substitutability and the welfare effects of endowment increases abstract mas colell has conjectured that if all commodities are normal goods for a certain consumer and if the aggregate excess demand function of the other consumers satisfies the condition of gross substitutability then an increase in his initial endowments will lead to a new equilibrium allocation which will be preferred by him this excludes the immiserizing growth paradox it is shown that a sufficient condition is that commodities be also net substitutes for the consumer that has been singled out

is the price level tied to the m2 monetary aggregate in the long run a long run link between money and prices is evident for the united states since the korean war if the m2 measure of money is used and the velocity of m2 v2 is modeled as a mean reverting series this link between m2 and prices is the basis for a dynamic model of inflation that compares favorably in forecasting exercises with phillips curve and more typical monetarist approaches the behavior of v2 is examined from 1870 to the present providing a basis for reconsidering previous findings that v2 follows a random walk copyright 1991 by american economic association

foreign ownership and the theory of trade and welfare some standard topics in the theory of international trade are reconsidered in this paper by distinguishing between national and aggregate income when fixed supplies of foreign inputs are present within the home country under conditions that would ensure a national welfare gain if foreign ownership were absent international transfer economic growth or tariff policy might cause a national welfare loss in the presence of foreign ownership the techniques developed could be applied to other domestic distinctions such as those based on race sex age or ethnicity and to the theory of customs unions in a three country world

models of inflation expectations formation a comparison of household and economist forecasts the recent appreciation of the critical role played by expectations of inflation in the behavior of macromodels has stimulated empirical studies of the formation of expectations by different groups time series survey data on expectations of inflation exist now for economists households and businesses these data have been used as independent variables in explaining wage behavior gordon 16 turnovsky and wachter 34 and de menil and bhatta 5 prices turnovsky and wachter 34 and wachtel 36 interest rates gibson 14 hendershott and van horne 19 pearce 30 and mishkin 27 and consumption wachtel 36 generally with a significant improvement in explanatory power they have also been used as dependent variables in attempts to determine how expectations are formed by gordon 15 mullineaux 28 jacobs and jones 20 and figlewski and wachtel 9 for the economist survey van duyne 35 for the household survey and leonard 23 and de leeuw and mckelvey 4 for businesses given their different levels of knowlege of economics and perspectives one might expect that the models used by the different groups to forecast inflation would

why are informal loans still a big deal evidence from north east thailand abstractthis article examines the use and benefit of informal loans for different income groups of rural households in north east thailand using a difference in differences estimation approach which is later complemented by propensity score matching the article shows that different household groups profit from informal loans in different ways poor households increase their asset endowment and in particular farming assets whereas rich households food consumption rises especially if households borrow due to a shock by showing that informal loans serve different households for different purposes this article provides an explanation why they still play an important role

gross substitutes and immiserizing growth abstract in a pure exchange economy immiserizing growth occurs when an increase in the endowment of one trader results in a new equilibrium where that trader has lower utility this paper demonstrates that such perverse behavior is ruled out when excess demands satisfy a particular gross substitute condition

seasonal migration to mitigate income seasonality evidence from bangladesh in northwest bangladesh some 36 percent of poor households migrate every year during the lean monga period to cope with seasonal deprivation analysis of household survey data shows that the probability of seasonal migration is high for households with a high dependency ratio high dependency on wage employment and in villages with high unemployment but low in villages with microcredit access findings show that seasonal migration helps households to smooth consumption and those non migrant households who suffer during monga will likely benefit from deciding to migrate but the cost of migration and lack of networking are potential barriers the paper is structured as follows section one gives introduction the second section discusses the data and its major characteristics such as the incidence of seasonal migration as a coping strategy and its relation to seasonal hardships measured by starvation and meal rationing the third section presents an analytical framework of how seasonal migration can help smooth consumption during the lean season the fourth section analyses the determinants of seasonal migration while the fifth section assesses the potential effect of seasonal migration on rural households consumption smoothing behavior finally section six summarizes the study findings and their policy implications

a result on the transfer problem in international trade theory abstract the purpose of this paper is to provide a result on the welfare effect of a transfer in a general equilibrium exchange model with no arbitrary restrictions on either the number of commodities traded or the number of countries our result can be stated as follows the donor country is worse off after a transfer if a all goods are net substitutes for the donor b all goods are gross substitutes for the other countries and c all goods are normal for all countries

alternative p models of inflation forecasts i introduction inflation forecasts play a key role in monetary and macroeconomics during the past three decades dramatic changes in the inflationary environment have stimulated a wealth of studies on the relative accuracy of alternative models of inflation forecasts in particular mehra 1988 stockton and glassman 1987 and reichenstein and elliott 1987 found varying performance in traditional models including the term structure phillips curve and typical monetarist models across postwar periods against this background hallman porter and small 1991 hps introduced a model called p star p sup as inflation forecasters holy grail the p sup framework is built on the general perception that inflation over the long run is a monetary phenomenon however as christiano 1989 argued p sup entails no practical implication for shorter run horizons that are of primary interest to inflation forecasters he further pointed out that for the period of 1970 89 one to three year ahead forecasts from p sup are not meaningfully more accurate than those from traditional models the usefulness of p sup as an anchor for the price level also suffers from another limitation the assumption that velocity which is the ratio of nominal gdp to a monetary aggregate is stable over the long run hps justified the validity of this hypothesis based on postwar 1955 88 data for the broad monetary aggregate m2 used in their model during the early 1990s however the growth rate of m2 apparently slowed down relative to that of gdp leading to a sharp rise in m2 velocity this consequently caused p sup to persistently underpredict actual inflation duca 1995a has provided a detailed discussion on plausible sources of this instability in velocity the literature has also offered plausible solutions to correct p sup models for the observed structural change ranging from redefining the relevant monetary aggregate to directly accounting for a trend break in velocity while evidence supports that these individual methods improve upon the original p sup formulation there is a lack of research comparing their performance especially in periods other than the early 1990s the first objective of the present study therefore is to fill this void the second objective of this paper is to reevaluate the robustness of earlier findings regarding the relative performance of hps s original p sup model to this end we divide the full out of sample forecast period of 1970 96 into three subsamples our results reveal a pattern of switching forecast performance between money based and output based models across recent periods the fragility of these models highlights the extent of temporal instability in the inflation generating process this paper proceeds as follows the next section describes alternative p sup model specifications and other inflation forecast models section iii discusses the forecast results section iv summarizes and concludes ii model specifications the p sup model the benchmark of the p sup model is the quantity theory of money which relies on the equation of exchange 1 p sub t equivalent to m sub t v sub t y sub t where p is the price level m is a measure of money supply v is the velocity of money y is the level of output real gdp and a time subscript denotes the current value of a variable it follows that if v sub t and y sub t reach their long run equilibrium levels at mathematical expression omitted and mathematical expression omitted respectively then the current equilibrium price level mathematical expression omitted can be determined as 2 mathematical expression omitted according to hps mathematical expression omitted is measured by the historical mean of v sub t and mathematical expression omitted by the level of potential gdp

wage and price dynamics in china we study wage price dynamics in mainland china with a novel data set using province level data from 1994 to 2010 we find that the growth in labour costs in china is not passed through fully to final prices neither in the tradable goods sector nor in the economy as a whole this probably reflects the strong pressure on profit margins from a highly competitive environment especially in manufactured goods these findings have potential implications for global price developments given china s relevance in global supply chains

a comparison of models of long term inflationary expectations abstract this paper compares several models of long term inflationary expectations including time series models models drawn from interest rate relationships and a structural model developed from a portfolio balance framework their within sample performance over 1961 1974 and out of sample performance over periods covering 1975 1982 are compared evaluation criteria include accuracy of forecasts and ability to capture changes in the trend of long term inflation the structural model is judged best its forecasts are generally the most accurate and it performs well in periods of rising and falling inflation an attribute not present in other models

do village funds improve access to finance evidence from thailand summary this paper examines whether recently introduced village funds one of the largest microfinance programs ever implemented improve access to finance village funds are analyzed in a cross sectional approach in comparison to competing financial institutions we find first that they reach the target group of lower income households better than formal financial institutions second village funds provide loans to those kinds of borrowers who tend to be customers of informal financial institutions third village funds help to reduce credit constraints thus village funds provide services in the intended direction albeit to a seemingly limited degree

relative price variability inflation and the allocative efficiency of the price system abstract this paper develops a theory of the relationship between aggregate and relative price variability based on the inability of people even in a rational world to identify permanent changes in relative demands whether caused by real or by monetary variability and relative productivities as soon as they occur the theory implies that the variance of the rate of inflation and the variance of relative price change are positively related although expectations are rational and markets always clear production decisions respond sluggishly to changes in relative prices temporary shocks to relative demands cause prolonged changes in the structure of production available information is used so as to maximize the efficiency of the price system however this efficiency decreases when any of the underlying variances increases this decrease is more pronounced when the production lag is longer

the relationship between relative prices and the general price level it is very nearly a truismi amaong neoclassical economists that the public is wont to confuse changes in the general price level with relative price changes correspondingl y one might speak of the independence between the two as one of the central postulates of the neoclassical tradition william stanley jevons was aml ong the first to identify this basic dichotomin economic life as well as to attempt to explain the ordinary citizen s seenming incapacity to understand it

the generalized theory of transfers and welfare bilateral transfers in a multilateral world paul samuelson s 1952 1954 classic papers on the transfer problem addressed two separate analytical issues the positive effect of a transfer on the terms of trade and the welfare effect of the transfer on the donor and the recipient since then a considerable body of literature has grown up on the positive analysis while samuelson 1954 himself had extended the 2 x 2 x 2 free trade analysis to allow for tariffs and transport costs subsequent writers have analyzed other extensions of the model for example to allow for nontraded goods as with leisure in samuelson 1971 or general nontraded goods in john chipman 1974 and ronald jones 1970 1975 remarkably however the welfare analysis of transfers has not paralleled these developments since wassily leontief 1936 produced an example of immiserizing transfer from abroad and samuelson 1947 argued that the example required market instability the proposition that has monopolized attention has been that a transfer in the conventional 2 x 2 x 2 model in its free trade version cannot immiserize the recipient or enrich the donor as long as world markets are stable in the walras sense interestingly samuelson 1954 who did extend the positive analysis to include tariffs did not go on to ask whether immiserization of the transfer recipient and hence symmetrically enrichment of the donor in a two country model could now arise consistent with market stability recently the welfare analysis of transfers has been extended in two different directions both apparently unconnected and both yielding the conclusion that transfers from abroad can be immiserizing and that the donor may improve its welfare despite market stability one route to this conclusion has been the introduction of a third economic agent or country that is outside of the transfer process in the appendix of his 1960 paper analyzing the interaction between trade policy and income distribution harry johnson discussed the possibility of welfareparadoxical redistribution between two factor income classes capital and labor in an open economy thereby providing what can be interpreted as a treatment of the threeagent transfer problem for the case in which donor and recipient are both completely specialized in the ownership of a single different factor an independent analysis of the three agent transfer problem using a restrictive model with given endowments of goods and fixed coefficients in consumption was also undertaken in an important paper by david gale 1974 2 brecher and bhagwati bhagwati department of economics columbia university new york ny 10027 brecher department of economics carleton university ottawa on kis 5b6 hatta department of political economy the johns hopkins university baltimore md 21218 we thank the national science foundation grant no 524718 for partial financial support of the research underlying this paper the paper was written when brecher and hatta were visiting columbia university 1981 82 gratefully acknowledged are helpful comments and suggestions from john chipman avinash dixit jacques dreze robert feenstra jacob frenkel ronald jones murray kemp andreu mas colell michael mussa john riley lars svensson and robert willig from anonymous referees and from seminar participants at berkeley harvard minnesota rochester chicago and the university of california los angeles after the present paper was submitted for publication and following its presentation at rochester our attention was drawn to this appendix which was noticed by a student of ronald jones subsequently we learned from makoto yano that motoshige itoh had pointed out an important related paper by ryuotaro komiya and t shizuki 1967 whose condition 11 for the johnson case anticipated our equation 12 below we are grateful for having both of these references brought to our attention 2 gale constructs an example in which the donor is enriched along with the recipient furthermore this immediately implies that a reverse transfer will immis

co integrating var models and economic policy this paper surveys some relevant contributions to the economic literature on co integrating vector autoregressive var models vector error correction mechanisms vecms emphasizing their usefulness for economic policy it further discusses some theoretical aspects that are necessary for a complete understanding of their potential the theoretical introduction of the co integrating var model is followed by an illustration of its applications to monetary policy fiscal policy and exchanges rates as well as in establishing the effects of structural bilateral shocks between countries the so called global var or gvar models special attention is paid to the vecm capacities of being used in conjunction with dynamic stochastic general equilibrium models and of jointly specifying the short and long run dynamics thus representing the steady state of economic systems by means of the co integration relations and the short run dynamics around it

is price flexibility destabilizing sluggish wages and prices are generally the culprits in keynesian models of unemployment and business fluctuations price flexibility in standard fix price models would restore the economy to full employment this line of reasoning has often been at the heart of proposals to reform institutions in order to restore flexibility to wages and prices there is however a strand of macroeconomic thought that questions the wisdom of too much price flexibility john maynard keynes raised the issue in chapter 19 of the general theory by noting that a deflation could raise real interest rates and thereby impede a return to full employment in his 1975 paper keynesian models of recession and depression james tobin develops this point in a formal model low prices work to move the economy to full employment but falling prices to the extent that they lead to expectations of deflation raise the real interest rate through the mundell effect and move the economy away from full employment instability is likely to occur if expectations of inflation adjust rapidly to actual inflation and the real interest rate effect is large our historical experience does include significant episodes where either reductions in inflation or actual deflation were accompanied by high real interest rates although other factors could be responsible the experiences of the great depression the latin american countries in the late 1970 s and the united states in the early 1980 s all add surface plausibility to the real interest rate deflation link and thus to one aspect of the keynes tobin story recently bradford de long and lawrence summers 1984 have argued that the decrease in the variance of output following world war ii can be largely attributable to the decrease in wage and price flexibility in the postwar era the reason output fluctuations are smaller today is precisely because the keynes tobin destabilizing mechanism is less operative today this paper examines whether increased price flexibility can be destabilizing in a version of john taylor s contract model 1979 1980 extended to include real interest rate effects taylor s model includes both backward and forward elements in wage setting behavior and thus permits some rationality in the wage setting process we find that even with this limited degree of rationality increased wage flexibility leads to a decrease in both the variance of output and the variance of prices nicholas carlozzi and taylor 1983 introduce the real rate of interest into a staggered contract framework and discuss in general terms and through simulations the effects that changing real rates may have on the system they do not however study the effects of potential instability through increases in wage flexibility or provide any analytical results they provide an extensive discussion of the implications of alternative policy rules on the stochastic behavior of the economy we first add the real interest rate to the standard taylor model and derive the solution and prove key analytical results these results are further buttressed by simulations

underinvestment in a profitable technology the case of seasonal migration in bangladesh hunger during pre harvest lean seasons is widespread in the agrarian areas of asia and sub saharan africa we randomly assign an 8 50 incentive to households in rural bangladesh to temporarily out migrate during the lean season the incentive induces 22 of households to send a seasonal migrant their consumption at the origin increases significantly and treated households are 8 10 percentage points more likely to re migrate 1 and 3 years after the incentive is removed these facts can be explained qualitatively by a model in which migration is risky mitigating risk requires individual specific learning and some migrants are sufficiently close to subsistence that failed migration is very costly we document evidence consistent with this model using heterogeneity analysis and additional experimental variation but calibrations with forward looking households that can save up to migrate suggest that it is difficult for the model to quantitatively match the data we conclude with extensions to the model that could provide a better quantitative accounting of the behavior

on the real effects of short and long run inflation and relative sector price variability some empirical evidence using the kalman filter this paper evaluates empirically the effects of sector relative price variability and short run and long run inflation on the growth rate of real output in the united states since 1947 also permanent and transitory estimates are constructed to evaluate the effects of unanticipated movements in sector relative price on the growth rate of real output the results show a statistically significant inverse relationship beween the growth rate of real output and transitory sector relative price variability and anticipated long run inflation and a direct relationship between the growth rate of real output and unanticipated short run inflation

correct cointegration tests of the long run relationship between nominal interest and inflation the fisher 1930 hypothesis suggests that a long run equilibrium relationship exists between the non stationary series nominal interest and expected inflation testing such a cointegrating relationship is complicated by the presence of the unobserved ex antereal rate of interest in residuals from the cointegrating regression assumptions concerning the stochastic properties of the expected real rate of interest are examined and two proxies for the ex antereal rate are employed in multivariate cointegration tests of the fisher hypothesis

should bond funds be added to m2 abstract in the early 1990s m2 growth has been weaker than estimated while bond mutual funds have grown rapidly this study assesses whether adding bond funds to m2 would yield a monetary aggregate that is more explainable using a standard error correction model of money with and without modifications for bond interest rate and thrift resolution effects results indicate that it is important to net out institutional and ira keogh assets from bond funds as is done for m2 and that adding such a bond fund series to m2 results in an aggregate that is somewhat more explainable than m2

network effects and the dynamics of migration and inequality theory and evidence from mexico international migration is costly and initially only the middle class of the wealth distribution may have both the means and incentives to migrate which can increase inequality in the sending community however the migration networks formed lower the costs for future migrants which can in turn lower inequality this paper shows both theoretically and empirically that wealth has a nonlinear effect on migration and then examines the empirical evidence for an inverse u shaped relationship between emigration and inequality in rural sending communities in mexico after instrumenting we find that the overall impact of migration is to reduce inequality across communities with relatively high levels of past migration we also find some suggestive evidence for an inverse u shaped relationship among communities with a wider range of migration experiences

kinship and financial networks formal financial access and risk reduction kinship networks are beneficial for smoothing consumption and investment but the channels are not well understood we study the financing devices used for consumption and investment by thai households households that are connected to banks achieve significantly better consumption smoothing than unconnected households indirect connections via inter household borrowing are as effective as direct borrowing investment appears to be facilitated by kinship households with kin in the village display reduced sensitivity of investment to income while connections to banks do not significantly reduce sensitivity kin may act as implicit collateral permitting borrowing that would violate repayment constraints in its absence

wage growth and the inflation process a multivariate cointegration analysis past empirical analysis of the relationship between wages and prices within the expectations augmented phillips curve model have raised doubts about the effects of labor costs on inflation analysis of the same data used previously reveals the existence of a deterministic linear time component in the wage and price series which past research failed to take into account using the johansen 1988 1992 1994 multivariate cointegration technique the paper provides robust evidence on the consistency of the markup view of the inflation process with the data and concludes that monetary policy should profit from labor costs data in predicting future rates of inflation

determinants and consequences of internal return migration in thailand and vietnam summary this paper draws a distinction between local return migrants who move back to their home village and regional return migrants who return to other places within their home provinces in thailand and vietnam using multinomial regressions we firstly analyze determinants of internal return migration and find that while local return migrants are lower educated than continuing migrants this negative human capital selection cannot be found for regional return migrants secondly after returning local return migrants often engage in agriculture while regional return migrants continue in nonfarm employment thereby diversifying the household income and consequently bringing potential for future economic development

welfare aspects of the transfer problem using the standard trade model with three countries and allowing for substitutability in both production and consumption this paper demonstrates that a country may gain by giving a transfer that the receiver may lose and that these two phenomena may appear at the same time this result is an extension of gale s example in a fixed coefficient model where he shows both transferer and transferee may become better off harming the third country and it is contrasted with the traditional welfare proposition whereby a giver is immiserized and a recipient is enriched

estimating potential output as a latent variable this article proposes a new method for estimating potential output in which potential real gross domestic product gdp is modeled as an unobserved stochastic trend and deviations of gdp from potential affect inflation through an aggregate supply relationship the output and inflation equations together form a bivariate unobserved components model which is estimated via maximum likelihood through the use of the kalman filter algorithm the procedure yields a measure of potential output and its standard error and an estimate of the quantitative response of inflation to real growth and the output gap

temperature changes household consumption and internal migration evidence from tanzania large rural urban wage gaps observed in many developing countries are suggestive of barriers to migration that keep potential migrants in rural areas using long panel data spanning nearly two decades i study the extent to which migration rates are constrained by liquidity constraints in rural tanzania the analysis begins by quantifying the impact of weather variation on household welfare the results show how household consumption co moves with temperature rendering households vulnerable to local weather events these temperature induced income shocks are then found to inhibit long term migration among men thus preventing them from tapping into the opportunities brought about by geographical mobility

an evaluation of the forecast performance of alternative models of inflation the forecast performances of three groups of models of the inflation process are evalu ated in this paper ra tional expectations models with instantaneous market clearing monetarist models and expectations augmented phillips curves the dynamic simulations performed for the intervals between 1977 and 1984 are somewhat discouraging for all three theories the variation in forecasting performance within model groups often exc eeded the variation in performance across model groups nevertheless the philli ps curve formulation rarely performed worse than the other two models and in th e 1981 to 1984 period it performed substantially better than the alternative mod els of inflation copyright 1987 by mit press

real wages inflation and labour productivity in australia this paper presents an analysis of real wages inflation and labour productivity interrelationships using cointegration granger causality and most importantly structural change tests applications of tests to australian data over the 1965 2007 period corroborate the presence of a structural break in 1985 and show that a 1 percent increase in manufacturing sector real wages led to an increase in manufacturing sector productivity of between 0 5 and 0 8 percent comparable estimates for the effect of inflation on manufacturing sector productivity have limited statistical significance granger causality test results suggest that real wages and inflation both granger cause productivity in the long run

the new economics of labor migration this paper reviews selected theoretical and empirical developments in the field of labor migration economics the migration behavior of individuals differs in accordance with their perceived relative deprivation those who are relatively more deprived tend to have stronger incentive to migrate than those who are relatively less deprived moreover a reference group characterized by more income inequality is likely to generate more relative deprivation highly skilled workers are also more likely to migrate migration decisions are often made jointly by the migrant and nonmigrant with a contractual arrangement regarding the sharing of costs and returns the exchange of commitments to share income provides coinsurance of particular interest are the determinants of the speed of adoption of migration as an innovation and the characteristics associated with the delay in the adoption of innovation new econometric techniques including techniques for the analysis of qualitative dependent variables techniques that correct for sample selection bias and those for the analysis of longitudinal data have substantially benefited empirical research in this area new methods that can correct for the biased estimate of the wages particular individuals would receive at 2 or more locations at the same point in time allow researchers to test locational decsion making models estimates of these structural models of labor migration support the hypothesis that individuals respond to income incentives in making the decsion to migrate further research is needed on the pazzling observation that migrant workers earn less than native born workers with similar characteristics during the 1st few years after migration but more thereafter other topics that need further research include the macroeconomic effects of migration the microeconomic and macroeconomic relationships between aging and labor migration and the migration behavior of dual earner families

policies and impact an analysis of village level microfinance institutions this paper uses variation in policies and institutional characteristics to evaluate the impacts of village level microfinance institutions in rural thailand to identify impacts we use policies related to the successful unsuccessful provision of services as exogenous variation in effective financial intermediation we find that institutions particularly those with good policies can promote asset growth consumption smoothing and occupational mobility and can decrease moneylender reliance specifically cash lending institutions production credit groups and especially women s groups are successful in providing intermediation and its benefits to members while buffalo banks and rice banks are not the policies identified as important to intermediation and benefits the provision of savings services especially pledged savings accounts emergency services and training and advice surprisingly much publicized policies such as joint liability default consequences or repayment frequency had no measured impacts jel 012 016

on migration and risk in ldcs the authors develop the hypothesis that aversion to risk rather than expectations of higher income is the primary motivation for rural urban migration in developing countries this hypothesis maintains that an optimizing risk averse small farmer family will try to place a family member in the urban sector in order to diversify its income portfolio an additional hypothesis related to risk is also considered at the individual rather than the family level annotation

contract structure risk sharing and investment choice few microfinance funded businesses grow beyond subsistence entrepreneurship this paper considers one possible explanation that the structure of existing microfinance contracts may discourage risky but high expected return investments to explore this possibility i develop a theory that unifies models of investment choice informal risk sharing and formal financial contracts i then test the predictions of this theory using a series of experiments with clients of a large microfinance institution in india the experiments confirm the theoretical predictions that joint liability creates two potential inefficiencies first borrowers free ride on their partners making risky investments without compensating partners for this risk second the addition of peer monitoring overcompensates leading to sharp reductions in risk taking and profitability equity like financing in which partners share both the benefits and risks of more profitable projects overcomes both of these inefficiencies and merits further testing in the field

inequality and welfare in market economies abstract atkinson 1970 and kolm 1969 have shown how lorenz ranking of distributions of a fixed amount of income or a single commodity may correspond to social welfare rankings lower inequality indicates higher social welfare atkinson and bourguignon 1982 and kolm 1977 offer two ways of extending this result to multi commodity environments we investigate an alternative approach based on the existence of markets and market prices at which agents maximize utility our main result offers a welfare based method of making real national income comparisons which takes into account the distribution of individual welfare

the thai rural credit system public subsidies private information and segmented markets thailand has sought to increase farmers access to credit by government intervention in 1966 it created a government agricultural bank to lend solely to farm households and beginning in the late 1970s it required commercial banks to lend heavily in the rural sector either directly or by making deposits in the agricultural bank the result was an enormous expansion of credit in the rural sector but because formal lenders were either unable or unwilling to solve the information problems involved in the broad range of rural credit transactions the informal credit sector wbich charged interest rates many times higher than the formal sector continued to thrive using household surveys and surveys of moneylenders this article provides a detailed analysis of the ways in which lenders in the informal sector have solved the information problems of providing credit the authors argue that the informal sector is competitive and that high interest rates reflect high information costs not the scarcity of funds this article reports on a set of investigations of the impact of thai government policies to expand bank lending in the rural sector their purpose was to increase farmers access to capital and reduce their dependence on informal lenders fifteen years after the principal government measures were introduced we hope to be able to answer several questions how has the expansion of formal sector lending affected the informal sector did the increase in the supply of formal credit reduce the business of informal lenders and lower interest rates in the informal market what has been the performance of the formal credit system in terms of coverage efficiency and incidence lacking time series data on the informal sector we cannot give a direct answer to these questions but we can with confidence say that the informal lenders are still very much alive by examining the behavior of the rural credit market at the present time we can throw an indirect light on what transpired over the last fifteen years our main findings are the following on the basis of our 1984 85 survey of households and moneylenders

in search of a strictly rational forecast this paper proposes criteria for classifying time series forecasts of inflation as weakly sufficiently strongly and strictly rational forecasts taken from the asa nber surveys some well known one step ahead forecasting techniques and a novel variable length autoregressive moving average model are tested against these criteria none of the forecasts series meets the criteria for strict rationality nor even the less demanding criteria for strong rationality while agents forecast as best they can their forecasts are not likely to meet stringent rationality criteria suggested by econometricians copyright 1991 by mit press

the effects of financial development in the short and long run theory and evidence from india abstract although many view financial access as a means of reducing poverty or increasing growth empirical studies have produced contradictory results one problem is that most studies cover only a short time frame and do not consider dynamic effects i show that introducing credit in a general model of intertemporal consumption creates a boom in consumption and reduces poverty initially but eventually reduces mean consumption because credit substitutes for precautionary wealth using new consistent consumption data that cover a much longer time period than most studies my empirical findings show that increased access to bank branches in rural india increased consumption initially and reduced poverty but consumption later fell and poverty rose the long term effect is still positive however suggesting that credit may have a beneficial role beyond consumption smoothing

the linkage between prices wages and labor productivity a panel study of manufacturing industries 1 introductionpolicy makers and financial analysts cite wage pressures and productivity gains as leading factors in explaining inflation this cost push explanation of inflation however is questioned by mehra 1991 1993 2000 who shows that prices explain wages but that wages are not a causal factor in determining inflation studies by hu and trehan 1995 and gordon 1988 1998 report evidence indicating that wage growth has no predictive content for inflation rejecting the cost push view emery and chang 1996 and hess 1999 demonstrate that these findings are sensitive to the sample period examined ghali 1999 using granger causality tests finds that wage growth does help to predict inflation supporting the cost push view a related but also relatively unexplored relationship is that between real wages and productivity although this link is the building block of many macroeconomic models and is frequently cited in intermediate macroeconomic textbooks few empirical works have tested this relationship 1recently a large number of studies have begun testing long standing macroeconomic hypotheses using panel unit root and or panel cointegration tests however few studies have employed industry level panel data sets the current article contributes to filling this void it employs manufacturing industry data to evaluate the long run dynamics between wages prices and productivity rather than the traditional approach of examining macroeconomic aggregates more specifically using annual four digit industry level data from the manufacturing sector over the period 1958 1996 this article examines the relationship between prices and wage adjusted productivity as well as the linkage between productivity and real wages using panel unit root and cointegration estimation methods the increased power and precision of the panel methods are particularly valuable in this context because they allow the researcher to more accurately test for the existence of a one for one cointegrating equilibrium between labor market variables and industry output prices an additional objective of this article is to show the advantages and disadvantages of employing panel unit root and cointegration tests we demonstrate that the considerable heterogeneity of the data imply that the practitioner must be cautious in making inferences about the linkage between variables when using either pooling estimation methods or aggregate level data our methodology accommodates for heterogeneity by averaging coefficients as well as examines outlier effects through quartile analysis heterogeneity of the cointegrating vector and cross correlations are accommodated through analysis by industry of the extent of cointegration across the panel and monte carlo simulations that calculate correctly sized critical values our results suggest that a stable long run relationship exists between prices and wage adjusted productivity as well as between real wages and productivity for many but not all industries both relationships however have considerably varied estimates and in most cases differ from the one for one linkage found by mehra and others in aggregate level data furthermore granger causality tests support one way causation from prices to per unit labor costs ulc in both the short and the long run hence the industry level data reject the standard cost push explanation of wage pressures contributing to inflation supporting the aggregate level findings of mehra 1991 1993 2000 and others our findings suggest that prices may be driven more by demand side factors than supply side factors results further support bidirectional granger causality in the long run between real wages and labor productivity this implies that changes in real wages lead to productivity changes and is not inconsistent with the efficiency wage hypothesis at the same time productivity movements affect real wages which is consistent with efficient labor markets

a comparison of inflation forecasts interest rate models provide slightly better monthly forecasts and substantially better eight and fourteen month forecasts of inflation than a univariate time series model the livingston surveys underestimate eight and fourteen month inflation rates especially during the high inflation period of 1978 81 in contrast eight and fourteen month inflation forecasts extrapolated from one month interest rates show little bias and track ex post eight and fourteen month inflation rates better than the survey forecasts

tests of the rational expectations hypothesis this paper reviews evidence on the structure of anticipation from a number of empirical studies jack muth s rational expectations hypothesis is compared with a variety of alternative models including ferber s law the implicit expectations model of edwin mills and muth s new errors in the variables model the cumulative evidence is of such strength as to compel the suspension of belief in the concept of rational expectations this implies that it is a mistake to proceed under the maintained hypothesis that expectations are rational instead it is necessary to test the sensitivity of empirical and theoretical results to alternative assumptions about the structure by which anticipations are generated copyright 1986 by american economic association

measuring money growth when financial markets are changing abstract this article considers constructing monetary aggregates in the presence of financial market innovations and changes in the relationship between individual assets and output we propose two procedures for constructing a monetary aggregate with the objective of providing a reliable monetary leading indicator of nominal gdp in the first subaggregates discretely switch in and out in the second the aggregate s growth is a time varying weighted average of the growth of the subaggregates where the weights follow a multivariate random walk these procedures are used to examine augmenting m2 with stock and or bond mutual funds the alternative aggregates are broadly similar to m2 but during 1992 1993 they outperform m2

credit availability and internal migration evidence from thailand this study investigates the relationship between borrowing and internal migration exploiting the micro finance scheme village fund in thailand it investigates the short and medium term effects o

sectoral employment variability and unexpected inflation this paper considers the relationship between the variability of sectoral employment and unexpected inflation the framework used is a multisector version of friedman s well known model of the business cycle the model suggests that sectoral employment variability is a quadratic function of unexpected inflation and the rate of growth in real gnp the model is tested using annual u s data on sectoral employment in the nonagricultural economy from 1901 to 1978 inflationary surprises and the rate of real growth are found to explain between 60 and 85 of the variability in relative sectoral employment performance

adding bond funds to m2 in the p star model of inflation abstract during the early 1990s m2 growth has been unusually weak and the p star model has underpredicted inflation at the same time bond funds have grown rapidly we find that the p star model performs well recently when m2 is adjusted for bond funds

transfers the terms of trade and capital accumulation in the context of a two sector overlapping generations model it is demonstrated that a steady state transfer paradox may arise under commodity trade with stability and without distortions or bystanders the existence of the paradox is due to the effect of the transfer on world capital accumulation which is shown to always i e for any ranking of factor intensities and savings rates improve the donor s terms of trade transfers may also improve steady state welfare for both donor and recipient and produce paradoxical welfare results along the transition path la litterature en statique du commerce international a conclu que en l absence de distorsions ou de tierces parties les mouvements des termes d echange induits par les transferts ne peuvent pas etre suffisamment importants quand il y a stabilite walrasienne pour engendrer le paradoxe du transfert on a tire la conclusion de modeles dynamiques a un secteur que le paradoxe du transfert est possible mais en comptant sur la mobilite internationale du capital et sur les mouvements dans le niveau mondial du taux d interet plutot que sur les prix et les marches des biens dans un modele dynamique a deux secteurs ou les generations se chevauchent ce qui permet des effets a la fois statiques et intertemporels dans les termes d echange le commerce des biens peut engendrer un paradoxe du transfert en regime permanent quand il y a stabilite walrasienne sans distorsions et tierces parties l existence du paradoxe est attribuable a l effet du transfert sur l accumulation du capital qui toujours pour tout ordre des intensites de facteur et des taux d epargne ameliore les termes d echange du donneur les transferts peuvent aussi ameliorer le bien etre du donneur et du recipiendaire en regime permanent et produire des resultats paradoxaux de bien etre dans le sentier de transition

immiserizing growth in a many commodity setting abstract mathematical economists have recently shed new light on the phenomenon of immiserizing growth independently of the trade theoretic literature on this subject the present paper aims to build a beidge between the two literatures in particular mantel s set of sufficient conditions for non immiserizing growth is extended to a trade theoretic model with a smooth production frontier and bhagwati s trade theoretic set of sufficient conditions to an n commodity framework it is shown that the condition of normality in consumption in the former substitutes for the stability condition in the latter the concept of the semi compensated substitutability condition plays an essential role in our analysis

price inertia and policy ineffectiveness in the united states 1890 1980 this paper introduces a new approach to the empirical testing of the lucas sargent wallace lsw policy ineffectiveness proposition which compares the lsw hypothesis with an alternative that states that prices respond fully in the long run but only gradually in the short run to nominal aggregate demand disturbances the empirical equations estimated for a new set of quarterly data extending back to 1890 exhibit uniformly high responses of real output and low responses of price changes to anticipated changes in nominal gnp the paper compares and tests three alternative methods of introducing persistence effects into the lsw framework

wages and prices in the uk this paper investigates the relationship between wages and prices in the uk using a vecm formulation and generalized impulse response functions and persistence profiles because of significant feedbacks it finds that fluctuations in wage growth cannot be used directly to predict fluctuations in inflation

migration incentives migration types the role of relative deprivation the authors explore the role of relative deprivation versus absolute income as an incentive for migration in developing countries in section i of this paper we outline the relative deprivation model of migration and present an illustration of the divergent policy implications of a relative deprivation model versus an absolute income model an attempt is made to identify distinct empirical implications of relative and absolute income motives for migrating in section ii a migration decision model is estimated and is used to explore absolute and relative income motives for internal and international migration in a sample of rural mexican households as well as to test the extent to which discontinuity in labour markets shapes the choice of migrant destination in section iii we present our conclusions excerpt