technological innovation and long waves one who has examined the dynamics of capitalist economies over long historical periods can doubt that they experience significant long term variations in their aggregate perform ance the question is whether these long term variations are more than the outcome of a summation of random events and further whether they exhibit recurrent temporal regu larities that are sufficiently well behaved to call them long waves in recent years there has been a strong resurgence of interest in such long term movements since their existence could provide a coherent explanation for the poor performance of capitalist economies over the past decade 1 this renewed interest also reflects a search for alternative ways of explaining the unbalanced nature of the growth processes of mature capitalist economies that go uncaptured by the solow swan paradigm in its concern with equilibrium dynamics and steady states of one two or multisector representations of the economy the study of price and output swings of extended duration has a long tradition having initially drawn the interest of both marxist and non marxist writers around the turn of the century 2 yet it was the work of kondratiev 1925 which constituted the first system atic attempt to confirm such movements with data that included not only prices interest rates and wage series but foreign trade industrial production and consumption for france britain and to a lesser extent the us kondratiev concluded that the data suggested the

human fallibility and economic organization doctrines concerning what is a good way to organize a society have influenced human societies more deeply than any other set of doctrines specifically beliefs that one way of organizing production and exchange is better than others have inspired a number of socioeconomic experiments leading to modern capitalist and socialist societies with far reaching implications yet surprisingly the central doctrines though a source of continuing ideological debate have been the subject of only limited scientific enquiry the major proposition the so called langelerner taylor theorem asserting the equivalence between competitive capitalist economies and decentralized socialist economies which make use of the price system made a point in stressing that the issue of the ownership of the means of production might not be central in the comparison of economic systems the theorem however was based on models both of capitalism and of market socialism in which the most important differences between the two systems were suppressed this paper describes a research program attempting to delineate some of the critical differences among alternative forms of economic organization we contend that central to an understanding of these differences is an understanding of differences in the organization of decision making of who gathers what information how it gets communicated and to whom and how decisions get made both concerning what actions to take and who should fill decision making positions this view should be contrasted with the traditional economic paradigm in which decision making plays no role the manager for instance simply looks up in a book of blueprints what the appropriate technique of production is for the given set of factor prices in the conventional paradigm moreover mistakes are never made either in gathering or transmitting information or in making decisions and indeed there are no costs associated with these activities by contrast the view we take here is that to err is human and that different organizational systems differ not only in what kinds of errors individuals make in them but also in how the systems aggregate errors as a result organizations differ systematically in the kinds of errors they make and thus in their overall economic performance organizations also differ in the costs associated with information collection with information communication and processing and with decision making indeed as we discuss below perfect decision making can be achieved by arranging enough decision makers in an appropriate manner no matter how fallible the decision makers are provided their decisions are not purely random or worse what prevents perfect decision making is the cost we refer to the specification of the structure of information gathering communication and decision making as an organization s architecture the objective of our research program has been to construct stylized models of an economic organization within which the consequences of alternative organizational architectures can be examined using these models not only can we compare the performance of particular organizational forms but we can also ask given a particular set of objectives and circumstances what is the optimal structure within tdiscussants david kreps stanford university paul milgrom yale university

are consumers spending decisions in line with an euler equation evaluating a new survey of german consumers we test whether individual consumption spending decisions are formed according to an euler equation model we find that consumers are more likely to inc

how robust are popular models of nominal frictions this paper analyzes three popular models of nominal price and wage frictions to determine which best ts post war u s data we construct a dynamic stochastic general equilibrium dsge model and use maximum likelihood to estimate each model s parameters because previous research nds that the conduct of monetary policy and the behavior of in ation changed in the early 1980s we examine two distinct sample periods using a bayesian pseudo odds measure as a means for comparison a sticky price and wage model with dynamic indexation best ts the data in the early sample period whereas either a sticky price and wage model with static indexation or a sticky information model best ts the data in the late sample period our results suggest that price and wage setting behavior may be sensitive to changes in the monetary policy regime if true the evaluation of alternative monetary policy rules may be even more complicated than previously believed

why has u s inflation become harder to forecast we examine whether the u s rate of price inflation has become harder to forecast and to the extent that it has what changes in the inflation process have made it so the main finding is that the univariate inflation process is well described by an unobserved component trend cycle model with stochastic volatility or equivalently an integrated moving average process with time varying parameters this model explains a variety of recent univariate inflation forecasting puzzles and begins to explain some multivariate inflation forecasting puzzles as well

what determines households inflation expectations theory and evidence from a household survey the purpose of the present paper is to study how households form inflation expectations using a novel survey dataset of italian households we extend the existing inattentiveness literature by incorporating explicitly inflation targets and distinguishing between aggregate and disaggregate dynamics based on demographic groups we also consider both the short and long run dynamics as households update their inflation expectations while we find clear distinctions between the various demographic groups behavior households tend to absorb professionals forecast the short run dynamics also indicate they not only overreact when updating their expectations but also adjust asymmetrically to any perceived momentum change of future inflation

epochs and essences a review of marxist long wave and stagnation theories this paper criticizes three central traditions in marxist accumula tion theory on grounds that each relies upon the assumption that the accumulation process is shaped by an ultimate determinant or essence in the stagnation argument formulated by j steindl 1976 1979 and p baran and p m sweezy 1966 capitalist firms are shaped by an urge to expand which in tu rn shapes economic growth e mandel s 1980 long wave theory formulates abstractly fixed inner laws of motion the social structures long wave theory of d gordon r edwards and m reich 1982 roots accumulation s pace in abstractly theorized power dynamics the paper suggests a nonreductionist alternative understanding of marxist economic theory copyright 1988 by oxford university press

the structure of production in south korea s manufacturing sector abstract this paper estimates a model of producer behavior for south korean manufacturing that simultaneously identifies substitution elasticities and scale economies a non homothetic translog function is employed which takes on various other functional forms i e cobb douglas homothetic homogeneous as special or limiting cases four significant conclusions are a there is potential scale economies in each subsector of south korean manufacturing b the substitutabilities between factor inputs are relatively low c factor demands are price elastic d the scale economies are correlated with the factor intensity

the role of manufacturing in regional growth harris r i d 1987 the role of manufacturing in regional growth reg studies 21 301 312 since a shift in regional policy away from manufacturing to aiding services is being advocated this paper re examines the role of manufacturing in regional growth from both an empirical and theoretical viewpoint first of all it discusses the importance of manufacturing s share of output concluding that in output terms and prior to 1979 manufacturing has not been displaced by services in shares of total output secondly the paper focuses on the theoretical importance of manufacturing to the growth of regional output showing that for most theories demand side growth pole cumulative causation manufacturing is the natural base for growth potential harris r i d 1987 le role des industries de fabrication dans la croissance regionale reg studies 21 301 312 vu que l on propose une reorientation de la politique regionale au depens des industries de fabrication et en faveur du tertiaire cet article

estimates of the sticky information phillips curve for the united states mankiw and reis 2002 have proposed a sticky information based phillips curve sipc to address some of the concerns with the sticky price based new keynesian phillips curve in this paper we present a methodology to empirically implement the sipc and estimate its key structural parameter the degree of information stickiness for the united states using this methodology we estimate average durations of information stickiness that range from three quarters on the low side to over seven quarters on the high side

trend inflation and monetary policy regimes in japan abstract this paper examines the dynamics of trend inflation in japan over the last three decades based on the smooth transition phillips curve model we find that there is a strong connection between the trend inflation and monetary policy regimes the results also suggest that the introduction of the inflation targeting policy and quantitative and qualitative easing in the beginning of 2013 successfully escaped from the deflationary regime but were not enough to achieve the 2 inflation target finally our results indicate the significance of exchange rates in explaining the recent fluctuations of inflation and the importance of oil and stock prices in maintaining the positive trend inflation regime

how do firms form their expectations new survey evidence author s coibion o gorodnichenko y kumar s abstract 2018 american economic association all rights reserved we survey new zealand firms and document novel facts about their macroeconomic beliefs there is widespread dispersion in beliefs about past and future macroeconomic conditions especially inflation this dispersion in beliefs is consistent with firms incentives to collect and process information using experimental methods we find that firms update their beliefs in a bayesian manner when presented with new information about the economy and that changes in their beliefs affect their decisions inflation is not generally perceived as being important to business decisions so firms devote few resources to collecting and processing information about inflation

a quantitative comparison of sticky price and sticky information models of price setting i estimate sticky price and sticky information models of price setting for the united states via maximum likelihood techniques reaching several conclusions first the sticky price model fits best and captures inflation dynamics as well as reduced form equations once hybrid behavior is allowed second the importance of hybrid behavior in sticky price models is potentially consistent with a role for some information imperfections such as sticky information as a complement to nominal price rigidities finally the favorable results herein for the hybrid sticky price model when evaluated by statistics that summarize the relative fit of different models is consistent with the existing literature that is both supportive and dismissive of such models as this literature has largely ignored fit in evaluating such models many previous studies have focused on ancillary issues such as the standard errors associated with certain parameters or granger causality tests that may not provide much information about sticky price models

sticky information in general equilibrium this paper develops and analyzes a general equilibrium model with sticky information the only rigidity in goods labor and financial markets is that agents are inattentive sporadically updating their information sets when setting prices wages and consumption after presenting the ingredients of such a model the paper develops an algorithm to solve this class of models and uses it to study the model s dynamic properties it then estimates the parameters of the model using u s data on five key macroeconomic time series it finds that information stickiness is present in all markets and is especially pronounced for consumers and workers variance decompositions show that monetary policy and aggregate demand shocks account for most of the variance of inflation output and hours jel e30 e10

the architecture of economic systems hierarchies and polyarchies the authors present new ways of looking at economic organizations andsystems individuals judgments entail errors they sometimes reject good projects and accept bad projects the architecture of an economicsystem specifying how the decision making units are organized togetherwithin a system who gathers what information and who communicates what with whom affects its performance both because it influences thenature of errors that individuals make within the system and becauseit has a critical effect on the aggregation of individuals errors theperformance of two polar architectures decentralized polyarchical versus centralized hierarchical decision making authorities are analyzed and compared copyright 1986 by american economic association

a naive sticky information model of households inflation expectations this paper provides a simple epidemiology model where households when forming their inflation expectations rationally adopt the past release of inflation with certain probability rather than the forward looking newspaper forecast as suggested in carroll 2003 macroeconomic expectations of households and professional forecasters quarterly journal of economics 118 269 298 the posterior model probabilities based on the michigan survey data strongly support the proposed model we also extend the agent based epidemiology model by deriving for it a simple adaptation which is suitable for estimation our results show that this model is able to capture the heterogeneity in households expectations very well

inflation expectations and behavior do survey respondents act on their beliefs we compare the inflation expectations reported by consumers in a survey with their behavior in a financially incentivized investment experiment the survey is found to be informative in the sense that the beliefs reported by the respondents are correlated with their choices in the experiment more importantly we find evidence that most respondents act on their inflation expectations showing patterns consistent with economic theory respondents whose behavior cannot be rationalized tend to have lower education and lower numeracy and financial literacy these findings help confirm the relevance of inflation expectations surveys and provide support to the microfoundations of modern macroeconomic models

a comparative analysis of the use of information inputs in the manufacturing sectors of korea and japan abstract the paper examines the use of two information inputs information labor and purchased information services in korean and japanese manufacturing sectors in 1980 marginal products and substitution elasticities are calculated from translog production function estimates for the average manufacturing sector both inputs seem to be relatively more underused in korea second the elasticity estimates suggest several hypotheses about the growth of private bureaucracies in the two economies the results are unlikely to apply to other economies which have not yet attained an advanced industrial structure a simplistic stages theory of economic development based on the growth of the information labor force is rejected

how well does sticky information explain the dynamics of inflation output and real wages abstract this paper finds that a model with sticky information is less successful than a standard model featuring nominal rigidities inflation indexation and habits in generating the dynamics triggered by technology shocks as estimated by a vector autoregression using u s macroeconomic data the real wage responses after a permanent increase in productivity clearly favor the standard model the sticky information model fails to replicate the observed inertial response in the real wage whereas the standard model relies on inflation indexation in wage setting to achieve a better fit the two models are however statistically equivalent after a shock in monetary policy

the expected price of keeping up with the joneses abstract inflation expectations elicited in surveys have been found to exhibit large dispersion across individuals although several explanations have been proposed none fully explain this puzzle we explore in this paper a new behavioral factor social comparison using original survey data we find that respondents who feel they are falling behind compared to their peers report significantly and substantially higher inflation expectations we argue that this result is consistent with an experience based belief formation model in which those unable to keep up with the joneses overweight the high prices of aspiration goods they are unable to purchase

expectations heterogeneous forecast errors and consumption micro evidence from the michigan consumer sentiment surveys the household data underlying the michigan index of consumer sentiment are used to test the rationality of consumer expectations and their usefulness in forecasting expenditure the results can be interpreted as characterizing the shocks that hit different types of households over time expectations are found to be biased and inefficient at least ex post people underestimated the disinflation of the early 1980s and the severity of recent business cycles people s forecast errors are also systematically correlated with their demographic characteristics in part because of time varying group level shocks further sentiment helps forecast consumption growth some of this rejection of the permanent income hypothesis is due to the systematic demographic components in forecast errors

fomc forecasts as a focal point for private expectations we explore empirically the theoretical prediction that public information acts as a focal point in the context of the u s monetary policy we aim at establishing whether the publication of federal open market committee fomc inflation forecasts affects the cross sectional dispersion of private inflation expectations our main finding is that publishing fomc inflation forecasts has a negative effect on the cross sectional dispersion of private current year inflation forecasts this effect is found to be robust to another survey data set and to various macroeconomic controls moreover we find that the dispersion of private inflation forecasts is not affected by the dispersion of views among fomc members

where modern macroeconomics went wrong this paper provides a critique of the dsge models that have come to dominate macroeconomics during the past quarter century it argues that at the heart of the failure were the wrong microfoundations which failed to incorporate key aspects of economic behaviour e g incorporating insights from information economics and behavioural economics inadequate modelling of the financial sector meant they were ill suited for predicting or responding to a financial crisis and a reliance on representative agent models meant they were ill suited for analysing either the role of distribution in fluctuations and crises or the consequences of fluctuations on inequality the paper proposes alternative benchmark models that may be more useful both in understanding deep downturns and responding to them

economic literacy and inflation expectations evidence from a laboratory experiment we present experimental evidence of a link between economic literacy and inflation forecast accuracy the experiment investigates two channels through which economic literacy may enable better forecasts i choice of information and ii use of information more literate subjects choose more relevant information and use the given information more effectively starting from a 10th percentile score the boost in literacy from taking an economics course predicts a 0 64 standard deviation decline in mean absolute forecasting error our findings suggest that a significant portion of demographic heterogeneity in inflation expectations observed in survey data may be driven by heterogeneity in economic literacy

inflation expectations as a policy tool abstract we assess the prospects for central banks using inflation expectations as a policy tool for stabilization purposes we review recent work on how expectations of agents are formed and how they affect their economic decisions empirical evidence suggests that inflation expectations of households and firms affect their actions but the underlying mechanisms remain unclear especially for firms two additional limitations prevent policy makers from being able to actively manage inflation expectations first available surveys of firms expectations are systematically deficient which can only be addressed through the creation of large nationally representative surveys of firms second neither households nor firms expectations respond much to monetary policy announcements in low inflation environments we provide suggestions for how monetary policy makers could pierce this veil of inattention through new communication strategies as well as the potential pitfalls to trying to do so

what can survey forecasts tell us about information rigidities a lot we derive common and conflicting predictions from models in which agents face information constraints and then assess their validity using surveys of consumers firms central bankers and professional forecasters we document that mean forecasts fail to completely adjust on impact to shocks leading to statistically and economically significant deviations from the null of full information the dynamics of forecast errors after shocks are consistent with the predictions of models with information rigidities the conditional responses of forecast errors and disagreement among agents can also be used to differentiate between some of the most prominent models of information rigidities

perceived inflation under loss aversion building on prospect theory we apply the concept of loss aversion to the formation of inflation perceptions and test empirically for nonlinearities in the inflation perceptions relation for a panel of 10 euro area countries specifically under the assumption of loss aversion inflation changes above a certain reference rate will be perceived more strongly rejecting rationality of inflation perceptions in general under symmetric loss and in a majority of cases under flexible loss functions panel smooth transition models give evidence of nonlinearities in the inflation perceptions relation regarding both actual inflation and time this result is confirmed by dynamic fixed effects estimates where the slope of the estimated value function is significantly steeper in the loss region and the implied average reference inflation rate is found close to 2

public information and inflation expectations microeconometric evidence from a natural experiment abstract governments provide public information to reduce information imperfections do households rely on public signals to inform themselves about market conditions to identify the importance of public information in households price expectations we take advantage of a unique natural experiment in ecuador where the published inflation rate had been different from the correct rate over a period of fourteen months due to a software error we find that the public signal about prices plays an important role in households price expectations and the change in price expectations affects their savings choices the effect is stronger for better educated and older people

rational adaptive and learning behavior of voters evidence from disaggregated popularity functions for sweden the disaggregated study confirms earlier aggregated studies showing that unemployment strongly affects the popularity of the swedish government the results presented here however suggest that there are differences among popularity functions estimated across groups differing in age income and gender consequently popularity functions estimated at an aggregated level ignore reaction patterns within various groups in society

a new comparative approach to macroeconomic modeling and policy analysis in the aftermath of the global financial crisis the state of m acroeconomic modeling and the use of macroeconomic models in policy analysis has come under heavy criticism macroeconomists in academia and policy institutions are blamed for relying too much on a particular class of macroeconomic models that did not sufficiently this paper propose s a comparative approach to macroeconomic policy analysis that is open to competing modeling paradigms macroeconomic model comparison projects have helped produce some very influenti al insights such as the taylor rule however they have been infrequent and costly because they require the input of many teams of researchers and multiple meetings to obtain a limited set of comparative findings this paper provides a new comparative approach to model based research and policy analysis that enables individual researchers to conduct model comparisons easily frequently at low cost and on a large scale using this approach a model archive is built that incl udes many well known empirically estimated models that may be used for quantitative analysis of monetary and fiscal stabilization policies a computational platform is created that allows straightforward comparisons of models implications its application is illustrated by compa ring different monetary and fiscal policies across selected models researchers can easily include new models in the data base and compare the effects of novel extensions to established benchmarks thereby fostering a comparative instead of insular approach to model development

life cycle portfolio choice the role of heterogeneous under diversification the empirical work on household portfolio choice documents two facts one the stock market participation rate is low and hump shaped over the life cycle two the conditional share of stocks is also low but does not appear to change much during the life cycle in contrast the standard life cycle portfolio choice model predicts high and monotonically increasing participation rates and conditional stock shares that are low and exhibit dramatic changes with age in this paper i consider a number of extensions to this basic framework i find that a small per period participation cost is needed to generate a hump shaped life cycle profile of participation rates under a realistic calibration the quantitative effect is minor progressive social security and the assumption that the risk of stock portfolios is declining in household wealth as a consequence of better diversification opportunities an assumption that has some empirical support though provide substantial amplification and significantly improve the ability of the model to match the data under diversification also reduces the average portfolio share of stocks conditional on participation and together with the intergenerational transmission of wealth makes it insensitive to age consistent with the empirical evidence

information induced heteroscedasticity in price expectations data this study tests the hypothesis that price expectations differ across individuals because they acquire different information about inflation if price information is a normal good then the amount of price information acquired will vary across individuals according to income education and other demand specific variables causing price expectations to be heteroscedastic with respect to these variables utilizing monthly household survey data the authors test the heteroscedasticity hypothesis and find support for the differential information model in addition they develop a novel method of incorporating the don t know response to questions about inflation into the estimation of price expectations copyright 1990 by mit press

the power to tax analytical foundations of a fiscal constitution preface 1 taxation in constitutional perspective 2 natural government a model of leviathan 3 constraints on base and rate structure 4 the taxation of commodities 5 taxation through time income taxes capital taxes and public debt 6 money creation and taxation 7 the disposition of public revenues 8 the domain of politics 9 open economy federalism and taxing authority 10 toward authentic tax reform prospects and prescriptions epilogue notes selected bibliography index

rational expectations and macroeconomic forecasts the article presents extensive results from testing for bias and serially correlated errors in a collection of time series of quarterly multiperiod forecasts for six variables including real gnp growth inflation and unemployment the analysis covers responses by 79 frequent participants in economic outlook surveys conducted regularly since 1968 it shows much greater incidence of apparently systematic errors for inflation than for the other variables also the tests are more favorable to composite group forecasts than to most of the individual forecast sets

a tale of two rigidities sticky prices in a sticky information environment macroeconomic models with microeconomic foundations allow for comparisons with macro and micro empirical evidence this paper proposes a model wherein firms i acquire information infrequently generating sticky information mankiw and reis 2002 and ii face menu costs producing state dependent sticky prices i estimate parameters via indirect inference and show that under considerable real rigidity sticky prices in a sticky information environment are consistent with micro and macro evidence sticky prices not only help match micro data on price changes size and durations between adjustments they also improve the model s fit with the macro data as embodied in an empirical phillips curve

information and economic analysis a perspective ten years ago i delivered a paper before this group with the title information and economic analysis i chose the title deliberately i did not call the subject on which i was speaking the economics of information because to do so would have been to suggest that my topic like the economics of agriculture or the economics of industry or the economics of labour represented another branch of specialisation within economics i wanted to suggest that informational considerations were in fact central to the analysis of a wide variety of phenomena that they constituted a central part of the foundations of economic analysis at the time though economists had long paid lip service to the importance of information there was little formal literature the last decade has seen a burgeoning of the literature it has become to the late 7o s and early 8o s what growth theory was to the early 6o s and it has been greeted with some of the same scepticism there seems to be a myriad ofspecial cases and few general principles the little examples are often contrasted unfavourably with the generality of general equilibrium theory what have we learned have diminishing returns set in are there fruitful directions for future research and if so what are they these are the questions which i wish to address here the work of the past decade has made i think a fundamental and lasting contribution to economic analysis the contributions have been both negative and positive we have learned that much of what we believed before is of only limited validity that the traditional competitive equilibrium analysis though having the superficial appearance of generality in terms of superscripts and subscripts is indeed not very general the theory is not robust to slight alterations in the informational assumptions it is but a special and not very plausible example among the possible set of informational assumptions which can be employed to characterise an economy at the same time the theory has been able to provide insights into phenomena about which the traditional model had nothing to say or which seemed inconsistent or inexplicable within the competitive paradigm it has provided some of the micro foundations for macro economics it has provided the basis of a new theory of the firm of a new new welfare economics and of a theory of economic organisation including a comparison of economic

heterogeneous inflation expectations and learning using the panel component of the michigan survey of consumers we estimate a learning model of inflation expectations allowing for heterogeneous use of private information and lifetime inflation experience life experience inflation has a significant impact on individual expectations but only for 1 year ahead inflation public information is substantially more relevant for longer horizon expectations even controlling for life experience inflation and public information idiosyncratic information explains a nontrivial proportion of the inflation forecasts of agents women ethnic minorities and less educated agents have a higher degree of heterogeneity in their idiosyncratic information and give less importance to recent movements in inflation

government size and economic growth a new framework and some evidence from cross section and time series data a study of the impact of government size on economic performance and growth is important theoretically one point of view suggests that a larger government size is likely to be detrimental to efficiency and economic growth because for example i government operations are often conducted inefficiently ii the regulatory process imposes excessive burdens and costs on the economic system and iii many of government s fiscal and monetary policies tend to distort economic incentives and lower the productivity of the system at the other extreme one can identify some points of view that assign to the government a critical role in the process of economic development and could argue that a larger government size is likely to be a more powerful engine of economic development there are several arguments on which the latter point of view is based these include besides others i role of the government in harmonizing conflicts between private and social interests ii prevention of exploitation of the country by foreigners and iii securing an increase in productive investment and providing a socially optimal direction for growth and development

inside the black box technology and economics economists have long treated technological phenomena as events transpiring inside a black box and on the whole have adhered rather strictly to a self imposed ordinance not to inquire too seriously into what transpires inside that box the purpose of professor rosenberg s work is to break open and examine the contents of the black box in so doing a number of important economic problems be powerfully illuminated the author clearly shows how specific features of individual technologies have shaped a number of variables of great concern to economists the rate of productivity improvement the nature of learning processes underlying technological change itself the speed of technology transfer and the effectiveness of government policies that are intended to influence technologies in particular ways the separate chapters of this book reflect a primary concern with some of the distinctive aspects of industrial technologies in the twentieth century such as the increasing reliance upon science but also the considerable subtlety and complexity of the dialectic between science and technology other concerns include the rapid growth in the development of costs associated with new technologies as well as the difficulty of predicting the eventual performance characteristics of newly emerging technologies

investment dynamics with information costs investment in physical capital at the micro level is infrequent and large or lumpy the most common explanation for this is that firms face non convex physical adjustment costs the model developed in this paper shows that information costs make investment lumpy at the micro level even in the absence of non convex adjustment costs when collecting and processing information is costly the firm optimally chooses to do it sporadically and to be inactive most of the time this behavior results in infrequent and possibly large capital adjustments the model fits plant level investment rate moments well and it also matches some higher order moments of aggregate investment rates keywords investment dynamics information costs inattentiveness lumpy investment jel classification d21 d83 d92 e22

ces production functions in manufacturing and problems of industrialization in ldcs evidence from korea information about the elasticity of substitution between capital and labor is very important in ldcs for several reasons first development policies in many ldcs pursue both rapid industrialization and widespread distribution of its benefits by expanding industrial employment opportunities if the elasticity of substitution is high it is relatively easy to expand employment opportunities without sacrificing output growth by manipulating relative factor prices properly or for that matter by reducing the wage rental ratio since the factor intensities of output depend on relative factor prices second high elasticity of substitution makes possible a flexible response to external changes for example a factor price change in the international market i e an oil price shock can be partially absorbed by adopting laborintensive production processes in this article i am going to discuss ces production functions for two digit industries in korea one of my main purposes in this article is to show empirically that the elasticities of substitution are not zero in almost all of korea s industries regardless of the firm s size 2 furthermore i shall show that production functions differ across different size groups of business firms in a given industry since it is widely acknowledged that wage rental ratios in small and medium firms are lower than in large firms 3 nonzero elasticities of substitution between labor and capital in small medium firms will have an important policy implication that is by encouraging the activities of smalland medium sized firms one can expand employment opportunities in the manufacturing sector and enhance the efficiency of the economy by adjusting the industrial structure to be consistent with domestic factor endowments it is conceivable that the direct importation of production technologies

macroeconomic expectations of households and professional forecasters economists have long emphasized the importance of expectations in determining macroeconomic outcomes yet there has been almost no recent effort to model actual empirical expectations data instead m acroeconomists usually simply assume that expectations are rational this paper shows that while empirical household expectations are not rational in the usual sense expectational dynamics are well captured by a model in which households views derive from news reports of the views of professional forecasters which in turn may be rational the model s estimates imply that people only occasionally pay attention to news reports this inattention generates stickyness in aggregate expectations with important macroeconomic consequences

monetary policy endogenous inattention and the volatility trade off this paper addresses the output price volatility puzzle by studying the interaction of optimal monetary policy and agents beliefs we assume that agents choose their information acquisition rate by minimizing a loss function that depends on expected forecast errors and information costs endogenous inattention is a nash equilibrium in the information processing rate although a decline of policy activism directly increases output volatility it indirectly anchors expectations which decreases output volatility if the indirect effect dominates then the usual trade off between output and price volatility breaks down this provides a potential explanation for the great moderation that began in the 1980 s

term structure evidence on interest rate smoothing and monetary policy inertia abstract numerous studies have used quarterly data to estimate monetary policy rules or reaction functions that appear to exhibit a very slow partial adjustment of the policy interest rate the conventional wisdom asserts that this gradual adjustment reflects a policy inertia or interest rate smoothing behavior by central banks however such quarterly monetary policy inertia would imply a large amount of forecastable variation in interest rates at horizons of more than 3 months which is contradicted by evidence from the term structure of interest rates the illusion of monetary policy inertia evident in the estimated policy rules likely reflects the persistent shocks that central banks face

current account dynamics under information rigidity and imperfect capital mobility abstract the current account in developed countries is highly persistent and volatile in comparison to their output growth the standard intertemporal current account model with rational expectations re fails to explain the observed current account and consumption dynamics the re model extended with imperfect capital mobility by shibata and shintani 1998 can account for the consumption dynamics but only at the cost of the explanatory power for the volatility of the current account this paper replaces re in the intertemporal current account model with sticky information si in which consumers are inattentive to shocks to their income the si model can better explain a persistent and volatile current account than the re model but it overpredicts the persistence of changes in consumption the si model extended with imperfect capital mobility explains both the current account and consumption provided that sufficiently high degrees of information rigidity and imperfect capital mobility are considered

optimal price setting with observation and menu costs we study the price setting problem of a firm in the presence of both observation and menu costs in this problem the firm optimally decides when to collect costly information on the adequacy of its price an activity which we refer to as a price review upon each review the firm chooses whether to adjust its price subject to a menu cost and when to conduct the next price review this behavior is consistent with recent survey evidence documenting that firms revise prices infrequently and that only a few price revisions yield a price adjustment the goal of the paper is to study how the firm s choices map into several observable statistics depending on the level and relative magnitude of the observation vs the menu cost the observable statistics are the frequency of price reviews the frequency of price adjustments the size distribution of price adjustments and the shape of the hazard rate of price adjustments we provide an analytical characterization of the firm s decisions and a mapping from the structural parameters to the observable statistics we compare these statistics with the ones obtained for the models with only one type of cost the predictions of the model can with suitable data be used to quantify the importance of the menu cost vs the information cost we also consider a version of the model where several price adjustment are allowed between observations a form of price plans or indexation we find that no indexation is optimal for small inflation rates

the global impact of information technology abstract the paper explores the impact of information technology on the worldwide distribution of income employment and growth a review of the empirical literature is used to quantify the impact of information technology on productivity in different sectors and groups of countries an economic model of the global economy is then used to calculate the possible impact of information technology on international and domestic distribution and employment a number of alternative possibilities are considered i industrial countries are the most successful in introducing the new technology ii the technology turns out to be capital saving rather than labor displacing iii the rate of diffusion to developing countries increases iv the small scale and decentralizing potential of information technology is exploited the calculations suggest that indirect effects arising from international and intersectoral competition are at least as important as direct effects and that the distribution of gains from information technology depends as much upon what technology is introduced as on where it is introduced

income effects and paradoxes in the theory of international trade every field in economics has its paradoxes phenomena which initially are thought to confound economic sense but ultimately come to be better understood the field of international trade can claim its fair share the examples of the metzler paradox wherein a tariff fails to provide protection or that of immerising growth wherein a country suffers a loss in welfare despite an improvement in production possibilities come easily to mind more recently a reexamination of the transfer problem in the context of many country trade or of tax distortions has revealed possibilities for donor countries to gain or transfer recipients to lose results which would be considered so paradoxical in standard treatments as to be ruled out by stability arguments behind each of the examples just cited lies a rational explanation in which income effects prove crucial in supporting a paradoxical outcome in some situations the potential for paradox rests on the possibility of income redistribution nationally or internationally when tastes differ among the various trading participants paradox becomes impossible if tastes at the margin are identical in other instances income redistribution is not the crucial mechanism and paradoxical outcomes may occur even if all traders possess the same taste patterns all cases share the property that paradoxes can arise only if the terms of trade are sufficiently disturbed substitution effects high values of which serve to dampen the required adjustment of prices to a market disturbance thus work to prevent paradoxical outcomes in the first section of this paper i focus on those issues for which income effects are associated with income redistribution especially the analysis of tariffs and transfers in markets that initially are free of taxes or other distortions in the second section i analyse an issue for which income redistribution is no longer the central ingredient the welfare consequences of growth a standard technique in game theory allows for a reinterpretation of the growth case to reveal the fundamental connection between a wide variety of standard two country results in the theory of international trade and the possibility of paradoxes in the three agent transfer problem i would therefore argue that the three agent transfer literature has wider applicability than is commonly perceived in the final section i analyse briefly the frequently encountered argument that some instances of paradoxical welfare loss can be avoided by optimal tariff policy i wish to thank isaias coelho for helpful conversations makoto yano for stimulating my interest in the transfer problem with many agents and j peter neary for comments on an earlier draft useful suggestions were also received at seminar presentations at the institute for international economic studies in stockholm and the london school of economics research support was provided by the national science foundation grants ses 78o6159 and ses 8309386 i the role of substitution effects in transfer paradoxes with more than two commodities and agents is discussed by de meza 1983

formation of rationally heterogeneous expectations this paper models expectation formation by taking into account that agents may produce heterogeneous expectations because of informational frictions and differing levels of a capacity to process information we show that there are two general classes of steady states within this framework those where strictly dominated forecasting rules vanish and those heterogeneous states where a positive proportion of agents uses a more costly perfect foresight we demonstrate that intrinsic heterogeneity can also arise in a model where the forecasting rules are not equally costly and do not exhibit identical performance in the long run

trade and structural change nics and next tier nics as transitional economies abstract the paper finds a strong association between rapid change in the sectoral composition of output and exports structural change and rapid export growth in the newly industrializing countries capital formation appears to be encouraged in dynamic economies by the underpricing of investment goods vis a vis consumption and government goods within these economies also the underpricing of investment goods in dynamic economies is relatively greater than in less dynamic economies whereas other research has found low price distortion to be associated with high growth and an outward rather than an inward looking orientation these associations are seriously challenged and more caution is urged in reaching generalized conclusions

does self fulfilment of the inflation expectation exist abstractthis study examines the causal relationship between the actual and expected inflation in the u s using the bootstrap granger full sample causality test and sub sample rolling window estimation test to illustrate the self fulfilment of inflation expectations the full sample result indicates that there is a bidirectional causality between the actual and expected inflation showing the possibility of self fulfilment of inflation expectations which illustrates that inflation is driven by inflation expectation however considering structural changes in two series we find that the short run causal nexus between the actual and expected inflation using full sample data are fraudulent by adopting a time varying rolling window approach to revisiting the dynamic causal relationships this article identifies that the actual inflation has both positive and negative impacts on the expected inflation in distinct sub periods nevertheless inflation expectation exerts only negative effects on the actual inf

korea in the 1990s making the transition to a developed economy abstract thanks to rapid economic growth over the past quarter century korea today has emerged as one of the newly industrializing countries with the greatest promise of making a successful transition to a fully industrialized nation in its efforts to manage this transition korea will face many challenges ranging from protectionism abroad to the need to ensure more even income distribution at home the strategy korea should adopt to meet those challenges is one of fully liberalizing policies in every sector of its economy as the key components of this strategy korea must restructure its financial and agricultural systems while maintaining price stability and redefining the role of the government in economic and social development if it follows such a strategy korea in the year 2000 could well be a developed nation with an important role in upholding the international economic system and maintaining world peace

comment on m bruno theoretical developments in the light of macroeconomic policy and empirical research the paper by michael bruno is a very interesting and thought provoking survey of the key new likely desirable developments in macroeconomics as seen by a distinguished economist and policymaker i like and agree with most of bruno s arguments and assessments so all i will do is add three further reflections on points in his paper this is a comment in a volume dealing with no less than the development of macroeconomics therefore i have chosen to discuss grand subjects where all i can do is outline the problems and leave the answers to the reader let me begin with bruno s comments on the re emergence of the pricewage spiral in economic theory the importance of the cola the importance of external price rises etc broadly speaking these remarks deal with the importance of institutions for the dynamics of prices and wages i think these remarks are part of a complex something we all should have faced long ago maybe we academic economists have been led astray by analytical convenience into almost universal acceptance of a belief that we should never have accepted without solid empirical support even if it

the multi country transfer problem abstract a general formula is derived for the welfare effects of a set of transfers among several countries in a two good model with production and substitution and compatible with walrasian stability the relation to recent work on transfer paradoxes is sketched

the economic dynamics of technologies development abstract there is little doubt about the fact that specific major technologies shape the long waves in economic activity the trouble is that we don t understand very well what exactly is meant economically by the term specific technologies synthetic materials microelectronics and alike the purpose of this paper is to set up a conceptual framework to fit this requirement and thus to understand the economic dynamics of the development process involved schumpeter did study the innovation s economics dynamics still he did not elaborate a consistent story and the internal forces of a given technology as for ourselves following schmookler by theorizing the behaviour of the small innovation instead of the major one and rosenberg by taking into consideration the technical heuristic as such we suggest a framework for the dynamics of technologies development we use an evolutionary approach a la nelson and winter and gradually define the different components of this special dynamics a specific technology would appear to be a theoretical unit which gives structure to elementary small innovations according to a particular cumulative path

new tests of the new keynesian phillips curve abstract lagged dependent variables typically play an important role in empirical models of inflation do these lags reflect backward looking inflation expectations or do they proxy for rational forward looking expectations as in the new keynesian phillips curve gali and gertler 1999 inflation dynamics a structural econometric analysis journal of monetary economics 44 195 222 attempt to answer this question using gmm to estimate specifications incorporating both lagged and future inflation they report small coefficients on lagged inflation and conclude that the new keynesian model provides a good first approximation to inflation dynamics we show that these tests have low power against alternative backward looking specifications and demonstrate that their results are also consistent with a backward looking phillips curve using an alternative approach we find that the new keynesian pricing model cannot explain the importance of lagged inflation in standard inflation regressions and find that forward looking terms play a very limited role in explaining inflation dynamics

when is cheap cheap enough to bridge the digital divide modeling income related structural challenges of technology diffusion in latin america summary the article presents a model that shows how income structures create diffusion patterns of information and communication technologies icts the model allows the creation of scenarios for potential cuts in access prices and or required subsidies for household spending in mexico uruguay brazil and costa rica one analyzed scenario would require the reduction of ict prices to as low as 4 of the current price levels to us 0 75 per month or alternatively a subsidy as high as 6 2 of gdp a figure comparable to public spending on education plus health this is the income reality of the poor neither existing technological solutions nor existing financial mechanisms are sufficient to cope with this economic reality the alternatives such as a prolonged period of public access are discussed

keynesian economics without the phillips curve abstract we extend farmer s 2012b monetary fm model in three ways first we derive an analog of the taylor principle and we show that it fails in u s data second we use the fact that the model displays dynamic indeterminacy to explain the real effects of nominal shocks third we use the fact the model displays steady state indeterminacy to explain the persistence of unemployment we show that the fm model outperforms the new keynesian model and we argue that its superior performance arises from the fact that the reduced form of the fm model is a vecm as opposed to a var this article is part of a special issue entitled fiscal and monetary policies

sticky information and model uncertainty in survey data on inflation expectations abstract this paper compares three reduced form models of heterogeneity in survey inflation expectations on the one hand we specify two models of forecasting inflation based on limited information flows of the type developed in mankiw and reis 2002 sticky information versus sticky prices a proposal to replace the new keynesian phillips curve quarterly journal of economics 117 4 1295 1328 we present maximum likelihood results that suggests a sticky information model with a time varying distribution structure is consistent with the michigan survey of inflation expectations we also compare these sticky information models to the endogenous model uncertainty approach in branch 2004 the theory of rationally heterogeneous expectations evidence from survey data on inflation expectations economic journal 114 497 non parametric evidence suggests that models which allow the degree of heterogeneity to change over time provide a better fit of the data

are perceptions of inflation rational some evidence for sweden this survey paper argues that walrasian markets and monetary exchan ge are alternative not complementary arrangements for coordinating economic activity that if one realizes this many informational anomalies and price rigidities that appear irrational in a walrasia n context can be understood as the outcome of maximizing behavior in a monetary economy and that the precautionary approach to modelin g the demand for money takes on a particular importance in this way of looking at things empirical evidence on the demand for money is cite d in support of this point of view which tends to reinstate the quantity of money as an important economic variable in contrast to the new classical vision of the economy whi ch downgrades money s importance this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

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

are purchased information services underused in manufacturing evidence from japan korea and taiwan macro production functions which include purchased information services as an intermediate input are estimated for the manufacturing sectors of japan korea and taiwan the aim is to assess the degree of suboptimal use of this input similar previous studies mainly concentrated on the us using single equation estimation methods using a translog function approach the results in this study seems to indicae hat purchased information services are used suboptimally in the manufacturing sectors of all three economies the largest suboptimal use is observed in korea economic policies fostering the development of information service industries might therefore be more urgent in nics than in developed economies however out results are subject to the assumption of perfect competition in product and factor markets

macroeconomic forecasting using diffusion indexes this article studies forecasting a macroeconomic time series variable using a large number of predictors the predictors are summarized using a small number of indexes constructed by principal component analysis an approximate dynamic factor model serves as the statistical framework for the estimation of the indexes and construction of the forecasts the method is used to construct 6 12 and 24 monthahead forecasts for eight monthly u s macroeconomic time series using 215 predictors in simulated real time from 1970 through 1998 during this sample period these new forecasts outperformed univariate autoregressions small vector autoregressions and leading indicator models

news on inflation and the epidemiology of inflation expectations this paper examines the nexus between news coverage on inflation and households inflation expectations in doing so we test the epidemiological foundations of the sticky information model carroll 2003 2006 we use both aggregate and household level data from the survey research center at the university of michigan we highlight a fundamental disconnection among news on inflation consumers frequency of expectation updating and the accuracy of their expectations our evidence provides at best weak support to the epidemiological framework as most of the consumers who update their expectations do not revise them toward professional forecasters mean forecast

frequency bias in consumers perceptions of inflation an experimental study we investigate whether the perception of economy wide inflation is affected by the frequency with which various goods prices are observed we provide novel experimental evidence that consumers perceptions of aggregate inflation are systematically biased toward the perceived inflation rates of the frequently purchased items this frequency bias may affect consumers consumption and investment decisions and thus have important macroeconomic consequences it may also explain why consumers typically over estimate inflation in surveys during periods where frequently purchased non durable goods are inflating faster than durables