the impact of paying interest on reserves in the presence of government deficit financing this paper reexamines the impact that paying interest on reserves has on price level indeterminacy volatility and economic well being unlike the previous literature this model includes an after tax deficit financed by assets bonds and reserves whose returns are linked i show that the number of steady state equilibria and the corresponding level of indeterminacy are equal to or greater than those arising in the no interest economy when the level of indeterminacy is the same the economic volatility is reduced by paying interest however greater indeterminacy in the interest economy results in greater volatility finally paying interest on reserves can enhance welfare jel d6 e3 e5 i introduction the issue of paying interest on reserves was introduced by friedman almost 50 years ago in a program for monetary stability friedman s original motivation was to make the 100 reserve requirement of the chicago plan more palatable to a banking system subject to only a fractional reserve system the goal of the chicago plan and the proposal to pay interest on reserves was to establish greater price level stability and to reduce excessive price level fluctuations 1 in the subsequent decades there has been considerable research regarding the implications of paying interest on reserves 2 three studies in particular sargent and wallace 1985 smith 1991 and freeman and haslag 1996 have examined in detail whether friedman s proposal would bring about the desired reductions in price level indeterminacy and volatility as well as the welfare implications of switching from a system of not paying interest on reserves to one which did 3 however these works suffered from two specific limitations first they did not equate the interest paid on reserves to returns on assets of similar risk and duration second they assumed that the government either ran a balanced budget or had a surplus by assuming that the budget was not in deficit these works sidestepped two important issues a the impact that deficit financing has on the means for financing interest payments and b the complications that arise from simultaneously attempting to finance a deficit and set the real return on reserves one of the key results of this previous literature was that how interest payments were financed was crucial to the likelihood of indeterminacy and volatility arising however if the sum of government expenditures and interest payments on bonds and reserves exceeds tax revenue then the issue of how interest payments on reserves are financed via taxes or earnings on assets is no longer relevant instead the appropriate concern is whether the government can simultaneously finance the deficit by issuing bonds or printing money link the return on reserves to other assets such as bonds and maintain sufficient returns on bonds and reserves such that both assets are desired by consumers the objective of this paper is to reexamine in the presence of an after tax deficit the impact of switching from a system where reserves earn no interest to one where they do this is accomplished in the context of a two period overlapping generations model with multiple assets and an after tax government deficit that must be financed by a combination of debt and seigniorage income the primary goal is to compare the level of economic indeterminacy economic volatility and welfare gains in an economy where interest is paid on reserves to one where reserves earn no interest more specifically this paper addresses the following three questions first in the presence of a government deficit and a return on storage that dominates all other rates of return does paying interest on reserves reduce potential indeterminacy of equilibria second under the same conditions does the amount of economic volatility increase or decrease third are there any welfare justifications for switching to a sys tem where reserves earn interest

re examining uranium supply and demand new insights abstract in this paper we derive a simultaneous system of equations which aims at analysing the uranium supply and demand in addition to reviewing and updating previous studies dealing with the uranium market analysis in particular amavilah 1995 the contribution of the paper lies in putting attention to some questions which are still either controversial or unanswered they are especially related to the controversial hypothesis of the interdependence between uranium market and other commodities markets both with respect to the demand side i e oil and coal markets and the supply side i e gold market the paper also casts lights on electricity and uranium price effects on uranium demand as well as on the simultaneous interdependencies that may exist between nuclear consumption and nuclear installed capacity the model is estimated for three different time periods which takes into account the major events that have influenced the nuclear uranium development that is that have constrained the growth rate of nuclear generating capacity i e oil crisis and nuclear accidents this permits to show if uranium market reaction is independent or it is correlated with specific events associated with each time periods the model was estimated by using the 3sls method that correct for the presence of contemporaneously error terms correlation and for the existence of simultaneity bias in the model main results give evidence of significant correlation between uranium price and competing fossil fuel prices they also point out that uranium price is significantly correlated with the supply forces where supply is significantly dependent on gold prices moreover results show that the electricity prices have a significant effect on the uranium demand only in the post 1990 period probably following the worldwide electricity prices increasing trend further our estimations show that uranium demand is significantly correlated with uranium price only in the period of nuclear major expansion as for the nuclear electric consumption and the nuclear installed capacity results show that they are simultaneously correlated and that the uranium demand depends on both of them but only for the pre 1990 period interestingly our results give evidence of low elasticities and inelastic reaction of independent model variables to exogenous variables fluctuations except for the uranium price equation based on these results some policy implications related to first the competitiveness of the uranium market and second to the supply demand policy and the associated pricing mechanisms on the uranium market are discussed

inflationary finance in an open economy abstract models of inflationary finance that consider trade and capital flows generally conclude that openness curtails the ability of governments to impose the inflation tax due to currency substitution this paper models two channels that allow central banks to increase inflation tax revenue by opening the economy first central banks can open the capital account subject to a reserve requirement on capital inflows revenue maximization produces a smaller reserve requirement on foreign capital inflows that on domestic deposits second central banks can impose prior import deposits to broaden the monetary base in order to use the inflation tax on imports as an alternative to tariff revenue

what s different among banks abstract based on commercial paper being a nearly perfect substitute for certificates of deposits cds and cd reserve requirements creating a higher cost of funds for banks fama shows that the banking industry must have some monopoly power relative to other financial institutions his analysis does not resolve whether this monopoly power is vested in banks collectively vis a vis other financial institutions or if the monopoly power extends to the level of individual banks using an event study framework to examine the elimination of a reserve requirement we find significant evidence of monopoly power at the level of individual banks

earnings skewness and analyst forecast bias abstract we argue that if analysts objective is to provide the most accurate forecast by minimizing the mean absolute forecast error then the optimal forecast is the median instead of the mean earnings forecast bias is observed when the median is different from the mean in a skewed earnings distribution thus part of the observed analyst forecast bias could be a result of analysts efforts to improve forecast accuracy when the earnings distribution is skewed we find that earnings skewness is significantly related to analyst forecast bias we also provide evidence that the market adjusts for part of the skewness induced bias

effects of technological learning and uranium price on nuclear cost preliminary insights from a multiple factors learning curve and uranium market modeling this paper studies the effects of returns to scale technological learning i e learning by doing and learning by searching and uranium price on the prospects of nuclear cost decrease we use an extended learning curve specification named multiple factors learning curve mflc in a first stage we estimate a single mflc in a second stage we estimate the mflc under the framework of simultaneous system of equations which takes into account the uranium supply and demand this permits not only to enhance the reliability of the estimation by incorporating the uranium price formation mechanisms in the mflc via the price variable but also to give preliminary insights about uranium supply and demand behaviors and the associated effects on the nuclear expansion results point out that the nuclear cost has important prospects for decrease via capacity expansion i e learning by doing effects in contrast they show that the learning by searching as well as the scale effects have a limited effect on the cost decrease prospects conversely results also show that uranium price exerts a positive and significant effect on nuclear cost implying that when the uranium price increases the nuclear power generation cost decreases since uranium is characterized by important physical availability and since it represents only a minor part in the total nuclear cost we consider that in a context of increasing demand for nuclear energy the latter result can be explained by the fact that the positive learning effects on the cost of nuclear act in a way to dissipate the negative ones that an increase in uranium price may exert further results give evidence of important inertia in the supply and demand sides as well as evidence of slow correlation between the uranium market and oil market which may limit the inter fuels substituability effects that is nuclear capacity expansion and associated learning by doing benefits

an economic perspective on experience curves and dynamic economies in renewable energy technologies this paper analyzes dynamic economies in renewable energy technologies the paper has two contributions the first is to test the robustness of experience in solar photovoltaic solar thermal and wind energy to the addition of an explicit time trend which has been done in experience studies for other industries but not for renewable energy technologies estimation is carried out on the assumption that cumulative capacity industry production average firm production and electricity generation affect experience and thus the fall in price the second contribution is to test the impact of r d on price reduction in general cumulative experience is found to be highly statistically significant when estimated alone and highly statistically insignificant when time is added to the model the effect of r d is small and statistically significant in solar photovoltaic technology and statistically insignificant in solar thermal and wind technologies

government revenue from monopoly supply of currency and deposits abstract this paper analyses the revenue maximising problem for a government with a monopoly over the entire money industry i e over the supply of bank deposits as well as currency in circulation in this case the government determines both the inflation rate and the nominal rate of interest on deposits provided currency and deposits are not perfect substitutes a positive nominal deposit rate is warranted illustrative estimates for turkey show that the revenue maximising deposit rate there would be 16 1 2 percent and the inflation rate 35 percentage points above the deposit rate i e 51 1 2 percent

technological change in energy systems learning curves logistic curves and input output coefficients abstract learning curves have recently been widely adopted in climate economy models to incorporate endogenous change of energy technologies replacing the conventional assumption of an autonomous energy efficiency improvement however there has been little consideration of the credibility of the learning curve the current trend that many important energy and climate change policy analyses rely on the learning curve means that it is of great importance to critically examine the basis for learning curves here we analyse the use of learning curves in energy technology usually implemented as a simple power function we find that the learning curve cannot separate the effects of price and technological change cannot reflect continuous and qualitative change of both conventional and emerging energy technologies cannot help to determine the time paths of technological investment and misses the central role of r d activity in driving technological change we argue that a logistic curve of improving performance modified to include r d activity as a driving variable can better describe the cost reductions in energy technologies furthermore we demonstrate that the top down leontief technology can incorporate the bottom up technologies that improve along either the learning curve or the logistic curve through changing input output coefficients an application to uk wind power illustrates that the logistic curve fits the observed data better and implies greater potential for cost reduction than the learning curve does

technical change dynamics evidence from the emerging renewable energy technologies abstract this paper explores the respective contributions of the effects of learning and returns to scale in the capital costs reduction pattern experienced by renewables causality analysis and econometric estimation of learning curves are performed on two emerging renewable energy technologies namely pv and wind learning effects appear as an essential driving force a result which concurs with the widely acknowledged importance of experience in technical progress inherent to economic growth the existence of non constant and flexible returns to scale are further highlighted their effect on diffusion dynamics is shown to be potentially considerable particularly at the outset of innovation deployment however returns to scale are suggested to be constant in the long term institutional commitment in supporting innovation therefore seems justified both on the basis of the occurrence of learning effects and diseconomies of scale these findings appear to be essential to the dynamics of innovation diffusion and market structure

on the sources of technological change assessing the evidence this paper uses a selective review of the economic literature on technological change to support four points that are important for interpreting and incorporating technological change into formal models of energy and the environment the review 1 supports the notion that no single source dominates the process of technological change it supports roles for rd 3 indicates that these spillovers are often indirect requiring own industry activities to utilize and 4 indicates that simple experience curve calibrations often used in formal models likely include a range of sources of technological change in addition to learning by doing some of which might not be induced by the sorts of policies typically considered in the climate context

designing incentive systems for truthful forecast information sharing within a firm we consider a firm where the sales division sales is responsible for demand forecasting and the operations division operations is responsible for ordering sales has better information about the demand than operations and sends a nonbinding demand forecast to operations to incentivize truthful information sharing we include a forecast error penalty in the incentive system of sales besides monetary payoffs we also add behavioral factors to the utility function of sales we model the setting as a signaling game and derive the pareto dominant separating equilibria of the game in laboratory experiments we observe human behavior that is in line with the predictions of the behavioral model but deviates substantially from expected payoff maximizing behavior we use the behavioral model to design incentive systems for truthful information sharing and validate the approach in an experiment with out of sample treatments and out of sample subjects we conduct additional experiments to provide further robus

a fiscal theory of government s role in money i introduction economic policy has up to the turn of the century been motivated primarily by fiscal considerations f iscal measures have created and destroyed industries even where this was not their intent and have in this manner contributed directly to the construction and distortion of the edifice of the modern economy schumpeter 1954 7 why do governments play the roles they do in the monetary system in particular why have national governments almost universally taken over the business of issuing coins and paper currency and replaced precious metals with fiat money as the base supporting bankissued money why have they not in developed countries at least also nationalized the production of checking accounts choosing instead to tax and regulate private banks standard answers to these questions refer to market failures natural monopolies externalities or information asymmetries that might render unregulated private production of money inefficient or unstable or infeasible market failure explanations assume that governments shape monetary institutions to serve money holders by providing a more efficient and stable payments system than would exist under laissez faire thus private competition is not allowed in currency issue because markets inherently would fail or historically did fail there and the legal restrictions we see on deposit banking are ones needed to prevent market failures in that industry recent research supplies three reasons for doubting the adequacy of the market failure approach for explaining monetary arrangements first economic historians have found that the actual forms taken by money and banking regulations and the timing of their adoption often have little apparent connection to alleged market failures observed regulations e g reserve requirements that freeze rather than enhance liquidity are ill designed to remedy the suboptimalities that are supposed to have motivated them second monetary historians have found that systems close to laissez faire have by and large been at least as successful as more restricted systems finally monetary theorists have pointed out weaknesses in theoretical arguments for market failure in money 1 if the market failure explanation is doubtful how else can one explain government s role in money charles kindleberger 1994 xi poses the challenge squarely the economist who doubts the market failure approach has to explain why there seems to be a strong revealed preference in history for a sole issuer we propose a fiscal hypothesis governments have come to supply currency and to restrict the private supply of currency and deposits not to remedy market failures but to provide themselves with seigniorage and loans on favorable terms government currency monopolies and bank regulations can thus be understood as part of the tax system the strong revealed preference in history for a sole issuer is fundamentally the preference of fiscal authorities not of consumers 2 economic historians have of course often recognized fiscal motives behind specific monetary arrangements especially those of ancient and medieval autocracies analysts of developing countries today have recognized that policies of financial repression aim at fostering financial institutions and financial instruments from which government can expropriate significant seigniorage fry 1988 14 giovanni and de melo 1993 we go further in arguing that fiscal forces have typically shaped the industrial organization of money production throughout history and across countries and account for its major institutional features even in advanced democracies today such observed legal restrictions as statutory reserve requirements interest rate ceilings foreign exchange controls and monopoly issue of currency impede efficiency but raise revenue a rational dictator model to develop our hypothesis we adopt a method found in the writings of the italian fiscal theorists especially amilcare puviani

comparing the point predictions and subjective probability distributions of professional forecasters we use data from the survey of professional forecasters spf to compare point predictions of gross domestic product gdp growth and inflation with the subjective probability distributions held by forecasters we find that most spf point predictions are quite close to the central tendencies of forecasters subjective distributions tend to be asymmetric with spf forecasters tending to report point predictions that give a more favorable view of the economy than do their subjective means medians modes

technological change in economic models of environmental policy a survey this paper provides an overview of the treatment of technological change in economic models of environmental policy numerous economic modeling studies have confirmed the sensitivity of mid and long run climate change mitigation cost and benefit projections to assumptions about technology costs in general technical progress is considered to be a noneconomic exogenous variable in global climate change modeling however there is overwhelming evidence that technological change is not an exogenous variable but to an important degree endogenous induced by needs and pressures hence some environmenteconomy models treat technological change as endogenous responding to socio economic variables three main elements in models of technological innovation are i corporate investment in research and development ii spillovers from r d and iii technology learning especially learning by doing the incorporation of induced technological change in different types of environmental economic models tends to reduce the costs of environmental policy accelerates abatement and may lead to positive spillover and negative leakage

government revenue from money creation with government and private money abstract for a stationary state we show that if the government is as efficient as a competitive banking industry in producing money then the substitution of private for government money does not alter the revenue from money creation or the present value maximizing holding cost of money if households and non banking firms hold both government and private money then maximum present value requires that the reserve ratio maximize the monetary base and that the base nominal interest elasticity equal minus one with perfect foresight zero money balances and zero revenue from money creation is the only time consistent revenue maximizing solution

rationality and analysts forecast bias this paper proposes and tests a quadratic loos utility function for modeling corporate earnings forecasting where financial analysts trade off bias to improve management access and forecast accuracy optimal forecasts with minimum expected error are optimistically biased and exhibit predictable cross sectional variation related to analyst and company characteristics empirical evidence from individual analyst forecasts is consistent with the model s predictions these results suggest that positive and predictable bias may be a rational property of optimal earnings forecasts prior studies using classical notions of unbiasedness may have prematurely dismissed analysts forecasts as being irrational or inaccurate

consensus and uncertainty in economic prediction we define consensus as the degree of agreement among point predictions aimed at the same target by different individuals and uncertainty as the diffuseness of the corresponding probability distributions this distinction is made operational with the aid of the nber asa survey data on matched point and probabilistic forecasts of inflation and the rate of change in gross national product the means of the two sets of forecasts agree closely standard deviations of point forecasts tend to understate uncertainty as measured by standard deviations of the predictive probability distributions however these measures of consensus and uncertainty are on the whole positively correlated there is evidence that expectations of higher inflation generate greater uncertainty about inflation tests also favor the hypothesis that a rise in inflation uncertainty has adverse effects on real growth

mean absolute percentage error and bias in economic forecasting abstract this article develops a simple theoretical framework to show how forecasters may bias downward point predictions under the assumption that the asymmetric loss function is directly related to the mean absolute percentage error m ape