capital income taxation and welfare in a small open economy abstract the paper studies the effects of various capital income tax policies in a small open economy households are infinitely lived and possess endogenous time preferences investment by firms is subject to adjustment costs it is shown that welfare paradoxes may exist in that increases in tax instruments may improve welfare

country portfolios under global imbalances abstract this paper studies the composition of country portfolios under global imbalances when countries are identical the optimal portfolio is fully diversified which reflects the cross country symmetric self hedging lucas 1982 assuming a structural country asymmetry in patience we construct a model of portfolio choices that features persistent non zero net foreign assets nfa because the latter opens a gap between gnp and gdp we found that an asymmetric hedging of net portfolio returns emerges in addition to the otherwise only lucas symmetric self hedging in shaping the gross country portfolios which implies a short long position of the local asset in the debtor creditor country the resulting portfolio is home biased we calibrate our model to the u s and china data over 1999 2017 and show that it matches the portfolio data for countries with unbalanced net external positions well

foreign borrowing and macroeconomic adjustment to external shocks abstract this paper analyzes the impact of anticipated and unanticipated external shocks on the evolution of macroeconomic variables particularly foreign borrowing and on steady state stocks of capital and debt we find that the desired mode of adjustment to a shock is highly sensitive to its nature intertemporal substitution effects often dominate the pure wealth loss effect external disturbances will typically be intertemporally correlated in the real world the paper analyses the resulting implications for the dynamic smoothing of adjustment

sequential auctions with informational externalities and aversion to price risk decreasing and increasing price sequences a large body of empirical research has shown that prices of identical goods sold sequentially sometimes increase and often decline across rounds this article introduces a tractable form of risk aversion called aversion to price risk and shows that declining prices arise naturally when bidders are averse to price risk when there are informational externalities there is a countervailing effect which pushes prices to raise along the path of a sequential auction even if bidder s signals are independent the article shows how to decompose the effect of aversion to price risk from the effect of informational externalities

population growth and steady state welfare in an overlapping generations model abstract in one sector growth models an increase in the population growth rate raises the economy s growth rate but lowers steady state welfare or consumption per capita i show that in a two sector overlapping generations model it can raise the steady state welfare

sequential auctions price trends and risk preferences abstract we analyze sequential auctions in a general environment where bidders are heterogeneous in risk exposures and exhibit non quasilinear utilities we derive a pure strategy symmetric equilibrium for the sequential dutch and vickrey auctions respectively with an arbitrary number of identical objects for sale when bidders are risk averse preferring the equilibrium price sequences must be downward upward drifting the declining price anomaly is thus evidence of bidder risk aversion in this general environment these results derive from a key assumption that bidders marginal utilities are log supermodular in payment and type

criteria of external sustainability abstract this paper examines the problem of assessing external sustainability that is determining whether present paths of external imbalance can continue indefinitely conditional on present policies being maintained the main contribution of the analysis is to show how conditional forecasts of external imbalance may be generated in a consistent way that explicitly incorporates a mechanism for achieving sustainability an index of external unsustainability is derived that reflects the probability of future changes in policy expected by private agents over time

time preference and international lending and borrowing in an overlapping generations model two economies represented by diamond type overlapping generations models and differing only in their pure rates of time preference are joined together capital formation balance of payments behavior and welfare are compared under autarky and openness with a positive natural rate of growth the low time preference country runs a current account surplus in the steady state but not necessarily outside it if preexisting capital is not shiftable between countries integration in the world economy makes the high time preference country worse off in the short run the ranking of stationary utility levels under autarky and openness is ambiguous

optimal seigniorage and financial liberalization abstract this paper analyzes the effect of financial integration for countries relying on the taxation of their domestic financial system a two country model with overlapping generations and explicit financial intermediation is used goverments derive revenues from seigniorage and set optimally but non cooperatively the rate of inflation and the level of required reserves on bank deposits a financial liberalizations leads to lower reserve ratios higher inflation rates and larger stocks of government debt when the liberalization is anticipated governments may temporarily increase the reserve ratios before the liberalization occurs jel f30 e60

heckscher ohlin revisited implications of differential population dynamics for trade within an overlapping generations framework abstract this paper investigates the implications of the addition of differential population dynamics to a simple 2 2 2 model of international trade within an overlapping generations framework the two regions considered are assumed to be identical in every respect except for the way their populations evolve over time the effects of these demographic differences are explored by comparing autarky and trade on the basis of i the analytical solutions obtained for the steady state values of key variables and ii the paths of these variables plotted using numerical results from simulation experiments carried out under two different demographic scenarios unequal population dynamics are shown to affect the relative abundance of the factors of production in each region giving rise to differentials in wage rates and rentals for capital under autarky conditions this in turn causes costs of production and relative prices to differ creating the grounds for trade in the sense of heckscher ohlin ho yet the results reveal that static ho results cannot be generalized to hold in a dynamic setting where differences in demographics cause factor proportions to evolve independently of trade over time

sequential auctions theory and evidence from the seattle fur exchange we develop a model that incorporates salient features of the seattle fur exchange identical lots of furs are auctioned sequentially bids must be raised by specified increments and the winner of a lot has the privilege of beginning the bidding on the subsequent lot predictions of the theory are consistent with the data revenue implications of the theory are also explored

fiscal policy in a simple two country dynamic model abstract this paper analyzes the national and international effects of labor and capital income taxes in a two country infinite horizon perfect foresight neoclassical model with endogenous labor supply and capital accumulation two polar regimes of capital income taxation are considered the source based and the residence based the qualitative effects of labor income taxes are shown to be independent of the taxation regime whereas the effects of capital income taxes are not

fiscal deficits and relative prices in a growing world economy abstract this paper studies the transmission of fiscal disturbances between countries and the effect of those disturbances on worldwide capital intensity in a context of growth the model developed to address these issues allows for the production of both nontradable and relatively capital intensive tradable goods a central finding is that factor markets can be a major channel for the communication of fiscal policy shocks to world interest rates to private saving decisions and ultimately to global asset supplies and their distribution among countries particular predictions of the model illustrate how changes in public debt ratios and shifts in government spending patterns affect resource allocation and the welfare of various generations both at home and abroad

foreign interest rate disturbance financial flows and physical capital accumulation in a small open economy this paper focuses on the interaction of financial capital movements and accumulation of physical capital in a small open economy faced with a foreign interest disturbance it is shown that endogenizing physical capital has important implications for the exchange rate dynamics not captured by models which assume a fixed capital stock an increase in the foreign interest rate leads to decumulation of physical capital reduces the full employment level of output increases foreign debt and depreciates the currency appropriate monetary and fiscal policies could counteract the effects on domestic wealth and the reduction in the stock of capital

the current account in the macroeconomic adjustment process macroeconomic adjustments to changes in the economic environment are to a large extent conditioned by the intertemporal choices of economic agents when agents face an intertemporal budget constraint a decision to alter current indebtedness implies changes in future consumption possibilities and will be based on expectations of the entire future path of key variables and not only current variables a formal model to show how today s current account is a function of both current and future economic variables is presented the determination of the current account under classical assumptions of market clearing and continuous full employment is emphasized

macroeconomic interdependence under incomplete markets this paper uses a two country flexible price model with overlapping generations of infinitely lived households to study the role of net foreign asset dynamics in the propagation of productivity shocks absence of ricardian equivalence ensures existence of a unique steady state level of net foreign assets to which the economy returns following temporary shocks model dynamics are significantly different from those of a setup in which terms of trade movements perform all the international adjustment and net foreign assets do not move the difference relative to a complete markets economy in which net foreign asset movements play no role in shock transmission is smaller it is amplified if the substitutability across goods rises and if shocks are permanent

a model of the evolution of duopoly does the asymmetry between firms tend to increase or decrease this paper is an attempt to identify some of the factors that affect the evolution of market structure in a model of dynamic competition between two firms the stochastic evolution of the state of competition depends on the respective effort rates of the firms the question is whether the current leader works harder than the laggard does the gap between firms tend to increase or decrease we show that several effects are at work the state tends to evolve in the direction where joint payoffs are greater since joint payoffs are related to joint product market profits less joint effort costs there are two classes of effect the joint profit effect and various joint cost effects the latter result in part from the pattern of profits and in part from endpoint effects that give relief from efforts asymptotic expansions illuminate these influences moreover we show by numerical simulation that there is another kind of joint cost effect the pattern of joint effort costs can influence the pattern of evolution of market structure and the evolution of the pattern of market structure can influence the pattern of efforts in a mutually self reinforcing manner in particular there may be equilibria in which this last effect means that the laggard works harder than the leader even though all the other effects work in favour of the leader

international debt and world business fluctuations abstract the international transmission of real productivity disturbances is examined in an optimizing model with two countries each inhabited by an infinitely lived representative consumer producer we analyze the dynamics of output consumption investment interest rates and net external debt foreign productivity shocks can have positive or negative impacts on domestic output and international debt depending on the intertemporal distribution of the shocks transient foreign shocks are shown to be positively transmitted and lead to increased domestic indebtedness while permanent foreign shocks are negatively transmitted and lead to a decline in domestic indebtedness

the declining price anomaly abstract data from wine auctions indicate that identical products sold sequentially typically follow a decreasing pattern of prices known as the declining price anomaly this is explained for both first and second price auctions by appealing to risk averse bidders earlier bids are then equal to expected later prices plus a risk premium associated with the risky future price we show that this logic rests on the assumption of nondecreasing absolute risk aversion which is necessary for pure strategy equilibrium bidding functions to exist thus decreasing absolute risk aversion implies ex post inefficiency with positive probability data from wine auctions are used to confirm the existence of the declining price anomaly journal of economic literature classification numbers d43 d44 d81 d82 l81

how should responsible investors behave keynes s distinction between entrepreneurship and speculation revisited this paper deals with keynes s distinction between entrepreneurship and speculation regarding business people in general and especially investors behaviour based on keynes s thoughts about financial markets it analyses how different motivations influence the decision making process of investors and its consequences for stock markets and the real economy and clarifies that keynes s considerations are still useful for understanding contemporary developments and risks in the financial system furthermore it points out that keynes s theories and policy recommendations should be understood in the context of his moral considerations especially relating to individual responsibility of investors finally keynes s moral thoughts can be taken as a foundation for a contemporary approach to investors responsibility

international policy coordination in interdependent monetary economies abstract an optimising equilibrium model of two interdependent monetary economies with no other assets except cash perfect foresight flexible exchange rates and imperfect substitution between home and foreign goods is analysed both non cooperative and cooperative market oriented outcomes are time inconsistent since each government has an incentive to renege and levy a surprise inflation tax international policy coordination without pre commitment can be counterproductive even though there are no tax distortions and the provision of public goods is optimal since it exacerbates the credibility problems perceived by the private sectors and therefore leads to a too low level of real money balances and excessive inflation

explaining the absence of international factor price convergence abstract as capital markets have become integrated factor prices have not converged as expected this paper provides an explanation the key observation is that non specific output risks are borne by capital making international portfolio diversification a dominant strategy capital market integration can elicit many patterns of factor price response under this circumstance factor prices will move in parallel if countries are identical when countries differ factor prices may diverge or even have their relative sizes reversed the integration of capital markets affects welfare through changes in risk and in overall returns to savings welfare need not improve

trade imbalance and domestic market competition policy this study investigates the effect of a country s suppression of competition in its market for nontradables it assumes that the initial equilibrium is stationary and demonstrates that if competition is suppressed in a small country the country s trade surplus increases in the short run in the large country case the same change creates an excess demand for future tradables and affects the relative price between present and future tradables using a two country model the study shows that this price change redistributes real wealth from the country with a trade deficit to the country with a trade surplus

equilibrium reserve prices in sequential ascending auctions abstract we study a model where bidders have perfectly correlated valuations for two goods sold sequentially in two ascending price auctions the seller sets a reserve price before the beginning of each auction despite the lack of commitment by the seller we characterize an equilibrium and study its properties strategic non disclosure of information takes the form of non participation in the early auction by low valuation bidders while high valuation bidders bid up to their true valuations some buyers who would profitably buy at the reserve price refrain from participating in order to decrease the second auction reserve price

how auctions work for wine and art interview auctioneers and even to buy a little wine in the meantime i have also had the opportunity with john abowd 1988 to observe and collect data on the auction sale of impressionist and contemporary paintings this paper reports on some of the empirical regularities that i and others have observed in the actual operation of the auction markets for these items in view of the rich and diverse array of theoretical literature on auctions it seems high time economists began to spell out precisely what facts it is meant to explain 2

capital income taxation in growing open economies abstract this paper studies how alternative capital mobility assumptions affect the incidence and efficiency of capital income taxation the study uses a two country intertemporal equilibrium model in which imperfectly elastic investment captures the notion of imperfectly mobile physical capital if home goods and foreign goods are perfect substitutes and investment is inelastic the tax effects in open and closed economies are similar only if physical capital is perfectly mobile are capital income taxes completely shifted in small open economies only then and if significant terms of trade effects are absent do open economy efficiency losses substantially exceed the closed economy losses

public education under capital mobility the paper considers a two country model of overlapping generations economies with intergenerational transfers motivated by altruism and investment in human capital we examine in a non stationary competitive equilibrium the optimal provision of education with and without capital market integration first we explore how regimes of education provision public private or mixed arise and how they affect the dynamics of autarkic economies second we study the effects of capital market integration in equilibrium on the optimal provision of education third we show that capital market integration enhances government intervention in the provision of public education to improve the welfare of its constituents and consider various solutions to such a competition

temporary and permanent migration with and without an immobile factor abstract this paper develops two two country overlapping generations models one with and one without an immobile factor to study temporary and permanent migration temporary migration is shown to be equivalent to international lending and borrowing one strong result found in the literature that if natives of each country are homogeneous permanent migration leads to the migration of the entire population of the impatient country in the long run is overturned welfare effects of migration are analyzed

perfect equilibria in budget constrained sequential auctions an experimental study this article presents an experimental study of bidding behavior in sequential auctions in which there are budget constraints and perfect information our experiments test both the properties of such auctions and the predictive power of a refinement of the nash equilibrium concept we find that budget constraints affect the behavior of bidders and that the trembling hand perfect equilibrium is generally a good predictor of prices

capital accumulation and foreign investment taxation this paper presents a dynamic choice theoretic general equilibrium model of capital accumulation in an open economy equilibria with and without capital mobility are described and compared it is shown that neither is necessarily pareto optimal and that an equilibrium with free trade in capital does not pareto dominate an equilibrium with autarky the effects of restricting capital flows by taxing foreign investment eamings are discussed it is seen that there will be no agreement within a country as to what constitutes an optimal tax of restricting capital mobility by foreign investment taxation is discussed the model employed is a two country overlapping generations model olg with production it is an international version of diamond s 1965 closed economy model which combines a one sector solow growth model with samuelson s olg model each period a given number of agents are born the agents live two periods and then die in their first period of life agents born in period t may trade only with agents born in t 1 or t in their second period of life they may trade only with agents born in t 1 or t the model begins at period one at this time the young of generation one and the old of generation zero are alive it will be seen that in the first period of life agents save and in the second period of life agents consume the return on their savings thus the abstraction of a two period life captures the essential feature of a life cycle model the agents begin life by saving but at some point start to dissave the major results are that if two countries differ only in initial capital abundance then in autarky the initially more capital abundant country will always be more capital abundant and will always have higher wages and lower interest rates than the initially less capital abundant country however the steady state is identical in each country with or without trade neither an autarky nor a laissez faire equilibrium is necessarily pareto optimal autarky and laissez faire are shown to be pareto non comparable in the relatively capital abundant country laissez faire is preferred by generation zero and autarky is preferred by later generations the reverse is true in the relatively labour abundant country there will be no unanimity as to the optimal level of foreign investment taxation in either country generation zero in the relatively capital labour abundant country will prefer a smaller larger tax than that which would maximize current national

fiscal deficits and current account deficits abstract recent fiscal stimulus packages depend for their effectiveness on the assumption of non ricardian savings behavior we show that under the same assumption higher fiscal deficits can have problematic implications if they turn out to be permanent first if they occur in large countries they significantly raise the world real interest rate second they cause a short run current account deterioration equal to around 50 of the fiscal deficit deterioration third the longer run current account deterioration equals almost 75 for a large economy such as the united states and almost 100 for a small open economy

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

macroeconomic dynamics in a multi country economy a dynamic optimization approach using a multicountry model with perfect foresight dynamic optimization by infinitely lived households the authors analyze the dynamics of macroeconomic nonmonetary and monetary variables the authors show that the most patient country initially accumulates foreign debt but eventually decumulates this debt and becomes a creditor it monotonically increases its consumption and experiences monotonic price and exchange rate appreciation the moderately patient country initially accumulates foreign assets but eventually decumulates them and becomes a debtor its consumption also follows a humped path the least patient country monotonically decumulates foreign assets lowers its consumption and experiences rising inflation and exchange rate depreciation copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

sequential procurement with subcontracting two symmetric sellers are approached sequentially by fragmented buyers each buyer conducts a second price auction and purchases from the seller who offers the lower price winning an auction affects bidding for future contracts because the sellers have nonconstant marginal costs we assume that the sellers are completely informed and we study the unique equilibrium that survives iterated elimination of weakly dominated strategies if subcontracting between the sellers is impossible the final allocation of contracts is generally inefficient if postauction subcontracting is possible the sellers can be worse off ex ante than when subcontracting is impossible

taxing capital in a large open economy abstract this paper analyzes capital taxation in a dynamic optimizing equilibrium model of a large open economy it is shown that the existence of current account imbalances may yield surprising results for example if a country has a current account deficit the tendency of an increased tax on investment to lower wages is dampened if the deficit is sufficiently large an increased investment tax may actually increase both wages and welfare in the long run a country with a current account surplus may find that temporary investment incentives improve its current account in all but the short run

the evolution of market structure when there is a sequence of innovations the paper explores the question of how market structure evolves when there is a sequence of opportunities to innovate does one firm extend its technological superiority to become increasingly dominant or does technological leadership constantly change hands in a process of actionreaction a simple duopoly model is proposed in which the answer to this question depends upon the nature of product market behaviour in that model highly competitive product market behaviour leads to increasing dominance whereas cournot behaviour may lead to action reaction

international market linkages and optimal monetary policy abstract the interrelation among portfolio choice and labor supply decisions and real balance effects is examined under flexible exchange rates on the asset menu are home currency domestic government bonds and foreign bonds with commodity market linkages the real balance effect is highlighted as the inefficiency of an economy with positive government bonds is demonstrated while the additional linkage of interest rates through covered interest parity may transform an economy where only money is useful into an economy in which both money and government bonds are beneficial

simultaneous vs sequential auctions with risk averse bidders abstract in this paper we ask a basic question that is interesting for auctioneers and regulators when multiple units are on sale should multiple identical units be sold simultaneously through a single shot auction or sequentially we consider the risk effect of such a decision on bidders and show that in the independent private values setting the answer unambiguously depends on the pricing rule a bidder s payoff uncertainty increases when the sale is sequenced under a pay as bid rule but decreases under the vickrey rule we find that as a result the sequential auction is less desirable from revenue and ex post efficiency points of view under the pay as bid rule and more desirable under the vickrey rule when the reserves in all auctions are set revenue optimally

accumulation and growth in a two country model a simulation approach abstract this paper analyzes saving and capital accumulation in a two good growth model of two market economies in which economic agents optimize with perfect foresight the goal is to present a model in which short run dynamics and the steady state are soundly integrated we stress the importance of asset markets as the linkage that transmits disturbances both internationally and intertemporally while many components of the model described below can be found in the literature on optimal consumption investment and international growth models we provide a consistent synthesis our framework permits the analysis of structural adjustment in the global economy and the dynamic effects of a wide range of public policies

money time preference and external balance in monetary economies international differences in rates of time preference do not in general lead to long run trade imbalances in sharp contrast with butter s 119811 results on non monetary overlapping generation economies this claim is documented within the context of a simple two country framework in which new immortal families enter each economy over time with the two countries differing only in their subjective discount rates even if consumers are more impatient at home than abroad trade is balanced in the long run in the presence of valued fiat currencies in constant supply and the current account is indeterminate this abstract was borrowed from another version of this item

demographic structures savings and international capital flows abstract this paper investigates how the different demographic characteristics of two countries will drive the flow of capital between them as inhabitants of the longer lived nation have a higher savings rate than do those with the shorter lifespan it is motivated by the recent us experience during which its net foreign asset position declined dramatically while simultaneously its longevity has fallen increasingly below that of other developed g7 economies our contribution is to address the issue by introducing empirically based survival mortality functions into a traditional two country macrodynamic framework in doing so we eliminate some of the unsatisfactory aspects associated with the traditional two country representative agent model the sensitivity of the capital flows and the resulting net foreign assets of the two economies to key structural characteristics and their consequences for savings are emphasized

current account dynamics in a finite horizon model abstract this paper examines the response of the current account in a small open economy to a permanent change in the price of imported intermediate goods to do so it extends blanchard s 1985 open economy model to incorporate the capital stock with adjustment costs a la hayashi 1982 a price increase in imported intermediate goods can be viewed as a combination of transfer payments abroad and capital taxation the former effect leads to a current account deficit and the latter leads to a current account surplus the overall effect depends on the relative magnitude of these effects

productivity shocks non traded goods and optimal capital accumulation this paper considers the interaction of saving and investment in determining the current account for a small open economy subjected to productivity shocks by emphasizing the distinction between traded and non traded goods the analysis highlights the crucial role of the real exchange rate in macroeconomic adjustment our results demonstrate the importance of intertemporal substitution for determining the response of investment to anticipated productivity disturbances we also show how the correlation of movements in saving and investment following an anticipated disturbance depends critically on relative sectoral factor intensities

on the determinants of net foreign investment these models do not explain why investments in productive processes in any country exceed or fall short of the wealth of the residents of that country most existing models of portfolio choice and asset pricing make the key assumption of a given world market portfolio which implies that at any point in time net foreign investment itself is given 2 the present paper does not make this assumption this paper provides a simple model of net foreign investment in a world of perfect markets 3 the model has the useful property that production decisions are made simultaneously with portfolio choice decisions as in cox ingersoll and ross 1978 the central feature of the model is that technologies in use differ across countries it is assumed that pre existing capital can be shifted costlessly between countries production decisions in other words decisions about how the existing stock of capital is invested among available technologies determine net foreign investment in the home country however production decisions depend on the distribution of the returns to investments in various technologies whereas this paper analyzes an issue which has always been of considerable interest in the field of international finance it uses a different framework from that used in most of the literature on net capital flows it recognizes explicitly the role of risk as a determinant of net foreign investment 4 because political risk is not modeled explicitly this paper constitutes only a first attempt at understanding the determinants of net foreign investment political risk must play a significant role as a determinant of net foreign investment because net university of rochester i am grateful to the members of the international finance seminar at the university of rochester to jorge de macedo ron jones don lessard and especially pat reagan for useful conversations and comments and to the center for research in government policy and business for financial support net foreign investment in the domestic country is understood to mean the difference between total wealth invested in the domestic country and domestic wealth it follows that net foreign investment is a stock and not a flow international economists would call net foreign investment the

coordination of optimal taxation in a two country equilibrium model abstract the optimal determination of distortionary taxes on labour income in order to finance the provision of publicly provided private goods is considered within the context of a static two country equilibrium model it is shown that with cobb douglas utility functions the lack of international coordination of optimal taxation leads to excessive supplies of publicly provided private goods

spill over effects of supply side changes in a two country economy with capital accumulation abstract using a two country dynamic optimization model with capital accumulation we explore the effect of such supply side changes as a rise in productivity and a reduction in the corporate tax rate on the equilibrium path and the welfare of two countries the welfare effect consists of a tax distortion term and a wealth term those supply side changes in the creditor country increase its welfare but unambiguously decrease the debtor country s welfare as capital moves from the debtor country to the creditor country

fiscal policy the terms of trade and the external balance abstract the effects of fiscal policies on the terms of trade and the external balance are analysed the external balance is decomposed into changes in the ownership of world wealth across residents of each country and changes in the distribution of world wealth represented by assets located in each country it is shown that a rise of government expenditure on the foreign good deteriorates the home country s terms of trade but improves its net foreign asset position whether a reduction in equity taxes improves or deteriorates the external balance depends upon the magnitude of a fiscal transmission effect

capital accumulation and the current account in a two country model abstract this paper examines the joint determination of international debt and capital accumulation in a two country model national rates of time preference are endogenous adjusting along an optimal path to come into equality with one another in the steady state the characteristics of short run current account dynamics are crucially linked to world capital accumulation and to a country s long run net external asset position steady state creditor countries tend to have current account surpluses during episodes of world output growth and vice versa for debtor countries this gives rise to possible non monotonic adjustment in the current account and consumption

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

preemptive patenting and the persistence of monopoly this article takes a different tack and inquires whether institutions such as the patent system create opportunities for firms with monopoly power to maintain their monopoly power the results apply to other situations such as brand identification spatial location and capacity expansion which share the characteristic that early or preemptive actions may lower the returns to potential competitors

terms of trade and current account dynamics a methodological critique this paper suggests that the recent intertemporal studies concerning the implications of terms of trade deterioration on the current account of a small open economy may suffer from significant methodological deficiencies the study demonstrates that while the assumption of a small open economy represents a legitimate modeling simplification the analysis of the impact of perturbation of the terms of trade on the current account of this small open economy is methodologically erroneous in particular the paper demonstrates that a given pattern of terms of trade deterioration may be associated with opposing evolutionary patterns of the current account of this small economy this paper argues that the methodology employed by several influential intertemporal studies concerning the relationship between the terms of trade and the current account of a small economy suffers from critical deficiencies it demonstrates that while the assumption of a small open economy confronting exogenously determined terms of trade represents a legitimate modeling simplification the analysis of the impact of perturbations of this terms of trade on the small open economy and on its current account is methodologically erroneous in particular the paper demonstrates that a small economy may experience diametrically opposing evolutionary patterns of the current account in association with a given pattern of terms of trade deterioration the paper suggests therefore that predictions based on this literature are in need of reassessment these intertemporal studies of the relationship between the terms of trade and the current account of a small economy have been conducted under the simplifying assumption that perturbations in the terms of trade are exogenous and do not affect the world interest rate 2 this approach may reflect a valid simplification as long as the study is concerned with exportable goods whose prices are insignificant in the determination of the general price level in the world economy however if the focus of the analysis is a small country that exports a group of commodities such as agricultural goods or industrial goods a change in the terms of trade for the small economy may reflect fundamental changes in the world relative prices that are

endogenous fiscal policy and capital market transmissions in the presence of demographic shocks abstract previous analyses of population aging mainly focused on the social security implications of the aging trend this paper addresses aging in an open economy framework with two regions that have politically responsive fiscal policy regarding education finance demographic shocks start an economic growth process but results are sensitive to a critical parameter in the model that indicates return to education spending low values of this parameter are associated with less favorable economic outcomes hence a policy implication emerges that enhancing the education system might pay off in terms of easing the negative growth and welfare consequences of expected demographic shocks

consumption permanent income and financial wealth in canada empirical evidence on the intertemporal approach to the current account the intertemporal approach to the current account is rejected as a complete explanation of the canadian current account federal government fiscal policy plays an important role in the determination of the current account a private sector agent that treats its holdings of net liabilities of the federal government as net wealth accumulates the sum of these liabilities and the net liabilities of non residents as part of an intertemporally optimal plan this result indicates both fiscal policy and intertemporal considerations are important determinants of current account behaviour consommation revenu permanent et richesse financiere au canada resultats empiriques d une approche au compte courant mettant l accent sur la dimension intertemporelle cet article montre que l approche mettant l accent sur la dimension intertemporelle ne produit pas une explication complte du comportement du compte courant canadien i1 semble que la politique fiscale du gouvernement federal joue un r6le important dans la conformation du compte courant un agent economique prive composite qui traite son portefeuille de dettes nettes du gouvernement federal comme richesse nette va accumuler la somme de ces dettes et des dettes nettes des non residents dans le cadre de son plan intertemporel optimal les resultats montrent que la politique fiscale et des considerations intertemporelles sont des elements determinants du comportement du compte courant

bottom fishing and declining prices in sequential auctions abstract we study standard sequential auctions in which the seller chooses the order of sale and right to choose auctions in which the winner chooses her preferred item from the remaining items empirically prices in sequential auctions tend to decline and sellers often hold right to choose auctions in our setting the right to choose format guarantees declining prices and efficiency in the standard auction a buyer may submit a low bid for the first item bottom fishing despite its being her less preferred item an example shows that the standard auction has declining prices is inefficient and gives lower expected revenue than the right to choose journal of economic literature classification numbers d44 d82

labor migration in europe experiences from germany after unification abstract this paper examines the effects of diverging economic conditions on labor migration within reunified germany we employ a life cycle model with consumers sovereignty regarding choice of location to derive estimates of labor migration in future periods heterogeneity of individuals is explicitly taken into account by adopting a random utility approach due to insufficient data on east west migration the results are only illustrative and have the character of educated guesstimates within limits our predictions can serve as rough indicators of potential future migration between eastern and western europe

risk and capital accumulation in a small open economy this paper examines the dynamics of capital accumulation in a small open economy where home capital is risky and consumers are risk averse it is assumed that the economy participates in perfect international bond markets but that risky home capital is held by domestic residents only under these assumptions the rate of investment is no longer independent of the saving rate and they are positively related as a result a rise in savings does not increase foreign investment by the same amount but by less and in some situations the quantity of foreign assets may even decrease

the apostles justice cambridge reflections on economic inequality from moore s principia ethica to keynes s general theory 1903 36 this article explores economic justice in the writings of the cambridge authors g l dickinson g shove r hawtrey d h robertson h o meredith j h bell and f ramsey who were either members of the apostles discussion society or like hugh dalton lay followers of its philosophical leader g e moore the article challenges the prevalent view depicting the apostles as uninterested in social problems their analyses of economic inequality are reviewed in connection with the marshallian tradition the impact of fabianism and j m keynes s views of social justice special attention is paid to some neglected aspects of moore s principia ethica which were debated in the society and influenced the apostles social awareness they believed that large inequalities were both unjust and inefficient and as moore s disciples they rejected the hedonistic perspective and considered justice not as an end in itself but as a means to the good

strategic aspects of public finance in a world with high capital mobility abstract in a world with high capital mobility an increase in equity taxes is likely to induce a capital out flow it is commonly believed that in consequence there may be an under provision of public goods when governments have only equity taxes at their disposal this paper compares the provision of public goods under cooperative and non cooperative tax policies suprisingly the non cooperative regime may result in either an over or an under provision of public goods it is also shown that the gains from coordination increase as countries become atomistic

current accounts in debtor and creditor countries the authors reexamine a classic question in international economics what is the current account response to a transitory income shock such as a temporary improvement in the terms of trade a transfer from abroad or unusually high production to answer this question they construct a world equilibrium model in which productivity varies across countries and international borrowing and lending take place to exploit good investment opportunities despite its conventional ingredients the model generates the novel prediction that favorable income shocks lead to current account deficits in debtor countries and current account surpluses in creditor countries evidence from thirteen oecd countries broadly supports this theoretical prediction

effects of unilateral climate policy on terms of trade capital accumulation and welfare in a world economy we present a two good two country overlapping generations model where emissions arise from production and each country has a domestic emission permit system when one country unilaterally reduces her cap on emissions her output available for domestic and foreign consumption diminishes more than in the other country with unchanged consumption expenditure shares for both goods the domestic terms of trade improve while capital stocks decline in the reducing and less strongly in the non reducing country improving terms of trade in the reducing country and falling capital stocks lead in total to welfare losses in both countries however if the country which unilaterally reduces her emission permits is a net creditor to the world economy and the golden rule applies her own welfare loss remains below that of the non reducing country

budget constrained sequential auctions with incomplete information i study a budget constrained private valuation sealed bid sequential auction with two incompletely informed risk neutral bidders in which the valuations and income may be non monotonic functions of a bidder s type multiple equilibrium symmetric bidding functions may exist that differ in allocation efficiency and revenue the sequence of sale affects the competition for a good and therefore also affects revenue and the prices of each good in a systematic way that depends on the relationship among the valuations and incomes of bidders the sequence of sale may affect prices and revenue even when the number of bidders is large relative to the number of goods if a particular good say is allocated to a strong bidder independent of the sequence of sale then auction revenue and the price of good are higher when good is sold first

capital income taxation in a world economy a territorial system versus a residence system this paper investigates the effects of a tax reform of conversion from capital income to consumption taxes on capital accumulation in a two country model in the territorial system the tax reform will normally lead to a negative comovement between capital accumulation in two countries while in the residence system it will lead to a positive comovement copyright 1991 by royal economic society

testing a present value model of the current account evidence from us and canadian time series abstract this paper presents a simple model of current account determination based upon the permanent income hypothesis of private consumption behavior under rational expectations the model employs a representative national agent who is forward looking and can borrow and lend at a constant world interest rate a present value relationship for the current account is derived and its implications are tested on post war data for the united states and canada testing is done using the framework developed by campbell and shiller 1987 which allows the forcing variables in the model to be difference rather than trend stationary our empirical results indicate the most stringent restrictions of the present value model are strongly rejected by the us and canadian data however less formal procedures suggest the consumption smoothing model has some ability to track the dynamic behavior of the us current account jel f32

auctions with endogenous valuations the persistence of monopoly revisited it is shown that the standard arguments for a monopoly to persist break down when many units of capacity become available sequentially the reason is that deterring entry at one st age affects the cost of doing so in later stages this force can be so powerful that entry is deterred only at the final stage the persistence of monopoly or its erosion over time depends on the timi ng of arrival of capacity the size of early versus subsequent capacity availability the length of the capacity acquisition stage relative to the life of the industry and the discount factor copyright 1993 by american economic association

global imbalances in the xix xx and the xxi centuries we establish a new stylized fact while the current account and the trade balances are positively correlated during the second globalization 1990s 2010s they were negatively correlated during the first globalization 1870s 1910s we show that the reason behind is that the world interest rate is currently low relatively to the world growth rate due to a global saving glut while this was not the case during the first globalization

sequential auctions of endogenously valued objects two completely informed but possibly asymmetric bidders buy or sell identical claims in sequential auctions they subsequently receive monetary prizes that depend upon the final allocation of claims iterated elimination of weakly dominated strategies leaves a unique nash equilibrium for any prize schedule prices weakly decline as the auctions progress and points of strict decline have a simple characterization for one class of prize schedules which arises naturally if duopolists bid for a scarce input the equilibrium is completely characterized many initial allocations generate the same final unequal division of claims which may be interpreted as the natural market structure journal of economic literature classification numbers d43 d44 l11

the international ramifications of tax reforms supply side economics in a global economy this paper studies tax reforms in a dynamic model of a global economy calibrated to current u s and european tax policies world capital markets add consumption smoothing and income redistribution effects that alter closed economy predictions in the absence of taxes on foreign interest welfare gains of eliminating u s income taxes are enlarged by up to 34 percent at the expense of european losses caused by transitional declines in consumption and leisure and a permanent capital outflow in contrast if foreign interest is taxed the same tax reform reduces u s welfare 0 7 percent and increases european welfare 1 8 percent copyright 1998 by american economic association