the public sector moreover as we shall point out public sector incomes are substantially more persistent over time than private sector incomes the motivating point of this article is that forward looking agents are likely to care about income and job mobility as well as income levels so that a more general assessment of the existence and magnitude of a public premium should be based on

union wage differentials in the public and private sectors a simultaneous equations specification the paper attempts to integrate new approaches to estimating union wage effects with the analysis of public private sector wage differentials estimates of the union differential in both public and private sectors allowing for the endogeneity of union status are presented the hypothesis that the recently measured rents to public sector employment primarily reflect the recent increase in unionization in that sector is examined and receives considerable empirical support there was evidence of positive selection into the union sector especially for private sector workers union status appears to be strongly influenced by the expected wage gain from joining the union sector

the incentives for cost reduction in a differentiated industry abstract this paper investigates how the incentives for cost reduction in a differentiated industry depend upon the degree of product substitutability when goods are imperfect substitutes both cournot and bertrand competition result in underinvestment in the sense that a social planner would be willing to pay more for a given cost reduction than a profit maximizing firm overinvestment may occur when the goods are sufficiently close substitutes similarly cournot competition provides a stronger incentive to innovate than bertrand competition if the degree of substitutability is low and a weaker incentive if this degree is high

the effects of fiscal shocks on employment and the real wage we study the transmission of fiscal shocks in the labor market we employ a structural var and base identification on the restrictions that shocks to government consumption investment and employment must raise output and deficits these restrictions hold in both prototype real business cycle rbc and new keynesian models shocks to government consumption and investment increase real wages and employment contemporaneously both at state level and in the aggregate the dynamics in response to employment shocks are mixed increases in government employment raise the real wage and total employment in the aggregate however in one third of the states they reduce total employment

factor complementarity and labour market dynamics abstract we propose and estimate a dynamic stochastic general equilibrium model featuring search and matching frictions deep habits and a ces production function the model successfully replicates the cyclical properties of labour market variables in the us economy for three main reasons first two of the endogenous mechanisms of the model factor complementarity and unemployment benefits play a key role for explaining the amplification in unemployment and vacancies second deep habits have a smaller but significant role as an endogenous mechanism third capital augmenting productivity investment specific and matching efficiency innovations explain large part of the variation in labour market variables

public sector employment in an equilibrium search and matching model in this paper we extend the standard diamond mortensen pissarides model of equilibrium unemployment to incorporate public sector employment we modify the model in three ways first we assume that workers are heterogeneous in terms of human capital second we assume that productivity is match specic and that the distribution of match specic productivity is more favorable in the sense of rst order stochastic dominance the higher is a worker s human capital third we allow for both private and public sector employment we prove existence of equilibrium and numerically analyze the eects of public sector employment policy on the distributions of wages productivities and human capital levels in the two sectors and on overall employment and welfare using data from colombia

cournot competition yields spatial agglomeration most theoretical models of spatial competition show a strong tendency toward spatial dispersion of firms yet common observations suggest that firms tend to agglomerate in this paper the authors show that competition between cournot type oligopolists that discriminate over space leads to spatial agglomeration one implication is that firms do not necessarily earn supernormal profits at the free entry equilibrium copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

real wage cyclicality of job stayers within company job movers and between company job movers using the british new earnings survey panel data nespd for the period 1975 to 2001 we estimate the wage cyclicality of job stayers those remaining within single jobs in a given company within company job movers and between company job movers we also examine how the proportion of internal and external job moves varies over the business cycle we find that the wages of internal movers are slightly more procyclical and wages of external movers considerably more procyclical than those of stayers notwithstanding a decomposition shows that in britain wage cyclicality arises almost entirely from the procyclicality of wages for job stayers with across and within firm mobility playing a lesser role thus there is little evidence for rigid wage models that imply that employers use changes in job titles as a means of adjusting wages to the business cycle we also show that the distinctions between private and public sectors and between workers covered and uncovered by collective agreements have important impacts on the wage estimates of both stayers and movers

the cyclical behaviour of fiscal policy evidence from the oecd this paper addresses the topic of cyclicality in scal policy in particular we show that the level of cyclicality varies across spending categories and across oecd countries in line with leading theories of scal cyclicality we show that countries with volatile output and dispersed political power are the most likely to run procyclical scal policies wage government consumption is highlighted as the most important channel by which these variables affect scal cyclicality

resolving the public sector wage premium puzzle by indirect inference this paper investigates the public sector wage premium pswp in the uk using a microfounded economic model and indirect inference ii to answer the question whether there is public sector wage p

durables and wives employment yet again the literature examining the relationship between consumer durables expenditures and wives employment is analyzed several deficiencies in the literature are corrected in a revised model that is estimated with data from the 1977 1978 survey of consumer expenditures this article concludes that durables expenditures and wives employment time are complements

the unemployment volatility puzzle is wage stickiness the answer i discuss the failure of the canonical search and matching model to match the cyclical volatility in the job finding rate i show that job creation in the model is influenced by wages in new matches i summarize microeconometric evidence and find that wages in new matches are volatile and consistent with the model s key predictions therefore explanations of the unemployment volatility puzzle have to preserve the cyclical volatility of wages i discuss a modification of the model based on fixed matching costs that can increase cyclical unemployment volatility and is consistent with wage flexibility in new matches

fiscal policy in the new neoclassical synthesis we analytically derive the cyclical effects of fiscal policy shocks in a new neoclassical synthesis model price stickiness has the consequence that a rise in government demand affects labor demand while at the same time the usual wealth effect boosts labor supply the strength of the demand effect depends on the response of the real interest rate governed by the monetary policy regime when the central bank controls money growth fiscal expansions are deflationary and might even be contractionary whereas output wages and inflation can increase when the rise in the real interest rate is dampened by an interest rate rule however price stickiness alone is not sufficient to explain a rise in consumption as predicted by keynesian theory

an analysis of workers choice between employment in the public and private sectors this paper estimates the extent to which workers with different personal characteristics are likely to be employed in the public versus the private sector the author develops a reduced form two wa

filling vacancies an empirical analysis of the cost and benefit of search in the labour market this paper investigates empirically the factors that affect the cost benefit ratio of employers search the empirical analysis is based on a small dutch data set containing individual information on filled vacancies it is found that firms that use advertisements during recruitment are sensitive to labour market conditions their search cost per applicant rises drops in tight slack labour markets because of the diminished ability of advertisements to generate applicants in tight labour markets furthermore it is found that the high search cost incurred by posting identical vacancies is more than compensated for by the benefits from having a larger flow of applicants

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

the establishment level behavior of vacancies and hiring this paper is the first to study vacancies hires and vacancy yields at the establishment level in the job openings and labor turnover survey a large sample of u s employers to interpret the data we develop a simple model that identifies the flow of new vacancies and the job filling rate for vacant positions the job filling rate moves counter to aggregate employment but rises steeply with employer growth rates in the cross section it falls with employer size rises with worker turnover rates and varies by a factor of four across major industry groups we also develop evidence that the employer level hiring technology exhibits constant returns and that at the employer level and that employers rely heavily on other instruments in addition to vacancies as they vary hires we also develop evidence that effective recruiting intensity per vacancy varies over time accounting for about 41 of movements in aggregate hires in the 2007 to 2009 period our evidence and analysis provide useful inputs for assessing developing and calibrating theoretical models of search matching and hiring in the labor market

product differentiation in spatial cournot markets abstract we introduce to the spatial cournot markets model the inverse demand function of deneckere economics letters 11 1983 37 that allows product differentiation the circular model s outcome alters depending on if goods are complements or substitutes while the linear model results in central agglomeration

priors from general equilibrium models for vars abstract this paper uses a simple new keynesian dynamic stochastic general equilibrium model as a prior for a vector autoregression shows that the resulting model is competitive with standard benchmarks in terms of forecasting and can be used for policy analysis jel classification c11 c32 c53 key words bayesian analysis dsge models forecasting vector autoregressions 1 introduction dynamic stochastic general equilibrium dsge models are popular nowadays in macroeconomics they are taught in virtually every economics ph d program and represent a predominant share of publications in the field yet when it comes to policy making these models are scarcely used at least from a quantitative point of view the main quantitative workhorse for policy making at the federal reserve system is frb us a macro econometric model built in the cowles foundation tradition a style of macroeconomics that is no longer taught in many ph d programs 1 in their decision process fed policy makers rely heavily on forecasting they want to know the expected path of inflation in the next few quarters and by how much a 50 basis point increase in the federal funds rate would affect that path frb us offers answers to these questions answers that many macroeconomists would regard with suspicion given both the lucas 1976 critique and the fact that in general the restrictions imposed by cowles foundation models are at odds with dynamic general equilibrium macroeconomics sims 1980 general equilibrium models on the other hand have a hard time providing alternative answers the fact that these models are perceived to do badly in terms of forecasting as they are scarcely parameterized is perhaps one of the reasons why they are not at the forefront of policy making while progress is being made in the development of dsge models that deliver acceptable forecasts e g smets and wouters 2003 this paper proposes an approach that combines a stylized general equilibrium model with a vector autoregression var to obtain a specification that both forecasts well and is usable for policy analysis specifically the approach involves using prior information coming from a dsge model in the estimation of a vector autoregression loosely speaking this prior can be thought of as the result of the following exercise i simulate time series data from the dsge model ii fit a var to these data in practice we replace the sample moments of the simulated data by population moments computed from the dsge model solution since the dsge model depends on unknown structural parameters we use a hierarchical prior in our analysis by placing a distribution on the dsge model parameters a tightness parameter controls the weight of the dsge model prior relative to the weight of the actual sample markov chain monte carlo methods are used to generate draws from the joint posterior distribution of the var and dsge model parameters the paper shows that the approach makes even a fairly stylized new keynesian dsge model competitive with standard benchmarks in terms of forecasting real output growth inflation and the nominal interest rate the three variables that are of most interest to policy makers 2 up to this point our procedure borrows from the work of dejong ingram and whiteman 1993 and ingram and whiteman 1994 who are the first to use priors from dsge models for vars ingram and whiteman showed that prior information from the bare bones stochastic growth model of king plosser and rebelo 1988 is helpful in forecasting real economic activity such as output consumption investment and hours worked in addition to documenting the forecasting performance of a trivariate var with a prior derived from a monetary dsge model this paper makes two contributions that significantly extend the earlier work first we show formally how posterior inference for the var parameters can be translated into posterior inference for dsge model parameters

does cournot competition yield spatial agglomeration abstract locations and quantities are chosen sequentially in spatial markets strikingly different location patterns emerge depending on the shape of the market in a circular city firms locate equidistant from each other in a linear city firms agglomerate at the center

consumer benefiting exclusive territories i investigate the effect of exclusive territories which are typical vertical controls imposed by upstream firms using shipping spatial models i consider an industry that consists of many independent local markets an upstream monopolist restricts competition between downstream firms using exclusive territories i find that exclusive territories reduce the prices of final products in all local markets in quantity setting competition in price setting competition they raise prices in half the local markets reduce them in other markets and also reduce the total consumer surplus jel classification l42 r32 a propos de territoires exclusifs qui profitent aux consommateurs l auteur analyse les effets de la regle des territoires exclusifs qui est souvent imposee comme controle vertical par les entreprises en amont a l aide de modeles spatiaux de livraison on considere le cas d une industrie composee de plusieurs marches locaux independants un monopoleur en amont reduit la concurrence entre entreprises en aval en imposant la regle des territoires exclusifs on decouvre que cette regle reduit les prix du produit final dans tous les marches locaux s il y a concurrence par les quantites s il y a concurrence par les prix la regle accroit les prix dans la moitie des marches locaux les reduit dans les autres et reduit aussi le surplus au consommateur

on the fit of new keynesian models this article provides new tools for the evaluation of dynamic stochastic general equilibrium dsge models and applies them to a large scale new keynesian model we approximate the dsge model by a vector autoregression and then systematically relax the implied cross equation restrictions and document how the model fit changes we also compare the dsge model s impulse responses to structural shocks with those obtained after relaxing its restrictions we find that the degree of misspecification in this large scale dsge model is no longer so large as to prevent its use in day to day policy analysis yet is not small enough to be ignored

where to locate in a circular city abstract we study the location choices by cournot oligopolists in a circular market where consumers are located uniformly along the circumference we analyze the subgame perfect nash equilibria spne of a two stage location quantity game we demonstrate that the equidistant location pattern is only one of the many equilibrium location patterns that arise in a circular market nonequidistant multiple or a continuum of location equilibria may also arise both spatial agglomeration and dispersion or a combination of agglomeration and dispersion may occur in equilibrium in the case of infinitely many location equilibria we establish the welfare equivalence of the equilibrium location patterns

wives labor force behavior and family consumption patterns in 1940 the labor force participation rate for married women husband present was 14 percent by 1970 it had increased 26 percentage points to 40 percent the supply and demand variables associated with this increase have been widely investigated however there has been ve ry little research on the economic effects of wives labor force participation see r agarwala and j drinkwater margaret carroll robert holbrook and frank stafford lucy mallan and jacob mincer this paper analyzes two economic effects the effect on the ratio of consumption to income ciy and the effect on the ratio of durable goods purchases to income durly the primary question addressed is controlling for total family income and several other variables what are the differences if any in the ratios of ciy and durly for working wife w w and nonworking wife n w w families looked at in another way the question may be rephrased how do w w families use wives income

expenditure pattern differentials between one earner and dual earner households 1972 1973 and 1984 the impact of women s changing work roles on household expenditures by married couples is analyzed for 1972 1973 and 1984 utilizing data from the consumer expenditure survey cex one earner households with a non working wife nww are compared at the same level of after tax income to dual earner households in which the wife works part time pww and to those with wives working full time fww the analysis indicates that expenditure shares are fairly consistent among types of households over time in terms of wife s work status and income levels and that income is the most important determinant of expenditures

the efficient estimation of econometric models with rational expectations the efficient estimation of econometric models with rational expectations by the substitution method usually entails the use of a non linear simultaneous equations estimator and hence is not very attractive computationally it is shown that for a wide class of problems efficient estimates can also be obtained with standard estimation methods if instead an errors in variables approach is used for many other problems although not providing fully efficient estimates because rationality is not imposed the errors in variables method will still have a strong appeal because otherwise it uses all of the structural information in the model unlike the substitution method when an incomplete information set is used it guarantees consistent estimates and it is easy to compute

wage differentials employer size and unemployment the unique equilibrium solution to a game in which a continuum of individual employers choose permanent wage offers and a continuum of workers search by sequentially sampling from the set of offers is characterized wage dispersion is a robust outcome provided that workers search while employed as well as when unemployed the unique nondegenerate equilibrium distribution of wage offers is constructed for three cases 1 identical workers and employers 2 identical employers and an atomless distribution of worker supply prices and 3 identical workers and an atomless distribution of job productivities copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

localized competition multimarket operation and collusive behavior this paper studies collusive behavior in a repeated oligopoly model with localized competition also reinterpreted as a model of multimarket operation private information about the rivals past actions naturally arises from these product market structures the resulting communication problems imply that firms should not adopt strategies with too severe punishments infinite grim punishments may be too severe for large discount factors the standard stick and carrot punishments from the perfect public information model are always too severe for all discount factors modified stick and carrot punishments can still be used though for a smaller range of discount factors than the standard stick and carrot punishments

public goods merit goods and the relation between private and government consumption in this paper we investigate the relation between public and private consumption by constructing a general government spending data set by function for 12 european countries in particular we split government consumption into two categories the 1rst category public goods includes defence public order and justice the second category merit goods includes health education and other services that could have been provided privately equations from a relatively general permanent income model are estimated by gmm the estimates are fairly robust in showing that public goods substitute while merit goods complement private consumption however the relation between merit goods and private goods turns out to be stronger than that between public goods and private goods thus in the aggregate government and private consumption are complements c