income dispersion and counter cyclical markups recent advances in measuring cyclical changes in the income distribution raise new questions how might these distributional changes affect the business cycle itself we show how counter cyclical income dispersion can generate counter cyclical markups in the goods market without any preference shocks or price setting frictions in recessions idiosyncratic labor productivity shocks raise income dispersion lower the price elasticity of demand and increase imperfectly competitive firms optimal markups the calibrated model explains not only many cyclical features of markups but also cyclical and long run patterns of standard business cycle aggregates

what do we know about macroeconomics that fisher and wicksell did not the answer to the question in the title is a lot in this essay i argue that the history of macroeconomics during the 20th century can be divided into three epochs

a political economy model of market intervention we argue that political competition based on income redistribution a la lindbeck and weibull public choice 52 273 297 1987 may cause distortive regulation in a competitive sector for this purpose we propose a model in which imposing a production quota allows the extraction of rents that are then used for vote buying purposes our model permits us to analyze the response of regulatory policy to political factors such as the size of a group of informed voters and the accuracy of their information about the incumbent we also show that the extent of voter influence on policy outcomes is shaped by the state of market demand in particular if demand becomes weaker market intervention increases in a magnitude that depends positively on the electoral weight of informed voters

electoral politics interest groups and the size of government electoral politics interest groups and the size of government i introduction interest groups have been considered main actors in the political drama for some time now by political scientists as in bentley 1908 schattschneider 1935 and truman 1951 and more recently by economist also such as olson 1965 and stigler 1975 despite the widespread consensus on their importance there have been few formal attempts to analyze their impact on public policies thus borooah and van der ploeg 1983 90 were moved to declare that theory based on the importance of different interest groups is badly needed in economics an important exception is becker s 1983 1985 analysis of interest group competition becker draws insights about the nature of the trade offs that occur when interest groups compete for political influence but becker consciously avoids incorporating into his model political institutions such as voting voting rules and candidates 1983 391 4 1985 330 rather he assumes that the political process operates as a veil through which the underlying strengths and demands of various interest groups are revealed this paper takes a different tack but one complementary to becker s approach the analysis is based on an explicit model of the political process that includes interest groups in the model interest group influence is a potential supply of votes for which parties or candidates compete each party seeks a winning coalition of voters and thus engages in implicit logrolling tullock 1959 572 an equilibrium exists in the competition for the support of interest groups and the nature of the equilibrium electoral platforms is identified below embodied in the characterization of the equilibria is a set of parameters that can be said to measure the strengths of the various interest groups and which enable one to identify how candidates change their policy positions in response to a change in the strength of an interest group it is therefore possible to analyze simultaneously the existence of an electoral equilibrium its nature including its normative properties and changes in equilibrium due to shifts in the balance of forces between competing groups 1 in contrast to becker 1983 1985 these analytical features are not assumed outright rather they are based on an underlying model of elections the theoretical underpinnings for this model are discussed in section ii interest groups are often alleged to be responsible in part for recent increases in the size of government in western democracies 2 therefore in sections iii and iv a model of the political process is used to study the impact of an increase in the influence of a particular interest group on government size in the simple models of the public sector considered here increasing group influence per se does not cause the size of the government to increase but an increase in the government s size does result when i there are constraints on the government s ability to change tax shares in response to a shift in group power or ii there is a publicly provided good which benefits one untaxed group and that group s sole concern with government policy is to maximize the amount of the good that it gets the paper concludes by considering some of the normative implications of the results ii interest groups in the electoral process there are two sets of actors in the model parties and interest groups and two sets of relationships which must be analyzed the relationships between interest groups and the parties and the relationship between the parties themselves with respect to the first question this paper investigates the determinants of each interest group s influence on the platforms proposed by the parties with respect to the second it explores whether the competition for votes between the parties produces an equilibrium and if so what its properties are

remanufacturing as a marketing strategy the profitability of remanufacturing systems for different cost technology and logistics structures has been extensively investigated in the literature we provide an alternative and somewhat complementary approach that considers demand related issues such as the existence of green segments original equipment manufacturer competition and product life cycle effects the profitability of a remanufacturing system strongly depends on these issues as well as on their interactions for a monopolist we show that there exist thresholds on the remanufacturing cost savings the green segment size market growth rate and consumer valuations for the remanufactured products above which remanufacturing is profitable more important we show that under competition remanufacturing can become an effective marketing strategy which allows the manufacturer to defend its market share via price discrimination

markups aggregation and inventory adjustment in this paper i suggest a unified explanation for two puzzles in the inventory literature first estimates of inventory speeds of adjustment in aggregate data are very small relative to the apparent rapid reaction of stocks to unanticipated variations in sales second estimates of inventory speeds of adjustment in firm level data are significantly higher than in aggregate data the paper develops a multisector model where inventories are held to avoid stockouts and price markups vary along the business cycle the omission of countercyclical markup variations from inventory targets introduces a downward bias in estimates of adjustment speeds obtained from partial adjustment models when the cyclicality of markups differs across sectors this downward bias is shown to be more severe with aggregate rather than firm level data similar results apply not only to inventories but also to labor and prices montercarlo simulations of a calibrated version of the model suggest that these biases are quantitatively significant

overtime labor employment frictions and the new keynesian phillips curve abstract this paper presents a new keynesian nk model that is extended to differentiate between straight time and overtime work the model proposes that the new keynesian phillips curve nkpc should be estimated with marginal cost measured in terms of overtime labor the resulting coefficient estimates are in accordance with theory and statistically significant for the hybrid nkpc which allows for backward looking price setters but not for the purely forward looking nkpc in the hybrid model backward looking behavior is found to be predominant the paper also shows that the incorporation of employment frictions predetermined employment and convex adjustment costs in nk models helps reconcile the frequent price changes found in the microdata with the degree of sluggishness in inflation adjustment to output changes at the macro level

demand markups and the business cycle abstract we generalize the demand side of a real business cycle model introducing non homothetic intratemporal preference aggregators over differentiated final goods under monopolistic competition this generates markups which vary with aggregate consumption we estimate a flexible preference specification through bayesian methods and obtain results consistent with substitutability across goods that is increasing in consumption the associated markup variability magnifies the propagation of shocks through additional substitution effects on labor supply and consumption

sliding doors cost measurement the net economic cost of lax regulation of the irish banking sector the financial and economic turmoil of the years 2007 10 has led to considerable regret among financial and economic policymakers about bad policy decisions at earlier dates a worthwhile exercise in economic analysis is a careful delineation of the net economic cost of an earlier bad policy decision such an analysis is conceptually difficult because it requires a baseline case against which to compare observed economic outcomes comparing the actual outcome to that from the ex post best possible policy decisions at every juncture gives an unrealistically high benchmark because it compares the actual outcome to that from policy decisions requiring perfect foresight by policymakers also rational evaluation requires that all gains and losses subsequent to a policy decision be included it is incorrect to evaluate an earlier past decision based on present and future impacts since any intermediate impacts between the past decision date and current evaluation date must also be considered this paper suggests a theoretically simple and well defined procedure for analysing the ex post economic cost of an isolated policy decision we suggest the comparison of actual economic outcomes with those that would have emanated from a counterfactual but real world feasible alternative decision we do this by identifying a specific policy choice available at the time of the decision which was almost chosen we call this almost but not chosen policy the sliding doors choice the cumulative economic welfare difference between relevant economic outcomes under this counterfactual choice and under the actual choice over all post decision periods is our measure of the ex post net economic cost of the actual policy decision although we do not follow their particular methodology we invoke leeper and zha s 2003 modest policy intervention theory in which small variations in policy do not alter agents rational expectations thereby circumventing the lucas 1976 critique of counterfactual policy analysis we argue that this restrictive evaluation procedure can be illuminating within certain narrow circumstances

evaluating microfoundations for aggregate price rigidities evidence from matched firm level data on product prices and unit labor cost a number of competing business cycle models have recently emerged all of which can explain why nominal shocks have real effects 1 although sharing a large number of common features a key difference between these models lies in the assumptions of how firms set prices and process information yet there exists very little direct micro evidence on the credibility of these assumptions this paper uses detailed data on product prices and unit labor cost merged at the firm level to evaluate competing sets of assumptions regarding firms price setting behavior thereby we provide firsthand evidence on the empirical relevance of the microfoundations of different dynamic stochastic general equilibrium dsge models

customer markets credit market imperfections and real price rigidity according to standard theory an increase in demand should raise prices of goods given factor prices empirically however prices appear to be unaffected by short run variations in demand this paper suggests an explanation of this observation if customers react slowly to price changes and credit markets are imperfect prices may be unchanged or even fall when demand increases the reason is that when demand is high profits are high and firms can compete more intensely for customers without increasing their borrowing copyright 1991 by the london school of economics and political science

capital flows to developing countries this article focuses on the determinants of the large portfolio flows from the united states to latin american and asian countries during 1988 92 cointegration techniques reveal that both domestic and global factors explain bond and equity flows to developing countries and represent significant long run determinants of portfolio flows the article also investigates the dynamics of portfolio flows by estimating seemingly unrelated error correction models global and country specific factors are equally important in determining the long run movements in equity flows for both asian and latin american countries while global factors are much more important than domestic factors in explaining the dynamics of bond flows u s interest rates are a particularly important determinant of the short run dynamics of portfolio especially bond flows to developing countries

electoral competition with informed and uninformed voters i present a model of electoral competition in which candidates raise campaign contributions by choosing policies that benefit interest groups and then expend those contributions to influence voters who are uninformed about the policies informed voters however vote based on those policies so candidates face a trade off between choosing a policy to generate funds to attract the uninformed vote and choosing a policy to attract the informed vote electoral equilibria are characterized for two categories of policies particularistic and collective in the case of particularistic policies the equilibrium policies of the candidates are separated if the proportion of uninformed voters is sufficiently high and the degree of separation is an increasing function of that proportion the model is extended to include the public financing of elections and incumbency advantages for the case of collective policies the candidates locate at the median of the ideal points of the informed voters and contributions are zero

endogenous market structures and optimal taxation this article provides optimal labour and dividend income taxation in a general equilibrium model with oligopolistic competition and endogenous firms entry in the long run the optimal dividend income tax corrects for inefficient entry the dividend income tax depends on the form of competition and the nature of the sunk entry costs in particular it is higher in market structures characterised by competition in quantities rather than those characterised by price competition oligopolistic competition leads to an endogenous countercyclical price markup as a result offsetting the distortions over the business cycle requires deviations from full tax smoothing

balanced budget redistribution as the outcome of political competition this paper models balanced budget redistribution between socio economic groups as the outcome of electoral competition between two political parties equilibrium is unique in the present model and a sufficient condition for existence is given requiring that there be enough stochastic heterogeneity with respect to party preferences in the electorate the validity of hotelling s principle of minimum differentiation and of director s law are examined under alternative hypotheses concerning administrative costs of redistributions and voter s possibilities both of abstaining from voting and of becoming campaign activists for one of the parties the policy strategy of expected plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality incomes are fixed and known so lump sum taxation is feasible however constraints on tax transfer differentiation between individuals are permitted in the analysis

short term variations and long term dynamics in commodity prices in this article we develop a two factor model of commodity prices that allows meanreversion in short term prices and uncertainty in the equilibrium level to which prices revert although these two factors are not directly observable they may be estimated from spot and futures prices intuitively movements in prices for long maturity futures contracts provide information about the equilibrium price level and differences between the prices for the short and long term contracts provide information about short term variations in prices we show that although this model does not explicitly consider changes in convenience yields over time this short term long term model is equivalent to the stochastic convenience yield model developed in gibson and schwartz 1990 we estimate the parameters of the model using prices for oil futures contracts and apply the model to some hypothetical oil linked assets to demonstrate its use and some of its advantages over the gibson schwartz model

subsidy scheme or price discount scheme mass adoption of electric vehicles under different market structures abstract this paper analyzes the electric and gasoline vehicle market under two different structures monopoly and duopoly taking social welfare into account the government offers a subsidy incentive scheme or a price discount incentive scheme to buyers of electric vehicles evs to promote the adoption of evs we formulate a utility model composed of a population of consumers who make utility maximizing choices and manufacturers who set an optimal pricing that responds to the interventions of the government using this model a framework for policy makers to find optimal subsidies or optimal price discount rates is developed unlike the monotonic relation in the monopoly setting in the duopoly setting the relationship between consumers low carbon awareness and evs demand depends on the government s policy although the demand for evs the consumer surplus the environmental impact and the social welfare are identical under two incentive schemes the government prefers to implement a subsidy incentive scheme due to the lower expenditure involved furthermore under a subsidy incentive scheme evs market in the monopoly setting has a smaller environmental impact than that in the duopoly setting from the numerical tests we show that results of social welfare comparison under two market structures depends on unit environmental impact of ev

emerging stock markets portfolio capital flows and long term economie growth micro and macroeconomic perspectives abstract the paper examines two major components of financial liberalization stock market development and portfolio capital flows in the context of less developed countries the paper considers microeconomic and macroeconomic perspectives on their implications for long term development and economic growth it concentrates on 1 a the role of stock markets in financing corporate growth 2 b the implications of stock market volatility for resource allocation and productive efficiency and 3 c the interactions between the foreign exchange and stock markets in the context of economic shocks its policy recommendations are that ldcs should promote bank based systems influence the scale and composition of capital inflows and prevent a market for corporate control from emerging

equilibrium political budget cycles political business cycle theories generally rely on nominal rigidities and voter myopia this paper offers an equilibrium theory that preserves some basic insights from earlier models though with significant refinements the political budget cycle emphasized here is in fiscal policy rather than output and inflation it arises via a multidimensional signal process one can consider the welfare implications of proposals to mitigate the cycle and the effects of altering the electoral structure copyright 1990 by american economic association

an open economy new keynesian phillips curve for the u k abstract we estimate a pricing equation or new keynesian phillips curve nkpc obtained from a structural dynamic model of price setting based on rotemberg 1982 sticky prices in the united states journal of political economy 90 6 1187 1211 and extended to capture employment adjustment costs and the openness of the united kingdom this model nests the baseline gali and gertler 1999 inflation dynamics a structural econometric analysis quarterly journal of economics 110 127 159 and sbordone 2002 prices and unit labor costs a new test of price stickiness journal of monetary economics 49 265 292 relationship between inflation and marginal cost in the limiting case of no employment adjustment costs no impact of relative prices of imported inputs on real marginal cost and a constant equilibrium markup our findings indicate that each of our modifications to the baseline nkpc model is important for u k data so that inflation in the u k is explained both by changes in employment and by changes in real import prices in general and real oil prices in particular external competitive pressures also seem to affect u k inflation via their impact on the equilibrium price markup of domestic firms

financial liberalisation stockmarkets and economic development abstract during the 1980s and 1990s many developing countries dcs have been engaged in far reaching reforms of their financial systems liberalising them and making them more market oriented this liberalisation involving inter alia financial de repression has been inspired partly by the work of the mckinnon 1973 and shaw 1973 m s school this paper suggests that in addition to financial de repression there has been a major new element in the development of dc financial systems in recent years the establishment and fast expansion of stockmarkets these markets have played a key role in the internal as well as external financial liberalisation processes in leading dcs further the paper finds that the actual behaviour of these markets in many countries has led to outcomes which undermine the effects of the higher real interest rates arising from financial de repression

foreign trade elasticities and import discipline this paper provides new evidence on the trade as discipline7rsquo hypothesis by considering the determination of price cost margins with a panel of 41 four digit us food manufacturing industries from 1972 to 1987 following the empirical specification suggested by competitive fringe oligopoly models we include estimated domestic demand elasticities and cross price elasticities of import demand as explanatory variables and the empirical results confirm the importance of these variables in assessing the hypothesis

business cycles and the relationship between concentration and price cost margins using a newly constructed panel data base we examine changes in price cost margins in 284 manufacturing industries between 1958 and 1981 a key finding is a dramatic narrowing of the spread between the margins of concentrated and unconcentrated industries over this period we provide evidence that this narrowing is a result of the greater sensitivity of price cost margins in more concentrated industries to demand fluctuations this finding is robust to the inclusion of other industry variables and to measures of import competition the results indicate that cross sectional estimates of the concentration margins relationship are likely to be both biased and misleading

business cycles in international historical perspective business cycle models seek to answer the question of why economies go through cycles of recession and recovery or boom and bust any theory of the business cycle makes two sorts of claims what shocks are most important in disturbing the economy and what economic structure is necessary for propagating these shocks for example one common explanation of business cycles begins with monetary shocks and then seeks to explain why monetary shocks are not purely neutral as neoclassical theory would have it and instead have real effects at least in the short term early models in this vein were often implicitly or explicitly based on the proposition that markets do not clear continuously early equilibrium real business cycle theories instead emphasized the importance of real shocks especially to technology which may cause socially efficient fluctuations even when markets are always in equilibrium more recent models have attempted to marry the equilibrium approach to macroeconomics with the substantive keynesian ideas that money is not neutral and that economic fluctuations are costly new keynesian theories of the business cycle admit the possibility of a number of economic shocks including monetary and technology shocks but then focus on explaining how nominal price rigidities within the economy can turn these shocks into recessions or booms other models show that business cycles driven by keynesian animal spirits are consistent with rigorous microfoundations and rational expectations seeking empirical evidence for and against these various approaches we turn business cycle theories loose on perhaps the greatest macroeconomic laboratory

an information rationale for the power of special interests political decisions are often biased in favor of special interests at the expense of the general public and they are frequently inefficient in the sense that the losses incurred by the majority exceed the gains enjoyed by the minority this article explains the bias in terms of information asymmetries and the free rider problem first incumbents increase their reelection prospects by biasing policy toward groups that are better able to monitor their activities second because smaller groups are better able to overcome the free rider problem of costly monitoring policy will be biased in their favor third the effect of asymmetric monitoring on voter welfare is ambiguous the inefficiencies created by the policy bias are offset by a positively valued selection bias incumbents of above average quality are more likely to survive voter scrutiny than are low quality types

the determination of profit margins in uk manufacturing this paper examines the determinants of profit margins in 91 u k manufacturing industries over the period 1983 86 it considers how the inclusion of labor market characteristics in empirical industrial organization specifications affects the estimated concentration margins relationship the empirical work pays detailed attention to the endogenous nature of variables derived from structural industrial organization models the authors report instrumental variables estimates of margins equations in which there emerges a significant role for labor market characteristics indeed both unionization and industrywide unemployment are found to depress profit margins the impact of concentration is seen to be biased downward when these variables are omitted

a model of electroral competition with interest groups abstract this letter specifies and analyzes a model of electoral competition with interest groups the assumptions used in the model are drawn from the existing literature we i show that certain assumptions that have been used in empirical analyses of voting provide a sufficient condition for the existence of an electoral equilibrium and ii characterize the equilibrium strategies embodied in the characterization is a set of parameters that can be said to measure the electoral strengths of the interest groups we also state the appropriate definition of the pareto relation for our model and note that each of the equilibrium strategies is pareto optimal

is the euro zone on the mend latin american examples to analyze the euro question several european countries face challenges reminiscent of those faced by the emerging economies of latin america the economic booms in some peripheral euro zone countries financed by large capital inflows the credit and asset price booms and then the busts including sudden stops in capital flows the strong interaction between sovereign debt and domestic banking systems the role of foreign banks and contagion and all in the context of a fixed exchange rate are familiar plotlines for latin american audiences for those euro zone countries that built up large euro denominated external liabilities latin america s experience is particularly relevant and worrisome still europe may be in a better position to navigate a path out of the crisis given cooperative mechanisms that were absent in latin america particularly the availability of massive liquidity support nonetheless while such support buys time it does not guarantee success this paper argues that reflecting on latin america s experience provides useful lessons for europe to improve the chances for a successful resolution

hot money accounting labels and the permanence of capital flows to developing countries an empirical investigation using maximum likelihood kalman filtering techniques and non parametric variance ratio statistics we gauge the relative importance of permanent and temporary components of capital flows to latin american and asian developing countries over the period 1988 1997 for the broad categories of flows in the capital account equity flows ef bond flows bf official flows of commercial bank credit bc and foreign direct investment fdi we find relatively low permanent components in ef bf and of while commercial bc flows appear to contain quite large permanent components and fdi flows are almost entirely permanent these results have a natural interpretation and clear policy implications

european inflation and the new keynesian phillips curve author affiliation sandeep mazumder mazumds wfu edu acknowledgment i wish to thank the anonymous referees for their valuable comments and suggestions that helped shape this manuscript 1 introductionon june 1 1998 the european central bank came into being with the goal of maintaining price stability in the euro zone 1 the ability to describe inflation as accurately as possible has long been a key goal that macroeconomists pursue and in light of the introduction of the euro currency in the late 1990s this topic is particularly pertinent in europe to this end recent research has devoted a great deal of time to the new keynesian phillips curve nkpc a model that examines price setting behavior based on nominal rigidities founded on the work of authors such as taylor 1980 and calvo 1983 this model has not been without controversy but even so it remains a workhorse of macroeconomics perhaps attributable to the lack of a better alternative in particular the model is thought to have first seen genuine empirical success when gali and gertler 1999 estimated the nkpc using u s data and found that the model describes changes in u s prices considerably well indeed gali gertler and lopez salido 2001 conduct a similar exercise using european inflation data and find that the nkpc is even more applicable to the euro area than for the united states over the period from the 1970s to the latter 1990s one of the key innovations of these articles is that the labor income share equivalently real unit labor costs is used as the proxy for real marginal cost in the nkpc as opposed to previously used proxies such as detrended real output following in the same vein as gali gertler and lopez salido 2001 others have also found that the nkpc can be accurately used to describe inflation in europe for example rumler 2007 estimates the labor share nkpc for nine euro area countries and finds evidence in favor of the model while jondeau and bihan 2005 argue that the labor share nkpc may describe european inflation dynamics well depending on the number of leads or lags that one is willing to include into the model similarly leith and malley 2005 use the nkpc to find greater evidence of price stickiness in europe as compared to the united states where the proxy for real marginal cost is labor s share of income while some authors have questioned the empirical performance of the nkpc in europe when using different econometric techniques such as bardsen jansen and nymoen 2004 paloviita 2005 lawless and whelan 2007 boug cappelen and swensen 2010 a more obvious problem remains with the approach of gali gertler and lopez salido 2001 to estimating the nkpc for europe that has not received much attention in the literature that is the labor income share cannot be used to proxy for real marginal cost in the nkpc if we are to address the cyclicality of real marginal cost in a manner in keeping with predictions from basic microeconomic theory namely we believe that marginal cost is likely to be procyclical over the business cycle whereas the labor income share in fact moves countercyclically furthermore the labor share proxy of real marginal cost is founded on the assumption that labor input can be freely adjusted at a fixed real wage rate the problem with this assumption is that it ignores the notion of labor adjustment costs which is something that cannot reasonably be discounted specifically one can think of labor as being the product of the number of workers in an economy and the respective number of hours that they work seminal work by oi 1962 has argued that employment is not perfectly flexible in the short run something that the derivation of the labor share marginal cost proxy does not take into account this article reconsiders the derivation of a proxy for real marginal cost in a similar manner to that done in gali and gertler 1999 and gali gertler and lopez salido 2001 with the crucial difference that we account for the existence of labor adjustment costs

supply chain design for unlocking the value of remanufacturing under uncertainty abstract owing to the technological innovations and the changing consumer perceptions remanufacturing has gained vast economic potential in the past decade nevertheless major oems in a variety of sectors remain reluctant about establishing their own remanufacturing capability and use recycling as a means to satisfy the extended producer responsibility their main concerns seem to be the potential for the cannibalization of their primary market by remanufactured products and the uncertainty in the return stream in terms of its volume and quality this paper aims at assisting oems in the development of their remanufacturing strategy with an outlook of pursuing the opportunities presented by the inherent uncertainties we present a two stage stochastic closed loop supply chain design model that incorporates the uncertainties in the market size the return volume as well as the quality of the returns the proposed framework also explicitly represents the difference in customer valuations of the new and the remanufactured products the arising stochastic mixed integer quadratic program is not amenable to solution via commercial software therefore we develop a solution procedure by integrating sample average approximation with the integer l shaped method in order to gather solid managerial insights we present a case study based on bsh a leading producer of home appliances headquartered in germany our analysis reveals that while the reverse network configuration is rather robust the extent of the firm s involvement in remanufacturing is quite sensitive to the costs associated with each product recovery option as well as the relative valuation of the remanufactured products by the customers in the context of the bsh case we find that among the sources of uncertainty the market size has the most profound effect on the overall profitability and it is desirable to build sufficient expansion flexibility in the forward network configuration

the new wave of private capital inflows push or pull abstract this paper studies the determinants and sustainability of the widespread private capital inflows to middle income countries after 1989 the key question is whether these flows are mostly pulled by attractive domestic conditions or pushed by unfavorable conditions in developed countries an analytical model focusing on country risk is developed and used empirically it is argued that the observed improvement in country creditworthiness is mostly due to the decline in international interest rates and that therefore its importance as a proximate cause does not support the pull interpretation all things considered in most countries the key answer that emerges is push

the imf and the emerging markets a reappraisal of the central banking model abstract country level appraisals of international monetary fund imf programs have eclipsed concerns with the global role of the organization this reconsideration of the early central banking analogy is prompted by the emerging markets phenomenon drawing on the banking literature the role of national reserve holdings in the context of adjustable exchange rates is addressed the central bank parallel suggests that reserves complement the growth of obligations to international capital markets and a public goods case is made for imf involvement in this connection the prudential regulation aspect of central banking is also explored for its insights into the evolution of the fund in the context of open capital markets

capital inflows external shocks and the real exchange rate abstract this paper examines the effects of a fall in world interest rates on capital flows and the real exchange rate in an optimizing framework with imperfect capital markets a permanent fall leads to a steady state reduction in net foreign assets and a real depreciation regardless of whether the country is initially a net creditor or net debtor on impact the real exchange rate appreciates in the net debtor case but may either appreciate or depreciate in the net creditor case the dynamics associated with a temporary shock depend not only on its duration but also on the initial asset position

the cyclical behavior of marginal cost and price the author examines the cyclical behavior of price marginal cost margins for u s manufac turing after 1956 short run marginal cost is markedly procyclical this is primarily due to procyclical overtime payments incurred beca use employment is not perfectly flexible in most industries output price fails to respond to the cyclical movement in marginal cost so price marginal cost margins are markedly countercyclical the res ults contradict business cycle theories that explain low production i n a recession by a high real cost of producing they support theories that explain low production in a recession by the inability of firms to sell their output copyright 1987 by american economic association

wheels within wheels within wheels the importance of capital inflows in the origin of the spanish financial crisis with the creation of the euro the spanish economy established an exchange rate regime similar to that adopted by many emerging economies during the 1990s at the same time the eurozone as a whole adopted a currency system with features similar to the us currency regime in emerging economies as in the us economy the adoption of these models was accompanied by strong growth in capital inflows as well as severe financial mostly banking and or macroeconomic mostly trade imbalances several authors have linked capital inflows with imbalances as cause and effect this work uses some of those arguments along with statistical data on the characteristics and evolution of capital inflows registered by the spanish economy and by the eurozone as a whole in order to propose a causal link between post euro exchange rate regimes adopted in spain capital inflows and the imbalances that preceded the financial crisis of 2008

managing new and differentiated remanufactured products we study a firm that makes new products in the first period and uses returned cores to make remanufactured products along with new products in future periods the remanufactured product is differentiated from the new product so the firm needs to choose differentiated prices we analyze the monopoly environment in two period multi period three four and five and infinite planning horizons and characterize the optimal remanufacturing and pricing strategy for the firm in the process we identify remanufacturing savings thresholds that determine the production and pricing strategy for the firm among other results we find counter to intuition that in a finite horizon multi period setting the optimal policy is not necessarily monotone in remanufacturing savings

the catalytic effect of lending by the international financial institutions for many less developed countries ldcs and countries in transition cits external financing is frequently an effective constraint on economic growth and development capital inflows may be used to overcome shortages of domestic saving thereby permitting higher levels of investment as well as shortages of foreign exchange thereby permitting larger quantities of imports

the response by the norwegian aluminium industry to changing market structure abstract this paper analyses how changes in market structure have affected the margins measured by the lerner index of norwegian aluminium plants instead of showing the expected negative trend due to increased competition internationally the margins are found to move procyclically around a constant that significantly exceeds zero three explanations for this stability in the levels of the margins are identified a better exploitation of scale economies increased productivity and product specialisation which allows norwegian producer prices to increase more rapidly than the international reference price

exchange rate alignment and producer support estimates pses for india this article examines the effects of exchange rate alignment during 1985 2002 on agricultural producer support estimates pses for india based on several time series techniques the equilibrium exchange rate of the indian rupee and the corresponding misalignment of the actual rate are estimated and applied to recent pse calculations our results show that the exchange rate was substantially misaligned before a financial crisis and macroeconomic reform in the early 1990s with subsequent indirect effects on the pses we find a relatively high pass through of exchange rate movements to domestic agricultural prices so that removal of the exchange rate misalignment would have improved incentives to indian farmers during this period more recently this indirect exchange rate effect is smaller than the direct effect in the pses indicating the dominance of sectoral specific policies over economy wide policies

costs prices and profitablity in uk manufacturing the 1984 input output tables make it possible to estimate directly the cost structure of any industrial sector the results of this calculation are presented for the non food manufacturing sector for the period 1970 87 this cost estimate is found to be part of a co integrating set with output prices in contrast to the specification implied by a cobb douglas production function the other elements of the equilibrium vector are an index of capacity utilization positively related to the mark up and the variance of inflation proxying inflation uncertainty which is negatively related import prices have an indirect effect on the mark up via demand

dynamic factor demands and the effects of energy price shocks a dynamic model is used to understand how sharp changes in energy prices affect investment behavior employment and energy use the authors discuss the theory behind their model selection model specifications estimation methods and data list parameter estimates and elasticities for the selected model and describe the simulations they conclude that 1 the data strongly reject the hypothesis of constant returns to scale within their specification of aggregate production 2 the data indicate adjustment costs on labor are small and 3 their results help reconcile some of the conflicting estimates of energy demand elasticities appearing in recent literature 23 references 3 figures 3 tables

a survey of new keynesian theories of aggregate supply and their relation to industrial organization i survey the recent literature on the phillips curve along the way i will try to relate this literature to topics of interest to industrial organization i will also point out the gaps in our understanding and places where more careful micro economic analysis would be helpful to macroeconomists in the conclusion i summarize what an industrial organization economist might take away from this literature

global economic divergence and portfolio capital flows to emerging markets this paper studies the role of global and regional variations in economic activity and policy in developed world in driving portfolio capital flows pcfs to emerging markets ems results suggest that pcfs to ems depend mainly on economic activity at the global level and monetary policy in america and asia positively on the former and negatively on the latters pcfs are procyclical with respect to global activity but countercyclical to regional activity in aggregate regional variations contribute more than global variations this implies that economic divergence in the developed world can have significant effects on ems via pcfs

electoral competition and special interest politics have fixed positions on some issues but vary their positions on others in order to attract votes and campaign contributions in this context we examine whether special interest groups are governed by an electoral motive or an influence in their campaign giving and how their contributions affect the equilibrium platforms we show that each party is induced to behave as if it were maximizing a weighted sum of the aggregate welfares of informed voters and members of special interest groups the party that is expected to win a majority of seats caters more to the special interests

marginal cost pricing when spot markets are complete the standard formulation of a spot market subject to uncertain excess demand uses a tatonnement process that restricts trade until the market clearing price is found here i present a model in which there is no restriction on trade during the process of the resolution of uncertainty about aggregate excess demand the idea is to enlarge the commodity space and define goods by the probability that they will sell in addition to other characteristics the probability of sale characteristic is the spot market analogue of the contingencies under which delivery will take place in the arrow debreu model a failure to distinguish goods by the probability of sale characteristic can lead to the rejection of the competitive paradigm even when everyone is a price taker and the allocation is efficient

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

capital flows to developing countries long and short term determinants this article focuses on the determinants of the large portfolio flows from the united states to latin american and asian countries during 1988 92 cointegration techniques reveal that both domestic and global factors explain bond and equity flows to developing countries and represent significant long run determinants of portfolio flows the article also investigates the dynamics of portfolio flows by estimating seemingly unrelated error correction models global and country specific factors are equally important in determining the long run movements in equity flows for both asian and latin american countries while global factors are much more important than domestic factors in explaining the dynamics of bond flows u s interest rates are a particularly important determinant of the short run dynamics of portfolio especially bond flows to developing countries copyright 1997 by oxford university press

benefits and costs of international financial integration theory and facts the author provides a selective review of the recent analytical and empirical literature on the benefits and costs of international financial integration he discusses the impact of financial openness on consumption investment and growth and the impact of foreign bank entry on the domestic financial system consistent with some recent studies the author argues that financial integration must be carefully prepared and managed to ensure that the benefits outweigh the short run risks prudent macroeconomic management adequate supervision and prudential regulation of the financial system greater transparency and improved capacity to manage risk in the private sector are important requirements for coping with potentially abrupt reversals in pro cyclical short term capital flows the author adopts a more skeptical view than some assessments in two areas however first only foreign direct investment appears to provide dynamic gains and improved prospects for growth the evidence on the benefits of other types of capital flows remains weak second empirical research on the net benefits associated with foreign bank penetration is far from conclusive in particular the possibility that such penetration may lead to adverse changes in the allocation of credit among domestic firms cannot be dismissed on the basis of the existing evidence

stock markets in africa emerging lions or white elephants abstract the number of stock markets in african countries has doubled over the last 7 years although these markets remain small and illiquid they are growing rapidly and will become an increasingly important part of many african economies using examples taken from experience in other developing regions and africa s recent past this paper evaluates the common economic criticisms of stock markets and the political pitfalls involved in their operation it concludes that the positive economic effects of bourses on african economies are far larger than any negative effects and argues that the political costs can be mitigated while political benefits can also be gained it finishes by suggesting reforms that can be put in place to reap more benefits and further reduce costs from stock markets on the continent

mass media competition political competition and public policy if better informed voters receive favourable policies then mass media will affect policy because mass media provide most of the information people use in voting this paper models the incentives of the media to deliver news to different groups the increasing returns to scale technology and advertising financing of media firms induce them to provide more news to large groups such as taxpayers and dispersed consumer interests and groups that are valuable to advertisers this news bias alters the tradeoff in political competition and therefore introduces a bias in public policy the paper also discusses the effects of broadcast media replacing newspapers as the main information source about politics the model predicts that this change should raise spending on government programmes used by poor and rural voters

managing new and remanufactured products we study a firm that makes new products in the first period and uses returned cores to offer remanufactured products along with new products in future periods we introduce the monopoly environment in two period and multiperiod scenarios to identify thresholds in remanufacturing operations next we focus our attention on the duopoly environment where an independent operator io may intercept cores of products made by the original equipment manufacturer oem to sell remanufactured products in future periods we characterize the production quantities associated with self selection and explore the effect of various parameters in the nash equilibrium among other results we find that if remanufacturing is very profitable the original equipment manufacturer may forgo some of the first period margin by lowering the price and selling additional units to increase the number of cores available for remanufacturing in future periods further as the threat of competition increases the oem is more likely to completely utilize all available cores offering the remanufactured products at a lower price

capital inflows and the real exchange rate a comparative study of asia and latin america the nexus of real exchange rate rer and capital inflows is examined through a comparative analysis of the experiences of emerging market economies in asian and latin america during the period 1985 2000 it is found that the degree of appreciation in rer associated with capital inflow is uniformly much higher in latin american countries compared to their asian counterparts despite the fact that the latter experienced far greater foreign capital inflows relative to the size of the economy the econometric evidence suggests that both the composition of capital flows and differences in the degree of response of rer to capital flows matter in explaining these contrasting experiences while rer appreciation is a phenomenon predominantly associated with other non fdi forms of capital inflows ocfw a given level of ocfw brings about a far greater degree of appreciation of the real exchange rate in latin america where the importance of these flows in total capital inflow is also far greater on the policy front asian countries seem to have used fiscal contraction and nominal exchange rate adjustment more effectively to cushion the rer against the appreciation pressure of capital inflows there is however no evidence to suggest that sterilized intervention can generate a lasting impact on the real exchange rate

search frictions real rigidities and inflation dynamics the standard new keynesian model suffers from the so called macro micro pricing conflict in order to match the dynamics of inflation implied by macroeconomic data the model needs to assume an average duration of price contracts which is much longer than what is observed in micro data here i show how departing from the standard model s assumption of a perfectly competitive labor market can help resolve the pricing conflict i do so by assuming search frictions in the labor market in this framework labor becomes firm specific and marginal cost curves become upward sloping this mechanism reduces the slope of the new keynesian phillips curve given a frequency of price adjustment conversely given an estimate of this slope my model implies shorter price durations than the standard model for a plausible calibration and for different slope values my model consistently delivers price durations that are roughly half of those implied by the standard model

the impact of cyclical demand movements on collusive behavior recent work by rotemberg and saloner 1986 investigates the effect of the business cycle on optimal collusive pricing by specifying that demand is subject to i i d shocks an implication of the i i d assumption is that firms expectations on future demand are unrelated to the current level of demand we put forth a model that allows for both the level of current demand and firms expectations on future demand to change over time thus it captures two important properties of the business cycle our analysis reveals that while the gain to deviating from a collusive agreement is greatest during booms firms find it most difficult to collude during recessions as the forgone profits from inducing a price war are relatively low an implication of this effect for pricing behavior is that at the same level of demand price is lower when demand is declining than when demand is rising consistent with previous theoretical work we find that firms price countercyclically for a range of values for the discount factor however numerical simulations reveal a greater tendency for firms to price countercyclically during recessions than during booms

the surge in capital inflows to developing countries an analytical overview after being excluded from world capital markets during the debt crisis many developing countries have experienced large capital inflows during the past five years the challenges that these inflows pose for domestic policy in recipient countries have generated a substantial literature this article presents an overview of that literature describing the characteristics of the new inflows analyzing the policy issues they raise assessing their causes and likely sustainability and evaluating potential policy responses the desirable policy response is tied to characteristics of the flows themselves as well as to the characteristics of the recipient economy

an investigation into the power of insiders in wage determination abstract this paper is concerned with the role of insider forces in wage determination various union and non union models of wage behaviour are considered and they imply that wages are a convex combination of internal and external factors certain union models also imply a degree of hysteresis data on fourteen british production industries reveal that i insider forces are important ii their importance is directly related to both union power and the degree of monopoly in the product market iii the state of the aggregate labour market is also important and iv hysteresis effects arising from insider power are only significant in a small minority of sectors