optimal consumption and investment with transaction costs and multiple risky assets we consider the optimal intertemporal consumption and investment policy of a constant absolute risk aversion cara investor who faces fixed and proportional transaction costs when trading multiple risky assets we show that when asset returns are uncorrelated the optimal investment policy is to keep the dollar amount invested in each risky asset between two constant levels and upon reaching either of these thresholds to trade to the corresponding optimal targets an extensive analysis suggests that transaction cost is an important factor in affecting trading volume and that it can significantly diminish the importance of stock return predictability as reported in the literature this paper studies the optimal intertemporal consumption and investment policy of an investor with a constant absolute risk aversion cara preference and an infinite horizon the investor can trade in one risk free asset and n 1 risky assets in contrast to the standard setting the investor faces both fixed and proportional transaction costs in trading any of these risky assets in the absence of transaction costs and when risky asset prices follow geometric brownian motions the optimal investment policy is to keep a constant dollar amount in each risky asset as shown by merton 1971 this trading strategy requires continuous trading in all the risky assets in addition the optimal consumption is affine in the total wealth in the presence of transaction costs however trading continuously in a risky asset would incur infinite transaction costs therefore risky assets are traded only infrequently in this case the literature on optimal consumption and investment with multiple risky assets subject to transaction costs is limited leland 2000 examines a multiasset investment fund that is subject to transaction costs and capital gains taxes under the assumption that the fund has an exogenous target for each risky asset he develops a relatively simple numerical procedure to compute the no transaction region akian menaldi and sulem 1996 consider an optimal consumption and investment problem with proportional transaction costs for

how strong is the case for a populist central banker a note conventional wisdom holds that a conservative central banker reduces equilibrium inflation with no cost in terms of real activity more recently this proposition has been turned around in models with inflation averse wage setters who are stackelberg leaders vis a vis the central bank in this case a populist central banker with no interest in inflation was shown to lead to the first best equilibrium this note demonstrates that the stackelberg assumption is crucial for this result and that the nash solution of the same model does not generally support the case for a populist central banker

where is the plus in credit plus the case of chiapas mexico abstractit has become common to try and increase the effectiveness of microfinance programmes by adding supplementary services to the financial product however the added value accruing from this credit plus approach has been little analysed we hypothesise that the extent of added value from credit plus depends on the ability of the credit supplier to cultivate trust or social capital amongst clients applying difference in difference estimation we exploit a natural experiment of two credit plus programmes in mexico the findings suggest that credit plus is not universally effective but that it is at its most effective especially with low income groups where bonding within group social capital exists

portfolio selection with capital gains tax recursive utility and regime switching capital gains taxation has important implications for investors portfolio choice decisions to explore these implications we develop a continuous time investment and consumption model with capital gains tax epstein zin recursive utility and regime switching we find that various factors such as tax rate risk aversion interest rate stock return and volatility jointly affect optimal portfolio allocation whereas intertemporal substitution does not in a regime switching market investors may trade or stop trading purely because of a change in regime and there is a distinct cross regime effect on optimal portfolio allocation in particular investors tend to raise stock investment in a bear regime so as to reduce potential tax payments upon regime switching given reasonable parameter values regime switching has a greater impact on optimal portfolio allocation in a bear regime than in a bull regime this paper was accepted by neng wang finance

the impact of group lending in northeast thailand abstract much of the literature on group lending focuses on its high repayment rates rather than its goal of promoting borrower welfare most studies that attempt to measure the impact of group lending neglect the issues of self selection and endogenous program placement thus leading to biased estimates of impact one reason for this neglect is the lack of data that would allow for identification of impact this paper surmounts these problems by using data from a quasi experiment conducted in northeast thailand in 1995 1996 program participants were identified in six control villages 1 year prior to receiving loans surveys were then conducted of these control members treatment members in eight older program villages and nonmembers in both types of village this survey design allows for straightforward estimation of impact the results indicate that program loans are having little impact although naive estimates of impact that fail to account for self selection and endogenous program placement significantly overestimate impact

microfinance and poverty in bolivia both in its institutional range and in its penetration of financial markets the microfinance sector in bolivia rivals any in the world and has played a major part in extracting the macro economy from meltdown since the mid 1980s we seek specifically to assess its impact on poverty and do this through small sample surveys on four microfinance institutions two urban and two rural using a range of poverty concepts income generated both through the borrower s enterprise and through the labour market asset holdings and diversity and various measures of vulnerability all the institutions studied had on balance positive impacts on income and asset levels with income impacts correlating negatively with income on account of poor households choosing to invest in low risk low return assets microfinance may however augment vulnerability average debt service ratios of microfinance clients are disturbingly high and if the coping mechanisms used by borrowers fail borrowers may be forced out of the

central bank inflation contracts and strategic wage setting in a multiunion economy abstract a shared feature of models used to investigate the welfare enhancing potential of a central bank inflation contract is their stochastic nature central to the benefits conferred by such a contract is the presence of supply shocks in constructing a framework where wages are set strategically by a number of nonatomistic inflation averse unions this note identifies circumstances in which an inflation contract improves macroeconomic outcomes even in the absence of supply shocks

mixed signals central bank independence coordinated wage bargaining and european monetary union plans for the european monetary union emu are based on the conventional postulate that increasing the independence of the central bank can reduce inflation without any real economic effects however the theoretical and empirical bases for this claim rest on models of the economy that make unrealistic information assumptions and omit institutional variables other than the central bank when signaling problems between the central bank and other actors in the political economy are considered we find that the character of wage bargaining conditions the impact of central bank independence by rendering the signals between the bank and the bargainers more or less effective greater central bank independence can reduce inflation without major employment effects where bargaining is coordinated but it can bring higher levels of unemployment where bargaining is less coordinated thus currency unions like the emu may require higher levels of unemployment to control inflation than their proponents envisage they will have costs as well as benefits and these will be unevenly distributed among and within the member nations depending on the changes they induce in the status of the bank and of wage coordination

optimal portfolio selection with transaction costs and finite horizons we examine the optimal trading strategy for a crra investor who maximizes the expected utility of wealth on a finite date and faces transaction costs closed form solutions are obtained when this date is uncertain we then show a sequence of analytical solutions converge to the solution to the problem with a deterministic finite horizon consistent with the common life cycle investment advice the optimal trading strategy is found to be horizon dependent and largely buy and hold moreover it might be optimal for the investor in our model not to buy any stock even when the risk premium is positive further analysis of the optimal policy is also provided financial advisers typically recommend that younger investors should allocate a greater share of wealth to stocks than older investors and all investors

optimal tax timing with asymmetric long term short term capital gains tax we develop an optimal tax timing model that takes into account asymmetric long term and short term tax rates for positive capital gains and limited tax deductibility of capital losses in contrast to the existing literature this model can help explain why many investors not only defer short term capital losses to long term but also defer large long term capital gains and losses because the benefit of tax deductibility of capital losses increases with the short term tax rates effective tax rates can decrease as short term capital gains tax rates increase

revisiting the case for a populist central banker it is known that discretionary policy may give rise to an inflationary bias if wages are negotiated in nominal terms in a recent issue of this review guzzo and velasco argued that this bias can be eliminated and welfare maximized by the appointment of a central banker who does not care at all about inflation a populist central banker a conceptual flaw of the latter result is identified here it is shown that when wages are negotiated in nominal terms the result is true only in the special case of a single all encompassing union in the more general case of multiple unions however inflation increases linearly with their number and a populist central bank may turn out to decrease welfare

microfinance its impact outreach and sustainability summary this symposium brings together recent empirical contributions with respect to a number of related and highly relevant issues on the economics of microfinance in particular the contributions provide answers to the following two main questions 1 does microfinance have an impact on the social and economic situation of the poor in developing nations and 2 are microfinance institutions sustainable in the long term and is there a trade off between sustainability and outreach

how will emu affect inflation and unemployment in europe this paper explores how european monetary union will change the wage setting behavior of national labor unions we derive the impact of national inflation aversion and labor militancy on the performance of national labor markets under different monetary arrangements a common central bank raises inflation and unemployment if it acts as conservatively as national central banks however unemployment falls in countries that previously tied their monetary policy to the bundesbank we also examine the composition of emu and the influence of national labor market legislation jel classification e24 f02 f33

monetary institutions monopolistic competition unionized labor markets and economic performance recent literature on the interactions between labor unions and monetary institutions features either a supply or a demand channel of monetary policy but not both this leads to two opposing views about the effects of central bank conservativeness we evaluate the relative merits of those conflicting views by developing a unified framework we find that i the effect of conservativeness on employment depends on unions relative aversion to unemployment versus inflation and ii for plausible values of this relative aversion and more than one union social welfare is maximized under a highly conservative central bank we also evaluate the effects of centralization of wage bargaining and product market competition on unemployment and inflation

monetary policy cooperation may not be counterproductive this paper qualifies rogoff s famous 1985 result that international monetary policy cooperation is counterproductive in a model similar to his it is shown that if wage setters are non atomistic and inflation averse as policymakers are cooperation leads to higher employment and possibly lower inflation

programs for the poorest learning from the igvgd program in bangladesh abstract this article examines a program that seeks to reach bangladesh s hardcore poor by combining elements of livelihood protection food aid with livelihood promotion skills training and microfinance bangladesh rural advancement committee s income generation for vulnerable group development program has deepened the outreach of its poverty reduction activity and achieved impressive results detailed local level fieldwork revealed however that program practice differed markedly from program plans this is found to have important implications for both future program design and the understanding of who does not benefit from such innovative programs we conclude that while such programs mixing livelihood protection and promotion should be a major focus for anti poverty strategies there will remain a role for more traditional social welfare schemes

multiple wage bargaining systems in the single european currency area little attention in the emu literature has been paid to the interaction between central bank monetary rules and systems of collective wage bargaining analytically and empirically coordinated wage bargaining systems respond with real wage restraint to non accommodating monetary policy since wage determination is dominated by collective bargaining in all the emu member states and wage coordination within the member states has grown since 1980 this is a topic of potential importance in particular the replacement of the bundesbank directly targeting german inflation by an ecb targeting european inflation has removed a major institutional support of wage restraint in germany the consequences of this for emu are worked out under two scenarios that inflation expectations will be generated by ecb monetary policy and that they will reflect german inflation outcomes possible institutional developments are discussed including government union bargains the bundesbank has also played a major role in maintaining fiscal rectitude by targeting excess fiscal deficits in germany again its replacement by the ecb targeting if at all european rather than german fiscal policy loosens fiscal constraints for underlying structural reasons therefore it is possible that germany and other emu countries will move to a period of fiscal activism with wage restraint and low inflation purchased through social contract negotiations

stabilisation policy targets and unemployment in imperfectly competitive economies this paper argues that the rate of equilibrium unemployment depends on the objectives of the central bank in a model where the central bank uses monetary policy to stabilise the economy we show that unemployment and inflation will be lower with an inflation target than with targets for output money or nominal gdp the intuition for this is that the elasticities of demand in both the product and the labour markets are greater when there is an inflation target we show that this leads to a lower mark up of price over marginal cost and makes wages more sensitive to unemployment

labour markets and monetary union a strategic analysis this paper shows that the effects of a monetary union depend on several labour market features in particular the switch from national monetary policies to a common monetary policy usually affects both inflation and unemployment even when all structural parameters of the economy and of unions and policymakers preferences remain the same the benchmark case of a monetary union between identical countries suggests that the switch to a monetary union is likely to make labour unions more aggressive increasing unemployment qualifications to this result are provided under alternative institutional scenarios like cross country asymmetries pre union erm membership and wage leadership

optimal portfolio choice with wash sale constraints abstract we analytically solve the portfolio choice problem in the presence of wash sale constraints in a two period model with one risky asset our results show that wash sale constraints can heavily affect portfolio choice of investors with unrealized losses the trading behavior of such investors is to a large extent driven by the desire to realize those losses either immediately by sharply decreasing the holding of assets carrying unrealized losses or indirectly by increasing such holdings in order to prepare for a decrease in a future period to earn the tax rebate payment our findings are robust to increasing the number of trading dates and introducing a second risky asset and a correlation structure

is there a european wage leader wage spillovers in the european monetary union the introduction of the euro had been accompanied by expectations of increased inflationary pressures due to a de coordination shock to national wage bargaining systems though if anything systematically happened after the introduction of the euro wage restraint increased this paper argues that an interdependency of wage setting under german dominance has emerged in europe which fuelled the transmission of mutual wage restraint we will investigate wage and nominal unit labour cost spillovers in the european monetary union emu exploring a panel of 13 manufacturing sectors from 1992 to 2005 and quantify the effects of different countries strong interdependencies across emu member countries with regard to nominal wage growth are found a leading role accrues to germany which is responsible for a cumulative reduction of trans european wage growth rates of 0 62 by conservative estimates remarkably the influence of germany is strongest on southern europe with regard to wage growth interdependencies however the situation is inverted with regard to the development of nominal unit labour costs where the german influence on southern europe is substantially weaker than on neighbouring economies copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

portfolio investment with the exact tax basis via nonlinear programming computing the optimal portfolio policy of an investor facing capital gains tax is a challenging problem because the tax to be paid depends on the price at which the security was purchased the tax basis the optimal policy is path dependent and the size of the problem grows exponentially with the number of time periods dammon et al 2001 2002 2004 garlappi et al 2001 and gallmeyer et al 2001 address this problem byapproximating the exact tax basis by the weighted average purchase price our contribution is threefold first we show that the structure of the problem has several attractive features that can be exploited to determine the optimal portfolio policy using theexact tax basis via nonlinear programming second we characterize the optimal portfolio policy in the presence of capital gains tax when using theexact tax basis third we show that the certainty equivalent loss from using the average tax basis instead of the exact basis is very small it is typically less than 1 for problems with up to 10 periods and this result is robust to the choice of parameter values and to the presence of transaction costs dividends intermediate consumption labor income tax reset provision at death and wash sale constraints

monetary union and pegging in the presence of labor unions as the european economic and monetary union grows power over monetary policy is shifting away from the original founders previously researchers have analyzed the impact of replacing an exchange rate peg with a monetary union in the presence of labor unions in these studies the authors have consistently concluded that unemployment in the country that originally controlled monetary policy will rise although they cite very different reasons in this paper we present a more general model that reproduces the previous results in special cases and clarifies the relations across the results in addition the more general model shows that the results are reversed in certain conditions

relative prices in monetary union and floating we analyse a small open economy with a tradable and a sheltered sector if the unions that operate in each sector coordinate their wage demands sectorwise the choice of monetary regime floating cum inflation target vs emu may affect the relative wages and prices of the economy we show that emu results in lower prices for tradable goods and lower real wages in the traded sector while opposite results hold for sheltered sector prices and wages thus if large unions behave strategically the choice of monetary regime has far reaching structural implications

market opening regulation and growth in europe deregulation a political economy analysis lack of urgency explains why continental europe trails in the deregulation process yet there are lessons to be learnt from deregulation elsewhere this paper reviews the situation and focuses on the political preconditions for successful deregulation it finds a clear negative relationship between regulation and economic performance it characterizes european countries by the degree of regulation of labour and product markets and finds that the latter seems to be more important for economic performance finally it notes the importance of a proper management of the deregulation effort which may include some re regulation deregulation is more likely to succeed the more transparent the economic benefits and the more clearly stated the objectives and the time schedule kees koedijk and jeroen kremers

the distributive consequences of social banking a microempirical analysis of the indian experience abstractthe governments of many developing economies have actively promoted the expansion of banks in rural areas believing that such investments are necessary to reduce poverty and existing levels of wealth inequality there is little evidence on whether such social banking programs succeed in their objectives this article uses the government of india s credit policies of the 1980s to test the effect of the two main components of the social banking program on households the spread of rural banks and required lending for agriculture government policies were stated in terms of district level outcomes and monitored using a district level database of banking statistics i use this same database merged with household data for this analysis the availability of the data that guided policy enables the use of policy rules as instruments to identify the effects of social banking i find that social banking had a larger effect on nonpoor households relative to poor defined in terms of wealth and land owne

village banking and maternal and child health evidence from ecuador and honduras abstract many microcredit institutions bundle credit with health education or other programs this paper reviews arguments on such tie ins and concludes that net benefits are possible but requires empirical testing quasi experimental data from project hope s health banks and credit only village banks are then examined the paper presents evidence that health practices do not improve automatically with greater wealth in honduras results show that health bank participation is robustly associated with reduced subsequent conditional child diarrhea probability but in no specification does credit only bank participation have this effect in ecuador results suggest a larger effect of credit only banks in both countries health bank participation significantly raises subsequent healthcare over credit only participation and at least reduces the tendency to switch from breast feeding to bottle feeding as income rises effects on expenditures are ambiguous there is no clear link between tie ins and bank performance

optimal stock trading with personal taxes implications for prices and the abnormal january returns abstract the tax law confers upon the investor a timing option to realize capital losses and defer capital gains with the tax rate on long term gains and losses being about half the short term rate the law provides a second timing option to realize losses short term and gains long term if at all our theory and simulation over the 1962 1977 period establish that taxable investors should realize long term gains in high variance stocks and repurchase stock in order to realize potential future losses short term tax trading does not explain the small firm anomaly but predicts a seasonal pattern in trading volume which maps into a seasonal pattern in stock prices the january anomaly only if investors are irrational or ignorant of the price seasonality

fiscal activism under inflation targeting and non atomistic wage setting this paper presents a game between a fiscal authority an independent central bank and non atomistic wage setters the effects of fiscal activism and inflation targeting on labour market outcomes are analysed the results suggest that inflation targeting provides incentive for wage restraint moreover real wages are increasing in the degree of fiscal activism as wage setters exploit the response of a fiscal authority seeking to promote employment numerical results suggest that the benefits of targeting inflation are larger when the government pursues an activist policy and therefore that there is some substitutability between fiscal and monetary rules

centralised wage setting inflation contracts and the optimal choice of central banker the paper examines the appropriate design of central banking institutions in an economy in which the nominal wage is set by an inflation averse monopoly union as a positive mark up over its market clearing value the analysis considers both the optimal choice of central banker and the potential role for a linear inflation contract the optimal set of arrangements is a central banker who attaches less significance to inflation than does society combined with an inflation contract where the value of the contract parameter is related to the union s degree of inflationaversion following the important contribution of rogoff 1985 the appointment of a conservative central banker has been widely accepted as a potential albeit partial solution to the time inconsistency problem associated with discretionary policy making in placing a greater weight on inflation than does the government and society as a whole in the setting of monetary policy the central bank s temptation to create inflation surprises is reduced this then leads to a lower inflation rate in equilibrium than would otherwise prevail whilst in rogoff s stochastic framework this reduction in the inflationary bias has to be weighed against an increase in output variability the appropriate choice of central banker ensures a net improvement in welfare an important feature of rogoff s model is the assumption of an atomistic labour market in which nominal wages embodied in single period contracts reflect interaction between agents who hold no market power such a representation of the labour market also characterises most subsequent extensions of rogoff s analysis e g lohmann 1992 and waller 1992 however a number of recent papers in considering the time inconsistency issue have employed the assumption of unionised wage setting assuming either an allencompassing monopoly union or alternatively a number of individual unions each of which has a non negligible impact on macroeconomic variables examples include agell and ysander 1993 bleaney 1996 cubitt 1992 1995 horn and persson 1988 hutchison and walsh 1998 and skott 1997 these contributions have examined the implications of the assumed labour market imperfection from a variety of perspectives but only those of bleaney and skott directly consider its consequences for the appropriate specification of central bank objectives in what follows we explore the significance of unionised wage setting for

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

non atomistic wage setters and monetary policy in a new keynesian framework this paper extends an otherwise standard new keynesian nk model to allow for the presence of large wage setters building on monetary models from an earlier generation i contribute to the nk literature by adding some new insight it is shown that once the presence of large wage setters is taken into account the degree of wage setting centralization and the aggressiveness of the central bank in stabilizing inflation jointly affect steady state employment because of this interaction the benefits associated with inflation stabilization increase in the centralization of the wage bargaining process

optimal consumption and investment with capital gains taxes this article characterizes optimal dynamic consumption and portfolio decisions in the presence of capital gains taxes and short sale restrictions the optimal decisions are a function of the investor s age initial portfolio holdings and tax basis our results capture the trade off between the diversification benefits and tax costs of trading over an investor s lifetime the incentive to rediversify the portfolio is inversely related to the size of the embedded gain and investor s age contrary to standard financial advice the optimal equity holding increases well into an investor s lifetime in our model due to the forgiveness of capital gains taxes at death taxes play an important role in the decision making process of individuals concerning their consumption and investment plans the taxation of returns on financial assets alters the benefits of saving for future consumption and thus affects the trade off between current consumption and investment moreover the ability of investors to defer the taxation of capital gains alters the relative valuation of stocks and bonds and thus affects the optimal portfolio composition of investors the deferral feature of capital gains taxes also affects the trade off investors face regarding taxes and diversification investors would like to maintain an optimally diversified portfolio over time

are stocks desirable in tax deferred accounts abstract existing literature suggests that in order to maximize the tax benefit of retirement accounts investors should follow a pecking order location rule of placing highly taxed assets e g bonds in a tax deferred account and lightly taxed assets e g stocks in a taxable account empirical evidence however documents that a large number of investors violate this rule in this paper we show that such violations can be optimal for risk averse investors who face portfolio constraints in particular while the strategy of placing bonds in the tax deferred account maximizes the expected level of tax benefit it may lead to volatile benefits under different realizations of stock returns by holding a similar portfolio in both accounts investors can achieve a more balanced growth in the two accounts minimize the likelihood of violating the constraints in the future and hence smooth the volatility of the tax benefit for some risk averse investors this smoothing motive can lead to the observed violation of the pecking order location rule our model predicts that such violations are more likely when future tax benefits are more volatile which can occur for example when i the tax rate differential across assets increases over time due either to tax law changes or to tax bracket changes for investors ii asset returns are more volatile and iii investors anticipate large future liquidity needs

the case for a populist central banker abstract we present a general equilibrium optimizing model in which we study the joint effects of centralization of wage setting and central bank conservatism on economic performance several striking conclusions emerge in relatively centralized labor markets employment and output are decreasing and inflation is intially increasing and then decreasing in the degree of central bank conservatism a radical populist central banker who cares not at all about inflation alternatively who is not conservative maximizes social welfare economic performance is not u shaped in the degree of centralization of the labor market in contrast to conventional wisdom

strategic monetary policy with non atomistic wage setters monetary policy analyses usually assume an atomistic private sector thereby ignoring potential interactions between policy and wage setting decisions yet non atomistic wage setters are a key feature of several industrialized economies we study the economic consequence of non atomistic agents and show that this qualifies previous results on the effects and desirability of a conservative central banker in particular the central bank aversion to inflation may have a permanent effect on structural employment while no such effect emerges with atomistic agents

the nonneutrality of monetary policy with large price or wage setters monetary rules matter for the equilibrium rate of employment when the number of price wage setters is small even when assuming rational expectations complete information central bank precommitment and absence of nominal rigidities if the central bank is nonaccommodating sufficiently large unions bargaining independently have an incentive to moderate sectoral money wages and thereby expected real wages the result is an increase in the real money supply and hence higher demand and employment this does not hold with accommodating monetary policy since unions wage decisions cannot then affect the real money supply a similar argument holds for large monopolistically competitive price setters

european inflation dynamics abstract we provide evidence on the fit of the new phillips curve npc for the euro area over the period 1970 1998 and use it as a tool to compare the characteristics of european inflation dynamics with those observed in the u s we also analyze the factors underlying inflation inertia by examining the cyclical behavior of marginal costs as well as that of its two main components namely labor productivity and real wages some of the findings can be summarized as follows a the npc fits euro area data very well possibly better than u s data b the degree of price stickiness implied by the estimates is substantial but in line with survey evidence and u s estimates c inflation dynamics in the euro area appear to have a stronger forward looking component i e less inertia than in the u s d labor market frictions as manifested in the behavior of the wage markup appear to have played a key role in shaping the behavior of marginal costs and consequently inflation in europe

fighting poverty one experiment at a time poor economics a radical rethinking of the way to fight global poverty review essay abhijit banerjee and esther duflo offer a coherent vision for an economics of poverty and antipoverty policy their economics is grounded in an effort to understand the economic and psychological complexities in the lives of poor people informed by social experiments and field observations their preferred policies entail small reforms at the margin also informed by experiments specifically randomized control trials while the book provides some interesting insights i question how far its approach will get us in fighting global poverty jel i32 i38 o15 p36

pattern bargaining and wage leadership in a small open economy pattern bargaining where the tradables manufacturing sector acts as wage leader is a common form of wage bargaining in europe our results question the conventional wisdom that such a bargaining set up produces wage restraint we find that all forms of pattern bargaining give the same macroeconomic outcomes as uncoordinated bargaining under inflation targeting and a flexible exchange rate under monetary union a fixed exchange rate wage leadership for the non tradables sector is conducive to wage restraint and high employment whereas wage leadership for the tradables sector is not loss aversion and comparison thinking in wage setting where unions evaluate the utility of the wages of their members relative to a wage norm may lead the follower to set the same wage as the leader such equilibria can arise when the leader sector is the smaller sector and promote high employment

monetary accommodation imperfect central bank transparency and optimal delegation optimal delegation restores the beneficial effects of non accommodating monetary policy when the central bank is allowed to be not fully transparent about its response to wages

monetary regimes and the co ordination of wage setting abstract a recent literature argues that a strict monetary regime may reduce equilibrium unemployment by disciplining wage setters as wage setters abstain from raising wages to avoid a monetary contraction however in this literature the wage setters are assumed not to co ordinate their wage setting the present paper argues that precisely because a strict monetary regime may discipline the unco ordinated wage setting thus lowering unemployment in the unco ordinated outcome it also reduces wage setters incentives to co ordinate it is shown that an accommodating monetary regime may reduce equilibrium unemployment via the strengthening of the wage setters incentives to co ordinate

monetary accommodation and unemployment why central bank transparency matters abstract this note qualifies previous results on the beneficial effects of a non accommodating monetary rule on employment by considering the case where the central bank is not fully transparent about its reaction to wages

might a conservative central banker reduce employment variability abstract this note identifies circumstances under which increased inflation aversion by the central bank can contrary to the conventional wisdom reduce employment variability this result reflects three key features of the model developed a monopolistically competitive goods market strategic wage setting by non atomistic unions partial anticipation of shocks by unions

inflation uncertainty and unemployment uncertainty why transparency about monetary policy targets matters abstract disclosure of monetary policy targets reduces unemployment uncertainty at the expense of higher inflation uncertainty thereby posing a dilemma for monetary policymakers

wage setting under different monetary regimes in an economy with large wage setters like industry unions the monetary regime affects the trade off between consumer real wages and employment and profits faced by the wage setters this paper shows that an exchange rate target including participation in a monetary union is likely to involve lower wages in the traded sector and higher wages in the non traded sector than does a price target an exchange rate target also involves higher prices on non traded goods relative to on traded goods overall welfare is likely to be higher under a price target

the interaction of monetary policy and wages this paper focuses on the interaction of monetary policy and wage formation in economies with strong labor unions government and unions are viewed as endogenous utility maximizers and the macroeconomic consequences of their strategic interaction are explored with the aid of some elements of simple game theory specifically it is shown a how labor unions adjust wages to prices so as to maximize their utility following changes in monetary policy b how the effectiveness of monetary policy is circumscribed without necessarily being nullified by the utility maximizing reactions of unions and c how the interplay of government and unions can create a persistent tendency towards inflation and unemployment simultaneously

trust membership in groups and household welfare evidence from kwazulu natal south africa unfortunately these two literatures have remained largely unconnected the group and network literature concludes that participation has important economic benefits even when the stated function of the group is noneconomic in most cases however the mechanisms by which groups and networks achieve this are unclear the determinants of trust and participation in groups literature highlights the importance of income and social homogeneity what remains less understood is whether and how trust can be generated for example via participation in groups this article links the empirical literatures referenced above by exploring the relationship between membership in groups and trust specifically using longitudinal data from kwazulu natal province south africa we examine 1 the importance of trust in the decision to join groups 2 the subsequent ability of groups to generate trust and 3 the effect of group membership and trust on a measure of well being per capita household income in addition we disaggregate groups into financial and nonfinancial and we categorize trust in people by agent or actor therefore we can explore whether trust in different kinds of actors is important for participation in different kinds of groups and whether participation in different kinds of groups is important for generating trust in different kinds of actors excerpt

the impact of microfinance in sub saharan africa a systematic review of the evidence microfinance is seen as a key development tool and despite the current deepening crisis within the industry it continues to grow in sub saharan africa we systematically reviewed the evidence of the impacts of micro credit and micro savings on poor people in sub saharan africa we considered impacts on income savings expenditure and the accumulation of assets as well as non financial outcomes including health nutrition food security education child labor women s empowerment housing job creation and social cohesion the available evidence shows that microfinance does harm as well as good to the livelihoods of the poor

central bank independence centralization of wage bargaining inflation and unemployment theory and some evidence abstract this paper proposes a conceptual framework to investigate the effects of central bank independence of the degree of centralization of wage bargaining and of the interaction between those institutional variables on real wages unemployment and inflation in a framework in which unions are averse to inflation this aversion moderates union s wage demands as they attempt to induce the central bank to inflate at a lower rate an increase in the degree of centralization of wage bargaining a decrease in the number of unions triggers two opposite effects on real wages unemployment and inflation it reduces the substitutability between the labor of different unions and therefore the degree of effective competition between them this reduced competition effect raises real wages unemployment and inflation but the decrease in the number of unions also strengthens the moderating effect of inflationary fears on the real wage demands of each union this strategic effect lowers real wages unemployment and inflation for sufficiently inflation averse unions the interaction between those two effects produces a calmfors driffill type relation between real wages and centralization the paper analyzes the effects of central bank independence on the position and the shape of this relation as well as on inflation and unemployment the paper features two mechanisms one of which is novel through which monetary institutions have real effects the model implies that if there is a single union social welfare is maximized when the central bank attaches a zero weight to inflation but when the number of unions is larger than one this result is no longer true in general empirical evaluation of some of the theoretical implications using data from 19 developed economies is for the most part supportive of those implications