a microeconometric analysis of consumer taste determination and taste change for beef a new method for modeling determination of consumer taste and a test of the taste change hypothesis is presented taste varies across households because of differences in household characteristics the method has a multiple indicator and multiple cause model interpretation with taste as an unobserved variable taste indicators are residuals of regular household demand functions the factors unexplained by prices and household expenditures taste cause variables are household characteristics and other variables the proposed model is applied to u s beef demand using household data results show that structural taste changes unexplained by changes in demographic composition decreased 8 from 1977 to 1987

spurious volatility in historical unemployment data this paper shows that the stabilization of the unemployment rate between the pre 1930 and post 1948 eras is an artifact of improvements in data collection procedures prewar methods are used to construct postwar unemployment data that are consistent with the historical data the constructed postwar series is nearly as volatile as the pre 1930 unemployment data the constructed postwar data are systematically more volatile than the actual postwar data because the cyclical behavior of the labor force and productivity are misspecified in the construction procedures the relationship between the actual and constructed postwar unemployment series is used to construct new historical data

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

price dispersion and price indexes the traditional theory of price index numbers is based on the law of one price but in the real world we frequently observe the existence of an equilibrium price dispersion instead of one price of equilibrium this article discusses the effects of price dispersion on two price indexes the cost of living index and the consumer price index with price dispersion and consumer searching for the lowest price these indexes cannot be interpreted as deterministic indicators but as stochastic indicators and they can be biased if price dispersion is not taken into account a measure for the bias of the consumer price index is proposed and the article ends with an estimation of the bias based on data obtained from the consumer price index calculated for the city of sao paulo brazil from january 1988 through december 2004 the period analysed is very interesting because it exhibits different inflationary environments high levels and high volatility of the rates of inflation with great price dispersion until

structural factors in the economic reforms of china eastern europe and the former soviet union reform in china and russia jeffrey sachs and wing thye woo china s experience does not show that gradual reform is superior to the shock therapy undertaken in eastern europe and the former soviet union eefsu differing performance primarily reflects different economic structures prior to reform china was a peasant agricultural society eefsu was urban and overindustrialized in both jobs in state enterprises were so heavily subsidized that workers refused to move to new industries elsewhere even when productivity in the latter was much higher in eefsu the large state sector impeded structural adjustment curtailing subsidies would have produced many losers who used their power to resist this outcome failure to curtail subsidies then cut off the potential supply of labour and other factors to new emerging firms china s state enterprises have not performed as well as the rest of the chinese economy and do not explain its success rapid growth was possible because the large agricultural sector contained vast surplus labour and did not enjoy subsidies and soft budget constraints once constraints on migration across regions and jobs were removed this labour was available to fuel expansion in new industries unlike the distributional conflict in eefsu in china reallocation of labour allowed all groups to gain in both partial liberalization also unleashed macroeconomic pressures manageable in china because of rapid growth and adequate monetary policy but explosive in much of eefsu because of deeper structural problems and gross monetary mismanagement

some macroeconomics for the 21st century this note describes a numerical simulation of a model of economic growth a simplified version of robert tamura s 1996 model of world income dynamics based on technology diffusion the model makes predictions for trends in average world income growth and about the evolution of the relative income distribution that accord well with observation the model is used to forecast the course of world income growth and income inequality over the century to come

the big push natural resource booms and growth a simple application of big push reasoning suggests that natural resource booms can be important catalysts for development in poorer countries in this paper we present evidence from seven latin american countries that natural resource booms are sometimes accompa nied by declining per capita gdp we present a model with natural resources increasing returns in the spirit of big push models and expectations to clarify some of the reasons this may happen q 1999 elsevier science b v all rights reserved

taming capital flows abstract the argument of this paper is that growing capital mobility is unavoidable domestic financial liberalization and the revolution in information and communications technologies make it much more difficult to stop capital flows at the border effective controls will therefore have to become increasingly comprehensive onerous and distortionary the issue is therefore how to cope with the reality of high capital mobility and to manage the transition this means not freeing capital flows before substantial progress has been made in liberalizing domestic financial markets and strengthening financial supervision it means liberalizing foreign direct investment first access to stock and bond markets second and offshore bank funding last it means putting in place exchange rate monetary and fiscal policies that do not destabilize the capital account it means reforming monetary and fiscal institutions to assure the markets of the capacity to deliver desirable monetary and fiscal outcomes

the development of nominal wage rigidity in the late 19th century wage price and output indexes suitable for comparing cyclical movements across decades show a decrease in nominal wage flexibility the change in wage inflation associated with output fluctuations after the 1880s following an increase in strike frequency linked to the spread of large scale manufacturing cross sectional data show that firms in industries experiencing more strikes in the 1880s were less likely to cut nominal wages in the depression of 1893 this and other evidence suggests that the nineteenth century decrease in wage flexibility was caused by an increase in workers bargaining power in the absence of binding wage contracts copyright 1993 by american economic association

the triumph of monetarism the story of 20th century macroeconomics begins with irving fisher in his books appreciation and interest 1896 the rate of interest 1907 and the purchasing power of money 1911 fisher fueled the intellectual fire that became known as monetarism but what has happened to monetarism at the end of the 20th century the short answer is that much of this current of thought is still there but its insights pass under another name we may not all be keynesians now but the influence of monetarism on how we all think about macroeconomics today has been deep pervasive and subtle why then do we today talk much more about the new keynesian economists than about the new monetarist economists i believe that to answer this question we need to look at the history of monetarism over the 20th century one fruitful way to look at the history of monetarism is to distinguish between four different variants or subspecies of monetarism that emerged and for a time flourished in the century just past first monetarism old chicago monetarism high monetarism and political monetarism

game theory for central bankers a report to the governor of the bank of england you asked me to review this book for you and try to digest what lessons it might hold for you i can well understand why you delegated this exercise to me you were no doubt already aware that alex cukierman ac is an eminent theoretician who has been applying currently fashionable game theoretic modeling techniques to the study of monetary policy and you may have had some concerns whether you would find the book user friendly in the rest of this review following both your instructions and my own inclinations i shall concentrate primarily upon the lessons and light that his work provides for monetary issues in general and for the conduct of central banking in particular neither you nor i have either the interest or the mathematical competence to assess how far this book represents an advance in the application or technical procedures of game theory as such in that respect the author will no doubt regard this as only a partial and one sided review of his work nevertheless ac hopes that you and other practitioners will read at least some part of the book and he has gone to considerable lengths to try to structure the book into modules of differing levels of technical difficulty and abstraction so that you will read the easy bits thus

a study of cartel stability the joint executive committee 1880 1886 this article employs weekly time series data on the joint executive committee railroad cartel from 1880 to 1886 to test empirically the proposition that observed prices reflected switches from collusive to noncooperative behavior an equilibrium model of dynamic oligopoly with asymmetric firms together with explicit functional form assumptions about costs and demand determines the estimating equations and stochastic structure of the econometric model the hypothesis that no switch took place so that price and quantity movements were solely attributable to exogenous shifts in the demand and cost functions is then tested against this alternative and rejected

firm strategy and biased decision making the price dispersion puzzle this article confronts the empirical evidence and theoretical predictions about the correlation between price dispersion and price theoretically search and location differentiation models suggest that price dispersion is a function of search and transportation costs but is independent of the good s price empirical evidence however suggests otherwise price dispersion and price are strongly correlated this article points out the discrepancy between theory and evidence which it denotes as the price dispersion puzzle it then explains why the documented behaviour of relative thinking people behave as if their search or transportation costs are increasing in the good s price can solve the puzzle

the time varying nairu and its implications for economic policy the nairu the unemployment rate consistent with a constant rate of inflation is estimated in this paper as a parameter allowed to vary over time value is determined in an econometric model where the inflation rate depends on its past values demand and supply shocks the nairu estimated for the gdp deflator varies over the past forty years within 5 4 to 6 5 percent its estimated value for the most recent quarter 1996 q2 is 5 6 percent the nairu has declined in recent years in response to global competition immigration other factors weakening labor s bargaining position and the rapidly declining prices of computers and other electronics

measurement of monopoly behavior an application to the cigarette industry a simple scheme is proposed to measure monopoly pricing behavior the coefficient of the tax rate term in a price equation identifies the ratio of price to marginal cost no direct measurement of costs is required so a major problem for other empirical studies of monopoly is avoided empirical results for cross section time series data support rejection of atomistic competition but also provide evidence against the operation of an effective cartel in the cigarette industry the model represents an alternative interpretation of related results in a recent paper by barzel application of the methodology to other markets is feasible

international financial crises causes prevention and cures dale jorgenson has bestowed a great honor and no small challenge by inviting me to give this lecture a great honor because of the distinguished list of economists who have preceded me a challenge because of the standard they have set and because there is no greater challenge for any economist than providing a coherent account of significant events to his scientific peers i am sometimes asked by friends about the differences between academic life and life as a public official there are many two stand out first as an academic the gravest sin one can commit is to sign one s name to something one did not write as a public official it is a mark of effectiveness to do so as often as possible second as an academic if a problem is too hard and does not admit of a satisfactory solution there is an obvious response work on a different problem that is not a luxury that one has in government i have been reminded of this often in recent years as we have grappled with financial crises in a number of what had previously been considered emerging markets with unrestrained futures anyone who doubts the social importance of what economists do should consider the debates surrounding these crises hundreds of millions of people who expected rapidly rising standards of living have seen their living standards fall hundreds of thousands if not millions of children have been forced to drop out of school and go to work hundreds of billions of dollars of apparent wealth has been lost the stability of large nations as nations has been called into question and the united states has made its largest nonmilitary foreign policyrelated financial commitments since the marshall plan almost all the issues involved in understanding preventing and mitigating these crises are the stuff of economics courses and research fixed versus flexible exchange rates moral hazard and multiple equilibria speculation and liquidity fiscal and monetary policies regulation and competition what economists think say and do has profound implications for the lives of literally billions of their fellow citizens whether it is discussing the role of derivatives in signaling exchange rate commitments with chinese premier zhu rongji or discussing an nber working paper on inflation targeting with the brazilian central bank governor arminio fraga or discussing alternative approaches to bankruptcy law with indonesia s economic team or optimal debt durations with the mexican authorities i am consistently struck by the impact of the kind of research discussed at the aea meetings the future well being of the world s people in large part will depend on how the ongoing process of global integration works out this is a strong statement but one that is supported by the global economy s post world war i failure and its post world war ii success central to global integration is financial integration the flow of funds and of capital across international borders and as the events of the late 1920 s and early 1930 s remind us central to global disintegration can be international financial breakdowns today i want to reflect on the issue of global financial integration in light of the dramatic and largely unpredicted events of recent years it is perhaps a good time for reflection there has been enough repair that priority can shift from u s department of the treasury 1500 pennsylvania avenue washington dc 20005 this lecture reflects many things i have learned from experiences i have shared with colleagues in the united states government and governments around the world i thank brad delong marty feldstein stephanie flanders ken rogoff andrei shleifer and ted truman for useful comments and suggestions i am especially grateful to nouriel roubini and stephanie flanders for valuable discussions and assistance in the preparation of this lecture the usual disclaimer applies

money and the dispersion of relative prices revisited this study extends the literature on relative price dispersion by addressing two questions that have remained largely unanswered a what is the impact on relative price dispersion of the variance of the uncertain relationship between money and prices b is there evidence across industries of a differential impact on price dispersion of the variance of the uncertain relationship between money and prices these issues are examined in a bivariate garch m model using monthly data from 1963 1997 the results at the aggregate level indicate that the variance of the uncertain relationship between money and prices has a positive and significant impact on relative price dispersion during the period 1963 to 1997 disaggregated analysis at the industry level suggests that the magnitude of the impact of the variance of the uncertain money price relationship differs greatly across industries and generally tends to have a greater impact on the price dispersion of durable goods than on the price dispersion of nondur

inflation price dispersion and market structure abstract in this paper we use a novel data set containing prices from bazaars convenience stores and supermarkets in istanbul to re examine the relationship between price dispersion and inflation although existing evidence is mixed we find positive and significant relationships between dispersion on the one hand and lagged dispersion and unexpected product specific inflation on the other we also find evidence that dispersion is initially decreasing in anticipated aggregate inflation but is eventually increasing finally average price duration and dispersion are lowest in the bazaar this is intuitive since menu and search costs should be minimal in that market structure

a latent variable model of quality determination because of data difficulties there has been little empirical work analyzing the determination of the quality of a firm s output this article constructs a latent variable model for this problem that uses easily obtainable data the model is developed from the relationship between the firm s input demand functions and reduced form output functions and it has a novel multiple indicator multiple cause mimic interpretation the model also allows identification of an intercept implying that an index of quality that is comparable across samples can be constructed as an example a latent variable model of nursing home quality is estimated

the macroeconomics of the great depression a comparative approach recently research on the causes of the great depression has shifted from a heavy emphasis on events in the united states to a broader more comparative approach that examines the interwar experiences of many countries simultaneously in this lecture i survey the current state of our knowledge about the depression from a comparative perspective on the aggregate demand side of the economy comparative analysis has greatly strengthened the empirical case for monetary shocks as a major driving force of the depression an interesting possibility suggested by this analysis is that the worldwide monetary collapse that began in 1931 may be interpreted as a jump from one nash equilibrium to another on the aggregate supply side comparative empirical studies provide support for both induced financial crisis and sticky nominal wages as mechanisms by which nominal shocks had real effects still unresolved is why nominal wages did not adjust more quickly in the face of mass unemployment this abstract was borrowed from another version of this item

testing static oligopoly models conduct and cost in the sugar industry 1890 1914 we explore the widespread methodology of using demand information to infer market conduct and unobserved cost components under the hypothesis of static oligopoly behavior direct measures of marginal cost and conduct indicating small market power serve as benchmarks the more competitive models yield better cost estimates the best cost estimates occur when conduct is estimated as a free parameter which in turn only slightly underestimates our direct measure it also tracks the decline in market power accompanying the industry s structural changes the methodology is largely validated although partial cost information can improve its predictive power conclusions are robust to demand function

estimating tax incidence market power and market conduct the european cigarette industry abstract recent theoretical work has shown that the incidence of ad valorem and specific taxes may differ and each may be over or under shifted onto consumers in the presence of imperfect competition these results are used to derive a method of estimating market power and conduct an application is made to the european cigarette industry previous empirical comparison of the incidence of ad valorem and specific taxes is limited for a group of countries with broadly similar cigarette industries there is evidence of undershifting of both taxes with the specific tax having a significantly greater impact on price the extremes of both perfect competition and monopoly can be rejected behaviour is no less competitive than the equivalent of cournot

reassessing discretionary fiscal policy in 1992 president bush proposed legislation intended to speed up the recovery from the 1990 91 recession congress rejected this proposal for countercyclical fiscal policy stimulus in early 1993 president clinton proposed his own stimulus package but congress rejected this proposal too many reasons were given for deciding against these two discretionary fiscal policy proposals but perhaps the most common one was the large federal budget deficit in the early 1990s with the rapid disappearance of budget deficits in recent years this reason to vote against a discretionary fiscal stimulus is unlikely to be mentioned in the next economic cycle discretionary countercyclical fiscal policy again appears to be a politically feasible option but should america use it after so many years of disuse much has happened in macroeconomics since the 1960s and 1970s when discretionary countercyclical fiscal policy was last considered a serious option in the united states first monetary policy making has changed substantially over the last two decades the federal reserve s interest rate decisions have become more explicit more systematic and more reactive to changes in both inflation and output the fed has placed a greater emphasis on keeping inflation low the experience with this new policy has been very favorable inflation has been low since the early 1980s and the real economy has been more stable the 1980s and 1990s saw two lengthy expansions separated by a relatively short and mild recession in terms of the tradeoff between output variability and inflation

hayek and socialism friedrich a hayek was a life long opponent of socialism three of his contributions are surveyed and placed within historical context his debates in the 1930s with the market socialists his political critique of socialism in the road to serfdom and his evolutionary arguments against rationalist constructivists recent discussions that use the economics of information to analyze the prospects for socialism are also reviewed it is argued that theorists working in the economics of information have not recognized just how far hayek s conceptualization of the appropriate theoretical constructs for economics deviates from those of mainstream economists as such they have misunderstood what may constitute an independent set of arguments against socialism

hard heads soft hearts tough minded economics for a just society introduction murphys law of economic policy needed hard heads and soft hearts striking a balance between unemployment and inflation do we know how to manage the national economy who will protect us from protectionism cleaning up the environment sometimes cheaper is better it can happen here the improbably saga of tax reform on breaking murphys law

a strategy for efficient debt reduction f or the past seven years the u s government has managed the debt crisis with the preeminent goal of sustaining the flow of debt servicing payments from the debtor countries to the commercial banks the focus on the banks especially in the first years of the crisis 1982 85 is easily explained several money center banks had exposure of nearly 200 percent of bank capital in latin america alone upon the outbreak of the crisis in 1982 a widespread suspension of debt service payments could well have sunk several major banks i have discussed the u s government s policy focus on the debt servicing to the commercial banks in sachs 1986b 1989c and sachs and huizinga 1987 but today those policies are being revised after years of steady decline in the exposure ratios of the most heavily exposed banks the risk of a u s banking crash as the result of the debt crisis is now virtually nonexistent in addition the burden of debt payments is contributing to profound economic crises and growing political instability in almost all of the democracies in latin america a wide range of analysts now concurs that the debt burden should be reduced not only for the sake of the debtors but also for the sake of the creditors who have an important long run stake in allowing the developing countries to surmount the current acute crisis the brady plan unveiled by secretary of treasury nicholas brady in march 1989 is based on the need for a reduction of the debt burden

can africa catch up towards globalisation has been manifested in the sustained growth of world trade and flows of investment and technology as well as in the convergence of national economic and social systems for most regions this growing integration has led to rapidly increasing per capita incomes while africa has stagnated at the income level achieved about three decades ago the question posed in this paper is whether africa can link up with the rest of the world and start a catch up process or whether marginalisation is inevitable the paper is structured as follows the second section looks at whether africa has really been marginalised or in what sense this has happened this is done through a comparison with other regions the third section investigates to what extent africa has been open to the rest of the world the fourth section looks at structural adjustment policies introduced from the 1980s onwards to open up african economies and discusses the impacts of these reforms the fifth section looks at possible reasons as to why africa has not taken off while the final section discusses the way forward for africa the facts of african marginalisation after world war ii africa was a reasonably important trading partner and an interesting arena for foreign investment during the period up to the early 1960s the continent went through a process of decolonisation in terms of development strategy the liberation did initially not imply any

the reincarnation of keynesian economics this paper discusses the reemergence of keynesian economics during the past decade it highlights the substantial differences between new keynesian economics and the convictions of early keynesians in particular it points out that new keynesians have adopted many views that were once considered monetarist or classical it concludes that the term keynesian may have outlived its usefulness this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

why trade liberalisation is good for growth there are three titles that might have been assigned for this paper 1 why is growth so rapid with outer oriented trade strategies 2 do countries with outer oriented trade strategies grow faster and 3 the one actually assigned they are not the same of the three the first is probably the most difficult to answer the second is a factual question and the empirical demonstration is straightforward sachs and warner 1995 the third by focussing on trade liberalisation implies that developing countries have highly restrictive trade regimes and thus asks if a move away from those regimes is good for growth it is far easier to show why especially over time liberalising a restrictive trade regime is conducive to more rapid growth than it is to show why outer oriented trade strategies have been so highly successful trade strategies and development strategies are closely related and it is useful to start by defining a few terms an import substitution is industrialisation strategy was adopted by most developing countries in the years following the second world war in most cases those countries were then predominantly agricultural and exporters of primary commodities the belief then was that rapid industrialisation was the essential if not the sole feature of economic growth and that only by domestically producing goods then imported could developing countries industrialise 1 under is it was intended to provide protection to new industries during their developmental period until they could compete with their counterparts in industrialised countries in practice the is strategy pulled most new resources into import competing activites with a number of negative consequences discussed later and one result was that export earnings grew less rapidly than the demand for foreign exchange and usually less rapidly even than real gdp an almost universal policy response was then to impose restrictive import licensing in response to foreign exchange shortage the stated reasons for this were the need to conserve scarce foreign exchange for essential developmental needs the outcome was of course a restrictive trade regime for reasons to be discussed below as is strategies continued trade regimes increased in restrictiveness and growth slowed hence to discuss trade liberalisation is to address the removal or at least reduction of incentives for is industrialisation and because again to be discussed below growth spurred under an is industrialisation strategy slows

credit markets and the control of capital traditional discussions of the role of capital markets have identified a number of distinct functions which they perforrn they allocate scarce capital among competing users and uses l and they provide signals to guide managers in making their investment decisions 2 in this lecture i wish to focus on a rather different function of the capital market what i shall refer to as the control of capital 3 conventional theory treats the typical firrn in an anthropomorphic manner it acts as a single rational individual doing what it is supposed to be doing maximizing stock market value that may have been well and good in those nostalgic bygone days of small firrns each run tightly by their owners who were single mindedly pursuing their lust for wealth but today a majority of production occurs in large corporations in which no shareholder owns more than a small fraction of the shares in which the separation of ownership and control that frank knight was so concerned with in his writings some sixty five years ago has become a reality those

a two factor model to combine us inflation forecasts the combination of individual forecasts is often a useful tool to improve forecast accuracy the most commonly used technique for forecast combination is the mean and it has frequently proved hard to surpass this study considers factor analysis to combine us inflation forecasts showing that just one factor is not enough to beat the mean and that the second one is necessary the first factor is usually a weighted mean of the variables and it can be interpreted as a consensus forecast while the second factor generally provides the differences among the variables and since the observations are forecasts it may be related with the dispersion in forecasting expectations and in a sense with its uncertainty within this approach the study also revisits friedman s hypothesis relating the level of inflation with expectations uncertainty at the beginning of the twenty first century

measurement of industry conduct with a latent structure empirical industrial organization economists have long been concerned with measuring the degree of competition in markets and understanding its underlying determinants but they have faced serious difficulties including data requirements and misspecification issues this paper offers an alternative method of estimating market power and industry conduct market power is estimated for the fresh apple industry with a latent modelling structure specifically variations of the mimic model are adapted to this problem these variations are the multiple indicators mi and the filtered measure fm approaches the results suggest that although the washington apple industry has a large market share it does not exercise market power factors that mitigate the exertion of market power in the fresh apple market include competitor shipments and retailer power copyright 2004 john wiley sons ltd

the challenge of high unemployment it is argued that policymakers macroeconomists and microeconomists should all take high unemployment more seriously the shortcomings of existing theories of unemployment are discussed and a new definition of involuntary unemployment is proposed a model is sketched in which falling aggregate demand leads to keynesian unemployment because labor is heterogeneous and relative wages matter microeconomic theory is criticized for assuming away unemployment and in the process radically changing the answers to some basic questions in trade theory and public finance finally some speculative explanations are offered for the low unemployment now found in states like new jersey and massachusetts this abstract was borrowed from another version of this item

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

the macroeconomic impact of development aid a critical survey the early literature explained aid s macroeconomic impact in the context of the dual gap model showing a clear link between aid and growth many now believe that the empirical evidence shows there to be no such relationship this paper critically reviews the different theoretical perspectives the dual gap model the savings debate recipient fiscal response and aid as dutch disease and the empirical debates on aid savings and growth the basis for denying a relationship between aid and growth is shown to be weak though more recent areas of research offer promising directions for future work

redefining the role of the state an interview with introduction by brian snowdon professor joseph stiglitz is without question one of the world s leading economists in his extensive research he has made seminal contributions to the analysis of the economic consequences of incomplete information and uncertainty this work has greatly enhanced economists understanding of the welfare properties of markets and the sources of market failure his research has also contributed to the development of better microeconomic foundations for keynesian macroeconomic models most recently professor stiglitz has been heavily involved in controversial public policy debates relating to the east asian crisis problems of transition from communism to capitalism the limitations of the washington consensus and globalisation and development a common theme in all of these debates relates to the role of government and legitimate borders of the state in both developed and developing economies in this article interview professor stiglitz gives his views on these and several other important global issues

keeping the keynesian faith this wide ranging discussion takes in the development of macroeconomics and the influence of ideas and events on that development the nature and causes of the great depression keynesianism lessons from the high inflation period of the 1970s the role of macroeconomic policy and the idea of the new economy

the role of the state in financial markets this paper reexamines the role of the state in financial markets and identifies seven major market failures that provide a potential rationale for government intervention in practice government interventions in capital markets even in industrial countries have been pervasive the paper provides a taxonomy of those interventions with respect to both the objectives they serve and the instruments they employ there is a role for the government in financial markets but the success of government interventions has been mixed it is important that interventions be well designed the paper sets out principles for government regulatory interventions and applies them to prudential regulation it then examines three other areas of intervention directed credit finanical repression and competition policy and identifies circumstances in which some amount of financial repression may actually be beneficial

the price effects of monetary shocks in a network economy abstract empirical evidence shows monetary shocks have two temporary effects on the distribution of prices one the dispersion of cross section of prices increases in response to monetary shocks two some prices change in the wrong direction some prices decrease in response to positive monetary shocks and increase in response to negative monetary shocks we present a model that generates the two effects of monetary shocks on the distribution of prices as an out of equilibrium phenomena firms are related to each other through a production network monetary shocks change the working capital of a subset of firms and percolate to other firms through buyer seller linkages price dispersion increases because the percolation of a monetary shock through the production network causes prices to differentially deviate from their steady state values some prices change in the wrong direction because a shift in one firm s demand causes a shift in another firm s supply and vice versa thereby generating complicated chains of bi directional price changes monetary shocks can significantly disturb relative prices even when all prices are fully flexible

explaining african economic performance africa has had slow growth and a massive exodus of capital in many respects it has been the most capital hostile region we review and interpret the aggregate level and microeconomic literatures to identify the key explanations for this performance there is a reasonable correspondence of the two sets of evidence pointing to four factors as being important these are a lack of openness to international trade a high risk environment a low level of social capital and poor infrastructure these problems are to a substantial extent attributable to government behaviour and the paper includes a review of the political economy literature which addresses that behaviour

democracy and the washington consensus abstract this paper argues that there is a substantial body of economic advice roughly summarized in the washington consensus that deserves to be endorsed across the political spectrum such endorsement would still leave a series of major economic issues most notably the tradeoff between efficiency and equity to be determined by the outcome of the political process it is argued that the left interpreted as those who give relatively more weight to equity will advance its cause by embracing the mainstream economics summarized by the consensus

twentieth century political economy a brief history of global capitalism modern capitalism emerged in the early nineteenth century in western europe and the european offshoots of the americas and oceania recognizing the unparalleled dynamism of the new socio economic system marx and engels predicted in 1848 that capitalism would spread to the entire world by the end of the twentieth century that prediction was confirmed capitalism had indeed become global but only after a tortuous and violent course of institutional change in many parts of the world this paper provides a brief account of the emergence of global capitalism and discusses some of the reasons why the diffusion of capitalism has been so conflictual and violently contested copyright 1999 by oxford university press

competitiveness in a globalised world michael porter on the microeconomic foundations of the competitiveness of nations regions and firms in this paper we provide the text of an interview with professor michael porter discussing his research and ideas relating to the microeconomic foundations of global competitiveness the discussion provides a microeconomic perspective on some of the key issues relating to recent research on competitiveness productivity clusters us economic leadership economic growth and development

productivity growth and factor prices in east asia the industrial revolution in several east asian countries over the last three decades is one of the most important economic events in the postwar era several recent growthaccounting exercises have found that their extraordinary rate of output growth was due primarily to an equally impressive rate of factor accumulation with little due to technological progress see alwyn young 1992 1995 jong il kim and lawrence lau 1994 susan collins and barry bosworth 1996 since these studies suggest that factor accumulation has been the lead actor in east asia s growth many economists have reached the conclusion that the industrial revolution in east asia can largely be explained in terms of transition dynamics in a neoclassical growth framework see e g paul krugman 1994 n gregory mankiw 1995 if this view is correct the lesson from east asia s experience is that there are no easy solutions for a poor country that seeks to join the league of wealthy nations low levels of investment and education may be the result of bad policies but once proper policies are enacted a poor country faces the grim prospect of a further decline in its already low standards of living as it devotes more resources to investment and education the central point of this paper is that if east asia s growth was largely driven by capital accumulation with little technological progress the return to capital should have fallen dramatically as capital accumulation encounters diminishing returns for example the capital output ratio for korea computed from the national accounts has increased at an average rate of 3 4 percent per year from 1966 to 1990 while that of singapore has increased at an average rate of 3 7 percent per year from 1968 to 1990 by dividing the share of payments to capital in total income by the capital output

a global compact to end poverty brian snowdon presents the text of a two hour interview conducted with jeffrey d sachs of columbia university a wide ranging discussion relating to professor sachs s work over the past thirty years on macroeconomic stabilisation the economics of transition and several important issues in the field of international economic development first snowdon provides some background to the debate relating to professor sachs s most recent work that has helped focus international attention on the growth tragedy of sub saharan africa this key humanitarian issue has received enormous coverage in the media throughout 2005 and has been highlighted in particular at the g8 meetings in gleneagles and worldwide live 8 concerts in july 2005 and the un world summit in september

what is new keynesian economics this research was supported by the national science foundation i am grateful to george williams for help with the data and to steven allen laurence ball olivier j blanchard timothy bresnahan charles calomiris dennis carlton robert chirinko russell cooper stanley fischer herschel grossman r glenn hubbard david laidler john leahy assar lindbeck n gregory mankiw david romer julio rotemberg dennis snower john taylor andrew weiss and two anonymous referees for comments on one or more earlier drafts i am also indebted to michael parkin and edmund s phelps for helping to establish the etymology of the phrase new keynesian

politics and the effectiveness of foreign aid abstract critics of foreign aid programs have long argued that poverty reflects government failure in this paper i test predictions for aid effectiveness based on an analytical framework that relates aid effectiveness to political regimes i find that aid does not significantly increase investment nor benefit the poor as measured by improvements in human development indicators but it does increase the size of government the impact of aid does not vary according to whether recipient governments are liberal democratic or highly repressive but liberal political regimes and democracies ceteris paribus have on average 30 lower infant mortality than the least free regimes this may be due to greater empowerment of the poor under liberal regimes even though the political elite continues to receive the benefits of aid programs an implication is that short term aid targeted to support new liberal regimes may be a more successful means of reducing poverty than current programs

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

africa s economic performance limitations of the current consensus historical and micro survey evidence as well as the standard data from international organizations support less pessimistic conclusions on africa s development performance than those reached by many social scientists the changes that have benefited women over the last four decades are highlighted a discussion of growth in agricultural production follows however the complexity and the brutality of processes of social and economic change in sub saharan african economies are also stressed the theoretical implications of these complexities have not been adequately analyzed by world bank economists the bank s recent efforts to reassess its policies are therefore unlikely to achieve the results anticipated